New Canadian tax rules that will impact your finances in 2024
THE STACK #28Happy New Year! As usual, the Federal government has updated the tax rules for Canadians this year.
Keeping track of all the changes can be pretty challenging. In this Stack, I'll break down some of these updates so you'll know exactly what to expect.
THE STACK
Changes to CPP contributions
Starting from January 1st, 2024, Canadians can expect an increase in the Canadian Pension Plan (CPP) that will be deducted from each paycheque.
Due to inflation, the cost of living is rising, making many Canadians worried about this change. Instead of a decrease, they were hoping for an increase in their paycheques to keep up with the increasing expenses.
So, how much exactly will your paycheque change in 2024?
First, let’s look at how your CPP contributions are calculated.
There are four factors to consider:
Maximum Annual Pensionable Earnings (MAPE) - This is the maximum pensionable earnings on which the employer and employee are required to contribute to the CPP in a year. The maximum pensionable earning for 2024 is $68,500, an increase from $66,600 in 2023.
Basic Exemption Amount (BEA) - This is the annual amount on which CPP contributions are not required to be made. The basic exemption amount for 2024 is $3,500, the same as 2023.
Contribution Rate (CR) - This is the percentage of the employee's pensionable earnings that both the employer and employee contribute to the CPP. The 2024 contribution rate is 5.95%, the same as 2023.
Maximum CPP contribution - This is the maximum amount the employee and employer must pay into the CPP in a year. The maximum contribution for CPP increased from $3,754.75 in 2023 to $3,867.50 in 2024.
To calculate how much CPP you owe, use this formula:
[(MAPE - BEA) x CR ] / # of paycheque in a year = CPP
For example, if your income is $60,000 and you get paid bi-weekly:
[($60,000 - $3,500) x 5.95%] /26 = $129.30 CPP per paycheque
The new CPP maximum is an increase of $112.75 for the year. If you’re paid bi-weekly and didn’t get a pay increase in 2024, expect to see your paycheque reduced by ~$4.33 each paycheque.
Second CPP Contribution (CPP2)
Starting from January 1st, 2024, there is an additional CCP2 with a 4% contribution rate for any extra income earned above $68,500 up to $73,200. This comes out to a maximum of $188 for the year.
If you earn $73,200 and above, starting in 2024, you will pay a max of $188. This is an additional $7.23 per bi-weekly paycheque.
So, in total, expect to earn $11.56 less than you did in 2023.
EI premium rate hike
The maximum Employment Insurance (EI) premium for 2024 is $1,049.12, increasing from $1,002.45 in 2023. This is an increase of $46.67 per year or $1.80 per bi-weekly paycheque.
The maximum annual insurable earnings for 2024 is $63,200, up from $61,500 in 2023, and the EI rate is 1.66% of your insurable earnings. It was at 1.63% in 2023.
CPP contribution for self-employed
The maximum annual self-employed contribution for CPP is $7,735. If you’re self-employed, you are expected to pay both the employer and employee contributions for CPP.
New Federal Tax Bracket
The federal tax bracket for 2024 is as follows:
Increase in Basic Personal Amount
The Basic Personal Amount has increased from $14,156 last year to $15,705. This means that the first $15,705 you earn in 2024 will be tax-free, and if you earn less than $15,705, you won’t pay federal taxes. However, you might still owe provincial taxes, CPP and EI.
New TFSA Dollar Limit
The Tax-Free Savings Account (TFSA) dollar limit for the year 2024 is $7,000. The Canada Revenue Agency (CRA) updates this limit every year. You are allowed to contribute up to the maximum limit specified.
If you are unable to contribute up to the total dollar limit, you can carry over the unused amount for multiple years. Since the contribution room accumulates yearly, you have a lifetime contribution limit for your TFSA. In 2024, the maximum lifetime contribution limit is $95,000.
To determine your lifetime limit, refer to the table below. It shows how much your lifetime limit will be based on your age in 2024 and the year you became a resident in Canada.
New RRSP Dollar Limit
If your annual income is over $175,333, the maximum amount you can contribute to your RRSP in 2024 is $31,560.
Unlike the TFSA, your RRSP contribution room is determined based on 18% of your income from the previous year.
You can check your lifetime RRSP contribution room by logging in to your MyCRA account or reviewing your last notice of assessment.
The Canadian Dental Care Plan rolls out this year
The Canadian Dental Care Plan (CDCP) seeks to make oral health care more accessible to eligible Canadian residents with an annual adjusted family net income of less than $90,000 AND who do not have access to dental insurance through their employer.
This program was announced during the Budget 2023 and is an update to the Canada Dental Benefit (CDB) that was previously only available to children under 12. The Canada Dental Benefit will be phased out and will end in June 2024, so if you have children under 12 and you haven’t yet taken advantage of the CDB, do so ASAP!
The CDCP will roll out this year in different phases, starting with seniors aged 87. Below is the rollout schedule.
To access the CDCP, you must apply on the government website.
THE TOOL
Looking to learn about taxes? Check out the free Tax Course offered by the Canadian government.
The course consists of seven modules, each under 30 minutes in length.
Starting to work - 4 Lessons - 29 minutes total
Preparing to do your taxes - 3 Lessons - 27 minutes total
Completing a basic tax return - 7 Lessons - 76 minutes total
After sending us your tax return - 4 lessons - 38 minutes total
Using My Account - 2 Lessons - 12 minutes total
Purpose of taxes - 4 Lessons - 21 minutes total
Accessing your benefits and credits - 2 Lessons - 19 minutes total
THE ACCOUNTABILITY
Ready to take your investments to the next level and make 2024 your year of financial success? Join the LIT investors, and let us show you how it's done.
Our goal is to invest $10M collectively by 2024, and we have the resources, motivation, and accountability to make it happen. With LIT, you can finally achieve your investing goals and take control of your financial future.
Join us now and start your journey towards financial success with confidence.
THE COURAGE
THE KNOWLEDGE
Pensionable Earnings
The total pensionable income is the sum of the employee’s gross pay, including any taxable benefits and allowances the employee received in the pay period that requires CPP deductions.
That's it for this week's STACK!
Talk to you next week,
But until then...Keep Stacking!
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