What Are Tax Brackets?                                     

The Canada Revenue Agency collects federal income taxes using a marginal tax rate system. A different tax rate is applicable to each level of income, and these levels are called tax brackets.

Tax brackets are structured so that low-income Canadians pay a lower percentage in taxes than high-income Canadians. Changes are made annually to the different tax rates for each bracket.

Why Do Tax Brackets Change?

Tax rates for each bracket, and the brackets themselves, are updated based on inflation rates using the Consumer Price Index. This means that tax bracket thresholds increase in relation to the increase of the costs of goods and services.

2024 Annual Inflation Adjustment

Several updates are being made for the 2024 tax year, including:

• Federal tax brackets will increase by 4.7% based on inflation
• The basic personal amount of tax-free annual income has increased from $15,000 to $15,705
• The Canadian Pension Plan contribution rate will remain at 5.95% for employees, and the maximum pensionable earnings have increased to $68,500 from $66,600
• The Canada Child Benefit remains the same at $7,437 per child under the age of 6 and $6,275 per child between the ages of six and seventeen, effective July 2024 to June 2025

Combined Federal and Provincial 2024 Tax Brackets for Alberta

Considering both Canadian and Alberta tax brackets and rates, salary and other income will be taxed according to these parameters for Albertans:

• 25% on the first $55,867, plus
• 30.5% on income over $55,867 up to $111,733, plus
• 36% on income over $111,733 up to $148,269, plus
• 38% on income over $148,269 up to $173,205, plus
• 41.32% on income over $173,205 up to 177,922, plus
• 42.32% on income over $177,922 up to $237,230, plus
• 43.32% on income over $237,230 up to $246,752, plus
• 47% on income over $246,752 up to $355,845, plus
• 48% on income over $355,845

Capital gains income is included in taxable income at 50% of the actual gain.

Canadian Tax Brackets in 2024

Federal tax brackets and rates have been updated as follows for 2024:

• 15% on the first $55,867, plus
• 20.5% on income over $55,867 up to $111,733, plus
• 26% on income over $111,733 up to $173,205, plus
• 29% on income over $173,205 up to $246,752, plus
• 33% on income over $246,752

Provincial Tax Brackets in 2024 for Alberta

Changes to Alberta’s tax brackets have been made for 2024. They are:

• 10% applicable to the first $148,269 of taxable income
• 12% applicable to taxable income from over $148,269 to $177,922
• 13% applicable to taxable income from over $177,922 to $237,230
• 14% applicable to taxable income from over $237,230 to $355,845
• 15% applicable to taxable income over $355,845

Changes to Automobile Deduction Limits and Expense Benefit Rates for Businesses in 2024

The Department of Finance has announced automobile expense deduction limits and prescribed rates for automobile operating expense benefits for 2024. These are as follows:

• The ceiling for capital cost allowances (CCA) for Class 10.1 passenger vehicles will increase to $37,000 from $36,000, before tax, in respect of new and used vehicles acquired on or after January 1, 2024.
• The limit on deductible leasing costs will be increased to $1,050 from $950 per month, before tax, for new leases entered into on or after January 1, 2024.
• The maximum allowable interest deduction will be increased to $350 from $300 per month for new automobile loans entered into on or after January 1, 2024.
• In provinces, the limit on the deduction of tax-exempt allowances paid by employers to employees who use their personal vehicle for business purposes will increase by two cents, to 70 cents per kilometre, for the first 5,000 kilometres driven, and to 64 cents for each additional kilometre. For the territories, the limit will also increase by two cents, to 74 cents per kilometre, for the first 5,000 kilometres driven, and to 68 cents for each additional kilometre.
• The CCA ceiling for Class 54 zero-emission passenger vehicles ($61,000 before tax for new and used vehicles) will remain the same for 2024, as this limit continues to be appropriate.
• The general prescribed rate used to determine the taxable benefit of employees relating to the personal portion of automobile expenses paid by their employers will remain at 33 cents per kilometre for 2024. For people who are employed principally in selling or leasing automobiles, the rate used to determine the employee’s taxable benefit will remain the same, at 30 cents per kilometre for 2024.

What Do Tax Rate Changes Mean for You?

Though these annual changes may seem minor, they can have a big impact on your financial situation year over year. It’s important to understand how new tax rates and brackets will affect you and your family. Working with an accounting firm to prepare and implement tax planning strategies to help you save money and ensure optimal results will provide you with clarity and control over the impact that changing tax rates can have on you.

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