These are Canada's new tax brackets and income tax rates in 2024

Canada Revenue Agency webpage. THE CANADIAN PRESS/Graeme Roy

Cooler inflation in 2023 is affecting how much Canadians will pay in income tax this year.

"Since inflation has cooled in 2023, the increase to the 2024 tax brackets is relatively modest compared to the increase we saw last year," said Ameer Abdulla, a partner at tax consulting firm EY Canada in Waterloo, Ont., in an email to CTVNews.ca.

"Generally, where an individual’s income remains constant but tax brackets increase, an individual can expect to see their income tax liability decrease,” Abdulla added. “Most taxpayers would view this outcome as a 'good thing.'"

The indexation increase for 2024 is 4.7 per cent, according to the Canada Revenue Agency (CRA). That’s lower than the 6.3 per cent increase in 2023 – the largest in several years. In 2021, the increase was just one per cent.

While tax rates haven’t changed this year, tax brackets have been adjusted, Abdulla said.

WHAT IS A TAX BRACKET?

A person's entire income isn't taxed at a single rate. Instead, it's split up into brackets, each with its own rate.

Tax brackets are the different tiers of taxable income, which have higher tax rates applied to them as income increases, Tara Benham, national tax leader at Grant Thornton in Duncan, B.C., said in an email to CTVNews.ca.

Tax brackets are indexed and adjusted based on the consumer price index each year, and tax rates are the percentage of their income people pay to regional and federal governments.

Rates are based on taxable incomes, which refer to incomes after deductions, credits and exemptions are applied. In Canada's marginal tax rate system, the higher the taxable income, the higher the income tax rate.

The federal government determines the federal income tax rates for individuals, but each province and territory decides its own rates, according to the CRA. These provincial and territorial tax rates are charged in addition to the federal amounts.

FEDERAL TAX BRACKETS FOR 2024

For 2023 returns to be filed by April 30 for everyone except self-employed workers, bracket thresholds rose again this year, indexed by inflation.

Sharon Perry, an accounting and tax specialist from Coquitlam, B.C., broke down the difference for CTVNews.ca.

Consider a taxpayer working as an employee at a company who made $60,000 per year in 2023 and expects to make the same amount in 2024.

In 2023, the first $53,359 of the person's $60,000 income would be taxed at 15 per cent, which amounts to $8,003.85 in tax. The remaining amount would be taxed at 20.5 per cent, which comes out to $1,361.41.

In total, that employee paid $9,365.26 in federal tax.

In 2024, the first $55,867 would be taxed at 15 per cent ($8,380.05) while the remaining portion would be taxed at 20.5 per cent ($847.26).

In total, that adds up to $9,227.31.

"The difference between the two years is essentially such that the taxpayer would pay less tax under the second tax bracket, rate at 20.5 per cent, and more under the first tax bracket rate, at 15 per cent, because more of their income would apply to the first tax bracket than the second tax bracket," she said.

WHY TAX BRACKETS CHANGE

"Federal tax brackets are indexed to inflation every year," said Benham.

"As prices increase, the tax brackets also increase to acknowledge changes in the cost of living,” she said. “Each province also has its own set of provincial tax brackets, and most index them for inflation."

Indexing them typically reduces the amount of taxes people must pay and prevents them from paying a disproportionately high tax rate based on their income.

BASIC PERSONAL AMOUNT FOR 2024

Canadians can take advantage of various tax credits, deductions and benefits to reduce their total taxes.

To decrease their federal income tax burden, Canadians can claim a tax credit called a basic personal amount.

Federal income tax rates only apply after the individual has earned more than the basic personal amount.

The maximum basic personal amount rose to $15,705 in 2024, capped at $14,156 for individuals with net income above $173,205. Last year, it was $15,000, capped at $13,521 for individuals with net income above $165,430.

With files from CTVNews.ca Contributor Christopher Liew