The year 2024 brings several essential tax changes that can significantly impact how pharmacists manage their finances. From contributions to various funds to alterations in tax rates and credits, here’s a comprehensive guide to tax updates that may impact pharmacists in 2024.
Maximum RRSP Contribution
In 2024, the maximum contribution to Registered Retirement Savings Plans (RRSP) is increasing to $31,560, up from $30,780 in 2023. This allows pharmacists to save more for their retirement while enjoying the added benefit of deducting contributions from their income, ultimately reducing taxable amounts. The deadline for contributions is February 29, 2024.
TFSA Limit
The annual contribution limit for Tax-Free Savings Accounts (TFSA) in 2024 is $7,000, reaching a cumulative total of $95,000 for individuals eligible since the introduction of TFSA in 2009. This presents pharmacists with an opportunity to build tax-free savings.
Maximum Pensionable Earnings and CPP Contributions
The maximum pensionable earnings for the Canada Pension Plan (CPP) in 2024 is $68,500.
Also new in 2024 is a second, higher earnings limit section that is being introduced for earnings between $68,500 and $73,200. This does not replace the original maximum limit, but provides an additional range of earnings.
The 2024 employee and employer maximum is $4,045.
Self-employed pharmacists should be aware of these changes since they have to pay both the employer and employee portion.
Maximum Annual EI Insurable Earnings
The maximum annual Employment Insurance (EI) insurable earnings for 2024 have risen to $63,200.
The 2024 employee maximum is $1,049 and employer maximum is $1,468.
Interest Rates
The prescribed rate on loans to family members will be 6% in Q1 2024, while the interest rate on overdue taxes will be increased to 10%, making timely tax payments even more important.
Lifetime Capital Gains Exemption
In 2024, the Lifetime Capital Gains Exemption is increasing to $1,016,836, providing pharmacists a higher threshold for tax-free gains when selling qualifying assets.
Home Buyers’ Amount
Those who bought a home can claim up to $10,000 of the purchase cost, with a non-refundable tax credit of up to $1,500.
Medical Expenses Threshold
For the 2024 tax year, the maximum medical expenses threshold is 3% of net income or $2,759, whichever is less. This slight increase from 2023 aims to help individuals keep pace with increasing costs of medications and cost of living.
Basic Personal Amount
The basic personal amount for 2024 is $15,705 for taxpayers with net incomes of $173,205 or less. It gradually phases out beyond this level, reaching $14,156 for net incomes of $246,752. For high-income earners like pharmacists, optimizing deductions and tax credits to effectively manage their BPA can help them minimize the impact of income clawbacks to keep more of their earnings and potentially lower their overall tax liability.
Canada Dental Care Plan Benefit (CDCP)
The Canadian Dental Care Plan will start in 2024, with coverage for people with household income under $90,000, provided they are not already insured elsewhere.
The program will cover cleaning, examination, x-rays, and restorative services, including oral surgery and extraction. Eligible individuals will receive a letter from the Canadian government inviting them to apply.
Child and Other Dependant Benefits
Changes in the Canada Child Benefit (CCB) include a maximum benefit of $7,787 per child under six and up to $6,570 per child aged 6 through 17 in 2024, both increasing slightly over the previous year.
Pharmacists should also explore additional credits such as the Canada Caregiver Credit and Disability Amount. The Canada Caregiver Credit (CCC) and Disability Amount are non-refundable tax credits for caregivers of individuals with disabilities, including adults. Those with a child under 18 who is physically or mentally impaired may be able to claim up to an additional $2,616 in 2024 in non-refundable tax credits. For eligible dependants 18 or older, the amount for 2024 has increased to $8,375.
The Child Disability Benefit (CDB) is a tax-free benefit for families caring for a child under 18 with a severe physical or mental impairment. This provides a tax-free benefit of up to $3,322 in 2024.
Age Amount
Pharmacists aged 65 or older on December 31st of a tax year can claim this amount. For 2024, the amount is increasing to $8,790.
OAS Recovery Threshold
Pharmacists whose net world income exceeds $90,997 in 2024 may need to repay their OAS pension, partially or completely.
Disability Amount
This non-refundable credit is increasing to $9,872 in 2024. A supplement of up to $5,758 for those under 18 is available, but is reduced if child care expenses are claimed.
Advanced Life Deferred Annuities
An ALDA is a life annuity that you pay for in advance and receive payments later. Deferred life annuities offer higher regular payments compared to immediate life annuities. You must begin receiving annuity payments before turning 85. This has a dollar limit of $170,000 in 2024, up by $10,000 from 2023.
Federal Tax Brackets
Federal tax brackets in 2024 will be adjusted higher by 4.7%. When you enter a higher tax bracket, only the income exceeding that bracket’s threshold is taxed at the higher rate, not your entire income. However, for high-income pharmacists, it’s essential to find tax strategies to reduce taxable income, keeping to a lower bracket whenever possible.
- 33.0% tax rate applies to taxable income over $246,752
- 29.0% tax rate applies to taxable income over $173,205
- 26.0% tax rate applies to taxable income over $111,733
- 20.5% tax rate applies to taxable income over $55,867
Trust Reporting Rules
For anyone who has a family trust, the CRA has now made a requirement for a new trust reporting rule.
This affects anyone who has assets over $50,000 inside a family trust, whether that be real estate, investment portfolio, cash in the trust bank account or some other asset of value.
All settlers, trustees, and beneficiaries are required to provide their name, date of birth, social insurance number, and place of residence, among other items on the trust tax return annually.
Underused Housing Tax
The Government has extended the deadline to file the UHT return to April 30th, 2024.
Summary
From maximizing contributions to understanding how changes in tax rates and credits could impact them, pharmacists need to take action to optimize their financial well-being. The Pharma Tax experts can help you leverage every tax-saving opportunity, ensuring you are well positioned to secure your financial future.
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