All you need to know about Canadian Tax Bracket

tax

In high school, we all are taught calculus – which we haven’t applied in real life to this day! What we are not taught is how to do taxes, which we are obligated to pay as soon as we start earning income.

It’s outrageous, I know!

Therefore, as your loyal fellow-citizens, we have put up the perfect guide for you to calculate your income tax liability, so that the next time you think of tax returns, you don’t freak out. Let’s start!

Who is eligible to pay income tax?

As per the Income Tax Act, every Canadian resident must pay tax on their worldwide income for each taxation year. Every individual must file their income tax returns with the Canada Revenue Agency (CRA) before April 30th along with the payment of their income tax liabilities. As for the self-employed, spouses of self-employed and common-law partners, the income tax return can be filed up till June 15th. However, the tax liability must still be paid before April 30th each taxation year.

Now that we know the due date, our primary concern is, how much tax are we supposed to pay?

Progressive Taxation System:

The Canadian taxation system is a progressive one, meaning that lower-income people pay lower taxes, whereas higher-income people pay higher taxes. The average tax rate (taxes paid ÷ personal income) increases as taxable income increases. It results in a taxpayer’s marginal tax rate being higher than his average tax rate due to the tax rate progressing from low to high as taxable income increases from low to high. This is managed through tax brackets.

1. Federal Tax Rate:

There are a total of four tax brackets in Canadian taxation system. The relevant tax rate is charged on your taxable income which is the income that is left after lessening deductions and exemptions from your total income. Following are the four tax brackets or segments:

Federal Income Tax

Income Tax Brackets

Income Tax Rate

$46,605 or less

15%

$46,605 to $93,208

20.5%

$93,208 to $144,489

26%

$144,489 to $205,842

29%

More than $205,842

33%

For example, your taxable income for the year is $80,000. The following illustration will help in understanding how your federal tax liability is calculated:

    1. Basic tax liability on the first segment of your income of $46,065 will be $6,991 at 15%
    2. In the next segment of $46,605 to $93,208, your total taxable income will be $33,935. A tax rate of 20.5% will be applied on this i.e. your tax liability would be $6,956.68
    3. Your total federal tax liability would be $13,947.68

2. Provincial or Territorial Tax Rate:

The provincial tax rate applied to your taxable income is determined by the province in which you’re living on December 31st of the particular tax year. So, for example, you move from British Columbia to Alberta in October, your provincial tax rate will fall under Alberta’s provincial tax rate.

In high school, we all are taught calculus – which we haven’t applied in real life to this day! What we are not taught is how to do taxes, which we are obligated to pay as soon as we start earning income. It’s outrageous, I know!
Therefore, as your loyal fellow-citizens, we have put up the perfect guide for you to calculate your income tax liability, so that the next time you think of tax returns, you don’t freak out. Let’s start!

Who is eligible to pay income tax?

As per the Income Tax Act, every Canadian resident must pay tax on their worldwide income for each taxation year. Every individual must file their income tax returns with the Canada Revenue Agency (CRA) before April 30th along with the payment of their income tax liabilities. As for the self-employed, spouses of self-employed and common-law partners, the income tax return can be filed up till June 15th. However, the tax liability must still be paid before April 30th each taxation year.

Now that we know the due date, our primary concern is, how much tax are we supposed to pay?

Progressive Taxation System:

The Canadian taxation system is a progressive one, meaning that lower-income people pay lower taxes, whereas higher-income people pay higher taxes. The average tax rate (taxes paid ÷ personal income) increases as taxable income increases. It results in a taxpayer’s marginal tax rate being higher than his average tax rate due to the tax rate progressing from low to high as taxable income increases from low to high. This is managed through tax brackets.

1. Federal Tax Rate:

There are a total of four tax brackets in Canadian taxation system. The relevant tax rate is charged on your taxable income which is the income that is left after lessening deductions and exemptions from your total income. Following are the four tax brackets or segments:

Federal Income Tax

Income Tax Brackets

Income Tax Rate

$46,605 or less

15%

$46,605 to $93,208

20.5%

$93,208 to $144,489

26%

$144,489 to $205,842

29%

More than $205,842

33%

For example, your taxable income for the year is $80,000. The following illustration will help in understanding how your federal tax liability is calculated:

    1. Basic tax liability on the first segment of your income of $46,065 will be $6,991 at 15%
    2. In the next segment of $46,605 to $93,208, your total taxable income will be $33,935. A tax rate of 20.5% will be applied on this i.e. your tax liability would be $6,956.68
    3. Your total federal tax liability would be $13,947.68

2. Provincial or Territorial Tax Rate:

The provincial tax rate applied to your taxable income is determined by the province in which you’re living on December 31st of the particular tax year. So, for example, you move from British Columbia to Alberta in October, your provincial tax rate will fall under Alberta’s provincial tax rate.

tax

In high school, we all are taught calculus – which we haven’t applied in real life to this day! What we are not taught is how to do taxes, which we are obligated to pay as soon as we start earning income.

It’s outrageous, I know!

Therefore, as your loyal fellow-citizens, we have put up the perfect guide for you to calculate your income tax liability, so that the next time you think of tax returns, you don’t freak out. Let’s start!

Who is eligible to pay income tax?

As per the Income Tax Act, every Canadian resident must pay tax on their worldwide income for each taxation year. Every individual must file their income tax returns with the Canada Revenue Agency (CRA) before April 30th along with the payment of their income tax liabilities. As for the self-employed, spouses of self-employed and common-law partners, the income tax return can be filed up till June 15th. However, the tax liability must still be paid before April 30th each taxation year.

Now that we know the due date, our primary concern is, how much tax are we supposed to pay?

Progressive Taxation System:

The Canadian taxation system is a progressive one, meaning that lower-income people pay lower taxes, whereas higher-income people pay higher taxes. The average tax rate (taxes paid ÷ personal income) increases as taxable income increases. It results in a taxpayer’s marginal tax rate being higher than his average tax rate due to the tax rate progressing from low to high as taxable income increases from low to high. This is managed through tax brackets.

1. Federal Tax Rate:

There are a total of four tax brackets in Canadian taxation system. The relevant tax rate is charged on your taxable income which is the income that is left after lessening deductions and exemptions from your total income. Following are the four tax brackets or segments:

Federal Income Tax

Income Tax Brackets

Income Tax Rate

$46,605 or less

15%

$46,605 to $93,208

20.5%

$93,208 to $144,489

26%

$144,489 to $205,842

29%

More than $205,842

33%

For example, your taxable income for the year is $80,000. The following illustration will help in understanding how your federal tax liability is calculated:

  1. Basic tax liability on the first segment of your income of $46,065 will be $6,991 at 15%
  2. In the next segment of $46,605 to $93,208, your total taxable income will be $33,935. A tax rate of 20.5% will be applied on this i.e. your tax liability would be $6,956.68
  3. Your total federal tax liability would be $13,947.68

2. Provincial or Territorial Tax Rate:

The provincial tax rate applied to your taxable income is determined by the province in which you’re living on December 31st of the particular tax year. So, for example, you move from British Columbia to Alberta in October, your provincial tax rate will fall under Alberta’s provincial tax rate.

Provincial and territorial income tax

The following are the Canadian provinces or territories with their rates for 2019 tax year.

Newfoundland and Labrador

8.7% on the first $36,926 of taxable income, +
14.5% on the next $36,926, +
15.8% on the next $57,998, +
17.3% on the next $52,740, +
18.3% on the amount over $184,590

Prince Edward Island

9.8% on the first $31,984 of taxable income, +
13.8% on the next $31,985, +
16.7% on the amount over $63,969

Nova Scotia

8.79% on the first $29,590 of taxable income, +
14.95% on the next $29,590, +
16.67% on the next $33,820, +
17.5% on the next $57,000, +
21% on the amount over $150,000

New Brunswick

9.68% on the first $41,675 of taxable income, +
14.82% on the next $41,676, +
16.52% on the next $52,159, +
17.84% on the next $18,872, +
20.3% on the amount over $154,382

Quebec

15% on the first $43,055 of taxable income, +
20% on the next $43,050, +
24% on the next $18,660, +
25.75% on the amount over $104,765

Ontario

5.05% on the first $42,960 of taxable income, +
9.15% on the next $42,963, +
11.16% on the next $64,077, +
12.16% on the next $70,000, +
13.16 % on the amount over $220,000

Manitoba

10.8% on the first $31,843 of taxable income, +
12.75% on the next $36,978, +
17.4% on the amount over $68,821

Saskatchewan

10.5% on the first $45,225 of taxable income, +
12.5% on the next $83,989, +
14.5% on the amount over $129,214

Alberta

10% on the first $128,145 of taxable income, +
12% on the next $25,628, +
13% on the next $51,258, +
14% on the next $102,516, +
15% on the amount over $307,547

British Columbia

5.06% on the first $39,676 of taxable income, +
7.7% on the next $39,677, +
10.5% on the next $11,754, +
12.29% on the next $19,523, +
14.7% on the next $39,370, +
16.8% on the amount over $150,000

Yukon

6.4% on the first $46,605 of taxable income, +
9% on the next $46,603, +
10.9% on the next $51,281, +
12.8% on the next $355,511, +
15% on the amount over $500,000

Northwest Territories

5.9% on the first $42,209 of taxable income, +
8.6% on the next $42,211, +
12.2% on the next $52,828, +
14.05% on the amount over $137,248

Nunavut

4% on the first $44,437 of taxable income, +
7% on the next $44,437, +
9% on the next $55,614, +
11.5% on the amount over $144,488

If we carry on the previous illustration of a taxable income of $80,000 and for example, you are living in Quebec on 31st December 2019, then your provincial tax will be calculated as follows:

  1. Tax of 15% on first segment of income i.e. $43,055 = $6,458.25
  2. Tax of 20% on the excess income falling under the second segment i.e. $36,945 = $7,389
  3. Total provincial tax rate = $13,847.25

Hence, the total provincial tax paid by an individual having an annual income of $80,000 living in Quebec would be $13,847.25

Quebec Abatement:

Quebec administers its own taxes instead of an agreement with the CRA. Instead of receiving its fair share of federal taxes in cash, it chooses to get remitted in tax points and reduces the federal tax rates by 16.5% as compensation.

Corporate Taxes:

Lastly, corporations are not only required to pay income taxes but also General Sales Tax (GST) on their supplies. The GST/HST rates charged by corporations in their relevant provinces are as follows:

Province

HST/GST rate

Alberta

5%

British Columbia

5%

Manitoba

5%

New Brunswick

15%

Newfoundland and Labrador

15%

Northwest Territories

5%

Nova Scotia

15%

Nunavut

5%

Ontario

13%

Quebec

5%

Prince Edward Island

15%

Saskatchewan

5%

Yukon

5%

 

Need some guidance? Hire your tax consultant now!

Your tax liability does not only depend on the marginal tax rate but also your taxable income. Any deficiency in your tax return or taxable income may lead to a penalty or even an interest charge.

Shane Castro & Associates has a team of freelance tax accountants who are legally compelled to stay on top of any changes in the tax law so that you don’t have to go through the pains of doing so. We practice tax avoidance and utmost precaution while preparing income tax returns.

To avail the best Tax Return services in town, contact us now or book an appointment.

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