Not all dollars earned are equal as far as the taxman is concerned. Canadian income tax rates vary according to the amount of income you earn, and you pay different rates on different portions of your income. This is a marginal tax rate system.
The Canadian tax system is a progressive system. This means low-income earners are taxed at a lower percentage than high-income earners. Practically speaking, this is achieved by taxing the first dollars earned by all taxpayers at a lower rate, and then gradually raising the rate on earnings that exceed the minimum income threshold.
The rates, usually called tax brackets, apply to income earned between predetermined minimum and maximum amounts.
Knowing what bracket you are in, can help you make decisions about when and how to claim certain deductions, such as Registered Retirement Savings Plan contributions. It can also help to determine whether it’s more beneficial for you or for your spouse to claim certain amounts or credits. Your income tax bracket can also shed light on when to make withdrawals that will earn you additional income, such as withdrawals from retirement savings accounts.
The applicable rates are listed below. It is important to note that these rates apply to taxable income, which is your gross income less any deductions you may be entitled to. All of the provinces also have their own tax brackets, which are not necessarily in-line with the federal ones. When making decisions, you should consider the rates of the province where you reside, as well.
In 2018, Canada’s Income Tax Brackets were as follows:
- 15 percent on your first $45,282 of taxable income;
- 20.5 percent on your next $45,281 of taxable income, that is, on the portion of your taxable income over $45,282 up to $90,563;
- 26 percent on the next $49,825 of taxable income, that is, on the portion of your taxable income over $90,563 up to $140,388;
- 29 percent on the next $59,612 of taxable income, that is, on the portion of your taxable income over $140,388 up to $200,000
- 33 percent of taxable income over $200,000.
In 2019, Canada’s Income Tax Brackets were as follows:
- 15% on the first $47,630 of taxable income,plus
- 20.5% on the next $47,629 of taxable income (on the portion of taxable income over 47,630 up to $95,259),plus
- 26% on the next $52,408 of taxable income (on the portion of taxable income over $95,259 up to $147,667),plus
- 29% on the next $62,704 of taxable income (on the portion of taxable income over 147,667 up to $210,371), plus
- 33% of taxable income over $210,371
It’s important to note the CRA changes income tax rates periodically, but it publishes current rates on its website.
Understanding Canada’s Tax Brackets
If your taxable income is less than the $47,630 threshold you pay 15 percent tax on all of it. For example, if your taxable income (after claiming your deductions and amounts) is $30,000, the CRA requires you to pay $4,500 in income tax.
However, if your income is $200,000, you face several tax rates:
- As of 2016 and into 2018, the first $47,630 you earn is taxed at 15 percent, resulting in a tax bill of $7144.50.
- The next $47629 you earn is taxed at 20.5 percent, while the following $52,408 is taxed at 26 percent. These tax brackets add $9763.94 and $13626.08 respectively, bringing your tax bill to $30,534.52
- At this point, $147,667 of your income has been taxed. The final bracket for your remaining income is taxed at a rate of 29 percent on your remaining $52,333 of your 200,000 income. This adds $15,176.57 to your tax bill, bringing your total tax due for the year to $45,712.09
If you earn more than $210,000 in taxable income, the amounts over $210,000 are taxed at a rate of 33%
In Canada, taxpayers pay income tax to the federal government and to the government of the province/territory where they reside. In all provinces/territories except Québec, the federal government collects the provincial/territorial tax and gives it back to them in the form of various programs. Québec collects and manages its own income tax. Tax credits, rebates and various amounts that individuals may be entitled to are used to reduce the income tax they have to pay.
T1 General tax form
- For federal income tax and for provincial/territorial income tax
- Mailed or submitted electronically (NETFILE) to the Canada Revenu Agency (CRA)
- Due date: April 30th
- Two tax returns for individuals
- Federal return: same as the rest of Canada
- Québec return:
- On the TP1 tax form
- Mailed or submitted electronically (NetFile Québec) to Revenu Québec
- Due date: April 30th
Taxes are Government Revenue…so what does the federal government do with the income tax we pay?
Here is a quick overview of how (on average) tax money is used by the Canadian government:
- 58 cents of every dollar goes to transfer payments, namely to provincial and territorial governments and to persons (the elderly, employment insurance, Child Tax Benefits, GST credit)
- 12 cents go to the various federal departments and agencies
- 11 cents go to the interest charged on the public debt
Where does the money come from? Again, here are the largest contributors:
- 48 cents of every dollar comes from personal income tax
- 13 cents come from corporate income tax
- 12 cents come from the GST
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Québec Solidarity Tax Credit, the Ontario Trillium Benefit, the BC Low income Climate Action Tax Credit and others.
- You have amounts that you want to carry forward to another tax year or to transfer to another person like tuition, education, and textbook amounts.
- You want keep your RRSP deduction limit for future years up to date.
- Filing a return is the easiest way to establish your contribution room for a TFSA – Tax-Free Savings Account (TFSA), even though the contribution room is not affected by taxable income.
- You have disposed of capital property (real estate or investments, for example) during the tax year.
- For seniors receiving the GIS (Guaranteed Income Supplement), filing your annual income tax return automatically renews the GIS.
Do you have to file income tax?
There are some cases where you don’t have to file a tax return. For example:
- your tax is withheld by your employer and you have no other sources of income or other deductions.
- you have no income to report.
Even if you don’t have to file a return, you may be missing out. Filing a return will allow you:
- To recover any overpaid tax or other source deductions.
- To take advantage of federal and provincial refundable tax credits
- To create contribution room in a Registered Retirement Savings Plan ( RRSP) or a Tax Free Savings Account (TFSA)
Who has to file a return?
If you are a resident of Canada for income tax purposes for part or all of a tax year (January 1 to December 31), here are the most common situations in which you must file a tax return:
- you have to pay tax
- the CRA has requested you to file a return
- you want to have a refund
- you are self-employed and you have to contribute to the Canada Pension Plan (CPP) and employment insurance premiums.
- you have withdrawn amounts from your RRSP under the Home Buyers’ Plan (HBP) or the Lifelong Learning Plan (LLP) and have not yet repaid the entire amount.
- you and your spouse or common-law partner chose to split pension income.
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self-employed persons: On or before June 15
- If you owe income tax: On or before April 30, even if you or your spouse is self-employed
- Return for a deceased person: In most cases, if the death occurred between January 1 and October 31, the due date is April 30 of the following year. If it occurred between November 1 and December 31, the due date is 6 months after the date of death.
Due dates for filing a corporate income tax return (T2)
- The date depends of your corporation’s fiscal period. When its tax year ends on the last day of the month, file your return by the last day of the sixth month after the end of your corporation’s tax year. When the last day of the tax year is not the last day of a month, file your return by the same day of the sixth month after the end of the year.
References & Resources
2018 Provincial tax brackets
- Alberta Tax Brackets
- British Columbia Tax Brackets
- Manitoba Tax Brackets
- Newfoundland and Labrador Tax Brackets
- New Brunswick Tax Brackets
- Northwest Territories Tax Brackets
- Nova Scotia Tax Brackets
- Nunavut Tax Brackets
- Ontario Tax Brackets
- Prince Edward Island Tax Brackets
- Québec Tax Brackets
- Saskatchewan Tax Brackets
- Yukon Tax Brackets
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