If you’re wondering how Canadian personal income taxes are calculated fairly, you’ll need to understand how different income levels are taxed. 

This article explains the different income tax brackets and rates for 2023, how they work and how much you may have to pay, depending on your income level, and province of residence. Then, you’ll learn how to optimize your return with deductions and tax credits. 

By the end of it all, you’ll understand why your income tax bracket matters!

Key takeaways
  1. Income tax brackets are used to determine how much money you need to pay in personal income tax every year. 
  2. Canadian taxpayers pay income tax to the federal government as well as to the government of the province/territory where they reside..
  3. Credits and deductions are two common ways of reducing your taxes owing and/or improving your tax refund.

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Canada’s federal income tax rates for the 2023 Tax Year

Tax Rate

Tax Brackets

Taxable Income

15%

on the first $53,359

$53,359

20.5%

on the next $53,358

$53,359 up to $106,717

26%

on the next $58,713

$106,717 up to $165,430

29%

on the next $70,245

$165,430 up to $235,675

33%

on the portion over $235,675

$235,675 and up

Canadian income tax rates vary according to the total amount of income you earn, and how much of that is considered taxable income. For prior year tax rates, review this link from the Canadian government, and for Québec residents, review this link from Revenu Québec.

What are income tax brackets?

Tax brackets are ranges of increasingly higher levels of income used to calculate income tax due. Each tax bracket has a specific tax rate applied. These tax rates also increase with each higher level tax bracket.

In other words, a tax bracket has a tax rate applicable to that set range of income.

These rates apply to taxable income, which is your total income from Line 15000 less any deductions you may be entitled to.

The amount of tax due depends on your income. And, the more money you make, the more you will owe and potentially pay per dollar earned. This is called a progressive (or graduated) tax system.

How does Canada’s personal income tax brackets work?

How much federal tax do I have to pay based on my income?

If your taxable income is less than the $53,359 threshold, your federal marginal tax rate is 15%.  For example, if your taxable income (after claiming deductions) is $30,000, the federal income tax payable, before factoring in any tax credits, is $4,500.

What are marginal tax rates?

A common misconception is that if your taxable income moves to a higher tax bracket, your entire income will be taxed at that higher rate. When in fact, your earnings are divided into different portions that are taxed at the rates that they fall within. 

So, even though you earn more and move into the next tax bracket, not all of your income gets taxed in the higher bracket, it’s just the amount in that range. This is called the “marginal tax rate system” (or progressive), with your marginal tax rate being the rate applied to your highest level of income.

For example, if your income is $235,675, you’ll be taxed based on several tax rates for your 2023 federal income tax.

Here’s the math:

First tax bracket

$53,359 x 15%

= $8,003.85

Second tax bracket

($106,717– $53,359) x 20.5%

= $10,938.39

Third tax bracket

($165,430 – $106,717) x 26% 

= $15,265.38

Fourth Tax bracket 

($235,675 – $165,430) x 29%

= $20,371.065

 

$8,003.85 + $10,938.39 + $15,265.38 + $20,371.05

Total = $54,578.67

If you earn more than $235,675 in taxable income in 2023, the portion over that amount is taxed at the federal rate of 33%. This is called the “top tax bracket”.

What are combined federal and provincial tax rates?

All provinces and territories also have their own income tax brackets. This means that Canadian taxpayers pay income tax to the federal government as well as to the government of the province/territory where they reside.

Your provincial rate is determined by the province you are living in on December 31 of the tax year. 

For example, if you move from Manitoba to Ontario in July, and you find yourself living in Ontario on December 31, you would fall under the Ontario provincial tax rates.

Provincial income tax brackets rates for Tax Year 2023

Why does your tax bracket matter?

Knowing where your income falls within the income tax brackets helps you understand changes in your income taxes. For example, if you start a side gig or have other extra income that pushes you into the next bracket, this could explain why you have taxes owing or if your refund amount is different than what it was last year.

The income tax brackets you fall into can also help you make decisions about when and how to claim certain deductions and credits.

How do you reduce taxes owed??

Two common ways of reducing your taxes owing and/or improving your tax refund are credits and deductions.

Note: the basic personal amount (BPA), is a non-refundable tax credit that all Canadians are entitled to. The Federal BPA is $15,000 for the 2023 taxation year. Make sure to check out the BPA for your province of residence as well. 

  • Tax deductions: amounts and expenses you subtract from your income, making your taxable income lower, which reduces how much of your income is subject to taxes. An example would be RRSP contributions.  

Make sure not to overlook any tax credits or deductions you’re eligible to claim.

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