Personal Income Tax Rates in British Columbia
In British Columbia, the temporary personal income tax rate of 16.8% for income over $150,000 expired on Dec 31, 2015. As a result, this personal income tax bracket no longer exists, and the province currently has just five brackets rather than six. The rest of the tax brackets have also shifted slightly for the 2016 tax year.
British Columbia Personal Income Tax Rates as of 2016
As of the 2016 tax year, British Columbia residents are subject to the following personal income tax
- 5.06% on income from $0 to $38,210
- 7.70% on income from $38,210.01 to $76,421
- 10.50% on income from $76,421.01 to $87,741
- 12.29% on income from $87,741.01 to $106,543
- 14.70% on income over $106,543
British Columbia Personal Income Tax Rates for 2015
British Columbia uses five of the same personal income tax rates for both 2016 and 2015. However, the income tax brackets were slightly different, and the province implemented a temporary sixth bracket for the year:
- 5.06% on income from $0 to $37,869
- 7.70% on income from $37,869.01 to $75,740
- 10.50% on income from $75,740.01 to $86,958
- 12.29% on income from $86,958.01 to $105,592
- 14.70% on income from $105,592.01 to $151,050
- 16.80% on income over $151,050
Adjusting Income Tax Brackets
Annually, British Columbia adjusts the earnings associated with each income tax bracket by using a consumer price index (CPI). A CPI helps to measure the cost of living adjustments. In short, the cost of numerous goods are added up each year and compared to the cost of the same goods in other years, and the difference between each year is expressed as a percentage.
To adjust the brackets for 2016, the government used a B.C. CPI of 0.9%, and it increased every number used in the income tax brackets by this figure. For example, in 2015, earnings up to $37,869 were taxed at a rate of 5.06%. To calculate the bracket for 2016, the government multiplied $37,869 by 0.009 or 0.9%. The product is $340.82. This rounds up to $341. When $341 is added to $37,869, the result is $38,210. This amount became the threshold for the bottom tax bracket in 2016, and all of the B.C. income tax brackets were adjusted in this way.
Elimination of the 16.80% Temporary Personal Income Tax Rate
The elimination of this tax rate promises to lower income taxes for high-income wage earners. For example, imagine you earned $200,000 in 2015 and 2016. In 2015, all of your earnings over $151,050 were taxed at a rate of 16.80%. Taxing $48,950 of earnings at this rate results in income taxes of $8,223.60.
In contrast, in the 2016 tax year, all of these earnings fall into the top tax bracket with a 14.70% tax rate. At that rate, the income tax on the top $48,950 of your earnings is only $7,195.65. This represents over $1,000 in savings compared to the 2015 tax year. Note these figures only refer to the income tax assessed on part of your income, and doesn’t take into account income tax in other tax brackets.
How Income Tax Brackets Work
To illustrate how income tax brackets work, imagine you earn $110,00 in taxable income. If you live in British Columbia, the first $38,210 of your income is taxed at a rate of 5.06%. This means you owe $2,139.76 of income tax on those earnings. The next $38,211 of your income falls into the second bracket. With a rate of 7.70%, your income tax on these earnings equates to $2,942.25. At this point, you owe a total of $5,082.01, but you have only calculated taxes on $76,421 of earnings.
The next $11,520 of year earnings is taxed at a rate of 10.50%, which results in an additional $1,209.60 in income tax. The following $18,802 of your earnings falls into the fourth income tax bracket with a rate of 12.29%, creating another $2,310.77 in income tax. When you add these figures to your existing tax owed, you owe $8,602.38. Finally, the top tax bracket applies to all earnings over $106,543, making the top $3,457 of your earnings subject to the top rate of 14.70%, which results in another $508.18 in income tax.
This makes your total income tax bill $9,110.56. As you can see, your income is taxed at a range of rates depending on which bracket it falls into. However, these are only the B.C. personal income tax rates. You also have to pay federal income tax.
Federal Income Tax Rates
The Canada Revenue Agency federal income tax rates for 2016 are as follows:
- 15% on income up to $45,282
- 20.5% on income over $45,282 up to $90,563
- 26% on income over $90,563 up to $140,388
- 29% on income over $140,388 up to $200,000
- 33% on income over $200,000