Every year, Canadians endure the ritual of figuring out how much tax to pay. Frequently, it’s a taxing exercise, pun intended. However, we’ve brought together all of the information you’ll need survive everyone’s least favourite season.
Identifying Your Tax Bracket
Your tax obligation is determined by where you live in Canada and your income from all sources. Crucially, your provincial rate is determined by the province you resident in as of December 31. For example, you move from Manitoba to Nova Scotia in July, you are still living in Nova Scotia on December 31, you are subject to Nova Scotia provincial tax rates.
How Tax Brackets Work
Your “taxable income” (a.k.a. net income) determines your tax bracket, which is your gross income from all sources less any deductions you qualify for.
Once you have determined your taxable income, you’ll then apply the relevant federal and provincial rates. Ideally, you should calculate your federal tax first, followed by your provincial tax. Finally, add the two together.
Your marginal tax rate is made up of the total federal and provincial taxes you pay on all income. Your tax rate varies based on how much income you declare on your T1 General Income Tax Return (the form with the exciting sounding name that you fill out at tax time) and where you live.
Federal Tax Bracket Rates 2019
The following are the federal tax rates for 2019 according to the Canada Revenue Agency (CRA):
- 15% on the first $47,630 of taxable income, and
- 20.5% on the portion of taxable income over 47,630 up to $95,259 and
- 26% on the portion of taxable income over $95,259 up to $147,667 and
- 29% on the portion of taxable income over $147,667 up to $210,371 and
- 33% of taxable income over $210,371
Provincial Tax Brackets Rates 2019 (added to federal tax)
As said before, your home province on December 31 will determine the provincial part of your income tax. If you plan to move to a province with lower taxes, do it before December 31! Below are the provincial tax rates for 2019 (in addition to federal tax) according to the Canada Revenue Agency:
|British Columbia||5.06% on the first $40,707 of taxable income|
|7.7% on the additional $40,707-$81,416|
|10.5% on the additional $81,416-$93,476|
|12.29% on the additional $93,476-$113,503|
|14.7% on the additional $113,503-$153,900|
|16.8% on everything over $153,900|
|Alberta||10% on the first $131,200|
|12% on the additional $131,200-$157,464|
|13% on the additional $157,464-$209,252|
|14% on the additional $209,252-$314,928|
|15% on everything over $314,928|
|Saskatchewan||11% on the first $45,225 of taxable income,|
|12.75% on the additional $45,225-$129,214|
|17.4% on everything over $129,214|
|Manitoba||10.8% on the first $32,670 of taxable income|
|12.75% on the additional $32,670-$70,610|
|17.4% on everything over $70,610|
|Ontario||5.05% on the first $43,906 of taxable income|
|9.15% on the additional $43,906-$87,813|
|11.16% on the additional $87,813-$150,000|
|12.16% on the additional $150,000-$220,000|
|13.16 % on everything over $220,000|
|Quebec||0% on income between $0-$15,269|
|15% on the portion between $15,269.01 – $43.790|
|20% on income between $43,790.01 – $87,575|
|24% on income between $87,575.01 – $106,555|
|25.75% on all income above $106,555|
|New Brunswick||9.68% on the first $42,592 of taxable income|
|14.82% on the additional $42,592-$85,184|
|16.52% on the additional $85,184-$138,491|
|17.84% on the additional $138,491-$157,718|
|20.3% on everything over $157,718|
|Nova Scotia||8.79% on the first $29,590 of taxable income|
|14.95% on the additional $29,590-$59,180|
|16.67% on the additional $59,180-$93,000|
|17.5% on the additional $93,000-$150,000|
|21% on everything over $150,000|
|Prince Edward Island||9.8% on the first $31,984 of taxable income|
|13.8% on the additional $31,985|
|16.7% on everything over $63,969|
|Newfoundland and Labrador||8.7% on the first $37,579 of taxable income|
|14.5% on the additional $37,579-$75,181|
|15.8% on the additional $75,181-$134,224|
|17.3% on the additional $134,224-$187,913|
|18.3% on everything over $187,913|
|Nunavut||4% on the first $45,414 of taxable income|
|7% on the additional $45,414-$90,829|
|9% on the additional $90,889-$147,667|
|11.5% on everything over $147,667|
|Yukon||6.4% on the first $47,630 of taxable income|
|9% on the additional $47,630-$95,259|
|10.9% on the additional $95,259-$147,667|
|12.8% on the additional $147,667-$500,000|
|15% on everything over $500,000|
|Northwest Territories||5.9% on the first $43,137 of taxable income|
|8.6% on the additional $43,137-$86,277|
|12.2% on the additional $86,277-$140,267|
|14.05% on everything over $140,267|
Remember: Your marginal tax rate is the total of both federal and provincial taxes.
Example of tax calculation
For an example, let’s use a fellow John, who lives in British Columbia. John has been contributing to a RRSP, reducing his net taxable income. After considering his RRSP contributions in addition to tax deductions and tax credits, his taxable income stands at $55,000. His sample tax calculation might look something like this:
John’s Federal tax bill: The first $47,630 is taxed at 15% (the lowest bracket). This portion works out to $7,144.50. He has $7,370 remaining, ($55,000-$47,630) which will be taxed at the higher bracket rate of 20.5%, which works out to$1,510.85. therefore, his total federal tax owed is $7,144.50 + $1,510.85 = $8,655.35.
John’s provincial tax bill (using BC rates as example): Don’t forget, John’s provincial rate is based on where he lives as of December 31. John’s first $40,707 will be taxed at 5.06%, meaning he owes $2,059.77 on that portion. The other $14,293 ($55,000-$40,707) will be taxed at 7.7%, which is $1,100.56 on that portion. His total provincial tax obligation totals $3,160.33.
John’s total tax bill
John’s combined federal and provincial tax bill is $,8655.35 + $3,160.33 = $11,815.68.
Tax Credits and Tax deductions
Tax credits and tax deductions can reduce either your net taxable income or the tax bill itself.
Both federal and provincial tax credits are available for different circumstances, and you’ll be glad to hear they help reduce your tax burden. Two types exist: Non-refundable and refundable.
A non-refundable tax credit reduces the amount of tax owed. To claim a non-refundable tax credit, you are required to owe taxes. Put simply, you must have earned enough income to owe income tax. Non-refundable tax credits can bring your bill to zero, but if your tax credits exceed tax owing, you do not receive a refund for any surplus amount. For example, if you owe $2500 in taxes and have non-refundable tax credits totalling $2700, you will pay no tax, but the remaining $200 of credits are not refunded.
Examples of non-refundable tax credits are:
- Personal exemption (all taxpayers are entitled to claim this exemption)
- Exemption for taxpayers over age 65
- Exemption for taxpayers with children
- Exemption for people receiving a pension
- Exemption for people with a certified disability
- Exemption for caregivers to people with a disability
Other non-refundable tax credits also apply for tuition, medical expenses, Employment Insurance and Canada Pension Plan deductions, interest paid on student loans and costs around adoption. Further, many provinces have tax credits to reduce provincial tax owed.
Refundable Tax Credits
Refundable tax credits are paid to everyone who qualifies, regardless of income earned (or not). Typically, they’re paid out over the year. The best-known refundable tax credit is the GST/HST payment that taxpayers with a combined family income of less than $42,000 receive.
Let’s clear up some misconceptions around tax deductions. Rather than directly reducing the amount of taxes you owe, a tax deduction technically reduces the amount of your gross income. As a result, this can put you in a lower tax bracket and reduce the amount of taxes owed.
Examples of the most common tax deductions include:
- Pension Adjustment. Any pension contributions made in the calendar year on your behalf is subtracted from gross income. The Pension Adjustment amount will be listed in box 52 on your T-4 slip that shows your income and income tax deducted for the year.
- Union and professional dues
- Child care expenses
- Registered Retirement Savings Plan (RRSP) contributions up to the maximum allowable amount per year. Your financial institution will give you a contribution receipt. You can see how much RRSP contribution room you have by looking at your Notice of Assessment (the summary form received after you have filed your previous year’s taxes), by viewing your tax account ,or by calling CRA at 1-800-959-8281.
- Donations to political parties charitable organizations.
Should you owe income tax, the Canada Revenue Agency permits your to use a payment plan if you cannot pay all owed taxes in one lump sum. Any balance you still owe will incur interest. Take care: if you owe income tax and fail to pay without an attempt to work out a payment plan, you will be forced to forfeit any of your eligible refundable tax credits to the CRA. Further they can bring you to court and seize money from your bank account. Here’s more information about potential consequences.