- All tax rates provided by government of Canada website. Tax calculations include federal marginal tax rates, provincial and territorial marginal tax rates, provincial and territorial surtax rates, basic federal exemption, basic provincial and territorial exemption, as well as federal tax abatement for Quebec only.
- Always consult a tax professional before making important decisions financial decisions with possible tax implications.
Canada Tax Calculator
The Canada Tax Calculator has been designed to provide quick and useful information to users, in order to help them make decisions and plan for the future.В Our tax calculator will provide you with detailed information about taxes, based on your jurisdiction.В Each province and territory in Canada has its own tax calculator.В The Canada Tax Calculator will give you the amount of taxes owing, the amount of disposable income you have after paying taxes, the highest marginal tax rate that you pay, based on your income, and the average tax rate that you pay on all of your taxable income.
The amounts stated in each column are the combined federal income tax, and provincial income tax.В The basic personal amount has already been included, and deducted from the taxable income for both federal income tax and provincial income tax.В In the province of Quebec, the federal income tax abatement has also been applied.В In provinces and territories where the tax rates have changed during the year, the average tax rate has been applied in order to best approximate expected taxes owing at the end of the year.
The Canada Tax Calculator also includes the ability to calculate the effects of an RRSP contribution.В Contributions to RRSP plans are tax deductible against taxable income.В This means that if you make a $5000 contribution into your RRSP, that $5000 will be deducted from your income before taxes are calculated.В This can have many effects, many of which are calculated in the Canada Tax Calculator.В When an RRSP contribution is included in the Canada Tax Calculator, all columns will recalculate automatically to include the effects of the contribution.В The tax savings column will indicate the tax benefit received from making an RRSP contribution. В The taxes owing column will adjust to account for the tax savings.В The disposable income column will adjust to account for both the changes in the tax payable as well as the RRSP contribution itself.В It is assumed that the funds deposited into the RRSP are removed from the disposable income, as they are typically invested for the long term and saved to be used as income during retirement.В Since a contribution to your RRSP will have the effect of reducing your taxable income, it is possible that your marginal tax rate may change if the amount contributed reduces your taxable income into a lower marginal tax bracket.В Your average tax rate will also be adjusted to account for the reduction in taxable income and the change in your taxes owing.
The Canada Tax Calculator was designed to be easy to use and intuitive, as well as provide high quality basic tax information for each income earner in Canada.В Use this calculator to get a basic understanding of what your income taxes will look like, as well as gain a basic understanding of the value of your RRSP contribution.
The income tax system in Canada is tremendously complex, and there is no one calculator that can provide a complete understanding of how the federal and provincial tax system will affect you. В It is important to cultivate a good relationship with a tax professional in order to gain the advice you need to make excellent financial decision.
A lot of thought went into what exactly makes a good tax calculator, and the Canada Tax Calculator is the result.В We feel that it is important for people to gain the important information they need in an easy to understand format.В It is important to combine as much information as possible into each measure of output.В The Canada Tax Calculator provides detailed output, but in an efficient and intuitive manor.В This tax calculator gives the user the total basic income tax owing, for both the federal and provincial jurisdictions.В The goal was to provide high value information from simple input.В The user only needs to enter their taxable income, and the tax calculator will do the rest of the work for them.В By including only one more data point, the RRSP contribution, all of the information will be recalculated to measure the effects of this action.
Income Tax in Canada
Income tax in Canada is extremely complex.В It is the result of decades of analysis and adjustment from every tax jurisdiction in the country.В In order to gain a better understanding of how income tax in Canada works, it might be simpler to separate the important concepts, and review each one separately.В The most important concept to understand would be the idea of marginal tax brackets.
Has anyone ever told you that they turned down more income because they were afraid of paying a higher tax rate, and that they thought they would actually receive less money after the higher tax rate than if they had never accepted the raise?В This is a common misconception about tax rates and tax brackets in Canada.В
In Canada, we use marginal tax brackets.В This means that the income specific to each tax bracket is taxed at the rate for that bracket only, and that rates are not applied to any income outside of this bracket.В Here is a simplified example to demonstrate the concept.
Imagine you make $30,000, and you are offered a raise of $10,000.В There are four tax brackets in this example, $0 - $10,000, you pay 10%, $10,001 - $20,000, you pay 20%, $20,001 - $30,000, you pay 30%, and income over $30,000 you pay 40%.В
Your current tax payable would be the sum of the tax owing for each bracket.В 10% of $10,000, 20% of 10,000, and 30% of 10,000.В Add them up, and you get $1,000 + $2,000 + $3,000 = $6000.В This means that the income in each bracket is charged the rate applied to it only.В Any additional income would have a tax rate applied to it, depending on which bracket it is in, but the previous income is taxed the same.В The new $10,000 raise would be taxed at 40%, you would pay $4,000 on the new $10,000.В This 40% rate would NOT be applied to any of the previous income, only to the new income in that tax bracket.
The term marginal means the next unit, in terms of tax brackets, it means the rate that is applied to the next dollar of income.В The rate only changes on the next dollar of income once the current tax bracket is full.В This is a new concept to many people, even though they have been paying these taxes for many years.В Understanding how this marginal tax system works is important for those who wish to express a qualified opinion of the tax system.В When a change is made to the tax code, it is difficult to make a proper decision about the benefit unless one understands how it will fit in with the current marginal tax bracket system that we use in Canada.
Now this system of marginal tax brackets is obviously more complex than using a flat tax, where all income is taxed at the same rate, no matter how much you make.В So the obvious question is “why”?В Why would we choose to use a more complicated system when a simpler one is available?
The answer to this question is that Canadians have decided that it is important to have a progressive tax system in Canada.В The main benefit of the marginal tax rate system is that it shifts some of the burden of paying the taxes from those who are less able to do so to those who are more able to do so.В It is pretty simple to understand that those who make little income do not have a lot of disposable income.В The value of every dollar of income to a low income earner is high, as this money is needed to pay for the necessities of life.В As income grows, it
becomes easier to pay for the necessities of life, and the value of each dollar shrinks relatively.В Since those who earn higher incomes are better able to pay more taxes without sacrificing the necessities of life, it makes sense that those who earn more pay more.
The next important concept to understand is the various definitions of income.В In terms of income in regards to tax, the government looks upon the sources of income differently.В Basically, there is earned income, dividend income, and taxable gain income.В Taxable gain refers to the gain or loss one receives when an asset is purchased and then sold.В If some shares in a company are purchased for $10,000, and then sold later for $20,000, then a $10,000 capital gain has occurred.В The government has treated capital gains differently over time.В Currently, half (50%) of all capital gains are considered taxable income.В This means that 50% of the value of any taxable gain is added to any other income earned in a year, and then the tax rates are applied dependant on the marginal tax brackets that apply.В Capital gains occur in the year that the asset is sold.В Until the asset is sold, no tax liability occurs.
Dividends are the profits that are paid to the owners of a company by the company.В Corporations in Canada are obliged to pay tax on the profits they receive each year.В These after tax profits can then be paid to shareholders of the company as dividends.В Since these profits have already been taxed, taxing these dividends fully again would be a form of double taxation.В The government adjusts the taxes payable on dividends to account for this issue, using dividend tax credits, and a process called “grossing up” the dividends.В The actual amount of dividends received by shareholders is “grossed up” in order to resemble to before tax value of the corporate profits that are being paid to shareholders.В Tax rates are applied and a tax credit is used to reduce the tax payable on these dividends.В Governments want to encourage people to invest in companies, as this helps grow the economy, and so they provide a preferential tax treatment for dividend income.
If you work and receive pay, then you make earned income.В This income is simply taxed at 100% of its value.В No adjustments are made to the value of earned income before tax rates are applied.В
Another important concept to understand is the income tax deduction.В Governments want to encourage some behavior that may benefit the country, such as attending post secondary education.В In order to encourage this type of behavior, the government will allow some expenses to be deducted from the total amount of income before tax rates are applied.В Deductions are powerful tax tools, since they reduce the total amount of taxes owed.В Because of the marginal tax rate system we have in Canada, deductions reduce income from the highest tax bracket first, saving the most tax possible.В This is very important to those who are able to use deductible expenses to save taxes.
RRSP contributions are tax deductible, within the limits set each year.В This provides Canadians a powerful incentive to save using RRSP’s.В The Canada Tax Calculator above will help you understand how making an RRSP contribution will benefit your tax payment.В
In addition to allowing deductions, governments will also allow tax credits to be used to reduce the actual amount of income tax payable.В Again, this is to encourage certain behavior.В The tax credit is applied to the actual taxes owing, and can reduce your total tax bill.
Exemptions also play an important role in how your taxes are calculated.В In Canada, homeowners receive a capital gains exemption when they sell their primary residence, under certain qualifying conditions.В This is to allow Canadians to benefit from market increases in the value of their home, and is intended to help Canadians accumulate net worth through their primary residence and home ownership.
The federal and provincial/territorial governments allow each person to declare a personal amount on their taxes payable.В This amount is basically an amount that each person can make without having to pay any taxes.В The amount is different for each jurisdiction.В The Canada Tax Calculator includes this important element for each region.В The basic personal amount reduces the tax payable by the tax rate multiplied by the total amount claimed.В This amount is typically calculated at the lowest tax bracket, as it is assumed that the first amount is free, rather than working as a typical deduction and lowering the taxable income at the highest brackets.
Each year, inflation affects our incomes, pushing up both the overall level of wages, and the overall price level of consumer goods.В If the income tax brackets for any region remain fixed over time, individuals will find that their wages grow into larger tax brackets, and that these individuals actually pay more in taxes, even though they have not received the benefit of a wage increase relative to the price level.В This means that the purchasing power of their income has not increased, yet the tax burden has.В This is known as “bracket creep”, since wages creep into higher tax brackets unless the tax brackets are adjusted to move along with inflation.В In Canada, federal tax brackets are protected from bracket creep, as is the basic personal amount that each person can earn tax free.В These amounts are adjusted annually based on the previous and expected future inflation, in an effort to reduce the negative effects of bracket creep.
As you can see, there is a lot to understand in the Canadian tax code.В The Canada Tax Calculator above will help you to understand the basic tax information you need to make plans, but it is always advisable to find a qualified tax professional for detailed proper financial planning.
Canada Income Tax Brackets
The marginal income tax brackets and rates are provided in the following section.В These are the federal income tax brackets.В These brackets and rates are used to calculate the federal portion of income tax payable in the Canada Tax Calculator above.
2015 Federal Income Tax Rates and Tax Brackets
Income $0 - $44,701 is taxed at a rate of 15%
Income above $128,800 is taxed at a rate of 29%
2010 Federal Income Tax Rates and Tax Brackets
Income $0 - $40,970 is taxed at a rate of 15%
Income $40,970 - $81,941 is taxed at a rate of 22%
Income $81,941 - $127,021 is taxed at a rate of 26%
Income above $127,021 is taxed at a rate of 29%
Canada Income Tax Federal Basic Tax Credit
The federal government allows each individual to earn a basic personal amount of income free from income tax.В
2014 Canada Federal Basic Tax Credit $11,138
2013 Canada Federal Basic Tax Credit $11,038
2012 Canada Federal Basic Tax Credit $10,822
2011 Canada Federal Basic Tax Credit $10,527
2010 Canada Federal Basic Tax Credit $10,382
Income Tax by Province
Provinces and territories that have agreed to the tax collection agreement with the federal government have agreed to use the same definition of taxable income as the federal government.В Provinces and territories do provide unique and different tax credits, as well as allowing a different basic personal amount from the federal government.В All provinces and territories that use tax brackets operate in the same way as the federal income tax brackets, in that the brackets are taxed at the marginal income tax rate.В
There are some different tax treatments to be aware of, for 2010, Alberta uses a flat tax, rather than marginal tax brackets.В All income is taxed at the same tax rate, regardless of the amount.В Quebec uses a federal income tax abatement, which reduces the taxes paid to the federal government as a part of their transfer payment agreement.В Some provinces use a surtax, and additional rate that is applied to specified brackets, in addition to the regular income tax.В Provincial surtaxes are included in the calculations of the Canada Tax Calculator.
The Alberta tax brackets, Alberta tax rates, and Alberta basic personal amount are used to calculate the Alberta Income Tax Calculator.