How to Identify your Tax Bracket
How much tax you’ll pay is determined by where you live in Canada, and how much income you declare from all sources. Importantly, your provincial rate is determined by the province you are living in on December 31 of the tax year. So, if you move from Ontario to Nova Scotia in July, and you find yourself living in Nova Scotia on December 31, you would fall under the Nova Scotia provincial tax rates.
How Tax Brackets Work
Your tax bracket is based on “taxable income”, which is your gross income from all sources, minus any tax deductions you may qualify for. In other words, it’s your net income after you’ve claimed all your eligible deductions.
Once you know what your taxable income is, you’ll then apply the relevant federal and provincial rates to your net taxable income. You should calculate your federal income tax first, your provincial rate second, and then add the two together — and presto!
Your marginal tax rate is the combined federal and provincial income taxes you pay on all sources of income at tax time. The tax rate varies by how much income you declare at the end of the year 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 in Canada.
Federal Tax Bracket Rates 2021
The following are the federal tax rates for 2021 according to the Canada Revenue Agency (CRA):
- 15% on the first $49,020 of taxable income, and
- 20.5% on the portion of taxable income over $49,020 up to $98,040 and
- 26% on the portion of taxable income over $98,040 up to $151,978 and
- 29% on the portion of taxable income over $151,978 up to $216,511 and
- 33% of taxable income over $216,511
Provincial Tax Brackets Rates 2021 (in addition to federal tax)
As we said, the province you are living in on December 31 will determine the provincial portion of your income tax. So, if you are planning to skip town to a province with lower taxes, do it before December 31 of the calendar year. The following are the provincial tax rates for 2021 (in addition to federal tax) according to the Canada Revenue Agency:
| Province | Tax Rate |
|---|---|
| British Columbia | 5.06% on the first $42,184 of taxable income |
| 7.7% on the next $42,184 up to $84,369 | |
| 10.5% on the next $84,369 up to $96,866 | |
| 12.29% on the next $96,866 up to $117,623 | |
| 14.7% on the next $117,623 up to $159,483 | |
| 16.8% on the amount over $159,483 up to $222,420 | |
| Alberta | 10% on the first $131,220 |
| 12% on the next $131,221-$157,464 | |
| 13% on the next $157,465-$209,952 | |
| 14% on the next $209,953-$314,928 | |
| 15% on the amount over $314,928 | |
| Saskatchewan | 10.5% on the first $45,677 of taxable income, |
| 12.5% on $45,677 up to $130,506 | |
| 14.5% on the amount over $130,506 | |
| Manitoba | 10.8% on the first $33,723 of taxable income |
| 12.75% on the next $33,723 up to $72,885 | |
| 17.4% on the amount over $72,885 | |
| Ontario | 5.05% on the first $45,142 of taxable income |
| 9.15% on the next $45,142 up to $90,287 | |
| 11.16% on the next $90,287 up to $150,000 | |
| 12.16% on the next $150,001-$220,000 | |
| 13.16 % on the amount over $220,000 | |
| Quebec | 15% on the first $45,105 of taxable income |
| 20% on the next $45,105 up to $90,200 | |
| 24% on the next $90,200 up to $109,755 | |
| 25.75% on the amount over $109,755 | |
| New Brunswick | 9.68% on the first $43,835 of taxable income |
| 14.82% on the next $43,835 up to $87,671 | |
| 16.52% on the next $87,671 up to $142,534 | |
| 17.84% on the next $142,534 up to $162,383 | |
| 20.3% on the amount over $162,383 | |
| Nova Scotia | 8.79% on the first $29,590 of taxable income |
| 14.95% on the next $29,591-$59,180 | |
| 16.67% on the next $59,181-$93,000 | |
| 17.5% on the next $93,001-$150,000 | |
| 21% on the amount over $150,000 | |
| Prince Edward Island | 9.8% on the first $31,984 of taxable income |
| 13.8% on the next 31,985 – $63,969 | |
| 16.7% on the amount over $63,969 | |
| Newfoundland and Labrador | 8.7% on the first $38,081 of taxable income |
| 14.5% on the next $38,081 up to $76,161 | |
| 15.8% on the next $76,161 up to $135,973 | |
| 17.3% on the next $135,973 up to $190,363 | |
| 18.3% on the amount over $190,363 | |
| Nunavut | 4% on the first $46,740 of taxable income |
| 7% on the next $46,740 up to $93,480 | |
| 9% on the next $93,480 up to $151,978 | |
| 11.5% on the amount over $151,978 | |
| Yukon | 6.4% on the first $49,020 of taxable income |
| 9% on the next $49,020 up to $98,040 | |
| 10.9% on the next $98,040 up to $151,978 | |
| 12.8% on the next $151,978 – $500,000 | |
| 15% on the amount over $500,000 | |
| Northwest Territories | 5.9% on the first $44,396 of taxable income |
| 8.6% on the next $44,396 up to $88,796 | |
| 12.2% on the next $88,796 up to $144,362 | |
| 14.05% on the amount over $144,362 |
Remember: Your marginal tax rate is the total of both federal and provincial taxes on income.
Tax Credits and Tax deductions
Tax credits and tax deductions can reduce either your income or the amount of tax you owe.
Tax credits
Both federal and provincial tax credits exist, and you’ll be glad to hear they help you pay less tax. There are two types: Non-refundable and refundable
Non-refundable
A non-refundable tax credit reduces the amount of tax payable. To claim a non-refundable tax credit, you must actually owe taxes — in other words, you must have earned enough income to owe income tax. Non-refundable tax credits can reduce your tax owing to zero, but if you have more tax credits than tax owing, you do not receive a refund for any surplus amount. Let’s make that more concrete: if you owe $2500 in taxes and have non-refundable tax credits for $2700, your taxes will be reduced to zero, but you will not receive the extra $200.
Some non-refundable tax credits include:
- Personal exemption amount (anyone who owes tax is 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 people who are caregivers to someone with a disability
Some other non-refundable tax credits include tuition, medical expenses, Employment Insurance and Canada Pension Plan deductions, interest paid on student loans, and adoption expenses. Most provinces have tax credits to reduce the provincial tax owing.
Refundable Tax Credits
Refundable tax credits are paid to anyone who qualifies for them, whether they had income or not. Usually, they’re paid out over the year. The most well-known non-refundable tax credit is the GST/HST payment that people with a combined family income of less than $42,000 received.
Tax deductions
Tax deductions don’t work as many people suppose. Instead of reducing the amount of taxes you need to pay, a tax deduction actually reduces the amount of your gross income, which can put you in a lower tax bracket and reduce the amount of taxes you will owe.
The most common tax deductions are:
- Pension Adjustment. You get credit for any pension contributions made in the calendar year on your behalf. Your employer will list the Pension Adjustment amount in box 52 on your T-4 slip that lists 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 provide you with a contribution receipt, and you can find out how much RRSP contribution room you have by looking on your Notice of Assessment (the summary form that you receive after you have filed your previous year’s taxes), by looking on your tax account or by calling CRA at 1-800-959-8281. You can also learn more about RRSP contribution limits.
- Donations to charitable organizations or political parties
If you owe income tax, the Canada Revenue Agency will let you work out a payment plan if you cannot pay the taxes all at once. You will be charged interest on any balance you still owe. But be careful: if you owe income tax and don’t pay, and you don’t make an attempt to work out a payment plan, CRA can seize any refundable tax credits you may be eligible for, and they may take you to court and seize the contents of your bank account.
If you want to reduce your tax bill, call us at (416) 932-1915, email us at [email protected], or book an appointment online here. We can help you reduce the amount of income tax you pay.
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