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Canadian income taxes: everything you need to know about them
Are you moving to Canada? In this article, we summarized and simplified Canadian income taxes.
Have you worked in Canada already? We will file a tax refund for you.
Just like most first-world countries, Canada has a progressive tax system too. What is different about Canadian taxation is you don’t pay only one income tax, but two – a federal income tax and territorial/provincial income tax. Your paycheck will also be reduced by the CPP – Canadian Pension Plan payment. The CPP rate is currently 3% of your taxable income and after leaving the country you can ask for a partial refund.
When employed, both your income taxes and CPP payment will be paid by your employer. Though in many countries students are freed of paying income taxes, in Canada every employee above the age of 18 has a tax obligation.
Federal income tax
The federal income tax has five possible rates (15%, 20.5%, 26%, 29%, and 33%), which are determined by the amount of taxable income. The final tax amount is calculated ‘’gradually’’.
| Tax rate | Yearly taxable income |
|---|---|
| 15 % | First $49,020 |
| 20.5 % | Next $49,020 ($49,021-$98,040) |
| 26 % | Next $53,939 ($98,041-$151,978) |
| 29 % | Next $64,533 ($151,978-$216,511) |
| 33% % | Everything above $216,511 |
For instance: if your yearly income is $100,000, the tax will be calculated followingly:
- 15 % from $49,020 = $7,353
- 20,5 % from $49 020 = $10,049
- 26 % from the remaining $1,959 (100,000-98,041=1959) = $509 4. $7,353 + $10,049 + $509 = $17,911 – federal income tax
Provincial (territorial) tax
Apart from taxes paid to the federation, you also have to pay an income tax to the province/territory you live in. The rate differs based on your location. The calculation is the same as with federal taxes.
| Tax rate | Yearly taxable income |
|---|---|
| 5.05 % | First $45,142 |
| 9.15 % | Next $45,145 ($45,143-$90,287) |
| 11.16 % | Next $59,713 ($90,288-$150 000) |
| 12.16 % | Next $70,000 ($150 001-$220 000) |
| 13.16 % | Everything above $220,000 |
For instance: If your yearly income in Ontario is $100,000, the tax will be calculated followingly:
- 5.05% from $45,142 = $2,280
- 9.15% from $45,145 = $4,131
- 11.16% from the remaining $9,713 = $1,084
- $2,280 + $4,131 + $1,084 = $7,495 – provincial income tax
What documents do I need to fill in a TAR?
To complete your tax return you will need these documents:
- Canadian social security number
- T-slips or RL-slips (in employed)
- records of other income (e.g. income statement when self-employed)
- Receipts for tax deductions (medical expenses, charitable donations, childcare or caregiver expenses, monthly transit passes, etc)
- Data from past tax years (Registered Retirement Savings Plan (RRSP) contribution limit, repayments required under the Home Buyers Plan or Lifelong Learning Plan)
When to file a TAR?
People who aren't self-employed must file a tax return by the 30th of April every year. Self-employed individuals don't have to submit their tax refund until the 15th of June.
However, it is recommended that you always complete it by the end of April. If you end up owing any tax the tax office will add interest to the owed amount as of the 30th of April.
