Overview of Canadian Federal and Provincial Income Tax BracketsOctober 23, 2023
In Canada, how much you pay in federal and provincial taxes is based on your annual gross taxable income. There is a federal income tax portion which is the same for everyone in Canada and then there is a provincial rate that changes depending on the province that you live in. On top of federal and provincial income taxes, there are other taxes that Canadians have to pay. Some of these are GST, HST, PST, QST and property taxes. While these taxes are dependent on where you live and if you own a home, they are everywhere. Taxes are how the federal government, as well as the provincial governments, are able to cover the cost of things. They help run our economy.
Table of Contents Contents
Federal Tax Brackets
Federal tax rates are what everyone pays no matter where they live. While many people think the more money you make, the more taxes you pay, that is technically true, but it isn’t really that simple. How it works is there are different tax brackets. In each of the federal income tax brackets, everyone pays the same, and then the rate only rises in the next tax bracket. The amount that you pay in taxes is based on your adjusted gross income. The rates below are based on 2023 tax rates.
|Tax Bracket||Tax Rates|
|$53.359 or less||15%|
|$53,359 to $106,717||20.5%|
|$106,717 to $165,430||26%|
|$165,430 to $235,67||29%|
|More than $235,675||33%|
While these amounts are subject to change every year due to things like inflation, this is a basic idea of how tax brackets work in the federal tax system.
For example: If you make $35,000 per year, then you pay 15% tax on that full amount. If you make $75,000 per year, then you pay 15% on $53, 359 of that and the remaining $21,641 of your income, you will pay 20.5% of that in taxes.
It is important to keep in mind whether you file federal individual income taxes or a joint family income. When you are living on your own and file federal individual income tax, you are likely to have a lower income than that of a dual income. You may notice when you stop filing individually that you stop receiving some government tax credits like the GST/HST credit since your joint family income is now over the threshold.
The average Taxes Canadian Pay Per Year
Since everyone makes a different gross annual income, the net income is going to be different for everyone, so it is hard to say how much people pay every year in taxes. That being said, though, based on the 2021 tax year, the average Canadian pays 25.1% of their gross annual income in both provincial and federal income taxes combined. That means the average yearly net income is only 74.9% of the gross annual income. This may be higher or lower for you depending on what tax bracket you fall into and what province you live in.
Provincial/Territorial Tax Brackets
Canadian income tax rates vary depending on where you live in the Country. Each province has their own rates on top of the Federal income tax rates.
|British Columbia||5.06% on the first $45,654
7.7% on the next $45,656
10.5% on the next $13,525
12.29% on the next $22,464
14.7% on the next $45,303
16.8% on the next $68,114
20.5% on any amount over $240,716
|Alberta||10% on the first $141,292
12% on the next $28,459
13% on the next $56,917
14% on the next $113,834
15% on amounts over $341,502
|Saskatchewan||10.5% on the first $49,720
12.5% on the next $92,338
14.5% on amounts over $142,058
|Manitoba||10.8% on the first $36,842
12.75% on the next $42,783
17.4% on any amount over $79,625
|Newfoundland and Labrador||8.7% on the first $41,457
14.5% on the next $41,456
15.8% on the next $65,114
19,8% on the next $57,511
20.8% on the next $264,750
21.3% on the next $529,500
20.5% on any amount over $1,059,000
|Nova Scotia||8.79% on the first $29,590
14.95% on the next $29,590
16.67% on the next $33,820
17.5% on the next $57,000
21% on amounts over $150,000
|Prince Edward Island||9.8% on the first $31,984
13,8% on the next $31,985
16.7% on amounts over $63,969
|Ontario||5.05% on the first $49,231
9.15% on the next $49,232
11.16% on the next $51,537
12.16% on the next $70,000
13.16% on amounts over $220,000
|Quebec||15% on the first $49,275
20% on the next $49,265
24% on the next $21,370
25.75% on amounts over $119,910
|New Brunswick||9.68% on the first $47,715
14.82% on the next $47,716
16% on the next $81,325
19.5% on amounts over $176,756
|Northwest Territories||5.9% on the first $48,326
8.6% on the next $48,329
12.2% on the next $60,484
14.05% on amounts over $157,139
|Yukon||6.4% on the first $53,359
9% on the next $53,358
10.9% on the next $58,743
12.8% on the next $334,570
15% on amounts over $500,000
|Nunavut||4% on the first $50,877
7% on the next $50,877
9% on the next $63,675
11.5% on amounts over $165,429
Marginal Tax Rate
The marginal tax rate is the rate you pay on anything beyond your current earnings. The rate is set at 20.5% until your earnings hit more than $106,717. Once you go beyond this amount, then the rate increases to 26%. This rate stays in effect until you make more than $165,430. Your marginal tax rate will then increase again and hit 29%, and once you go beyond $235,675, your rate increases to 33%.
What to Claim When You File Your Taxes
What you file and how you file your Canadian income taxes is based on a few things. Whether you are self-employed or work for someone else, if you own your home or rent, have an income property, invest or have any capital gains, or many other different situations that will affect your yearly income.
If you work for someone else you will likely get a T4 for the income you received as employment income for the year. A basic tax return means you just file this and either receive a tax refund or not. Before you file your basic return though, you should verify if there is anything else you can claim for a tax break. Claiming these tax breaks could mean that the income taxes paid by you were more than you should have paid and you qualify for a refund. Since working from home is something that has become more and more common recently, claiming this on your taxes counts for a tax break. Some other examples would be:
- Medication costs
- RRSP deductions
- Tuition Payments/Supplies
- Capital Losses
- Any bills or supplies your job requires (you can ask your employer)
- Excise Taxes
You also need to claim any other income you may have received such as:
- Side hustle income
- Rental Income
- Capital Gains (such as investment profits or profits from a property sale)
- Employment Insurance Benefits
- WCB Payments
Of course there are many other tax breaks you could get or income sources you could have depending on your personal circumstances and if you are unsure a tax professional will be able to help you.
Self Employment Taxes
Taxes for those who are self-employed can be much more complex than just your normal T4. This is mainly because you aren’t paying taxes monthly off of your paychecks(payroll taxes). You are receiving your full income then need to pay your taxes in one lump sum.
When it comes to self-employment though, there are plenty of write-offs you are allowed to claim in order to ease the amount you pay at tax times. What these write-offs are depend on what your business is and the logistics of it. You are allowed to write off any purchases you made in order for your business to run as well as any bills that occur that also pertain directly to your business. The specifics can get tricky though, which is where a professional accountant can help you make the write deductions.
Taxes and RRSPs
Claiming your RRSPs on your taxes is a great way to get a tax break while saving for retirement or a home. You do not pay taxes on these unless you pull the money out before you retire or to purchase a home. If you use the funds as a down payment on your first home, you have around 15 years to pay the money back to your RRSP. If you take the funds out not for this reason, or don’t pay the money back in time, you are charged a penalty that is called a withholding tax.
How Capital Gains Work When it Comes to Taxes
Capital gains is one of those works that confuse a lot of people when it comes to filing their taxes. You may think that because you don’t invest in the stock market or practice day trading that it isn’t something you need to think about but the term capital gains isn’t just referring to the stock market, it’s any type of investment where you earn more than you spent. The actual definition of a capital gain is profit from a property sale or an investment. This means any profits that you make when you sell your home are considered capital gains and need to be reported on your yearly tax return.
Whether you sell a home or an investment, the process for claiming a capital gain is the same. Only 50% of your total capital gain is taxable in Canada and it is included in your annual taxable income. Instead of being taxed at your income tax rate, though, it is taxed at marginal tax rates. This is because they are over and above your personal income source so it is calculated differently that your personal income tax regular income.
Offsetting Capital Gains
Capital gains really start to get confusing when you have capital losses as well. Capital losses are defined as when an asset/investment has decreased in values or sold for less than the purchase price. Just like capital gains, this includes homes as well.
Every year you have an allotted amount of capital gains and losses that you are allowed to apply. Without capital losses, you are allowed to use them to offset a part of the 50% of your capital gains to reduce the amount you pay in taxes.
When it comes to claiming capital gains and losses on your taxes you want to make sure that you are doing it correctly in order to avoid any problems in the future. The best way to do this is to see a financial advisor to help with offsetting as well as a tax professional. This part of your taxes can often be very difficult to figure out on your own, especially when every situation is different. Seeing a professional can help clear up the fine details for you.
GST, HST, PST, QST
These different taxes are Canadian sales taxes that are applied differently in each province. This means how much you pay of these taxes is based on where you live.
GST stands for the Goods and Services Tax. This tax is a 5% levy added by the federal government to almost all goods and services. While this tax is applied throughout the whole country, some provinces and territories have other taxes as well while some only use GST.
HST stands for the Harmonized Sales Tax. This tax is a combination of the GST and PST that some provinces and territories use instead of the separate taxes. Most provinces/territories that use HST charge 15% except Ontario which charges 13%.
Certain provinces and territories charge an additional tax known as the Provincial Sales Tax. Depending on the province/territory that you are being charged the tax, will determine the percentage.
The QST is the provincial sales tax that is only set in Quebec, also known as the Quebec Sales Tax. This tax is set at 9.975%.
Taxes Paid in Each Province
Each province charges a different amount of taxes on their goods. Here are the taxes charged in each province or territory.
|British Columbia||GST + PST||5% + 7%||12%|
|Saskatchewan||GST + PST||5% + 6%||11%|
|Manitoba||GST + PST||5% + 7%||12%|
|Prince Edward Island||HST||15%||15%|
|Newfoundland and Labrador||HST||15%||15%|
Province with the Lowest Taxes
There are many different taxes that fall within the provinces and it can get quite confusing. When it comes to overall taxation, the province with the cheapest taxes is Alberta. While the Yukon is also at a GST rate of only 5%, Alberta does have the overall cheapest taxes.
Province with the Highest Taxes
The province with the highest taxes is Quebec. The main reason for this is because the Quebec government finances things that other provincial governments do not. Other provinces that follow closely behind Quebec are:
- Newfoundland and Labrador
- Nova Scotia
- Prince Edward Island
- New Brunswick
Eastern Canada, in general, has much higher taxes than western Canada.
Province with the Highest Property Taxes
The prices of taxes or the prices of homes in Canada have nothing to do with the rates of property taxes. While New Brunswick is one of the cheapest places to live in Canada, it also has the highest property taxes as well as the highest taxes on goods and services. This in itself doesn’t directly affect the overall cost of living.
Even though property taxes are much higher in New Brunswick, they also have lower housing prices than a lot of the other provinces in Canada. So while the percentage charged is higher in New Brunswick, since the overall prices of things are lower it does end up being cheaper to live here than other provinces in Canada.
Province with the Lowest Property Taxes
Ironically, the province with the lowest property taxes in British Columbia. It is home to Vancouver which is the most expensive city in Canada. While many places in BC have some of the highest housing prices, they also have the lowest property taxes based on the percentage charged on the total value of the home.
In BC, they also charge GST and PST instead of HST like New Brunswick. So even though New Brunswick charges 15% instead of the 12% that BC charges, they still have a much cheaper cost of living than in BC.
Bc or Alberta: Which is cheaper to live in?
While, based on taxes charged, both BC and Alberta are relatively cheap to live in, Alberta has a much lower cost of living than BC. Relatively speaking, you can make 22% less in your annual income in Alberta than B.C., and still have the same quality of life. Taxes on goods are only 5% while they are 12% in B.C, and Alberta has cheaper housing prices than B.C. even though in comparison to the property value, property taxes are lower.
Really, no matter where you live in Canada, you have to pay income taxes every year. Your yearly tax burden ultimately depends on the amount of income you earn, what you are eligible to claim on your taxes as well as which province you live in. It is important to keep track of your income as well as what documents you need to either reduce the amount of tax you must pay or to increase your refund.
Property taxes are also something you have to pay to the municipality that you live in. They are different in every province and vary based on percentage on the total value, as well as the total value. It can be deceiving when a province has the highest property taxes but the lowest housing prices, but the province with the lowest property taxes has the highest housing prices. In reality, when the housing prices are lower, so are the taxes, it’s just the percentage that is charged of the value.
Taxes, whether they are provincial, federal or any other kind of tax, are not something we are going to get away from. While they can be very difficult to figure, there are plenty of professionals out there who can help you figure out whether the tax paid is the correct amount or if you are entitled to a refund. They can help you sort out things like capital gains and losses as well as any other benefits you are eligible to receive or any other grants you can apply for.