Do you want to know what the average income tax in Canada looks like? Below you will find out everything you need to know about the Canadian Tax system and how it works.
The provincial, territorial, and federal governments of Canada require its residents to pay their income taxes when the money they earn exceeds a certain amount. Each particular government independently and individually decides on the minimum amount for each year.
This simply means that individuals who earn salaries that exceed the minimum amount set by their government will pay two (2) income taxes: The first one dedicated to your federal government and the second one to your province or territory they reside in.
The tax system in Canada looks similar despite each province and territory being completely responsible for its own tax rules.
Have you heard of the term “joint income tax collection system“? It means that people who live outside of Quebec in Canada, complete a single tax return form.
The CRA Also Known As the Canada Revenue Agency collects all income taxes for the federal government for all provinces and territories outside Quebec.
Meanwhile, the ARQ (Agence du Revenu du Québec) is the agency in charge of collecting income taxes from only residents of Quebec.
NOTE: Canada’s tax rates on income differ, and it’s decided, depending on the total money and income you earn, and how much of the income the government feels is taxable income.
2020 Federal Income Tax Rates in Canada:
Taxable Annual Income
|on the first $48,535
|on the next $48,534
|$48,536 up to $97,069
|on the next $53,404
|$97,070 up to $150,473
|on the next $63,895
|$150,474 up to $214,368
|on the portion over $214,368
Canada’s Federal Income Tax Rates 2021:
Taxable Annual Income
|on the first $49,020
|on the next $49,020
|$49,021 up to $98,040
|on the next $53,939
|$98,041 up to $151,978
|on the next $64,533
|$151,979 up to $216,511
|on the portion over $216,511
|$216,512 and up
How Personal Income Tax Brackets Work in Canada
The best way to describe tax rate is simply “Tax rates applied on personal income earned between pre-decided minimum as well as maximum amounts.”
Knowing where your income falls in the Tax Bracket is going to help you decide on how and when to make claims of some deductions and credits. Also, you will understand why certain changes occur in your taxes if by chance you begin any other extra income that can possibly push you into another bracket.
When you start to prepare this year’s income tax, the formula we explained in this article will help you understand why your refund amount for last year is different from this year and why you possibly have taxes owing.
The tax formula and rate on this page are also applicable to every taxable income that happens to be your total income from line 15000 minus any deductions that you could be qualified for.
Also, remember that provinces and territories all have their different tax brackets. While making use of the tax bracket and your annual earnings to decide your contribution, make sure you put your territory or province’s tax rates into consideration.
Don’t also forget that all territories and provinces have their own tax brackets. So, try to take into account the tax rates of your place of residence when trying to figure out your contribution decision using your annual earnings and the tax brackets.
How Much is the Average Federal Income Tax Based in Canada?
You are going to find an example of how the federal income tax in Canada works. You are going to see how it works and everything you need to know about how Canada operates the Federal income tax brackets.
Individuals with taxable income less than the $48,535 threshold will pay 15 percent for Federal tax. Let’s look at this example: After claiming your deductions and amounts and you are left with $30,000 taxable income, then the CRA expects you to pay $4,500 as federal income tax.
Notwithstanding, if your income is around $200,000 then you will have to pay a number of tax rates. The various examples below will help to give you knowledge of how much you’re going to pay for “federal tax” in 2020. You will also be required to make a different calculation, particularly for your provincial tax.
- The first (1st) tax bracket – $1 to $48,535 is taxed at 15%, plus
- The next (Following) tax bracket – over $48,535 to $97,069 will be taxed at 20.5%, plus
- Another following tax bracket – over $97,069 to $150,473 will be taxed at 26%, plus
- At this junction, about $150,473 of your earning has been taxed. Meanwhile, the final bracket on your remaining $49,527 will be taxed at 29%.
- Should in a case in your taxable income you earn above $214,368 in 2020, then the portion over $214,368 will be taxed at 33% (The Federal rate). This is known as the “top tax bracket” and one of the common misconceptions is “if your taxable income gets to this top bracket, then you are going to be taxed 33% for your entire income”.
How Does the Progressive Tax System Works in Canada?
Canada’s taxing system has long been known for its progressive nature. This means that individuals who earn small incomes pay low taxes than those with bigger earnings.
The taxing system in Canada has always been know for its progressive nature. This means that people whose earnings are low pay a lower percentage of taxes than high-income earners. Therefore, the more money you make, the more taxes you pay.
Remember I mentioned from the onset that those who live in Canada pay taxes to both the Federal government and the province/territories they reside in.
Apart from those residing in Québec, the federal government of Canada take taxes from provinces and territories and returns them back to the territories/provinces in the form of different programs. Just Québec alone collects and manages its own income tax.
If you want to (Click Here=>>) understand more about Canada’s Taxing System for both Federal and Province, then you will need to click on the link provided above. Don’t hesitate to reach out to us if you get confused along the line. You can do that using the comment section below.