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Each year, you’ll have to file taxes and pay the amounts you owe. Federal income taxes in Canada are administered by the CRA under the Income Tax Act or ITA for short. The format that is in place reflects a marginal tax rate system where a different tax rate is applicable to each level of income, these are called tax brackets. This makes the taxation system in Canada rather complex, but it’s also fair in the sense that it redistributes wealth. Another complicated aspect of the Canadian tax system is the annual tax rates change.
Tax brackets in Canada are structured so that low-income earners pay a lower percentage in taxes than those who earn more. The concept is that the more money an individual makes, the more taxes they will pay. Tax brackets are used to apply different rates to varying levels of income. In simple terms, the tax rates are the rates you apply to your income to determine your tax owing.
Personal income tax rates are indexed to inflation using the Consumer Price Index. As a result, tax bracket thresholds will increase with direct correlation to increases in the cost of goods and services in Canada.
Personal income is taxed following a progressive system, both federally and provincially. The following chart outlines the federal and provincial tax brackets in Canada.
If you’re unable to pay your taxes due to your other debts, there are a few steps you can take:
Federal Tax Rate | Income Level |
15% | On incomes $50,197 and below. |
20.5% | On incomes between $50,197 to $100,392 |
26% | On incomes between $100,392 to $155,625 |
29% | On income between $155,625 to $221,708 |
33% | On incomes $221,708 and above |
There are a number of changes individuals need to be aware of for the 2022 tax year:
Check out which receipts you should keep for tax purposes.
Beside the income taxes you pay, the tax rate and bracket changes can have numerous impacts on various government programs.
Federal tax brackets in Canada increased by 6.3% to keep up with the Consumer Price Index as reported by Statistics Canada. Tax rates affect how much taxes a person must pay. Tax bracket thresholds increase to keep up with the cost of living. However, the inflation rate is calculated on a federal level and robust cities with greater costs of living may have inflation rates that are higher.
The basic personal amount ensures that no tax is paid on a certain amount of income. This is to protect individuals who are close to or below the poverty line from high taxes.
For the million Canadians who earn less than the basic personal income exemption, this is significant as some may not have to pay any taxes at all. For Canadians in the middle-income brackets, however, the effects are not as prominent. Savings may be equivalent to an extra cup of coffee per paycheque. High-income earners may realize little to no benefit from the increase in basic personal income amount.
The increase in Canadian Pension Plan premiums means that Canadians will see their mandatory deduction for retirement savings increase per pay check which lowers the increase for those earning less.
Employment Insurance (EI) premiums are expected to be increased to 1.63%. With Québec at 1.27%. The increase of Employment Insurance premiums along with an increase in maximum insurable earnings, which is indexed to inflation, will have a slight effect on each bi-weekly paycheque.
The Tax Free Savings Account (TFSA) new amount will increase from $6,000 to $6,500. The new TFSA limit means that eligible contributors will now have a cumulative contribution room of $88,000.
Your TFSA contributions do not reduce your taxable income. The advantage is that you won’t pay any taxes on your investment income. Withdrawals from your TFSA are not taxed. Nor does it affect your eligibility for certain government programs, which is great if you’re in a lower tax bracket and want to keep your low tax rate.
Old Age Security pension payments are considered as taxable income. Taxes aren’t automatically deducted each month. You can ask that federal income tax be deducted from your monthly payment by: signing into your My Service Canada Account
Old Age Security (OAS) For those who receive OAS, the new threshold payment for 2023 is $86,912. If you make more than the taxable income, your OAS will be reduced.
Overall, the tax changes for the year may seem small, but year after year they can have an impact on your finances. Taking the time to do some research may help you save on taxes and get the maximum refund that you are entitled to or the lowest taxes possible. Tax return software and professional tax specialists can help to expedite the process and make sure you have everything in order.
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Loans Canada is pleased to announce it placed No. 131 on the 2022 Report on Business ranking of Canada’s Top Growing Companies.
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