How Tax Rates In Canada Changed In 2021

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 changes. Let’s take a look at the changes made in 2021.

What Are Tax Brackets In Canada?

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.

Why Do Tax Brackets Change?

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.

What Tax Changes Have Been Made In 2021?

There are a number of changes individuals need to be aware of for 2021:

Federal tax brackets in Canada have increased by 1.0% based on inflation.
The basic personal amount (the amount of tax-free annual income) has increased from $13,229 to $13,808 ($579 increase).
Employment Insurance (EI) premium is expected to remain the same as 2020 at 1.58%.
Canadian Pension Plan (CPP) premiums have increased from 5.25% to 5.45% for employees and the maximum pensionable earnings has gone up to $61,600.
The Canada Child Benefit (CCB) has been increased from $6,456 to $6,833 per child under age six and $5,708 to $5,765 per child between the ages of six and seventeen.

Check out which receipts you should keep for tax purposes.

What Effect Do These Tax Bracket Changes Have On Canadians?

Federal tax brackets in Canada increased by 1.0% to keep up with the Consumer Price Index as reported by Statistics Canada. This affects how much taxes Canadians have to pay as each of the tax bracket thresholds have increased 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 same goes for the Canada Child Benefit which increases in line with inflation. For some households, the increase in tax bracket thresholds and government benefits may not keep up with their budgets.

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 absurd taxes. Previously, increases to this amount were based on inflation, but it has been increased significantly in 2021. The $579 increase this year reflects an increase of 4.37% from the amount in 2020 and is scheduled to rise to $15,000 by 2023.

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.

A slight reduction of Employment Insurance premiums along with an increase in maximum insurable earnings, which is indexed to inflation, will have very minimal effects on each bi-weekly paycheque, less than a dollar. The increase in Canadian Pension Plan premiums means that Canadians will see their mandatory deduction for retirement savings increase per paycheque which lowers the increase for those earning less.

How to avoid the capital gains tax? Find out here.

How Much Taxes Will I Have To Pay In 2021?

Personal income is taxed following a progressive system, both federally and provincially. The following charts outline the federal and provincial tax brackets in Canada for 2021.

Federal Tax Brackets In Canada 2021

Tax Rate	Description
15%	Applicable to the first $49,020 of taxable income
20.5%	Applicable to taxable income from over $49,020 to $98,040
26%	Applicable to taxable income from over $98,040 to $151,978
29%	Applicable to taxable income from over $151,978 to $216,511
33%	Applicable to taxable income over $216,511

Provincial Tax Brackets In Canada 2021

Province/Territory	Tax Rate and Description
Newfoundland and Labrador	– 8.7% applicable to the first $38,081 of taxable income – 14.5% applicable to taxable income from over $38,081 to $76,161 – 15.8% applicable to taxable income from over $76,161 to $135,973 – 17.3% applicable to taxable income from over $135,973 to $190,363 – 18.3% applicable to taxable income over $190,363
Prince Edward Island	– 9.8% applicable to the first $31,984 of taxable income – 13.8% applicable to taxable income from over $31,984 to $63,969 – 16.7% applicable to taxable income over $63,969
Nova Scotia	– 8.79% applicable to the first $29,590 of taxable income – 14.95% applicable to taxable income from over $29,590 to $59,180 – 16.67% applicable to taxable income from over $59,180 to $93,000 – 17.5% applicable to taxable income from over $93,000 to $150,000 – 21% applicable to taxable income over $150,000
New Brunswick	– 9.68% applicable to the first $43,835 of taxable income – 14.82% applicable to taxable income from over $43,835 to $87,671 – 16.52% applicable to taxable income from over $87,671 to $142,534 – 17.84% applicable to taxable income from over $142,534 to $162,383 – 20.3% applicable to taxable income over $162,383
Quebec	– 15% applicable to the first $45,105 of taxable income – 20% applicable to taxable income from over $45,105 to $90,200 – 24% applicable to taxable income from over $90,200 to $109,755 – 25.75% applicable to taxable income over $109,755
Ontario	– 5.05% applicable to the first $45,142 of taxable income – 9.15% applicable to taxable income from over $45,142 to $90,287 – 11.16% applicable to taxable income from over $90,287 to $150,000 – 12.16% applicable to taxable income from over $150,000 to $220,000 – 13.16% applicable to taxable income over $220,000
Manitoba	– 10.8% applicable to the first $33,723 of taxable income – 12.75% applicable to taxable income from over $33,723 to $72,885 – 17.4% applicable to taxable income over $72,885
Saskatchewan	– 10.5% applicable to the first $45,677 of taxable income – 12.5% applicable to taxable income from over $45,677 to $130,506 – 14.5% applicable to taxable income over $130,506
Alberta	– 10% applicable to the first $131,220 of taxable income – 12% applicable to taxable income from over $131,220 to $157,464 – 13% applicable to taxable income from over $157,464 to $209,952 – 14% applicable to taxable income from over $209,952 to $314,928 – 15% applicable to taxable income over $314,928
British Columbia	– 5.06% applicable to the first $42,184 of taxable income – 7.7% applicable to taxable income from over $42,184 to $84,369 – 10.5% applicable to taxable income from over $84,369 to $96,866 – 12.29% applicable to taxable income from over $96,866 to $117,623 – 14.7% applicable to taxable income from over $117,623 to $159,483 – 16.8% applicable to taxable income over $159,483 to $222,420 – 20.5% applicable to taxable income over $222,420
Yukon	– 6.4% applicable to the first $49,020 of taxable income – 9% applicable to taxable income from over $49,020 to $98,040 – 10.9% applicable to taxable income from over $98,040 to $151,978 – 12.8% applicable to taxable income from over $151,978 to $500,000 – 15% applicable to taxable income over $500,000
Northwest Territories	– 5.9% applicable to the first $44,396 of taxable income – 8.6% applicable to taxable income from over $44,396 to $88,796 – 12.2% applicable to taxable income from over $88,796 to $144,362 – 14.05% applicable to taxable income over $144,362
Nunavut	– 4% applicable to the first $46,740 of taxable income – 7% applicable to taxable income from over $46,740 to $93,480 – 9% applicable to taxable income from over $93,480 to $151,978 – 11.5% applicable to taxable income over $151,978

Final Thoughts On 2021 Tax Changes

Overall, the tax changes in 2021 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 softwares and professional tax specialists can help to expedite the process and make sure you have everything in order.

Rating of 5/5 based on 17 votes.

Veronica Ott

Veronica is a writer who specializes in creating unique and educational personal finance content. She has extensive experience writing blog posts for companies in the financial sector. Veronica's background is in accounting as she graduated from Western University in 2017 with a degree in accounting. She is passionate about using her accounting expertise to help others with their personal finance questions and issues and enjoys using her writing to educate Canadian readers. When Veronica is not writing, she enjoys film, reading, travelling, going to the gym, and listening to music.