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How Tax Rates Changed in 2020

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How Tax Rates Changed in 2020

Written by Veronica Ott

How Tax Rates Changed in 2020

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Taxes

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. This makes the taxation system in Canada rather complex, but it’s also fair in the sense that it redistributes the wealth. Another complicated aspect of the Canadian tax system is annual changes. Let’s take a look at the changes made in 2020. 

What Are Tax Rates?

Canadian income taxes 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 Rates 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 2020?

There are a number of changes individuals need to be aware of for 2020:

  • Federal tax brackets have increased by 1.9% based on inflation.
  • The basic personal amount (the amount of tax-free annual income) has increased by $931, it is now $13,229.
  • Employment Insurance (EI) premiums have decreased to 1.58% (down from 1.62% in 2019).
  • Canadian Pension Plan (CPP) premiums have increased to 5.25% for employees (up from 5.1% in 2019) and the maximum pensionable earnings has gone up to $58,700.
  • The Canada Child Benefit (CCB) has been increased to $6,456 per child under age six and $5,708 per child between the ages of six and seventeen.

Check out which receipts you should keep for tax purposes. 

What Effect Do These Changes Have on Canadians?

Federal tax brackets increased by 1.9% 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 2020. The $931 increase this year reflects an increase of 7.57% from the amount in 2019 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 by up to $5.73 per bi-weekly 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?

Personal income is taxed following a progressive system, both federally and provincially. The following charts outline the federal and provincial tax brackets for 2020.

Federal Tax Brackets 2020

Tax RateDescription

15%
Applicable to the first $48,535 of taxable income

20.5%
Applicable to taxable income from over $48,535 to $97,069

26%
Applicable to taxable income from over $97,069 to $150,473

29%
Applicable to taxable income from over $150,473 to $214,368

33%
Applicable to taxable income over $214,368

Provincial Tax Brackets 2020

Province/TerritoryTax Rate and Description

Newfoundland and Labrador
– 8.7% applicable to the first $37,929 of taxable income
– 14.5% applicable to taxable income from over $37,929 to $75,858
– 15.8% applicable to taxable income from over $75,858 to $135,432
– 17.3% applicable to taxable income from over $135,432 to $189,604
– 18.3% applicable to taxable income over $189,604

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 $43,401 of taxable income
– 14.82% applicable to taxable income from over $43,401 to $86,803
– 16.52% applicable to taxable income from over $86,803 to $141,122
– 17.84% applicable to taxable income from over $141,122 to $160,776
– 20.3% applicable to taxable income over $160,776

Quebec
– 15% applicable to the first $44,545 of taxable income
– 20% applicable to taxable income from over $44,545 to $89,080
– 24% applicable to taxable income from over $89,080 to $108,390
– 25.75% applicable to taxable income over $108,390

Ontario
– 5.05% applicable to the first $44,740 of taxable income
– 9.15% applicable to taxable income from over $44,740 to $89,482
– 11.16% applicable to taxable income from over $89,482 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 $33,389 of taxable income
– 12.75% applicable to taxable income from over $33,389 to $72,164
– 17.4% applicable to taxable income over $72,164

Saskatchewan
– 10.5% applicable to the first $45,225 of taxable income
– 12.5% applicable to taxable income from over $45,225 to $129,214
– 14.5% applicable to taxable income over $129,214

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 $41,725 of taxable income
– 7.7% applicable to taxable income from over $41,725 to $83,451
– 10.5% applicable to taxable income from over $83,451 to $95,812
– 12.29% applicable to taxable income from over $95,812 to $116,344
– 14.7% applicable to taxable income from over $116,344 to $157,748
– 16.8% applicable to taxable income over $157,748

Yukon
– 6.4% applicable to the first $48,535 of taxable income
– 9% applicable to taxable income from over $48,535 to $97,069
– 10.9% applicable to taxable income from over $97,069 to $151,473
– 12.8% applicable to taxable income from over $151,473 to $500,000
– 15% applicable to taxable income over $500,000

Northwest Territories
– 5.9% applicable to the first $43,957 of taxable income
– 8.6% applicable to taxable income from over $43,957 to $87,916
– 12.2% applicable to taxable income from over $87,916 to $142,932
– 14.05% applicable to taxable income over $142,932

Nunavut
– 4% applicable to the first $46,277 of taxable income
– 7% applicable to taxable income from over $46,277 to $92,555
– 9% applicable to taxable income from over $92,555 to $150,473
– 11.5% applicable to taxable income over $150,473

Final Thoughts on 2020 Tax Changes

Overall, the tax changes in 2020 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. 

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