Taxes maintain the quality of life we enjoy as Canadians. Taxes collected by the federal and provincial government helps provide funding for a number of programs and services we use and rely on such as health care, education, roads, waste collection, and other economic and cultural activities.
In the majority of Canada, when you purchase an item you’ll notice your receipts have a Goods and Services Tax (GST) and a Provincial Sales Tax (PST). These two taxes reflect the taxes collected by the federal and provincial governments when you make a purchase. In addition to that, we pay taxes on our income. But how much are you paying? Do you know? Well, the amount you pay depends on your tax rate and the province you live in.
Should you file my income tax return early?
In Canada, every year all individuals and businesses must report their income for tax purposes. As mentioned, the amount you pay is dependent on your tax rate, also known as your tax bracket, which corresponds to your income level and the province you live in. To understand this you need to understand the tax system used in Canada.
Canada uses a marginal tax rate system to determine how much taxes you will have to pay. The way this system works is the higher your income is, the more you will be taxed. However, it is important to note that your entire income isn’t taxed at one rate but multiple rates depending on your income level.
The main advantage of a marginal tax system is that it relies on the affluent to support the government more than those who have a lower income. This ensures that the taxes collected from low-income earners are not affecting their quality of life and that the amount of taxes collected is affordable for everyone.
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While the federal tax rates are the same for everybody in Canada, provincial tax rates differ by province. Below, we’ve depicted the rates you’ll have to pay based on your income. Of course, as mentioned above, this amount is usually deducted from your paycheque, but if you’re a gig worker or contract worker, you’ll want to put this money aside for tax season.
| Federal Tax Rate | Income Level |
| 15% | On income $50,197 and below. |
| 20.5% | On the next portion of income between $50,197 to $100,392 |
| 26% | On the next portion of income between $100,392 to $155,625 |
| 29% | On the next portion of income between $155,625 to $221,708 |
| 33% | On the next portion of income after $221,708 |
| Province/Territory | Tax Rate and Description |
| Newfoundland and Labrador | – 8.7% applicable to the first $39,147 of taxable income – 14.5% applicable to the next $78,294 of taxable income – 15.8% applicable to the next $139,780 of taxable income – 17.8% applicable to the next $195,693 of taxable income – 19.8% applicable to taxable income amounts over $250,000 |
| Prince Edward Island | – 9.8% applicable to the first $31,984 of taxable income – 13.8% applicable to the next $31,985 of taxable income – 16.7% applicable to taxable income amounts over $63,969 |
| Nova Scotia | – 8.79% applicable to the first $29,590 of taxable income – 14.95% applicable to the next $29,590 of taxable income – 16.67% applicable to the next $33,820 of taxable income – 17.5% applicable to the next $57,000 of taxable income – 21% applicable to taxable income amounts over $150,000 |
| New Brunswick | – 9.40% applicable to the first $43,835 of taxable income – 14.82% applicable to the next $89,775 of taxable income – 16.52% applicable to the next $145,955 of taxable income – 17.84% applicable to the next $166,280 of taxable income – 20.30% applicable to taxable income amounts over $166,280 |
| Quebec | – 15% applicable to the first $46,295 of taxable income – 20% applicable to taxable income from over $46,295 to $92,580 – 24% applicable to taxable income from over $92,580 to $112,655 – 25.75% applicable to taxable income amounts over $112,655 |
| Ontario | – 5.05% applicable to the first $46,226 of taxable income – 9.15% applicable to the next $92,454 of taxable income – 11.16% applicable to the next $150,000 of taxable income – 12.16% applicable to the next $220,000 of taxable income – 13.16% applicable to taxable income amounts over $220,000 |
| Manitoba | – 10.8% applicable to the first $34,431 of taxable income – 12.75% applicable to the next $74,416 of taxable income – 17.4% applicable to taxable income amounts over $74,416 |
| Saskatchewan | – 10.5% applicable to the first $46,773 of taxable income – 12.5% applicable to the next $133,638 of taxable income – 14.5% applicable to taxable income amounts over $133,638 |
| Alberta | – 10% applicable to the first $131,220 of taxable income – 12% applicable to the next $26,244 of taxable income – 13% applicable to the next $52,488 of taxable income – 14% applicable to the next $104,976 of taxable income – 15% applicable to taxable income amounts over $314,928 |
| British Columbia | – 5.06% applicable to the first $43,070 of taxable income – 7.7% applicable to the next $86,141 of taxable income – 10.5% applicable to the next $98,901 of taxable income – 12.29% applicable to the next $120,094 of taxable income – 14.7% applicable to the next $162,832 of taxable income – 16.8% applicable to the next $227,091 of taxable income – 20.5% applicable to taxable income amounts over $227,091 |
| Yukon | – 6.4% applicable to the first $50,197 of taxable income – 9% applicable to the next $100,392 of taxable income – 10.9% applicable to the next $155,625 of taxable income – 12.8% applicable to the next $500,000 of taxable income – 15% applicable to taxable income amounts over $500,000 |
| Northwest Territories | – 5.9% applicable to the first $45,462 of taxable income – 8.6% applicable to the next $90,927 of taxable income – 12.2% applicable to the next $147,826 of taxable income – 14.05% applicable to taxable income over $147,826 |
| Nunavut | – 4% applicable to the first $47,862 of taxable income – 7% applicable to the next $95,724 of taxable income – 9% applicable to the next $155,625 of taxable income – 11.5% applicable to taxable income over $155,625 |
In Canada, there are 5 tax brackets you can fall in at a federal level. Depending on how high your income is you can fall in one or more of the tax brackets. However, only a portion of your income is subject to each bracket. So, while a portion of your income will always be taxed at the lowest rate, you’ll only be subject to the higher tax rate if your income meets that tax bracket. The marginal tax system may be hard to comprehend, but it’s easy to understand when seen as an example.
For example, if you make $120,000, you’d be subject to 3 of the 5 tax brackets seen below.
| Tax Rate | Income Level Brackets | Taxable Income | Taxes Owed |
| 15% | Under $$50,197 | $50,197*15% | $7,529.55 |
| 20.5% | $50,197 to $100,392 | $50,195*20.5% | $10,289.98 |
| 26% | $100,392 to $155,625 | $19,608*26% | $5,098.08 |
| 29% | $155,625 up to $221,708 | – | – |
| 33% | Over $221,708 | – | – |
As seen in the table, only a portion of your income is taxed at each tax bracket. The total taxes owed by this person would equal $18,141. Don’t forget, this accounts for just the federal taxes, you’ll have to check your province’s tax rates to see how much provincial taxes you owe. In total, you can end up paying up to 30% within the first tier.
Check out how you can lower your tax debt.
It is incredibly advantageous to know which tax bracket you fall in, especially as a contract or gig worker. Understanding which tax bracket you fall in can help you calculate your tax bill and plan how you can reduce the amount you owe. Of course, for employees, this tax amount is deducted from your paycheque.
Due to the division of legislative powers between the federal and provincial governments, each province in Canada manages its own finances. As such, each province has its own financial priorities, responsibilities, and problems. Depending on your province’s budget and economic plans, the province can adjust their provincial tax to match their needs. For example, in Canada, Quebec has the highest tax rates, but as a result, it has cheaper tuition, affordable daycares, and extra tax credits like the solidarity tax credit.
As Supreme Court Justice Oliver Wendell Holmes Jr said “taxes are the price we pay for civilization”. The roads, education, health care, and all other public services we have access to are all funded by the taxes we pay. Besides paying your taxes, understanding the tax system is also important because it will help you save money during tax season.
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Priyanka Correia is a Marketing Coordinator and personal finance expert at Loans Canada. Priyanka completed her Bachelor's degree in Marketing at Concordia University and has published work that has been mentioned in various news media. She is passionate about money management and educating Canadian consumers about how to take control of their financial lives.
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