Personal taxes in Canada are based on a progressive tax system, meaning the more you earn, the higher percentage of tax you pay. Here’s a general breakdown of how the system works:
Taxable Income
Your taxable income includes:
- Employment income
- Self-employment income
- Investment income (dividends, interest, capital gains)
- Pension income
- Other sources (rental income, government benefits, etc.)
Certain deductions, such as RRSP contributions and childcare expenses, reduce your taxable income.
Federal and Provincial Tax Rates
Canada has two levels of personal income tax:
- Federal Tax: Applies to all Canadian residents.
- Provincial/Territorial Tax: Each province has its own tax rates.
Federal Tax Brackets (2024)
| Income Range | Federal Tax Rate |
|---|---|
| Up to $55,867 | 15% |
| $55,867 – $111,733 | 20.5% |
| $111,733 – $173,205 | 26% |
| $173,205 – $246,752 | 29% |
| Over $246,752 | 33% |
Provincial Taxes
Each province has its own tax brackets, which are added to the federal tax. For example, in Ontario, provincial tax rates range from 5.05% to 13.16%, depending on income.
Tax Deductions vs. Tax Credits
- Deductions: Reduce your taxable income (e.g., RRSP contributions, union dues, childcare expenses).
- Credits: Reduce the amount of tax you owe (e.g., Basic Personal Amount, tuition credits, medical expenses).
Key Tax Credits in Canada
- Basic Personal Amount – A non-refundable tax credit that allows you to earn a certain amount tax-free.
- Canada Workers Benefit (CWB) – A refundable tax credit for low-income workers.
- Tuition Credit – Helps students reduce their taxes.
- Medical Expense Credit – Can be claimed for eligible healthcare expenses.
- Home Buyers' Amount – A $5,000 tax credit for first-time homebuyers.
Filing Your Taxes
Who Needs to File?
- Anyone earning income in Canada
- Self-employed individuals (deadline: June 15)
- Individuals with investments or rental income
- Those claiming benefits like the GST/HST credit or Canada Child Benefit (CCB)
How to File
- Online via NETFILE (using tax software like TurboTax or Wealthsimple Tax)
- Paper filing via mail
- Hiring an accountant or tax professional
Key Deadlines
- April 30: General tax filing deadline
- June 15: Self-employed filing deadline (but taxes owed must be paid by April 30)
What Happens After Filing?
- Notice of Assessment (NOA): The CRA reviews your return and issues this document, showing any balance due, refund, or errors.
- Refunds & Payments: If you overpaid taxes, you receive a refund; if you owe taxes, you must pay by April 30.
Penalties & Interest
- Late filing results in a 5% penalty on the amount owed, plus 1% per month for up to 12 months.
- Interest accrues on unpaid taxes starting May 1.
Tax Benefits & Government Programs
- Canada Child Benefit (CCB): Monthly payments for families with children.
- GST/HST Credit: Tax-free payments for low-income individuals.
- RRSP & TFSA: Tax-efficient savings accounts to reduce your tax bill.
Final Thoughts
Understanding Canada’s tax system helps you save money and avoid penalties. By taking advantage of deductions and credits, you can reduce your tax bill.
You can always save a bit of money by doing your own taxes, however if you miss a deduction or credit you are eligible for, it could be a false savings, and end up costing you more in the end. If your taxes are complex, you should be contacting our office to ensure accuracy in your returns.