How is income tax calculated in
Canada?
Canadian federal income tax is calculated
separately from provincial/territorial income tax. However, both
are calculated on the same tax return, except for
Québec.
Federally, there are 4 tax brackets. Each province
has multiple tax brackets, except Alberta, which has only one tax rate for all
taxable income. The federal and provincial/territorial income tax rates are combined in
our
tax rate
tables so that taxpayers can see the total tax rate being
paid, including any provincial surtaxes.
The tax rates increase as taxable income increases.
Everyone pays the lowest tax rate for the amount of their taxable income
within the lowest tax bracket. Taxable income in excess of this is taxed
at the next higher rate.
After income tax amounts are calculated, non-refundable tax credits are
deducted from the tax payable. Non-refundable tax credits include the
basic personal amount, which is available to every taxpayer. A list of
most of the non-refundable tax credits can be seen in the
tables on the personal
tax credits page. The actual tax amount of the credits is
calculated by multiplying by the tax rate for the lowest tax bracket, except for
Québec.
The basic personal amount for each province and territory is listed
in their tax rate table, as well as the tax rate that is applied to calculate
the tax credit. The basic personal amount is the amount that can be earned before any
provincial/territorial tax is paid. Some provinces
also have a low-income tax reduction which increases the
amount that can be earned before any tax is paid.
The provincial/territorial tax rates before being combined with
the federal rates are shown above the table of combined rates for each
province/territory. Canada Revenue Agency (CRA) also has an article What
are the income tax rates in Canada? The
CRA tables do not include any provincial/territorial
surtaxes. The surtaxes are included in our combined
tax rate tables.
Revised: July 19, 2010
