Canadian Tax and
Financial Information
Understanding the Tax Rate Tables

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Tax Rates -> Understanding the Tax Rate Tables

Understanding the Tables of Personal Income Tax Rates

The tax rate tables show the combined federal plus provincial/territorial marginal tax rate for 4 different types of income - the 2 types of Canadian dividends, capital gains, and all other income.  The other income column shows the actual tax rates for each tax bracket.  A person's marginal tax rate is the tax rate that will be applied to the next dollar earned.

The marginal tax rates on capital gains and Canadian dividend income are lower than on other types of income, because:
bulletonly 50% of capital gains are included in taxable income - the marginal tax rate shows the rate on the actual amount of capital gains.
bulletCanadian dividends eligible for the enhanced dividend tax credit - 138% of these dividends are included in taxable income, but an enhanced dividend tax credit is deducted from taxes payable.
bulletCanadian non-eligible dividends (aka regular dividends, or small business dividends) - 118% of these dividends are included in income in 2014/2015, 125% in 2013 and earlier years, but a non-eligible dividend tax credit is deducted from taxes payable.  The gross-up is changing for 2016 and later years.  See the non-eligible dividend tax credit article for details.

See the Dividend Tax Credit page for more information.

Other income includes income from employment, self-employment, interest from Canadian or foreign sources, foreign dividend income, etc.

With some marginal tax rate tables, the marginal tax rate at $60,000 for dividends is the rate that would apply if there was no income besides dividend income.  This is not the way our tax rate tables work.

In our tables, the marginal tax rates for capital gains and dividends at any income level (say $60,000) are the marginal rates on the next dollar of actual capital gains or actual dividend income, if the taxpayer has $60,000 of taxable income from sources other than capital gains or dividends.  Thus, the negative marginal tax rates for eligible dividends for lower tax brackets are the rates that would apply to the next dollar of actual dividend income received.  The dividend tax credit is not refundable.

Example:  the combined federal/BC marginal tax rate for a person earning $72,000 of income in 2014 would be

bullet29.7% for income such as employment, self-employment, interest or foreign dividends
bullet14.85% for capital gains
bullet6.46% for eligible Canadian dividends
bullet18.99% for Canadian small business dividends

Marginal Tax Rate vs Average (Effective) Tax Rate

Our Canadian Tax Calculator displays the average tax rate paid.  The average tax rate, also known as the effective tax rate, is not the same as the marginal tax rate.  The average tax rate is calculated as total taxes divided by total taxable income.  The Tax Calculator also calculates an average tax based on adjusted taxable income, which excludes the dividend gross-up (see dividend tax credit page) and includes 100% of capital gains.  In the Tax Calculator, the marginal tax rate is displayed when there is an RRSP deduction - it is the % savings from the RRSP deduction.  The marginal tax rates in the tax tables do not include tax credits that are available for CPP/QPP or EI paid,  low income tax reductions or other tax credits.  Nor do they include health or other premiums.  To determine your actual marginal tax rate, enter your income, deductions and tax credits into the tax calculator, and enter an RRSP deduction amount of $100, or $1,000.  Your marginal tax rate will be displayed beside the RRSP savings amount.

Trying to estimate your taxes from the tax tables?

If your income doesn't include employment income or Canadian dividends, and you have no tax credits other than the basic personal amount, you could estimate your taxes using our tax tables.  You would have to include only 50% of capital gains in your taxable income.  Here is a sample calculation for an Ontario resident with $80,000 of taxable income in 2014:

Tax Calculated on Taxable
First $40,120 $40,120 20.05% $8,044
up to 43,953 3,833 24.15% 926
up to 70,651 26,698 31.15% 8,316
up to 80,000 9,349 32.98% 3,083
less ON personal amount -9,670 5.05% -488
less Fed personal amount -11,138 15.00% -1,671
Total Fed/ON tax $18,210

The income tax on employment income would be less, because there would be tax credits for EI premiums and CPP contributions.  At lower levels of taxable income from employment, there would also be a deduction for the working income tax benefit (WITB).

For Quebec taxpayers, the calculation would have to include an adjustment to the federal personal amount, because the 16.5% federal tax abatement (reduction) is applied to the net federal tax payable after deducting the personal amount tax credit.  Thus, the federal personal amount tax credit would be reduced by 16.5%, or $268.

TaxTip:  Use our Tax Calculators to estimate your taxes!

Revised: June 11, 2016

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