The tax brackets in Canada for 2020, broken down by province, too


As we head toward the end of a year in which many Canadians’ incomes were erratic, it’s important for taxpayers to find out which provincial and federal tax brackets they fall into. Why? Understanding where you fit will help you estimate how much tax you owe on your 2020 income, while you still have a few months to save up before outstanding payments are due in the spring.

“Your tax bracket lets you know the percentage of taxes you could pay on the next dollar you earn,” says Andrew Zakharia, an accountant and founder of AZ Accounting Firm in Toronto. 

Simply put, tax brackets outline how much tax each of us should pay, based on our annual income. In Canada we have what’s called a progressive tax system, which means “the more money you make, the more you are expected to contribute to taxes,” says Zakharia. So, instead of everyone paying a flat percentage of their income in taxes, those with low incomes pay a smaller percentage, with rates progressively increasing for higher income earners.

There are five categories of federal tax rates, with each one classified as an “income bracket” based on how much money you earn in a year (even if you are self-employed). Since you pay taxes to the federal government, as well as to the provincial government where you reside, there are tax brackets and tax rates for both levels of government (which we’ve outlined in full below).

What are the federal tax brackets in Canada for 2020?


Annual Income (Taxable) Tax Brackets Tax Rates Maximum Taxes Per Bracket Maximum Total Tax
Up to $48,535 The first $48,535 15% $7,280 $7,280
$48,535 to $97,069 The next $48,534 20.5% $9,950 $17,230 ($7,280 + $9,950)
$97,069 to $150,473 The next $53,404 26% $13,885 $31,115 ($17,230 + $13,885)
$150,473 to $214,368 The next $63,895 29% $18,530 $49,645 ($31,115 + $18,530)
Over $214,368 Over $214,368 33% n/a n/a

How federal tax brackets work

The most important thing to understand about Canada’s federal income tax brackets (and most provincial brackets, other than Quebec) is that the rates apply only to the earnings that fall within each tier—sort of like a ladder.

So, for example, if someone made $40,000 this year from all their sources of taxable income (including paid work, benefits, bank interest, etc.) they are in the lowest federal bracket for 2020 and will pay 15% in federal tax, or about $6,000. (This, of course, does not account for any deductions or expenses that might lower taxable income, such as the basic personal amount tax credit, or RRSP contributions, which is why this is considered “estimated” federal tax owing.)

But someone who falls into the second federal bracket, let’s say with an annual income of $90,000, still pays the same 15% on their first $48,535 in earnings. It’s only the income over and above that first bracket limit that will be taxed at the higher second bracket rate of 20.5%.

To use the table above, start by finding which range your income falls into. Then subtract the minimum dollar value of that range from your annual income, and multiply by the applicable tax rate. Finally, add the maximum total tax from the previous bracket to approximate your 2020 federal taxes.

Here’s how that looks for a $90,000 earner in the second bracket:

$90,000 annual income – $48,536 2nd bracket minimum
= $41,465

x 2nd bracket rate of 20.5%
= $8,500.32

+ 1st bracket maximum total tax of $7,280
= $15,780.32 total federal taxes payable

Here’s another example (albeit perhaps not very relatable to most readers) for someone in the top bracket earning $500,000:

$500,000 annual income – $214,368 5th bracket minimum
= $285,632

x 5th bracket rate of 33%
= $94,258.56

+ 4th bracket maximum total tax of $49,645
= $143,903.56 total federal taxes payable

The tax brackets for every province and territory in Canada

In the same way that Canada has federal income brackets to calculate taxes, every province and territory has their own tax brackets and tax rates. “Certain expenses are federal responsibilities and certain expenses are provincial responsibilities,” says Zakharia. For example, health care is a provincial accountability, such the Ontario Health Insurance Plan (OHIP), and B.C.’s Medical Services Plan (MSP), and the military and national security is covered at the federal level with the Canadian Armed Forces and the RCMP.

What can you expect with provincial tax brackets? “Every year, the tax brackets increase,” says Zakharia, even if the rates for each bracket remain the same. This is mostly due to inflation, which is basically the increase of prices on some products.

Here are the tax brackets for all the provinces and territories in Canada, in alphabetical order: 

Alberta tax brackets 2020


Annual Income (Taxable) Tax Brackets Tax Rates Maximum Taxes Per Bracket Maximum Total Tax
Up to $131,220 The first $131,220 10% $13,122 $13,122
$131,220 to $157,464 The next $26,244 12% $3,149 $16,271 ($13,122 + $3,149)
$157,464 to $209,952 The next $52,488 13% $6,824 $23,095 ($16,271 + $6,824)
$209,952 to $314,928 The next $104,976 14% $14,696 $37,791 ($23,095 + $14,696)
Over $314,928 Over $314,928 15% n/a n/a

British Columbia tax brackets 2020


Annual Income (Taxable) Tax Brackets Tax Rates Maximum Taxes Per Bracket Maximum Total Tax
Up to $41,725 The first $41,725 5.06% $2,111 $2,111
$41,725 to $83,451 The next $41,726 7.7% $3,213 $5,324 ($2,111 + $3,213)
$83,451 to $95,812 The next $12,361 10.5% $1,298 $6,622 ($5,324 + $1,298)
$95,812 to $116,344 The next $20,532 12.29% $2,523 $9,145 ($6,622 + $2,523)
$116,344 to $157,748 The next $41,404 14.7% $6,086 $15,228 ($9,145 + $6,086)
Over $157,748 Over $157,748 16.8% n/a n/a

Manitoba tax brackets 2020


Annual Income (Taxable) Tax Brackets Tax Rates Maximum Taxes Per Bracket Maximum Total Tax
Up to $33,389 The first $33,389 10.8% $3,606 $3,606
$33,389 to $72,164 The next $38,775 12.75% $4,944 $8,550 ($3606 + $4,944)
Over $72,164 Over $72,164 17.4% n/a n/a

New Brunswick tax brackets 2020


Annual Income (Taxable) Tax Brackets Tax Rates Maximum Taxes Per Bracket Maximum Total Tax
Up to $43,401 The first $43,401 9.68% $4,201 $4,201
$43,401 to $86,803 The next $43,402 14.82% $6,432 $10,633 ($4,201 + $6,432)
$86,803 to $141,122 The next $54,319 16.52% $8,974 $19,607 ($10,633 + $8,974)
$141,122 to $160,776 The next $19,654 17.84% $3,506 $23,113 ($19,607 + $3,506)
Over $160,776 Over $160,776 20.3% n/a n/a

Newfoundland and Labrador tax brackets 2020


Annual Income (Taxable) Tax Brackets Tax Rates Maximum Taxes Per Bracket Maximum Tax Total
Up to $37,929 The first $37,929 8.7% $3,300 $3,300
$37,929 to $75,858 The next $37,929 14.5% $5,500 $8,800 ($3,300 + $5,500)
$75,858 to $135,432 The next $59,574 15.8% $9,413 $18,213 ($8,800 + $9,413)
$135,432 to $189,604 The next $54,172 17.3% $9,372 $27,585 ($18,213 + $9,372)
Over $189,604 Over $189,604 18.3% n/a n/a

Northwest Territories tax brackets 2020


Annual Income (Taxable) Tax Brackets Tax Rates Maximum Taxes Per Bracket Maximum Tax Total
Up to $43,957 The first $43,957 5.9% $2,611 $2,611
$43,957to $87,916 The next $43,959 8.6% $3,780 $6,391 ($2,611 + $3,780)
$87,916 to $142,932 The next $55,016 12.2% $6,712 $13,103 ($6,391 + $6,712)
Over $142,932 Over $142,932 14.05% n/a n/a

Nova Scotia tax brackets 2020


Annual Income (Taxable) Tax Brackets Tax Rates Maximum Taxes Per Bracket Maximum Tax Total
Up to $29,590 The first $29,590 8.79% $2,601 $2,601
$29,590 to $59,180 The next $29,590 14.95% $4,424 $7,025 ($2,601 + $4,424)
$59,180 to $93,000 The next $33,820 16.67% $5,638 $12,663 ($7,025 + $5,638)
$93,000 $150,000 The next $57,000 17.5% $9,975 $22,638 ($12,663 + $9,975)
Over $150,000 Over $150,000 21% n/a n/a

Nunavut tax brackets 2020


Annual Income (Taxable) Tax Brackets Tax Rates Maximum Taxes Per Bracket Maximum Tax Total
Up to $46,277 The first $46,277 4% $1,851 $1,851
$46,277 to $92,555 The next $46,278 7% $3,240 $5,091 ($1,851 + $3,240)
$92,555 to $150,473 The next $57,918 9% $5,213 $10,304 ($5,091 + $5,213)
Over $150,473 Over $150,473 11.5% n/a n/a

Ontario tax brackets 2020


Annual Income (Taxable) Tax Brackets Tax Rates Maximum Taxes Per Bracket Maximum Tax Total
Up to $44,740 The first $44,740 5.05% $2,259 $2,259
$44,740 to $89,482 The next $44,742 9.15% $4,094 $6,353 ($2,259 + $4,094)
$89,482 to $150,000 The next $60,518 11.16% $6,754 $13,107 ($6,353 + $6,754)
$150,000 to $220,000 The next $70,000 12.16% $8,512 $21,619 ($13,107 + $8,512)
Over $220,000 Over $220,000 13.16% n/a n/a

Prince Edward Island tax brackets 2020


Annual Income (Taxable) Tax Brackets Tax Rates Maximum Taxes Per Bracket Maximum Tax Total
Up to $31,984 The first $31,984 9.8% $3,134 $3,134
$31,984 to $63,969 The next $31,985 13.8% $4,414 $7,548 ($3,134 + $4,414)
Over $63,969 Over $63,969 16.7% n/a n/a

Quebec tax brackets 2020


Annual Income/Tax Brackets (Taxable) Tax Rates Maximum Tax Total
Up to $44,545 15% $6,681
$44,545 to $89,080 20% $17,816
$89,080 to $108,390 24% $26,014
Over $108,390 25.75% n/a

Saskatchewan tax brackets 2020


Annual Income (Taxable) Tax Brackets Tax Rates Maximum Taxes Per Bracket Maximum Tax Total
Up to $45,225 The first $45,225 10.5% $4,749 $4,749
$45,225 to $129,214 The next $83,989 12.5% $10,498 $15,247 ($4,749 +$10,498)
Over $129,214 Over $129,214 14.5% n/a n/a

Yukon tax brackets 2020


Annual Income (Taxable) Tax Brackets Tax Rates Maximum Taxes Per Bracket Maximum Tax Total
Up to $48,535 The first $48,535 6.4% $3,106 $3,106
$48,535 to $97,069 The next $48,534 9% $4,368 $7,474 ($3,106 + $4,368)
$97,069 to $150,473 The next $53,404 10.9% $5,821 $13,295 ($7,474 + $5,821)
$150,473 to $500,000 The next $349,527 12.8% $44,739 $58,034143 ($13,295404 + $44,739)
Over $500,000 Over $500,000 15% n/a n/a

How tax brackets work for the provinces and territories

Similar to the federal tax brackets, you start by finding where your annual income is in the chart from your province (except for Quebec, more on that in a bit). Then subtract the minimum dollar value of that bracket range from your total annual income, and multiply by the applicable tax rate. Finally, add the maximum total tax from the previous bracket to approximate your 2020 provincial taxes (before any applicable surtaxes, as explained below).

As for Quebec, the process is much simpler; less math. You take your total annual income and multiply it by the tax rate for the rage where your annual income sits.

What is a surtax?

You may look at the Ontario and PEI tax rates, and think to yourself, well, that’s pretty low. But personal income in these two provinces is taxed a second time with a surtax. (A surtax means just that, a tax upon a tax.)

For PEI residents, the surtax is 10%, if your income is more than $12,500 annually. Take your income and multiply it by 0.10 to calculate the surtax.

For 2020, the Ontario surtax is a bit more complicated (see chart below). If your base provincial tax is below $4,830, you pay no surtax. If your base provincial tax is between $4,830 and $6,182, you pay 20% on the portion of provincial tax owed that is over $4,830. Finally, if your base provincial tax exceeds $6,182, you pay 20% on the portion of provincial tax owed that is between $4,830 and $6,182 (which works out to $270.40), plus 36% on the portion of provincial tax owed over $6,182.

Thankfully, most personal tax programs figure this out automatically.


Provincial Tax Owed Surtax Rates
Less than or equal to $4,830 0%
$4,830 to $6,182 20%
Over $6,182 36%

Thanks for the info, now what?

Knowing where you sit in the federal and provincial tax brackets can be helpful, but what if your income has changed or varies from year to year? And what if you get a raise?

“Understand what tax bracket you’re in and what it means to you,” says Zakharia, adding that if you make more money one year (from a pay raise or side hustle), you don’t need to freak out. It is true that the more money you earn, the more you will be taxed, especially if that nudges you into the next tax bracket. “But not all of your income gets taxed in the higher bracket, it’s just the amount in that range,” says Zakharia.  In other words, if you make $100,000, you’re not paying 26% federal tax on the entire $100,000, just on the small portion over $97,069. And the same for the provincial tax, too. For Quebec residents, you just consult the chart above if you move into another tax bracket.

If your side hustle is your own self-employed business, taxes obviously won’t be automatically deducted from your paycheque. It is your responsibility to set aside money to pay income tax on your net earnings (after deducting business expenses) on a quarterly or annual basis. Be sure to report all your income, otherwise you may have to pay a penalty of 10% on the amount you didn’t report.

As for those with investment income, which includes anything from the sale of a property to cashing in stocks, various rates apply. “Different types of income are taxed differently,” says Zakharia. Dividends, which are after-tax profit distributions from companies, and capital gains, which are profits from the sale of property or investments, are taxed more favourably than other income, such as earnings from employment, business, pension, etc.

Income tax brackets words you need to know

In talking about income tax brackets, you may hear a few of these words, too. Here’s a quick list of definitions for your reference. 

Base amount: On your tax form, this is the BPA, also known as the “basic personal amount.” This amount is not taxed, and it was created to avoid taxing individuals with income below this amount. The base amount for 2020 is $13,229.

Gross income: Your full income, untaxed and without deductions.

Income tax bracket: The range of annual income and the income tax rate that is to be applied.

Income tax rate: Amount owed as a percentage of income.

Federal income tax: Payment to the Government of Canada, which is used to fund the federal level of government and programs.

Net income: The amount of personal income you earn, after deductions.

Provincial/territorial income tax: Payment to the levels of government for the provinces and territories, which are used to fund more local levels of government and programs than the federal income tax.

T1 Income Tax and Benefit Return: The form used to create, calculate and file an individual’s income, deductions and taxes owed. 

Taxable income: A person’s gross income, which is taxable by the federal and provincial/territorial levels of government. If you are self-employed, this is net income.

The post The tax brackets in Canada for 2020, broken down by province, too appeared first on MoneySense.



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *