Filing Tips for Beginners
Filing Tips for Beginners
Tax Services
Tax Services
Tax Services
How Income Tax is Determined
How much you pay in personal income taxes is based on how much money you made during the year, minus deductions and credits.
If you are self-employed, it is your responsibility to track your income; however, this can prove to be time consuming, and you may want to consider consulting a CPA on how to streamline the process. If you are working for someone else, they are legally responsible for keeping track of how much money you made from working for them and will provide you the information in the form of a T4 tax form.
Income tax is divided into tax brackets, which are different ranges of income that have different tax rates applied (e.g., income in the range of less than $49 020 is taxed at 15%). These brackets change every year and are determined and announced by the Canadian Government.
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Additionally, there are two different levels of income tax that you must pay: provincial and federal.
Canada’s income tax is applied procedurally. This means is that you only pay a higher tax rate on the percentage of your income that is above a lower bracket.
For example, say your taxable income is $70,000 and you want to calculate your federal income taxes. Based on the Federal Income tax table above, you fall into the second tax bracket. Your income will then be divided as such:
First bracket: $49,020 x 15% = $7,353
Second bracket: $20,980* x 20.5% = $4,300.90
*$70,000 - $49,020 = $20,980
Thus, your federal taxes payable is: $11,653.90
References
MacColl, L. (2021, October 27). Ontario Tax Brackets. Wealthsimple. https://www.wealthsimple.com/en-ca/learn/ontario-tax-brackets
