Quebec’s tax brackets are different than Ontario, but the example below explains the concepts and ideas.
We’re living
in Ontario, thus our income taxes are collected by Canada Revenue Agency (CRA)
or federal government. Federal government will transfer the provincial tax
portion (Ontario) back to Ontario government.
Quebec is different; as workers in Quebec must pay federal income tax and Quebec province separately in each pay check.
Below are 2 tables showing how much income taxes we’re paying for both Federal government and Ontario government. They formed something called “brackets”, i.e. our income is spitted into many smaller portions depending on “brackets” specified by each government.
Source: The tax brackets in Canada for 2020, broken down by province, too | MoneySense
An example, a worker in Ontario earned $50,000 per year (annual salary). How much income tax that he must pay to both federal government and Ontario government?
1. By looking at the federal tax bracket in the table below, the first $48,535 is taxed at 15%, i.e. $50,000 – $48,535 = $1,465 (to be taxed in the next higher bracket or 20.5%)
Tax of the
first portion: $48,535 * 15% = $7,280.25
Tax of the
second portion: $1,465 * 20.5% = $300.325
Total income tax paid to federal government: $7280.25 + $300.325 = $7,580.575
2. By looking at the Ontario tax bracket
in the table below, the first $44,740 is taxed at 5.05%
$50,000 - $44,740 = $5,260 (to be taxed in the next higher bracket or 9.15%)
Tax for the
first portion: $44,740 * 5.05% = $2,259.37
Tax for the
second portion: $5,260 * 9.15% = $481.29
Total income tax paid to Ontario government: $2259.37 + $481.29 = $2,740.66
3. The total tax paid to both governments would be $7580 + $2740.66 = $10,321.235 for the year 2020
4. When we’re working, the employer knows our wage, working hours, or salary. They entered that hours worked to convert into weekly payment, and estimated annual salary. The software used by the accountant of that employer would calculate the “total amount of tax to be deducted per pay check.” The pay check would show gross salary and amount of tax deducted. The employer must “remit” deducted income tax in addition to EI (employment insurance) and CPP (Canadian Pension Plan) to Canada Revenue Agency, CRA.
If the software calculated tax correctly, we wouldn’t have to pay additional tax to CRA by declaring income tax in the end of the year (T1 Return). If software calculated extra taxable amount, we would get refund by government after declaring income tax in T1 Return.
If employer estimated a worker earned $120,000/year (12 months or $10,000/month), but he took 3 months of absence without pay, i.e. his annual salary turned out to be $120,000 - $30,000 = $90,000. However the software still estimates his annual salary as $120,000, i.e. he over paid taxes. He would get refund after declaring tax (T1 Return).
If a worker had 2 jobs from 2 different employers, e.g. 1 job pays $20,000 and the other pays $30,000. Software of each employer would see this person fell in the first tax bracket for both federal government (15%) and Ontario government (5.05%), so the income taxes deducted would be only 15% and 5.05% from both employers. However, at year end to declare income tax, the sum of incomes would be $20,000 + $30,000 to be taxed by federal and provincial governments. $50,000 won’t be taxed only by the 1st bracket, because there must be a portion to be taxed at higher tax bracket (see the example above). Usually software to declare income tax would inform us how much tax that we owed to CRA, so we can prepare.
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What are the federal tax brackets in Canada for 2020?
|
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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 |
Author: Vinh Nguyen, B.Eng.
Email: canvinh@gmail.com
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