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Tax Brackets Canada 2023: Everything you need to know
Tax Bracket Overview
It is important to understand the tax bracket system in Canada otherwise you may be slapped with more taxes during tax season than you are prepared to pay. Canada has a progressive tax system which essentially means that you are taxed proportionately based on what you earn. The more you earn, the higher your taxes will be. Those who earn smaller amounts pay a smaller percentage of their income in taxes while those who earn more pay a larger percentage of their income.
Understanding your tax bracket allows you to save a little each month so that you are able to properly pay your 2022 taxes upfront without any concerns. The Canadian federal tax rate is split into five income brackets. You will fall into one tax bracket for the federal government and another for the provincial government where you will also owe taxes.
How to Figure Out Income Tax Brackets
Figuring out your income tax bracket is not too hard. Simply consult the federal tax brackets info below and then add together all your taxable income to determine which bracket you fall into. Taxable income in Canada includes benefits, bank interest, and paid work. Depending on how close you fall into the limits of each bracket, there is a chance that your deductions or expenses may allow you to step down one bracket, but that is why this is simply considered an estimate. Keep in mind it is always better to budget for a higher bracket than to count on falling into a lower bracket and end up surprisingly owning more come Tax Day.
How Do the Federal Tax Brackets Work?
The federal tax brackets work like a ladder. You owe the percent of the tax on each set of earnings that fall into a designated bracket. For example, if you made $45,000 this year then you fall into the first tier of the federal bracket and will owe 15% of your earnings in 2020. The upper limit for this bracket is $48,534. On the other hand, if you earned $100,000 then you will fall into the third bracket. However, your earnings are not equally taxed at the third bracket tax rate which is 25%. This is where the progressive tax rate comes into play.
Instead, if you earned $100,000 in 2020, the first $48,535 of it will be taxed at the 15% tax rate for a total owed of $7,280. Then the next portion of earnings (from $48,535 to $97,069) will be taxed at the 20.5% tax rate meaning you now owe another $9,950 which makes your taxes $17,230. However, the last portion of your income will fall into the third tax bracket. You will have $2,931 left to be taxed at the third bracket rate of 26% which adds $762 to your tax bill. Add the figures from each bracket together ($7,280 + $9,950 + $762.06) and you get your total tax bill of $17,992.
Federal Tax Bracket Rates for 2023
Below are the federal tax rates for 2023 according to the Canada Revenue Agency (CRA):
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20.5% on the portion of taxable income over $53,359 up to $106,717, plus
26% on the portion of taxable income over $106,717 up to $165,430, plus
29% on the portion of taxable income over $165,430 up to $235,675, plus
33% on the portion of taxable income over $235,675
How Do the Provincial Tax Brackets Work?
Provincial tax brackets work in the same fashion but are generally less expensive than the federal tax brackets. Provincial taxes must also be paid because some expenses fall solely on each individual province such as health care and need funding. Other expenses such as the Canadian Armed Forces and RCMP are federal expenses. The provincial tax brackets are also progressive, but it should be noted that every year the tax brackets increase slightly to account for inflation, but the tax rates stay largely the same.
Provincial Tax Brackets Rates 2023
Ontario Tax Brackets Rates 2023
5.05% on the portion of your taxable income that is $49,231 or less, plus
9.15% on the portion of your taxable income over $49,231 up to $98,463, plus
11.16% on the portion of your taxable income over $98,463 up to $150,000, plus
12.16% on the portion of your taxable income over $150,000 up to $220,000, plus
13.16% on the portion of your taxable income over $220,000
Quebec Tax Brackets Rates 2023
15% the first of $46,295 of taxable income, +
20% on the portion over $46,295 but not more than $92,580
24% on the portion over $92,580 but not more than $112,655
25.75% on the portion of taxable income over $112,655
Alberta Tax Brackets Rates 2023
10% on the portion of your taxable income that is $142,292 or less, plus
12% on the portion of your taxable income over $142,292 up to $170,751, plus
13% on the portion of your taxable income over $170,751 up to $227,668, plus
14% on the portion of your taxable income over $227,668 up to $341,502, plus
15% on the portion of your taxable income over $341,502
British Columbia Tax Brackets Rates 2023
5.06% on the portion of your taxable income that is $45,654 or less, plus
7.7% on the portion of your taxable income over $45,654 up to $91,310, plus
10.5% on the portion of your taxable income over $91,310 up to $104,835, plus
12.29% on the portion of your taxable income over $104,835 up to $127,299, plus
14.7% on the portion of your taxable income over $127,299 up to $172,602, plus
16.8% on the portion of your taxable income over $172,602 up to $240,716, plus
20.5% on the portion of your taxable income over $240,716
Manitoba Tax Brackets Rates 2023
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10.8% on the portion of your taxable income that is $36,842 or less, plus 12.75% on the portion of your taxable income over $36,842 up to $79,625, plus 17.4% on the portion of your taxable income over $79,625 |
Newfoundland and Labrador Tax Brackets Rates 2023
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8.7% on the portion of your taxable income that is $41,457 or less, plus 14.5% on the portion of your taxable income over $41,457 up to $82,913, plus 15.8% on the portion of your taxable income over $82,913 up to $148,027, plus 17.8% on the portion of your taxable income over $148,027 up to $207,239, plus 19.8% on the portion of your taxable income over $207,239 up to $264,750, plus 20.8% on the portion of your taxable income over $264,750 up to $529,500, plus 21.3% on the portion of your taxable income over $529,500 up to $1,059,000, plus 21.8% on the portion of your taxable income over $1,059,000 |
Northwest Territories Tax Brackets Rates 2023
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5.9% on the portion of your taxable income that is $48,326 or less, plus 8.6% on the portion of your taxable income over $48,326 up to $96,655, plus 12.2% on the portion of your taxable income over $96,655 up to $157,139, plus 14.05% on the portion of your taxable income over $157,139 |
Nova Scotia Tax Brackets Rates 2023
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8.79% on the portion of your taxable income that is $29,590 or less, plus 14.95% on the portion of your taxable income over $29,590 up to $59,180, plus 16.67% on the portion of your taxable income over $59,180 up to $93,000, plus 17.5% on the portion of your taxable income over $93,000 up to $150,000, plus 21% on the portion of your taxable income over $150,000 |
Nunavut Tax Brackets Rates 2023
4% on the portion of your taxable income that is $50,877 or less, plus
7% on the portion of your taxable income over $50,877 up to $101,754, plus
9% on the portion of your taxable income over $101,754 up to $165,429, plus
11.5% on the portion of your taxable income over $165,429
Saskatchewan Tax Brackets Rates 2023
10.5% on the portion of your taxable income that is $49,720 or less, plus
12.5% on the portion of your taxable income over $49,720 up to $142,058, plus
14.5% on the portion of your taxable income over $142,058
Yukon Tax Brackets Rates 2023
6.4% on the portion of your taxable income that is $53,359 or less, plus
9% on the portion of your taxable income over $53,359 up to $106,717, plus
10.9% on the portion of your taxable income over $106,717 up to $165,430, plus
12.8% on the portion of your taxable income over $165,430 up to $500,000, plus
15% on the portion of your taxable income over $500,000
Tax Credit Overview
Both the federal and provincial governments offer citizens tax credits for certain financial situations. Tax credits help reduce the amount of taxes you end up owing which can help you out greatly depending on the number of tax credits you can claim. There Are two types of tax credits:
Non-Refundable Tax Credit
A non-refundable tax credit is designed to reduce how much tax you owe. To claim this type of tax credit you need to owe taxes. Non-refundable tax credits are designed to help you reduce how much you owe in taxes. You do not receive any funds back if you have a larger tax credit compared to the amount of tax you owe. For instance, if you owe $3,000 in taxes and have a tax credit of $3,400 you will not owe any taxes, but will also not receive the difference back in the form of a refund. Common non-refundable tax credits include pension exemptions, retired exemptions, child exemptions, and caregiver exemptions.
Refundable Tax Credit
On the other hand, refundable tax credits are paid out to anyone who qualifies regardless of whether or not they owe taxes at the end of the year. In this situation, if a person owes $3,000 in taxes but received a refundable tax credit of $3,400 they would owe zero in taxes and receive a $400 refund. The most common refundable tax credit is the GST/HST payment for families that make a combined income of under $42,000.
Tax Deductions Overview
A lot of people are surprised by their taxes because they make a common error when figuring out their tax deductions. Tax deductions do not immediately reduce the amount of taxes you owe, they reduce your gross income which in turn lowers the tax bracket you may fall into and how much you need to pay. Thus, if your gross income was $46,000 but you received a tax deduction of $1,000 you would fall into the first tax bracket instead of the second. Common tax deductions include union dues, pension adjustments, RRSP contributions, and childcare expenses.
What’s the Difference Between a Tax Deduction and a Tax Credit?
As briefly outlined above, the major difference between a tax deduction and a tax credit is how it is applied to your taxes. A tax deduction is designed to reduce the gross income that is considered taxable by the federal and provincial governments and a tax credit is used to offset the amount that you have to pay on taxes directly.
Understanding the methodology behind the tax brackets and eligible credits and deductions can help you plan better for tax season. It can also help you strategically plan and contribute to your income with side earnings. For example, if you earn money on a contractor basis that pushes your income into the next tax bracket it may be wise to contribute more to your RRSP so that you can deduct just enough to fall into the lower bracket again. This is just one of the many ways that careful planning can help you master the tax season so you don’t have to dread it.
