The Easiest Way to Understanding Canadian Income Tax Brackets

If you’re anything like 75% of the world, taxes overwhelm you and make you cry at least once a year. Even if we pay the money to have an accountant deal with them for us, the mere mention of “tax season” still gets our heart racing a little faster.

So, let’s break it down Canadian Income Tax Brackets! Over the next few blogs, we’ll be going into some tax basics and tips to help you feel more confident and less going-to-cry-on-the-office-floor-on-hold-with-the-CRA. 

Progressive Tax System:

Canada and the USA both have progressive tax systems. This means that the tax rate increases as the taxable income increases. 

One thing to note is that a lot of people think that by making enough income to go into a higher tax bracket, all of your income gets taxed at that new, higher rate, but that’s not true. 

The income amount in tax bracket 1 will always be taxed at that rate and then the income that has now made it into tax bracket 2 will be the only income taxed at that rate. Kind of confusing, hey? 

Let’s look at an example. We’ll take Canada’s numbers although the concept is the same for both Canada and the USA, just with different numbers.

Tax Rate	Taxable Income
15%	$50,197
20.5%	$50,198 – $100,392
26%	$100,394 – $155,625
29%	$155,627 – $221,708
33%	$221,708 +

So if your taxable income was $55,000 you would pay:

 15% on the taxable income up to $50,197 ($7,529.55 tax).

And then pay 20.5% on the amount between $50,197 and $55,000:

$55,000 – $50,197 = $4,803

So $4,803 is taxed at 20.5% ($984.62 tax).

In total you would owe $8,514.17 ($7,529.55 + $984.62) in tax. This is before deductions and tax credits (what are those, you ask? Check out our upcoming blog on how tax credits legally reduce the amount of tax you owe).

So, if you end up getting a raise that pushes you into a new tax bracket, do not worry. Not all of your income starts getting taxed at that higher rate; only the income that has happened at that new step.

That’s it!