Danielle Kubes is a trained journalist and investor who has written about personal finance for the past six years. Her writing has been published in The Globe and Mail, National Post, MoneySense, Vice and RateHub.ca. Danielle writes about investing and personal finance for Wealthsimple. She has a Bachelor of Humanities from Carleton University and a Master of Journalism from Ryerson University.
Canadians pay tax depending on which province they live in, what kind of income they earned and how much income they earned. These three factors together, minus any deductions or credits, determine how much of your annual income will go to the CRA.
The Canadian tax system is progressive, which means the more money you earn the more tax you pay. There are multiple tax categories based on the amount and type of income earned. As you move up the different categories you pay more on each additional dollar earned.Easy, fast, and even fun. Wealthsimple Tax is CRA-certified tax software that you’ll actually want to use. And you only pay what you want, no catch — get started.
Everyone starts out at the first tax bracket and only pays the higher tax rate on each additional dollar earned.
Everyone is subject to federal tax rates which are:
On top of this, each province collects tax and determines its own bracket. Your tax bracket is a combination of the federal and provincial rate.
Employment and interest income has the highest tax burden, while investment income from capital gains and dividends has the lowest.
By knowing your tax bracket you can make better decisions about your financial life. Perhaps a promotion would propel you into a higher tax bracket, and you’re not willing to pay that much. Or perhaps you’re self-employed and realize that if you switched to a corporate structure you would be paying a fraction of what you’re paying now. Or perhaps seeing your tax bracket motivates you to reduce your taxable income by contributing to an RRSP. Maybe seeing how little tax is paid on eligible dividends will encourage you to funnel surplus income into stocks instead of an interest-earning investment like a GIC.
BC tax brackets
British Columbia is not the least nor the most heavily taxed province in our country (that honour falls to Quebec).
However, BC is one of the best provinces to live in if you earn under $42,184. That’s because the tax bracket is just 5%—one of the lowest in the country and half the rate of Alberta’s, Manitoba’s, Saskatchewan’s, and a third of Quebec’s. But if you’re a high-income earner you’ll find this province more expensive to live in than some others. See, Albertans pay only 10% on all income until $131,200. If you earned that same amount in BC you’d be paying 14.7%. In Ontario you’d only pay 11.6%. But take comfort in knowing that it’s still less than half the Quebec rate, a whopping 25.75%.
Here’s BC’s tax brackets for 2021:
5.06%: $0 to $42,184
7.70%: $42,185 to $84,369
10.50%: $84,370 to $96,866
12.29%: $96,867 to $117,623
14.70%: $117,624 to $159,483
16.80%: $159,484 to $222,420
20.5%: Over $222,421 and over
BC combined tax rate
When you add it all together, federal and provincial, here’s your total income tax burden:
|Taxable income||Employment, self-employment, interest and other income||Capital gains||Eligible Canadian dividends||Ineligible Canadian dividends|
|Over $42,184 up to $49,020||22.70%||11.35%||-5.96%||13.47%|
|Over $49,020 up to $84,369||28.20%||14.10%||1.63%||19.80%|
|Over $84,369 up to $96,866||31%||15.50%||5.49%||23.02%|
|Over $96,866 up to $98,040||32.79%||16.40%||7.96%||25.07%|
|Over $98,040 up to $117,623||38.29%||19.15%||15.55%||31.40%|
|Over $117,623 up to $151,978||40.70%||20.35%||18.88%||34.17%|
|Over $151,978 up to $159,483||44.02%||22.01%||23.46%||37.99%|
|Over $159,483 up to $216,511||46.12%||23.06%||26.36%||40.41%|
|Over $216,511 up to $222,420||49.80%||24.90%||31.44%||44.64%|
How to calculate income tax in BC
On the surface Canadian taxes are intimidating and confusing, but as long as you can do basic addition, subtraction multiplication and division it’s actually pretty easy to figure out roughly how much you owe. Alternartively, you can use an onine tax calculator. Simply enter your income per catgeory and it will generate all the necessary information.
But if you want to use an old-fashioned paper and pencil here’s how to do it:
Simply divide your income into the appropriate categories (employment, self-employment, ineligible dividends, eligible dividends, capital gains etc.), then multiply the income in each bracket by the corresponding rate. Then add up each sum for your total tax payable.
To figure out your take-home pay just subtract your total tax payable from your gross income.
Sounds like a lot of work, but we’ll use an example to show you how easy this is, assuming you make $100,000 of employment income
The first $42,184 times 0.2006 for $8,462 plus
The next $6,836 times 0.227 for $1,552 plus
The next $35,349 times 0.282 for $9,968 plus
The next $12,497 times 0.31 for $3,874 plus
The next $1,174 times 0.3279 for $385 plus
The next $1,960 times 0.3829 for $750.50 equals your total tax payable of $24,991.5.
So on $100,000 you’ll pay total income tax of $24,991.5, for an average tax rate of about 25% (total tax payable/gross income), which leaves you with in-your-pocket money just shy of $75,000.
As you can see you don’t simply go to the bracket with $100,000 and pay 38.29%. Instead, you only pay tax on the portion of income that falls in each bracket.
And don’t forget: The kind of money you make is just as important as how much you make.
For example, if you made the same $100,000 of capital gains you would pay far less tax.
The first $42,184 times 0.1003 for $4,231 plus
The next $6,836 times 0.1135 for $775.89 plus
The next $35,349 times 0.1410 for $4,984 plus
The next $12,497 times 0.155 for $1,937 plus
The next $1,174 times 0.1640 for $192.5 plus
The next $1,960 times 0.1915 for $375.34 equals your total tax payable of $12,495.73.
That’s a lot less than you would pay making the same amount in employment income. It’s half, to be exact, with an average tax rate of just 12.5%.
But it’s rare for Canadians who aren’t retired, and even then, to be making only one kind of income.
So let’s work it out a far more common scenario, when you earn two kinds of income.
Let’s say you made $75,000 from your job and $25,000 of capital gains from selling a hot stock this year.
Here’s how you calculate that:
The first $42,184 times 0.2006 for $8,462 plus
The next $6,836 times 0.227 for $1,552 plus
The next $25,980 times 0.282 for $7,326.36 equals tax payable of $17,340.36.
Capital gains income:
$25,000 times 0.1003 for tax payable of $2,508
Then you simply add both sums together to reach your total tax owed of $19,848.36, which equals an average tax rate of about 20%.
As you can see, once you figure out how to locate and calculate the amount owed per tax bracket it becomes quite simple to figure out an educated estimate of tax owed. (The number will never be exact because of health care premiums and how deductions and credits are calculated.)
Reducing your tax burden
You can work toward changing the type of income you earn by starting to invest, although that’s a long-term project. You can make less money, of course. A more straightforward plan is to make the same amount of money but reduce your taxable income by maximizing your deductions. Once you’ve nailed that down you can reduce your tax payable by maximizing credits. Here’s how it works.
Tax deductions work by lowering your taxable income, resulting in less tax paid. The most popular tax deduction is contributing to an RRSP, which allows you to save money for your future self and defer tax until retirement when you withdraw the funds. The more money you make the more valuable tax deductions are. If you’re in the highest tax bracket then every dollar you manage to reduce your taxable income by means you save 53.5 cents. If you’re in the lowest tax bracket, the savings are much smaller since you’ll only save around 20 cents per dollar deducted.
Here’s a few other common tax deductions:
Business expenses for the self-employed
Carrying charges for investments (like mortgage interest on an investment property)
Tax credits reduce your tax payable. Non-refundable credits will only let you reduce tax to zero, but refundable credits will allow you to go into the negative so that the government owes you. Obviously, the latter are more valuable, but harder to come by.
Tax credits are excellent for lower-income Canadians because everyone gets to deduct the tax payable at the lowest tax bracket, so around 15% for federal credits and 5.06% for provincial credits. Many Canadians mistakenly think you get to deduct the full amount of the credit from your tax payable, but that’s not how it works. Let’s say you donate $200 to charity. You would be able to apply a credit of 15%, or $75 to your tax payable—you never get to deduct the full $200.
There’s a lot of boutique credits available and they change annually so check back each year to see what’s new.
Common federal credits are:
Medical expenses over 3% of your income
Disability tax credit
Climate action incentive
Student loan interest with some lenders
Some BC credits unique to the province are:
Home renovation for seniors and persons with disabilities
Children’s school supplies
Investing in a registered venture capital corporation or eligible business corporation.
Farmers who donate food to charities
Teachers who run extra-curricular activities
Frequently asked questions
Here are some FAQs regarding taxes in BC.
How do tax brackets work in BC?
BC tax brackets are added to federal tax brackets to determine the total amount of income tax you pay. You pay the higher tax rate on each additional dollar of income. The highest combined BC tax bracket is 53.50% on every dollar you make over $222,420. The lowest tax bracket is 20.06% on the first $42,184 you make.
Are BC tax brackets incremental?
Yes BC tax brackets are incremental. The more you earn, the more tax you pay on that additional income. Incremental tax brackets mean that those who earn more pay a higher percentage of their income to the CRA. A uniform tax rate would mean that everyone, no matter their income, pay the same percentage. That leads to high income earners paying a relatively small amount. There are pros and cons to both systems…
How do I know what tax bracket I’m in?
To know what tax bracket you’re in check out the chart above or look on the CRA website.
When do BC tax brackets change?
BC tax brackets may change annually.
When does BC tax have to be paid?
BC tax is paid along with your federal tax by April 30 if you are employed. Because of the Covid-19 pandemic the tax deadline for paying 2019 taxes was extended to September 1, 2020.
File with Wealthsimple Tax. Maximum refund, guaranteed.Get started for free