Lisa MacColl is a writer, investor and former compliance consultant in the group retirement and individual wealth management fields. Lisa has written about personal finance for 14 years and currently writes about investing and investment providers for Wealthsimple. Lisa's past work has been published in Canadian Money Saver, Advisor’s Edge, CBC, and CreditCards.ca. She was a nominee for the 2015 Oktoberfest Women of the Year, Professional Category. Lisa holds an M.A. and B.A. from the Wilfrid Laurier University.
Canada uses a progressive tax system, which means the rate of tax increases as the amount of income increases. There are different levels or federal and provincial tax brackets have different rates of tax.
Residents of Canada pay both federal and provincial taxes, which are both based on the progressive system, with different rates of tax applied at different levels of income.
Provincial taxes are based on your province of residence as of December 31. For example, if you are filing 2021 taxes, and you lived in Alberta part of the year, and then moved to Ontario in October and lived there on December 31, you will be subject to Ontario income tax and Ontario tax credits in addition to the federal taxes everyone in Canada pays.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.
Canada Revenue Agency (CRA) is the government organization in charge of taxation in Canada, and it oversees both federal and provincial taxes. The province of Quebec administers provincial taxes on behalf of Quebec residents.
Information provided here is for general information only, and is not intended as financial advice. Your personal situation is unique, and you should always consult a professional financial expert.
How income tax is calculated
Income tax in Canada is based on your taxable income. Your taxable income is your total gross income from all sources less eligible deductions and credits. Because Canada uses a progressive tax system, the more money you make, the higher the rate of tax you will pay.
Ontario 2021 tax brackets and rates
The tax brackets for Ontario for 2021 are:
|2021 Ontario income tax brackets||2021 Ontario income tax rate|
|over $45,142 up to $90,287||9.15%|
|over $90,287 up to $150,000||11.16%|
|over $150,000 up to $220,000||12.16%|
Federal 2021 tax brackets and rates
The following are the federal tax rates for tax year 2021 according to the Canada Revenue Agency (CRA):
|2021 Federal income tax brackets||2021 Federal income tax rates|
|$49,020 or less||15%|
|$49,020 to $98,040||21%|
|$98,040 to $151,978||26%|
|$151,978 to $216,511||29.00%|
|More than $216,511||33%|
How to calculate income tax in Ontario
Your marginal tax rate is the total amount of federal and provincial taxes you owe. It’s the combined amount you will have to pay. For example, if your taxable income after deductions and exemptions wass $45,000, your federal tax owing is 15%, and your Ontario provincial amount owing is 5.05%, your marginal tax rate (15% + 5.05%) is 20.05%.
If you want to get a rough estimate of how much income tax you owe on your taxable income, first calculate your federal income tax, and then calculate your provincial tax, and add the amounts together.
For example, if your taxable income was $45,000 and you didn’t have any deductions or credits, your calculation would be:
$45,000 x 15% = $6750 (federal)
$45,000 x 5.05% = $2272.50 (Ontario)
Total income tax on taxable income: $6750 + $2272.50 = $9022.50 total combined federal and provincial taxes.
Note: In a progressive tax system, your income tax payable is cumulative. Depending on what tax bracket your taxable income falls in, you could be paying multiple rates of tax.
Let’s say your income is $49,000. You will still pay the same federal tax of 15%, since you are in the first tax bracket. That works out to $7,350.
For the Ontario portion, you will pay 5.05% on the first $45,142, which equals $2,279.67
The remaining $3,858 ($49,000 - $45,142) will be taxed at 9.15%. = $353.01
Total Ontario tax owing: $2279.67 + $353.01 = $2,632.68
Total taxes owing (federal + Ontario = $9,982.68
How to reduce your taxes in Ontario
There are some ways to reduce the amount of taxes you pay. If you live in Ontario, you could be eligible for some of these deductions, credits or benefits.
Every taxpayer in Canada is eligible to claim a basic personal amount of $13,808, which reduces your taxable income.
If your income is over $216,511, that personal amount is $12,421. There are additional credits for residents who are age 65 or older, who have been classified as disabled, or who are caretakers of a person with a disability.
If your income is less than $13,808, you shouldn’t have to pay any income tax. You should still file your taxes, because all kinds of federal and provincial programs, such as GST/HST are based on your income as reported on your income tax return.
In Ontario, you are also eligible to claim basic personal amount of $10,880. There may be additional amounts for seniors, or if you are disabled or you care for a disabled person.
A deduction reduces your taxable income, lowering the amount that your income tax will be based on. CRA provides detailed information on both federal and province specific deductions. Here are some of the common deductions. There may be others that you qualify for and you should always speak with a financial tax expert about your specific situation, and you can call CRA at 800-959-8281.
Non-refundable tax credits reduce the amount of tax you have to pay, but you are only eligible to claim them if you owe taxes. In other words, you need to have earned some kind of income. For non-refundable tax credits, you can only claim enough to reduce your taxes to zero, but you don’t get the excess as a refund. So if you owe $4,000 in taxes, and you have $4,500 in non-refundable tax credits, you can claim $4,000, but you don’t get $500 as a refund. In some circumstances, such as tax credits for tuition, student loan interest and donations can be carried forward for future years.
The most common federal non-refundable tax credits are things like the basic personal amount, medical expenses, and charitable or political donations.
In Ontario, in addition to the federal credits, you can claim a tax credit for tuition at a post-secondary education institution, interest on student loans, a tax credit if you have kids, and expenses to adopt a child. You can also claim a tax credit if you are a senior.
There are also refundable tax credits that every eligible person can claim, whether they have income or owe taxes. The most well-known of these is the GST/HST tax credit. There are also refundable tax credits for residents of Ontario, including the Ontario Trillium Benefit, the Ontario Child Care Tax Credit, the Ontario Jobs Training Tax Credit, the Ontario Seniors’ Public Transit Tax Credit, and tax credits for political contributions.
This isn’t a comprehensive list and there may be other tax credits you are eligible for. When in doubt, it’s always a good idea to check with a financial expert.
Frequently asked questions
In Ontario, tax brackets are based on net income for income tax purposes. There are 5 tax brackets:
- First: $45,142 or less
- Second: over $45,142 up to $90,287
- Third: over $90,287 up to $150,000
- Fourth; over $150,000 up to $220,000
- Fifth: over $220,000 and over
Each tax bracket has a different rate of tax associated with it. If your net income falls in the second bracket, you will be taxed on the rate for the first bracket for the first $45,142, and the second bracket for the balance.
The rate of tax increases as the amount of income increases.
If you calculate your net income after deductions and compare it to the chart above, you will know how much tax you will need to pay. Find the tax bracket where your income falls. If your income falls in the first tax bracket, you will only be taxed on that tax rate. If your income falls in a higher tax bracket, you will be taxed on the lowest tax bracket rate to the maximum for that bracket, on the second tax bracket to the maximum amount for that bracket, and so on progressively until you reach the bracket your income belongs in. Remember that there are different rates for federal and provincial taxes.
Any changes to tax rates or income brackets must be announced in a budget. Both federal and provincial governments can make changes to their level of taxation, tax deductions or credits, programs and exemptions, but they are always done in a budget announcement. They do not come into force until the budget bill receives Royal Assent.
All income tax owing has historically been due April 30 in the calendar year following the tax year you are filing. If the deadline falls on a weekend or holiday, the filing date is the following business day. For example, 2021 taxes needed to be filed by May 2nd because April 30, 2022 falls on a Saturday. Monday May 2nd is the next business date after the deadline.
File with Wealthsimple Tax. Maximum refund, guaranteed.Get started for free