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.
The income tax you pay is based on your net income after all eligible deductions are withdrawn. In a progressive tax system such as the one in Canada, different amounts are taxed at different rates depending on what tax bracket the amount falls into. Here are the tax rates for Ontario:
Ontario 2021 tax rates
5.05% on the first $45,142 of taxable income, plus…
9.15% on the next $45,142 up to $90,287, plus…
11.16% on the next $90,287 up to $150,000, plus…
12.16% on the next $150,000 up to $220,000, plus…
13.16 % on the amount over $220,000
How to calculate income tax in Ontario
Let’s look at a couple of examples: If Paul has a taxable income (gross income minus any deductions) of $36,000, his income falls within the first tax bracket, so his Ontario tax payable would $36,000 X 5.05%=$1,818.
If Janet has a taxable income (gross income minus any deductions) of $56,000, her income falls into two tax brackets.
First $45,142 x 5.05%=$2,279.7 (1st bracket)
$10,858 x 9.15%=$993.5 (2nd bracket)
Janet’s total Ontario tax payable: $3,273.2.
Ontario combined tax rate
Both Paul and Janet also owe federal income tax. For the 2021 tax year, the rates are:
|Federal Income tax Bracket 2021||Federal Income Tax Rate 2021|
|$49,020 or less||15%|
|$49,020 up to $98,040||20.5%|
|$98,040 up to $151,978||26.00%|
|$151,978 up to $216,511||29.32%|
|More than $216,511||33%|
Remember, Paul’s taxable income was $36,000. His federal tax payable falls in the 1st tax bracket. $36,000 X 15%=$5,400… Total Ontario payable: $1,818 (Ontario) +$5,400 (Federal)=$7,218.
Janet’s net taxable income was $56,000. Her income falls in two tax brackets:
First $49,020 x 15%= $7,353
$56,000 - $49,020 = $6,980
$6,980 x 20.5% = $1,430.9
Total federal tax: $8,783.9
Total combined tax: $3,273.2 (Ontario) + $8,783.9 (Federal)=$12,057.1
How to reduce your taxes in Ontario
There are simple ways to reduce the amount of taxes you pay. If you live in Ontario, you could be eligible for some of the following deductions, credits, or benefits.
A deduction reduces your taxable income, lowering the amount that income tax will be calculated on. CRA provides detailed information on both federal and province specific deductions. Here are some of the most common deductions. There may be others that you qualify for and you should always speak with a financial tax expert about your specific situation. You can call CRA at 1-800-959-8281.
Every person who files income tax has certain basic deductions, and you may qualify for additional deductions for being a senior, living in the North, or qualifying for a disability exemption. There are also deductions for RRSP or Pension contributions, and any CPP or Employment Insurance payments you made. You may also be eligible for tuition or moving expense deductions.
Depending on your situation, you may also qualify for deductions for support payments that you made, child care costs, tuition, medical expenses and charitable donations.
Every Ontario resident who files income tax is eligible for basic deductions, and you may qualify for additional deductions if you are a parent, a caregiver, live in the North or were born in 1954 or earlier.
You may be entitled to a deduction for amounts you paid to adopt a child, received pension income, donated to an Ontario political party or attended an Ontario-based post-secondary education institution.
Remember, deductions reduce the amount of income your taxes will be calculated on.
A tax credit reduces the amount of tax payable. It is a dollar-for-dollar reduction in the amount of tax you have to pay. There are two types of tax credit: refundable and non-refundable. A refundable tax credit allows you to reduce your tax owing to zero, and if there is any amount left over, you can receive it as a refund. A non-refundable tax credit allows you to reduce your tax credit to zero, but you don’t get to keep any leftover amounts. In order to claim a non-refundable tax credit, you must owe income tax. You can claim a refundable tax credit whether or not you owe income tax because any leftover amount is refunded to you. You still have to file an income tax return.
Ontario tax credits:
Low-income individuals and families tax credit: available to residents of Ontario from January to December 31 of one tax year continuously and who had employment income of $38,500 for individuals or $68,500 for a family.
Community food program donation tax credit for farmers: Ontario farmers who make a donation of agricultural produce to a community food program such as a food bank or student nutrition program may be eligible for a tax credit.
Ontario Childcare Access and Relief from Expenses (CARE) tax credit: Helps offset some of the cost of childcare for Ontario residents.
Ontario seniors’ public transit tax credit
Ontario political contribution tax credit
Ontario co-operative education tax credit
Ontario seniors’ property tax credit
The Ontario Trillium Benefit, a series of benefits to help lower income residents of Ontario with the cost of things like sales, property taxes, and energy costs. It is paid monthly.
Northern Ontario energy credit: To offset higher energy costs for residents of Northern Ontario.
Ontario energy and property tax credit
Ontario sales tax credit
Frequently asked questions
How do tax brackets work in Ontario?
In Ontario, tax brackets are based on net income for income tax purposes. There are 5 tax brackets:
First: $45,142 or less Second: $45,142 up to $90,287 Third: $90,287 up to $150,000 Fourth; $150,000 up to $220,000 Fifth: $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 $44,740, and the second bracket for the balance.
Are Ontario tax brackets incremental?
The rate of tax increases as the amount of income increases.
How do I know what tax bracket I’m in?
If you calculate your net income after deductions and compare it to the chart about, 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.
When do Ontario tax brackets change?
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.
When do Ontario taxes have to be paid?
All income tax owing has historically been due April 30 in the calendar year following the tax year you are filing. For example, 2020 taxes needed to be filed by April 30, 2021, and all taxes owing are due that day.
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