To be prepared for the next tax season, it is important to know where your income for the year falls within the tax brackets. This would give you insight about when and how to claim certain deductions as well as credits. Here is some information from the CRA about Federal Tax Bracket Rates for 2021:

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Federal tax rates for 2021

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●     15% on the first $49,020 of taxable income, plus

●     20.5% on the next $49,020 of taxable income (on the portion of taxable income over 49,020 up to $98,040),plus

●     26% on the next $53,939 of taxable income (on the portion of taxable income over $98,040 up to $151,978),plus

●     29% on the next $64,533 of taxable income (on the portion of taxable income over 151,978 up to $216,511), plus

●     33% of taxable income over $216,511

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Provincial tax bracket rates 2021

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Tax rates apply to personal income earned between predetermined minimum and maximum amounts, also referred to as tax brackets. Each year is different and this may explain why there is a change in either the amount owing or the refund you’ll receive at the end of the year. It is important to note that each of the provinces and territories have their own tax brackets. Which can be found on the CRA website.

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How much federal tax do I have to pay based on my income?

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Here is an example based on the 2020 tax year of how Canada’s federal income tax bracket works.  If your taxable income is less than the $48,535 threshold you pay 15% federal tax on all of it. For example, if your taxable income (after claiming your deductions and amounts) is $30,000, the CRA requires you to pay $4,500 in federal income tax (30,000 x 0.15).

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However, if your income is $200,000, you face several tax rates. This example shows how much “federal” tax you will pay on your 2020 taxable income. You will need to make a separate calculation for your provincial tax amount.

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●      The first tax bracket – $0 to $48,535 is taxed at 15%, plus

●      The next tax bracket – over $48,535 to $97,069 is taxed at 20.5%, plus

●      The following tax bracket – over $97,069 to $150,473 is taxed at 26%, plus

●      At this point, $150,473 of your income has been taxed. The final bracket on your remaining $49,527 is taxed at 29%.

●      If you earn more than $214,368 in taxable income in 2020, the portion over $214,368 is taxed at the federal rate of 33%. This is called the “top tax bracket” and a common misconception is “if your taxable income is in this top bracket, you will be taxed at 33% on your entire income”.

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Click here for more information on Federal & Provincial taxes.

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