How is income tax calculated in Canada?
Canadian federal income tax is calculated separately from provincial/territorial income tax. However, both are calculated on the same tax return, except for Quйbec.
Federally, there are 4 tax brackets. Each province has multiple tax brackets, except Alberta, which has only one tax rate for all taxable income. The federal and provincial/territorial income tax rates are combined in our tax rate tables so that taxpayers can see the total tax rate being paid, including any provincial surtaxes.
The tax rates increase as taxable income increases. Everyone pays the lowest tax rate for the amount of their taxable income within the lowest tax bracket. Taxable income in excess of this is taxed at the next higher rate.
After income tax amounts are calculated, non-refundable tax credits are deducted from the tax payable. Non-refundable tax credits include the basic personal amount, which is available to every taxpayer. A list of most of the non-refundable tax credits can be seen in the tables on the personal tax credits page. The
actual tax amount of the credits is calculated by multiplying by the tax rate for the lowest tax bracket, except for Quйbec.
The basic personal amount for each province and territory is listed in their tax rate table, as well as the tax rate that is applied to calculate the tax credit. The basic personal amount is the amount that can be earned before any provincial/territorial tax is paid. Some provinces also have a low-income tax reduction which increases the amount that can be earned before any tax is paid.
The provincial/territorial tax rates before being combined with the federal rates are shown above the table of combined rates for each province/territory. Canada Revenue Agency (CRA) also has an article What are the income tax rates in Canada? The CRA tables do not include any provincial/territorial surtaxes. The surtaxes are included in our combined tax rate tables.
Revised: February 13, 2013