|Canadian Federal Income Bracket||Canadian Federal Rate||Ontario Income Bracket||Ontario Rate|
|First $45,916||15%||First $42,201||5.05%|
|Over $45,916 up to $91,831||20.5%||Over $42,201 up to $84,404||9.15%|
|Over $91,831 up to $142,353||26%||Over $84,404 up to $150,000||11.16%|
|Over $142,353 up to $202,800||29%||Over $150,000 up to $220,000||12.16%|
|Over $202,800||33%||Over $220,000||13.16%|
A person with total taxable income of $92,000 would pay 6,887.40 (45,916*15%) + 9,412.58 (91,831-45,916=45,915*20.5%) + 43.94 (92,000-91,831=169*26%) = $16,343.92 in Canadian federal taxes.
That same person with total taxable income of $92,000 would pay 2,131.15 (42,201*5.05%) + 3,861.57 (84,404-42,201=42,203*9.15%)+ 847.71 (92,000-84,404=7,596*11.16%) = $6,840.43 in Ontario provincial taxes.
The gross taxes payable is $23,184.35 (16,343.92 + 6,840.43). The marginal tax rate is at 37.16% (26% for federal and 11.16% for Ontario). Basic personal amount tax credits will then be deducted for the federal and provincial of $1745.25 and $514 respectively. Total net taxes payable is now $20,925.10 (23184.35-1745.25-514). The average tax rate is 22.74% ($20,925.10/92,000). This calculation does not take into effect other tax credits or the Ontario surtax.
There are several tools that you can use to adjust and reduce your taxable income. The reason for doing so is to minimize the taxes payable especially if you are young and anticipate that your salary will increase significantly in the next 20 years or if you are elderly and retired and anticipate your income falling. In our example, if total taxable income was $84,400, then the marginal tax rate would have been 29.65% effectively taxing you less. Should that have been the taxable income, the gross tax payable would be $20,768.98 compared to $23,184.35 – a difference of $2415.52.
Tools that you can use to lower taxes payable and will be discussed further in detail include:
- Expenses and costs that correspond to the income earned (reduces taxable income)
- Registered Retirement Savings Plan or RRSP (reduces taxable income)
- Income Splitting (attempt to even out the income between spouses
- Non-refundable tax credits (reduces tax payable)
- Tax-Free Savings Account or TFSA (cannot be taxed)
- Registered Education Savings Plan (cannot be taxed)