Tax brackets are the income levels at which a taxpayer becomes liable to pay a higher tax rate. In Canada, the federal government and each of the provinces collect income taxes. In 2022, the federal tax brackets and rates for individuals earning employment or business income are as follows:
|Taxable Income||Tax Rate|
|$0 to $48,535||15%|
|$48,535 to $97,069||20.5%|
|$97,069 to $150,473||26%|
|$150,473 to $214,368||29%|
In addition to the federal tax, residents of each province or territory pay additional taxes, with rates ranging from 5% to 20%. The following table shows the combined federal and provincial/territorial tax rates for 2022 for the highest tax bracket in each province and territory:
|Province/Territory||Combined Tax Rate|
|Newfoundland and Labrador||51.3%|
|Prince Edward Island||50.3%|
Here are three unique facts about the tax brackets in Canada for 2022:
- The 2022 federal budget introduced a new temporary rate for high-income earners. Individuals earning more than $214,368 will pay a federal tax rate of 33% in 2022, up from 29% in 2021. This change is intended to address the COVID-19 pandemic and is set to expire in 2023.
- The 2022 federal budget also introduced a new tax bracket for income earned through passive investments held by private corporations. This new tax bracket is intended to address income inequality and ensure that high-income earners pay a fairer share of taxes. The rate for this new tax bracket is 10.5% on the first $50,000 of passive income and 26% on any income above $50,000.
- The 2022 federal budget also introduced a new tax credit to support first-time homebuyers. This non-refundable tax credit provides up to $5,000 for first-time homebuyers to help offset the costs of buying a home.
It’s worth noting that tax brackets in Canada have been in place for more than a century. The first federal income tax in Canada was introduced in 1917 as a temporary measure to finance World War I. The tax was later made permanent and has undergone numerous changes over the years to reflect changes in the economy and the needs of Canadians.
Some believe that the tax system should be reformed to address income inequality and ensure that high-income earners pay a fairer share of taxes. Others argue that increasing taxes on high-income earners could discourage investment and economic growth. As the government continues to grapple with the COVID-19 pandemic and the long-term economic impacts, it is likely that tax brackets in Canada will continue to evolve in the coming years.
Let’s consider a hypothetical scenario: a single individual earning $80,000 in 2022. Based on the federal tax brackets, this individual would owe 15% on their first $48,535 of taxable income, 20.5% on their income between $48,535 and $97,069, and 26% on their income above $97,069. Assuming they live in Ontario, they would also owe an additional 13.53% in provincial taxes, bringing their total combined federal and provincial tax rate to 39.06%.
Understanding the tax brackets in Canada is an important part of planning your personal finances. It is important to be aware of both the federal and provincial/territorial tax rates and to ensure that you are maximizing your deductions and credits to minimize your tax liability. While the tax brackets in Canada may change from year to year, a basic understanding of the system can help you make informed decisions about your finances and ensure that you are paying your fair share of taxes.