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Tax rates: How much do you have to pay?

Region: Ontario Answer # 174

The federal and Ontario government each levy and collect income tax. However, the taxes are combined so that the tax payer only files one tax return, and pays the combined tax total which the governments then divide. The amount of tax you are required to pay will depend on the amount of income you earned during the year and the deductions and credits you claimed. In most cases, you are also required to pay tax on investment income earned in the year even if it is not received until the next calendar year.

 

Tax rates and tax brackets

Depending on the amount of income you earn, you will fall within one of five federal tax brackets, and one of the five Ontario tax brackets. Each tax bracket is taxed at a different rate. The system is based on what is called graduated tax rates. This means that if your income increases so that you enter a new tax bracket, only the amount of your income that falls in the higher tax bracket gets taxed at the higher rate. Tax brackets are set by both the federal government and by each province.

2018 tax rates:

Federal:

  • 15% on the first $46,605 of taxable income
  • 20.5% on portion of taxable income over $46,605 up-to $93,208
  • 26% on portion of taxable income over $93,208 up-to $144,489
  • 29% on portion of taxable income over $144,489 up-to $205,842
  • 33% of taxable income over $205,842

Ontario:

  • 5.05% on the first $42,960 of taxable income
  • 9.15% on portion of taxable income over $42,960 up-to $85,923
  • 11.16% on portion of taxable income over $85,923 up-to $150,000
  • 12.16% on portion of taxable income over $150,000 up-to $220,000
  • 13.16% on portion of taxable income over $220,000

2019 tax rates:

Federal:

  • 15% on the first $47,630 of taxable income
  • 20.5% on portion of taxable income over $47,630 up-to $95,259
  • 26% on portion of taxable income over $95,259 up-to $147,667
  • 29% on portion of taxable income over $147,667 up-to $210,371
  • 33% of taxable income over $210,371

Ontario:

  • 5.05% on the first $43,906 of taxable income
  • 9.15% on portion of taxable income over $43,906 up-to $87,813
  • 11.16% on portion of taxable income over $87,813 up-to $150,000
  • 12.16% on portion of taxable income over $150,000 up-to $220,000
  • 13.16% on portion of taxable income over $220,000

Combined tax rate

The federal and provincial tax rates, added together, is called the combined tax rate. In addition to the combined rate there are surtaxes that primarily apply to incomes in the highest tax bracket. The combined provincial and federal tax rate ranges from approximately 20% for taxable income in the lowest tax bracket, to approximately 53% for income in the highest tax bracket. Also, individuals with taxable income over $20,000 are required to pay a Health Premium each year.

Reducing tax payable: deductions and credits

There are two main ways to reduce the amount of tax you pay: by claiming deductions and by claiming tax credits.

Deductions are amounts you can subtract directly from your income before calculating tax. There are not as many deductions for individuals earning employment income, in comparison to individuals who carry on a business. However, some common deductions for individuals include: support payments made to an ex-spouse, contribution amounts to an RRSP up-to your annual maximum, and moving expenses, if you had to move more than 40 kilometres because of work.

Tax credits work differently from deductions in that they are subtracted from the amount of tax you owe, as opposed to your income before taxes. The most common credit that everyone can claim is a basic personal tax credit, which allows you to subtract an amount set by the government. The federal 2018 basic personal tax credit amount is $11,809. The federal basic personal amount for the 2019 tax year is $12,069. There are also provincial basic personal tax credit amounts, set by each province. In Ontario, it is $10,354 for 2018. For the 2019 tax year, it is $10,582.

Additional federal tax credits and benefits  include those available for:

  • dependent spouse and children, (spouse includes common-law partners who qualify under the definition)
  • disability amount
  • caregiver expenses
  • medical expenses for the lesser of an amount equal to 3% of your income or the annual amount set by the government
  • college or university tuition
  • for the 2018 tax year the Working Income Tax Benefit (WITB) is intended to provide tax relief for eligible working low-income individuals and families, and to encourage those who are not working to enter the workforce
  • the Canada Workers Benefit – an enhanced version of the WITB – has been proposed for 2019 and subsequent taxation years

Ontario tax credits

Each province also has its own tax credits. For example, Ontario provides tax credits for the following:

  • Healthy Homes Renovation
  • Focused flow-through share, to encourage mineral exploration in Ontario
  • Political contributions
  • Apprenticeship training

Ontario benefits

The Ontario government also has several benefits available to low-income individuals and families. Benefits are generally paid to the individual on a monthly basis, up-to a maximum amount set by the government. One of the requirements to qualify for any of the benefits available is that you must file a tax return, even if you did not earn any income. In Ontario, benefits include:

  • Ontario Child Benefit
  • Ontario Guaranteed Annual Income System (GAINS)
  • Ontario Senior Homeowners’ Property Tax Grant
  • Ontario Trillium Benefit

Visit the Ministry of Finance for more information about tax credits, benefits and incentives for Ontario residents.

When must tax be paid?

Generally, tax must be paid throughout the year, as it accrues. Most employers deduct an amount for taxes from your paycheques, and submit it to the federal government on your behalf. If your employer has not deducted enough during the year, you will have to pay tax when you file your tax return. If your employer deducted too much because you have deductions or credits to claim, you will usually get money back after you file your return for the year.

Many people prepare their own tax returns either by carefully following the steps in the tax return packages provided by CRA, or by purchasing a computer program that will ask you to input information and then calculate your taxes.

For general information, contact Canada Revenue Agency.

Filing an income tax return can be complicated. For help filing your tax returns, contact H&R Block.

For legal advice and assistance with tax planning, a CRA tax dispute, or other tax issues, contact our preferred Tax lawyers and see who’s right for you: 

Barrett Tax Law

Tax Chambers LLP


Tax Chambers Tax Law Ontario All Topics Sept 2017Tax Chambers Tax Law Ontario All Topics Sept 2017

H&R Block Tax Law Ontario All Topics Sept 2017H&R Block Tax Law Ontario All Topics Sept 2017

Barrett April 2017 Ontario Tax Law Topic 174Barrett April 2017 Ontario Tax Law Topic 174

 



								

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