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This is another video by Turbo Tax video which explains more about income taxes. This video specifically goes into an introduction to taxes and tax deductions. Then it explains taxes and what expenses self-employed workers can claim and cannot claim. Then the video goes into more of an explanation about what income tax credits are and what are non-refundable tax credits and refundable tax credits.

I selected this video because it explains options for self-employed individuals whereas many other videos have not. Also, this video just shares its information clearly and efficiently considering the video is 1 min 45 sec.

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Tax Basics: How To Get the Most Out of Your Tax Return

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What did you learn about your topic that surprised you the most?

What surprised me the most about Income tax is the amount of money Canadians pay to the government. Although there are tax credits and refunds Canadians still shell out large amounts of money in taxes. Especially for higher incomes someone making $100,000 / year is taking home more in the $80,000s. Overall it is shocking but understandable considering our free health care and good public services.

Provide a real-life example of how this topic is relevant or interesting for you.

This topic is relevant and interesting to me because I recently turned 19 and am a taxpayer and previously have had a brief understanding of income taxes. This topic is interesting because I was able to learn how to get better tax returns and make the most of my income taxes through my RRSP, TFSA, Charities, Tuition costs, and much more. I enjoyed learning about this because I now have a better understanding of how taxes work and where my money really goes.

If you could pass on your knowledge to a family member or friend, what do you think is the most important thing to pass on?

I think if I were to pass on information it would be about tax refunds and credits. Most people probably miss a lot of credits they are eligible for because they just do not know about them. Therefore I would educate my family and friends on ways to reduce their taxes and increase their tax refunds to get the best value for their dollar.

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This video explains how income is taxed in Canada and the different types of taxable income. The video starts off by explaining the tax basics with an introduction. Then it goes into how exactly income is taxed and the percentage breakdown. Then it explains the different tax brackets based on a person's income. After that, it breaks down Capital gains taxes, dividend taxes, and interest taxes.

I chose this video because it focuses on income taxes as well as other taxable income that is good to know about. Not many videos have shown the other taxable incomes, but any interest you earn over a certain amount is taxable as well as dividends and capital gains. Therefore this video shows more in depth what is taxed and at what point.

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Episode 2: How Is Income Taxed in Canada

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This website Wealthsimple explains income taxes in-depth, from history, purpose, structuring, rules, how-tos, and much more. The website starts by explaining how income taxes were introduced in 1917 to fund WW1. Then it goes into showing how income taxes work and the returns you receive after doing your taxes. The website later explains deadlines and tutorials to help people know how to get their taxes done. Also, the income tax rates get broken per income and percentage as well as things that are non-taxable and ways to reduce your income tax.

I chose this website because it informs you about all aspects of income taxes in an easy and organized way. It also gives tips and resources to help someone learn about the topic better. I found the introduction helpful because it did a deep dive into the history and factors of income tax and not just a brief confusing overview on this topic.

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Canada's taxes are as abundant as our lakes. There are taxes on consumption, such as sales tax, land transfer tax, liquor tax, gas tax, and custom tariffs on imported goods. Then there are taxes on assets, such as property taxes and car stickers. And finally, there's a tax on income. Here's what you need to know.

What is income tax?

For almost every dollar you earn, you must pay a portion in taxes.

It wasn't always this way. Before World War I, Canada was a tax-free haven. Unlike England and the United States, Canada prided itself on its "no federal taxes" policy and used it to attract desperately needed skilled immigrants, investors, and capitalists. Instead, the government made money mostly by selling off natural resources and charging high custom fees on imported goods.

But in 1917, Finance Minister Sir Tomas White implemented the Income Tax Act to pay for World War I and asked that it should be reviewed after the war. Canada has had an income tax ever since.

While income tax may seem natural and inevitable to us today, it was met with resistance at the time and considered a significant burden.

When income taxes were first introduced, in 1917, single people had a personal exemption of $29,757 in today's dollars, while married people had an exemption of $59,514. Over those amounts, they were taxed just 4%.

Now, married and single people have identical federal personal exemptions, at around $15,000. The top federal tax rate is 33%, and when we add in provincial tax rates, the total marginal tax rate now reaches 54.8%.

But we pay it without (much) complaint because it's the price of living in a prosperous nation. As Oliver Wendell Holmes, the 19th-century U.S. Supreme Court Justice, said, "I hate paying taxes. But I love the civilization they give me."

The Canadian Revenue Agency (CRA) collects this money to pay for the government's operating expenses and delivery of services. Taxes are the reason we have hospitals, high schools, the military, the police force, libraries, roads, prisons, and the CBC. The government redistributes much of these taxes to low-income families and vulnerable Canadians in the form of child benefits, employment insurance, old age security, and social assistance.

How income tax works in Canada

You're required to report your income to the CRA annually by filing paperwork known as a tax return. In this return, you must list all your income sources and note your eligibility for tax deductions or tax credits.

The tax system is based on trust. Although the CRA does know about some of your income, they mostly rely on citizens to self-report their total income accurately.

The CRA recommends you file a return even if you do not earn any money. If you don't file your taxes, you may miss out on free money. Some payouts you may be eligible for include:

The deadline to pay your income taxes

The deadline to pay taxes, for those who earn enough to do so, can be confusing because the date you must pay does not always line up with the date that you must file.

Employed individuals have the same payment and file date: April 30 (if this falls on a weekend, the tax deadline is the next business day). That's because their taxes usually get taken off at the source, on each paycheque, so their tax calculation is simpler.

Self-employed individuals must pay any taxes owed in a tax year by April 30, but they have until June 15 to file their return.

The CRA charges a fee for late filers - 5% of your balance owed plus an additional 1% for each month late (to a maximum of 12 months).

Income tax rates in Canada

Canada has a graduated or progressive tax system, which means the more you earn, the more you pay.

Under this system, money is divided into income brackets which determine the applicable tax rate. A common mistake is to assume that all income is charged at the rate of its highest tax bracket. In fact, we are charged progressively, which means that first, you pay the rate in the lowest bracket and only pay the higher rate on each additional dollar. This is also called your marginal tax rate.

For example, if you earn $1, you'll pay 10%. But on the second dollar, you'll have to pay 20%. And on the third dollar, you'll be on the hook for 30%. But you never have to pay 30% of $3. Instead, you pay a total of just $0.60, which works out to an average tax rate of just 20%.

Some find this graduated system fair, while others believe it burdens hard workers, penalises success, and discourages prosperity.

Corporations are the exception to this system, however. They pay a flat tax instead of a graduated tax. The corporate income tax, a flat tax for small business Canadian-controlled private corporations, for example, maxes out at 12.20% (9% federal income tax rate plus up to an additional 3.20% provincially/territorially, no matter how much they earn).

Graduated tax rates can be confusing because the income tax brackets don't depend just on the amount earned - they also depend on where the money comes from. Plus, each province has a completely different tax bracket. You must add the two together to come up with the total rate.

Some Canadians are surprised to learn that not all income is treated equally. The government typically gives a tax break to money earned from selling an investment - 50% of the capital gains are taxed at the marginal tax rate which applies to their taxable income. And to encourage jobs and development, small Canadian corporations have extremely low tax rates. The highest tax rates are the personal income tax rates applied to wages and salaries.

The CRA differentiates between these six types of income sources:

1. Other income (including employment and interest)

2. Capital gains

3. Eligible dividends (from large, public Canadian corporations)

4. Ineligible dividends (from small Canadian corporations)

5. General corporate income

6. Small business corporate income

For example, let's say you made $55,000 in employment income and you live in Ontario. That's in the second tax bracket both federally and provincially. The federal government charges you 15% on the first $53,359 you made, and then 20.5% on the remaining amount. Ontario charges 5.05% on the first $49,231 and 9.15% on the remaining amount. That's what we mean when we say that the more you make, the more you pay.

Dividend money is considered to have already done its duty since it comes from after-tax corporate profit. Instead, you might also be eligible to receive a dividend tax credit, which is a nonrefundable tax credit meant to offset the effect of double taxing.

Income that's not taxable

Luckily, not all income is taxable. Here are some examples of income that is taxed in Canada:

Most lottery winnings

Most inheritances and gifts

Canada Child Benefit payments

GST/HST credit payments

Payouts from a life insurance policy

School scholarships

Withdrawals from a Tax-Free Savings Account (TFSA)

Strike pay from a union

How to reduce your income tax

Paying what you owe in income taxes is a civic duty. But there's no reason to pay a penny more than is required. Finding ways to reduce your taxable income is not only legal but financially responsible. Strategies to do so range from the simple and the common - maximise deductions - to the elaborate and esoteric - like buying flow-through shares. Many tax preparation programs can help you find the deductions and credits you qualify for. For truly complex and unique situations, a good accountant will be the best person to help find the optimal tax efficiencies in your particular situation.

But here are a few ideas:

Change up your income sources: Our government gives some types of income preferential treatment. Employment income and interest bear the heaviest burden, while capital gains and dividends are barely touched. Instead of relying on a job and stashing funds in a savings account, many people try investing. If you can manage, over the long-term, to transfer surplus income from your salary into an investment portfolio, you will be able to shelter much of your funds from taxes.

Move from sole-proprietorship to incorporation: If you're a freelancer or have a small business, consider switching from a sole-proprietorship to a corporation. While incorporating comes with heavier compliance requirements and a trickier tax return, it could drop your tax rate significantly. In Ontario, for example, high earners would go from a marginal tax rate of 46.16% to just 12.2%. That's only inside the corporation of course - once you transfer the funds and pay yourself a salary or dividend, you'll have to pay income taxes at regular marginal tax rates. This strategy will only save you on taxes if you make enough to be able to retain income inside the corporation. Speak with a professional accountant to see if your small business can benefit from this tactic.

Defer taxes: There's a concept in financial planning that states that money today is always better than money tomorrow. So if there's a way to put off paying taxes until tomorrow, you should always take advantage of that opportunity. That's because money can grow over time, and the more money you have, the faster it can grow. Paying taxes impedes this process. The most obvious way to defer taxes is to stash funds and invest inside your Registered Retirement Savings Plan (RRSP). The money can grow sheltered from taxes until you withdraw funds in retirement. While eventually, you'll have to pay the piper, your marginal tax rate will hopefully be lower than it is in your prime working years. You can do the same in your TFSA. Although you're contributing with after-tax funds, the money, once inside, will also be able to grow free, away from the long reach of the CRA. A newly introduced tax deferral option is the First Home Savings Account (FHSA), which allows you to save up to $40,000 for the purchase of your first home. Like the TFSA, the money, once inside the FHSA, can grow tax-free.

For investors and small business owners, a common way to defer taxes is to leave money inside a corporation for as long as possible. If you own an investment property, you can write off the depreciation every year, which delays paying taxes until you actually sell the property.

As you can see, there's still quite a bit of wiggle room in the tax code to postpone your tax obligations and put your money to better use.

Maximise all deductions: Deductions work by lowering your income, hopefully by enough to kick you down a tax bracket. Credits work by lowering your tax payable, hopefully down to zero. Typical tax deductions include union dues, contributions, child care expenses, and capital losses. Typical tax credits include charitable donations, medical expenses, caregiver amounts, and the Canada Workers Benefit.

How to calculate income tax

Calculating your exact income tax is no easy task. Canada's tax system is a warren of baffling codes, 1.1 million words long.

A rough tax estimate can be done by first figuring out your total income minus any applicable deductions. Then, simply multiply your income, per source, by its suitable marginal tax rate (territorial, provincial, and federal taxes).

To get an estimate of your total net income and income tax, use an online tax calculator.

How to pay income tax online

With income sources such as employment income, income tax is deducted from your income and remitted to the CRA throughout the year. With other sources such as self-employment income, income tax is required to be paid quarterly to the CRA. If after preparing and filing your tax return and all income has been accounted for it's determined that you still owe some tax money, you have to pay that amount owed to the CRA by the payment deadline - April 30 of the following year.

You can file your tax return longhand, the old-fashioned paper way, or through a free or paid service online. Some Canadians choose to outsource the work to an accountant.

You can pay tax by mailing a cheque, or by walking into any major bank with a cheque.

If you prefer to pay online, you have three options:

1. Pay through online banking. Simply set up the CRA as a bill payee.

2. Pay directly at the CRA with a debit card through " My Payment."

3. Use a third-party service to pay with a credit card or PayPal.

Frequently Asked Questions

Last Updated November 11, 2023

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Canadian Income Tax Explained | Wealthsimple

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Here's everything you need to know about Canada's income tax system.

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This website was created by the Canadian government and shows a database of all deductions and credits that you can use to reduce your income taxes. The website starts off with an introduction and then has the option to filter topics such as Family, Education, Disability, Pension, Employment, and more. The website then shows a list of all of the possible credits with the information line you need for your tax return and the qualifications.

Overall I chose this website because it shows directly through the government what exact credits you can claim, and if you are qualified. I find this database easy to navigate and understand. I find that this website is different from others because it is directly from the Canadian government and shows factual information. The filter option is awesome because you can get straight to the topic of the credit you want to see, which makes it super easy to get the information you need from this website.

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Find out which deductions, credits, and expenses you can claim to reduce the amount of tax you need to pay. There are a few ways to do this:

Use the checkboxes to filter by common topics

Enter keywords in the "Filter items" box

Sort by line number, topic, or category

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Find out which deductions, credits, and expenses you can claim to reduce the amount of tax you need to pay.

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This website is an income tax calculator as well as a tax information site. In this section of the website, you are able to calculate the amount of taxes you owe based on your income and other contributions. The website breaks down the income taxes to show provincial and federal as well as premiums and other information. The website has an option to change your province and insert any other income you accrued that year.

I selected this website because the income tax calculator is very helpful when calculating your income. Also, most people would like to see the breakdown of the income taxes which this website kind of does. Unlike the other websites listed, TurboTax offers an easy-to-use calculator to assist the average person in calculating their income tax.

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2022-2023 Canada Income Tax Calculator | TurboTax® Canada

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TurboTax® free Canada income tax calculator for 2022 quickly estimates your federal and provincial taxes. Find out your tax refund or taxes owed plus federal and provincial tax rates.

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This webpage is from Fidelity and explains how taxes are deducted from your paycheck. The website breaks down the tax deductions such as CPP and EI and any other employer deductions. It describes how payroll deductions work and paycheck information. In addition to that the website lists a few tips when it comes to reducing income taxes and how exactly CPP and EI work.

I chose this website because it specifically focuses on paycheck deductions from your employer and breaks it down in a more understandable way. Other websites have not done this and have skipped over employer deductions.

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Author: Tom Drake

Source: MapleMoney

*The following information only applies to Canadians living outside the Province of Quebec

If you're an employee in Canada, your take-home pay is less than your gross earnings. That's because your employer must deduct several amounts before issuing your paycheque.

Some of the deductions, like income tax, are forwarded to the federal government and required by law. Others are related to your job.

Either way, all payroll deductions are reported on your pay stub. But what exactly is a pay stub, and how much income tax and other amounts are deducted?

What is a pay stub?

A pay stub is a document given to employees every time they get paid. It includes their gross pay, a list of all deductions, and provides them with their net pay amount, which is the final amount they receive. While most companies use digital pay stubs, which employees can access online, paper-based stubs are still very common.

What types of deductions are included on a pay stub?

The federal government deducts federal income tax, employment insurance, and Canada Pension Plan (CPP) from your paycheck every pay period. Actually, your employer handles the deduction and forwards the money to the government. I'll explain how the various deductions are calculated a bit later.

In addition, your employer will deduct other amounts related to your employment. While they aren't the focus of this article, I've included them in the following list of common pay stub deductions:

Common payroll deduction items

Government Deductions

Canadian income tax

Canada Pension Plan (CPP) Contributions

Employment Insurance (EI) Contributions

Employer Deductions

Pension contributions

Union Dues

Employee Benefits, including:

Life insurance premiums

Short & Long-Term disability premiums

Health insurance premiums

Dental Insurance

Group retirement savings plan

Charitable donations

You may notice other deductions than the ones I've included here. Remember that employer deductions vary from one company to the next.

Here's a closer look at how the federal government's deductions are calculated, starting with income tax.

Income tax

Canada uses a progressive, or graduated, income tax system. That means that as your income grows, the rate at which you are taxed increases. The following federal tax rates illustrate how this works:

Income Range Federal Tax Rate for 2023

$1 to $53,359- 15 percent

$53,359 to $106,717- 20.5 percent

$106,717 to $165,430- 26 percent

$165,430 to $235,675- 29 percent

Over $235,675 33- percent

Here are a couple of tax rate examples using different income amounts:

1. Let's say you have an income of $50,000. It's simple; you'll pay a federal income tax rate of 15%.

2. If your income is $120,000, you'll pay 15% on the first $53,359, 20.5% on the next $53,359, and 26% on income above $106,717 (approximately $13,000).

Basic personal amount

You don't pay income tax on your entire income. For 2023, the first $15,000 you earn is not taxed; it's called the Basic Personal Amount, a non-refundable tax credit for all Canadian taxpayers. It removes federal income tax from the lowest income earners. Even if you earn more, you get a partial reduction in federal income tax.

How to reduce the income tax deducted from your bi-weekly pay

The federal government uses a TD1 Personal Tax Credit Return form to determine how much tax to deduct from your gross earnings. But many Canadians have income tax deductions that are not accounted for on that form. Examples include charitable donations, RRSP contributions, childcare expenses, etc.

If these deductions result in you receiving a large income tax refund each year, it indicates that the government is deducting too much income tax at source, affecting your take-home pay.

You can request a reduction in income tax deducted from your regular pay by filling out form T1213, Request to Reduce Tax Deductions at Source.

Before filling out the form, make sure that the deductions are accurate. The last thing you want is a large bill from the CRA come tax time.

EI and CPP deductions

In addition to income tax, your employer is required, by law, to deduct Employment Insurance and Canada Pension Plan contributions from your paycheque and forward the amounts to the Canada Revenue Agency (CRA). Most Canadians will benefit from EI or CPP at some point. Here's some background on each of these pay stub deductions.

How employment insurance deductions work

Employment Insurance (EI) is a federal government program providing temporary income for unemployed Canadians while they search for a new job or upgrade their skills. The program is funded by employee and employer contributions, and EI contributions are among the many payroll deductions reflected on your pay stub each pay period.

Canadian employers must deduct employment insurance premiums from every dollar of their employee's insurable earnings up to a specified limit. For 2023, the maximum deduction is $1,002.45, based on maximum insurable earnings of $61,500, 0r 1.63%. There are no EI deductions on income above the maximum. In addition, the employer must contribute 1.4 times the amount of EI premiums deducted from the employees pay, up to a maximum of $1,403.43. Different rates apply to workers in the Province of Quebec.

How Canada Pension Plan (CPP) deductions work

The Canada Pension Plan is a government pension plan designed to provide Canadian workers with a guaranteed income upon retirement. To receive CPP, you must be 60 or over and have made at least one valid contribution to the CPP during your working years. Like Employment Insurance, CPP is funded by employee and employer contributions. The more you contribute, the higher your monthly CPP benefit will be.

CPP deductions occur up to the maximum annual pensionable earnings amount, which for 2023 is $66,600. Because there is a basic exemption on the first $3,500 of earnings, the maximum contributory earnings is $63,100.

As an employee, the maximum annual contribution is $3,754.45, a rate of 5.95%. This amount will appear next to the tax deductions on your pay stub, and employers must also contribute an equal amount.

The bottom line on Canadian payroll deductions

Remember that your annual salary represents your gross income and doesn't account for income tax (including provincial tax), EI, or CPP deductions. Use your pay stub to determine your actual take-home pay and create a budget based on that amount. You should also check your pay stub to ensure there are no errors and that you receive your full payment.

This article was written by Tom Drake from MapleMoney and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to legal@industrydive.com.

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How much tax is deducted from a pay stub?

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If you're an employee in Canada, your take-home pay is less than your gross earnings. That's because your employer must deduct several amounts before issuing your paycheque.

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Welcome to my Padlet where you can learn all about income taxes and some tips to manage them. Income tax is a type of tax governments apply on income generated by individuals and businesses. These deductions are used to fund our community such as government obligations, goods for citizens, and public services. The federal and provincial governments both charge taxes therefore different provinces may have different rates. Enjoy learning more about where your money goes.

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This is a photo of what a T4 slip looks like. It explains the basic information needed for taxes and can help someone reference their T4 to this example.

I chose this image because I think it is important for people to know what their T4 looks like and how to navigate it. This is a good reference for someone to read their T4.

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This video created by Turbo Tax explains how to do your taxes in a short and simple video. It starts off by explaining the due dates and deadlines for taxes, then it explains what personal information you need to file your taxes and what forms you need to use. Then it goes into expense receipts and how to file with Turbo Tax.

I selected this video because it is a good simple video for someone to learn the basics about filing taxes. Considering your taxes reflects what taxes you pay and what tax credits you receive.

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This picture shows where your income taxes are allocated and dispersed throughout the community. Although this chart is dated it shows a good baseline for where Canadian dollars go and how many cents per dollar go to what.

I chose this image because I think it is useful to see where our money really goes and how it is broken down. This is an image that is not found around the internet, it is unique to see exactly how our money is broken down, in such a simple photo.

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This video is more directed toward students to help them navigate their tuition and taxes. This video starts off by explaining the income tax basics, and then she moves on to explain the different types of tuition documents you may need to help file your taxes. After that, she then talks about who is eligible for these credits and how to calculate these credits. Lastly, because she is a resident she explains how to reduce her taxable income which can apply to others in similar working/studying situations.

I chose this video because as a student it is good to know how I can get tax credits for my paid tuition and how to navigate my tuition documents. This is different from other videos because it explains taxes for students specifically and how to reduce your income taxes due to being a student.

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TUITION TAX CREDITS Explained for Canadian Students (T2202, TD1 & T1213 forms)