Income Tax Calculator for 2023 and 2024

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Estimate your income taxes by providing a few details about yourself and your income.

Inputs

1. Select Province

2. Select Status

Employment Status

EmployeeSelf-Employed

Tax Year

202120222023

3. Enter Incomes

Employment Income

Other Income (Including CERB, CESB, EI, etc.)

4. Income Deductions

RRSP Contributions*

*(2023 Deadline: March 1st, 2024)

Additional Deductions

*(2023 Deadline: March 1st, 2024)

5. Other Questions

Capital Gains

Deduct Health Premiums?

YesNo

6. Dividends

Eligible Dividends

Ineligible Dividends

Results

Total Taxable Income

$ 50,000

Total Deductions

$ 0

Total Income

$ 50,000

---

Total Tax

$ 10,789.05

Income Tax

$ 7,207.3

EI Premiums

$ 815

CPP Contribution

$ 2,766.75

RRSP tax savings

$ 0

---

After-Tax Income

$ 39,210.95

Average Tax Rate

14.41%

Marginal Tax Rate

24.15%

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Larger Budget Deficits Historically End With Increased Income Taxes

Like you, the Government of Canada must earn income to fund expenses. The government earns income through taxes, such as on income, corporations, capital gains and sales tax. The government invests in social projects, infrastructure, education and more with this income. The balance between income and expenses is known as the federal budget. When the costs are higher than income in a given year, there is a budget deficit. If income exceeds expenses, there is a surplus.

If there is a deficit, the government must borrow money to make up for the difference in expenses. To borrow money, the government issues T-Bills which you can think of as IOU notes that the government promises to repay in the future. To pay off debt, the government generally needs to increase income, which means higher taxes. Personal income taxes are a crucial part of the government's revenue. At its peak, they made up 40.8% of federal revenue in 1990. The following section will explore the history of personal income tax changes in Canada related to the federal budget.

Canada's personal income tax was first introduced as a temporary measure during the First World War. The purpose of the tax was to help finance the war effort. The tax was imposed on "taxable income," defined as income from business, property, and personal services. The government also introduced a corporate income tax.

Income tax became permanent in 1926 and has been part of the Canadian tax system ever since. The corporate income tax was also made permanent at this time.

During the Great Depression, the government increased personal and corporate income taxes to help balance the budget. The government also introduced new taxes, such as on retail sales.

World War II led to even more changes in the taxation system. The government needed to finance the war effort by increasing income taxes and introducing new taxes. For example, an inheritance tax was created.

After the Second World War, the government began to reduce income taxes. The highest marginal rate (the tax rate on the last dollar of income) was reduced from high-90s in 1945 to mid-70s by 1966. The government also began to exempt more income from taxation and introduced deductions and credits, lowering people's tax amounts.

The oil crisis in 1973 led to an increase in inflation and interest rates. This resulted in higher government borrowing costs and decreased revenue from personal and corporate income taxes. To help balance the budget, the government once again increased income taxes. This is shown in the chart above, where personal income taxes became a more significant part of federal revenue.

The government began reducing the highest marginal tax rate in the 1990s. The government also introduced several tax credits, which reduced people's amount of tax. For example, the government introduced the child care expense credit and the working income tax credit.

Since 2000, the federal government has continued to reduce personal income taxes. The highest marginal federal tax rate is now 33%. The government has also introduced new tax credits, such as public transit and home renovation costs.

The government is always looking for ways to increase revenue, and one way to do this is by raising taxes. The other way to have a budget surplus is to decrease expenses. As the Baby Boomer generation begins to retire, the government will have to find ways to reduce costs, as there will be fewer people working and paying taxes. One way the government may do this is by raising the retirement age.

Another method could be changing the eligibility requirements for specific programs, such as Old Age Security or Employment Insurance. The government may also choose to reduce the amount of money in tax credits or deductions.

No matter what changes the government makes to taxes in the future, it is essential to remember that taxes are necessary to fund the many services that the government provides, such as education, health care, and infrastructure.

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The elected government has the most considerable impact on how your tax payments are allocated. Many Prime Minister candidates will announce their platform while running for the position. Their platform will highlight how they intend to spend tax revenue throughout their term. This section will explain the preferred spending habits of the major political parties in Canada.

The current elected government party in Canada. However, with a minority government, the NDP influences much of their spending. In general, the Liberal Party focuses on improvements to housing and child care. They are slightly less inclined to raise taxes compared to the NDP to fund these initiatives. Although the Liberal Party raised taxes on the 1% of earners, they have not implemented the wealth tax proposed by the NDP.

Consequently, the Conservative Party typically prefers to cut spending altogether. Their goal is to decrease government spending and reduce the amount of tax revenue required. As a result, Conservative Party voters typically expect tax breaks and cuts.

The NDP has partnered with the Liberal party to influence governmental policy. No single party has a majority government in the House of Commons right now, meaning multiple parties must ally to pass bills. The NDP proposes significant increases in healthcare spending such as universal coverage for prescription drugs, dental care, and mental health. Additionally, they want to enhance spending on climate change initiatives, and Indigenous reconciliation. To finance the increased costs, they propose to increase the corporate tax rate from 15% to 18% and increase the capital gains inclusion rate from 50% to 75%.

The Bloc Québécois is a separatist party that primarily focuses on the well-being of Quebec. They do not have much impact on tax policy as they only have a few seats in the House of Commons.

The Green Party is newer to Canadian politics but has been rapidly growing in popularity. They focus on environmental policies and sustainability. Their budget policies focus on increasing ecological protection while increasing corporate taxation.

A tax credit in Canada directly reduces the income tax you must pay. For example, a $1,000 tax credit can directly be applied to lower the tax you need to pay by the same amount. If you have a tax bill worth $13,000, you can use the $1,000 to reduce your payment to $12,000. It is important to understand what can be deducted from your tax base to make sure that your net worth does not get hurt due to overpaying for taxes. It’s essential to understand the difference between refundable and non-refundable tax credits. A refundable credit will deposit the excess amount into your bank account if your credits exceed your tax bill. However, a non-refundable credit will not provide you with the unused portion. Some of the most popular tax credits in Canada include:

• Home Renovation Tax Credit: Many provinces in Canada allow senior homeowners to receive a tax credit by renovating their home to increase accessibility. Additionally, some provinces, such as Manitoba, offer a tax credit for purchasing green energy equipment.
• Home Buyers’ Amount: This is a non-refundable $5,000 tax credit for first-time homebuyers.

Some tax credits pay out directly to your bank account as a Canada PRO deposit, such as the Ontario Trillium Benefit for energy, property tax, and sales tax credits.

On the other hand, a tax deduction reduces your taxable income. As a result, there is not a direct one-to-one decrease as there is with a credit. For example, if you had a $1,000 tax credit in 2021 that reduced your taxable income from $50,000 to $49,000, you would only save $365.7. In some cases, a deduction may be rolled over to future years. This means if you expect a high taxable income in a future year, you can save the deduction to lower your taxable amount. Some of the most popular tax deductions in Canada include:

• RRSP Contributions: You may reduce your taxable income by contributing to your RRSP. However, you may only contribute the lower of 18% of your income, or $27,830 for the 2021 tax year. First-time homebuyers can also take advance of the RRSP First Time Home Buyers Incentive for a tax-free way to fund their down payment. You can find out about how RRSP works by using RRSP calculator.
• Mortgage Payments: Landlords in Canada are able to deduct mortgage payments and depreciation from their rental property income. However, regular homeowners can also use the Smith Maneuver to deduct HELOC interest payments while investing the proceeds.
• Moving Expenses: If you moved at least 40km closer to your work or school, you may be able to deduct qualifying moving expenses from your income.
• Child Care Expenses: Canadian guardians living with a child may deduct eligible expenses.

The CPP, short for the Canada Pension Plan, is a mandatory public retirement pension plan run by the Government of Canada. All Canadians over the age of 18 with employment income are required to contribute towards the CPP, with the exception of those employed in Quebec. Instead of the Canada Pension Plan, the Province of Quebec administers a similar pension plan, called the Quebec Pension Plan.

You will contribute towards the CPP from your employment earnings from age 18 to 70. The CPP Investment Board then invests CPP funds. Once you retire, you will then receive a monthly retirement pension that is equal to a certain percentage of your lifetime average earnings.

The base CPP benefit provides a monthly pension of up to 25% of your contributory earnings for the best 40 years of earnings. With changes enhancing CPP contributions, the monthly pension amount can rise to up to 33.33% of your contributory earnings. This pension amount counts as income, and so you must pay income tax on your CPP benefit.

The earliest that you can receive your retirement pension is when you turn 60 years of age. If you have a disability, you may receive the CPP disability benefit if you are under the age of 65, or the CPP post-retirement disability benefit if you have already started to receive your CPP retirement pension.

If you start receiving your pension between 60 and before you turn 65, your pension amount will be permanently reduced at a rate of 0.6% for every month before age 65, for a maximum reduction of 36%.

Every month after age 65 permanently increases your pension amount by 0.7%, up to a maximum of 42% when you turn 70.

Source: Canada Revenue Agency

There are two parts to the CPP: the base CPP and the enhanced CPP.

Base CPP

For the 2021 tax year, your base CPP Contribution amount will be 5.45% of your employment earnings between the basic exemption amount and the maximum contributory earnings amount. Your employer will also contribute an additional 5.45% of your earnings. This creates a combined annual contribution rate of 10.90%.

If you are self-employed, you must cover both the employee and employer contributions, for a total of 10.90%.

The basic exemption amount is $3,500. This means that if you make $3,500 or less, you will not have to make any CPP contributions.

The maximum contributory earnings amount increases every year, with it increasing between $1,000 to $3,000 per year. Any earnings over this maximum contributory amount will not require any additional contributions. For 2021, the maximum contributory earnings amount is $58,100. This increases to $61,400 for earnings in 2022.

CPP Enhancement

The CPP enhancement was introduced in January 2019 and is an additional supplement on top of the base CPP. Between 2019 and 2023, an additional contribution of 2% is gradually being rolled-out, shared equally between you and your employer. This means that you will contribute up to an additional 1% by 2023. For 2021, this enhanced CPP contribution is 0.5%.

Starting in 2024, enhancements will add an additional 8% contribution for earnings between the maximum contributory amount and 14% above that maximum contributory amount. This enhanced contribution is shared equally, 4% by the employer and 4% by the employee.

Source: Canada Revenue Agency

If you are an employee, you can claim a 15% tax credit for your base CPP contribution, and a tax deduction for your enhanced CPP contribution. A non-refundable tax credit directly reduces the amount of tax that you owe, while a tax deduction reduces your taxable income.

If you are self-employed, you can claim a 15% tax credit on half of your base CPP contribution, and a tax deduction on the other half of your base CPP contribution. You can also claim a tax deduction on your enhanced CPP contribution.

Source: Canada Revenue Agency

Instead of the Canada Pension Plan, employees and employers in the Province of Quebec are required to contribute towards the Quebec Pension Plan. If you are self-employed, you are required to contribute both the employee QPP and employer QPP contribution amounts. If you are an Aboriginal person, you are not required to contribute towards the QPP.

Similar to the CPP, the QPP basic exemption amount is $3,500. This means that you do not have to make QPP contributions if your employment income is less than $3,500. QPP enhanced contributions will increase your QPP contribution amount by 0.2% in 2021.

Source: Revenu Québec

EI provides benefits to those who have lost their jobs, stopped working due to illness or injury, as well as maternity and caregiving leave. You will pay a premium of your annual earnings up to a maximum amount. Your employer will also pay EI premiums.

If you are self-employed, you may also participate in the EI program, however, you are not required to do so. Those who are self-employed are only eligible for special benefits, such as maternity, caregiver, and sickness benefits, and you must earn at least $7,555 to be eligible for benefits.

If you are in Quebec, your EI premium rates will be lower than Federal EI premium rates. However, employees in Quebec are also required to pay premiums for the Quebec Parental Insurance Plan (QPIP).

Source: Canada Revenue Agency

Source: Revenu Quebec

There are two types of dividends in Canada: "Eligible Dividends" and "Other Than Eligible Dividends". Corporations will designate their dividends as either “eligible” or “other than eligible” for tax purposes.

Dividends are paid out of a corporation's after-tax profits. This means that tax has already been paid on the dividend amount. However, not all corporations have the same tax rate.

Canadian Controlled Private Corporation (CCPCs) are eligible for the small business deduction, which reduces their corporate income tax rate. Dividends paid out by them are "other than eligible". Since a lower amount of tax has already been paid on them, you will receive a smaller tax credit rate.

Public corporations are not eligible for the small business deduction, and so their dividends are designated as eligible dividends. As a higher tax rate applies to these public corporations, your dividend tax credit amount will be larger.

A dividend gross-up multiples your actual dividend amount by a certain multiplier, which attempts to replicate what the dividend-paying corporation had to earn in order to pay out the dividend after taxes.

Dividends count as income and will be taxed at your personal income rate, however, federal dividend tax credits will reduce the amount of tax owed. You may also receive provincial dividend tax credits depending on your province. Dividend tax credits are claimed on your personal income tax returns.

Source: Canada Revenue Agency

Capital gains is money that you make (or lose) when you sell capital property. This can include stocks and bonds, or land and equipment used in a business. A capital gain is when you sell your capital property for more than you paid for it. Similarly, a capital loss is when you sell for less than you paid for it.

Capital gains and capital losses are unrealized until you sell them. When you sell them, they become realized capital gains or losses.

There is no special capital gains tax in Canada. Instead, capital gains are taxed at your personal income tax rate. Only 50% of your capital gains are taxable. This means that only half of your capital gains amount will be added to your taxable income.

If you have incurred both capital gains and losses, you can use your capital losses to offset the amount of your capital gains. For example, if you have capital gains of $10,000 and losses of $4,000, your net capital gain would be only $6,000.

You can rollover your capital losses to offset capital gains in the future, or you can retroactively apply them to capital gains that you have realized in the past three years. For example, if you have capital gains of $10,000 and losses of $14,000, your capital gains for that year would be $0. You can then roll over the leftover capital loss of $4,000 to apply to future years, or the previous three years.

Tax Brackets are ranges of income that determine how much tax you will have to pay on the income in that bracket. Each bracket has a lower and upper limit as well as a tax rate.

If you earn more than the lower limit, you will have to pay that tax rate on any additional income up to the upper limit. Any amount beyond the upper limit will be taxed based on the next tax bracket. However, you can deduct RRSP contributions to reduce your income tax bracket.

For example, in the 2021 tax season, if you earn $80,000, you will be in the $49,020 to $98,040 tax bracket with a tax rate of 20.5%. This means that you are taxed at 20.5% from your income above $49,020 ($80,000 - $49,020). Any additional income up to $98,040 will be taxed at the same rate. Any income beyond the upper limit will be taxed at the next tax bracket rate of 26%.

At $80,000, you will also have income in the lower two tax brackets: $0 to $13,229 and $13,230 - $49,020. Your income within those brackets ($13,229 and $35,791) will be taxed at their respective tax rates of 0% and 15%.

The basic personal amount of $13,229 has a tax rate of 0%. This means that if you make $13,229 or less, you will not have to pay any federal income tax. Different provinces have different basic personal amounts. The basic personal amount will gradually increase to $15,000 by 2023.

A common misconception is that when you go up to a higher tax bracket with a higher tax rate, you will have to pay more taxes on all of your income. That is not true. Only the additional income in the higher tax bracket will be taxed at the higher rate and your income in the lower brackets will be taxed at their lower respective rates.

Your Marginal Tax Rate is the amount of tax you will have to pay on any additional income. It is determined by your provincial and federal tax brackets. If you earn enough to go into the next tax bracket, your marginal tax rate will increase for any additional income after that point. If you earn less than you expect and go into a lower tax bracket, your marginal tax rate will also go down.

For example, if you earned $80,000 and lived in Ontario during 2021, your marginal tax rate will be 31.48%. If you earned an extra $1,000, you will have to pay an additional 31.48% of that amount in tax, or $314.80.