Do you live and work in Canada? Are you an immigrant, international student, or newcomer to Canada? Do you want to receive credits and benefit payments from the government? If yes, then you have to pay taxes. Basically, if you are residing in Canada, you are required to file a tax return on all income earned both inside and outside of Canada annually by the April 30th deadline.
All Canadian taxpayers pay income tax (which is a portion of their annual income) to the federal government, as well as to the government of the province/territory where they reside. In this article, we will focus on the Federal Income Tax.
FEDERAL TAX BRACKETS/RATES:
The government, through the Canada Revenue Agency (CRA) has created income tax rates or tax brackets to determine how much money you need to pay in personal income tax every year based on the total amount of income you earn. So the more money you make, the more taxes you pay; which is called a progressive or graduated tax system. This makes it possible for low-income earners to be taxed at a lower percentage than high-income earners.
The basic personal amount is a tax credit that all Canadian taxpayers can claim to help reduce the federal income tax they owe. Federal income tax rates don’t kick in until after the individual has earned more than the basic personal amount.
Last year, the Basic Personal Amount was $14,398, however in 2023, it was increased to $15,000. This means Federal Income Tax rates doesn’t apply until after you have earned more than the Basic Personal Amount.
The CRA reviews the federal tax rates from time to time to account for inflation. Due to the dramatic inflation rise in 2022, the tax brackets were increased by 6.3% for 2023.
The new reviewed bracket rates are:
- 15% on the first $53,359 or less, plus
- 20.5% on the portion of taxable income over $53,359 up to $106,717, plus
- 26% on the portion of taxable income over $106,717 up to $165,430, plus
- 29% on the portion of taxable income over $165,430 up to $235,675 plus
- 33% on the portion of taxable income over $235,675
As a Resident in Canada if you earn less than $53,359 in taxable income per year (but above the basic personal amount of $15,000), you will be subject to the base 15% tax rate.
HOW DO YOU GET INTO A LOWER TAX BRACKET?
Tax credits and tax deductions are the two common ways to reduce your owed taxes and raise your tax refund.
- Tax Credits: These amounts reduce the tax you pay on your taxable income. There are two types: refundable and non-refundable.
Refundable tax credits like GST/HST and the Canada Training Credit are paid to anyone who qualifies for them, whether they have income or not. Usually, they’re paid out over the year. On the other hand, non-refundable tax credits reduce the amount of tax payable. Unlike refundable taxes, you must have earned enough income to claim a non-refundable tax credit. Examples of non-refundable tax credits include the Basic Personal Amount, the Personal Exemption Amount, tuition, medical expenses, Employment insurance, and the Canada Pension Plan.
- Tax deductions: These are amounts and expenses you subtract from your income, which helps lower your taxable income, put you in a lower tax bracket, and reduce the amount of taxes you will owe. The most common tax deductions are: Registered Retirement Savings Plan (RRSP), Pension Adjustment, Self-Employed Business Expenses, Child care expenses, and donations to charitable organizations or political parties.
WHAT’S NEXT?
Tax filing could get overwhelming, that’s why we are here to help you through the process. Our tax professionals file both prior and current-year taxes for domestic and international students, as well as business owners. We are a fully remote and paperless firm with experienced and dedicated tax experts who help you get your tax refunds. Begin this seamless journey by creating an account.
