Understanding Canadian Income Tax
In Canada, it's your residence status, not citizenship, that determines how you're taxed. You can be categorized as an ordinarily resident, a non-resident, or an immigrant/emigrant for tax purposes.
How Does Canadian Residence Status Affect Income Tax?
🗣️In Canada, it's your residence status, not citizenship, that determines how you're taxed. You can be categorized as an ordinarily resident, a non-resident, or an immigrant/emigrant for tax purposes.
Note: Tourists or visitors who do not earn any income in Canada are not required to file taxes.
What's the Self-Assessment System?
🗣️In Canada, by law, you calculate your own taxes and file an income tax return each year.
How does it work?
🗣️You figure out your yearly taxable income and the tax owed. If you've overpaid, you get a refund; if not, you pay the balance.
What is Canada's Progressive Tax System and What Are the 2022 Federal Tax Rates?
🗣️In Canada, the tax rates increase as your income rises, which is known as a "progressive" tax system. For 2022, the federal tax rates are as follows:
15% on income up to $50,197
20.5% between $50,197 and $100,392
26% between $100,392 and $155,625
29% between $155,625 and $221,708
33% on income above $221,708
Is the tax levied individually or on a family basis?
🗣️The tax is calculated individually, not based on a family's combined income. This means that a family where one spouse earns $80,000 (for example) will pay more in taxes than a family where each spouse earns $40,000, even though the total family income is the same,example below:
Scenario 1: One earner at $80,000
The first $50,197 is taxed at 15%
50,197×15%=7,529.55
The remaining $29,803 is taxed at 20.5%:
29,803×20.5%=6,109.62
Total tax:
7,529.55+6,109.62=13,639.17
Scenario 2: Two earners at $40,000 each
The income of $40,000 falls within the first bracket, so it's taxed at 15%:
First earner : 40,000×15%=6,000
Second earner: 40,000×15%=6,000
Total tax for both:
6,000+6,000=12,000
Conclusion
🗣️In both scenarios, the total family income is $80,000. However, the tax liability differs. For the single-earner family, the tax is $13,639.17, whereas for the dual-earner family, it's $12,000. The single-earner family ends up paying $1,639.17 more in taxes.