as your income increase.
To know how will you get taxed, you need to know marginal tax rate.
Marginal tax rate is the percentage of tax you pay on the last dollar of your income. Canada’s tax system is a progressive tax, which means that your tax rate increases as your income increases.
For example, if your income is $73,146 in Ontario in 2016, for every $1 you make on top of the $73,146, you have to pay $0.3148 in tax, because your marginal tax rate is 31.48%. Or take another example. Say that your income is $83,075 in Ontario in 2016, and you contribute $1,000 to your RRSP. Your tax saving rate is equal to your marginal tax rate of 31.48%, and you will save $314.8 ($1,000 x 31.48%) on your income tax.
| Taxable Income | Tax Rate |
|---|---|
| $11,474 to $41,536 | 20.05% |
| $41,537, to $45,282 | 24.15% |
| $45,283 to $73,145 | 29.65% |
| $73,146 to $83,075 | 31.48% |
| $83,076 to $84,902 | 35.39% |
| $84,903 to $86,176 | 33.89% |
| $86,177 to $90,563 | 37.91% |
| $90,564 to $140,388 | 43.41% |
| $140,389 to $150,000 | 46.41% |
| $150,001 to $200,000 | 47.97% |
| $200,001 to $220,000 | 51.97% |
| Over $220,000 | 53.53% |
| Taxable Income | Tax rate |
|---|---|
| $11,474 to $42,390 | 28.53% |
| $42,391 to $45,282 | 32.53% |
| $45,282 to $84,780 | 37.12% |
| $84,780 to $90,563 | 41.12% |
| $90,563 to $103,150 | 45.71% |
| $103,151 to $140,388 | 47.46% |
| $140,388 to $200,000 | 49.97% |
| Over $200,000 | 53.31% |
| Taxable Income | Tax Rate |
|---|---|
| $11,139 to $40,922 | 20.05% |
| $40,923, to $44,701 | 24.15% |
| $44,702 to $72,064 | 31.15% |
| $72,065 to $81,847 | 32.98% |
| $81,848 to $84,902 | 35.39% |
| $84,903 to $89,401 | 39.41% |
| $89,402 to $138,586 | 43.41% |
| $136,587 to $150,000 | 46.41% |
| Over $150,000 | 49.53% |
| Taxable Income | Tax rate |
|---|---|
| $11,426 to $41,935 | 28.53% |
| $41,935 to $44,701 | 32.53% |
| $44,702 to $83,865 | 38.37% |
| $83,866 to $89,401 | 42.37% |
| $89,402 to $102,040 | 45.71% |
| $102,041 to $138,586 | 47.46% |
| Over $138,586 | 49.97% |
| Taxable Income | Federal | Ontario | Total |
|---|---|---|---|
| $9,670 to $11,138 | 0% | 5.05% | 5.05% |
| $11,139 to $40,120 | %15 | %5.05 | 20.05% |
| $40,121, to $43,953 | 15% | 9.15% | 24.15% |
| $43,954 to $70,651 | 22% | 9.15% | 31.15% |
| $70,652 to $80,242 | 22% | 10.98% | 32.98% |
| $80,243 to $83,237 | 22% | 13.39% | 35.39% |
| $83,238 to $87,907 | 22% | 17.41% | 39.41% |
| $87,908 to $136,270 | 26% | 17.41% | 43.41% |
| $136,270 to $150,000 | 29% | 17.41% | 46.41% |
| Taxable Income | Federal | Quebec | Total |
|---|---|---|---|
| $11,327 to $11,425 | 12.5% | 0% | 12.5% |
| $11,426 to $41,495 | %12.5 | %16 | 28.5% |
| $41,496, to $43,953 | 12.5% | 20% | 32.5% |
| $43,954 to $82,985 | 18.4% | 20% | 38.4% |
| $82,986 to $87,907 | 18.4% | 24% | 42.4% |
| $87,908 to $100,970 | 21.7% | 24% | 45.7% |
| $100,970 to $136,270 | 21.7% | 25.8% | 47.5% |
| Over $136.270 | 24.2% | 25.8% | 50% |
| Taxable Income | Federal | Ontario | Total |
|---|---|---|---|
| $9,574 to $11,038 | 0% | 5.05% | 5.05% |
| $11,039 to $39,723 | %15 | %5.05 | 20.05% |
| $39724, to $43,561 | 15% | 9.15% | 24.15% |
| $43,562 to $69,963 | 22% | 9.15% | 31.15% |
| $69,964 to $79,447 | 22% | 10.98% | 32.98% |
| $79,448 to $82,419 | 22% | 13.39% | 35.39% |
| $82,420 to $87,123 | 22% | 17.41% | 39.41% |
| $87,124 to $135,054 | 26% | 17.41% | 43.41% |
| $135,054 to $509,000 | 29% | 17.41% | 46.41% |
| Taxable Income | Federal | Quebec | Total |
|---|---|---|---|
| $11,039 to $13,993 | 12.5% | 0% | 12.5% |
| $13,994 to $41,095 | %12.5 | %16 | 28.5% |
| $41,096, to $43,561 | 12.5% | 20% | 32.5% |
| $43,562 to $82,190 | 18.4% | 20% | 38.4% |
| $82,190 to $82,420 | 18.4% | 24% | 42.4% |
| $82,421 to $87,123 | 21.7% | 24% | 45.7% |
| $87,124 to $100,000 | 21.7% | 25.8% | 47.5% |
| Over $100,000 | 24.2% | 25.8% | 50% |
Tax Tip: If one of your family members is paying a much higher marginal tax rate on high earnings, an income splitting strategy will help to reduce your family tax. Income splitting is a tax planning strategy that transfers income from the higher income earner in a household to lower income earners.
Four easy ways to use income splitting to save your tax
- Spousal RRSP. The higher income spouse can contribute to a spousal RRSP for his or her partner. The higher income spouse gets the tax deduction, while the lower income spouse will be taxed when the funds are withdrawn at retirement. This saves your tax, because the amount of the tax deduction is more than the tax amount will be upon withdrawal.
- Tax-free saving accounts (TFSA). The higher income spouse gives the lower income spouse money to contribute to the TFSA in his or her own name.
- Pension income splitting for retirees receiving pensions. Up to 50% of eligible pension income may be allocated to your spouse when the tax returns are filed. Check the CRA website to find out more.
- Paying reasonable salary to low-income family members. As a business owner, you can hire your spouse or your kids, funneling income into their hands, where it will be taxed at a lower rate.
