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Understanding Canadian Income Tax
Canada's income tax system is progressive, meaning higher earners pay a larger percentage of their income in taxes. The system involves both federal and provincial/territorial taxes. Each jurisdiction has its own set of tax brackets and rates, which are adjusted annually. To accurately calculate your income tax, you need to consider your total taxable income and the specific tax rates applicable to your province or territory of residence.
How the Calculator Works
This calculator uses the 2023 (or most recently published) federal and provincial/territorial tax brackets and rates to estimate your income tax liability. It takes your reported taxable income and applies the appropriate marginal tax rates based on the tax brackets.
Federal Tax Calculation:
Your taxable income is taxed at progressively higher rates as it falls into different federal tax brackets.
Provincial/Territorial Tax Calculation:
In addition to federal taxes, you must pay income tax to your province or territory. Like federal taxes, provincial/territorial taxes are also calculated using a tiered system of tax brackets, unique to each jurisdiction.
Total Tax: The sum of your federal tax payable and your provincial/territorial tax payable.
Effective Tax Rate: This is your total tax paid divided by your total taxable income, expressed as a percentage. It represents the average rate of tax you pay on your income.
Key Concepts:
Taxable Income: This is your gross income minus any deductions you are eligible for (e.g., RRSP contributions, union dues, childcare expenses).
Tax Brackets: Ranges of income, each taxed at a specific rate. Income falling within a lower bracket is taxed at that bracket's rate, and any income above that falls into the next bracket and is taxed at that higher rate.
Marginal Tax Rate: The tax rate applied to your last dollar earned. It's the highest rate you pay on a portion of your income.
Average (Effective) Tax Rate: The total amount of tax paid divided by your total taxable income.
Disclaimer:
This calculator provides an estimate for informational purposes only. It does not constitute financial or tax advice. Tax laws are complex and subject to change. For precise calculations and personalized advice, please consult a qualified tax professional or refer to official Canada Revenue Agency (CRA) resources. The tax brackets and rates used in this calculator are based on publicly available information for the specified tax year and may not reflect all nuances of Canadian tax law, such as specific credits or deductions.