! Canadian Personal Income Tax and MARGINAL rates

Everyone who attempts to legally maximize the value of personal eaarnings should be aware of the current marginal income tax rates in the jurisdictions where taxes will be levied. These rates vary by jurisdiction and year. They can be found in the latest Income Tax Filing Forms ( T1 General) available in Post Offices in both Canada and the US.

Canadian Income Tax Rates for 2005

You can get the latest marginal rates etc. from the web

To Illustrate how the Canadian system works, look over the information below for taxation Year 2003 the following is a summary of the marginal rates for the Federal and New Brunswick jurisdictions. A table further down in the notes illustrates how these rates vary by jurisdiction, type of income, etc.

Year 2003, from a LOWER LEVEL of Taxable Income of:

0

32183

64368

104648

to an UPPER LEVEL of taxable Income

32183

64368

104648

above

Federal Marginal rate

0.16

0.22

0.26

0.29

NB marginal rate

0.0968

0.1482

0.1652

0.1784

Combined rate

0.2568

0.3682

0.4252

0.4684

PLUS Income taxes of:

0

5149

12230

22703

Donation Tax Credit rate (over $200)

0.4684

0.4684

0.4684

0.4684

 

 

 

 

 

Note that if you income is:

  1. between 0 and 32,000 your marginal rate for NB in 2003 is about 26%
  2. above 32,000 your marginal rate for NB in 2003 is about 37%
  3. above 64,000 your marginal rate for NB in 2003 is about 43%
  4. above 104,000 your marginal rate for NB in 2003 is about 47%

The above order of precision is sufficient for making personal judgements. However the order of precision stated in the Income Tax filing forms must be used when reporting your income and determining the Imcome tax to be paid.

High Income Combined Federal and Provincial rates for 2001/2003
(from UNB Financial Planner, Spring 2002, Tax Incentives for Charitable Donations, 2003 data (70K to 80k) from Deloitte & Touche, Quick Tax Facts 2003)

Jurisdiction

local
rate
%

Salary &
Interest
%

Capital
Gains
%

Dividends
%

After Tax from
$1000 marginal
income

Highest marg. Rates 2003
CapGains/Divid./Other

Federal

29.00

n/a

n/a

n/a

n/a

n/a

B.C.

19.70

48.7/39.16

24.35

36.00

513/608.40

21.85/31.58/43.70

Alberta

12.75

41.8/36.00

19.50

24.10

582/640

19.50/24.08/39.00

Saskatchewan

16.0

45.0/39.00

22.50

31.60

550/610

22.00/28.34/44.00

Manitoba

17.50

46.5/43.40

23.25

34.00

535/566

23.20/35.08/46.40

Ontario

11.16

46.41/43.40

23.20

31.30

536/566

23.21/31.34/46.41

Quebec

25.0

49.20/45.69

24.61

34.10

508/543.10

24.11/32.82/48.22

New Brunswick

16.52

46.84/42.52

23.42

31.60

532/574.80

23.42/37.26/46.84

Nova Scotia

16.67

47.34/42.75

23.67

31.90

527/572.50

23.67/31.92/47.34

Prince Edward Is.

16.7

47.4/44.37

23.69

32.00

526/556.30

23.69/31.96/47.37

Newfoundland

18.02

48.64/45.64

24.32

32.00

514/543.60

24.32/37.32/48.64

 

 

 

 

 

 

 

Notes:

·  The sixth column shows the differences in after tax income between the various provinces. Alberta and Ontario were the least taxed parts of the country. There has been a general reduction in Income Taxes since 2001. In 2003 the least Taxed provinces are Alberta and Saskatchewan.

·  For low incomes (below approx #30000) the federal rate is 17%; for medium income levels (between approx $30000 and $60000) the federal rate is 26%. Combined rates can be calculated from these rates and the provincial rates given in the table above.

To illustrate the necessity for considering the locally and timely rules the following is a discussion of how it was for the province of New Brunswick for the taxation year 1997. Taxable INCOME is determined by rules outlined in T1-1997. Each year the federal and provincial governments tinker with the tax rules

  • To fulfill election promises
  • to respond to economic activity that produces more or less revenue than was expected.
  • to respond to over (or under) budugetary expenses.
  • for economic stimulation or inflation control.

br While the general concept of the income tax stucture remains fairly constant since the last general revision, the details vary from year to year and province to province.

The tax payable is seggregated into BASIC FEDERAL TAX, and PROVINCIAL or TERRITORIAL TAX: The federal tax payable will be reduced by the amount of the non-refundable tax credits. This provision applies to all income levels after the federal tax has been determined.

LOW INCOMES: On the first $29,590 of taxable income the fed. tax rate is 17%

MIDDLE INCOMES: On the first $29,590 the federal tax is $5,030
On incomes over $29,590 but less than $59,180 the federal tax rate is 26%.

HIGH INCOMES: On the first $59,180 the federal tax is $12,724
On amounts above $59,180 the federal tax rate is 29%

The basic federal tax is modified by a federal surtax of an additional 3% of all federal tax after the above calculations. There is an additional surtax of 5% on federal tax amounts above $12,500. The 5% applies mostly to HIGH INCOMES.

These surtaxes increase the MARGINAL federal tax rates to:
LOW INCOMES: %17 ’ 1.03 = %17.51
MIDDLE INCOMES: %26 ’ 1.03 = %26.78
HIGH INCOMES: %29 ’ 1.08 = %31.32

The Province of New Brunswick income tax rate is 63% of the federal tax before the surtax. In addition NB levies a surtax of 8% on federal taxes above $13,500. The surtax applies mostly to the HIGH INCOME group.

The NB taxes increase the MARGINAL INCOME TAX RATES to:
LOW INCOMES: %17.51 + (17 ’ 0.63) = %28.22
MIDDLE INCOMES: %26.78 + (26 ’ 0.63) = %43.16
HIGH INCOMES: %31.32 + (29 ’ 0.63 ’ 1.08) = %51.0516

The break points are approximately: 0 to $30,000 for LOW
$30,000 to $60,000 for MIDDLE
$60,000 and above for HIGH

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