Your 101 on How Canadians Are Taxed
January 30, 2024
The time to file your 2023 personal income tax return is just around the corner.
Need a reminder about how Canadians are taxed? Read on...
Individuals who reside in Canada are taxed on the worldwide income they receive in the calendar year. There is a federal layer of tax and a provincial layer of tax. The tax rate you pay depends on the amount of taxable income you received in the calendar year and the tax brackets you fall into. The 2023 Federal tax brackets are shown in the table below (which are indexed each year for inflation). Each province also has its own tax brackets and rates.
As you can see, the rate you pay will be a blended rate depending on your taxable income for the year. You pay Federal tax at 15% on the first $53,359, then the rate increases to 20.50% for income above $53,359, etc. Once your income is over $235,676, then every dollar after that will be at the 33% Federal tax rate. With provincial taxes added on, the top combined income tax rate ranges from 44.50% in Nunavut to 54.80% in Newfoundland and Labrador. Check out these links for the combined Federal and Provincial tax rates for the province in which you reside:
E&Y
(rates and a personal tax calculator) and
KPMG
(tax rates and brackets). There is an alternative minimum tax (AMT) that could apply if you have certain preference items. A taxpayer pays the higher of AMT and regular income tax. There are changes to the AMT for 2024, outlined in this article
Alternative Minimum Tax Changes – What You Need to Know
.
Some types of income are more tax efficient than others. If you earn capital gains, only 50% of the gain will be included in your taxable income, while your employment and investment income will be fully taxed. Withdrawals from your RRSP or RRIF are also fully taxable. Dividends receive preferential tax treatment through the use of the dividend gross-up and tax credit. There are two types of dividends: eligible and non-eligible dividends. Non-eligible dividends are taxed at a higher rate than eligible dividends. Usually, dividends you receive in your investment portfolio would be eligible dividends (dividends from publicly traded securities). While preparing your 2023 tax return, review the types of income you earned and evaluate if you should make a change to the types of income you are receiving. However, don’t let the taxation of the income be the only reason for changing an investment. Talk to an Advisor to help match your income to your planning goals.
Certain expenditures are deductible from your income and there are also tax credits available that can reduce your tax liability. The CRA’s website has a page that describes the deductions and tax credits that are available. To be applied to your tax return, the expenses must have been incurred by December 31 of the tax year in question (except for RRSP contributions which can be made 60 days after year end and still reduce the prior year tax liability - so for the 2023 tax year, RRSP contributions can be made up to February 29, 2024). For employees, there are less deductions than for those who are self-employed. The most common deductions are for RRSP contributions, childcare expenses, capital losses and investment related expenses. New for 2023 is the first home savings account (FHSA). The contribution limit for this account is $8,000 and is tax deductible. For more information on how this account works, consult CRA’s First Home Savings Account page . The most common credits are for medical expenses, charitable donations and tuition fees. Of course, there are also ways to save taxes on income in the long-term by investing in a tax-free savings account (TFSA) or registered education savings plan (RESP), for example. While contributions to these types of plans don’t result in a deduction on your tax return, the income earned in the plans are not taxable while in the plan. For TFSA, there is no tax to you on withdrawal. For RESP, the funds are taxed in the hands of the student. The TFSA contribution limit for 2024 is $7,000. If you have not made a TFSA contribution in the past, the contribution room carries forward. For example, if you were 18 years or older in 2009 and have never contributed to a TFSA, you could contribute $95,000 to a TFSA in 2024. For more information on how TFSAs work, read How to Use a TFSA to Get Better Investing Results and for more information RESPs, check out Getting the Most from Your RESP , SMART TALK… about registered education savings plans (RESPs) and this Start Education Planning Now calculator .
Now is also an opportune time to review your overall financial and estate plan which would include your wills, power of attorney and representation agreements, life insurance needs as well as critical illness and disability insurance.
Contact us to learn more or if you have any questions.
Some types of income are more tax efficient than others. If you earn capital gains, only 50% of the gain will be included in your taxable income, while your employment and investment income will be fully taxed. Withdrawals from your RRSP or RRIF are also fully taxable. Dividends receive preferential tax treatment through the use of the dividend gross-up and tax credit. There are two types of dividends: eligible and non-eligible dividends. Non-eligible dividends are taxed at a higher rate than eligible dividends. Usually, dividends you receive in your investment portfolio would be eligible dividends (dividends from publicly traded securities). While preparing your 2023 tax return, review the types of income you earned and evaluate if you should make a change to the types of income you are receiving. However, don’t let the taxation of the income be the only reason for changing an investment. Talk to an Advisor to help match your income to your planning goals.
Certain expenditures are deductible from your income and there are also tax credits available that can reduce your tax liability. The CRA’s website has a page that describes the deductions and tax credits that are available. To be applied to your tax return, the expenses must have been incurred by December 31 of the tax year in question (except for RRSP contributions which can be made 60 days after year end and still reduce the prior year tax liability - so for the 2023 tax year, RRSP contributions can be made up to February 29, 2024). For employees, there are less deductions than for those who are self-employed. The most common deductions are for RRSP contributions, childcare expenses, capital losses and investment related expenses. New for 2023 is the first home savings account (FHSA). The contribution limit for this account is $8,000 and is tax deductible. For more information on how this account works, consult CRA’s First Home Savings Account page . The most common credits are for medical expenses, charitable donations and tuition fees. Of course, there are also ways to save taxes on income in the long-term by investing in a tax-free savings account (TFSA) or registered education savings plan (RESP), for example. While contributions to these types of plans don’t result in a deduction on your tax return, the income earned in the plans are not taxable while in the plan. For TFSA, there is no tax to you on withdrawal. For RESP, the funds are taxed in the hands of the student. The TFSA contribution limit for 2024 is $7,000. If you have not made a TFSA contribution in the past, the contribution room carries forward. For example, if you were 18 years or older in 2009 and have never contributed to a TFSA, you could contribute $95,000 to a TFSA in 2024. For more information on how TFSAs work, read How to Use a TFSA to Get Better Investing Results and for more information RESPs, check out Getting the Most from Your RESP , SMART TALK… about registered education savings plans (RESPs) and this Start Education Planning Now calculator .
Now is also an opportune time to review your overall financial and estate plan which would include your wills, power of attorney and representation agreements, life insurance needs as well as critical illness and disability insurance.
Contact us to learn more or if you have any questions.
Source: Charts are sourced to
https://www.thelinkbetween.ca/
The contents of this publication were researched, written and produced by The Link Between (https://www.thelinkbetween.ca/) and are used by Echelon Wealth Partners Inc. for information purposes only.
Disclaimers
Echelon Wealth Partners Inc.
The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Echelon Wealth Partners Inc. or its affiliates. Assumptions, opinions and estimates constitute the author's judgment as of the date of this material and are subject to change without notice. We do not warrant the completeness or accuracy of this material, and it should not be relied upon as such. Before acting on any recommendation, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Past performance is not indicative of future results. The comments contained herein are general in nature and are not intended to be, nor should be construed to be, legal or tax advice to any particular individual. Accordingly, individuals should consult their own legal or tax advisors for advice with respect to the tax consequences to them.
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Stay informed with Ventum Financial's latest Weekly Economics Report, where we break down recent market shifts, from energy and metals to agricultural futures, in light of global events and economic forecasts on a weekly basis.
There’s a new economic reality. Global trade tensions continue to rise and disrupt global markets, creating economic uncertainty for Canadian high-net-worth individuals business leaders, and professionals. Tariffs, supply chain disruptions, and currency fluctuations can erode investment portfolios, alter tax structures, and impact your long-term financial plans.
Canadian factory PMI tumbles as tariff uncertainty hits sentiment TORONTO, March 3 (Reuters) - Canadian manufacturing activity contracted for the first time in six months in February as an uncertain trade outlook led to firms turning the most pessimistic since the start of the COVID-19 pandemic. The S&P Global Canada Manufacturing Purchasing Managers' Index (PMI) fell to 47.8 from 51.6 in January, its first move below the 50.0 no-change mark since August. A reading below 50 indicates contraction in the sector. "The considerable uncertainty related to tariffs being applied on all goods passing across the Canada-United States border weighed heavily on the manufacturing economy during February," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement. "Output fell noticeably, driven lower by a steeper decline in new orders as product markets, both at home and abroad, were paralysed by concerns over the applicability and size of tariffs in the coming months. "The output index fell to 47.5 from 52.3 in January and the new orders index was at 45.4, its lowest level since July. U.S. President Donald Trump has proposed 25% tariffs on Mexican and Canadian goods that are due to go into effect on March 4. Canada sends about 75% of its exports to the United States. "Understandably, manufacturers grew increasingly downbeat about the future ... This meant firms also adopted an increasingly cautious approach to purchasing and employment," Smith said. The measure of future output fell to 48.5 from 57.1 in January, marking the second-lowest level in survey data going back to July 2012. April 2020 was the only month when sentiment was weaker. A stronger U.S. dollar and suppliers adjusting prices in anticipation of tariffs contributed to increased input prices, S&P Global said. The input price index was at 58.9, its highest level since April 2023. The Bank of Canada has worried that tariffs could raise inflation even as they reduce prospects for economic growth.
Stay informed with Ventum Financial's latest Weekly Economics Report, where we break down recent market shifts, from energy and metals to agricultural futures, in light of global events and economic forecasts on a weekly basis.
Stay informed with Ventum Financial's latest Weekly Economics Report, where we break down recent market shifts, from energy and metals to agricultural futures, in light of global events and economic forecasts on a weekly basis.
Stay informed with Ventum Financial's latest Weekly Economics Report, where we break down recent market shifts, from energy and metals to agricultural futures, in light of global events and economic forecasts on a weekly basis.
Stay informed with Ventum Financial's latest Weekly Economics Report, where we break down recent market shifts, from energy and metals to agricultural futures, in light of global events and economic forecasts on a weekly basis.
Stay informed with Ventum Financial's latest Weekly Economics Report, where we break down recent market shifts, from energy and metals to agricultural futures, in light of global events and economic forecasts on a weekly basis.
Stay informed with Ventum Financial's latest Weekly Commodities Report, where we break down recent market shifts, from energy and metals to agricultural futures, in light of global events and economic forecasts.
As Trump continues to choose unorthodox cabinet candidates, the true volatility in markets may be yet to come. How will you address these concerns in your investment portfolio? Learn more in my latest blog and be sure to call, email or message me directly if you have any questions.
