In reference to a popular quote credited to Benjamin Franklin, there are only a few other things in life that are as certain as death and taxes.
Every year, residents of Canada are required to pay taxes on their worldwide income and file an income tax and benefits return. You pay income taxes to both the federal and provincial governments when you have earned more than the minimum “tax-free” personal amounts.
Canada utilizes a graduated income tax system which simply means that the more money you earn, the higher the taxes you pay.
The federal tax brackets are calculated every year based on an inflation factor that is tied to the Consumer Price Index. For 2020, the inflation or indexation rate in use is 1.90% (i.e. the indexation factor is 1.019). For 2021, the indexation rate is 1% (i.e. a factor of 1.010).
Most provinces utilize a similar inflation factor for calculating provincial income tax brackets, although, their rate may be based on the provincial inflation rate.
2020 – 2021 Federal Tax Bracket Rates
The federal personal income tax rates and brackets refer to taxes payable on your taxable income which is your gross income minus deductions, tax credits, and other adjustments.
The federal income tax rates and brackets for 2020 and 2021 are:
| Tax Bracket 2020 | Tax Rate 2020 | Tax Bracket 2021 | Tax Rate 2021 |
|---|---|---|---|
| Up to $48,535 | 15% | Up to $49,020 | 15% |
| $48,536 to $97,069 | 20.50% | $49,021 to $98,040 | 20.50% |
| $97,070 to $150,473 | 26% | $98,041 to $151,978 | 26% |
| $150,474 to $214,368 | 29% | $151,979 to $216,511 | 29% |
| $214,369 and over | 33% | $216,512 and over | 33% |
Provincial Tax Brackets and Rates for 2020 and 2021
The different provinces and territories in Canada also collect income taxes that are payable along with your federal return.
Quebec collects its provincial income taxes directly via Agence du Revenu du Quebec.
The provincial tax rates and brackets for 2020 and 2021 are below (some 2021 numbers are not yet available).
Ontario Tax Brackets 2020 – 2021
| ON Tax Bracket 2020 | Tax Rate 2020 | ON Tax Bracket 2021 | Tax Rate 2021 |
|---|---|---|---|
| Up to $44,740 | 5.05% | Up to $45,142 | 5.05% |
| $44,741 to $89,482 | 9.15% | $45,143 to $90,287 | 9.15% |
| $89,483 to $150,000 | 11.16% | $90,288 to $150,000 | 11.16% |
| $150,001 to $220,000 | 12.16% | $150,001 to $220,000 | 12.16% |
| $220,001 and over | 13.16% | $$220,001 and over | 13.16% |
The indexation factor in use in Ontario is 1.019 for 2020 and 1.009 in 2021(except for the last two income bracket rates which are not indexed). Ontario has a surtax that is further levied on your provincial income tax, subject to certain thresholds.
Alberta Tax Brackets 2020 – 2021
| AB Tax Bracket 2020 | Tax Rate 2020 | AB Tax Bracket 2021 | Tax Rate 2021 |
|---|---|---|---|
| Up to $131,220 | 10% | Up to $131,220 | 10% |
| $131,221 to $157,464 | 12% | $131,221 to $157,464 | 12% |
| $157,465 to $209,952 | 13% | $157,465 to $209,952 | 13% |
| $209,953 to $314,928 | 14% | $209,953 to $314,928 | 14% |
| $314,929 and over | 15% | $314,929 and over | 15% |
British Columbia Tax Brackets 2020 – 2021
| B.C. Tax Bracket 2020 | Tax Rate 2020 | B.C. Tax Bracket 2021 | Tax Rate 2021 |
|---|---|---|---|
| Up to $41,725 | 5.06% | Up to $42,184 | 5.06% |
| $41,726 to $83,451 | 7.70% | $42,185 to $84,369 | 7.70% |
| $83,452 to $95,812 | 10.50% | $84,370 to $96,866 | 10.50% |
| $95,813 to $116,344 | 12.29% | $96,867 to $117,623 | 12.29% |
| $116,345 to $157,748 | 14.70% | $117,624 to $159,483 | 14.70% |
| $157,749 and over | 16.80% | $159,484 to $222,420 | 16.80% |
| $222,421 and over | 20.5% |
The indexation factor used to compute B.C’s tax brackets is 1.025 for 2020 and 1.010 for 2021.
Manitoba Tax Brackets 2020
- Up to $33,389: 10.80%
- $33,390 to $72,164: 12.75%
- $72,165 and over: 17.40%
Manitoba’s indexation factor is 1.022 for 2020.
Saskatchewan Tax Bracket 2020
- Up to $45,225: 10.50%
- $45,226 to $129,214: 12.50%
- $129,215 and over: 14.50%
New Brunswick Tax Brackets 2020
- Up to $43,401: 9.68%
- $43,402 to $86,803: 14.82%
- $86,804 to $141,122: 16.52%
- $141,123 to $160,776: 17.84%
- $160,777 and over: 20.30%
New Brunswick has an indexation factor of 1.019 for 2020.
Nova Scotia Tax Brackets 2020
- Up to $29,590: 8.79%
- $29,591 to $59,180: 14.95%
- $59,181 to $93,000: 16.67%
- $93,001 to $150,000: 17.50%
- $150,001 and over: 21%
Newfoundland and Labarador Tax Brackets 2020
- Up to $37,929: 8.70%
- $37,930 to $75,858: 14.50%
- $75,859 to $135,432: 15.80%
- $135,433 to $189,604: 17.30%
- $189,605 and over: 18.30%
NL’s indexation factor for 2020 is 1.009.
Prince Edward Island Tax Brackets 2020
- Up to $31,984: 9.80%
- $31,985 to $63,969: 13.80%
- $63,970 and over: 16.70%
PEI also levies a surtax of 10% on provincial income tax exceeding $12,500.
Quebec Tax Brackets 2020 – 2021
| QC Tax Bracket 2020 | Tax Rate 2020 | QC Tax Bracket 2021 | Tax Rate 2021 |
|---|---|---|---|
| Up to $44,545 | 15% | Up to $45,105 | 15% |
| $44,546 to $89,080 | 20% | $45,106 to $90,200 | 20% |
| $89,081 to $108,390 | 24% | $90,201 to $109,755 | 24% |
| $108,391 and over | 25.75% | $109,756 and over | 25.75% |
Quebec’s indexation factor for 2020 is 1.0172. In 2021, it is 1.026.
Yukon Tax Brackets 2020
- Up to $48,535: 6.40%
- $48,536 to $97,069: 9%
- $97,070 to $150,473: 10.90%
- $150,474 to $500,000: 12.80%
- $500,001 and over: 15%
Yukon’s indexation factor for 2020 is 1.019.
Northwest Territories Tax Bracket 2020
- Up to $43,957: 5.90%
- $43,958 to $87,916: 8.6%
- $87,917 to $142,932: 12.20%
- $142,933 and over: 14.05%
The indexation factor for NWT is 1.019 for 2020.
Nunavut Tax Brackets 2020
- Up to $46,277: 4%
- $46,278 to $92,555: 7%
- %92,556 to $150,573: 9%
- $150,574 and over: 11.50%
Nunavut also utilizes an indexation factor of 1.019 for 2020.
How Do Marginal Tax Rates Work?
Your marginal tax rate is the highest rate of tax (federal and/or provincial) that you pay on an additional dollar of income.
For example, if your taxable income is $100,000 and you reside in Manitoba, your combined marginal tax rate is a whopping 43.40%. This means that you are paying 43.40 cents in taxes on every extra dollar you earn at this income level.
Before you lose your hat and go bonkers, your “effective” or “average” tax rate will actually be much lower, and for the example above, it is a much more palatable 28.77%.
Your average tax rate is based on the tiered bracket rates for both provincial and federal income taxes.
Marginal Tax Rate Example (Manitoba)
For a $100,000 taxable income in Manitoba in 2020, the following apply:
Federal Taxes
- Federal marginal tax rate: 26% (for tax bracket $97,070 to $150,473)
- Actual federal tax payable: $16,331
- Average federal tax rate: 16.33%
Provincial Taxes
- Provincial marginal tax rate: 17.40% (for tax bracket $72,165 and over)
- Actual provincial tax payable: $12,440
- Average provncial tax rate: 12.44%
Combined provincial and federal taxes: $12,440 + $16,331 = $28,771.
- Average tax rate (combined): 28.77%
- Marginal tax rate (combined): 43.40%
This tax calculator by Thomson Reuters provides an easy-to-understand outlay of your marginal and average tax rates. It also gives you an idea of the tax rates applicable to capital gains and dividends.
One area where your marginal tax rate can be directly applied is in regards to your RRSP deduction.
If for example, you contributed $10,000 to your RRSP, you can expect a tax refund of $4,340 based on a marginal tax rate of 43.40% and $100,000 taxable income. The $10,000 you contributed during the year is tax-deductible and counts as “extra” income based on your marginal tax rate.
In this scenario, you will have saved $4,340 in taxes for the year.
Note that the tax-shelter offered by an RRSP account is only applicable until you start making withdrawals. Withdrawals are considered taxable income and are taxed based on the tax bracket you fall into at the time of withdrawal.
How To File Your Taxes in 2021
You can file your tax return for the 2020 tax year using online tax preparation services such as TurboTax and SimpleTax. These tax software are CRA-certified and connect with NETFILE to import some of your tax directly numbers from the CRA (e.g. T4).
Following submitting your tax return, you can expect your tax refund within 2 weeks or so if you have signed up for direct deposits.
Learn about the best free tax return software in Canada.
Related reading
- Tax Return Deadline for 2021
- How To File Your Taxes Online in Canada
- RRSP Withdrawals Explained
- RRSP Season and What You Need To Know
- Best Tax-Free Software in Canada
Have a question about how tax rates and brackets work in Canada? Leave them in the comments.
If my mom gives me a certain amount of money to put into my mortgage, do I have to pay taxes on the money she gives me?
@Miroslav: No, you don’t have to pay taxes on the gift.