Prince Edward Island (PEI) has a progressive tax system similar to the rest of Canada.
The lowest tax rate in PEI for the 2020 tax year is 9.8% and it applies to income up to $31,984. On the higher end of the spectrum, you pay 16.7% on income exceeding $63,969.
When combined with federal taxes, Islanders pay a marginal tax rate ranging between 24.80% and 51.37%.
Provincial tax brackets are not indexed to the inflation rate in PEI. Thus, the tax brackets and rates in 2020 remain the same for the 2021 tax year.
The minimum wage in PEI is $12.85 per hour. It is expected to increase to $13.00 per hour on April 1, 2021.
You can learn about the tax brackets and rates in the other Atlantic provinces through the links below:
Prince Edward Island Tax Brackets
The tax brackets and rates applicable to ordinary taxable income in PEI in 2020 and 2021 are:
|Taxable Income||PEI Tax Rate 2020/2021|
|Up to $31,984||9.80%|
|$31,984.01 to $63,969||13.8%|
|$63,969.01 and over||16.70%|
Basically, you pay:
- 9.80% on the first $31,984 of taxable income, plus
- 13.80% on the next $31,985 (i.e. on the portion of taxable income over $31,984 up to $63,969), plus
- 16.70% on amounts exceeding $63,969
The basic personal amount in PEI is $10,000 in 2020, and increases to $10,500 in 2021.
On the federal side, the basic personal amount is up to $13,229 in the 2020 tax year (and $13,808 in 2021).
If you earned $10,000 or less in the 2020 tax year, you won’t be owing provincial or federal taxes.
There is an additional tax or “surtax” in PEI of 10% when your tax payable is greater than $12,500.
Related: TFSA Contribution Limit 2021.
PEI Marginal Tax Rates (Federal and Provincial)
Federal tax rates in 2020 and 2021 are:
|2020 Taxable Income||2020 Tax Rate||2021 Taxable Income||2020 Tax Rate|
|Up to $48,535||15%||Up to $49,020||15%|
|$48,535.01 to $97,069||20.50%||$49,020.01 to &98,040||20.50%|
|$97,069.01 to $150,473||26%||$98,040.01 to $151,978||26%|
|$150,473.01 to $214,368||29%||$151,978.01 to $216,511||29.32%|
|$214,368.01 and over||33%||$216,511.01 and over||33%|
The combined federal and provincial marginal tax rates for Islanders in 2020 are:
|Taxable Income||Regular Income||Capital Gains||Eligible Canadian Dividends||Ineligible Canadian Dividends|
|Up to $31,984||24.80%||12.40%||-0.99%||14.99%|
|$31,985 to $48,535||28.80%||14.40%||4.53%||19.59%|
|$48,536 to $63,969||34.30%||17.15%||12.12%||25.92%|
|$63,970 to $97,069||37.20%||18.60%||16.12%||29.26%|
|$97,070 to $99,486||42.70%||21.35%||23.71%||35.58%|
|$99,487 to $150,473||44.37%||22.19%||24.56%||37.19%|
|$150,474 to $214,368||47.59%||23.80%||29.01%||40.89%|
The top combined rates for the different types of income are:
- Ordinary income (e.g. salary): 51.37%
- Capital gains: 25.69%
- Eligible Canadian dividends: 34.22%
- Ineligible Canadian dividends: 45.23%
Only 50% of capital gains is taxable, while Canadian dividends are grossed up.
Your marginal tax rate is how much you pay in taxes for every additional dollar of income. For example, if your taxable income (salary) in 2020 is $65,000, your combined marginal tax rate is 37.20%.
Typically, the marginal tax rate is higher than the average tax rate that you actually pay.
You can use your marginal tax rate to compute your tax refund from contributing to an RRSP.
Prince Edward Island Tax Credits
Tax credits and deductions lower your taxes owing or reduce your taxable income.
Popular federal tax credits include the basic personal amount, age amount, donations and gifts, CPP contributions, caregiver amounts, and several others.
Tax credits and deductions specific to Prince Edward Island include:
- PEI Low-Income Tax Reduction
- PEI Volunteer Firefighter Tax Credit
A Children’s Wellness tax credit that would be effective on January 1, 2021 was proposed in the 2020-2021 PEI budget.
PEI Low-Income Tax Reduction
A low-income tax reduction (LITR) credit is available to low-income Islanders. To qualify, you must be a resident of PEI on December 31, 2020, and be 19 years of age or older.
The income threshold for receiving the full credit is $18,000 in 2020 and $19,000 starting on January 1, 2021.
You can claim $350 as an individual, as well as up to $350 for a spouse and $300 per child.
The LITR is a non-refundable tax credit.
PEI Sales Tax Rate
PEI is one of five provinces (ON, NL, NB, NS) that uses the Harmonized Sales Tax (HST) system.
The HST rate in PEI is 15%, of which 10% is provincial tax and the remaining 5% is a federal tax.
A point-of-sale rebate of the provincial component of the HST is provided for purchases of children’s clothing, heating oil, books and children’s footwear.
How To File Your Tax Return in PEI
Islanders have a variety of options for filing their tax return, including:
Online Tax Software: You can use a CRA-approved tax program that transmits your tax information securely to the CRA using the internet. These tax software can either be free or paid. Examples include TurboTax and SimpleTax.
Paper Tax Filing: If you had filed your taxes using a paper return in previous years, CRA will send you a paper tax package sometime in February.
Free Tax Filing: Low-income individuals who have a simple tax return may be able to file their taxes using CRA’s automated File My Return telephone service. Alternatively, you may qualify to use a free tax clinic in your area.
Learn more about the tax software we have featured in the review links below:
Frequently Asked Questions
For the purposes of the provincial low-income tax reduction credit, it is $18,000 in 2020 and $19,000 in 2021.
The sales tax in PEI is 15% and it applies to most goods and services.
The provincial tax rate ranges from 9.8% to16.8%, depending on your tax bracket.
What are your thoughts about the tax brackets and rates in Prince Edward Island? Let us know in the comments.