| Taxable Income (Salary, business income, interest ectc.) | Tax Rate | ||
|---|---|---|---|
| Over $221,708 | 53.53% | ||
| $220,000 | up to | $221,708 | 49.91% |
| $155,625 | up to | $220,000 | 48.35% |
| $150,000 | up to | $155,625 | 44.97% |
| $100,392 | up to | $150,000 | 43.41% |
| $95,906 | up to | $100,392 | 37.91% |
| $92,454 | up to | $95,906 | 33.89% |
| $81,411 | up to | $92,454 | 31.48% |
| $50,197 | up to | $81,411 | 29.65% |
| $46,226 | up to | $50,197 | 24.15% |
| $0 | up to | $46,226 | 20.05% |
Understanding Tax Brackets with Two Concepts:
1. Your income is separated into different levels called tax brackets, just like a large, layered birthday cake!
2. Each level has a different tax rate called marginal tax rates; the higher level, the higher tax rate.
Example of personal income tax rate
If your taxable income is $100k, you will be taxed on 7 levels with different tax rates. The first level is from $0 to $46,226, where you pay 20.05% tax on the $46,226. The second level is from $46,226 to $50,197, where the tax rate is 24.15%. The highest level is from $95,906 to $100k; the tax rate for this bracket is 37.91%.
If you have $100 extra taxable income—that is, if your taxable income increases from $100k to $100.1k—you have to pay extra tax at $100 x 37.91% = $37.91.
If your taxable income is reduced by $100 (by contribution $100 into RRSP, for example), your tax saving will be $100 x 43.41% = $37.91.
If you contribute $10,000 to RRSP to make your taxable income $90,000, your top marginal tax is 33.89%, and your tax saving will be
(100,000 – 95,906) x37.91% + (95,906-92,454) x33.89%+(92,454 – 90,000) x 31.48%
= 1552 + 1508 + 773
= 3833
Conclusion: the higher the income, the higher the marginal personal income tax rate, and the more tax saving you’ll get by contributing to RRSP.
