Figuring out how much tax you owe every year is an exercise in mental gymnastics. Your tax brackets will largely determine how much you owe in both federal and provincial taxes and may change depending on the thresholds. Let's look at the Canadian tax brackets for 2023 and help you determine what they might mean for your income and taxes.
How Canadian Tax Brackets Work
Your tax brackets are determined by the range in which your taxable income falls. Your taxable income is your gross income from all sources (salary, capital gains, dividends, business income, retirement distributions, and other streams of income) less any tax deductions you may qualify for. So, taxable income = gross income - tax deductions.1
Once you know your taxable income, you'll be able to calculate your federal and provincial tax brackets.
2023 Federal Tax Brackets
Here are the federal tax brackets for 2023, according to the Government of Canada:
- 15% on the first $53,359 of taxable income, plus1
- 20.5% on the portion of taxable income over $53,359 (up to $106,717), plus1
- 26% on the portion of taxable income over $106,171 (up to $165,430), plus1
- 29% on the portion of taxable income over $165,430 (up to $235,675), plus1
- 33% of taxable income over $235,6751
This tiered system means that if you make $100,000 a year, the first $53,359 will be taxed at 15%, and the remaining $46,641 will be taxed at 20.5%.1
2023 Provincial Tax Brackets
In addition to federal taxes, you also have to pay provincial taxes. Your provincial tax bracket is determined by where you are living on December 31, as each province has different income brackets for its taxes. For example, the provincial taxes in British Columbia start at 5.06% for the lowest tax bracket, while in Nova Scotia, they start at 8.79% for the lowest tax bracket.1
How Can I Lower My Tax Liability?
With all these tax brackets spinning in your head, you're probably wondering how you can reduce your tax liability and keep more money in your pocket. It's best to speak with a financial advisor or CPA about your specific tax situation, but there are a few ways you may be able to pay less tax.
Non-Refundable Tax Credits
Non-refundable tax credits help reduce the amount of tax payable by select taxpayers. There are many different types of non-refundable tax credits, including the following:
- Exemption for taxpayers over age 652
- Exemption for taxpayers with children2
- Exemption for people receiving pensions2
- Exemption for people with certified disabilities2
- Exemption for people who are caregivers to those with certified disabilities2
These are all line items you can include when you file your taxes in order to potentially pay less tax. To be eligible to receive non-refundable tax credits, you have to owe taxes in the first place.2
Refundable Tax Credits
Refundable tax credits may be available to eligible taxpayers, whether they owe taxes or not.
You can also reduce your gross income using tax deductions, which can reduce how much you have to pay in taxes. Tax deductions don't reduce the amount you have to pay directly, but they can help chip away at your taxable income, which might then put you in a lower tax bracket. For example, if your taxable income was $60,000, you bought a $20,000 truck that you use for your business, and you use the truck as a tax deduction, you may be bumped down into the lowest tax bracket.
It's important to remember that tax brackets may change every year. Understanding how they work is helpful in estimating how much you may owe in taxes. Don't hesitate to seek help from a professional if you have questions or are confused about how your Canadian taxes work.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.