Things You Should Know for the Upcoming Tax Season
Registered Retirement Savings Plan (RRSP):
Contribution deadline: March 1, 2022
Note: contributions made by this date can be deducted form your 2021 taxable income.
Maximum Contribution Limit: $27,830
Your RRSP deduction limit for 2021 can be found on your 2020 Notice of Assessment.
2021 Combined Marginal Tax Rates – Federal and Provincial
(approximates per https://www.taxtips.ca/taxrates/on.htm):
Taxable Income Combined Tax Rate
| First $45,142 | 20.05% |
| $45,142 to $49,020 | 24.15% |
| $49,021 to $79,505 | 29.65% |
| $79,506 to $90,287 | 31.48% |
| $90,288 to $93,655 | 33.89% |
| $93,656 to $98,040 | 37.91% |
| $98,041 to $150,000 | 43.41% |
| $150,001 to $151,978 | 44.97% |
| $151,979 to $216,511 | 48.29% |
| $216,512 to $220,000 | 51.97% |
| Over $220,000 | 53.53% |
How the Canadian Tax System Works:
A common thing we hear as accountants is individuals do not want to work overtime or take a pay raise as it will put them into a higher tax bracket and result in them losing money. However, this is a myth as Canada has a progressive tax system. This means that every single taxpayer will pay the same rate in each tax bracket as they progress through the brackets.
For example, let’s say the taxpayer has taxable income of $70,000 and gets a raise to $90,000:
Taxable Income Tax Rate Taxes on $70,000 Taxes on $90,000
| First $45,142 | 20.05% | $45,142 x 20.05% = $9,051 | $45,142 x 20.05% = $9,051 |
| $45,142 to $49,020 | 24.15% | $3,877 x 24.15%= $936 | $3,877 x 24.15%= $936 |
| $49,021 to $79,505 | 29.65% | $20,979 x 29.65%= $6,220 | $30,484 x 29.65%= $9,039 |
| $79,505 to $90,287 | 31.48% | No income in this threshold | $10,494 x 31.48%= $3,304 |
| Total Taxes Payable | $16,208 | $22,329 |
In this example, at $70,000 the taxpayer will pay $16,000 in taxes before any tax credits are claimed. At $90,000 the taxpayer will pay $22,300 in taxes. This means on the $20,000 additional income, only an additional $6,100 is paid in taxes, resulting in $13,900 more in your pocket. Our tax system is set up in a way in which it is always better to earn more.