Canada

Individual - Taxes on personal income

Last reviewed - 17 June 2020

Individuals resident in Canada are subject to Canadian income tax on worldwide income. Relief from double taxation is provided through Canada's international tax treaties, as well as via foreign tax credits and deductions for foreign taxes paid on income derived from non-Canadian sources.

Non-resident individuals are subject to Canadian income tax on income from employment in Canada, income from carrying on a business in Canada and capital gains from the disposition of taxable Canadian property.

Individuals resident in Canada for only part of a year are taxable in Canada on worldwide income only for the period during which they were resident.

Personal tax credits, miscellaneous tax credits, and the dividend tax credit are subtracted from tax to determine the federal tax liability.

Personal income tax rates

2020 federal tax rates are as follows:

Federal taxable income (CAD*) Tax on first column (CAD) Tax on excess (%)
Over Not over
0 48,535 0 15.0
48,535 97,069 7,280 20.5
97,069 150,473 17,229 26.0
150,473 214,368 31,115 29.0
214,368 49,644 33.0

* Canadian dollars

Provincial/territorial income taxes

In addition to federal income tax, an individual who resides in, or has earned income in, any province or territory is subject to provincial or territorial income tax. Except in Quebec, provincial and territorial taxes are calculated on the federal return and collected by the federal government. Rates vary among the jurisdictions. Two provinces also impose surtaxes that may increase the provincial income taxes payable. Provincial and territorial taxes are not deductible when computing federal, provincial, or territorial taxable income.

All provinces and territories compute income tax using 'tax-on-income' systems (i.e. they set their own rates, brackets, and credits). All except Quebec use the federal definition of taxable income.

The following table shows the top 2020 provincial/territorial tax rates and surtaxes. The provincial/territorial tax rates are applicable starting at the taxable income levels shown below. Surtax rates apply to provincial tax above the surtax thresholds shown.

Recipient Provincial/territorial tax Provincial/territorial surtax
Top rate (%) Taxable income (CAD) Rate (%) Threshold (CAD)
Alberta 15.0 314,928 N/A N/A
British Columbia (3) 20.5 220,000 N/A N/A
Manitoba 17.4 72,164 N/A N/A
New Brunswick 20.3 160,776 N/A N/A
Newfoundland and Labrador 18.3 189,604 N/A N/A
Northwest Territories 14.05 142,932 N/A N/A
Nova Scotia 21.0 150,000 N/A N/A
Nunavut 11.5 150,473 N/A N/A
Ontario 13.16 220,000 20 and 56 4,830 and 6,182
Prince Edward Island 16.7 63,969 10 12,500
Quebec (1) 25.75 108,390 N/A N/A
Saskatchewan 14.5 129,214 N/A N/A
Yukon 15.0 500,000 N/A N/A
Non-resident 15.84 (2) 214,368 N/A N/A

Notes

  1. Quebec has its own personal tax system, which requires a separate calculation of taxable Income. Recognising that Quebec collects its own tax, federal income tax is reduced by 16.5% of basic federal tax for Quebec residents.
  2. Instead of provincial or territorial tax, non-residents pay an additional 48% of basic federal tax on income taxable in Canada that is not earned in a province or territory. Non-residents are subject to provincial or territorial rates on employment income earned, and business income connected with a permanent establishment, in the respective province or territory. Different rates may apply to non-residents in other circumstances.
  3. Draft legislation introduces, effective 1 January 2020, a new top BC income tax rate of 20.5% that will apply to individuals with taxable income exceeding CAD 220,000 (up from 16.8% on taxable income exceeding CAD 157,748 in 2020)

Combined federal/provincial (or federal/territorial) effective top marginal tax rates for 2020 are shown below. The rates reflect 2020 provincial and territorial budgets (which are usually introduced in the spring of each year) and economic and fiscal updates, except that of Newfoundland and Labrador; because of the economic uncertainty created by the COVID-19 pandemic, Ontario tabled an economic and fiscal update, instead of a full budget. The rates include all provincial/territorial surtaxes, and apply to taxable incomes above CAD 214,368 in all jurisdictions except:

  • CAD 314,928 in Alberta.
  • CAD 220,000 in British Columbia and Ontario.
  • CAD 500,000 in Yukon.
Recipient Highest federal/provincial (or territorial) tax rate (%)
Interest and ordinary income Capital gains Canadian dividends
Eligible (1) Non-eligible (1)
Alberta 48.0 24.0 31.7 42.3
British Columbia 53.5 26.8 36.5 48.9
Manitoba 50.4 25.2 37.8 46.7
New Brunswick 53.3 26.7 33.5 47.7
Newfoundland and Labrador 51.3 25.7 42.6 44.6
Northwest Territories 47.1 23.5 28.3 36.8
Nova Scotia 54.0 27.0 41.6 48.3
Nunavut 44.5 22.3 33.1 37.8
Ontario 53.5 26.8 39.3 47.74
Prince Edward Island 51.4 25.7 34.2 45.2
Quebec 53.3 26.7 40.1 47.1
Saskatchewan 47.5 23.8 29.6 40.4
Yukon 48.0 24.0 28.9 42.2
Non-resident (2) 48.8 24.4 36.7 40.8

Notes

  1. See Dividend income in the Income determination section for more information on eligible and non-eligible dividends.
  2. Non-resident rates for interest and dividends apply only in limited circumstances. Generally, interest (other than most interest paid to arm's-length non-residents) and dividends paid to non-residents are subject to Canadian withholding tax (WHT).

Alternative Minimum Tax (AMT)

In addition to the normal tax computation, individuals are required to compute an adjusted taxable income and include certain 'tax preference' items that are otherwise deductible or exempt in the calculation of regular taxable income. If the adjusted taxable income exceeds the minimum tax exemption of CAD 40,000, a combined federal and provincial/territorial tax rate of about 25% is applied to the excess, yielding the AMT. The taxpayer then pays the greater of regular tax or the AMT. Taxpayers required to pay the AMT are entitled to a credit in future years, when their regular tax liability exceeds their AMT level for that year.

Kiddie tax

A minor child that receives certain passive income under an income splitting arrangement is subject to tax at the highest combined federal/provincial (or territorial) marginal rate (i.e. up to 54%), referred to as 'kiddie tax'. Personal tax credits, other than the dividend, disability, and foreign tax credits, or other deductions cannot be claimed to reduce the kiddie tax.

‘Income sprinkling’

Starting with 2018 taxation years, ‘income sprinkling’ (i.e. shifting income that would otherwise be realised by a high-tax individual [e.g. through dividends or capital gains] to low or nil tax rate family members) using private corporations is restricted by expanding the ‘kiddie tax’ rules and making certain aspects of those rules also apply to adults in certain situations. The ‘split income’ of an adult family member is subject to tax at the highest combined federal/provincial (or territorial) marginal rate (i.e. up to 54%). Personal tax credits, other than the dividend, disability, and foreign tax credits, or other deductions cannot be claimed to reduce this tax.