The Simple Way to Look at the 2016 Federal Tax Rate
With the new changes in the 2016 federal tax rates, many Canadians are trying to figure out what their particular tax rate is now. To explain what tax rate you will be paying this coming year, take a closer look at this breakdown:
Marginal Tax Rate
The Canadian marginal tax rate system changes depending on the amount of income you bring into your household. For instance, on the first $45,282 you earn from employment income, the current federal tax rate will be at 15 per cent. The next tax bracket runs from $45,282 up through $90,563 and has a 20.5 per cent tax rate. This is actually a decrease from the 2015 federal tax rate which was at 22 per cent. For this reason, this latest tax rate reduction is called the “middle-income tax cut.” On the other hand, anyone with a taxable income over $200,000 now has an increase in their tax rate from 29 per cent in 2015 to 33 per cent in 2016.
Tax Deductions and Credits
Tax deductions help reduce your basic taxable income and can help you pay a lower marginal tax rate. Some of the most common tax deductions include contributions to an RRSP, child care expenses and investment management costs for non-registered accounts. Tax credits are figured out once your marginal tax rate has already been applied to your income. At this point, a fixed rate is applied to your tax credit to help offset the taxes you need to pay. The most common federal tax credits include your basic personal amount, the spouse/partner amount, charitable donations and medical expenses.
Overall, this is a general look at the new federal tax rates. For specific information on your 2016 taxes, be sure to seek professional help for the best possible advice.