Ontario – Income Tax Brackets, Rates, & Provincial Tax Credits

To read more chapters, click below:

Chapter 1: 10 tax benefits that low-income Canadians should be aware of

Chapter 2: Applying for Canada Workers Benefit

Chapter 3: How to apply for GST/ HST credit in 2023?

Chapter 4: All you need to know about Canada Child Benefit

Chapter 5: 8 ways in which Canada’s New Affordability Plan helps make life cheaper for you

Chapter 6: All that you need to know about Canada Dental Benefit

Chapter 8: Quebec – income tax brackets, rates, and provincial tax credits

Chapter 9: Understanding the Tuition Tax Credit in Canada: All You Need to Know

Chapter 10: Understanding Canada Training Credit

Chapter 11: Maximizing Your Tax Return: Uncovering the Benefits of Seniors' Tax Credits in Canada

Chapter 12: Canada Taxes 2022: Federal Tax Brackets, Rates and Credits

If you are someone who calls Ontario their home, then this would be a really informative chapter for you. In Canada, there exist numerous provincial tax credits, the specifics of which can differ according to the province of your residence. This chapter will provide you with a comprehensive understanding of the provincial taxes you are obligated to pay, help you ascertain your applicable tax bracket, and offer valuable guidance on how to efficiently manage your tax obligations. In Ontario, a progressive tax system is in place, requiring residents to file their annual income taxes. To avoid incurring interest and penalties on your tax return, it is crucial to submit your return by the deadline of April 30. Furthermore, consider the advantages of registering for CRA My Account to simplify and expedite the tax filing process.

How do tax brackets work in Ontario?

In Ontario, like in many other Canadian provinces and at the federal level, the tax system uses a progressive tax bracket structure. This means that the amount of income tax you owe increases as your taxable income rises. Here's how tax brackets work in Ontario –

• Basic Personal Amount: Everyone, regardless of their income level, is entitled to claim the Basic Personal Amount as a non-refundable tax credit. This amount reduces the amount of income you're required to pay taxes on. As of my last knowledge update in 2022, the Basic Personal Amount was set at a specific dollar amount, and it's adjusted annually for inflation.
• Tax Rates: Ontario uses a series of tax rates that apply to different portions of your taxable income. These rates typically increase as your income grows. The tax rates are reviewed and may change each year.
• Marginal Tax Rates: The tax system in Ontario is based on marginal tax rates. This means that different portions of your income are taxed at different rates. The more you earn, the higher the tax rate that applies to your additional income.
• Tax Brackets: Ontario usually has multiple tax brackets, each with its own rate. Here's a simplified example of what the tax brackets might look like, although these figures change from year to year.

There are a total of 5 income tax brackets in Ontario. The income tax brackets are determined based on your net income. Given below are the 5 tax brackets of Ontario -

1. First Bracket: $45,142 or less
2. Second Bracket: Over $45,142 up to $90,287
3. Third Bracket: Over $90,287 up to $150,000
4. Fourth Bracket: Over $150,000 up to $220,000
5. Fifth Bracket: Over $220,000 and above

Every tax bracket is linked to a specific tax rate. Should your net income land within the second bracket, the tax rate of the first bracket will apply to the initial $45,142 of your income, while the rate of the second bracket will be used for the remaining portion of your income.

Ontario’s personal income tax brackets for 2022

Ontario tax rate structure

In Canada, the tax system follows a progressive model, meaning your tax rate increases as your income goes up. This concept applies to both federal and provincial taxes, each of which has its own set of tax brackets.

Your provincial tax obligations are determined by where you lived on December 31st of the tax year. For example, if you're filing taxes for 2022 and you lived in British Columbia before moving to Ontario in October, you'll be subject to Ontario income tax and eligible for Ontario tax credits, in addition to federal taxes.

Ontario, like many other provinces, employs a progressive tax system, requiring its residents to file annual income tax returns. The amount of tax paid by Ontario residents depends on their income level and the specific tax bracket they fall into. However, understanding your tax bracket alone doesn't give the full picture.

Personal income taxes in Ontario are structured around a marginal tax rate system, which divides income and taxes it progressively. These tax brackets are adjusted annually to account for inflation.

Furthermore, there's a concept known as the basic personal amount (BPA), which represents the income threshold below which one is not obligated to pay taxes. For the 2022 tax year, the Ontario basic personal amount stands at $11,141, while the federal BPA is set at $14,398.

How to calculate income tax in Ontario?

Your marginal tax rate signifies the combined federal and provincial tax payments that you are responsible for. To illustrate, if your taxable income, adjusted for deductions and exemptions, reaches $45,000, and you owe 15% in federal tax and 5.05% in Ontario provincial tax, your marginal tax rate is determined by adding these percentages (15% + 5.05%), resulting in a total marginal tax rate of 20.05%. For a preliminary calculation of your income tax liability on your taxable income, begin by computing your federal income tax, then determine your provincial tax, and finally sum the two amounts.

Calculating income tax in Ontario involves several steps, and the process can be somewhat complex. Here's a general overview of how to calculate income tax for individuals living in Ontario –

• Determine Your Total Income

Start by calculating your total income for the tax year. This includes your employment income, business income, rental income, investment income, and any other sources of income. Be sure to include all taxable benefits and deductions that apply to you.

• Calculate Taxable Income

Once you have your total income, subtract any deductions, tax credits, and exemptions to arrive at your taxable income. Common deductions might include contributions to a Registered Retirement Savings Plan (RRSP), employment expenses, and other eligible deductions.

• Determine Your Tax Bracket

Ontario, like other provinces in Canada, uses a progressive tax system, meaning that the tax rate increases as your income goes up. Determine your taxable income, and then refer to the Ontario income tax brackets and rates for the tax year to find your applicable tax rate. The province of Ontario typically updates these rates annually.

• Calculate Provincial Tax

Multiply your taxable income by the applicable provincial tax rate to calculate your provincial income tax. This will give you the amount you owe to the province of Ontario.

• Federal Income Tax

In addition to provincial tax, you will also need to calculate your federal income tax. Canada's federal income tax rates and brackets also follow a progressive system. Determine your federal tax rate based on your taxable income and calculate your federal income tax.

• Combine Provincial and Federal Taxes

Add your provincial income tax and federal income tax together to get your total income tax liability for the year.

• Tax Credits and Deductions

Be sure to consider any tax credits and deductions that apply to you, such as the Basic Personal Amount, which allows you to earn a certain amount of income tax-free, and various tax credits for specific expenses or life situations.

• Calculate Net Tax Owed or Refund

Compare the total income tax you owe to any taxes already withheld by your employer (source deductions). If you've had more taxes withheld than you owe, you will receive a refund. If you owe more taxes, you will need to make a payment to cover the balance.

• File Your Tax Return

Complete your income tax return, including all relevant forms and schedules, and submit it to the Canada Revenue Agency (CRA) for federal taxes and to the Ontario Ministry of Finance for provincial taxes.

Ontario provincial income tax credits

Ontario uses an income tax rate system similar to other provinces in Canada. Although many of the provincial taxes and credits in Ontario are in sync with those at the federal level, there are also unique tax credits specifically designed for residents of Ontario. Here are a few examples –

• The Ontario Staycation Credit

In 2022, Ontarians can benefit from a unique tax credit that permits a 20% claim on expenses for staying in local Ontario hotels, cottages, or campgrounds. This credit has a cap of $1,000 for individuals and $2,000 for families, thus establishing a refundable tax credit of up to $400.

• The Ontario seniors care at home credit

This refundable tax credit is designed to assist seniors in covering specific medical expenses that contribute to home-based aging care. The credit amounts to 25% of expenses, with a maximum eligible amount of $6,000, resulting in a maximum credit of $1,500.

• The senior’s home safety tax credit

This is a novel credit aimed at helping seniors enhance the safety and accessibility of their homes. Eligible individuals can receive a maximum annual credit of $2,500, which equates to 25% of their qualifying expenses, up to a cap of $10,000.

• Ontario trillium benefit

The Ontario Trillium Benefit (OTB) is a financial assistance program provided by the government of Ontario, Canada. It is designed to help low- and moderate-income individuals and families with the cost of energy and property taxes. The OTB combines several tax credits into one payment, making it easier for eligible individuals and families to receive financial support.

The Ontario Trillium Benefit includes the following components –

1. Ontario Energy and Property Tax Credit (OEPTC): This credit assists with the cost of energy and property taxes for eligible individuals and families.
2. Northern Ontario Energy Credit (NOEC): This credit is specifically for residents of northern Ontario to help with energy costs.
3. Ontario Sales Tax Credit (OSTC): This credit provides financial assistance to eligible individuals and families to offset the provincial sales tax paid on certain goods and services.

The amount of the Ontario Trillium Benefit you may receive depends on factors such as your income, family size, and where you live in Ontario. Eligible individuals and families can apply for the OTB when filing their annual income tax return, and the benefit is typically paid on a monthly basis or as a lump sum, depending on your preference.

• Ontario child care access and relief from expenses (CARE) credit

The Ontario Child Care Access and Relief from Expenses (CARE) Tax Credit is an initiative by the Ontario government designed to offer financial support to families by assisting in the payment of child care costs. Here's a general overview of the Ontario CARE Tax Credit –

1. Purpose: The CARE Tax Credit aims to make child care more affordable for eligible families in Ontario.
2. Eligibility: To be eligible for the CARE Tax Credit, you must be a resident of Ontario and have eligible child care expenses.
3. Eligible Expenses: The credit typically covers a range of child care expenses, including care provided by licensed child care centers, home-based child care providers, day camps, and certain educational programs.
4. Age of Eligible Children: The credit usually applies to children under the age of 16, or under the age of 18 if the child has a disability.
5. Calculation: The credit amount is determined based on a percentage of eligible child care expenses, with a maximum credit amount per child.
6. Application: To claim the CARE Tax Credit, you would typically need to include the necessary information and receipts when filing your annual income tax return.
7. Income Thresholds: The credit may have income thresholds or phase-outs for higher-income households, meaning that the credit amount may vary depending on your family's income.

• Low-income individuals and family tax

The Low-Income Individuals and Families Tax (LIFT) Credit was a planned tax credit initiative in Ontario, Canada, with the objective of offering financial assistance to low-income individuals and families. Listed below is all the relevant information about this program –

1. Purpose: The LIFT Credit was designed to assist low-income individuals and families in Ontario by reducing their provincial income tax burden and increasing their disposable income.
2. Eligibility: Eligibility criteria typically include being a resident of Ontario and having low income within specified thresholds.
3. Income Thresholds: The LIFT Credit usually targeted individuals and families with low to moderate incomes, and the credit amount varied depending on income levels.
4. Calculation: The credit was typically calculated based on a combination of factors, including income, family size, and marital status. The credit amount would increase for families with dependents, such as children.
5. Application: Eligible individuals and families would typically apply for the LIFT Credit when filing their annual income tax return with the Canada Revenue Agency (CRA).
6. Benefits: The LIFT Credit aimed to provide direct financial benefits to recipients, helping them with everyday expenses and potentially lifting some low-income individuals and families out of poverty.

• Child care subsidy

In Ontario, a Child Care Subsidy is a financial assistance program that helps eligible low to moderate-income families and individuals cover the cost of child care services. The subsidy is intended to make child care more affordable and accessible for parents and guardians who require child care in order to work, attend school, or participate in approved training programs.

Key points about the Child Care Subsidy in Ontario include –

1. Eligibility: Eligibility for the Child Care Subsidy is typically based on factors such as income, family size, and the need for child care. Each municipality in Ontario administers its own Child Care Subsidy program, so eligibility criteria may vary slightly from one region to another.
2. Types of Child Care: The subsidy can be used for various types of licensed child care services, including child care centers, home-based child care providers, and before-and-after school programs.
3. Application Process: To apply for the Child Care Subsidy, individuals and families usually need to contact their local municipality's Children's Services department or a similar agency. The application process typically involves providing documentation of income and family circumstances.
4. Calculation: The subsidy amount is determined based on a sliding scale, with families with lower incomes receiving a higher subsidy. The subsidy covers a portion of the child care fees, and the parent or guardian is responsible for paying the remainder.
5. Child Care Providers: The child care provider must be licensed and approved by the relevant authorities in Ontario for families to be eligible for the subsidy.
6. Renewal: Subsidy recipients may need to renew their application periodically to ensure that they continue to meet the eligibility criteria.
7. Additional Support: Some families may be eligible for additional supports, such as fee subsidies for transportation costs related to child care.

Penalties and interest

The CRA imposes a late penalty comprising 5% of the outstanding balance owed, with an additional 1% added for each month of delay in payment. To steer clear of interest charges and penalties on your income tax return, it's crucial to stay informed about the annual due dates and, if you expect to owe taxes, make sure to submit your return by April 30th.

How to reduce your taxes in Ontario?

In Ontario there are two main ways to reduce your taxes –

1. Tax Credits

Most Canadian taxpayers are eligible to apply a basic personal amount of $14,398 to their 2022 tax returns, effectively lowering the amount of their taxable income. However, it's important to note that this amount diminishes for individuals with net incomes exceeding $155,625, where it reduces to $12,719, and for those surpassing $221,708, the basic personal amount becomes zero. Extra tax credits are accessible for individuals aged 65 or older, those with disabilities, and caregivers of disabled individuals.

If your income is less than $14,398, you generally won't owe income tax. However, it's recommended to file your tax return because various federal and provincial programs, such as the GST/HST credit, depend on the income details you provide in your tax return.

In Ontario, an additional basic personal amount of $11,141 can be claimed, with potential supplementary amounts for seniors, disabled individuals, or caregivers of persons with disabilities.

2. Deductions

A deduction helps in reducing your taxable income, thereby decreasing the portion of your income that is subject to taxation. On the other hand, non-refundable tax credits lower your tax liability, but they are only relevant if you owe taxes - essentially, you must have earned some form of income. When it comes to non-refundable tax credits, you can claim only enough to bring your tax owed down to zero, and any excess doesn't result in a refund.

For instance, if you owe $4,000 in taxes and have $4,500 in non-refundable tax credits, you can claim $4,000 but won't receive a $500 refund. However, certain situations, such as tax credits for tuition, student loan interest, and charitable contributions, may allow you to carry forward unused credits to future tax years.

Common federal non-refundable tax credits include items like the basic personal amount, medical expenses, and contributions to charitable or political causes.

In Ontario, in addition to federal credits, you might be eligible to claim unused tuition credits from post-secondary education, interest on student loans, a tax credit for having children, adoption-related expenses, and a tax credit for seniors.