Filing your taxes can be daunting especially if you have little to no knowledge about your taxes rates and how they apply.
Unfortunately, the government never seems to let anyone get away with excuses related to tax offenses; the Canada Revenue Agency (CRA) has put in place very stringent measures to curb tax evasion as may be seen in the video below:
But don’t get me wrong, my intention is not to scare you; to the contrary, if you know what you’re up against, it’s easier to weigh your options carefully, right?
Well, that’s exactly why we put together this guide to help you understand your tax obligations well enough to be able to prevent you from landing on the wrong side of the law.
To start us off, we’ll talk about the new tax changes that took place in 2018, share with you the Ontario tax brackets, ways to legally reduce your taxes, among other things.
The Biggest Tax Changes in 2018
In 2018, the CRA reviewed the tax bracket of high-income earners as the lower income earners will continue to enjoy the same and lower rates depending on their respective tax brackets.
The change, which was introduced in the 2018 budget, will see that a surtax on Personal Income Tax (PIT )is eliminated while introducing two new tax brackets. The new tax brackets will cover incomes between $71,501 to $82,000 and $82,001 to $92,000, respectively. However, the top tax bracket will still remain at $220,000 and above.
This, the government says, will levelize the playing field for all taxpayers and follow the fundamental principle of a good tax system, which advocates for an equitable tax system to ensures that those who earn more pay more taxes and those with lesser incomes are also taxed lesser amounts.
So, with the affected changes, how much should you pay?
Allow me to explain…
How Much You Need to Pay in Taxes
As a taxpayer, you may not know that you pay taxes to two agencies, the Ontario and the federal governments. This is because the two taxes are combined and filed as one.
The mode of tax assessment and ultimate payment is always based on the income earned during a certain period less any qualified deductions and credits.
You may also be required to pay taxes on investment incomes earned during a certain year even if not received until a later year.
Ontario Tax Brackets and Tax Rates
Both the Ontario and Federal tax brackets are incremental in nature; that is, the lowest incomes are taxed at the lowest rates and you pay more as we go up the tax brackets. Depending on how much you earn, you can be able to estimate the applicable rates in your case.
This mode of the incremental tax rate is called the graduated tax system. The system automatically qualifies your income to the next tax bracket if it falls beyond the previous one. The rates and brackets are put in place by the various provinces and the federal government. Have a look at how the tax brackets work below:
2017 and 2018 Tax Brackets and Rates
|Tax Rates & Brackets|
|5.05% on the first $42,201 of taxable income||15% on the first $45,916 of taxable income||5.05% on the first $42,960 of taxable income||15% on the first $46,605 of taxable income|
|9.15% on the portion of taxable income over $42,201 up to $84,404||20.5% on portion of taxable income over $45,916 up to $91,831||9.15% on the portion of taxable income over $42,960 up to $85,923||20.5% on portion of taxable income over $46,605 up to $93,208|
|11.16% on portion of taxable income over $84,404 up to $150,000||26% on portion of taxable income over $91,831 up to $142,353||11.16% on portion of taxable income over $85,923 up to $150,000||26% on portion of taxable income over $93,208 up to $144,489|
|12.16% on portion of taxable income over $150,000 up to $220,000||29% on portion of taxable income over $142,353 up to $202,800||12.16% on portion of taxable income over $150,000 up to $220,000||29% on portion of taxable income over $144,489 up to $205,842|
|13.16% on the portion of taxable income over $220,000||33% of taxable income over $202,800||13.16% on the portion of taxable income over $220,000||33% of taxable income over $205,842|
When these two tax regimes are merged, they form a combined tax rate. The combined taxes yield an average rate of 20% for the lowest income earners (15% +5.05%=20.05%). The same applies to the highest income earners. As you can see, the tax rates can go up to as high as 46%.
Tax Credits and Deductions
In some instances, you’ll find that you have a tax credit or a deduction; this normally leads to a reduction of your payable taxes.
Let’s briefly discuss the two ways of reducing your tax burden:
In simple terms, a tax credit is an amount that can be used to offset tax liability. Take note of the fact that tax credits are subtracted from the amount of tax owed and not the amount of income earned.
One of the most popular tax credits today that each and every resident of Ontario can claim is the basic personal tax credit; the deductible amount is normally set by the state and it is the same for each individual. In 2018, for instance, the allowed personal relief is $11, 809 and is set by the federal government.
However, provinces also have their own basic personal relief and, in the case of Ontario, the amount currently stands at $10,354.
Note that personal relief is deducted monthly but filed as a lump sum amount at the end of the year when doing your taxes. The above figures are aggregate annual personal relief figures for the respective tax bodies. Also, personal relief is a benefit that is received at the point of taxation; this means that an individual will receive both deductions from their incomes at the various levels of government.
Other Ontario tax credits include:
- Apprenticeship training
- Focused flow-through share for encouraging mineral exploration in Ontario
- Healthy Homes Renovation
- Political contributions
Other federal tax credits include:
- Medical expenses for the lesser of an amount equal to 3% of your income or the annual amount set by the government
- The Working Income Tax Benefit (WITB) is intended to provide tax relief for eligible working low-income individuals and families and to encourage those who are not working to enter the workforce
- Dependent spouse and children (the spouse includes common-law partners who qualify under the definition)
- College or university tuition
- Caregiver expenses
- Disability amount
Unlike tax credits, deductions are amounts that are reduced from your income prior to computing your tax obligation.
This form of tax reduction is not enjoyed that much by employed individuals but more for those who are self-employed.
That notwithstanding, there a few deductions enjoyed by employed individuals such as contribution amounts to a Registered Retirement Savings Plan (RRSP) up to your annual maximum, support payments made to an ex-spouse, moving expenses if you happen to move more than 40 km due to work.
Other than the above-mentioned tax reduction avenues, Ontario offers benefits to low-income earners and families. The scheme offers regular payments to qualified persons on a monthly basis subject to a specified limit.
But for one to qualify for such benefits, he/she will be required to file a tax return even if they don’t need to. The benefits include:
- Ontario Senior Homeowners’ Property Tax Ontario Child Benefit
- Ontario Child Benefit
- Ontario Trillium Benefit
- Ontario Guaranteed Annual Income System (GAINS)
More information relating to the benefits available to Ontario residents can be retrieved from the official Finance Ministry’s website.
Why Must You Pay Taxes?
Firstly, because the law requires each and every income earner to pay their equal share of taxes. And as taxes accrue throughout the year, they must be paid promptly to the relevant authority.
For the employed individuals, taxes are always deducted by the employer at the point of earning, thereafter requiring them to file their returns at the end of that particular financial year. The employers are then expected to remit the taxes to the relevant bodies; however, in case an employer deducts a lesser amount of tax, you will be required to pay up the difference at the time of filing your tax returns.
Similarly, in case more than the expected amount was deducted from your earnings, you will be required to file a return after which a refund will be credited to you.
Most Canadians prefer filing their own taxes; this can be done through following the step-by-step guide by the CRA or by using some specified applications.
Whichever way you choose to go, the system must be approved by the CRA. The CRA recommends making an inquiry if you’re not sure about the application to use, but at the time of writing this post, this was the full list of approved tax-filing applications by the CRA.
- Turbotax desktop
- Studiotax for Mac
- Simpletax desktop
- Turbotax online version
- Simpletax online version
- Studiotax for Windows
Also, if you’re a software developer looking to get approval from the CRA for your tax filing application, check out the link above for some useful insight in this regard.
Frequently Asked Questions (FAQs)
Now that we understand all the Ontario Income Tax brackets, let’s look at some key issues relating to Ontario Income Tax.
When is the deadline for filing your tax returns?
Most Canadians have until 30 April the following year to file their previous year’s taxes. This means that for the 2018 incomes, taxpayers have until 30 April 2019 to file their returns.
Failure to file your taxes by then attracts a late filing penalty and a daily interest on the owed amount. You’re better off filing an incorrect return and then apply for an amendment as opposed to filing after the deadline. Most amendments to your filed returns do not attract any penalties as long as you can prove that the mistake was purely unintentional.
For self-employed individuals, 15 June is the deadline for the filing of the previous year’s returns. However, you can still file your taxes by 30 April, especially if you owe taxes and wish to avoid penalties.
Is there a provisional tax in Ontario?
Yes, there is. If you filed your tax returns during a certain year and have an excess payment, you are eligible for a deduction. If, for instance, you were charged a withholding tax of 15% for a service you offered, you are allowed to deduct that amount from your annual taxes and pay the difference. This helps reduce your overall tax burden.
How early can I file my return?
Most of the time, the CRA allows taxpayers to file their returns as early as February the following year. However, this might change depending on their revenue targets, financial calendar, among other things.
So why should you even think of filing your returns early?
Well, I’ll give two simple reasons: the first one is that when you file early, you get to have your refund or payment preparations early enough and, secondly, you can sit back and avoid the last-minute rush that jams up the taxman’s portal leading to all manner of frustrations.
Must I file a return even if it doesn’t fall on any Ontario tax rate?
Of course not! The law only mandates you to file your taxes if you actually owe taxes. However, even if you don’t necessarily owe any taxes, you will be required to file your returns under certain circumstances as highlighted on this publication by the CRA.
But do you know that you’re better off filing your returns each year even if you don’t have to?
If you need a tax refund, you’ll need a return to get it!
Also, for you to benefit from the government initiatives such as the Goods and Services/Harmonized Sales Tax (GST/HST) credit and the Canada child benefit, the government can only use your tax returns to gauge whether or not you qualify to receive the benefit.
Now you have two good reasons why you should file a return whether or not you qualify.
What are the required documents when filing my returns?
- You’ll need the return form itself. You can download it online.
- You’ll need tax slip and they are of different types such as the T4 for the employed, statement of Remuneration Paid form, which shows how much your employer paid you.
- A T5 will also be necessary for any amounts made from earning interest in a savings account or savings.
- A Statement of Investment Income, which shows items such as dividends, interest from bonds or money you loaned, and so on.
- A T5007 in case you received worker’s compensation or social assistance.
- A Statement of Benefits, the T4A for the retired individuals.
- Statement of Pension, Retirement, Annuity and Other Income which shows you much you earned in retirement payments.
- A T4E if you received Employment Insurance (EI).
- A Statement of Employment Insurance and Other Benefits.
- Finally, you’ll also need to have certain receipts and certificates that grant you rights to certain deductions such as those of Search and Rescue Personnel. In case you incurred certain qualified expenses, the CRA can also take such into consideration if you produce the relevant documentation.
According to the CRA, once you’re done filing your returns and end up with a tax refund, you should be able to obtain your refund within two weeks. However, if you filed a non-digital return, then you might have to wait up to eight weeks for you to obtain a refund.
Tip: To obtain a faster refund, sign up for a direct deposit to avoid the delays associated with the government having to send you a cheque. You can do this in various ways way:
- Online by signing up for My Account if you haven’t already
- You can directly call them to have them make a direct deposit through the number 1-800-959-8281
- You can also email them by following their recommended steps.
I hope you now understand the Ontario tax brackets and other aspects of taxation; so, for now, good luck with your taxes and let us know if you have any questions.