Taxing Wages 2024

The national currency is the Canadian dollar (CAD). In 2023, CAD 1.31 was equal to USD 1. In that year, the average worker earned CAD 86 203 (Secretariat estimate).

Under the present system, tax is levied on individuals separately; certain tax reliefs depend on family circumstances.

• Basic personal amount: Individual taxpayers can claim a non-refundable credit in respect of the Basic Personal Amount (BPA). Starting in 2020, there are two portions to the BPA, the original portion and the increased portion. On December 9, 2019, the government announced gradual increases to the BPA such that it would reach CAD 15 000 by 2023. These increases were implemented over the 2020 to 2023 period through annual increases in excess of inflation. The new, increased portion of the BPA is subject to an income test beginning at a level of individual net income equivalent to the fourth federal tax bracket threshold (CAD 165 430 in 2023) and is fully phased out by the fifth federal bracket threshold (CAD 235 675 in 2023). Individuals with net income at or exceeding the fifth bracket threshold continue to receive the BPA, but do not benefit from the supplemental increase. With this reform now fully phased in, the maximum value of the credit (no reductions) in 2023 is CAD 2 250, which is calculated by applying the lowest personal income tax rate (15% in 2023) to the sum of the original BPA (CAD 13 520 in 2023) and the full value of the increase (CAD 1 480 in 2023).

• Credit for Spouse or Eligible Dependant: A taxpayer supporting a spouse or other eligible dependant receives a tax credit, which is set equal to the BPA. The above announcement of December 9, 2019 increased the credit for Spouse or Eligible Dependant in the same way as the BPA. The increased portion of these credits is subject to the same income-test as the BPA and continues to be reduced dollar-for-dollar by the net income of the spouse or eligible dependant. The maximum value of the Credit for Spouse or Eligible Dependant is CAD 2 250 in 2023.

• Social security contributions: Since 2019, taxpayers are entitled to claim a deduction for the newly enhanced portions of the Canada Pension Plan (CPP) and the Quebec Pension Plan (QPP) (to a maximum amount of CAD 631.00 in 2023) (See Section 2.1.1. for more detail). The original base contributions to the CPP or QPP continue to be eligible for a 15% credit (to a maximum contribution of CAD 3 123.45 for the CPP and CAD 3 407.40 for the QPP). Taxpayers are also entitled to claim a 15% tax credit for their Employment Insurance (EI) premiums to a maximum contribution of CAD 1 002.45 outside Quebec; the EI premium rate is lower for Quebec residents, who also pay into the Quebec Parental Insurance Plan; the maximum combined credit for a Quebec resident is CAD 1 230.59.

• Canada Workers Benefit1 (CWB): The CWB was enhanced in 2021 and now provides a non-wastable tax credit equal to 27% of each dollar of earned income in excess of CAD 3 000 to a maximum credit of CAD 1 518 for single individuals without dependents and CAD 2 616 for families (couples and single parents). The credit is reduced by 15% of net family income in excess of CAD 24 975 for single individuals and CAD 28 494 for families. This is the default national design; provinces may choose to propose jurisdiction-specific changes to this design, subject to certain principles. In 2023, the secondary earner exemption allows the spouse or common-law partner with the lower working income to exclude up to CAD 15 239 of their working income in the computation of their adjusted net income, for the purpose of the CWB phase-out.

• Canada Employment Tax Credit: A tax credit of up to CAD 205.20 on employment income.

A number of non-standard tax reliefs are available to the average worker in Canada. The main ones are:

• Medical expenses credit: Taxpayers are entitled to a 15% tax credit for an amount of eligible medical expenses that exceeds the lesser of 3% of net income or CAD 2 635.

• Charitable donations credit: The credit is 15% on the first CAD 200 of eligible charitable donations and 29% on eligible donations in excess of CAD 200, with the exception of donors with taxable income exceeding CAD 235 675, who may claim a 33% tax credit on the portion of total annual donations over CAD 200 made from taxable income greater than CAD 235 675. Eligible donations are those made to registered charities, to a maximum of 75% of net income.

• Registered pension plan contributions: Employees who are members of a registered pension plan are entitled to deduct their contributions to the plan. Employee contributions required to fund the actuarial benefit liabilities under a defined benefit registered pension plan are permitted (annual benefit accruals are limited to a maximum of 2% of earnings up to a dollar amount of CAD 3 515). Employee contributions to a defined contribution registered pension plan are limited to 18% of earned income up to a maximum of CAD 31 637.

• Registered retirement savings plan (RRSP) premiums: Individuals can deduct their contributions to an RRSP up to a limit of 18% of the previous year’s earned income, to a maximum of CAD 30 780 a year, unless they are also accruing benefits under a registered pension plan or a deferred profit-sharing plan. Members of those other plans are limited to RRSP contributions of 18% of the previous year’s earned income to a maximum of CAD 30 780, minus a pension adjustment amount based on pension benefits accrued in the previous year.

• Union and professional dues: Individuals with annual dues paid to a trade union or an association of public servants or paying dues required to maintain a professional status recognised by statute are allowed to deduct such fees in computing taxable income.

• Moving expenses: Eligible moving expenses are deductible from income if the taxpayer moves at least 40 kilometres closer to a new place of employment.

• Child care expenses: A portion of child care expenses is deductible if incurred for the purpose of earning business or employment income, studying or taking an occupational training course or carrying on research for which a grant is received. The lower income spouse must generally claim the deduction. The amount of the deduction is limited to the least of:

  1. the expenses incurred for the care of a child;

  2. two thirds of the taxpayer’s earned income; and

  3. CAD 8 000 for each child who is under age seven, and CAD 5 000 per child between seven and sixteen years of age (or older if has a mental or physical impairment, but not eligible for the Disability Tax Credit). The amount for a child who is eligible for Disability Tax Credit is CAD 11 000.

All provinces and territories levy their own personal income taxes. All, with the exception of Quebec, have a tax collection agreement with the federal government, and thus use the federal definition of taxable income. They are free to determine their own tax brackets, rates and credits. Quebec collects its own personal income tax and is free to determine all of the tax parameters, including taxable income. In practice, its definition of taxable income is broadly similar to the federal definition.

The calculation of provincial tax for the average worker study assumes the worker lives in Ontario, the most populous of the 10 provinces and 3 territories. The main features of the Ontario tax system relevant to this report are summarised below:

Tax Schedule

Surtax

Wastable tax credits

• A basic tax credit of CAD 599.18.

• A maximum credit of CAD 508.79 for a dependant spouse or eligible dependant that is withdrawn as the income of the spouse or eligible dependant exceeds CAD 1 007 and is completely withdrawn when the income of the spouse is at least CAD 11 082.

• 5.05% of contributions made to the Canada Pension Plan and of Employment Insurance premiums.

• A maximum credit2 of the lower of CAD 875 or 5.05% of earned income per filer with earned income that is reduced by 5% of the greater of:

  • Adjusted individual net income over CAD 32 500

  • Adjusted family net income over CAD 65 000.

Tax Reduction

An earner is entitled to claim a tax reduction where the initial entitlement is equal to CAD 274 plus CAD 506 for each dependent child under the age of 19. Where someone has a spouse, only the spouse with the higher net income can claim the dependent child tax reduction. If this amount is greater or equal to the liable provincial tax, then no tax is due. If the amount is less than the liable tax, then the actual tax reduction is equal to twice the initial entitlement amount less the liable tax (if this calculation is zero or negative, the reduction is equal to zero).

Generally, all employees are eligible for coverage under the CPP or QPP. Starting in 2019, as part of the CPP and QPP enhancements announced in 2016 and 2017 respectively, a 1-percentage point increase in employee and employer contributions will be phased-in over five years. In 2023, employee contributions with respect to the enhanced portion of the CPP and QPP (i.e., the additional contributions associated with the higher contribution rate – additional 0.15% of income for 2019, 0.30% for 2020, 0.50% for 2021, 0.75% for 2022, and 1.00% for 2023) can be claimed as a deduction for federal tax purposes (a deduction for employee contributions to the enhanced portion of the CPP and QPP will also be claimed for Quebec income tax purposes) to a maximum of CAD 631.00 for a total maximum contribution of CAD 3 754.45 (CAD 4 038.40 in Quebec). Employee contributions with respect to the base portion of the CPP at a rate of 4.95% of income (5.40% for the QPP) will continue to be claimed as a wastable tax credit at the rate of 15% (to a maximum contribution of CAD 3 123.45 and CAD 3 407.40 for the CPP and QPP respectively). Income subject to contributions is earnings (wages and salaries) less a CAD 3 500 basic exemption. The maximum base contribution of CAD 3 123.45 is reached at an earnings level of CAD 66 600 (i.e. (CAD 66 600 - CAD 3 500) x 4.95% = CAD 3 123.45). Employers are also required to contribute to the CPP or QPP on behalf of their employees at the same rate and can deduct their contributions from taxable income (refer to Section 2.2.1).

Self-employed persons must also contribute to the CPP or QPP on their own behalf. However, the self-employed are required to contribute at the combined employer/employee rate on their earnings. Self-employed individuals will continue to pay both the employee and employer portion at a rate of 11.9% and 12.8% per cent respectively after the phase-in of increased contributions under the enhanced CPP and QPP. Self-employed individuals will continue to claim a wastable tax credit at the rate of 15% on the employee share of contributions to the base portion of the CPP and QPP (same as employees). For the remaining amounts, the entire enhanced portion and the base employer portion, self-employed individuals will claim a maximum deduction of CAD 3 754.45 (CAD 4038.40 in Quebec).

There is no national sickness benefit plan administered by the federal government. However, all provinces have provincially administered health care insurance plans. Three provinces, Quebec, Ontario, and British Columbia, levy health premiums on individuals separately from the personal income tax to help finance their health programmes.

In the case of Ontario, the premium is determined based on taxable income. Individuals who earn up to CAD 20 000 are exempt. The premium is phased-in with a number of different rates to a maximum of CAD 900 for taxable income levels greater than CAD 200 600. The following table provides further details on the structure that is applicable in 2023.

In general, all employees are eligible for Employment Insurance (EI). Eligibility to receive benefits is determined by insurable hours worked (with a minimum entry threshold of 420 to 700 hours, depending on region and the unemployment rate at the time the claim for benefits starts). For 2023, employees outside Quebec are required to contribute at the rate of 1.63% of insurable earnings. Insurable earnings are earnings (wages and salaries) up to a maximum of CAD 61 500 per year. The maximum employee contribution is therefore CAD 1 002.45 per year. EI contributions give rise to a tax credit equal to 15% of the amount contributed. Employers are also required to contribute to the plan. (See Section 2.23)

Quebec residents contribute to EI at a rate of 1.27%; the same earnings ceiling applies. They also contribute to the Quebec Parental Insurance Plan at a rate of 0.494% of insurable earnings; maximum insurance earnings for 2023 are CAD 91 000. For a Quebec resident, the maximum employee contribution (EI plus Quebec Parental Insurance Plan) is CAD 1 230.59.

See section 2.2.4.

Employers are required to contribute to the CPP on behalf of their employees an amount equal to their employees' contributions. Thus, employers also contribute at the rate of 5.95% of earnings (less the CAD 3 500 earnings exemption) to a maximum of CAD 3 754.45. For the QPP, the contribution rate is 6.40% of earnings, to a maximum of CAD 4 038.40.3

There is no national sickness benefit plan administered by the federal government. However, all provinces have provincially administered health care insurance plans. Three provinces levy a special tax on employer payrolls to finance health services (Québec and Ontario) or health services and education (Manitoba). These payroll taxes are deductible from the employer’s income subject to tax. In the case of the province of Ontario, employers pay an Employer Health Tax on the value of their payroll, tax rates varying from 0.98% on Ontario payroll less than CAD 200 000, up to 1.95% for payroll that exceeds CAD 400 000. Certain employers are eligible for a higher exemption of CAD 1 000 000.

Employers are required to contribute to the employment insurance scheme. The general employer contribution is 1.4 times the employee contribution, that is, 2.28% of insurable earnings (outside Quebec). Premiums are adjusted for employers who provide sick pay superior to payments provided under the employment insurance regime. All employment insurance contributions are deductible from the employer’s income subject to tax.

There is no national work injury benefit plan administered by the federal government. However, employers are required to contribute to a provincial workers’ compensation plan which pays benefits to workers (or their families in case of death) for work related illness or injury. The employer contribution rates, which vary by industry and province, are related to industry experience of work-related illness and injury. Premiums are deductible from the employer’s income subject to tax. In the case of Ontario, employers broadly corresponding to industry Sectors B-N inclusive pay, on average, 1.29% of the wages paid to each employee to a maximum of CAD 110 000.

None.

Children’s benefits are provided through the Canada Child Benefit (CCB). In the autumn of 2017, the Government announced that the CCB benefit amounts and income thresholds will be indexed to inflation starting with payments in July 2018. Entitlement to the CCB for the July 2023 to June 2024 benefit year is based on 2022 adjusted family net income. The CCB provides a maximum benefit of CAD 7 772 per child under age six and CAD 6 558 per child for those aged six through seventeen. On the portion of adjusted family net income between CAD 36 432 and CAD 78 936, the benefit is phased out at a rate of 7% for a one-child family, 13.5% for a two-child family, 19% for a three-child family and 23% for larger families. Where adjusted family net income exceeds CAD 78 936, remaining benefits are phased out at rates of 3.2% for a one-child family, 5.7% for a two-child family, 8% for a three-child family and 9.5% for larger families, on the portion of income above CAD 78 936. The Goods and Services Tax Credit provides a relief of CAD 340 for each adult 19 years of age or older and CAD 179 for each dependent child under the age of 19. Single tax filers without children and with an employment income higher than CAD 11 018 receive an additional CAD 179 that is phased in at a rate of 2%. Single tax filers with children receive an additional CAD 179 that is not subject to phase-in. The credit received for the first dependent child of a single parent is also increased from CAD 179 to CAD 340. The total amount is reduced at a rate of 5% of net family income over CAD 44 240. Note that there was a special 50% top-up paid to GST/HST credit recipients in January 2023. See section for 4.1 for details. The amount is paid directly to families.4

For each child under eighteen, qualifying families can receive up to CAD 1 680 from the Ontario Child Benefit. The benefit is withdrawn at a rate of 8% of family income that exceeds CAD 25 736465.

Ontario has a Sales Tax Credit that provides a relief of up to CAD 360 for each adult and each child. It is reduced by 4% of adjusted family net income over CAD 27 729 for single people and over CAD 34 661 for families. The amount is paid directly to families.

To further support Canadians with the rising cost of living, a special lump sum amount equal to double the quarterly GST/HST credit, named the Grocery Rebate, was provided to individuals who received the benefit in January 2023. The reduction rate for this amount was increased to 10% such that the overall annual reduction rate is 7.5%.

The earnings data refer to full-time full-year production workers in the industries C to K (in ISIC Rev. 3.1). 6

These do exist but no information is available on the amounts involved.

The equations for the Canadian system are mostly repeated for each individual of a married couple. But the spouse credit is relevant only to the calculation for the principal earner and the non-wastable credits are calculated only once. This is shown by the Range indicator in the table below.

The functions which are used in the equations (Taper, MIN, Tax etc) are described in the technical note about tax equations. Variable names are defined in the table of parameters above, within the equations table, or are the standard variables “married” and “children”. A reference to a variable with the affix “_total” indicates the sum of the relevant variable values for the principal and spouse. And the affixes “_princ” and “_spouse” indicate the value for the principal and spouse, respectively. Equations for a single person are as shown for the principal, with “_spouse” values taken as 0.