Canadian income tax rates for individuals

Federal tax rates for 2021

  • 15% on the first $49,020 of taxable income, plus
  • 20.5% on the next $49,020 of taxable income (on the portion of taxable income over 49,020 up to $98,040), plus
  • 26% on the next $53,939 of taxable income (on the portion of taxable income over $98,040 up to $151,978), plus
  • 29% on the next $64,533 of taxable income (on the portion of taxable income over 151,978 up to $216,511), plus
  • 33% of taxable income over $216,511

Provincial and territorial tax rates for 2021

Tax for all provinces (except Quebec) and territories is calculated the same way as federal tax.

Form 428 is used to calculate this provincial or territorial tax. Provincial or territorial specific non-refundable tax credits are also calculated on Form 428.

Provinces and territoriesRates
Newfoundland and Labrador8.7% on the first $38,081 of taxable income, +
14.5% on the next $38,080, +
15.8% on the next $59,812, +
17.3% on the next $54,390, +
18.3% on the amount over $190,363
Prince Edward Island9.8% on the first $31,984 of taxable income, +
13.8% on the next $31,985, +
16.7% on the amount over $63,969
Nova Scotia8.79% on the first $29,590 of taxable income, +
14.95% on the next $29,590, +
16.67% on the next $33,820, +
17.5% on the next $57,000, +
21% on the amount over $150,000
New Brunswick9.68% on the first $43,835 of taxable income, +
14.82% on the next $43,836, +
16.52% on the next $54,863, +
17.84% on the next $19,849, +
20.3% on the amount over $162,383
QuebecGo to Income tax rates (Revenu Québec Web site).
Ontario5.05% on the first $45,142 of taxable income, +
9.15% on the next $45,145, +
11.16% on the next $59,713, +
12.16% on the next $70,000, +
13.16% on the amount over $220,000
Manitoba10.8% on the first $33,723 of taxable income, +
12.75% on the next $39,162, +
17.4% on the amount over $72,885
Saskatchewan10.5% on the first $45,677 of taxable income, +
12.5% on the next $84,829, +
14.5% on the amount over $130,506
Alberta10% on the first $131,220 of taxable income, +
12% on the next $26,244, +
13% on the next $52,488, +
14% on the next $104,976, +
15% on the amount over $314,928
British Columbia5.06% on the first $42,184 of taxable income, +
7.7% on the next $42,185, +
10.5% on the next $12,497, +
12.29% on the next $20,757, +
14.7% on the next $41,860, +
16.8% on the next $62,937, +
20.5% on the amount over $222,420
Yukon6.4% on the first $49,020 of taxable income, +
9% on the next $49,020, +
10.9% on the next $53,938, +
12.8% on the next $348,022, +
15% on the amount over $500,000
Northwest Territories5.9% on the first $44,396 of taxable income, +
8.6% on the next $44,400, +
12.2% on the next $55,566, +
14.05% on the amount over $144,362
Nunavut4% on the first $46,740 of taxable income, +
7% on the next $46,740, +
9% on the next $58,498, +
11.5% on the amount over $151,978

Source: CRA

4 common questions about the CRA’s principal residence exemption

CPA expertise can help clients maximize this exemption and minimize taxes when it is time to sell property

When filing personal income tax returns, how to report a property sale can be confusing and expensive, dependent on value appreciation and the capital gains tax owed.

Luckily, under Canada’s Income Tax Act (ITA), the sale of a residence can be exempted from this tax under the Principal Residence Exemption (PRE).

In 2016 CPAs will remember the Canada Revenue Agency (CRA) requiring the sale of a principal residence to be reported on the seller’s income tax in order to qualify for the PRE and to tighten up eligibility requirements.

With this in mind, there are several things Canadian property owners need to consider when filing for PRE, particularly if they own multiple properties.

Here are four questions clients may ask you and how CPAs can adequately respond.

1) How long do I need to live in a residence to claim it as a principal residence and qualify for PRE?

The CRA does not specify an exact duration of time an individual or their family members, including a spouse, common-law partner or children, must reside in a dwelling for it to qualify as a principal residence for a given year. The tax rules refer to the residence being “ordinarily inhabited” within the calendar year, which is a relatively low bar. A more significant issue is whether a property held for a short period will produce an income gain or a capital gain when sold.

Clients should beware that the CRA will analyze evidence, such as length of time in the dwelling, sources of income and real estate buying patterns, to establish if the dwelling is indeed a principal residence or perhaps part of a business venture, such as real estate flipping.

“If the CRA challenges your claim of exemption, they’re going to look at all the facts in the scenario,” says CPA Michael Espinoza, senior manager, national tax office, Grant Thornton LLP. “[Such as] what was your intention of moving in and did something happen that forced you to sell [the property]?”

2) Can other properties, such as a cottage, be designated a principal residence and eligible for PRE?

Most properties (home or cottage, for example) can be designated a principal residence—even those seasonal residences located outside of Canada, such as in the U.S. or Caribbean— as long as the owner or their family ordinarily inhabit it during each calendar year being claimed.

Clients should be aware that only one property per year, per family (spouse or common-law partner and children under 18), can be designated a principal residence. Although it is becoming rare now, each spouse can designate a different property as a principal residence for years before 1982. Once sold, a property that isn’t deemed a principal residence will be subject to capital gains tax for the years it was not designated. A gain may also arise if the residence is designated for some, but not all, of the years of ownership.

There is also a restriction on land size that qualifies for the PRE. Property that exceeds one-half hectare (roughly 1.2 acres) will generally not qualify for the exemption. For example, if the property is a farm, only one-half of a hectare of land plus the home would qualify for the exemption, while the remaining acreage would be subject to capital gains tax based on value appreciation. If the excess land is required for the use and enjoyment of the property, then the land that qualifies can be larger. However, CRA is very restrictive when applying this rule.

When selling one of multiple properties owned, an owner can designate it as a principal residence for all or part of the years of ownership to take best advantage of the exemption and minimize the amount of capital gains tax paid.

“Generally speaking, it makes sense to designate the property that has the highest average gain per year of ownership,” says Bruce Ball, FCPA, FCA, vice-president of taxation at CPA Canada. “However, there are a number of factors to consider and getting advice from a CPA may help reduce your tax.”

Clients should speak to a tax professional to assess how best to calculate this, experts say.

3) Can a property that generates income be deemed a principal residence and eligible for PRE?

The mandatory income tax reporting of a principal residence sale was introduced by the CRA to limit when the exemption could be applied. Overall, it increased monitoring over foreign property ownership, “quick flips” or short holdings (on properties that may not qualify for principal residence status), properties that were not “ordinarily inhabited” every year by the owner, a well as serial builders who build and occupy a property before selling it.

Therefore, property that is used mainly to generate income or that is considered inventory does not qualify for PRE. This includes property that is solely rented out on a long- or short-term basis, or one where the owner occupies one unit and rents out the others.

Exceptions include renting out property for the short term, such as a cottage for a couple of weeks in the summer or a house as an Airbnb while on vacation, which an owner occupies otherwise; and if a family member (spouse or common-law partner or child) rents out the property.

“If, for the most part, you are using [the property] for your own purposes … then it will qualify for a principal residence, even if you use Airbnb,” says Espinoza. “Which means you could have people coming in frequently, as long as you are living there [regularly, in some capacity].”

4) What penalties are incurred when the sale of a principal residence is not reported to the CRA?

If an owner fails to report the selling of a principal residence, they could be subject to a late-filing penalty of $100 per month, up to a maximum of $8,000, according to the CRA. In addition, if an owner doesn’t report the sale, the exemption may be denied and therefore the owner would be taxed on the capital gains.

“Although the new reporting requirements have been in place for several years now, many individuals may still believe that they do not have to report the sale of the principal residence when they only own one property,” Ball says. “Failing to report the sale can result in significant costs.”

STAY UP-TO-DATE ON TAX SEASON

Make filing easier for your clients with these pandemic tax season tips. Here’s a breakdown on home office expense claims for those who have been working from home during COVID-19, plus learn what information to gather for incorporated and unincorporated businesses.

Also, stay current on Canadian tax news and COVID-19 updates, and get practical information and fresh perspectives on tax with our tax blog.

About the Author: Sophie Nicholls Jones

Source: CPACanada

Canada’s digital services tax

Canada’s Digital Services Tax — the DST — is slated to take effect at the start of 2022. Find out about the details of the new tax

Canada’s digital services tax

In Budget 2021, the federal government confirmed its plan to introduce a federal Digital Services Tax (DST), as first announced in the Fall Economic Statement 2020. The budget also revealed some key features of the new DST and how it will be implemented, although draft legislation has not yet been released at the time of writing.

The DST is designed to tax proliferating business models that rely on digital technology to engage with online users in Canada, including intermediation and social media platforms. Unlike traditional businesses, these businesses often do not need a local physical presence to engage with users in Canada and they usually generate some or all of their profits from their users’ participation, data and content.

Although the Organisation of Economic Co-operation and Development (OECD) has been working to gain international consensus on a solution to deal with the tax challenges of the digitalized economy, an agreement has not yet been reached (as discussed further below). Budget 2021 says Canada’s proposed DST would apply as of January 1, 2022 until an acceptable multilateral approach takes effect.

In the budget, the federal government also invited feedback from stakeholders on the details of the proposed DST and implementation approach. In response, in our recent submission we highlighted some important concerns with some of the DST’s main elements.

OVERVIEW: BUDGET 2021’S DST PROPOSALS

While many questions remain in the absence of detailed legislation, the key features of the DST as set out in Budget 2021 are as follows:

Rate and base

The DST would apply to in-scope revenue at the rate of three per cent. This excludes any value-added tax or sales tax collected on the transaction.

In-scope revenue

The DST would generally apply to revenue from four types of online business models that rely on engaging with Canadian online users in order to generate income:

  1. online marketplaces – including services provided through an online marketplace that helps match sellers of goods and services with potential buyers
  2. social media – including services provided through an online interface to facilitate interaction between users or between users and user-generated data
  3. online advertising – generally includes services aimed at the placing of targeted online advertising based on data gathered from users of an online interface
  4. user data – generally, the sale of data gathered from users of an online interface

For online marketplaces, the DST would not generally apply to:

  • tangible goods stored, sold and shipped through the marketplace
  • goods and services sold by a seller through the marketplace on their own account (including the sale, licensing, or streaming of digital content such as audio, video, games, software, ebooks, newspapers and magazines)

Taxpayers

The DST would apply to large foreign and domestic entities (including corporations, trusts, and partnerships) or members of a group that meet both conditions:

  • €750 million or more in global revenue from all sources in the previous calendar year, and
  • in-scope revenue associated with Canadian users of $20 million (CAD) in that year

The €750 million threshold is the same threshold that triggers the OECD’s country-by-country reporting requirements.

If the two conditions are met, the DST would apply only to in-scope revenue associated with Canadian users that exceeds the $20 million threshold. The proposals indicate that the definition of groups in the DST legislation would follow the definition in the country-by-country reporting rules.

Source of revenue

When revenue flows from both in-scope and other business activities, the in-scope revenues would need to be reasonably allocated among the activities. Budget 2021 proposes two general approaches for determining an entity’s in-scope revenue related to Canadian users:

  • when transactional information can be traced to Canadian users, that revenue amount would be in-scope
  • when tracing is not possible, the in-scope amount would be allocated through a formula that varies depending on the revenue’s nature

Location of users

To source revenue related to digital service users in Canada, Budget 2021 suggests looking to the users’ ordinary location, although the user’s real-time location could be used for specific types of revenue. The digital service provider can determine a user’s location through data it already has, such as the user’s IP address, billing address, delivery address and telephone area code. Digital service providers would be expected to use a consistent approach for determining their users’ locations.

Income tax treatment

The DST would be deductible from an entity’s taxable income based on the usual Canadian income tax principles — that is, whether the entity incurred the expense in order to earn taxable Canadian income. DST liabilities would not be eligible for a Canadian income tax credit.

DST filings and payments

Businesses subject to DST would have to file an annual return after the end of the proposed calendar-year reporting period. One annual DST payment would be required after the end of the reporting period, and one designated entity would be allowed to file the DST return and pay the related liability for the entire group. However, the group would be jointly and severally liable for DST payable by any other group member.

Also coming soon: GST changes for ecommerce

With all the talk about new taxes on electronic transactions, it’s also important to keep in mind that GST changes for ecommerce will take effect on July 1, 2021. These GST rules will generally apply to a broader range of goods and services than the DST. For example, cross-border video streaming services will become subject to the GST but generally not the DST.

About the Author: Bruce Ball

Source: CPACanada