Canada - Individual - Taxes on personal income (2024)

Individuals resident in Canada are subject to Canadian income tax on worldwide income. Relief from double taxation is provided through Canada's international tax treaties, as well as via foreign tax credits and deductions for foreign taxes paid on income derived from non-Canadian sources.

Non-resident individuals are subject to Canadian income tax on income from employment in Canada, income from carrying on a business in Canada and capital gains from the disposition of taxable Canadian property.

Individuals resident in Canada for only part of a year are taxable in Canada on worldwide income only for the period during which they were resident.

Personal tax credits, miscellaneous tax credits, and the dividend tax credit are subtracted from tax to determine the federal tax liability.

Personal income tax rates

2023 federal tax rates are as follows:

Provincial/territorial income taxes

In addition to federal income tax, an individual who resides in, or has earned income in, any province or territory is subject to provincial or territorial income tax. Except in Quebec, provincial and territorial taxes are calculated on the federal return and collected by the federal government. Rates vary among the jurisdictions. Two provinces also impose surtaxes that may increase the provincial income taxes payable. Provincial and territorial taxes are not deductible when computing federal, provincial, or territorial taxable income.

All provinces and territories compute income tax using 'tax-on-income' systems (i.e. they set their own rates, brackets, and credits). All except Quebec use the federal definition of taxable income.

The following table shows the top 2023 provincial/territorial tax rates and surtaxes. The provincial/territorial tax rates are applicable starting at the taxable income levels shown below. Surtax rates apply to provincial tax above the surtax thresholds shown.

Notes

1. Quebec has its own personal tax system, which requires a separate calculation of taxable income. Recognising that Quebec collects its own tax, federal income tax is reduced by 16.5% of basic federal tax for Quebec residents.
2. Instead of provincial or territorial tax, non-residents pay an additional 48% of basic federal tax on income taxable in Canada that is not earned in a province or territory. Non-residents are subject to provincial or territorial rates on employment income earned, and business income connected with a permanent establishment (PE), in the respective province or territory. Different rates may apply to non-residents in other circ*mstances.

Combined federal/provincial (or federal/territorial) effective top marginal tax rates for 2023 are shown below. The rates reflect all 2023 federal, provincial, and territorial budgets (which are usually introduced in the spring of each year). The rates include all provincial/territorial surtaxes, and apply to taxable incomes above CAD 235,675 in all jurisdictions except:

• CAD 341,502 in Alberta.
• CAD 240,716 in British Columbia.
• CAD 1,059,000 in Newfoundland and Labrador.
• CAD 500,000 in Yukon.

Notes

1. See Dividend income in the Income determination section for more information on eligible and non-eligible dividends.
2. Non-resident rates for interest and dividends apply only in limited circ*mstances. Generally, interest (other than most interest paid to arm's-length non-residents) and dividends paid to non-residents are subject to Canadian withholding tax (WHT).

Alternative Minimum Tax (AMT)

In addition to the normal tax computation, individuals are required to compute an adjusted taxable income and include certain 'tax preference' items that are otherwise deductible or exempt in the calculation of regular taxable income. If the adjusted taxable income exceeds the minimum tax exemption of CAD 40,000, a combined federal and provincial/territorial tax rate of about 25% is applied to the excess, yielding the AMT. The taxpayer then pays the greater of regular tax or the AMT. Taxpayers required to pay the AMT are entitled to a credit in future years, when their regular tax liability exceeds their AMT level for that year.

Draft legislative proposals changethe federal AMT calculation, effective for taxation years beginning after 2023, by:

• increasing the federal AMT rate from 15% to 20.5% and the AMT exemption from CAD 40,000 to the start of the second from top federal tax bracket (i.e. CAD 165,430 in 2023; to be indexed for 2024 and subsequent years)
• broadening the AMT base through changes to the ‘tax preference’ inclusions in the AMT adjusted taxable income calculation, and
• allowing only 50% of most non-refundable tax credits to reduce AMT.

Kiddie tax

A minor child that receives certain passive income under an income splitting arrangement is subject to tax at the highest combined federal/provincial (or territorial) marginal rate (i.e. up to 55%), referred to as 'kiddie tax'. Personal tax credits, other than the dividend, disability,and foreign tax credits, or other deductions cannot be claimed to reduce the kiddie tax.

‘Income sprinkling’

‘Income sprinkling’ (i.e. shifting income that would otherwise be realised by a high-tax individual [e.g. through dividends or capital gains] to low or nil tax rate family members) using private corporations is restricted by making certain aspects ofthe ‘kiddie tax’ rules (see above) also apply to adults in certain situations. The ‘split income’ of the adult family member will be subject to tax at the highest combined federal/provincial (or territorial) marginal rate (i.e. up to 55%). Personal tax credits, other than the dividend, disability,and foreign tax credits, or other deductions cannot be claimed to reduce this tax.