2020 Canadian Federal Marginal Tax Rates

How much you pay in federal taxes will depend on how much you make and how you make your money.  The most taxed earnings will be derived from labour, followed by capital gains or dividends depending on your marginal tax bracket.  If your only income is from dividends, then you can collect up to $61,536.35 in Canadian eligible dividends and not pay any federal income tax.
    Depending on how you earn your money you can pay as much as 33% tax in federal income taxes and would need to earn $1.49 just to net you a dollar after the federal taxes have been paid.


Credit Card Nerd Math

For the after tax earning all we do is take a dollar and subtract the taxes paid at the marginal tax rates.  For example, for the first $48,535 earned you will keep 85 cents for every dollar earned.  $1 - ($1 x 15%) = $0.85.
    For the amount needed to save a dollar we took a dollar and divided it by the after tax earnings rate.  For example, someone with a $50,000 salary would get to keep 79.5 cents for every dollar earned and would need to earn $1.26 to take home a dollar.  $1/0.795 = $1.26, this is also the amount you basically earn by saving a dollar at this marginal tax rate.
    Below we have a chart with the marginal tax rates, the amount of after tax earnings for every dollar earned, the amount you need to earn to take home a dollar, the tax rate on dividends received and the tax rate on the capital gains tax that you have.



2020 Federal Marginal Tax Rates in Canada

Taxable Income

Tax Rate

$1 After Tax Earnings

Amount Needed to Net a $1

Dividend Tax Rate

Capital Gains Tax Rate

first $48,535

15%

$0.85

$1.176

-0.03%

7.5%

over $48,535 up to $97,069

20.5%

$0.795

$1.258

7.56%

10.25%

over $97,069 up to $150,473

26%

$0.74

$1.351

15.15%

13%

over $150,473 up to $214,368

29%

$0.71

$1.408

19.29%

14.5%

over $214,368

33%

$0.67

$1.493

24.81%

16.5%


Federal Personal Amount: If you earn $150,473 or less, your first $13,229 in taxable earnings are exempt from Federal taxes in 2020.  The basic amount is reduced when you earn between $150,473 and $214,368.  If you earn more than $214,368 in taxable income, your basic personal amount would be $12,298.  The maximum reduction of your basic personal amount will cost you an extra $139.65.  The basic personal amount changes the second highest tax bracket from 29% to 29.22%.
    With the exception of the tax free dividends at the Federal level, we will use $12,298 as the basic personal amount for all our tax rates and calculations on our website.  To keep things simple we will ignore the $139.65 maximum additional benefit that you may recieve.
Capital Gains: Taxable income derived from capital gains will be reduced by half, making an effective marginal tax rate on capital gains that is 50% of your current marginal tax rate.  For example, if you have $10,000 in capital gains, you would have $5,000 in taxable income from your capital gains.


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Federal Tax on Eligible Dividends

Eligible Canadian dividends that you have received will be grossed up by 38%.  You will also be given a 15.0198% dividend tax credit on your grossed up dividends.
    Someone that has a $48,535 annual salary and has been paid $5,000 in dividends in a non-registered account will have an effective federal tax rate of 7.56% on their dividends that they have received.  The rate is lower and should be lower, because corporate taxes has already been paid on the company's earnings.

How the math works;

  • first off your $5,000 in dividends will increase your taxable income by ($5,000 x 1.38) = $6,900
  • You will get a dividend tax credit of ($6,900 x 15.0198%) = $1,036.37
  • You will be taxed on your $6,900 at 20.5% and will have your taxes reduced by $1036.37
  • This works out to ($6,900 x 20.5% - $1036.37) = $378.13 in net taxes on your dividends
  • The effective tax rate would be ($378.13/$5000) = 7.56%

For the other tax brackets, we will assume that you are getting paid $5,000 in dividends to keep the calculations simple.

  • At the lowest bracket the tax on dividends paid would be ($6,900 x 15% - $1036.37)/$5,000 = -0.03%
  • At the 26% bracket the tax on dividends paid would be ($6,900 x 26% - $1036.37)/$5,000 = 15.15%
  • At the 29% bracket the tax on dividends paid would be ($6,900 x 29% - $1036.37)/$5,000 = 19.29%
  • At the 33% bracket the tax on dividends paid would be ($6,900 x 33% - $1036.37)/$5,000 = 24.81%

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Tax Free Dividends at the Federal Level

You can collect $61,536.35 in dividends and pay no federal income tax if you have no other income.
    With ($48,535/1.38) = $35,170.29 in dividends you will get {Tax on Dividends} ($48,535 - ($13,229 {Federal personal amount}) x 15%) - {Dividend Tax Credit} (48,535 x 15.0198%) = $1,993.96 in non-refundable dividend tax credits.
    The point in which you will be tax neutral in Canada for federal income tax purposes is $61,536.35. (extra dividends x 7.5626% tax on dividends paid - $1,993.96 = 0%) therefore, (extra dividends x 7.5626% = $1,993.96) and (extra dividends = $26,366.06).  Total dividends that can be collected tax free in Canada at the federal level tax free is ($35,170.29 + $26,366.06) = $61,536.35.


Provincial Tax Rates

Alberta tax rates
British Columbia tax rates
Manitoba tax rates
New Brunswick tax rates
Newfoundland tax rates
Nova Scotia tax rates
Ontario tax rates
Prince Edward Island tax rates
Quebec tax rates
Saskatchewan tax rates



Federal Tax Rates: https://www.canada.ca/en/revenue-agency/services/forms-publications/payroll/t4032-payroll-deductions-tables/t4032ab/t4032ab-january-general-information.html#_Toc337712797

Existing and Proposed Basic Personal Amounts
https://www.canada.ca/en/department-finance/news/2019/12/lower-taxes-for-the-middle-class-and-people-working-hard-to-join-it.html

Federal Dividend Tax Credit: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns409-485/425-eng.html