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The Money Club for Young Adults
Taxes: Understanding Income Tax Rates
Income tax is a hot topic for most Canadians. How much you make (gross income) is important. How much you keep, after taxes are paid (net income), is much more important as this is the amount that is available for you to spend and save. Below we will review the difference between marginal and average tax rates.
Average Tax Rate
The average tax rate = total amount of tax / total income
Marginal Tax Rate
The amount of tax you pay on your last dollar of income.
Basic Personal Exemption (2018)
Federal = $11,809
Provincial (BC) = $10,412
The good news is you pay no tax on your first $11,809 of earnings.
Exercise for calculating average and marginal tax rates for different income levels. You will need to use the tax table below.
Download worksheet
Download answer key
The table to the right shows the combined Federal and Provincial tax brackets and marginal tax rates for residents of BC.
Example
Average salary in Vancouver = $55,900
Total Taxes Paid:
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$11,809 = $0
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$39,676-$11,809 = $27,867 x 20% = $5,573.40
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$46,605-$39,676 = $6,929 x 22.7% = $1,572.88
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$55,900-$46,605 = $9,295 x 28.2% = $2,621.19
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Total Tax (sum 4 brackets above) = $9,767.47
Average Tax Rate =
-
$9,767 (tax paid) / $55,900 = 17.5%
Marginal Tax Rate = 28.2%
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if you earn $55,900 + $1, on the last dollar earned you will pay $0.28 in tax and keep $0.72
Information in table is from TaxTips.ca
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