How to Compute Federal Tax

Canada’s advanced tax rate anatomy is used to lessen the burden of taxes  for low-earning households. By using tax credits for taxable income, there will be a decrease on the tax that citizen will have to pay.

tax computation sample

Step 1: Tax Credits Computation

But first of all you have to know that there are many tax credits that available for your perusal. The most common tax credits that you might encounter are the following:

  • Basic personal amount: You must take note that each person who are required to pay their taxes receives an amount that is considered tax-free. You can come up with this amount by multiplying the personal amount by 12 and then divide if by 365 which represents the total number of days in a year.
  • Canada Pension Plan: If you have a job for the past year, the company that you are working for  will have to deduct a particular amount from your paycheck and allot it on to CPP and EI. These deductions are viewable on your T4 slip and can be used as a credit for the taxable income that you have. However, it is a requirement that you accomplish the amounts on your next tax return for self-earning individuals.
  • Canada Employment Amount: You can claim this tax credit type if you have a job in the past year. This is a non-refundable tax credit that are  towards work-related expenditures.
  • Medical Expenses: We can actually say that a huge portion of medical expenses are shouldered by health programs provided by the government. Utilization of credits is possible for eligible expenses.
  • Charity works: If you have sent money for donations to a charitable institution, you can make that amount credited as long as the foundation is eligible.

Multiplication will be used to compute the amount of deductions that you can obtain from your taxable income using those credits. The eligible credits will be then multiplied by 15 percent which represents the federal non-refundable tax credit rate.

However, keep in mind that a lot of credit types are usually non-refundable. It entails that you will not have the ability to avail tax reduction that is payable to less than zero.

Step 2:  Federal Income Tax

You will need to input your taxable income from Page 3 of the T1 on the table and do the tax payable calculation.

Step 3: Federal Tax Net

After the calculation of the tax payable in the previous step, it will be decreased using the tax credit amounts from the step 1 calculation. This is the overall tax that is owed to the federal government.

A report will be then required for your T1 in order to know if there are still taxes to be paid or presence of federal refund.

How to Calculate Provincial/Territorial Tax?

Income taxes are also implemented by the provincial/territorial governments. To do the calculation, you will need to fulfill the provincial/territorial return for the jurisdiction of your place of residence on the last day of the tax year you are filing. Federal return has a similar structure to this.

Moreover, every province has their own tax rate. Some depends on a non-static percentage while others have a flat rate. The decision with regards to figuring out if there are taxes owed or you are qualified to avail a provincial/territorial refund after the T1 general return amount calculation.


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