Data relating to salary, tax, etc. changes over time. The data presented in this concept sheet is therefore for information only. For up-to-date data, consult the following sites:
Have you started working? When you are working, you become a taxpayer and contribute financially to society. You may have realized this by looking at your first pay stub, where a portion of the money you earned was deducted by the government. You are financially contributing to the Quebec and Canadian governments through your income taxes. The more money you earn, the greater your contribution.
A taxpayer is a person who pays taxes.
Taxes have two primary purposes:
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Financing public services
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Redistributing income
Taxes are used to finance public services such as health care, social services, education, culture, justice, transportation, public safety, the environment, municipal administration and more. These contributions mean you do not pay anything when you go see your doctor and you can attend primary and secondary school for free. These services are covered by the taxes that each person pays. The government collects the money and distributes it among the different sectors.
Taxes redistribute income and reduce the inequality between the rich and poor. Governments can put in place different programs, such as the Social Assistance and Social Solidarity program, the Alternative jeunesse program, which helps young people up to 25 years of age find work, and the Shelter Allowance Program that helps poor families find affordable housing.
In Quebec and Canada, taxes are progressive, meaning they increase according to the taxable income bracket. In other words, the higher your income, the higher the tax rate.
Taxable income is the total income minus any tax deductions that may be available. For example, a person with a total income of $82,000 may be entitled to $7,500 in tax deductions. Their taxable income is therefore $74,500 ($82,000 - $7,500).
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Taxable income is the income on which tax is calculated.
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Total income is the sum of all income a person has earned. It is the amount before taxes and other source deductions are taken, such as the Quebec Pension Plan (QPP), employment insurance and union dues.
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A tax deduction is an expense or amount that can be subtracted from your taxable income.
If you do not earn enough money, you may not have to pay taxes. There is a basic personal amount that you do not have to pay tax on, and this amount is different at the federal and provincial levels. In 2020, it was $15,532 for the Quebec provincial government and $13,229 for the Canadian government. A person who earns less than $13,229 does not have to pay any tax to either the federal or provincial government because they earn less than the basic amount for both levels of government.
Some amounts like the basic personal amount may change from year to year. Up-to-date information can be found online on the governments’ websites.
The tax rate is calculated using income brackets. This system ensures that each person contributes according to their financial means. According to the Quebec provincial government, there were four income brackets in 2020. The higher the income bracket, the higher the tax rate.
| Taxable income bracket | Tax Rate |
|---|---|
| 15 532 $* to 44 545 $ *Basic personal amount |
15 % |
| 44 545 $ to 89 080 $ | 20 % |
| 89 080 $ to 108 390 $ | 24 % |
| 108 390 $ and up | 25,75 % |
Source : Revenu Québec, (s.d.-a). |
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The Canadian federal government considered five income brackets in 2020. Like the provincial government, the higher the income, the higher the tax rate paid.
| Taxable income bracket | Tax Rate |
|---|---|
| 13 229 $* to 48 535 $ *Basic personal amount |
15 % |
| 48 535 $ to 97 069 $ | 20,5 % |
| 97 069 $ to 150 473 $ | 26 % |
| 150 473 $ to 214 368 $* | 29 % |
| 214 368 $ and up* | 33 % |
Source: Agence de revenu du Canada, 2020. |
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*For these income brackets, the basic personal amount decreases gradually as income increases, meaning the higher the income, the lower the exemption amount (the basic personal amount). The tax calculation is based on a larger portion of income.
The tax rate is only applied to the affected income bracket.
For example, a person with a total income of $100,000 does not pay 26% federal tax on all of their income. This percentage will be applied to income in excess of $97,069, which is $2,931 ($100,000 - $97,069 = $2,931).
The amount payable will be $762.06 (2,931 × 0.26 = $762.06) on the highest bracket of their income. Two other rates will apply in the same way to calculate the total amount of tax that this person will have to pay to the federal government.
Let’s take the examples of Anthony and Jane. These examples illustrate how tax is calculated on wages. You do not need to learn how to do this.
Anthony is a CEGEP student. He works full-time in the summer and part-time during the school year. His taxable income is $14,800.
He does not have to pay provincial tax in Quebec because his income does not exceed the basic personal amount. However, he will have to pay a certain amount in federal tax. Here is a simplified method to estimate this amount:
Federal Tax
(Taxable income - Basic personal amount) × Tax rate by bracket = Amount of tax payable for this income bracket
Anthony’s taxable income is $14,800. His income is in the first tax bracket. The tax rate is 15%.
For the first income bracket, the rate is applied to income above the basic personal amount. Therefore, Anthony will not pay tax on his entire taxable income of $14,800. He will only pay tax on $1,571, which is $14,800 - $13,229.
The calculation is as follows: ($14,800 - $13,229) × 0.15 = $235.65.
The amount of tax that Anthony will have to pay is $235.65.
Jane works as a human resources manager for a local museum. Her total annual income is $65,000. She has contributed $5,000 to an RRSP. Money put into an RRSP is tax deductible and subtracted from Jane’s income. To simplify this example, we will not consider other deductions that would normally apply on the Quebec tax return, such as QPP or QPIP.
Jane’s taxable income is $60,000 ($65,000 - $5,000). Here is how her tax bill can be estimated:
Provincial Tax
||\begin{align}
((44\ 545&-15\ 532)\times 0{,}15) + ((60\ 000 -44\ 545)\times 0{,}20) = 7\ 442{,}95\ \$\\
&1^\text{re} \text{ tranche}\qquad \qquad \qquad \qquad 2^\text{e} \text{ tranche}
\end{align}||
The same tax rate does not apply to all of Jane’s income. The 15% tax rate applies to the first bracket of her income and the 20% tax rate applies to the second bracket.
Federal Tax
||\begin{align}
((48\ 535&-13\ 229)\times 0{,}15) + ((60\ 000 -48\ 535)\times 0{,}205) = 7\ 646{,}23\ \$\\
&1^\text{re} \text{ tranche}\qquad \qquad \qquad \qquad 2^\text{e} \text{ tranche}
\end{align}||
As with provincial income tax, the same tax rate does not apply to all income. The 15% tax rate is applied to the first portion of her income and the 20.5% tax rate is applied to the second portion.
In total, she would have to pay approximately $15,089.18 in taxes, including $7,442.95 in provincial taxes and $7,646.23 in federal taxes.
Note that these tax estimates do not include the various tax credits that may apply, such as the employment insurance tax credit or the Quebec Pension Plan (QPP) tax credit. These tax credits would reduce the total amount of taxes payable by Anthony and Jane.
Spring is tax season, when everyone declares their income to the federal and provincial governments.
With the exception of self-employed workers, like babysitters, income tax returns must be filed with both levels of government by April 30 of each year. They can be mailed in or filed online. You can file your tax return yourself or have an accountant complete it.
A tax return is a digital or paper form. The information contained in this form comes from different statements sent to taxpayers, including the T4 and the relevé 1, which contain information related to earnings. To be eligible for certain deductions and tax credits, you must keep your receipts, particularly for daycare, dental and prescription drug expenses. Different statements and receipts are attached to the tax return, depending on what is required.
A tax credit is an amount that is subtracted from the amount of tax payable.
When you file your income tax return, an adjustment is made between the amount of tax that was deducted from your paycheque and the amount of tax you actually have to pay. These adjustments are related to tax credits and deductions, meaning you could get a refund from the government or you may have to pay some money after you file your return. It all depends on how much tax was deducted from your pay in the last year. For example, two people with the same income usually have the same amount of tax withheld from their pay. At tax time, the person who can benefit from more tax deductions may get a tax refund while the other person may not.
Let’s go back to Jane’s example. She will not have to pay the full $15,089.18 in taxes all at once when she files her return. Throughout the year, her employer withholds tax from her earnings. When she files her tax return, there is an adjustment of the various tax deductions to which she is entitled.
Agence de revenu du Canada. (2020, November 20). Indexation de montants aux fins de l’impôt et des prestations des particuliers. https://www.canada.ca/fr/agence-revenu/services/impot/particuliers/foire-questions-particuliers/rajustement-montants-fonction-indexation-impot-particuliers-prestations.html
Revenu Québec. (n.d.-a). Principaux changements pour l’année 2020.
https://www.revenuquebec.ca/fr/entreprises/retenues-et-cotisations/trousse-employeur/principaux-changements-pour-2020/