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Taxes

Employer Contributions

Social security

The Canadian social security is composed of the Canada Pension Plan (CPP) and Employment Insurance (EI) contributions. In 2019, the government introduced a seven-year gradual enhancement to the CPP, where both employers and employees must contribute a higher percentage to the pension.

Canada Pension Plan

Employers must contribute the same amount of CPP or QPP (if in Quebec) that employees do until the maximum annual contributions are reached. For the year of 2021, the CPP contribution rate (excluding Quebec) is 5.45%, capped at the CAD$3,166.45 annual contribution. For Quebec, the rate is 5.9%, capped at CAD$3,427.90.

Canada has established social security agreements with a number of countries for individuals who have worked in both countries and have been contributing to a pension plan elsewhere. The requirements under such agreements vary from agreement to agreement. More information can be found here.

Employment Insurance

The EI provides security for individuals who lose their jobs and/or end up in situations involving leaves such as maternity, parental, illness, adoption, and caring for seriously ill family members with serious risk of death.

For the year of 2021, the employer’s EI contribution rate (excluding Quebec) is 2.212%, capped at CAD$1,245.36 annually. For Quebec, the rate is 1.652%, capped at CAD$930.08 annually.

Employer health tax (EHT)

In certain provinces, employers pay taxes based on the total annual gross salaries earned by their employees who report to work, or are deemed to report for work, at an office or other permanent location of the employer located within the relevant jurisdiction:

  • Ontario: 0.98% – 1.95%
  • Quebec: 1.65% – 4.26% (more information in the Employer Contributions)
  • British Columbia: 1.95% – 2.925%
    • Annual BC payrolls that total CAD$500,000 or less are exempt from this tax. Annual BC payrolls of CAD$500,000 to CAD$1,500,000 are subject to EHT at 2.925% on the portion that exceeds CAD$500,000. If the annual BC payroll exceeds CAD$1,500,000, the entire payroll amount for the year is subject to an EHT levy of 1.95% with no portion being exempt.
  • Manitoba: 2.15% – 4.3%
    • The first CAD$1.5 million of annual payroll is exempt from EHT, and the next CAD$1.5 million is subject to a levy of 4.3%. However, if the employer’s total payroll in the province exceeds CAD$3.0 million, the entire payroll in Manitoba is subject to a levy of 2.15%, including the first CAD$1.5 million.
  • Newfoundland and Labrador: 2%
    • The first CAD$1.3 million of an employer’s total payroll EHT is exempt.

Employers must include the salary of any non-resident employees earned from working in the province with the salaries of the employer’s regular employees who report for work there, even when there is no chargeback to the Canadian company for that salary.

Québec only

Labour standards

For companies where the total annual gross salaries exceed CAD$2 million, employers must pay a labour standard contribution of 0.07% on the employees’ annual gross salary, capped at CAD$83,500.

Health services fund (HSF)

Companies in sectors other than the primary and manufacturing must make contributions to the health services fund, based on payroll processed. For companies who process less than CAD$1 million, contribution is 1.65%. Those processing between CAD$1 million and CAD$6.5 million in payroll contribute up to 4.26%. And those processing more than CAD$6.5 million contribute 4.26%.

Québec Parental Insurance Plan (QPIP)

Both employers and employees in Quebec must also make contributions to the Québec Parental Insurance Plan (QPIP), based on the employee’s earnings. The employer’s contribution rate is 0.692%, capped at CAD$577.82.

Contribution to the Workforce Skills Development and Recognition Fund (WSDRF)

Employers in Quebec must also contribute to the workforce skills development by investing 1% of annual payroll in training or paying the non-invested difference to the Quebec government if the annual payroll exceeds CAD$2 million.

Commission des normes, de l'équité, de la santé et de la sécurité du travail (CNESST)

The role of CNESST is to promote employment rights and obligations and to ensure compliance among Quebec employers and employees. The contribution is based on the employer’s classification, and it is determined by establishing the average rate and calculating the unit rates. This contribution is company-specific, but the maximum yearly insurable salary is capped at CAD$83,500.

 
 

Employee Contributions

Canadian residents pay tax on their worldwide income (double taxation reliefs are applicable for multiple countries where Canada has signed international tax treaties). In contrast, non-residents are subject to tax on the income generated only within the country. To be considered a resident, an individual must meet specific rules. Cases are usually decided based on the application to an individual’s facts and their durable ties with Canada, as follows:

  • the nature and length of stay in Canada
  • engaging in long-term or permanent employment (individual’s centre of economic interests)
  • acquiring a house in the country
  • moving their family into the country
  • establishing multiple secondary residential ties with Canada, such as acquiring Canadian bank and investment accounts, club or professional membership, provincial/territorial health insurance, or driver’s licence and being registered to vote in the municipal election
  • the individual’s intentions

Individuals may also be considered residents if they spend more than 182 days a calendar year in Canada. Individuals who are deemed to be primary residents of another country are considered non-residents of Canada regardless of the Canadian residency rules.

Income tax

Income taxes are levied on both federal and provincial/territorial levels, but filing is done once with the federal government, which repasses the provincial/territorial portion accordingly. Quebec is the only province/territory that collects its own taxes on a separate tax return.

The Canadian tax system operates on a self-assessment basis. Individuals must determine their own liability for income taxes and file the required returns for any taxation year in which taxes are payable. Couples don’t file jointly.

Canadian federal income tax 2021

Gross Income (CAD) Progressive Tax Rate
Up to $49,020 15%
$49,020 - $98,040 20.5%
$98,040 - $151,978 26%
$151,978 - $216,511 29%
More than $216,511 33%

Benefits in kind, also known as fringe benefits, are benefits employers provide employees, and they are taxed as employment income.

Additionally, Canada also levies income tax on a provincial/territorial level. Every province/territory has its individual rate. A full list can be found here.

Ontario income tax 2021

Gross Income (CAD) Progressive Tax Rate
Up to $45,105 15%
$45,105 – $90,200 20%
$90,200 – $109,755 24%
More than $109,755 25.75%

British Columbia income tax 2021

Gross Income (CAD) Progressive Tax Rate
Up to $42,184 5.06%
$42,184 - $84,369 7.7%
$84,369 - $96,866 10.5%
$96,866 - $117,623 12.29%
$117,623 - $159,483 14.7%
$159,483 - $222,420 16.8%
More than $222,420 20.5%

Québec income tax 2021

Gross Income (CAD) Progressive Tax Rate
Up to $45,105 15%
$45,105 – $90,200 20%
$90,200 – $109,755 24%
More than $109,755 25.75%

Social security tax

The Canadian social security tax funds benefits for disability, death, family allowances, medical care, old age, sickness, and unemployment. The program is funded by contributions from both employers and employees and is composed of the Canada Pension Plan (CPP) or Québec Pension Plan (QPP) and Employment Insurance (EI).

Since 2019 and for the seven years following, the government will be increasing yearly the contribution from employers and employees into the CPP/QPP.

Canada Pension Plan

Employees must contribute the same amount of CPP or QPP that employers do until the maximum annual contributions are reached. For the year of 2021, the CPP contribution rate (excluding Quebec) is 5.45%, capped at the CAD$3,166.45 annual contribution. For Quebec, the rate is 5.9%, capped at CAD$3,427.90.

Canada has social security arrangements with multiple countries, designated to coordinate the pension plan of individuals who have lived and made contributions into two different plans. The requirements under the social security agreements vary according to the agreement with each individual country.

Employment Insurance

Employees’ contributions into the EI for the year of 2021 are 1.58% of their gross salary (excluding Quebec), capped at CAD$889.54 annually. For Quebec, the rate is 1.18%, capped at CAD$664.34 annually.

Provincial health premiums

Residents of Ontario, Northwest Territories, and Nunavut must contribute into the province’s/territory’s health system by paying a premium in these jurisdictions. This is applicable to those who are subject to income tax in the territories mentioned.

Ontario

The provincial/territorial health premium is based on the individual’s income and kicks in for those with taxable income higher than CAD$20,000. The premium is capped at CAD$900 annually. For those who pay taxes automatically, it is included as part of the income taxes deduction (otherwise the premium is paid when filing annual taxes).

Northwest Territories

Residents of Northwest Territories must contribute 2% of their taxable salaries to the health tax of the territory. Employers are responsible for deducting and remitting it to the authorities.

Nunavut

Residents of Nunavut must contribute 2% of their taxable salaries to the health tax of the territory. Employers are responsible for deducting and remitting it to the authorities.

Québec only

Québec Parental Insurance Plan (QPIP)

Both employers and employees in Quebec must make contributions into the Québec Parental Insurance Plan (QPIP), based on the employee’s taxable earnings. The employee’s contribution rate is 0.494%, capped at CAD$412.49.

 

Tax-Free Allowance

Rather than using a tax-free allowance system, Canada implements a system of tax credits for those employed.

Personal tax credits

Federal tax credit

The following credits apply for 2020:

  • Basic personal: CAD$1,845–CAD$1,984*
  • Married: CAD$1,845–CAD$1,984*
  • Those with dependants age 18 or over with a disability: CAD$1,091**
  • Those with disability: CAD$1,286
  • Those age 65 or over: CAD$1,146.***

* A federal proposal increases the basic/spouse/equivalent to spouse amounts from CAD$1,845 to CAD$1,984 for taxpayers with taxable income below the second top tax bracket, with the benefit of the proposed increased personal amounts eliminated when taxable income reaches the top tax bracket.

** In some circumstances, the unused portion of the credit can be transferred to a spouse, parent, grandparent, child, grandchild, sibling, aunt, uncle, niece, or nephew.

*** In Quebec, federal values are reduced by 16.5%.

Provincial/territorial tax credits

Each province/territory sets up its own amount for tax credits. Some provinces/territories have many personal tax credits that are similar to the federal personal tax credits.

Childcare expenses

Working parents who meet the following conditions qualify for a deduction on their child care expenses:

  • The childcare expense is incurred because the taxpayer (or person supporting the child) needs to earn employment or business income, or to pursue training or research activities.
  • The childcare service is provided within Canada and is approved by the Canadian government.

The deduction can be claimed for a variety of childcare services such as babysitting, day nursery, and attendance at a boarding school or camp.

If more than one person is supporting a child, the deduction generally must be taken by the supporting person with the lowest employment income. The maximum yearly deduction is generally CAD$8,000 per child under the age of 7 and CAD$5,000 per child between the ages of 7 to 16.

Other tax credits

Taxes not related to employment, applicable on a federal level:

  • Pension income: 15% of eligible pension income (maximum credit is CAD$300).
  • Tuition fees: 15% of eligible fees (minimum CAD$100 per institution). Unused credits can be carried forward indefinitely.
  • Interest on student loans: 15% of the interest paid on loans under the Canada Student Loans Act and provincial/territorial student loan programs. Unused credits can be carried forward five years.
  • Medical expenses: 15% of the amount by which eligible expenses exceed lesser of CAD$2,397 and 3% of net income. (Generally, expenses for any 12-month period ending in the year can be claimed.)
  • Adoption: 15% of eligible adoption expenses (maximum credit is CAD$2,484). Must be claimed in the year the adoption period ends.
  • Charitable donations: 15% of the first CAD$200 and the excess at either 29% or 33%. Eligible donations are generally limited to 75% of net income. Unused donations can be carried forward five years.
  • Employment: 15% of employment income (maximum credit is CAD$187).
  • Government pension plan and employment insurance plan contributions: 15% of the lesser of the base (non-enhanced) amount payable and the required base premiums for the year (maximum credit is CAD$538; in Quebec, CAD$455).
This page was last updated on 12th July, 2021. If you have questions about this page, send us an email.