Income tax question - CANADA

[Alphathree33]

I'm trying to calculate how much income tax I will pay with my new salary.

I'm a tax moron, apparently, because I can't quite figure out how this works.

What I've done so far is this:

1) taken my base income and divided it into the appropriate tax brackets
2) subjected each "part" of my income to the appropriate tax rates
3) added it all back together to get my take home
4) subtracted other goodies from that like EI, CPP, and Health Premium

Where does the basic personal amount fit in?

Is that amount not taxed at all? Should I just include it as the lowest tax bracket with a tax rate of 0%, or is there some other special way of dealing with it?

 

[D1gger]

"The federal non-refundable tax credits reduce your federal tax. However, if the total of these credits is more than your federal tax, you will not get a refund for the difference. If, after you have read the information in this guide, you need more details about claiming the amounts on lines 300 to 306, get Interpretation Bulletin IT-513, Personal Tax Credits."

Google is your friend.

http://www.cra-arc.gc.ca/E/pub/tg/5000-g/5000-g-04-06e.html#P1083_141452

 

[Alphathree33]

"The federal non-refundable tax credits reduce your federal tax."

That doesn't actually explain a lot. I KNOW it reduces my tax. The question is HOW does it do that?

 

[Scouzer]

For example:

Your taxable income = $40,000
Personal deductable = $9000
You new taxable income = $31,000

Then you apply the percentages to the 31,000 remaining.

 

[D1gger]

Originally posted by: Scouzer
For example:

Your taxable income = $40,000
Personal deductable = $9000
You new taxable income = $31,000

Then you apply the percentages to the 31,000 remaining.

This isn't right. The Personal Deduction directly reduces the amount of tax due.

Taxable Income = $60,000
Gross Federal Tax = $10,745
Personal Deduction = $8,839
Net Federal Tax = $1,906

 

[Scouzer]

Originally posted by: D1gger

Originally posted by: Scouzer
For example:

Your taxable income = $40,000
Personal deductable = $9000
You new taxable income = $31,000

Then you apply the percentages to the 31,000 remaining.

This isn't right. The Personal Deduction directly reduces the amount of tax due.

Taxable Income = $60,000
Gross Federal Tax = $10,745
Personal Deduction = $8,839
Net Federal Tax = $1,906

My bad. I admit it, I use tax software to cheat! 😱

 

[3chordcharlie]

Originally posted by: D1gger

Originally posted by: Scouzer
For example:

Your taxable income = $40,000
Personal deductable = $9000
You new taxable income = $31,000

Then you apply the percentages to the 31,000 remaining.

This isn't right. The Personal Deduction directly reduces the amount of tax due.

Taxable Income = $60,000
Gross Federal Tax = $10,745
Personal Deduction = $8,839
Net Federal Tax = $1,906

No, it doesn't.

 

[silverpig]

Basic Personal Amt: 8839
+ CPP: 400
+ EI: 800
+ Other deductions: 7000

Total = ~17000

x 15.25% = ~$2600 <-- THIS number is taken off the tax you owe, not the basic personal amount of $8839

 

[3chordcharlie]

Originally posted by: silverpig
Basic Personal Amt: 8839
+ CPP: 400
+ EI: 800
+ Other deductions: 7000

Total = ~17000

x 15.25% = ~$2600 <-- THIS number is taken off the tax you owe, not the basic personal amount of $8839

Yup.

 

[Alphathree33]

Okay guys I've figured it out and none of you are right. =)

This is the formula:

1) Calculate income tax using base salary and standard tax brackets... call total tax due "1"
2) Now calculate the total amount of tax credits, including the basic personal amount... call total credits "2"
3) Now calculate the would-be tax on the tax credits, i.e. (2)*0.2155, which is the lowest tax rate... call this amount "3"
4) Now subtract that amount from the total tax, i.e. "4" = (3) - (1)

That's your actual tax.

 

[Alphathree33]

Originally posted by: silverpig
Basic Personal Amt: 8839
+ CPP: 400
+ EI: 800
+ Other deductions: 7000

Total = ~17000

x 15.25% = ~$2600 <-- THIS number is taken off the tax you owe, not the basic personal amount of $8839

I take that back.

YOU are also correct. =)

 

[Alphathree33]

On a base salary of $55,000, in Ontario, using combined Federal and Provincial income taxes and standard deductions only (personal amount, EI, CPP), I calculated a tax of $11,203

... does that seem approximately correct?

 

[Scouzer]

http://www.ey.com/GLOBAL/content.nsf/Ca.../Tax_-_Calculators_-_2006_Personal_Tax

 

[3chordcharlie]

Sounds about right.

 

[D1gger]

Originally posted by: silverpig
Basic Personal Amt: 8839
+ CPP: 400
+ EI: 800
+ Other deductions: 7000

Total = ~17000

x 15.25% = ~$2600 <-- THIS number is taken off the tax you owe, not the basic personal amount of $8839

Sorry your right, I forgot the % reduction in the total deductions.