What Are Tax Brackets?
The Canada Revenue Agency administers federal income taxes through a marginal tax rate system. A different tax rate is applicable to each level of income, and these levels are called tax brackets.
Tax brackets are structured so that low-income Canadians pay a lower percentage in taxes than high-income Canadians. This system functions to help redistribute wealth among Canadians, and changes are made annually to the different tax rates for each bracket.
Why Do Tax Brackets Change?
Tax rates for each bracket, and the brackets themselves, are updated based on inflation rates using the Consumer Price Index. This means that tax bracket thresholds increase in relation to the increase of the costs of goods and services.
2022 Annual Inflation Adjustment
Several updates are being made for the 2022 tax year, including:
- Federal tax brackets will increase by 2.4% based on inflation
- The basic personal amount of tax-free annual income has increased from $13,808 to $14,398
- The Canadian Pension Plan contribution rate will increase from 5.45% to 5.7% for employees, and the maximum pensionable earnings have increased to $64,900
- The Canada Child Benefit has increased from $6,833 to $6,997 per child under the age of 6 and from $5,765 to $5,903 per child between the ages of six and seventeen
Combined Federal and Provincial 2022 Tax Brackets for Alberta
Considering both Canadian and Albertan tax brackets and rates, salary and other income will be taxed according to these parameters for Albertans:
- 25% on the first $50,197, plus
- 30.5% on income over $50,197 up to $100,392, plus
- 36% on income over $100,392 up to $131,220, plus
- 38% on income over $131,220 up to $155,625, plus
- 41.38% on income over $155,625 up to $157,464, plus
- 42.38% on income over $157,464 up to $209,952, plus
- 43.38% on income over $209,952 up to $221,708, plus
- 47% on income over $221,708 up to $314,928, plus
- 48% on income over $314,928
Capital gains income is included into taxable income at 50% of the actual gain.
Canadian Tax Brackets in 2022
Federal tax brackets and rates have been updated as follows for 2022:
- 15% on the first $50,197, plus
- 20.5% on income over $50,197 up to $100,392, plus
- 26% on income over $100,392 up to $155,625, plus
- 29% on income over $155,625 up to $221,708, plus
- 33% on income over $221,708
Provincial Tax Brackets in 2022 for Alberta
No changes to Alberta’s tax brackets are being made in 2022 and they remain consistent with 2021 tax rates. They are:
- 10% applicable to the first $131,220 of taxable income
- 12% applicable to taxable income from over $131,221 to $157,464
- 13% applicable to taxable income from over $157,465 to $209,952
- 14% applicable to taxable income from over $209,953 to $314,928
- 15% applicable to taxable income over $314,929
What Do Tax Rate Changes Mean for You?
Though these annual changes may seem minor, they can have a big impact on your financial situation year over year. It’s important to understand how new tax rates and brackets will affect you and your family. Working with an accounting firm to prepare and implement tax planning strategies to help you save money and ensure optimal results will provide you with clarity and control over the impact that changing tax rates can have on you.
Your Trusted Advisor
We work with business owners to provide wealth management and financial planning support that considers your business and personal finances to maximize your tax savings.
KWB strives to keep our clients informed of news that could affect their business and livelihood. To become a KWB client, visit www.kwbllp.com or call us at 780.466.6204.