What Are Tax Brackets?
The Canada Revenue Agency collects federal income taxes using 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. 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.
2023 Annual Inflation Adjustment
Several updates are being made for the 2023 tax year, including:
- Federal tax brackets will increase by 6.3% based on inflation
- The basic personal amount of tax-free annual income has increased from $14,398 to $15,000
- The Canadian Pension Plan contribution rate will increase from 5.7% to 5.95% for employees, and the maximum pensionable earnings have increased to $66,600
- The Canada Child Benefit has increased from $6,997 to $7,437per child under the age of 6 and from $5,903 to $6,275 per child between the ages of six and seventeen, effective July 2023 to June 2024
Combined Federal and Provincial 2023 Tax Brackets for Alberta
Considering both Canadian and Alberta tax brackets and rates, salary and other income will be taxed according to these parameters for Albertans:
- 25% on the first $53,359, plus
- 30.5% on income over $53,359 up to $106,717, plus
- 36% on income over $106,717 up to $142,292, plus
- 38% on income over $142,292 up to $165,430, plus
- 41.32% on income over $165,430 up to $170,751, plus
- 42.32% on income over $170,751 up to $227,668, plus
- 43.32% on income over $227,668 up to $235,675, plus
- 47% on income over $235,675 up to $341,502, plus
- 48% on income over $341,502
Capital gains income is included in taxable income at 50% of the actual gain.
Canadian Federal Tax Brackets in 2023
Federal tax brackets and rates have been updated as follows for 2023:
- 15% on the first $53,359, plus
- 20.5% on income over $53,359 up to $106,717, plus
- 26% on income over $106,717 up to $165,430, plus
- 29% on income over $165,430 up to $235,675, plus
- 33% on income over $235,675
Provincial Tax Brackets in 2023 for Alberta
Changes to Alberta’s tax brackets are being made for the first time since 2021. In 2023, they are:
- 10% applicable to the first $142,292 of taxable income
- 12% applicable to taxable income from over $142,292 to $170,751
- 13% applicable to taxable income from over $170,751 to $227,668
- 14% applicable to taxable income from over $227,668 to $341,502
- 15% applicable to taxable income over $341,502
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.
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