Income Tax in Ontario

In Ontario, the income tax fluctuates each year. As of 2013, this rate is determined based on a tier system. For people who earn less than or equal to $39,723, their tax rate will be 5.05% of that value. All citizens who earn more than this will be taxed 9.15% on the next $39,725. The third tier, i.e. the next $429,552 is taxed at 11.16%. Finally, people who earned more than $509,000 will be taxed at 13.16% for any additional income. Additionally, residents of Ontario must pay the Federal income tax. This tax breakdown is much higher than the provincial breakdown, and roughly follows the same structure as Ontario’s. The first tier taxes individuals at 15% for the first $43,561 of taxable income. For the next tier, the rate is increased to 22% on the next $43,562 earned. Thirdly, the rate becomes 26% until a threshold of $135,054 is met, in which case all additional earnings are taxed at 29%. As a safeguard to over taxing individuals, residents Ontario have a two-tiered surtax that is used when the amount of income tax ontario owed exceeds specified amounts.

Compared to many of the other Provinces of Canada, Ontario has some of the lowest and therefore most reasonable rates. In fact, the lowest earning tax bracket is taxed the least out of all other territories and the level of income required to fall into the highest tax bracket is the highest. Also worth noting, each of the other levels of rates is significantly lower than those of most of the other territories. The only Province that has better rates overall is Nunavut. Recently (Jun 20, 2012), Ontario passed legislation to increase its tax on the highest income bracket 2.00% over the next two years. This was the only significant change to the tax increase schedule that the Province has recently had to deal with. To combat this, high earners have many different ways of disguising their income to evade some level of taxation. The first of these ways is to invest ones earnings in their business. As long as the individual does not take out a certain amount of money from their business for personal needs, this money will not be considered taxable earnings and could ensure a lower taxation rate on said individual. A second less currently appealing way to combat some taxation is to invest in a holding company or a professional corporation. Although this will ensure that income will not be taxed, there is another type of tax that is based off of passive income of investments and therefore stifles the opportunity to save money in this regard. On the other end of the spectrum, many low earning individuals have several options for lowering the aggregate tax that must be paid to the state. Much like the tax system of the United States, Canada offers tax refunds to for having dependents, travel expenses associated with work. Also, residents of Canada are offered tax credits for medical expenses, disability and caregivers. Such deductions make living a modest lifestyle possible.

Historically, the tax rate in Ontario has been influenced by vectors such as the growth of government and investment of public funds into the private sector. Combined currently, the income tax totals nearly 40% of all tax revenue by the state. This money is in turn spent on assets such as transportation, including Air Canada, Via Rail and maintaining the busiest highway in North America, highway 401. Government funds have also been used to supplement the operations in many of Ontario’s 51 cities and surrounding municipalities. However, the largest vector influencing the income tax rates has to be the fact that Ontario is Canada’s leading manufacturing Province. By having “reasonable” tax rates, the overall quality of life of the working class will be higher and therefore the goods produced should in turn be of higher quality and value. On the other side of taxation is that of corporations. Currently, with the addition of the aforementioned wealth tax, corporate taxation is less than that of a high income earner. However, over the past decade this rate has usually stayed above or equal to the level of tax collected from individuals. Overall, the total revenue of Canada leaves the Country much more economically sound than its close neighbors. The current national debt has reached $600,000,000 and about 12 cents out of every dollar collected in revenues is spent on paying the interest. Although both of these values may be shocking and high, comparatively, Canada has come a long way economically and with a continuing goal to reduce this debt, the nation will be able to both grow and become an even more enticing country for investors. In the competitive market of the world, the income tax is a truly astounding guideline to the rest of the global economy.