When it comes to taxes, knowing your tax brackets makes all the difference in managing your money and taking advantage of tax breaks. In Ontario the 2024 tax brackets have specific rates for each amount of income you make. Knowing where you fit in and how it all works will help you plan better and save more. For the latest tax info and deadlines check the Canada Revenue Agency.

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This guide covers the 2024 Ontario tax brackets, federal and provincial rates. We’ll also get into taxable income, how taxes are calculated and how to reduce your tax bill. If you live in Toronto or anywhere in Ontario this will walk you through the basics.

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Ontario Tax System

Ontario’s tax system is progressive meaning as your income goes up so do your tax rates. This combines federal and provincial tax rates to determine your total income tax. The federal government sets the federal income tax rates and Ontario sets its own provincial rates.

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Your taxable income (your total gross income minus eligible deductions) is the basis of this system. Ontario uses tax brackets to calculate the average tax rate owed, higher tax rates apply to higher income levels. These brackets are adjusted annually for inflation so they stay fair and relevant to the economy.

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Ontario’s tax system also has a range of tax credits and deductions to reduce your tax bill. These include the Basic Personal Amount, Medical Expenses, Charitable Donations, Tuition Fees and more. By understanding and using these tax credits and deductions you can reduce your tax bill and potentially get a bigger refund.

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What is Taxable Income?

Taxable income is the part of your income the government can tax. This includes income from your job, self-employment and other earned income from investments and some government benefits. Not every dollar you earn is taxable though, since there are deductions and credits that can reduce your taxable income.

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Knowing your taxable income is important because it determines which tax bracket you’re in and how much tax you’ll pay. In short the more taxable income you have the more you’ll pay and vice versa. Income taxes are calculated on average and marginal tax rates with Canada’s progressive tax system adjusting tax brackets annually based on income levels.

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Sources of Taxable Income

Taxable income can come from many sources each contributing to your total tax bill. Here are some examples:

• Employment Income: Wages, salaries and tips from your job.

• Investment Income: Interest, dividends and capital gains from investments.

• Self-Employment Income: Income from your own business or freelance work.

• Government Benefits: Payments from Employment Insurance and Old Age Security are taxable.

• Pensions: Income from pensions such as Registered Retirement Income Funds (RRIFs) and Life Income Funds (LIFs).

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Not all income is taxable. For example gifts and inheritances are not considered taxable income but may be subject to other taxes like capital gains tax.

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Other income types of income that may be taxable include:

• Rental Income: Income from renting out a house or apartment.

• Royalty Income: Income from royalties like books or music.

• Foreign Income: Income from foreign sources like employment or investments abroad.

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Knowing the different sources of taxable income will help you report your income accurately and use all the tax credits and deductions available to you.

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2024 Federal Income Tax Rates

The federal government sets its own rates and for 2024 they are:

• 15% on the first $55,867 of taxable income

• 20.5% on the next $55,866 ($111,733)

• 26% on the next $33,824 ($144,557)

• 29% on the next $76,151 ($221,708)

• 33% on income over $221,708

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These rates apply across Canada no matter where you live. So every Canadian must pay federal taxes tax year, according to these brackets which makes understanding them important for tax planning.

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Ontario Provincial Tax Rates

In addition to federal taxes Ontario has its own tax system. The provincial rates for 2024 are:

• 5.05% on the first $49,231 of taxable income

• 9.15% on income over $49,231 to $98,463

• 11.16% on income over $98,463 to $150,000

• 12.16% on income over $150,000 to $220,000

• 13.16% on income over $220,000

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Knowing Ontario tax brackets is important as they affect the amount of tax taken off your paycheques. Understanding these tax brackets in ontario, is key to tax planning and filing.

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These rates apply to the income you earn in Ontario. The more you make the higher the rate on the next dollar you make.

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Federal and Provincial Tax Rates Combined

Here’s where it gets interesting: when you add the combined federal, and provincial rates together you get your total tax rate. For example if you make $100,000 in taxable income you’ll pay:

• 15% federal tax on the first $55,867

• 5.05% provincial tax on the first $49,231

• 20.5% federal tax on the next $44,133 ($100,000)

• 9.15% provincial tax on the next $49,232 ($98,463)

 

This is what your total tax bill will be. Understanding this will help you plan better your tax return and find ways to reduce your overall liability.

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How to Calculate Your Income Tax

Calculating your income tax can seem daunting but it’s really just a matter of applying the right tax rates to your income. Ontario’s marginal tax rate increases as you earn more and move into higher tax brackets, meaning as you make more and move into higher tax brackets the tax rate on your income increases the next dollar also increases.

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1. Federal Tax: Apply the federal tax brackets to your taxable income. For example if your taxable income is $75,000 you’ll pay 15% on the first $55,867 and 20.5% on the next $19,133.

2. Provincial Tax: Do the same with the Ontario rates. For the same $75,000 in taxable income you’ll pay 5.05% on the first $49,231 and 9.15% on the remaining $25,769.

3. Add Them Up: Once you have the federal and provincial amounts add them up to get your total tax bill.

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Reducing Your Tax Bill: Deductions and Credits

One of the most effective ways to lower your tax bill is by taking advantage of deductions and credits. Tax deductions work by decreasing your taxable income, whereas tax credits directly reduce the amount of tax you owe. Both serve distinct purposes in tax planning.

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• Deductions reduce your taxable income. For example contributing to a Registered Retirement Savings Plan (RRSP) will lower the amount of income you are taxed on.

• Credits reduce the amount of tax you owe. Common non-refundable credits include the basic personal amount, medical expenses and charitable donations.

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Specific tax credits like the Climate Action Incentive Payment and the basic personal amount can offset tax liabilities and increase benefits for residents when filing their income tax returns.

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Tax credits and deductions can really reduce your tax bill so it’s important to know what you qualify for.

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Federal Tax Credits and Deductions

At the federal level there are several key tax credits and deductions that can help reduce your tax burden:

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• Basic Personal Amount: A credit that reduces your taxable income. For 2024 it’s $15,000.

• Medical Expense Credit: A credit for eligible medical expenses above a certain threshold.

• Charitable Donations: Donations to registered charities will reduce your tax bill.

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These are just a few examples, there are many more depending on your situation.

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Ontario Tax Credits You Should Know

On the provincial side Ontario has:

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• Ontario Trillium Benefit: This credit provides relief for energy costs, property taxes and sales tax credits for lower income households.

• Ontario Senior Homeowners’ Property Tax Grant: For senior homeowners with lower income this credit helps with property tax costs.

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These credits will also help you save on your provincial tax so make sure you check them out.

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Tax Planning Strategies to Reduce Your Liability

Tax planning is key to reducing your liability. Here are a few strategies to try:

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1. Contribute to RRSPs: Contributions to RRSPs will lower your taxable income so you’ll pay less tax.

2. Maximize Deductions and Credits: Review all eligible deductions and credits to make sure you’re not overpaying.

3. Income Splitting: If you can, split income with a lower income spouse to reduce taxes.

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If you’re not sure where to start, talk to a tax advisor.

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What Tax Brackets Mean for Your Take-Home Pay

Knowing your tax bracket is important because it’s how much of your income you actually take home. The marginal tax rate—the rate at first tax bracket at which your last dollar is taxed—determines how much of that extra income is taxed.

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For example if you earn an extra $10,000 and you’re in a higher tax bracket than the 11.16% Ontario tax bracket and the 26% federal tax bracket you’ll pay 37.16% on that extra income.

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2024 Ontario Tax Brackets

The brackets are adjusted for inflation every year. For 2024 the income thresholds for each bracket were bumped up slightly.

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Make sure to stay on top of changes to the the tax credit and system as they can add up to big savings.

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Why Knowing Your Tax Bracket Matters

Knowing your tax bracket will help you make smart financial decisions. Whether you’re deciding how much to contribute to your RRSP or considering a job offer, knowing the tax impact on your income will lead to better results.

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Using Tax Credits and Deductions

If you live in Ontario you can use both provincial and federal tax breaks to your advantage. Review your finances regularly to make sure you’re using all the tax credits and deductions available to you.

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Tax Warriors: Your Tax Planning Partner

At Tax Warriors we help individuals and businesses in Toronto with the tax system. Whether you need help understanding your tax bracket, claiming deductions or maximizing credits our team is here for you.

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Summary

Ontario’s 2024 income tax brackets don’t have to be complicated. By understanding how federal and provincial rates work, calculating your income tax and using all the deductions and credits available to you, you can reduce your tax bill. Whether you’re managing your personal finances or running a business, being informed is key to keeping more of your money.

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FAQs

1. How are tax brackets determined in Ontario?
   Tax brackets are based on your taxable income and increase as your income goes up.

2. What’s the difference between a deduction and a credit?
   A deduction reduces your taxable income, a credit reduces the amount of tax you owe.

3. Can I get a refund if my credits exceed my taxes?
   Yes, but only if you have refundable credits. Non-refundable credits will reduce your tax bill but not give you a refund.

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