How income tax works in Canada

Income, net income and taxable income

Your return adds up income from every source, a job being only one, then subtracts the deductions you're allowed. Net income and taxable income come out at different stages. Some rules use one and some use the other: the donation limit uses net income, while the top donation rate uses taxable income. So don't copy one figure into every box.

Federal and provincial tax

Federal tax brackets apply to slices of your taxable income. Provincial or territorial tax comes on top, with its own rates and credits. Quebec residents file a separate provincial return. Non-refundable credits lower your tax, but they aren't payments, so they can't take your tax below zero.

Example: follow the steps, not just your salary

Say you earned $60,000 from a job and have a $5,000 deduction, with no other income or deductions. Your taxable income becomes $55,000. That doesn't mean you save $5,000 of tax; you save the tax that would have applied to that $5,000 slice.

Now say that, after rates and credits, your tax for the year is $8,000, and $8,500 was taken off your pay. You get a $500 refund. The $8,000 is a made-up figure to show this last step, not worked out from the $55,000.

Where our estimate stops

Beaver Ledger's employment model leaves out CPP and EI and many personal credits. It can't replace a return if you have other income, a business or complex credits. Use it to see which way a change pushes your tax, then file with your full records.

• Choose the right tax year.
• Keep income, tax deducted and deductions separate.
• Read what the calculator leaves out before trusting a refund figure.