How to Calculate Your Taxes in 2022

To carry out effective tax planning, it’s important to understand how tax rates work.

The tax rates for 2022 are unchanged from the previous year, with only the brackets adjusted to accommodate for the rise in the consumer price index.

The tax rates for 2022 are as follows:

Your Taxable Income

Taxable income is calculated in 3 phases:

 

1. Calculation of Total Income

There is a difference between total income and taxable income.

When preparing your personal tax return, your total income is calculated based on the type of income. To calculate this, you will need to add the amounts and, depending on the type of income, multiply the sum by a factor:

•   Salaries and interest represent the amounts received during the year.

•   Ordinary dividends will be multiplied by 1.15.

•   Eligible dividends will be multiplied by 1.38.

•   Capital gains will be multiplied by 0.5.

It's easy to understand why the taxation of capital gains, according to the table, is only half the amount of salary income.

Even though taxable income from dividends might seem higher because of the multiplication factor applied when calculating the taxable income, this is later offset by a tax credit, which reduces the actual tax liability for these amounts.

Let’s do an example calculation for total income:

I have a salary of $100,000, interest income of $2,000, ordinary dividends of $10,000, eligible dividends of $5,000, and a capital gain of $30,000.

Salary                                                                                 $100,000

Interest income                                                                 $2,000

Ordinary dividends ($10,000 X 1.15)                         $11,500

Eligible dividends ($5,000 X 1.38)                             $6,900

Capital gain ($30,000 X 0.5)                                        $15,000

Total income                                                                     $135,400

2. Calculation of Net Income

After calculating the total income, to obtain the net income, we can subtract expenses and deductions such as:

•   Employment expenses

•   RRSP deductions

•   Financial and interest expenses

•   Moving expenses

•   Several others

If we continue with our previous example, then I have a total income of $135,250. I made an RRSP contribution of $10,000, I have employment expenses of $3,000, and I paid interest expenses on a loan I took out to make an investment, amounting to $4,000.

Therefore, we can calculate net income as follows:

Total income                                                                       $135,400

Minus:

RRSP                                                                                   $10,000

Employment expenses                                                       $3,000

Interest and financial charges                                       $4,000

Net income                                                                          $118,400

3. Calculation of Taxable Income

In this phase, we can deduct:

• Net capital losses from other years

• Net losses other than capital from other years

• Deduction for capital gain

• Deduction for strategic investment

• Various other deductions

In our example, I had a net income of $118,250. I had losses from previous years amounting to $8,000.

Net income                                                                          $118,400

Minus:

Net capital losses from other years                            $8,000

Taxable income                                                                  $110,400

Calculation of Tax is Done in 3 Phases:

1. Calculation of Tax Based on Taxable Income

As shown in the table above, we pay taxes based on our income bracket. For example, I earned a salary, deducted eligible expenses, and arrived at my taxable income bracket. If, for instance, my taxable income is $100,000, the tax is calculated as follows:

($46,294 - 0) X 27.53% =                                                        $12,745

($50,196 - $46,294) X 32.53% =                                             $1,269

($92,579 - $50,197) X 37.12% =                                             $15,732

($100,391 - $92,579) X 41.12% =                                             $2,212

($110,400 - $100,391) X 45.71% =                                          $4,575

For a total of                                                                          $36,533

2. Calculation of Non-Refundable Tax Credits 

We will proceed to calculate my non-refundable tax credits by summing up amounts such as:

•   Basic personal amount

•   Amount due to age

•   Amount for dependants

•   Amount for medical expenses

•   Other amounts

In our example, I only have the basic personal amount:

In Quebec $16,143 X 15%                                                      $2,423

Federally $14,398 X 15 %                                                       $2,159

For a total of                                                                            $4,582

3. Taxes and Contributions 

To conclude, we will need to calculate tax and contribution credits.

Using our example, I need to calculate the tax credits on my dividends:

In Québec :

Ordinary dividends ($11,500 X 3.42%)                              $393

Eligible dividends ($6,900 x 11.70%)                                  $807

Federally :

Ordinary dividends ($11,500 X 9.03%)                           $1,038

Eligible dividends ($6,900 x 15.0197%)                           $1,036

Taxes and contributions                                                      $3,274

The Amount of Tax Payable

The total amount of tax payable will therefore be:

Tax payable according to taxable income               $36,533

Minus:

Non-refundable tax credit                                                 $4,582

Taxes and contributions                                                     $3,274

Tax payable                                                                           $28,677