How Much Tax Am I Going To Have To Pay?

Yes, it is that time of year again, and as a CPA firm, we frequently get asked this question - If I earn this amount of extra income what will it cost me in income tax?

Well, the answer isn’t always that simple as it depends on a number of factors which include:

1. the type of income that is being taxed;
2. what other income you have made in the year;
3. whether you are earning it personally or in a corporation;
4. how the extra income may effect deductions and/or credits you’ve normally taken;
5. if the extra income causes you to exceed certain thresholds to entitlements that will now get “claw back” treatment

Definitions of certain terms tossed around by accountants are helpful to the discussion as well:

Marginal tax rate – combined impact of federal/provincial taxes on the next dollar of taxable income

Taxable Income “bracket” – the taxable income level range upon which a rate is applied

Capital gains – the taxable portion (50%) of the overall capital gain on the sale of investments / property

Eligible dividends – typically dividends earned through investments like mutual funds / stocks

Non Eligible dividends - typically dividends received from privately held corporations

The chart below is extracted from Sun Life’s Financial Advisor’s 2014 – 2015 Pocket Reference book and breaks down the estimated impact in 2014 of each additional taxable dollar made personally in Ontario by various income source and at various tax brackets.

It’s a simple yet effective way to give you the answer you are looking for.

As mentioned above, facts vary with each situation and you should consult your own advisor for advice regarding your individual circumstances.