Calculate Income Tax Ontario 2015

How to Calculate Ontario Income Tax 2015

Calculating your Ontario income tax involves several steps, including determining your taxable income, applying the appropriate tax rates, and accounting for deductions and credits. Here's a simplified breakdown of the process:

1. Calculate your total income - This includes all sources of income, such as wages, self-employment income, rental income, and investment income.
2. Subtract eligible deductions - Deductions reduce your taxable income. Common deductions include RRSP contributions, medical expenses, and union dues.
3. Determine your taxable income - Subtract your deductions from your total income to find your taxable income.
4. Apply the Ontario tax rates - Ontario has progressive tax rates, meaning higher income brackets are taxed at higher rates. The 2015 tax brackets are outlined in the next section.
5. Add provincial tax credits - Credits directly reduce your tax liability. Common credits include the Basic Personal Amount and the Ontario Child Benefit.
6. Calculate your net tax - Subtract your tax credits from your provincial tax to find your net tax liability.

Ontario Tax Brackets for 2015

Ontario uses a progressive tax system, meaning higher income brackets are taxed at higher rates. The 2015 tax brackets are as follows:

The Ontario tax rates are applied progressively, meaning each bracket is taxed at its respective rate. For example, if your taxable income is $50,000, the first $41,908 is taxed at 20.05%, and the remaining $8,092 is taxed at 24.19%.

Common Ontario Tax Deductions

Deductions reduce your taxable income, which can lower your overall tax liability. Some common Ontario tax deductions include:

• RRSP contributions - Contributions to a Registered Retirement Savings Plan (RRSP) are tax-deductible.
• Medical expenses - Medical expenses exceeding 3% of your net income may be deductible.
• Union dues - Dues paid to a trade union are tax-deductible.
• Donations - Donations to registered charities are tax-deductible.
• Home office expenses - If you work from home, you may be able to deduct a portion of your home expenses.

Ontario Tax Credits

Tax credits directly reduce your tax liability. Some common Ontario tax credits include:

• Basic Personal Amount (BPA) - A non-refundable credit that reduces your tax liability by $10,605 for 2015.
• Ontario Child Benefit - A refundable credit that provides $1,000 per child under 18 years old.
• Ontario Disability Tax Credit - A refundable credit for individuals with disabilities.
• Ontario Caregiver Amount - A non-refundable credit for individuals who provide care to a family member.

Credits are applied after your taxable income is calculated, but before your tax is calculated. They can significantly reduce your tax liability or even result in a refund if your credits exceed your tax.

Worked Example

Let's walk through a worked example to illustrate how to calculate Ontario income tax for 2015.

Scenario

• Total income: $60,000
• RRSP contributions: $5,000
• Medical expenses: $2,000 (exceeds 3% of net income)
• Basic Personal Amount: $10,605
• Ontario Child Benefit: $1,000 (one child)

Step 1: Calculate Taxable Income

Taxable Income = Total Income - Deductions

Taxable Income = $60,000 - ($5,000 + $2,000) = $53,000

Step 2: Apply Ontario Tax Rates

The first $41,908 is taxed at 20.05%:

$41,908 × 20.05% = $8,382.05

The remaining $11,092 is taxed at 24.19%:

$11,092 × 24.19% = $2,682.46

Total Provincial Tax = $8,382.05 + $2,682.46 = $11,064.51

Step 3: Apply Tax Credits

Total Credits = Basic Personal Amount + Ontario Child Benefit

Total Credits = $10,605 + $1,000 = $11,605

Step 4: Calculate Net Tax

Net Tax = Total Provincial Tax - Total Credits

Net Tax = $11,064.51 - $11,605 = -$540.49

In this example, the tax credits exceed the tax liability, resulting in a refund of $540.49.