Two tax systems, applied in parallel

Canadian payroll deductions are not a single rate. Federal tax and provincial tax are computed separately on the same taxable income, each with its own brackets and its own basic personal amount, and then added together. A province with a low headline rate can still leave you with less, because its brackets start lower.

The calculator applies the federal brackets first, subtracts the federal basic personal amount as a non-refundable credit at the lowest rate, then repeats the whole operation with the provincial brackets and the provincial amount. Credits reduce the tax, not the income, so they are applied after the brackets rather than before.

CPP, CPP2 and EI

CPP contributions are charged on pensionable earnings between the basic exemption and the year's maximum pensionable earnings. Since the second phase of the enhancement, a further contribution, CPP2, applies to earnings between that maximum and a higher second ceiling. The calculator models both, which is why a high salary shows a contribution that a single-ceiling tool would miss.

EI premiums are charged at a flat rate on insurable earnings up to an annual maximum, after which they stop entirely. That ceiling is why take-home pay rises faster in the later months of the year for higher earners.

Both contributions are capped annually, so the monthly deduction is not constant across the year. The calculator reports the annual position and averages it; a real payslip front-loads the contributions until the ceiling is reached.

Quebec is calculated differently

Quebec administers its own income tax and runs the QPP in place of the CPP, with its own rate and ceiling, plus the Quebec Parental Insurance Plan (QPIP). The federal abatement reduces federal tax for Quebec residents. Selecting Quebec switches the calculator to that set of rules rather than adjusting the common ones.

Old Age Security, GIS and the Allowance

The retirement calculators apply the formulas of the Old Age Security Act to the amounts Service Canada pays in the current quarter. The OAS pension is the full amount times complete years of residence over forty, raised 0.6% per month of deferral to age 70 and 10% from 75, keeping the greatest of the three amounts section 7.1(3) allows. The recovery tax is 15% of net income above the threshold of the income year, capped at the pension received.

The Guaranteed Income Supplement, the Allowance and the Allowance for the Survivor follow sections 12, 12.1, 22 and 22.1 of the Act, including the guarantee of section 22(6) for a pensioner whose spouse receives the Allowance, including their roundings to multiples of two, three and four dollars. Service Canada publishes the maximum of each benefit and the top-ups; the basic amounts are deduced from them. The engine is tested against every maximum and every income limit published for the quarter, on both sides of each limit, and against the deferred amounts and the recovery-tax example of the official estimator. It does not model the special qualifying factor of people with fewer than ten years in Canada, separated spouses, or the deduction of a working pensioner's own CPP and EI contributions.

What the calculator does not do

It does not model RRSP deductions, union dues, the Canada Employment Amount beyond the standard case, spousal or dependant credits, or provincial health premiums. It assumes employment income with a standard TD1.

It is an estimate for guidance. Your real deductions depend on the TD1 forms filed with your employer and on the payroll formulas CRA publishes for each pay period.

Rates, brackets and ceilings are indexed each January. We update once CRA and the provinces publish the figures; each page carries the date of its last revision, taken from the site's version history.

Where the figures come from

Every rate, bracket and ceiling is taken from the following official publications:

• Canada Revenue Agency, Federal and provincial tax rates
• Canada Revenue Agency, CPP contribution rates and maximums
• Canada Revenue Agency, EI premium rates and maximums
• Canada Revenue Agency, Payroll deductions formulas (T4127)