How to Calculate Your Salary After Taxes in Ontario

Toronto, Ontario's capital, is Canada's largest city.

In Canada, everyone who earns an income from employment or investments must pay income taxes. You must file a federal tax return to the Canada Revenue Agency (CRA). Within it you not only calculate your federal income tax but also your provincial income tax payable. Therefore, your total income tax payable will depend on your province of residence. When you earn a salary, your employer is required to deduct income taxes from each paycheck, as well as withhold contributions to the Canada Pension Plan (CPP) and Employment Insurance (EI) program. Your gross salary, net of withholding taxes and CPP and EI contributions, is what you take home from every paycheck.

Things You'll Need

• Calculator

Instructions

1. Get the proper tax forms from the Canada Revenue Agency website. Click on "Individuals," then select "Tax Package" and finally, click on "Ontario." You will need the Schedule 1 - Federal Tax form, and the ON428 - Ontario Tax form.

2. Find out the Year's Maximum Pensionable Earnings (YWPE) amount in order to calculate your CPP and EI contributions. That amount is provided on the Canada Revenue Agency website. Find it by entering "YMPE" in the search box on the home page.

3. Get the CPP and EI contributions rates for the year, also available from the CRA. In 2010, the CPP contribution rate was 4.95%, and the EI contribution rate was 1.73%.

4. Calculate your expected annual CPP and EI contributions. If your projected income will be more than the YMPE, then use the maximum amounts from Federal Schedule 1 under non-refundable tax credits. Otherwise, take your income, subtract $3,500, and multiply the remainder by the CPP contribution rate and again by the EI contribution rate.

5. Calculate your federal non-refundable tax credits on page 1 of the Federal Schedule 1 form. Add up the personal amount, the CPP and EI contributions and the Canada Employment Amount. Multiply the total by the percentage provided at the bottom of page 1.

6. Calculate your projected federal tax payable in Step 2 of the Schedule 1 form located at the top of the second page. Enter your income in the appropriate column on line 30, subtract the base amount from line 31, multiply by the rate on line 33, and add the tax on the base amount from line 35. Calculate your projected net federal tax by subtracting your federal non-refundable tax credits from your projected federal tax. If negative, use $0.

7. Calculate your Ontario non-refundable tax credits on page 1 of the ON428 - Ontario Tax form. Add up the personal amount and the CPP and EI contributions. Multiply the total by the percentage provided at the bottom of page 1.

8. Calculate your projected Ontario tax payable by using the chart at the top of page 2 of the ON428 form. Obtain your net Ontario tax payable by subtracting your Ontario non-refundable tax credits from that amount. If negative, use $0.

9. Add up your net federal and net Ontario taxes, as well as your CPP and EI contributions. Subtract that total from your annual income. The result is your salary after taxes.

References

• Canada Revenue Agency: Schedule 1 - Federal Tax (2009)
• Canada Revenue Agency: ON428 - Ontario Tax form (2009)
• Canada Revenue Agency: Rates for YMPE
• Canada Revenue Agency: CPP rates
• Canada Revenue Agency: EI rates