If you are a Canadian resident, you are taxed on your worldwide income from your employment, self-employment – professional income, and income or taxable capital gains from any investments or property you may own. You are not taxed on gifts you receive and certain miscellaneous types of income. If your income is sourced in another country, you will normally receive a tax credit in Canada to avoid double taxation. Not all income is treated equally. For example, only 1/2 of capital gains are included in income. Most Canadian source dividends qualify for the gross-up and dividend tax credit mechanism that reduces the tax payable on the dividends for resident individuals. Certain employment benefits are received free of tax. Employee stock option benefits are currently one-half taxed in most cases.
Timing affects all revenue and expense items, professional income is generally taxable on an accrual basis, employment income when received, and capital gain and losses when realized or sold. The reporting of professional income is often a confusing concept for medical doctors since under the accrual method, you report income you earn during the calendar year, no matter when you receive it. The table shows the combined federal and Ontario income taxes payable for 2021, including surtaxes, assuming only the basic personal tax credit is claimed and that all income is either interest or ordinary income (such as employment income, business/professional income, and interest income).
Each year, personal income tax and benefit amounts are indexed to inflation using the Consumer Price Index data as reported by Statistics Canada. 2023 factor for indexing personal credit amounts and net income thresholds: 6.3%. Income thresholds for the two highest Ontario brackets ($150,000+ and $220,000+) are not indexed for inflation. See applicable Personal Income Tax Brackets – Ontario 2023 for more details.
Combined Ontario/Federal Income Taxes Payable by Individuals at Various Levels of Taxable Income — 2023
| Taxable Income | Taxes Payable – 2023 | Taxes Payable – 2022 |
|---|---|---|
| $20,000 | $1,161 | $1,288 |
| $30,000 | $3,166 | $3,293 |
| $40,000 | $5,171 | $5,298 |
| $50,000 | $7,207 | $7,457 |
| $60,000 | $9,988 | $10,412 |
| $70,000 | $12,953 | $13,377 |
| $80,000 | $15,918 | $16,342 |
| $90,000 | $18,943 | $19,464 |
| $100,000 | $22,128 | $22,958 |
| $150,000 | $43,378 | $44,641 |
| $200,000 | $67,009 | $68,627 |
| $250,000 | $92,147 | $94,294 |
| $300,000 | $118,912 | $121,059 |
| $400,000 | $172,442 | $174,588 |
| $500,000 | $225,971 | $228,118 |
In making informed decisions about tax planning strategies and incorporation for medical doctors, you need to consider your current and projected tax bracket. For example, individuals who are expected to have a higher income in future years would defer making an RRSP contribution or carry forward their RRSP contributions to deduct to future years. Want help making the right decisions for your current or future year’s tax liability? MD Tax would be happy to help. Elliott Stone, CPA, CA, is the founder of MD Physician Tax Services in Toronto. Email us at [email protected]