All over the world, governments impose tax on people in various categories. The taxes imposed are for individuals as well as for corporates. Tax is also imposed on salaried people and people who are self employed. The range is quite wide. In Canada, taxes are usually taken care of by the Canada Revenue Agency or CRA. In Canada, there are some provinces, which have tax rates differing from the federal tax rate.
Tax brackets are referred to as divisions, which segregate or demarcate different strata of taxes. Tax brackets are an important tool to determine tax rates in various categories. Tax brackets in Canada are determined by the income of individuals.
Tax brackets and income level:
Lower level of income attract a lower tax rate and people with high levels of income attract a comparatively higher tax rate. Tax brackets in Canada create slabs or strata, which implies the limit above or below which the tax rates ought to be fixed. In the event when an individual's income crosses that limit or tax bracket, the individual is entitled to a tax rate of the next limit.
Tax brackets give rise to a system of progressive tax. This implies that tax imposed is directly proportional to the income level. As the income of individuals increases the tax rate increases and vice versa. This is in contrast to a structure, which is flat. Under this flat tax rate structure, there are no segregations. Tax brackets in Canada also denote the living standards of individuals. If a Canadian is placed in a higher tax bracket, it only indicates that he is capable of paying more than his counterpart who is placed in a lower tax bracket.
Importance of tax brackets in Canada:
An advantage of having tax brackets is that the disposable income of individuals can be ascertained. Disposable income may be defined as the amount of money, which remains with a tax payee after all taxes have been deducted. Tax brackets or cutoff nodes are important in the taxation system of any country.
Example of tax bracket:
Tax brackets in Canada can be better understood by going through the following table:
| Tax Brackets for Different Income levels in Canada |
| Tax bracket (in percentage )
| Income level ( $) |
| 10
| 1-10,000
|
| 20
| 10,001-20,000
|
| 30
| Greater than 20,001
|
Federal Tax rates in Canada in 2007:
Given below in the table are tax rates of the federal government in Canada:
| Tax rate (%)
| Income range (I) ($) |
|---|
| 15.5
| 0< I< 37,178
|
| 22
| 37,178 < I < 74,357
|
| 26
| 74,357< I < 120,887 |
| 29
| I >120,887
|