Toronto Income Tax: A Guide and Top Tips

Toronto-Specific Tax Issues

Living in Toronto comes with its own set of tax issues. The average tax rate gives you a snapshot of the total tax burden for Toronto residents by comparing the total tax bill to total taxable income. The city’s diverse economy, high property values and urban lifestyle means there are specific tax challenges and opportunities. Knowing these local tax rules will help you manage your finances better and save more.

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1. Municipal Land Transfer Tax

When buying in Toronto you have to pay Municipal Land Transfer Tax (MLTT) in addition to the provincial land transfer tax. This tax is based on the purchase price of the property and can add a big chunk to your real estate transaction. For example on a $1 million home the MLTT would be about $16,475. Add that to the Ontario land transfer tax of $16,475 and you’re looking at a total land transfer tax of $32,950.

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Tip: First time homebuyers in Toronto may be eligible for a rebate on the MLTT up to $4,475. Make sure you apply when you buy your home.

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2. Toronto Property Tax

Property tax in Toronto is another big one for homeowners. The tax is based on the assessed value of your property which is determined by the Municipal Property Assessment Corporation (MPAC). Toronto’s property tax rate is lower than other Canadian cities but given the high property values in the city the actual amount paid can be big.

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For example a $1 million home could result in an annual property tax bill of around $6,355 depending on the location and assessed value. The City of Toronto has several property tax relief programs including deferrals and rebates for low income seniors and people with disabilities.

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Tip: Check your property assessment regularly and appeal if you think your property is overvalued as this could reduce your property tax bill.

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3. Public Transit Tax Credit

Although the federal public transit tax credit was eliminated in 2017, Ontario has a Public Transit Tax Credit for seniors 65 and older. This credit allows seniors to claim up to 15% of their public transit costs so if you’re a senior and use public transit regularly this can be a big help.

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To qualify you need to keep receipts or proof of purchase for monthly or annual transit passes. This credit can help offset the cost of commuting in Toronto where public transit is a part of daily life.

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Tip: If you’re a senior keep detailed records of your transit expenses throughout the year so you can claim the maximum credit.

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4. Home Energy Retrofit Programs

Toronto residents who do energy efficient upgrades to their homes may be eligible for rebates from the City of Toronto and the provincial government. These programs can help pay for upgrades like new windows, insulation and energy efficient heating systems which will lower your utility bills and may also be tax deductible.

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Tip: Research the energy retrofit programs before you start any renovations and keep all receipts and documentation to claim rebates or tax deductions.

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5. Income Inequality and High Living Costs

Toronto is known for its high cost of living and this can have big tax implications especially for low and moderate income residents. Individuals with employment income have fewer deductions available compared to those who run a business like limited deductions for home office expenses and business travel. Programs like the Ontario Trillium Benefit (OTB) and the Canada Workers Benefit (CWB) are especially important in offsetting these costs. The OTB combines three credits to help with property tax, energy costs and sales tax so if you’re struggling with the high cost of living in Toronto this can be a big help.

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Tip: Make sure you’re aware of and apply for all the benefits to offset the high cost of living in Toronto.

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What is Taxable Income?

Taxable income is the money you earn from various sources that the government can tax. Knowing what’s taxable income is important for filing your taxes correctly. Here’s a breakdown of common types of taxable income:

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• Salaries and Wages: The money you earn from your job including bonuses and overtime.

• Capital Gains: Profits you make from selling investments like stocks or property. Note only 50% of capital gains are taxable. Capital gains are only taxable when you sell the investment. In Ontario the capital gains tax is calculated based on provincial rules which may affect the overall tax rate.

• Dividends: Payments you receive as a shareholder in a Canadian company.

• Interest: Earnings from savings accounts, bonds or other investments.

• Rental Income: Money you make from renting out property you own.

 

To figure out your taxable income use an income tax calculator. These tools will add up all your income sources and apply any eligible deductions so you’ll see what you owe.

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Federal Tax Rates and Brackets

In Canada your federal tax is based on federal tax brackets set by the Canadian government. These are different from provincial tax brackets and change every year. How much federal tax you pay depends on your taxable income.

Tax brackets are part of marginal tax rates as you move through the brackets the tax rate applies to your income.

For 2023 federal income tax rates range from 15% to 33%. Here’s a quick breakdown:

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• 15% on the first $53,359 of taxable income

• 20.5% on income over $53,359 up to $106,717

• 26% on income over $106,717 up to $165,430

• 29% on income over $165,430 up to $235,675

• 33% on income over $235,675

 

As you earn more you move into higher tax brackets and you’ll pay a higher tax rate on the income in those brackets. It’s important to know these brackets so you can plan and know what you’ll owe.

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You can find the current federal brackets and rates on the Canada Revenue Agency (CRA) website. Remember these rates change every year so check often.

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Ontario Tax Rates

In addition to federal tax you’ll also pay provincial tax. Ontario tax brackets are similar to federal brackets but with different rates. For 2023 Ontario’s provincial rates range from 5.05% to 13.16%. These rates are adjusted for inflation every year.

Here’s how Ontario’s brackets look:

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• 5.05% on the first $47,630 of taxable income

• 9.15% on income over $47,630 up to $95,259

• 11.16% on income over $95,259 up to $150,000

• 12.16% on income over $150,000 up to $220,000

• 13.16% on income over $220,000

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The amount of provincial tax you pay is called Ontario’s marginal tax rate. As you earn more you’ll move into higher brackets and pay higher rates. Just like federal tax brackets it’s important to stay up to date on the current rates. You can find them on the Ontario government website.

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Income Types

When you’re preparing your tax return you need to know the different types of income you have to report. Here are the most common:

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• Earned Income: Money you make from working, salaries, wages and tips.

• Capital Gains: Profits from selling investments like stocks or real estate. Only 50% of capital gains are taxable.

• Eligible Dividends: Payments received as a shareholder of a Canadian company. These dividends are taxed at a lower rate than other types of income.

• Other Income: This includes interest from savings accounts, non-eligible dividends and income from foreign sources.

 

Knowing these types of income will help you report them correctly on your tax return and avoid CRA issues.

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Tax Deductions and Credits

Tax deductions and tax credits are great for reducing the amount of tax you owe but they work differently:

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• Tax Deductions: These reduce your total taxable income. For example if you earn $50,000 and have a $1,000 deduction your taxable income becomes $49,000. This reduces the amount of income subject to tax.

• Tax Credits: These reduce the actual amount of tax you owe. For example if you owe $5,000 in tax and have a $500 credit you’ll only have to pay $4,500.

 

Knowing how deductions and credits work can make a big difference on your tax bill. Here are some examples:

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Tax Credits:

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• Charitable Donations: Donations to registered charities can be credited.

• Medical Expenses: You can claim credits for medical expenses not covered by insurance.

• Education Expenses: Although the education expense credit was eliminated after 2016 other education related credits may still be available.

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Tax Deductions:

• Mortgage Interest: Homeowners can deduct the interest paid on their primary residence.

• Child Care Expenses: If you pay for child care you may be able to deduct those expenses.

• Moving Expenses: If you moved for work or school you may be able to deduct moving expenses.

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Summary

Income tax in Toronto doesn’t have to be complicated. By knowing what’s taxable income, knowing federal and Ontario tax rates and taking advantage of deductions and credits you can make tax time less painful and save money.

Here are the main points:

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• Stay up to date on Toronto specific tax issues, land transfer and property taxes.

• Know what’s taxable income.

• Know federal and Ontario tax rates and brackets.

• Use tax deductions and credits to the max.

• Plan your taxes to minimize your tax bill.

 

Be informed and plan ahead and tax season will be a breeze. If you have any questions about your taxes contact a tax professional or check the CRA website. Tax Warriors is here to help you through the income tax in Toronto maze so you get the most back and stay compliant.

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