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Income tax in Canada is also a progressive tax system, where the tax rates increase as the income level rises. The income tax in Canada is calculated based on the taxable income, which is the income after deducting allowable deductions and credits.
To calculate income tax in Canada, you generally follow these steps:
Determine your taxable income: This is your total income from various sources, such as employment, self-employment, investments, and other taxable earnings, minus any allowable deductions or credits.
Calculate federal income tax in Canada: Apply the federal tax rates, which are progressive, to your taxable income based on the federal tax brackets. The federal tax rates and brackets can change each year and are set by the government.
Calculate provincial or territorial income tax: Each province or territory in Canada has its own tax rates and brackets. Apply the applicable provincial or territorial tax rates to your taxable income based on your province or territory of residence.
Add federal and provincial/territorial taxes: Combine the calculated federal and provincial or territorial taxes to get your total income tax liability.