Canadian employees are subject to a variety of different deductions from their gross income, meaning that the amount or net, of each pay cycle is always going to be lower than the gross amount
In this article, we discuss the range of different deductions that are made from Canadians’ pay cheques, as well as the different sort of pension and insurance arrangements workers in Canada can make to secure their futures, both as they get older and in case of illness or injury, as well as the maternity and paid leave Canadian workers are entitled to.
Income Tax Rate in Canada
In terms of direct income taxation, Canada currently has a 15%-33% rate. This is a federal tax, paid by all Canadians irrespective of the province in which they live, with the rate depending on the level of income.
The lowest rate of 15% is paid on earnings up to $53,359.00, while anyone earning $235,675.00 or more will be required to pay the top tax rate of 33%.
However, in addition to federal taxes, Canadians are also required to pay income tax at a provincial level as well. For instance, anyone living and working in Ontario will also pay between 5.05% (on earnings up to $49,231) and the top rate of 13.16% (for incomes over $220,000.00) in addition to their federal income tax levy.
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How Does Canada’s Tax Rate Compare to Other Countries?
In terms of federal tax rates, Canada has the 25th highest rate of income tax in the world. It is considerably lower than other comparable countries, such as Denmark (46.34%), France (45.4%) and Belgium (42.92%), but higher than the UK (32.7%), New Zealand (32.31%) and Australia (28.68%).
Perhaps most crucially, Canadians pay more tax than their neighbours in the United States, where the federal tax rate is 24.47% (53rd highest globally).
As above, Canadians are also required to pay provincial taxes, which can significantly increase the overall tax burden.
CRA My Account
Canadians can get assistance in the management of their tax affairs by using CRA My Account. This is a secure, online portal provided by the Canada Revenue Agency, and enables taxpayers to access both their personal and business tax information.
CRA My Account makes it easy to undertake a variety of different actions relating to tax, such as submitting documents and adjusting earlier returns, as well as providing access to T4 slips (a summary of employment earnings and deductions for each financial year) and other benefits.
Employer and Employee Deductions
There are also a variety of deductions that both employers and employees in Canada are required by law to make each pay cycle. These include a mix of pension, insurance and health tax deductions and, in some cases, employers can also make deductions from an employee’s paycheck as a result of a court order or collective agreements, or for other reasons authorized by a worker.
Pension Plan Deductions
Both employers and employees contribute to each worker’s Canada Pension Plan (CPP), at a rate of 5.95% on earnings up to $66,600. Almost all Canadians, whether they are employed or self-employed, are covered by the CPP, with the exception of those living and working in Quebec, which has its own pension plan.
The CPP is a statutory program governed by the federal government and the provinces and is designed to provide a replacement income for contributors and their families in the case of retirement, disability or death (provided relevant eligibility criteria have been met).
Employers are also required to make a 2.282% Federal Employment Insurance contribution (up to a maximum of $61,500.00), a 1.67% Workplace Safety Insurance contribution, and to pay a 1.95% Health Tax, meaning that the total contributions that employers are required to make is 11.852%.
In addition, employees make Employment Insurance contributions at a rate of 1.63% on insurable earnings up to $61,500, with a maximum annual premium of $1,002.45.
Employment Insurance is designed to provide temporary financial assistance to eligible individuals who are unemployed or unable to work for any reason (provided eligibility criteria have been met).
How Are Salaries Paid in Canada?
In Canada, employers are required to pay a new employee’s first paycheque within a month of them starting work.
Once a first payment has been paid, salaries are then required to be paid at regular intervals of no longer than 16 days (this can be extended to 1 month for managers and senior personnel). Wages are required to be paid on the preceding working day when a scheduled pay day occurs on a statutory holiday.
Most workers in Canada will have the option to receive their wages paid directly into a bank account, rather than in the form of a physical paycheque.
Working Conditions in Canada
The working week in Canada is generally Monday to Friday. The Employment Standards Labour Code has determined that the standard working week should not exceed 40 hours (8 hours a day), with the potential for 8 hours’ overtime a week (making 48 hours in total).
Overtime is required to be paid at a rate of at least 150% of a worker’s usual rate, or alternatively they can be granted an hour off of work in lieu.
Maternity Leave in Canada
Canadians who have been employed for at least 12 months prior to their expected delivery date are entitled to 17 weeks’ unpaid maternity leave. If the actual birth is later than the expected due date, two additional weeks of maternity leave can be claimed.
Both natural and adoptive parents in Canada are eligible for up to 63 weeks’ unpaid parental leave. An additional 8 weeks’ leave can be taken if the parental leave is being shared by both parents (making 71 weeks in total). Women who have given birth can combine their maternity and parental leave so that they have 78 weeks’ leave in total.
Vacation Time in Canada
In terms of vacation leave, the entitlements vary from province to province. In terms of federal legislation, workers are entitled to two weeks’ paid vacation after one year of employment, three weeks once five years of employment have been completed, while after 10 years’ continuous employment, Canadian workers are entitled to four weeks’ paid vacation each year.
The rate of pay during paid time off is based on the length of service: employees receive 4% for the first four years of work, 6% during years five to nine, and 8% once a worker has been in continuous employment for a decade.
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In conclusion, exploring the intricate landscape of wage deductions in Canada sheds light on the crucial balance between employees' financial security and the provisions offered by various insurance types such as life and health and dental plans.
It is evident that these deductions play a pivotal role in safeguarding employees' well-being and future while ensuring they have access to essential benefits and protection in the event of illness, important life events and inside retirement. The link between wage deductions and insurance offerings is profound, as both are intertwined in the pursuit of providing comprehensive support to the Canadian workforce. Wage deductions facilitate the accessibility of different insurance plans, empowering employees to prioritize their health, protect their loved ones, and prepare for unforeseen circumstances.
This is where Insurdinary comes in. We have helped millions of Canadians achieve financial wellness by way of our insurance products. As a trusted provider, we are dedicated to offering comprehensive coverage that aligns with the diverse needs of individuals, empowering them to embrace the future with confidence and security. With our tailored insurance solutions, we aim to continue supporting the well-being and prosperity of the Canadian workforce for years to come.