- Canadian Tax Resource Blog - http://blog.taxresource.ca -

How Canadian Income Tax is Calculated?

The Canadian Income Tax Act contains ordering rules and general principles for calculating net income for tax purposes and taxable income. The accumulation of income and deductions must follow a chronological order and is summarized as follows:

1. Calculate total income

Tax paperwork

By iowa_spirit_walker via Flickr

2. Calculate net income for tax purposes

3. Calculate taxable income

Taxable income is the income in which federal and provincial taxes will be calculated from.

4. Calculate federal taxes

5. Calculate provincial taxes

The balance owing or refund due is the federal tax less federal tax credits plus provincial taxes less provincial credits plus any provincial surtaxes less amounts deducted from pay cheques or paid in installments.

* Capital losses may only reduce capital gains to zero. Any remaining capital net capital loss may be carried back three years or forward indefinitely against net capital gains.
Tax software is always a good choice to calculate your taxes and often can help you find hidden credits or deductions. If you have renal income or investments try TurboTax Premier [3] or TurboTax Canada Business Tax Software [4] if you are self-employed or have a corporation.