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Q&A on Ontario Tax Increases

Q: Does the tax increase only apply to regular salary?

A: The new Ontario personal income tax rates apply to all taxable income including regular salary, taxable benefits and allowances, bonus payments, commissions, etc. Employees with other sources of income ─such as investment or rental income ─may wish to request additional income tax through payroll to help reduce a possible tax liability when they file their personal tax return.

Q: If an employee already earned over $150,000 before September 1, 2014, how will the retroactive tax increases work?

A: The retroactive formula will deduct additional taxes from September to December 2014 based on the fact that lower taxes were deducted from January to August 2014.

Q: If an employee earns an annual salary of $140,000, but will possibly receive a $20,000 bonus by the end of the year, how are they affected?

A: The bonus tax method should always be applied on irregular payments, such as bonuses. This method contains formulas to recognize that the employee will be in a higher tax bracket, based on the adjusted total annual taxable income, and will apply the higher tax rates accordingly.

Q: If employees had bonus or commission payments prior to September 1, 2014, will they have an additional tax liability?

A: While the September payroll tables contain a retroactive formula to help “catch an employee up” on the eight months of income taxes already deducted through payroll at the lower rate, employees may still have a tax owing when they file their 2014 personal income tax return, especially if they received a bonus or commission type payment prior to September. Employees may want to request additional income tax using a TD1 form to help reduce a possible tax liability upon filing their personal return.

Q: Why do the tax rates in the CPA’s tax briefing differ from the rates posted by the CRA in the September 2014 publication of the T4127 guide?

A: The income tax rates in the CPA’s briefing match the rates announced in the Ontario budget. The rates published in the CRA’s T4127 guide include the retroactive factor since the tax increases are effective January 1 2014.

The rates had to be increased by more than those announced in the Ontario budget to deal with the eight months that payroll systems would have been applying the lower rates.   

The following table includes a comparative look at the previous Ontario income tax rates, the new rates, and the rates payroll systems should be using for September to December 2014.

Previous 2014 Ontario tax rates and income thresholds

New 2014 Ontario tax rates and income thresholds

Ontario tax rates and income thresholds for payroll systems effective September 2014

Annual taxable income ($)
From – To

Tax rate (%)

Annual taxable income ($)
From – To

Tax rate (%)

Annual taxable income ($)
From – To

Tax rate (%)

0 to 40,120

5.05

0 to 40,120

5.05

0 to 40,120

5.05

40,120 to 80,242

9.15

40,120 to 80,242

9.15

40,120 to 80,242

9.15

80,242 to 514,090

11.16

80,242 to 150,000

11.16

80,242 to 150,000

11.16

514,090 and over

13.16

150,000 to 220,000

12.16

150,000 to 220,000

14.16

 

 

220,000 and over

13.16

220,000 to 514,090

17.16

 

 

 

 

Over 514,090

13.16