Benchmarking Key Business and Personal Tax Rates

Topic Box from the 2006 Sixth Annual Benchmark Report

The federal government uses four brackets to determine personal income tax owed while most provinces use three. British Columbia's personal income tax system has five brackets, New Brunswick and Nova Scotia use four and Alberta, with its single rate system, has only one taxable income bracket.

The brackets and rates in the table below apply to taxable income, that is, after exemptions and deductions have been applied to total income. British Columbia and Ontario have the lowest rate in the first bracket, and although Ontario's second rate does not apply until a slightly higher level of taxable income, BC's structure has a higher basic personal amount which allows one to earn more before income is considered taxable. Alberta has the highest basic personal amount which, at $14,899, is well above BC's third-highest $8,858.

The highest tax rate in the federal structure, 29.0 percent, applies to taxable incomes over $118,286. The comparable rates in the provincial systems range from Alberta's 10.0 percent, which applies to all taxable income, to Newfoundland and Labrador's 18.02 percent which applies to taxable incomes of $59,181 and higher. British Columbia's highest tax rate of 14.7 percent is applied to taxable incomes over $94,122.

In addition to basic federal and provincial personal income tax, four provinces, Ontario, Nova Scotia, Prince Edward Island and Newfoundland & Labrador levy surtaxes at varying rates. These rates apply once "basic" personal income tax reaches the threshold listed in the table.

With an annual income of $30,000 in 2005, a married taxpayer with a spouse and two children of ages six and twelve would pay $2,812 in federal and BC income tax. This fourth-lowest amount among the provinces compares to the lowest, Alberta at $2,086 and Newfoundland and Labrador, the highest at $3,656. The same taxpayer, with an income of $60,000 would pay $11,067 in Alberta, followed by second-lowest BC at $11,566. This taxpayer in Newfoundland and Labrador had the highest tax bill among the provinces at $14,591. Among the provinces, British Columbia's top marginal personal income tax rate is second-lowest for most people's main income source, salary and interest income, second-lowest for capital gains income and fourth-lowest for dividend income.

Alberta has the lowest and Newfoundland and Labrador has the highest top marginal personal income tax rates for all classes of income.

British Columbia has the third-lowest combined federal and provincial small business income tax rates for 2006, behind Alberta and New Brunswick. The highest rate for small businesses with incomes less than $300,000 is in Quebec.

BC ranked third among the provinces for its general corporate tax rate, behind Quebec and Alberta, and ranked second, behind Alberta for the tax rate on corporate investment income. Quebec had the highest investment income tax rate in 2006.

Sources: KPMG, 2006 Combined Federal and Provincial Top Marginal Tax Rates for Individuals and Federal and Provincial Tax Rates, Brackets and Surtaxes, 2006 Federal and Provincial Personal Tax Credits, 2005-2006 Combined Federal and Provincial Income Tax Rates for Income Earned by a Canadian-Controlled Private Corporation; Canadian Tax Foundation, Finances of the Nation 2005.
Note: The tables presented above are simplified versions of the originals; please see the original documents for the full set of footnotes.