Tax on Split Income (TOSI)

Income tax is tax charged on the income you earn in a year, levied by both the federal government and your province or territory. Rates are graduated, so successive slices of taxable income are taxed at higher rates, and credits such as the basic personal amount reduce the tax calculated. Employment income is taxed through payroll withholding and settled on your T1 return. Quebec residents also file a separate provincial return with Revenu Quebec.

Taxable income is what is left after you total the income the tax rules include and subtract the deductions you are allowed. Employment and self-employment earnings, most pensions, EI and CPP benefits, interest, dividends, rental profit, the taxable portion of capital gains, RRSP and RRIF withdrawals and most taxable benefits from work all go into the total. Tax is then calculated on that figure and reduced by non-refundable credits such as the basic personal amount.

The repayment rate is the share of your regular EI benefits that must be paid back if your net income for the year rises above the EI benefit repayment threshold. It is shown as nil for claimants who have not received regular benefits in the preceding qualifying period, and it never applies to maternity, parental, sickness or compassionate care benefits. Tax software applies it once your income is entered. Check the current threshold on canada.ca before estimating.

Canada has no personal exemption in the American sense. The equivalent is the basic personal amount, a non-refundable credit every resident can claim, which cancels federal tax on a first slice of income, and each province has its own version at a different level. The federal amount is indexed annually and is reduced for taxpayers in the top bracket. It is applied automatically when you file, so there is nothing to elect or apply for.