How Bonus Taxation in Canada Works (with Examples)

While bonus payments are often an eagerly anticipated year-end event, they can sometimes be deflating if we don’t understand taxation.

Luckily, tax on bonuses doesn’t need to be complicated. By quickly calculating our take-home bonus, you can make informed decisions about budgeting, financial goals, and potential tax implications.

In this article, we'll explore how taxes on your base salary and bonus amount are calculated so that you can calculate a proper bonus payout.

How to calculate taxes on bonus payouts?

The taxes on bonuses are the same as if they were included in your basic salary. In Canada, bonuses are considered a taxable benefit and therefore are considered taxable income.

The tax rates, however, will vary depending on your Province or Territory. With the addition of the bonus to your salary, it is possible that part of your income will be taxed in the next tax bracket.

While we provide the tax bracket ranges in the article, we still recommend using a tax calculator (we’ll show you how below) so that you don’t have to calculate the tax on your bonus manually – saving you time.

To understand how bonus taxes are calculated, let's use an example.

For this example:

• You live in Ontario, Canada
• Your base salary is $80,000
• You are receiving a one-time bonus of $10,000.
• You want to know how much tax will be on the $10,000 bonus amount

Step 1 - Calculate taxes on base salary

To quickly calculate the taxes, you'll want a simple tax calculator.

In our example, the base salary is $80,000. In the tax calculator, add this amount to the Employment Income field of the calculator.

On the right, you'll see the Federal and Provincial tax breakdown. Take note of these amounts.

Step 2 - Calculate taxes on the base salary + bonus

In our example, we received a $10,000 bonus; add this to the $80,000 salary for a total of $90,000.

Next, enter this updated amount into the Employment Income field of the calculator. Again, take note of the updated Federal and Provincial tax amounts.

Step 3 - Subtract the difference between the combined taxes

Next, subtract the total Federal + Provincial tax amounts in Step 1 from Step 2.

(Step 2 Federal + Provincial Tax) - (Step 1 Federal + Provincial Tax) = Estimated taxes to be paid on your bonus.

In our example: $18,421 - $15,448 = $2,973.00

We can expect to pay an estimated $2,973 on the bonus of $10,000. The $15,448 of taxes may have already been deducted from our paycheque, so we don't consider this for the taxed amount on the bonus.

This two-step calculation, one with and one without the bonus is called the Bonus Method. We also discuss the Periodic method (the method the CRA uses to calculate income tax source deductions) comparison in the same article. You may notice that the two methods follow a similar logical structure.

For reference, you can see the Federal and Provincial tax rates. Note the calculator you used previously already took these rates into account. You do not need to recalculate it again.

Federal and provincial tax rates

2023 federal tax rates

• 15% up to $53,359 of taxable income
• 20.5% between $53,359 and $106,717
• 26% between $106,717 and $165,430
• 29% between $165,430 up to $235,675
• 33% on any amount taxable income exceeding $235,675

2023 tax rates by Province

Alberta

• 10% for income up to $142,292
• 12% for income between $142,292 and $170,751
• 13% for income between $170,751 and $227,668
• 14% for income between $227,668 and $341,502
• 15% for any taxable income above $341,502

British Columbia

• 5.06% for income up to $45,654
• 7.7% for income between $45,654 and $91,310
• 10.5% for income between $91,310 and $104,835
• 12.29% for income between $104,835 and $127,299
• 14.7% for income between $127,299 and $172,602
• 16.8% for income between $172,602 and $240,716
• 20.5% for any taxable income above $240,716

Manitoba

• 10.8% for income up to $36,842
• 12.75% for income between $36,842 and $79,625
• 17.4% for any taxable income above $79,625

New Brunswick

• 9.4% for income up to $47,715
• 14% for income between $47,715 and $95,431
• 16% for income between $95,431 and $176,756
• 19.5% for any taxable income above $176,756

Newfoundland and Labrador

• 8.7% for income up to $41,457
• 14.5% for income between $41,457 and $82,913
• 15.8% for income between $82,913 and $148,027
• 17.8% for income between $148,027 and $207,239
• 19.8% for income between $207,239 and $264,750
• 20.8% for income between $264,750 and $529,500
• 21.3% for income between $529,500 and $1,059,000
• 21.8% for any taxable income above $1,059,000

Nova Scotia

• 8.79% income up to $29,590
• 14.95% for income between $29,590 and $59,180
• 16.67% for income between $59,180 and $93,000
• 17.5% for income between $93,000 and $150,000
• 21% for any taxable income above $150,000

Ontario

• 5.05% for income up to $49,231
• 9.15% for income between $49,231 and $98,463
• 11.16% for income between $98,463 and $150,000
• 12.16% for income between $150,000 and $220,000
• 13.16% for any taxable income above $220,000

Prince Edward Island

• 9.8% for income up to $31,984
• 13.8% for income between $31,984 and $63,969
• 16.7% for any taxable income above $63,969

Quebec

• 15% for income up to $49,275
• 20% for income between $49,275 and $98,540
• 24% for income between $98,540 and $119,910
• 25.75% for any taxable income above $119,910

Saskatchewan

• 10.5% for income up to $49,720
• 12.5% for income between $49,720 and $142,058
• 14.5% for any taxable income above $142,058

2023 tax rates by territories

Northwest Territories

• 5.9% for income up to $48,326
• 8.6% for income between $48,326 and $96,655
• 12.2% for income between $96,655 and $157,139
• 14.05% for any taxable income above $157,139

Nunavut

• 4% for income up to $50,877
• 7% for income between $50,877 and $101,754
• 9% for income between $101,754 and $165,429
• 11.5% for any taxable income above $165,429

Yukon

• 6.4% for income up to $53,359
• 9% for income between $53,359 and $106,717
• 10.9% for income between $106,717 and $165,430
• 12.8% for income between $165,430 and $500,000
• 15% for any taxable income above $500,000

Wrapping it up

Understanding how bonuses are taxed in Canada is important for employees seeking to optimize their earnings and avoid unexpected tax obligations.

Bonuses are taxed as income, with rates varying by province or territory. Employees can use the Bonus Method and a simple tax calculator to quickly calculate their tax liability on their base salary and bonus, helping them make informed decisions about their bonus payouts.

So, take the time to familiarize yourself with the process and use the provided examples to navigate bonus taxation with confidence.

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