Blog Layout

Understanding How Bonuses Are Taxed in Canada

Mark Virgil Lofranco • 12 November 2024

How Bonuses Are Taxed in Canada: What You Need to Know


Receiving a bonus on top of your regular salary is always exciting—who wouldn’t love some extra cash? But before you get too excited, remember that your bonus is still subject to taxes, just like your regular income. If you’re not familiar with how bonuses work, you might end up with an unexpected tax bill when it’s time to file your return.


Take a moment to learn the essentials about how bonuses are taxed in Canada so you can be prepared and avoid any surprises.

Are Bonuses Taxed Differently from Salaries in Canada?


No, they aren’t. Bonuses are taxed the same way as your salary, following federal and provincial/territorial marginal tax rates. It might seem like you’re paying more taxes on your bonus because it can push a portion of your income into a higher tax bracket.

Canada has a marginal tax system, meaning different portions of your income are taxed at different rates. So, when a bonus is added to your salary, part of your total income could end up in a higher bracket, leading to a higher tax rate on that portion. (Curious about tax rates? We’ll cover them at the end of this article.)


How Bonuses Are Taxed in Canada

Bonuses fall under “supplemental income,” which is essentially any earnings above your regular salary. In Canada, supplemental income is taxed just like regular salary—there’s no difference in how they’re treated.

Similar to your salary, your bonus will have deductions such as Canada Pension Plan (CPP) and Employment Insurance (EI) unless you’ve already reached the maximum contribution limits for the year.


How Much Tax Is Deducted from a Bonus?

Let’s break it down with an example. Ravi, who lives in Ontario, earns $100,000 a year from his tech job. At the end of the fiscal year, he receives an $8,000 bonus. Here’s how we can calculate the tax on his bonus:

  1. Using a tax calculator for Ontario, Ravi owes about $21,590 in taxes on his regular $100,000 salary ($14,362 federal tax + $7,228 provincial tax).
  2. Adding the $8,000 bonus to his salary brings his total income to $108,000. His estimated tax on this amount is $24,472 ($16,038 federal tax + $8,435 provincial tax).
  3. The difference between the two totals ($24,472 - $21,590 = $2,882) shows that Ravi would owe $2,882 in tax on his $8,000 bonus.


How to Report a Bonus on Your Tax Return

Reporting a bonus on your tax return is simple. It goes on the same line as your employment income (line 10100 on your tax return). This is where you report your salary, wages, commissions, and bonuses. Your bonus will also appear in Box 14 (employment income) on your T4 slip and may also be included in Box 40 (other taxable allowances and benefits).


Bonus Tax and RRSPs

If you want to reduce your taxable income, you can ask your employer to deposit your bonus directly into your RRSP. This way, no taxes are withheld at the time, and you don’t have to wait for a refund to invest the money.

However, remember that your contribution room stays the same, and the bonus is counted for the year it’s awarded.


Federal and Provincial Bonus Tax Rates

Here are the current marginal federal and provincial tax rates for 2024 to help you calculate the taxes on your bonus:


Federal Income Tax Rates (2024):

  • 15% on income up to $55,867
  • 20.5% on income from $55,867 to $111,733
  • 26% on income from $111,733 to $173,205
  • 29% on income from $173,205 to $246,752
  • 33% on income over $246,752


Provincial and Territorial Income Tax Rates (2024): Tax rates vary by province. Below are a few examples:

  • Ontario: 5.05% on income up to $51,446, increasing incrementally to 13.16% on income over $220,000.
  • British Columbia: 5.06% on income up to $47,937, increasing to 20.5% on income over $252,752.
  • Alberta: 10% on income up to $148,269, increasing to 15% on income over $355,845.


Understanding the tax rates for your province or territory will help you calculate how much tax you’ll owe on your bonus.


Stay Prepared for Bonus Taxation in Canada By understanding how bonuses are taxed, you can plan ahead and ensure that you’re financially prepared come tax season. If you’re ever in doubt, consulting a tax expert can help you make the most of your bonus without any surprises.


Key Takeaways

  • While receiving a bonus is great, be sure to add that lump sum to your taxable income for the year.
  • Bonuses are taxed just like your salary, based on marginal federal and provincial tax rates. You'll report it alongside your employment income when filing your taxes.
  • Employers can deposit your bonus directly into an RRSP without tax withholding, provided you have enough contribution room.

Understanding the USA/Canada Tax Treaty

by Mark Virgil Lofranco • 9 December 2024
Are you a U.S. citizen living and working in Canada? Maybe you're a dual resident unsure of which tax rules to follow, or perhaps you cross the border daily to work for a Canadian company. Understanding the U.S./Canada Tax Treaty is essential for anyone earning cross-border income.  Filing taxes in just one country can be complex, and the U.S. tax system is one of the most complicated in the world. Figuring out taxes for both Canada and the U.S. can be challenging, but don’t worry, we’ve got answers. Here’s how your taxes work under the U.S./Canada tax agreement if you’re living or working in Canada and earning income.

9 Commonly Overlooked Tax Deductions for Startup Owners

by Mark Virgil Lofranco • 9 December 2024
Starting your own business is an exciting and rewarding journey, but with all the enthusiasm, some important financial details—like tax deductions—can be overlooked. As a new business owner, reducing your tax burden is crucial to maximizing profits, yet many Canadian small-business owners miss out on valuable tax deductions, paying up to 42% in taxes.  While you're likely familiar with common deductions like office supplies, meals, and wages, there are many lesser-known tax breaks that could save you money. Let’s dive into nine commonly missed tax deductions that could benefit your startup.

Methods to withdraw RESP

by Mark Virgil Lofranco • 9 December 2024
Navigating the financial landscape of your child’s education expenses, especially with rising inflation, can be challenging. Whether you're already contributing to a Registered Education Savings Plan (RESP) or considering opening one to fund your child’s post-secondary education, it’s essential to understand the rules and benefits associated with RESP withdrawals.  Here’s a comprehensive guide to help you make the most of your RESP in Canada.

Essential Tax Credits and Grants Every Small-Business Owner Should Be Aware Of

by Mark Virgil Lofranco • 9 December 2024
Did you know that public funding could help kickstart your business? While many entrepreneurs are familiar with startup loans, fewer know about the wealth of public funding options available—specifically, tax credits and grants. These financial resources can be game changers for launching and growing your business.  This article will guide you through various tax credits, grants, and other public funding options that can support your small business.

How to Handle Toronto's Inherent Property Tax Increase: Tax Advice for First-Time Buyers

by Mark Virgil Lofranco • 9 December 2024
Buying your first home in Canada is an exciting milestone. However, potential and current homeowners in Toronto should be aware of a major change on the horizon: a proposed 10.5% increase in residential property taxes, the largest since 1998. This hike, driven by a nearly $1.8B budget shortfall, includes a 1.5% increase dedicated to city-building projects, such as transit and housing. Homeowners could face an extra $26.75 per month, or $321 annually, in property taxes. City officials have also warned that without federal funding, property taxes could rise even further, up to 16.5%.

A CRA Business Number (BN): What Is It and Who Needs One?

by Mark Virgil Lofranco • 9 December 2024
Congratulations! Whether you’ve just become self-employed or started a side gig to earn extra income, you're on an exciting journey. Amid all the hustle, you might have come across something called a Business Number (BN). But what exactly is it, and do you need one? Let’s dive in and explore everything you need to know about registering for a BN as a self-employed person or small business owner.

2023 Canada Tax Checklist: Essential Documents You Need to File Your Taxes

by Mark Virgil Lofranco • 9 December 2024
Picture this: tax season is approaching, and you’re frantically trying to gather the documents you need, worried you might miss something important. Sound familiar? That’s why having a tax checklist is essential. It helps you stay organized and ensures you have everything you need to file smoothly.  In this article, we’ll cover all the documents you need to have handy when filing your taxes!

2024 Tax Deadline: When Is the Last Day to File Your Taxes?

by Mark Virgil Lofranco • 9 December 2024
As a taxpayer, one of the most critical aspects to stay on top of is the deadline for filing your taxes. The Canada Revenue Agency (CRA) enforces strict due dates for both returns and payments. Filing on time not only helps you avoid interest and penalties but also ensures you get your refund faster. We’ve compiled all the key tax dates you need to know for a stress-free tax season.

NETFILE Opening in Canada: When You Can Start Filing Your Taxes

by Mark Virgil Lofranco • 9 December 2024
The way we file taxes has evolved dramatically over the past two decades, making it faster and more efficient to submit your returns. With tools like NETFILE, the Canada Revenue Agency (CRA) offers taxpayers a quick and secure method to file returns online. This article explains when to file your taxes, key deadlines, how NETFILE works, and why it’s a great option for fast-tracking your tax return.

Missed the Tax Deadline? Here’s Why It’s Not Too Late to File

by Mark Virgil Lofranco • 9 December 2024
If you missed the tax filing deadline and are feeling anxious, take a deep breath—it’s more common than you think, and it’s not too late to take action!  You can still file your tax return even after the deadline, and this article will walk you through the process to help you file confidently and minimize any potential penalties.
More posts
Share by: