Understanding one's actual take-home pay is crucial information for anyone new to Toronto, or even for those currently job searching. Grasping payroll deductions will empower you to negotiate an adequate salary and make sound financial decisions.
The Pay Stub in Ontario
It's important to fully understand your pay stub in Ontario, which may be much simpler (or more complex!) than what you are used to.
No matter your employer, your Ontario pay stub, called a paystub here, will look roughly the same. You will find:
Your name
The pay period (normally 2 weeks)
Your gross and net pay
A breakdown of each deduction (more details below)
Your gross and net pay accumulated so far
Example of a pay stub generated by canadapaystubs.com:
Payroll Deductions
CPP - Canada Pension Plan
This is the contribution to the Canada Pension Plan which will provide you with a taxable pension to replace part of your income after you retire. This contribution (and future pension you receive) is quite minimal in Canada: it is highly recommended to contribute to additional plans as well.
In 2024, the deduction rate is 5.95% and the maximum pensionable earnings is $68,500. Note that the first $3,500 of earnings is exempt. This means in practice that if your gross salary is over $68,500, you will pay annually to CPP: (68,500 - 3,500) x 5.95% = $3,867.50. Your employer will pay the same amount on their end.
If your pay stub shows the bi-weekly amount, this equals $3,867.50 / 26 = $148.75.
EI - Employment Insurance
This is the contribution to Canada's Employment Insurance which will provide you with a taxable benefit to replace part of your income in case you lose your job through no fault of your own.
In 2024, the deduction rate is 1.66% and the maximum insurable earnings is $63,200. This means in practice that if your gross salary is over $63,200, you will pay annually to EI: $63,200 x 1.66% = $1,049.12. Your employer will pay a significantly higher amount on their end.
If your pay stub shows the bi-weekly amount, this equals $1,049.12 / 26 = $40.35.
Fed Tax - Federal Income Tax
This is the federal income tax collected by the Canadian government. This tax is indexed to your gross income according to the following brackets:
Annual Gross Salary | Tax Rate |
$0 to $55,867 | 15.0% |
$55,868 to $111,733 | 20.5% |
$111,734 to $173,205 | 26.0% |
$173,206 to $246,752 | 29.0% |
From $246,752 | 33.0% |
This means in practice that if your gross salary is $100,000, you will pay annually in federal tax: $55,867 x 15% + ($100,000 - $55,867) x 20.5% = $17,427.32.
If your pay stub shows the bi-weekly amount, this equals $17,427.32 / 26 = $670.28.
Income Tax - Ontario Income Tax
This is the provincial income tax collected by Ontario in addition to the Canadian federal tax. This tax is indexed to your gross income as per the following brackets:
Annual Gross Salary | Tax Rate |
$0 to $51,446 | 5.05% |
$51,446 to $102,894 | 9.15% |
$102,894 to $150,000 | 11.16% |
$150,000 to $220,000 | 12.16% |
From $220,000 | 13.16% |
This means in practice that if your gross salary is $100,000, you will annually pay $51,446 x 5.05% + ($100,000 - $51,446) x 9.15% = $7,040.71 in Ontario income tax.
If your pay stub shows the bi-weekly amount, this equals $7,040.71 / 26 = $270.80.
Other Deductions
In addition to the above payroll deductions, your employer may deduct other amounts from your pay. These should show up on your pay stub and may include:
Supplemental pension contributions: Your employer may offer a group Registered Retirement Savings Plan (RRSP) or a company pension plan you are enrolled in. If you have elected to contribute, you should see deductions for these.
Extended health coverage or other benefits: Your employer may provide things like life insurance, supplementary health insurance, vision or dental plans, or accident insurance. In that case, the employee often shares some of the costs of benefits.
In Summary
In short, Canada and Ontario have relatively high taxes. It is essential for future residents to understand the tax system in order to properly estimate their take-home pay after tax. When comparing gross salaries, one must account for payroll deductions and taxes which significantly reduce the final amount deposited into your bank account.
It’s also important to keep in mind that mandatory pension contributions are often insufficient to maintain one’s standard of living after retiring. That is why it is recommended to make additional retirement savings contributions as early as possible in one's career.
By being well informed about the high taxes and the need to save more for retirement, residents of Canada and Ontario can make sound financial decisions to maximize their net income while also adequately preparing for retirement.
Simple Relocate is your relocation partner in Toronto. We can assist you in getting settled in Toronto, and provide a variety of other services to facilitate your move to Ontario.