In Canada, individuals are required to report and pay taxes on their income. However, there is a threshold or minimum amount of income that determines whether or not you have to claim it. This threshold is known as the basic personal income tax exemption.
The basic personal income tax exemption is the amount of income a person can earn before they are required to pay any federal income tax. In Canada, this exemption amount changes each year and is based on a variety of factors, including inflation and changes to tax laws.
For the tax year 2021, the basic personal income tax exemption is $13,808. This means that if an individual earns less than $13,808 in a year, they are not required to pay federal income tax on that income. However, it is important to note that this exemption applies only to federal income tax and does not exempt individuals from paying other types of taxes, such as provincial or territorial taxes.
It is also important to understand that even if your income falls below the basic personal income tax exemption, you may still be required to file a tax return if you have received certain types of income or if you want to claim certain tax credits or benefits. For example, if you earned income from self-employment, received rental income, or received certain government benefits, you may still need to file a tax return even if your income is below the exemption amount.
Additionally, it is worth mentioning that the basic personal income tax exemption is applied on an individual basis. This means that each individual, including children and dependents, is entitled to their own exemption amount. For example, if you have a child who has earned income, they would have their own exemption amount separate from yours. This can be beneficial for families with multiple earners, as it allows each individual to benefit from their own exemption.
It is also important to keep in mind that while the basic personal income tax exemption determines whether or not you have to pay federal income tax, it does not exempt you from other tax obligations. For example, if you earn income from self-employment or rental properties, you may be required to pay self-employment or business taxes. Additionally, if you earn income in a province or territory that has its own income tax, you may be subject to provincial or territorial taxes, regardless of your federal tax obligations.
In conclusion, the basic personal income tax exemption in Canada is the minimum amount of income an individual can earn before they are required to pay federal income tax. For the tax year 2021, this exemption amount is $13,808. However, it is important to note that even if your income falls below the exemption amount, you may still be required to file a tax return if you have received certain types of income or if you want to claim certain tax credits or benefits. Lastly, while the basic personal income tax exemption determines federal tax obligations, it does not exempt individuals from other tax obligations, such as provincial or territorial taxes or self-employment taxes.