There are progressive tax system in Canada. So the more money you make, the more you pay in taxes exponentially.
In progressive system, everyone pays the same amount of tax up to the limit for the first tax bracket. Then, any money earned over that amount is taxed at the next rate until that tax bracket limit, and so on.
Let’s make a simple progressive tax system that has 2 tax brackets. The first applies to income of $0 – $50,000 and has a rate of 10%. The next bracket is income greater than $50,000 and has a rate of 20%. Now let’s look at our two earners again (the $40,000 and $100,000).
- Earnings = $40,000
- Tax = $40,000 x 10% = $4,000
- Earnings = $100,000
= ( $50,000 x 10% ) + ( $50,000 x 20% )
= $5,000 + $10,000
This is a very simple version of how our tax system works at both the Federal and Provincial levels.