How Much $120k After Tax in Ontario?

Tax Rates and Take-Home Pay

For a gross annual income of $120,000 in Ontario, total income tax owed is estimated to be around $38,647, including federal tax, provincial tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums. This results in an average tax rate of 32.2% and a marginal tax rate of 43.4% [[1]].

After these taxes and deductions, the annual net take-home pay would be approximately $81,353, which equals $6,779 per month.

The marginal tax rate indicates that any additional income earned will be taxed at 43.4%. For example, a $100 raise would generate $56.59 in net take-home pay after taxes [[1]].

As for bonuses, a $1,000 bonus would result in around $566 of net extra income after tax. Meanwhile, a $5,000 bonus would generate approximately $2,830 in additional net income [[1]].

Deductions

Some of the most common tax deductions that can be claimed to reduce taxable income in Ontario include:

  • Registered Retirement Savings Plan (RRSP) contributions
  • Canada Pension Plan (CPP) contributions
  • Employment Insurance (EI) premiums
  • Childcare expenses
  • Moving expenses
  • Medical expenses
  • Charitable donations
  • Union dues [[3]]

The more tax deductions that are claimed, the lower the taxable income will be. This helps minimize total income tax owed.

Comparison to Other Provinces

Comparing Ontario to other provinces, it has higher average and marginal tax rates than Alberta, British Columbia, Saskatchewan, and Quebec on a $120,000 salary. However, the take-home pay after tax in Ontario is still competitive.

For example, if the same gross $120,000 salary was earned in Alberta, the net income after tax would be approximately $86,286 per year, or $7,190 per month. So take-home pay is only about $911 higher per year in Alberta than Ontario. The tax rates are more favorable in Alberta, but there is not a massive difference on this income level [[6]].

Is $120,000 a Good Salary?

In the Toronto area specifically, the average total salary is $62,050, so an income of $120,000 is 93.4% higher than the norm [[9]]. The average household income is Toronto is $121,200.

Given the high cost of living in Toronto, a gross salary of $120,000 translates to a decent standard of living. Based on average expenses, the monthly net take-home pay of $6,779 would sufficiently cover costs for an individual like housing, transportation, food, and entertainment in the city [[9]].

However, for larger households supporting children and multiple family members, this salary would provide less breathing room. Individual circumstances determine whether $120,000 constitutes a "good" salary.

But in summary, an income of $120,000 positions someone well above the averages for both individual and household incomes in Toronto. It provides the ability to live comfortably in the city as a single person while affording increased savings and investment opportunities.

Tax Rates Over Time

Tax rates at both federal and provincial levels have changed over the years in Ontario. Comparing 2023 to 5 years ago in 2018, some of the key tax brackets have increased:

2023 Ontario Tax Brackets [[1]]

  • $0 to $49,231 - 5.05%
  • $49,231 to $98,463 - 9.15%
  • $98,463 to $150,000 - 11.16%
  • $150,000 to $220,000 - 12.16%
  • $220,000+ - 13.16%

2018 Ontario Tax Brackets

  • $0 to $42,960 - 5.05%
  • $42,960 to $85,923 - 9.15%
  • $85,923 to $150,000 - 11.16%
  • $150,000 to $220,000 - 12.16%
  • $220,000+ - 13.16%

While the lowest tax bracket has increased from $42,960 to $49,231, the top brackets have remained unchanged over the past 5 years. Overall, Ontario marginal tax rates are still considered high relative to other parts of North America.

Tax Planning Opportunities

For high income earners like those making $120,000 per year, some tax planning opportunities and savings strategies include:

  • Max out registered accounts - Contribute the maximum to RRSPs or TFSAs to shelter investment income from taxes
  • Income splitting - Spread income to lower earning spouses or common law partners
  • Incorporate - Consider forming a Canadian-controlled private corporation (CCPC) to access the small business deduction tax rate
  • Charitable donations - Donate to registered charities to claim non-refundable tax credits
  • Tax-loss selling - Sell investments at a loss to offset capital gains
  • Tax prep guidance - Hire an accountant to uncover specialized deductions and structure finances tax-efficiently

Proper tax planning for high net worth individuals can lead to substantial tax savings over time. Consulting a certified accountant can reveal tailored opportunities based on your province, career, family status, investments, and other sources of income.

Conclusion

An annual salary of $120,000 in Ontario results in an average tax rate around 32.2% and net take-home pay of approximately $81,353. This provides a healthy income to live in expensive cities like Toronto as a single person or small family, though larger households may find it more challenging.

Tax rates in Ontario remain high compared to other jurisdictions, but have only increased slightly on the low end tax brackets over the past 5 years. Those earning $120,000 have tax planning options to shelter more income from taxes through registered accounts, income splitting, and other strategies. Understanding provincial tax rates and claims available in Ontario is important for high income professionals to minimize their total tax obligations.

Written By:
Salman Rundhawa
Salman Rundhawa is the founder of Filing Taxes. Salman provides valuable tax planning, accounting, and income tax preparation services in Toronto, Mississauga, Oakville, and Hamilton.

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