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.

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