Income and Deductions
As alluded to in the web quest and as you may remember from previous courses or your own experience, what your employer
pays you is called gross income while take-home pay is referred to as net income. Your net income is what you are left with
once all deductions have been taken away from your gross pay. Some deductions are Employment Insurance, Canada
Pension Plan and both Federal and Provincial Income Taxes. The deductions are not arbitrary and follow very strict guideline
with any imbalances needing to be cleared up and the end of each year by completing an income tax return. The following
sections highlight how each of the deductions is calculated.
Employment Insurance (EI)
All legally employed Canadians pay into the EI fund. Once you have a full-time job and have worked for the required number of
hours (essentially 1 year) you are eligible to receive EI benefits should you become unemployed (the government will pay you
for up to 1 year while you find a new job).
Year Max. Annual Insurable Earnings* Rate (%) Max. Annual Employee Premium Max. Annual Employer Premium**
2010 $43,200 1.73 $747.36 $1,046.30
* If you have a gross annual income of more than $ 43,200 you will only pay 1.73% of $43,200 or $747.36
** The contribution of the employer to EI is 1.4 times the contribution of the employee.
If Sam has a gross income of $ 60,000, how much will he pay over the year in EI premiums? If he is paid bi-weekly?
$60,000 is greater than $43,200 therefore he will pay the max.
$43,200 x 0.0173 = $747.36 annually in EI
$747.36 ÷ 26 = $28.74 bi-weekly EI deduction
Canada Pension Plan (CPP)
Max. Annual Maximum Employee Max. Annual Max. Annual Self -
Pensionable Basic Contributory Contribution Rate Employee Employed
Year Earnings Exemption* Earnings** (%) Contribution Contribution
2010 $47,200 $3,500 $43,700 4.95 $2,163.15 $4,326.30
* If your gross annual income is less than $3500 you will not pay into CPP.
** If you make more than $47,200 you will only pay a maximum of $2,163.15 in CPP.
If Sam has a gross income of $ 60,000, how much will he pay over the year in CPP? If he is paid bi-weekly?
Account for basic exemption $60,000 - $3,500 = $56,500
$56,500 is greater than $43,700 therefore he will pay the max.
Calculate annual contribution $43,700 x 0.0495 = $2,163.15
$2,163.15 ÷ 26 = $83.20 bi-weekly CPP deduction
Federal Income Tax (paid to the Federal Government)
Income tax is different than say the HST because it is not applied as a single percentage of the whole rather it is applied in
stages depending on your income. Essentially each time your income increases to a new tax level that additional income is
taxed at a higher percentage than the previous. Trivia: Over 90% of all income tax collected is paid by the top 25% of earners.
15% on the first $40,970 of taxable income, +
22% on the next $40,971 of taxable income (the portion of taxable income between $40,970 and $81,941), +
26% on the next $45,080 of taxable income (the portion of taxable income between $81,941 and $127,021), +
29% of taxable income over $127,021.
If Sam has a gross income of $ 60,000, how much will he pay over the year in Federal Income Tax? If he is paid bi-weekly?
His income is over $40,970, so he will pay 15% of $40,970, then 22% of the remaining ($60,000 - $40,970) $19,030
$40,970 x 0.15 = $6,145.50
$19,030 x 0.22 = $4,186.60
Total FEDERAL Tax is $6,145.50 + $4,186.60= $10,332.10 annually
$10,332.10 ÷ 26 = $397.39 bi-weekly Federal Tax deduction
Nova Scotia Income Tax (paid to the Provincial Government)
8.79% on the first $29,590 of taxable income, +
14.95% on the next $29,590 of taxable income (on the portion of taxable income between $29,590 and $59,180), +
16.67% on the next $33,820 of taxable income (on the portion of taxable income between $59,180 and $93,000), +
17.5% of taxable income over $93,000
If Sam has a gross income of $ 60,000, how much will he pay over the year in NS Income Tax? If he is paid bi-weekly?
His income is over $29,590, so he will pay 8.79% of $29,590, then 14.95% of the next $29,590, this leaves ($60,000 - $59,180)
$820 on which the tax is 16.67%.
$29,590 x 0.0879 = $2,600.96
$29,590 x 0.1495 = $4,423.71
$820 x 0.1667 = $136.69
Total Nova Scotia Tax is $2,600.96 + $4,423.71 + $136.69 = $7,161.36 annually
$7,161.36 ÷ 26 = $275.44 bi-weekly Nova Scotia Tax deduction
Of his $60,000 gross annual income, how much does Sam get to take home, what is his annual net income? Bi-weekly?
$60,000 (gross) – $747.36 (EI) – $2,163.15 (CPP) – $10,332.10 (F-Tax) – $7,161.36 (NS Tax) = $39,596.03 net annually
$39,596.03 ÷ 26 = $1,522.92 net bi-weekly
Practice with Income and Deductions
For each annual gross income calculate the annual EI, CPP, Federal and Provincial (NS) Income Tax deductions, annual net pay and bi-weekly net pay.
Annual Gross Annual EI Annual CPP Annual Federal Annual Nova Total Deductions Annual Net Bi-weekly Net
Income Deductions Deductions Tax Deductions Scotia Tax Income Income