Tax Guide/How tax works
How a tax return is calculated
Updated November 4, 2026
Every personal return follows the same path.
| Step | Result |
|---|---|
| Add all income | Total income (line 15000) |
| Subtract deductions such as RRSP contributions | Net income (line 23600) |
| Subtract a few more items, such as capital loss carryovers | Taxable income (line 26000) |
| Apply federal and provincial rates | Tax before credits |
| Subtract non-refundable credits | Net tax |
| Subtract tax already paid and refundable credits | Refund (line 48400) or balance owing (line 48500) |
A refund is not a bonus from the government. It usually means you paid more during the year than you owed.