In Ontario, a bonus is often a significant and expected part of an employee’s annual compensation. Whether it is a year-end holiday bonus, a performance-based commission, or a discretionary payout, employees frequently have questions about how much of their bonus they will actually keep after taxes—and what happens if their employer refuses to pay it.
If your employer in Ontario has withheld your bonus, or excluded it from your severance package, you have strict legal rights under provincial and common law to recover that money.
The Quick Answer: How are bonuses taxed in Ontario? The Canada Revenue Agency (CRA) taxes bonus pay exactly the same as your regular salary. It is subject to standard income tax, CPP, and EI deductions. However, from a legal perspective, if a bonus is a regular part of your compensation, your employer can’t arbitrarily withhold it or exclude it from your severance pay if you are terminated.
On This Page:
- 1. How Are Bonuses Taxed in Ontario?
- 2. Why Is So Much Tax Deducted From a Bonus?
- 3. Bonus When Fired in Ontario
- 4. What to Do if Your Employer Withholds Your Bonus
- 5. Consult an Employment Lawyer
How Are Bonuses Taxed in Ontario?
A common misconception among employees is that bonuses are subjected to a special, higher “bonus tax rate.” This is completely false.
Under the CRA guidelines, a bonus is simply classified as supplemental employment income. This means the tax on a bonus in Ontario is exactly the same as the tax on your regular wages. Your employer is legally required to deduct the following from your bonus payout:
- Federal and Provincial Income Tax
- Canada Pension Plan (CPP) contributions
- Employment Insurance (EI) premiums
Why Is So Much Tax Deducted From a Bonus?
If the tax rate is the same, why does it feel like your bonus is taxed at 50%? The answer lies in how payroll software calculates withholding tax.
When you receive a large, lump-sum bonus on top of your regular pay, the payroll system assumes you will be making that massive amount of money every single pay period for the rest of the year. Consequently, the software automatically pushes that specific paycheck into the highest possible marginal tax bracket and withholds a larger percentage of tax.
However, this is just a temporary withholding. When you file your annual tax return in the spring, the CRA will calculate your actual total income for the year. If your bonus pushed your withholding tax too high, you will receive the difference back as a tax refund.
Do I Get My Bonus if I am Fired in Ontario?
Many employers in Ontario believe that if an employee is let go before the annual bonus payout date, the company no longer has to pay it. They will often hand the employee a severance package that only covers their base salary.
This is legally incorrect.
If you are terminated without cause, the Ontario Employment Standards Act (ESA) and Ontario common law require your employer to provide you with reasonable notice (or pay in lieu of notice). Your severance package in Ontario is legally required to replace all the compensation you would have earned during that notice period, which can last up to 24 months.
If you would have received your annual bonus during that 24-month window, your employer must include it in your final severance calculation.
What to Do if Your Employer Withholds Your Bonus
If you are actively employed and your company suddenly decides to cancel, reduce, or withhold a bonus that you have rightfully earned, they are breaching your employment contract.
An employer cannot unilaterally slash a significant portion of your compensation just because they want to cut costs. If your unpaid bonus makes up a large percentage of your annual income, withholding it may constitute a Constructive Dismissal. This legal concept allows you to resign from your job, treat the situation as a wrongful termination, and pursue the employer for full common law severance pay plus the missing bonus.
Consult an Ontario Employment Lawyer
Whether you have questions about a withheld bonus or you have been handed a severance package that strips away your variable pay, do not accept the loss without speaking to a legal professional.
The employment lawyers at Samfiru Tumarkin LLP have helped tens of thousands of non-unionized employees across Ontario. We know how to expose unfair corporate policies, protect your variable compensation, and negotiate the absolute maximum financial package you are legally owed.