Canada uses a progressive tax system with rates that increase as your income rises
Canada's income tax is progressive, meaning the rate you pay depends on how much you earn. You do not pay one flat rate on all your income. Instead, your income is divided into brackets, and you pay a different percentage on each bracket. The federal government sets one set of brackets, and your province or territory sets another. Your total tax is the sum of both.
For the 2024 tax year, the federal brackets are 15%, 20.5%, 26%, 29%, and 33%. The lowest bracket applies to income up to roughly $55,000, and the highest applies to income over roughly $246,000. These numbers change slightly each year. Your province's brackets are separate and usually lower, so your combined rate is higher than the federal rate alone.
The key point: you do not jump into a higher bracket and pay that rate on all your income. If you earn $60,000 and the first bracket ends at $55,000, you pay 15% on the first $55,000 and 20.5% only on the remaining $5,000.
Key Takeaways
- Canada has five federal tax brackets ranging from 15% to 33%, plus separate provincial brackets that vary by where you live.
- Your income is taxed in layers—each bracket applies only to the income within that range, not your entire income.
- The bracket thresholds change each year and are indexed to inflation, so the exact dollar amounts shift annually.
- Your employer usually deducts tax from each paycheck based on an estimate, and you settle the actual amount owed when you file your return.
- Self-employed people and those with investment income may owe additional tax or have different deduction rules.
Federal brackets for 2024 and how they stack
The Canada Revenue Agency (CRA) publishes the federal brackets each January. For 2024, they are:
| Income Range | Federal Tax Rate |
|---|---|
| $0 to $55,867 | 15% |
| $55,867 to $111,733 | 20.5% |
| $111,733 to $173,205 | 26% |
| $173,205 to $246,752 | 29% |
| Over $246,752 | 33% |
These numbers are indexed to inflation each year, so they increase slightly. The CRA updates them in January, and your employer and tax software use the new numbers automatically.
Example: if you earned $80,000 in 2024, you would pay 15% on the first $55,867 (which is $8,380) and 20.5% on the remaining $24,133 (which is $4,947). Your federal tax before credits would be $13,327. Your province then applies its own brackets on top of that.
Provincial and territorial tax rates vary widely
Every province and territory has its own income tax brackets and rates. British Columbia's brackets are different from Ontario's, which are different from Quebec's. Some provinces have more brackets than others, and the rates at each bracket differ.
For example, in Ontario in 2024, the brackets start at 5.05% on income up to about $51,000, then jump to 9.15%, 11.16%, 12.16%, and 13.16% at higher levels. In British Columbia, the first bracket is 5.06%, and the top rate is 20.5%. Quebec's rates are separate again.
You pay tax to the province where you lived on December 31 of the tax year. If you moved during the year, you may owe tax to two provinces, but the CRA has rules for how to split your income between them. Your tax software or accountant handles this automatically.
How tax is deducted from your paycheck
If you are an employee, your employer withholds income tax from each paycheck. They use a form called a TD1 (federal) and a provincial equivalent to estimate how much tax you will owe for the year. The amount withheld is an estimate based on your salary and the number of pay periods.
If the estimate is too high, you will get a refund when you file your tax return. If it is too low, you will owe money. Most people adjust their TD1 only when their situation changes—a raise, a second job, a spouse's income, or major deductions like mortgage interest or tuition.
Self-employed people do not have an employer to withhold tax, so they must set aside money themselves and pay the CRA in installments or as a lump sum when they file. The CRA may require quarterly installments if you owe more than a certain amount.
Credits and deductions that lower your actual tax bill
Your taxable income is not the same as your total income. You can subtract certain amounts—called deductions—before the tax brackets explore. Common deductions include registered retirement savings plan (RRSP) contributions, spousal support payments, and some employment expenses.
After you calculate tax on your taxable income, you can claim tax credits, which reduce the tax you owe dollar-for-dollar. The basic personal amount is a non-refundable credit everyone gets; it is roughly $15,000 federally and varies by province. Other credits include the Canada child benefit (which is actually a refundable credit paid monthly), the Canada workers benefit, and credits for tuition, medical expenses, and charitable donations.
These credits and deductions are why two people earning the same salary can owe different amounts of tax. Someone with an RRSP contribution or dependent children will owe less than someone without.
Capital gains and investment income are taxed differently
If you sell an investment like a stock or rental property for more than you paid, the profit is a capital gain. In Canada, only 50% of a capital gain is taxable (this is called the inclusion rate). So if you make a $10,000 gain, only $5,000 is added to your taxable income and taxed at your marginal rate.
Interest income from savings accounts or bonds is fully taxable at your marginal rate. Dividend income from Canadian corporations gets a special credit that reduces the tax you owe, making it more favorable than interest income.
These rules mean your effective tax rate—the actual percentage of total income you pay—is lower than your marginal rate (the rate on your last dollar earned) if you have investment income or capital gains.
Self-employed people and business owners have additional considerations
If you run a business or are self-employed, you report your net income (revenue minus business expenses) on your tax return. You pay both employee and employer portions of Canada Pension Plan (CPP) contributions, which is roughly double what an employee pays. You also do not have tax withheld, so you must plan to pay a lump sum or make installments.
You can deduct legitimate business expenses—office supplies, vehicle costs, home office rent, professional fees—which lowers your taxable income. Keeping good records is essential because the CRA may ask to see receipts if you are audited.
If your net income is below a certain threshold (roughly $3,500), you do not have to file a tax return, but you may want to if you are owed a refund or a refundable credit like the Canada workers benefit.
Frequently Asked Questions
What is my marginal tax rate?
Your marginal rate is the tax rate on your last dollar of income—the bracket you fall into. If you earn $80,000 in Ontario, your marginal rate is 20.5% federally plus 9.15% provincially, for a combined 29.65%. This matters when you calculate the tax impact of earning extra income or making an RRSP contribution.
Do I pay the same tax rate in every province?
No. Each province has different brackets and rates. You pay tax to the province where you lived on December 31. If you moved during the year, you split your income between the two provinces based on how many days you lived in each.
Why do I owe money or get a refund if tax is already taken from my paycheck?
Your employer's estimate is just that—an estimate. When you file your return, the CRA calculates your actual tax owed based on all your income, deductions, and credits. If you withheld too much, you get a refund. If you withheld too little, you owe the difference.
Is capital gains tax the same as income tax?
No. Only 50% of a capital gain is taxable, so it is taxed at a lower effective rate than regular income. Interest income is fully taxable, and dividend income gets a special credit. This is why investment strategy matters for tax planning.
Do I have to file a tax return if I am self-employed?
If your net self-employment income is below roughly $3,500, you do not have to file. However, you should file if you are owed a refund or a refundable credit. The CRA can also assess penalties if you do not file when required, so it is safer to file even if you are unsure.