Canada uses a progressive tax system, not a single flat rate

Canada does not charge everyone the same percentage of their income in tax. Instead, the federal government and each province or territory use a progressive tax system: the more you earn, the higher the percentage you pay. Your income is divided into brackets, and each bracket is taxed at its own rate. Only the money within each bracket is taxed at that bracket's rate — not your entire income.

For 2024, the federal tax brackets are 15%, 20.5%, 26%, 29%, and 33%. The lowest bracket (15%) applies to income up to roughly $55,000, and the highest (33%) applies to income over roughly $246,000. These dollar amounts change slightly each year. On top of federal tax, you also pay provincial or territorial tax, which has its own brackets and rates. Your total tax bill is the sum of both.

This matters because many people overestimate how much tax they owe. If you move into a higher bracket, only the income in that new bracket is taxed at the higher rate. The income below it stays taxed at the lower rates.

Key Takeaways

  • Canada's federal tax brackets for 2024 range from 15% on the lowest income to 33% on the highest, with three rates in between.
  • Every province and territory adds its own tax brackets on top of federal tax, so your total rate depends on where you live.
  • Only income within each bracket is taxed at that bracket's rate; moving to a higher bracket does not raise the tax on your entire income.
  • The dollar amounts that define each bracket change yearly to account for inflation, so the rates stay the same but the income thresholds shift.
  • Self-employed people and business owners may owe additional taxes (like CPP contributions) that employees do not.

Federal tax brackets for 2024

The Canada Revenue Agency (CRA) sets five federal brackets. The first bracket, 15%, covers income from $0 to approximately $55,867. The second bracket, 20.5%, covers income from $55,867 to approximately $111,733. The third bracket, 26%, covers income from $111,733 to approximately $173,205. The fourth bracket, 29%, covers income from $173,205 to approximately $246,752. The fifth bracket, 33%, covers all income above $246,752.

These thresholds are indexed to inflation each year, which means they increase slightly to keep pace with the cost of living. The CRA publishes updated brackets in the winter for the following tax year. If you earned $80,000 in 2024, you would pay 15% on the first $55,867 and 20.5% on the remaining $24,133 — not 20.5% on your entire $80,000.

Provincial and territorial tax on top of federal tax

Every province and territory adds its own income tax. British Columbia, for example, has brackets starting at 5.06% and going up to 20.5%. Ontario has brackets from 5.05% to 13.16%. Quebec has brackets from 15% to 25.75%. The rates and thresholds vary significantly by province, and each province indexes its brackets annually.

This means your total tax rate is the sum of your federal bracket rate plus your provincial bracket rate. Someone earning $80,000 in Ontario would pay roughly 20.5% federal plus 9.15% provincial (depending on the exact income), for a combined rate of about 29.65%. The same person in British Columbia would pay a different combined rate because BC's brackets are structured differently.

If you move provinces during the year, you may owe tax to both provinces for the portion of the year you lived in each. You report this on your tax return, and the CRA sorts out the allocation.

How to find your exact combined rate

The easiest way to see what you actually owe is to use the CRA's tax calculator or a tax software tool. You enter your income and province, and it shows you the federal and provincial tax separately, then the total. The CRA's online calculator is free and does not require you to create an account.

If you are an employee, your employer withholds tax from each paycheque based on a form you fill out (a TD1 in most provinces). The amount withheld is an estimate; when you file your tax return, the CRA compares what was withheld to what you actually owe and either sends you a refund or asks you to pay the difference. If you are self-employed, you are responsible for calculating and paying your own tax, usually in quarterly installments.

Additional taxes you may owe beyond income tax

Income tax is not the only tax on earnings. If you are an employee, you also pay Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums, which come out of your paycheque. For 2024, the CPP rate is 5.95% on earnings between roughly $3,500 and $68,500, and the EI rate varies by province but is typically around 1.6% on earnings up to roughly $63,200.

If you are self-employed, you pay both the employee and employer portions of CPP (roughly 11.9% combined), which is significantly higher. You do not pay EI unless you choose to. These are separate from income tax and are calculated on your tax return.

Some provinces also charge a health tax or surtax on higher incomes. British Columbia, for example, charges a Provincial Sales Tax (PST) on many goods, which is separate from income tax. These vary by province and are not part of your income tax calculation.

Why tax brackets change every year

The CRA indexes tax brackets to inflation using the Consumer Price Index (CPI). If inflation is 2%, the dollar amounts that define each bracket increase by roughly 2% the following year. This prevents bracket creep — the situation where inflation pushes you into a higher tax bracket even though your purchasing power has not actually increased.

For example, if you earned $55,000 in 2023 and got a 2% raise to $56,100 in 2024, you would move into the second bracket. But if the brackets also increased by 2%, the threshold for the second bracket would move up, and you might stay in the first bracket. Without indexing, inflation alone would push people into higher brackets year after year.

Tax rates for different types of income

Employment income (wages and salary) is taxed at the rates described above. But other types of income are taxed differently. Capital gains — profit from selling an investment — are taxed at 50% of the rate you would pay on regular income. Dividend income from Canadian corporations is taxed at a lower rate than employment income, though the exact rate depends on whether the dividend is may be able to access or non-may be able to access.

Interest income (from savings accounts, bonds, or GICs) is taxed as regular income at your full marginal rate. Rental income is also taxed as regular income, though you can deduct expenses like mortgage interest, property tax, and repairs. If you are unsure how a particular type of income is taxed, the CRA website has detailed guides, or you can speak with an accountant.

Frequently Asked Questions

What is the average tax rate in Canada?

The average tax rate is lower than the marginal rate (the rate on your last dollar earned) because you pay lower rates on the income in the lower brackets. Someone earning $80,000 in Ontario might have a marginal rate of about 29.65% but an average rate of roughly 22% — meaning they pay about 22% of their total income in tax, not 29.65%.

Do I pay the same tax rate in every province?

No. Each province and territory has its own tax brackets and rates. Someone earning $100,000 in Alberta pays less total tax than someone earning the same amount in Quebec because Alberta's provincial rates are lower. If you move provinces, your tax rate changes starting the day you move.

Can I reduce my taxable income?

Yes, through deductions and credits. Contributions to a Registered Retirement Savings Plan (RRSP) reduce your taxable income dollar-for-dollar. Childcare expenses, tuition, and medical expenses can also lower your taxable income or provide tax credits. Self-employed people can deduct business expenses. Speak with an accountant about what applies to your situation.

What happens if I earn income in multiple provinces?

You report all income on your federal return and allocate it by province based on where you lived and worked. If you moved mid-year, you split your income between the provinces. The CRA and provincial tax authorities coordinate to may support you are not taxed twice on the same income.

Are there tax rates for people over 65?

The income tax brackets are the same regardless of age. However, people 65 and older may be able to claim the Age Amount, which provides a non-refundable tax credit. Some income sources, like Old Age Security (OAS), may be partially recovered (clawed back) at higher incomes, which effectively raises the tax rate on that income for high earners.