When it comes to setting financial goals, it's not always enough to know how much money you earn.
To understand how much money you have to spend, save, and invest, you'll need to first estimate how much you could have to pay in income tax each year.
If you live and work in Canada, you need to file a personal income tax return every year. The federal government calculates how much income tax you should be paying based on the amount of income you earn.
To calculate a rough estimate of how much you might have to pay in income tax (without reference to any credits or deductions that would be unique to you), start by taking your average tax rate — which is the amount calculated by taking the total of the provincial and federal tax you paid for the year to the government — divided by your annual income for that year.
This will give you a decent estimate, but the calculation can get confusing because your entire income isn't taxed at a single tax rate.
Canada has what's known as a marginal tax rate system, which means your income is divided into different sections, which are called tax brackets.
Each tax bracket or section of your income is taxed at its own specific tax rate, and that rate increases for each additional amount of income you earn over the previous bracket.
There's a lot of jargon and numbers when talking about taxes.
To help better understand how it all works, check out our guide to Canadian tax brackets and their corresponding marginal tax rates for 2025.
Federal tax brackets
Canadians pay both federal and provincial taxes. Federal taxes have their own tax brackets and corresponding marginal tax rates, and so do provincial taxes.
Let's start with the federal tax brackets for 2025
Tax brackets are based on your taxable income, which is roughly all the money you earned in a calendar year, minus any tax deductions and other exemptions for which you may qualify. There are five tax brackets at the federal level.
To help you understand marginal tax rates, think of a pie as representative of your total taxable income. Now imagine cutting that pie into multiple slices with the first slice representing all the money you earned up to and including $57,375 — the first tax bracket. The second slice of pie you cut represents every dollar you earned above $57,375 up to $114,750 — the second tax bracket.
Now imagine you have to take a piece of each slice of pie you cut (i.e. segment of income earned) and pay it to the federal government as income tax. For the first slice of pie, which represents the first tax bracket, you would need to give 14.5% of that slice to the federal government in taxes.
But for the second slice of pie, you would need to give 20.5% to the federal government in taxes.
As your income increases and enters into a new tax bracket, the marginal tax rate applicable to that new tax bracket gets higher. Your marginal tax rate is the amount of tax you pay on each additional dollar of income earned over the previous tax bracket.
An increase in income that engages a new marginal tax rate doesn't mean that your entire income will be taxed at this higher rate.
It's a common misconception that if your taxable income increases, you're then pushed into a higher marginal tax bracket that applies to all the income you earned.
That's not true. A raise won't make your paycheque smaller.
Think back to the pie example. Many people believe that because you need to give the government 20.5% of that second slice of pie for the $57,375- $114,750 tax bracket, it means you also need to apply the 20.5% marginal tax rate to the first slice of pie as well. This is not the case.
For the amount you earned up to and including $57,375, you still only need to give 14.5% of that amount to the federal government in taxes.
To recap: Your income is divided into tax brackets according to amounts specified by the government, and each bracket is taxed at its own marginal tax rate. If your income increases and you fall into a higher marginal tax bracket, only the amount of income that falls within that new tax bracket will be taxed at the new higher marginal rate.
Canada's federal income tax brackets
Here are Canada's federal income tax brackets and corresponding marginal tax rates for the 2025 tax year, according to the Canada Revenue Agency. Tax brackets and marginal tax rates are adjusted every year by the government based on inflation and other factors.
To help you understand how marginal tax rates are applied, imagine you made $117,000 in taxable income in 2025. This example is focused solely on the tax brackets involved and does not take into account any other possible credits or deductions that could apply, such as RRSP contributions.
For the first $57,375 you earned, the 14.5% marginal tax rate on that income would mean a tax payment of approximately $8,319.37 (Because the CRA implemented a mid-year tax rate change in 2025, the effective tax rate is 14.5%).
For the next $57,375 you earned — that is the amount you earned within the next tax bracket from $57,375 to $114,750 — the 20.5% marginal tax rate applicable to that income would mean a tax payment of approximately $11,761.87.
For the next $2,250 you earned — that is the amount you earned within the next tax bracket from $114,750 to $177,882 — the 26% marginal tax rate applicable to that income would mean a tax payment of $585.
That means that if you earn $117,000, you are paying taxes calculated using three different tax brackets at two different marginal tax rates. Based on this example of $117,000 in earned income, the total amount of federal tax payable (without reference to any possible credits and/or deductions that might apply), would be $20,666.24 ($8,319.37 + $11,761.87 + $585) — no matter where you reside in Canada.
What happens to your marginal tax rate if your income increases?
The misconception many people have is that if an increase in their income puts them into a new tax bracket (e.g. they received a raise at work from $117,000 to, say, $178,000) that their entire income will be taxed at the highest marginal tax rate — which in this example would be 29%.
In reality, only the amount of money earned above $177,882 would be taxed at the higher marginal rate of 29%.
Going back to the $117,000 example, to calculate the average federal tax rate applicable — again, not taking into account any other possible credits or deductions that could apply — would be roughly 18% ($20,666.24 divided by $117,000).
Provincial and territorial tax brackets
In addition to federal income tax, Canadians also pay provincial/territorial income taxes based on where they lived as of Dec. 31 of the calendar year for which income tax is to be paid.
All provinces and territories have their own tax brackets and corresponding marginal tax rates (visit the Canada Revenue Agency website to review the rates).
Calculating your marginal tax rate and average tax rate is different in each province
Let’s use Ontario and B.C. as examples.
Let's say your taxable income for 2025 was $75,000, and you live in Ontario. Using the 2025 federal and provincial tax brackets, here's a very rough estimate of how much you might pay in federal taxes and provincial taxes alone, based on the applicable marginal tax rates.
Remember that this tax calculation is solely concerned with the marginal tax rate payable on the amount in question and makes no allowances for any surtaxes, or for any tax deductions or credits such as RRSP contributions, or other credits or deductions such as claims for medical expenses or dependents.
Average tax rate for $75,000 annual income example for Ontario
Total taxable income: $75,000
Total federal taxes paid:
$8,319.37 on the first $57,375 (14.5%)
$3,613.12 on the next $17,625 (20.5%)
Total of $11,932.49 ($8,319.37 + $3,613.12) on $75,000
Total provincial taxes paid in Ontario (not including surtax):
$2,670.74 on the first $52,886 (5.05%)
$2,023.43 on the next $22,114 (9.15%)
Total of $4,694.17 ($2,670.74 + $2,023.43 on $75,000
Total federal + provincial taxes paid: $16,626.66 not including surtax.
Average tax rate: 22% [Total federal and provincial taxes paid ($16,626.66) divided by total taxable income ($75,000)]
Now, let’s say you will make $75,000, but you live in B.C.
Average tax rate for $75,000 annual income example for B.C.
Total taxable income: $75,000
Total federal taxes paid:
$8,319.37 on the first $57,375 (14.5%)
$3,613.12 on the next $17,625 (20.5%)
Total of $11,932.49 ($8,319.37 + $3,613.12) on $75,000
Total provincial taxes paid in B.C.:
$2,493.52 on the first $49,279 (5.06%)
$1,980.52 on the next $25,721 (7.7%)
Total of $4,474.04 ($2,493.52 + $1980.52) on $75,000
Total federal + provincial taxes paid: $16,406.53
Average tax rate: 22.3% [Total federal and provincial taxes paid ($17,055) divided by total taxable income ($75,000)]
New marginal tax rates for 2026
The tax rates we’ve just covered are for 2025 — the current tax year. But there are new marginal tax rates for 2026 (which will apply to the income tax return you will file in 2027):
- 14% on the portion of taxable income that is $58,523 or less, plus
- 20.5% on the portion of taxable income over $58,523 up to $117,045, plus
- 26% on the portion of taxable income over $117,045 up to $181,440, plus
- 29% on the portion of taxable income over $181,440 up to $258,482, plus
- 33% on the portion of taxable income over $258,482
You can find the 2026 marginal tax rates for your specific province or territory on the CRA website.
This article is for informational purposes only, and its information should not be construed as legal, tax, investment, financial, or other professional advice. The information provided is general and does not address the circumstances of any particular individual or entity for which you must obtain your own legal, tax or other professional advice.