If you’re a Canadian resident wondering how your income is taxed in 2025, you’re not alone. Understanding Canadian tax brackets can be confusing—but it doesn’t have to be. In this guide, we’ll explain how marginal tax rates work, provide real-world examples, and help you plan your taxes better.
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🇨🇦 What Are Tax Brackets in Canada?
Tax brackets refer to ranges of income that are taxed at increasing rates. Canada uses a progressive tax system, meaning you pay more tax as your income increases—but only on the portion that falls within a higher bracket. This is known as the marginal tax rate system.
📊 Federal Tax Brackets for 2025
As of 2025, here are the Canadian federal tax brackets:
| Income Range | Federal Tax Rate |
|---|---|
| $0 – $55,867 | 15% |
| $55,868 – $111,733 | 20.5% |
| $111,734 – $173,205 | 26% |
| $173,206 – $246,752 | 29% |
| Over $246,752 | 33% |
🏷️ Marginal Tax Rate Explained
Your income is divided into chunks, and each chunk is taxed at the corresponding rate. For instance, if you earn $60,000:
- The first $55,867 is taxed at 15%
- The remaining $4,133 is taxed at 20.5%
Important: You do NOT pay 20.5% on the full $60,000—only the portion above $55,867.
💡 Example: Federal Tax on $80,000
- 15% on first $55,867 = $8,380.05
- 20.5% on next $24,133 = $4,947.27
- Total federal tax = $13,327.32
🧾 What About Provincial Tax Brackets?
Every province in Canada also has its own set of tax brackets. Here’s a quick comparison:
- Ontario: 5.05% to 13.16%
- BC: 5.06% to 20.5%
- Quebec: 15% to 25.75%
Your total tax bill is the sum of federal + provincial income taxes.
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📉 Effective Tax Rate vs. Marginal Tax Rate
The marginal rate is the highest rate that applies to a portion of your income. The effective rate is your total tax divided by your income. Using the earlier example:
- Total tax: $13,327.32
- Income: $80,000
- Effective tax rate: ~16.6%
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🧮 Tools You Can Use
- CRA Tax Calculator
- TurboTax or Wealthsimple tax estimators
📘 Final Thoughts
Now that you know how Canadian tax brackets work, you can better plan RRSP contributions, charitable donations, and other tax-saving strategies. Always remember that higher earnings don’t mean your entire income is taxed at a higher rate—it’s just the income that falls into that bracket.
Disclaimer: This content is for educational purposes only. For tax advice tailored to your situation, consult a licensed Canadian tax advisor or accountant.
