How Canadian Tax Brackets Work

Canada uses a progressive tax system — meaning your income is taxed at increasing rates as it moves through each bracket. You pay the lowest rate on the first portion of your income and higher rates only on income above each threshold. The same logic applies inside an RRSP deduction or a CPP contribution check.

For 2026, the federal brackets are: 14% on the first $58,523 (down from 15% after the mid-year federal tax cut), then 20.5% up to $117,045, 26% up to $181,440, 29% up to $258,482, and 33% on income above $258,482. Your province adds its own brackets on top.

A common misconception is that earning more pushes all your income into a higher bracket. In reality, only the income above the threshold is taxed at the higher rate. A raise will never reduce your after-tax income — and it never reduces TFSA room either.

Worked example: an Ontario resident earning $85,000 in taxable income falls into the second federal bracket (20.5%, on income between $58,523 and $117,045) and the second Ontario bracket (9.15%, on income between $53,891 and $107,785). Their combined marginal rate is 29.65% — meaning the next dollar they earn, from a raise or a side gig, is taxed at just under 30 cents. Their average rate across all $85,000 is lower than 29.65%, because the first $58,523 was taxed at the lower 14% federal and 5.05% Ontario rates.