ELI5 summary
How brackets work
For 2026 the federal rates are 14% on the first $58,523 of taxable income, then 20.5% up to $117,045, 26% up to $181,440, 29% up to $258,482 and 33% above that. Each rate applies only to the slice of income inside its bracket. Your province or territory adds its own set of brackets on top. The 2026 tax brackets page lists all of them.
Credits then reduce the tax. The most important is the basic personal amount, which removes tax on roughly the first $16,000 of income federally and a similar amount provincially.
Two rates, two different questions
Worked example
In Ontario, someone with $80,000 of taxable income in 2026 owes about $15,497 of federal and provincial income tax. Their average rate is $15,497 ÷ $80,000 = 19.4%. Their marginal rate, the tax on the next dollar, is 29.65%. In Alberta, the same income means about $15,247 of tax, an average rate of 19.1% and a marginal rate of 30.5%.
- The average rate answers “how much of my income goes to income tax?” It is useful for budgeting and for comparing overall tax burdens.
- The marginal rate answers “what happens if my income changes a little?” It tells you what a raise, a bonus or a side job will cost in tax, and what a deduction will save.
That second point is why the marginal rate drives registered account decisions. An RRSP or FHSA deduction removes income from the top, so it saves the marginal rate. In the example above, a $5,000 RRSP deduction saves about $1,483, which is 29.65% of the deduction.
The raise myth
A common belief is that a raise can push you into a higher bracket and leave you with less. Brackets alone cannot do that. Moving from $58,000 to $60,000 in Ontario crosses the federal bracket at $58,523, but only the income above the threshold is taxed at the higher rate. Tax goes from about $8,858 to about $9,417: an extra $559 of tax on $2,000 more income. Take-home pay still rises.
Effective marginal rates: when benefits are income-tested
The bracket table is not the whole story. Several benefits shrink as income rises, and that shrinkage acts like extra tax:
- Canada Child Benefit: reduced by a percentage of adjusted family net income above indexed thresholds, from 3.2% to 23% depending on the number of children and the income range.
- GST/HST credit and many provincial credits: reduced above an income threshold.
- Old Age Security: reduced by 15% of net income above the recovery threshold.
- Guaranteed Income Supplement: for a single pensioner, reduced by at least 50 cents for each dollar of most other income, including RRIF withdrawals.
Add these to the bracket rate and you get the effective marginal rate. A parent with two children in the CCB phase-out range can face an effective rate several points higher than their bracket rate, and a low-income senior receiving GIS can face effective rates above 50% on RRIF income. The flip side is that deductions are worth more for these people: an RRSP deduction lowers net income, which raises the benefit too. See how an RRSP deduction increases the Canada Child Benefit.
Not all income is taxed at the same rate
The rates above apply to ordinary income: employment and self-employment income, interest, rent, pensions and RRSP or RRIF withdrawals. Two kinds of investment income are taxed less:
- Capital gains: only half of a gain is included in income, so the effective rate is half the marginal rate.
- Canadian dividends: the dividend tax credit reduces the rate, especially for eligible dividends at lower incomes.
Inside a TFSA none of this matters, because nothing is taxed. Inside an RRSP it does not matter either, because every withdrawal is taxed as ordinary income regardless of how it was earned.
Which rate for which decision
| Decision | Rate to use |
|---|---|
| What will an RRSP or FHSA deduction save? | Marginal rate now, or better, the full before-and-after calculation for large deductions |
| RRSP or TFSA? | Marginal rate now versus the marginal rate on RRSP or RRIF withdrawals in retirement |
| Should I take on extra work? | Effective marginal rate, including benefit reductions |
| How much of my income goes to tax? | Average rate |
Show the math
Tax(y) = Σ_i rate_i × max(0, min(y, upper_i) − lower_i) − credits × lowest rate. Average rate = Tax(y) / y. Marginal rate = dTax/dy, approximated as Tax(y) − Tax(y − 1). For a deduction D, the saving is Tax(y) − Tax(y − D), which equals D × marginal rate only if y and y − D fall in the same band. Effective marginal rate = statutory marginal rate + Σ benefit reduction rates that apply at y. Figures on this page are computed from the site’s 2026 data files for a single filer claiming only the basic personal amounts.
Key takeaways
- Each bracket rate applies only to income inside the bracket.
- Deductions save your marginal rate; your average rate is always lower.
- Benefit clawbacks raise effective marginal rates and make deductions more valuable.
- Compare marginal rates now and in retirement when choosing between an RRSP and a TFSA.