A Comprehensive Guide to Marginal Tax Rates in Canada

Did you know that there are different marginal tax rates for each income bracket in Canada?  

That’s right - as your income increases so does the percentage of tax that you have to pay. But what does that mean for you? How does it affect how much money you take home each year? And how can you make sure that you’re taking advantage of all the deductions and credits available to you?

In this comprehensive guide, we will answer all those questions and more. So please read on and learn everything you need to know about Marginal Tax Rates in Canada!

What is Marginal Tax? 

The first thing you need to know is what marginal tax is. Marginal tax is the rate of tax that you pay on your last dollar of income. So, if you are in the 20% marginal tax bracket, that means that you will pay 20 cents in taxes for every additional dollar that you earn.

It’s important to understand that marginal tax is not the same as your overall tax rate. Your overall tax rate is the percentage of your income that you pay in taxes, and it will be lower than your marginal tax rate.

This is because as your income increases, you are pushed into higher marginal tax brackets. However, you don’t pay that higher rate on all of your income - only on the amount that falls within that bracket.

For example, let’s say you have an income of $50,000. This puts you in the 15% marginal tax bracket. But that doesn’t mean that you pay a 15% tax on all of your income. In fact, you would only pay 15% on the last $12,500 of your income - that’s the amount that falls within that bracket.

The first $37,500 would be taxed at a lower rate (5.5%), and the remainder would be subject to various deductions and credits. So, your overall tax rate would be lower than 15%.

What are the Marginal Tax Rates in Canada? 

Now that you know what marginal tax is, let’s take a look at the marginal tax rates in Canada. As we mentioned before, there are different rates for each income bracket. The table below shows the marginal tax rates for 2022:  

Income Bracket—Marginal Tax Rate

Up to $50,195—15% 

$50,495 to $100,392—20.5% 

$100,392 to $155,625—26% 

$155,625 to $221,708—29% 

For over $221,708—33% 

As you can see, the marginal tax rate goes up as your income increases. But what does that mean for you? Let’s take a closer look at an example.

Suppose you have an annual income of $100,000. This puts you in the 20.5% marginal tax bracket. That means that you will pay 20.5 cents in taxes for every additional dollar that you earn.

So, if you get a raise and your annual income goes up to $105,000, you will only pay 20.5% on the last $5,000 - that’s the amount that falls into the 20.5% bracket. The rest of your income would be taxed at a lower rate.

It’s also important to note that the marginal tax rates are not the only taxes that you have to pay. There are also federal and provincial taxes, as well as other levies such as the Canada Pension Plan (CPP) and Employment Insurance (EI).