Canadian Income Tax Brackets in 2024 and 2025

The way Canadian Income Tax Brackets work is through a bracket system. This means different portions of your income get taxed at different rates depending on which tax bracket the income falls into. Both the federal and provincial governments have their own set of tax brackets that determine how much tax you’ll owe based on your total taxable income.

Each year, the income thresholds for the different tax brackets are adjusted for inflation using a calculation called indexation. This means the brackets essentially move up to account for wage growth and prevent “bracket creep”, where people end up paying more tax just because of inflation.

This article will compare the federal and provincial Canadian income tax brackets for 2024 and 2025. We’ll look at how the thresholds changed due to indexation, which province made the biggest changes, and what the brackets mean for your personal tax rate.

What are the Federal Income Tax Brackets?

The federal tax brackets determine the rate you’ll pay on each portion of taxable income, with higher incomes subject to higher tax rates. Here are the federal income tax brackets and corresponding rates for 2024:

Federal income tax rates for 2024

For 2025, the federal income tax brackets were indexed up by 2.7%. This means the thresholds were increased across the board to account for inflation. Here are the updated 2025 federal income tax brackets:

Federal income tax rates for 2025

Source: https://www.taxtips.ca/taxrates/canada.htm

The marginal tax rates remain unchanged for each bracket in 2025. Only the minimum income thresholds saw an upward adjustment of 2.7% due to indexation. This means Canadians can earn slightly more in each tax bracket before crossing over into the next highest bracket and paying a higher marginal rate.

For example, in 2024 the 15% tax bracket went up to $55,867 of taxable income. In 2025, because of the 2.7% indexation increase, the 15% bracket now goes up to $57,375. So a Canadian could earn an additional $1,508 of income in 2025 compared to 2024 but still stay within the 15% bracket, rather than crossing into the 20.5% bracket on the extra income.

This shows how indexation allows Canadians to earn more real income without increasing their marginal tax rate or facing “bracket creep”. The increased thresholds compensate for inflation and prevent Canadians from jumping to higher brackets solely because of cost of living increases.

How Does Federal Income Tax Work?

Federal income tax is calculated in tiers. You only pay the higher tax rate on the portion of your income that falls into that bracket. To calculate your total tax payable, you also subtract non-refundable tax credits, such as the Federal Basic Personal Amount (BPA). The BPA is a tax credit that reduces the amount of taxes owed, providing relief to all taxpayers.

Federal Basic Personal Amount (BPA):

The Basic Personal Amount (BPA) is a non-refundable tax credit that reduces the amount of federal tax an individual owes. The BPA is applied at the lowest federal tax rate (15%) and is adjusted annually for inflation. It is phased out for high-income earners starting at the income threshold where the federal 29% tax rate begins and fully reduced to a minimum BPA at the 33% tax bracket threshold.

The Federal Basic Personal Amount in 2024 is :

• $15,705 for incomes ≤ $173,205 ;
• phased out for incomes above $173,205 ;
• reduced to minimum $14,156 for incomes ≥ $246,752

The Federal Basic Personal Amount in 2025 is :

• $16,129 for incomes ≤ $177,882 ;
• phased out for incomes above $177,882 ;
• reduced to minimum $14,538 for incomes ≥ $253,414

Example: Federal Tax on $70,000 Income (for 2024)

Key Information

1. Federal Basic Personal Amount for 2024:
   • Since $70,000 is less than $173,205, we’ll use BPA $15,705.
2. Federal Tax Brackets for 2024:
   • First bracket (15%): Up to $55,867.
   • Second bracket (20.5%): From $55,868 to $111,733.
   • Third bracket (26%): From $111,734 to $173,205 (not applicable here, as $70,000 is below this level).

Step 1: First Bracket (15%)

• Income in the first bracket: $55,867.
• Subtract the BPA from the first bracket:
  • $55,867 – $15,705 = $40,162 (taxable income in the first bracket).
• Apply the 15% tax rate:
  • $40,162 × 15% = $6,024.30.

Step 2: Second Bracket (20.5%)

• Income above the first bracket:
  • $70,000 – $55,867 = $14,133 (taxable income in the second bracket).
• Apply the 20.5% tax rate:
  • $14,133 × 20.5% = $2,897.27.

Step 3: Total Federal Tax

• Add the taxes from both brackets:
  • $6,024.30 (first bracket) + $2,897.27 (second bracket) = $8,921.57.

The total federal tax for a taxable income of $70,000 in 2024 is $8,921.57.

This number would be $8,773.03 in 2025.

What are the Provincial Tax Brackets?

In addition to federal tax, Canadians also pay tax to their province or territory of residence. The provinces and territories (except Quebec which has its own unique system) use the same bracket structure as the federal tax system. However, provincial income tax rates and bracket thresholds can vary significantly across the country.

Here is a comparison of the provincial and territorial income tax brackets and rates for 2024 and 2025:

Alberta Tax Rates & Tax Brackets for 2024 & 2025

For 2025, Alberta tax brackets and personal tax credit amounts will increase by 2%, reflecting an indexation factor of 1.02.

Source: https://www.taxtips.ca/taxrates/ab.htm

British Columbia Tax Rates & Tax Brackets for 2024 & 2025

British Columbia tax brackets and personal tax credit amounts for 2025 are increased by an indexation factor of 1.028 (2.8% increase) to reflect inflation. This adjustment ensures the province’s tax system keeps pace with rising costs.

Source: https://www.taxtips.ca/taxrates/bc.htm

Manitoba Tax Rates & Tax Brackets for 2024 & 2025

Starting in 2025, Manitoba has begun indexing its tax brackets and personal tax credit amounts annually. For 2025, the indexation factor is 1.012 (1.2% increase), ensuring alignment with inflation.

Source: https://www.taxtips.ca/taxrates/mb.htm

Newfoundland and Labrador Tax Rates & Tax Brackets for 2024 & 2025

Newfoundland and Labrador tax brackets and personal tax credit amounts have been increased for 2025 by an indexation factor of 1.023 (2.3% increase) to account for inflation.

Source: https://www.taxtips.ca/taxrates/nl.htm

Nova Scotia Tax Rates & Tax Brackets for 2024 & 2025

Nova Scotia has adopted indexation for its tax brackets and personal tax credit amounts starting in 2025. The indexation factor for 2025 is 1.031 (3.1% increase), calculated using the province’s inflation rate.

Source: https://www.taxtips.ca/taxrates/ns.htm

Ontario Tax Brackets for 2024 & 2025

Ontario tax brackets and personal tax credit amounts are indexed to inflation. For 2025, the indexation factor is 1.028 (2.8% increase), except for the $150,000 and $220,000 tax bracket thresholds, which are not indexed.

Source: https://www.taxtips.ca/taxrates/on.htm

New Brunswick Tax Rates & Tax Brackets for 2024 & 2025

New Brunswick uses the federal indexation factor for its tax brackets and personal tax credit amounts. For 2025, the indexation factor is 1.027 (2.7% increase).

Source: https://www.taxtips.ca/taxrates/nb.htm

PEI Tax Brackets for 2024 & 2025

Prince Edward Island does not use automatic inflation indexing for its tax brackets or personal amounts. However, for 2025, proposed Budget changes adjust brackets and the basic personal amount, resulting in a 2.06% increase for the first tax bracket and a 5.56% increase for the personal amount.

Source: https://www.taxtips.ca/taxrates/pe.htm

Saskatchewan Tax Rates & Tax Brackets for 2024 & 2025

Saskatchewan uses the federal indexation factor to adjust its tax brackets and personal tax credit amounts. For 2025, the factor is 1.027 (2.7% increase).

Source: https://www.taxtips.ca/taxrates/sk.htm

Quebec Tax Brackets for 2024 & 2025

Quebec’s tax brackets and personal tax credit amounts are increased annually based on a provincial inflation index. For 2025, the indexation factor is 1.0285 (2.85% increase), slightly higher than the federal factor.

Source: https://www.taxtips.ca/taxrates/qc.htm

Yukon Tax Rate & Tax Brackets for 2024 & 2025

Yukon uses the federal indexation factor to adjust its first three tax brackets and personal tax credit amounts. For 2025, the indexation factor is 1.027 (2.7% increase). However, the $500,000 threshold remains fixed as it aligns with the corporate small business limit.

Source: https://www.taxtips.ca/taxrates/yt.htm

Nunavut Tax Rates & Tax Brackets for 2024 & 2025

Nunavut follows the federal indexation factor for its tax brackets and personal tax credit amounts. For 2025, the indexation factor is 1.027 (2.7% increase).

Source: https://www.taxtips.ca/taxrates/nu.htm

Northwest Territories Tax Rates & Tax Brackets for 2024 & 2025

The Northwest Territories tax brackets and personal tax credit amounts are indexed annually using the federal factor. For 2025, the indexation factor is 1.027 (2.7% increase).

Source: https://www.taxtips.ca/taxrates/nt.htm

Most provinces and territories indexed their tax brackets between 1-3% for 2025 based on inflation, similar to the federal increase. Provincial tax rates in Canada vary across regions, with each province and territory setting its own tax brackets, rates, and indexation policies to reflect local priorities. Most provinces adjust their tax brackets annually for inflation, preventing “bracket creep,” though some, like Prince Edward Island, do not automatically index. These differences significantly impact a taxpayer’s overall tax burden when combined with federal taxes, highlighting the importance of understanding both federal and provincial systems to calculate total income tax accurately.

Example: Ontario Provincial Tax on $70,000 Income (for 2024)

Step 1: Federal Tax (already provided)

From the previous calculation: Federal tax on $70,000 income = $8,921.57

Step 2: Ontario Provincial Tax Calculation (2024)

Ontario’s 2024 provincial tax brackets and rates are:

Let’s break down $70,000 into Ontario Tax Brackets

1. First $51,446 is taxed at 5.05%:
   Before applying the tax rate, we subtract the Ontario basic personal amount ($12,399) from the first bracket ($51,446):
   • Taxable amount in the first bracket = $51,446 – $12,399 = $39,047
   • This amount is taxed at 5.05%:
     • $39,047 × 0.0505 = $1,971.87
2. Remaining income ($70,000 – $51,446 = $18,554) is taxed at 9.15%:
   • $18,554 × 0.0915 = $1,697.69

Step 3: Total Ontario Provincial Tax

• Tax from the first bracket = $1,971.88
• Tax from the second bracket = $1,697.69

Total provincial tax = $1,971.88 + $1,697.69 = $3,669.57

Step 4: Total Income Tax (Federal + Provincial)

Now, combine the federal and provincial taxes:

• Federal tax: $8,921.57
• Ontario provincial tax: $3,669.57

Your total income tax = $8,921.57 + $3,670.56 = $12,592.13

Step 5: Effective Tax Rate

To determine the effective tax rate (Average tax):

• Effective tax rate = (Total tax ÷ Income) × 100
• Effective tax rate = ($12,592.13 ÷ $70,000) × 100 ≈ 17.99%

Now that we’ve walked through this example for 2024, why not give it a try for 2025? With proposed changes in tax brackets, rates, and personal amounts, calculating income tax for 2025 can be a great way to practice and see how adjustments might impact your tax bill. Use the latest figures from the CRA and your provincial government to get started!

Read more: Average Income in Canada

Marginal vs Average Tax Rates

When assessing your tax situation, it’s important to understand the difference between your marginal and average tax rates:

• Marginal tax rate – The rate you pay on your next dollar of income, based on which tax bracket that dollar falls into. It changes as your income crosses each bracket threshold.
• Average tax rate – Your total tax liability divided by your total taxable income. It provides an overall picture of your tax burden.

Your marginal rate helps determine how much tax you’ll owe on additional income. Your average rate gives you your overall effective tax rate. Make sure not to confuse the two when planning your finances and budgeting for taxes!

What are Other Factors That Affect Your Tax Bill?

Aside from the tax brackets, your ultimate tax liability is also affected by tax credits, deductions, and other factors like:

• Tax credits – These directly reduce your tax owing, such as the basic personal amount, the Canada Employment Credit, and the Climate Action Incentive.
• Deductions – These reduce your taxable income. Examples include RRSP contributions, union dues, childcare expenses, and more.
• Non-refundable tax credits – These can reduce your tax owing to zero but do not result in a refund.
• Refundable tax credits – These can reduce your tax owing to zero and also result in a refund if they exceed your tax payable.

Make sure to claim all the deductions and tax credits you qualify for to minimize your taxes and leverage the tax brackets to your advantage. Consult with a tax professional to ensure you get all the tax savings you’re entitled to.

Key Takeaways on Canadian Income Tax Brackets

Understanding how marginal vs average tax rates work in Canada’s bracket system is key to making informed financial decisions. Indexation will continue shifting the brackets annually, so stay up to date on the latest thresholds and rates each tax year.
Be sure to claim all the deductions and credits you’re eligible for to legally minimize your tax burden. Consider contributing to an RRSP to lower your taxable income. And as your income changes, make sure you remain optimized across the federal and provincial tax brackets.

Frequently Asked Questions About Canadian Income Tax Brackets:

How are the income tax brackets determined each year?

The federal government adjusts federal tax brackets annually based on the Canada Revenue Agency's indexation calculations. Likewise, provinces and territories index their tax brackets based on their own indexation factors. Indexation accounts for inflation using the Consumer Price Index to prevent bracket creep.

How can I calculate my tax bracket?

Add up your total taxable income. Then, refer to the federal and provincial tax bracket tables to see which portions of your income fall into each bracket. Apply the corresponding marginal tax rate to those portions to determine your total tax liability. Deduct tax credits to find your final taxes owing.

Why do tax brackets vary between the provinces?

Provinces are responsible for setting their own income tax rates to fund healthcare, education, and other public services. Different economic conditions and budget priorities lead to variability in provincial tax brackets and rates across Canada.

What is tax bracket indexation?

Indexation is an annual adjustment of tax bracket thresholds to account for inflation. By shifting brackets up each year, indexation prevents bracket creep and ensures taxpayers aren't bumped to higher brackets solely because of wage inflation.

What tax credits help reduce the taxes I owe?

Some of the main federal tax credits that can reduce your taxes payable include the basic personal amount, the Canada Employment Credit, the Age Credit, the Spouse or Common-Law Partner Credit, the eligible dependant credit, the disability tax credit, and more.