What is the Marginal Tax Rate in Canada?

The marginal tax rate is the tax rate that applies to your tax bracket.

The Canadian government uses a progressive income tax system, and the percentage of tax that you pay depends on your income bracket for the year.

There are multiple income tax brackets, with the tax rate progressively increasing as taxable income increases.

The tax brackets are generally adjusted every year due to factors such as inflation.

How is Marginal Tax Rate Calculated?

Federal Marginal Tax Rate for Personal Income

The Federal marginal tax rates for 2024 income earned is calculated as follows:

• 15% on the first $55,867 of taxable income,

Plus

• 20.5% on the portion of taxable income over $55,867 up to $111,733,

Plus

• 26% on the portion of taxable income over $111,733 up to $173,205,

Plus

• 29% on the portion of taxable income over $173,205 up to $246,752,

Plus

• 33% of taxable income over $246,752

For example, if your taxable income for 2024 is $80,000, your marginal tax rate will be 20.5%, and your income will be taxed as follows:

The first $55,867 will be taxed at 15% = $8,380.05

The next $24,133 will be taxed at 20.5% = $4,947.27

Total federal tax payable = $13,327.32 ($8,380.05 + $4,947.27)

Provincial Marginal Tax Rate for Personal Income

The Provincial tax rate you pay on your taxable income varies by province.

Except for Quebec, the provincial marginal tax rates for the provinces are calculated in a similar way to the federal marginal tax rates.

Based on your income bracket, the tax rate that applies to you increases for every portion that exceeds the next tax bracket.

For example, if you have to file your 2024 income tax and benefit return to the Ontario government, in addition to the federal tax rate, your provincial tax will be calculated as follows:

• 5.05% on the first $51,446 of taxable income,

Plus

• 9.15% on the portion over $51,446 up to $102,894,

Plus

• 11.16% on the portion over $102,894 up to $150,000,

Plus

• 12.16% on the portion over $150,000 up to $220,000,

Plus

• 13.16% on the amount over $220,000

Based on the $80,000 taxable income example used above, the provincial tax paid to the Ontario government will be calculated as follows:

First $51,446 will be taxed at 5.05% = $2,598.02

The next $28,554 will be taxed at 9.15% = $2,612.69

Total Ontario provincial tax payable = $5,210.71 ($2,598.02 + $2,612.6)

Marginal vs Average Tax Rate

Your average tax rate is calculated as the total tax you pay divided by your total pre-tax income.

Using the federal tax example above, with a taxable income of $80,000 and total federal tax payable calculated as $13,327.32, your average tax rate is calculated using the formula:

Average federal tax rate = Total taxes paid / Total taxable income

Your federal average tax rate = 16.66%, that is ($13,327.32 / $80,000)

While your federal average tax rate is 16.66%, your federal marginal tax rate is 20.5%.

You will remain in this marginal tax rate until your taxable income remains lower than $111,733.

Then, your new marginal tax rate will be 26%.

Marginal vs. Effective Tax Rate

Your effective tax rate is also calculated like an average tax rate.

Your effective tax rate takes into account the total tax you paid in the year to both the federal government and the provincial government.

Using the example above, the effective tax rate can be calculated as:

Federal tax payable: $13,327.32
Plus
Provincial tax payable for Ontario: $5,210.71
Divided by
Taxable income: $80,000

Effective tax rate = (($13,327.32 + $5,210.71) / $80,000)

Your 2024 effective tax rate = 23.17%