Canadian Income Tax Brackets

What are Canadian Income Tax Brackets?

This article will outline how Canadian tax brackets function. The income taxation system in Canada is a progressive system, meaning that individuals who earn more are generally taxed more. By contrast, in a flat taxation system, everyone pays the same percentage of their incomes in income taxes. Canadians are required to pay a combination of both federal and provincial income taxes.

Federal Income Tax Brackets (2018)

As of 2018, Canadian tax brackets at the federal level are as follows:

• “Incremental Amount” here refers to the maximum additional income that can be taxed at the next bracket’s tax rate before being taxed overall at a higher rate.
• “Bracket Limit” refers to the maximum total income that can fall into each of the tax brackets.
• “Tax Rate” refers to the applicable rate of taxation for the given income bracket.

Taking a quick look at the rate differences between the lowest and highest tax brackets, we can see that individuals who earn in excess of $205,842 are taxed twice as much as individuals making less than $46,605.

Provincial Income Tax Brackets (2018)

For a complete list of Canadian provincial tax brackets, please visit the Government of Canada’s tax website.

Within Canada, each province imposes its own income tax rates that are set by the provincial governments. Provincial taxes go to fund small-to-medium scale public service and infrastructure projects within the provinces.

Example of Canadian Tax Brackets

Below is a detailed breakdown of how income taxes would be applied to a $300,000 income. The example assumes that the income taxes are being filed in British Columbia and, thus, are subject to B.C. provincial taxes.

More about the Progressive Tax System

Progressive tax systems enable governments to capitalize on the concept of decreasing marginal utility. The idea is that once individuals reach a certain amount of income, each additional dollar generated above that threshold holds less and less utility. This is because after meeting the threshold, individuals begin to view other resources, such as time, as more valuable. Assessing the threshold is quite difficult, as every person follows a different utility curve.

Most tax experts agree that a progressive tax system is most conducive to combatting income inequality.

Additional Resources

Thank you for reading CFI’s guide to Canadian tax brackets. To learn more about related tax topics, check out the following CFI articles:

• Ad Valorem Tax
• Permanent/Temporary Differences in Tax Accounting
• Tax Haven
• Tax Shield