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Canadian Income Tax Brackets

The federal and provincial income tax system in Canada

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 that earn more are generally taxed more. By contrast, in a flat taxation system, everyone would pay the same percentage of their incomes in income taxes. Canadians are required to pay a combination of both federal and provincial income taxes.

 

income tax

 

Federal Income Tax Brackets (2018)

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

 

federal tax rates (2018)

 

  • “Incremental Amount” here refers to the maximum additional income that can be taxed at the next bracket’s tax rate before being taxed at a higher rate.
  • “Bracket Limit” refers to the maximum total income that can fall in 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. Tax collections from the 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 on 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.

 

canadian tax brackets - example

 

More about the Progressive Tax System

Progressive tax systems enable governments to capitalize upon the concept of decreasing marginal utility. The idea is that once individuals reach a certain amount of income, each additional dollar generated above the threshold holds less and less utility. It 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 follow a different utility curve.

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

 

Additional Resources

To learn more about related tax topics, check out the following articles:

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