Canada Tax Brackets Explained 2025

Understanding Canada's tax system is essential for calculating your take-home pay accurately. Canada uses a two-tier tax system with both federal and provincial/territorial taxes, plus mandatory contributions to the Canada Pension Plan (CPP) and Employment Insurance (EI). This comprehensive guide explains everything you need to know about Canadian taxes in 2025.

Understanding Canada's Two-Tier Tax System

Canada has a unique tax structure with two levels of income tax:

Federal Income Tax

The federal government levies income tax on all Canadian residents. The 2025 federal tax brackets are:

1. 15% on income up to $55,867
2. 20.5% on income from $55,867 to $111,735
3. 26% on income from $111,735 to $173,205
4. 29% on income from $173,205 to $246,752
5. 33% on income above $246,752

Provincial and Territorial Taxes

In addition to federal taxes, each province and territory adds its own income tax. Provincial tax rates vary significantly:

• Alberta: 10% flat rate (lowest in Canada)
• Ontario: Progressive rates from 5.05% to 13.16%
• British Columbia: Progressive rates from 5.06% to 20.5%
• Quebec: Progressive rates from 14% to 25.75% (highest)
• Nova Scotia: Progressive rates from 8.79% to 21%

Provincial taxes are calculated on the same taxable income as federal taxes, creating a combined tax burden.

Canada Pension Plan (CPP)

All employees in Canada (except Quebec, which has the QPP) must contribute to the Canada Pension Plan:

• Contribution Rate: 5.95% in 2025
• Maximum Pensionable Earnings: $68,500
• Basic Exemption: $3,500
• Maximum Contribution: Calculated on earnings between $3,500 and $68,500

This means you pay CPP on your earnings between $3,500 and $68,500, not on your entire salary.

Employment Insurance (EI)

Employment Insurance provides temporary income support to workers who lose their jobs:

• Contribution Rate: 1.66% in 2025
• Maximum Insurable Earnings: $63,100
• Maximum Contribution: Calculated on earnings up to $63,100

EI contributions are mandatory for most employees and are deducted directly from your paycheck.

Calculating Your Take-Home Pay in Canada

To calculate your net salary in Canada:

1. Start with your gross annual salary
2. Calculate federal income tax based on federal brackets
3. Calculate provincial income tax based on your province's rates
4. Calculate CPP contribution (5.95% on earnings between $3,500 and $68,500)
5. Calculate EI contribution (1.66% on earnings up to $63,100)
6. Subtract all deductions from your gross salary

Example Calculation

Let's say you earn $75,000 per year in Ontario:

• Gross Salary: $75,000
• Federal Tax (estimated): ~$10,500
• Provincial Tax (Ontario, estimated): ~$4,200
• CPP (5.95% on $71,500): ~$4,254
• EI (1.66% on $63,100): ~$1,047
• Total Deductions: ~$20,001
• Net Salary: ~$54,999

Provincial Tax Variations

Provincial tax rates significantly impact your take-home pay:

Low Tax Provinces

• Alberta: 10% flat rate
• British Columbia: Lower rates for middle-income earners
• Saskatchewan: Competitive rates

High Tax Provinces

• Quebec: Highest provincial rates in Canada
• Nova Scotia: Higher rates for high earners
• Ontario: Progressive rates up to 13.16%

Tax Credits and Deductions

Canada offers several tax credits that can reduce your tax burden:

• Basic Personal Amount: Tax-free amount (varies by province)
• Canada Employment Credit: Reduces tax for working individuals
• Medical Expenses: Deductible if they exceed a threshold
• RRSP Contributions: Reduce taxable income (up to annual limit)
• Charitable Donations: Tax credits for donations

Maximizing Your Take-Home Pay

1. Contribute to RRSP: Reduces taxable income and provides retirement savings
2. Use Tax-Free Savings Account (TFSA): Investment income is tax-free
3. Claim All Credits: Ensure you claim all eligible tax credits
4. Understand Provincial Differences: Consider provincial tax rates when relocating

Important Dates

• Tax Year: January 1 to December 31
• Tax Filing Deadline: April 30 (or June 15 for self-employed)
• RRSP Contribution Deadline: March 1 (for previous tax year)

Quebec-Specific Considerations

Quebec has its own pension plan (QPP) instead of CPP, with similar but not identical rates. Quebec also has different tax brackets and additional deductions.

Conclusion

Understanding Canada's tax system helps you plan your finances and maximize your take-home pay. The combination of federal and provincial taxes, plus CPP and EI contributions, means your effective tax rate depends on both your income level and your province of residence.

Use our Canada Salary Calculator to calculate your exact take-home pay based on your province and the latest 2025 tax rates.

For official information, visit the Canada Revenue Agency (CRA) website or consult with a qualified tax professional.