How Income Tax Works in Canada: Taxable Income, Brackets and Your Return

Income tax in Canada is charged by the federal government and by your province or territory on your taxable income, in brackets: each rate applies to the part of your income inside its bracket. People resident in Canada pay it on their income from sources inside and outside Canada, and non-residents pay it on income from sources in Canada. The Canada Revenue Agency (CRA) runs the tax for the federal government and for most provinces and territories; Quebec runs its own provincial income tax. The tax year is the calendar year. If you have a job, your employer typically takes tax off your pay during the year, and you settle up on a return due by April 30 of the next year. For a figure on your own income, use the income tax calculator.

The rules are in the Income Tax Act, and whether you count as resident depends on all the facts of your case, including your residential ties with Canada and the length and purpose of your stays (determining your residency status). The province or territory you live in on December 31 sets your provincial tax for the year.

What counts as income?

Common kinds of income you report on your return, from the CRA’s list of income types, are:

• employment income, including commissions
• self-employment income
• interest and other investment income, such as interest on bank accounts and GICs
• the taxable amount of dividends from taxable Canadian corporations
• taxable capital gains: 50% of a capital gain is taxed (capital gains inclusion rate)
• rental income
• Old Age Security, CPP or QPP benefits, other pensions and RRIF payments
• Employment Insurance benefits and social assistance payments
• money you take out of an RRSP

Some amounts aren’t reported or taxed at all. The CRA’s list includes lottery winnings (unless the prize is really income from a job, a business or property, or a prize for achievement), the Canada Groceries and Essentials Benefit, the Canada Child Benefit, most strike pay, most life insurance paid after a death, most amounts you receive from a TFSA, and income exempt from tax under section 87 of the Indian Act. Income you earn on those amounts afterwards, such as interest on invested lottery winnings, is taxable. The CRA lists most gifts and inheritances among amounts you don't report or pay tax on, so receiving one isn't income to you, but income earned on it afterwards, such as interest, is taxable. Whether a benefit from your employer counts as income is covered in taxable benefits.

Total, net and taxable income

On the return, your income adds up to total income (line 15000). Deductions come off it to give your net income (line 23600), and a few more come off that to give your taxable income (line 26000). Taxable income is the amount used to calculate your federal tax and, outside Quebec, your provincial or territorial tax; net income is used to work out your non-refundable tax credits, and the CRA also uses it, with your spouse’s or common-law partner’s, for benefits such as the Canada Child Benefit.

Is net income before or after tax? On your return, net income is before tax: income tax is worked out later, from taxable income. The net pay on a pay stub is a different figure, the wages left after deductions such as income tax and EI (Ontario’s employment standards guide, for one, has the wage statement show each deduction and the net amount of wages). What is net income? has both.

A deduction lowers your taxable income; a non-refundable credit, such as the basic personal amount, is subtracted from the tax itself. The deductions and credits section lists each one.

How is income tax calculated?

Your return works it out in these steps:

1. Add up your income for the year (total income, line 15000).
2. Subtract your deductions to reach net income (line 23600) and then taxable income (line 26000).
3. Apply the federal rates to your taxable income, bracket by bracket. Each tax rate applies only to the part of your taxable income that falls in its bracket, not to all of it, so moving into a higher bracket raises the tax only on the income above that threshold; provincial or territorial tax applies in addition to federal tax. The tax brackets page has this year’s federal and provincial rates.
4. Subtract your non-refundable credits. The basic personal amount lets you earn a minimum amount before paying federal income tax (basic personal amount). For 2026, the federal basic personal amount is $16,452, a non-refundable credit at the lowest rate (14%); it is reduced gradually for net income above $181,440, down to $14,829 at $258,482 and above. Each province and territory has its own basic personal amount.
5. Work out your provincial or territorial tax from the same taxable income, on your province’s Form 428. If you lived in Quebec on December 31, you calculate your Quebec tax on a Revenu Québec income tax return instead (Quebec income tax).
6. Subtract the tax already taken off your pay or paid in instalments: the difference is your refund or your balance owing.

Example, federal tax only (rounded to the dollar). Take $70,000 of taxable income in 2026. The first $58,523 is taxed at 14%: $8,193. The remaining $11,477 is taxed at 20.5%: $2,353. That is $10,546 before credits. The basic personal amount credit, 14% of $16,452, is $2,303, which leaves $8,243 of federal tax, about 11.8% of the income. Provincial or territorial tax comes on top of this. The income tax calculator gives the full figure for your province.

That last percentage is the average rate. Your marginal rate is the combined federal and provincial rate on your next dollar of income, here 20.5% federally; marginal and average tax rates explains both.

How is tax collected during the year?

If you have a job, your employer will typically deduct income tax from your pay, using your TD1 form to work out how much; EI and other pension payers do the same, but tax normally isn’t taken off CPP, QPP or OAS unless you ask Service Canada or Retraite Québec. Your employer also deducts CPP contributions and EI premiums from your pay. The withholding tax page covers how much is taken off and how to change it.

If not enough tax is taken off your income, or you are self-employed or have rental or investment income, you may have to pay tax by instalments during the year (tax instalments). You have to pay income tax by instalments for a year if your net tax owing is more than $3,000 ($1,800 if you live in Quebec on December 31) for that year and was also more than that in either of the two previous years. Instalments are due March 15, June 15, September 15 and December 15; if your main source of income is self-employment income from farming or fishing, there is one instalment due date, December 31. Self-employed people pay both the employee and the employer share of CPP contributions on their net business income (11.90% above the basic exemption up to the first earnings ceiling, plus 8% CPP2 between the first and second ceilings), worked out on Schedule 8 and paid with the income tax return. A non-refundable tax credit is claimed on half of the base contributions, and the other half, the first additional contributions and all CPP2 contributions are deducted from income. CPP for the self-employed has the details.

Filing your return: refund or balance owing

Before the return is due, your employer and other payers send you and the CRA tax slips showing your income, deductions and the tax paid on your behalf. The return for a year is due by April 30 of the next year, and any balance owing is due by April 30 too. If you are self-employed, or the spouse or common-law partner of someone who is and you lived together at any time in the year, your return for a tax year is due by June 15 of the following year, unless your business expenditures are mainly the cost or capital cost of tax shelter investments (then it is due by April 30); any balance owing is still due by April 30, and paying by then avoids interest and penalties.

You generally get a refund if you paid more income tax during the year than you owe, and a balance owing if you paid less. File even when you owe nothing: the CRA uses your return to calculate benefit and credit payments, even if you have no income to report. The tax filing section covers how to file, and why do I owe taxes this year goes through the usual reasons for a bill.

Other taxes you pay

Income tax is one of several taxes, collected by the federal, provincial or territorial and municipal governments. Businesses pay income tax on their income as well. The other common ones are:

• sales taxes: the federal Goods and Services Tax (GST) on most purchases, a provincial sales tax in some provinces (in Quebec, the QST), or the Harmonized Sales Tax (HST) where a province combines its tax with the GST (sales tax by province)
• property taxes, which municipalities set from the value of land and buildings (property tax)
• customs duties and tariffs on certain imported and exported goods

CPP contributions and EI premiums come off your pay beside income tax, as the section above explains.

Find your answer: income tax pages by question

Rates and brackets. Tax brackets in Canada has the federal and provincial rates and how marginal rates work. Your province’s brackets: Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, Saskatchewan and the territories.

Your take-home pay. The income tax calculator turns a salary into income tax, CPP, EI and net pay; lowest-tax provinces compares them at several incomes, and Canada vs USA taxes compares across the border.

Tax on your pay. The TD1 form, withholding tax, how to read a pay stub, why your paycheque changed, tax on a bonus and payroll taxes for employers.

Looking for the CRA, your return or the forms? The CRA’s personal income tax page has the forms, sign-in and payments; what is a T1 General explains the return itself.

Other tax topics. Deductions and credits, benefits and credits paid to you, self-employed taxes, investment taxes, dealing with the CRA and the taxes section.

Related pages

• CPP for the Self-Employed in Canada
• Basic Personal Amount Canada
• Employment Expenses
• Financial Help for Low-Income Canadians
• Canada Child Benefit (CCB)
• Canada Groceries and Essentials Benefit (Formerly the GST/HST Credit)
• Non-Resident Tax Guide for Canada
• Inheritance Tax in Canada
• Taxable Benefits in Canada