Home -> Personal Income Tax -> Tax Rates -> How is Income Tax Calculated in Canada?

Canadian federal income tax is calculated separately from provincial/territorial income tax. However, both are calculated on the same tax return, except for Quebec. When using tax software, the Quebec and federal returns can be calculated together. Personal income tax for all provinces and territories except for Quebec is administered by Canada Revenue Agency (CRA).

All provinces and territories except Quebec use a "tax-on-income" system that started in 2000 (not all provinces/territories started in this year), in which the base provincial tax is calculated based on the federally-calculated taxable income, using the tax rates and tax brackets of the province or territory. Each province/territory then determines tax credits, non-refundable and refundable, on Form 428, to determine the reductions from the base tax. Alternative minimum tax (AMT) is determined federally, and if it applies, then a percentage of the additional federal tax is added to the provincial/territorial tax.

Prior to 2001, these provinces and territories calculated the provincial or territorial tax as a percentage of the federal basic personal income tax.

Quebec is the only province that is slightly different, although it's system is also a tax-on-income system. Some income items may differ from the federal income amounts in order to arrive at taxable income. They also have some deductions from income that are not applicable federally. A 16.5% federal tax abatement is deducted from the federal personal income tax payable by Quebec taxpayers.

For an interesting document regarding Canadian personal income taxation for 2000 and earlier, see Chapter 2: Personal Income Taxation in Canada, published by the Fraser Institute.

Tax Brackets/Thresholds

Federally, there are 5 tax brackets, since 2016. Each province and territory has multiple tax brackets. The federal and provincial/territorial income tax rates are combined in our tables of personal income tax rates so that taxpayers can see the total marginal tax rate being paid, including any provincial surtaxes where applicable.

Indexation of the Canadian Personal Income Tax System

Income Tax Act s. 117.1

For Canada and most provinces, the tax brackets and most other personal tax amounts are adjusted each year for inflation, using a calculated indexation factor. The federal indexation factor for 2025 is calculated as:

average of 12 months CPI All-Items Factors for the 12 months ending Sep 30, 2024

divided by

average of 12 months CPI All-Items Factors for the 12 months ending Sep 30, 2023

= indexation factor

For Canada and all provinces except Quebec, rounding is to the nearest one-thousandth, or, where the result obtained is equidistant from two consecutive one-thousandths, to the higher thereof, for:

	Each 12-month average
	The indexation factor

Each tax bracket amount has a "base year". For the federal tax brackets, the base year is 2016 for the tax bracket amounts. The indexation factor for year 1 after the base year is applied to the base year amounts. The result is rounded to even dollars to be used as the year 1 tax bracket amount. The result prior to rounding is used to calculate the indexed amount for year 2.

The provincial/territorial all-items CPI is used for all provinces and territories except Quebec, which uses all-items excluding alcoholic beverages, tobacco products and smokers' supplies and recreational cannabis.

The indexation factor is always applied to the non-rounded prior year amounts, and then rounded to the nearest dollar, except for Quebec, where some amounts are rounded to the nearest $5, and the indexation factor is applied to the previous year rounded amounts. This is MUCH easier.

Each federal personal tax credit amount has its own base year, and of course the federal enhanced basic personal amount was defined by legislation for 2020 to 2023, and was indexed again starting in 2024.

Provincial/Territorial Indexation of the Personal Tax System

The federal indexation rate is used by

	New Brunswick,
	Northwest Territories,
	Nunavut,
	Saskatchewan, and
	Yukon

The following provinces do not index their tax brackets:

	Nova Scotia - no indexation from as early as 2006 to 2024. Started indexation for 2025.
	Prince Edward Island - but they increase their basic personal amount and spousal amount through legislation following their budget each year.

Alberta skipped indexing for 2020 and 2021, but started it again for 2022. Late in 2024, they passed Bill 32, which caps the indexation factor at 2% starting with 2025. In the absence of this legislation, the 2025 indexation factor would have been 2.9%.

Manitoba indexes only their tax brackets and basic personal amount.

Nova Scotia, which started indexation for the 2025 tax year, uses the NS CPI factors for the 12-month periods ending in August, instead of September.

Quebec Annual Adjustment as per s. 31.1 of the Quebec Taxation Act:

	The 12-month averages are not rounded
	If the indexation factor has more than four decimal places, only the first four decimal digits are retained and the fourth is increased by one unit if the fifth is greater than 4.

The provinces that do their indexation using their own indexation factors will also have base years from which their indexation is calculated. The base year for Ontario tax brackets is 2014, but the base year for most of their other personal tax amounts is 2009.

Calculating Taxable Income In Canada

First, taxable income is calculated. Taxable income is always the same for the federal and provincial/territorial calculations, except for Quebec, for which the taxable income may differ from the federal amount.

Calculating Income Taxes Payable

Then, federal and provincial/territorial income taxes are separately calculated based on taxable income. See the detailed calculation in the Federal Income Tax and Benefit Return, or form 428 for your province or territory. For Quebec, see the income tax return and work chart 401 on the Quebec website in the income tax forms.

See the following example of the federal initial tax calculation for a taxpayer with taxable income of $250,000 for 2023.

Tax Calculated on		Taxable Amount	Tax Rate	Tax
First	$53,359	$53,359	15.0%	$8,003.85
up to	106,717	53,358	20.5%	10,938.39
up to	165,430	58,713	26.0%	15,265.38
up to	235,675	70,245	29.0%	20,371.05
up to	250,000	14,325	33.0%	4,727.25
Total Federal tax before tax credits				$59,305.92

In the example above, you can see that tax is only paid at the highest rate on the amount of taxable income that exceeds $250,000. This is called a Progressive tax System.

Canada Has A Progressive Tax System

The Canadian tax system is a progressive tax system, which means the tax rates increase as taxable income increases. Everyone pays the lowest tax rate for the amount of their taxable income within the lowest tax bracket. Taxable income in excess of this is taxed at the next higher rate, as you can see in the above table.

Calculating Non-Refundable Tax Credits

After income tax amounts are calculated, non-refundable tax credits are deducted from the federal or provincial/territorial tax payable.

Non-refundable tax credits include the basic personal amount, which is available to every taxpayer. The tax credits are calculated in a particular order, as defined in the federal Income Tax Act and the provincial/territorial Income Tax Acts. A list of most of the non-refundable tax credits can be seen in the Tables of Non-Refundable Tax Credits.

Tax Rate for Non-Refundable Tax Credits

The actual tax amount of each credit is calculated by multiplying by the tax rate for the lowest tax bracket. Quebec uses their lowest tax rate of 14% for 2023 and later years, except for the tax credits for student loan interest and medical expenses, which still use the 20% rate.

Ordering of Non-Refundable Tax Credits

Non-refundable tax credits are calculated and applied on the tax return in an order defined by the Income Tax Act. The tuition and education tax credit can cause other tax credits to be lost, because the amount claimed will be whatever is needed to reduce taxes to zero before certain other tax credits are claimed. See Ordering of Tax Credits.

Basic Personal Amount (BPA) Tax Credit

The basic personal amount federally and for each province and territory is listed in their tax rate table (link in first paragraph above), as well as the tax rate that is applied to calculate the tax credit. The basic personal amount is the amount that can be earned before any federal/provincial/territorial tax is paid.

The Federal basic personal amount was enhanced starting with the 2020 taxation year, as were the spousal and eligible dependant amounts, so that the amount of the credits are affected by the taxpayer's taxable income. The effect of this is included in the federal and combined federal + provincial or territorial marginal tax rate tables. The tax brackets that are affected are highlighted in blue.

Nova Scotia has a similar enhancement to its basic personal, spousal, and eligible dependant amounts, for the 2018 and subsequent taxation years. The effect of the enhanced basic personal amount is included in the NS tables of marginal tax rates.

The Manitoba basic personal amount (BPA) for 2025 is reduced for taxpayers with net income (line 23600) in excess of $200,000, and reaches zero when net income is $400,000 and above. The BPA is indexed, but the adjustment thresholds are not.

Donation Tax Credit and Dividend Tax Credits

Donations have a 2 or 3 part tax credit calculation, and dividend tax credits are calculated separately. The tax credit amounts are then deducted from the previously calculated income tax, but are non-refundable, so can only reduce taxes payable to zero.

Political Contribution Tax Credits

The federal political contribution tax credit and all provincial/territorial political contribution tax credits are non-refundable, except for Ontario and Nunavut, which have refundable political contribution tax credits.

Calculating Provincial Surtaxes

PEI provincial surtax, which is eliminated for 2024 and later taxation years, was calculated based on net taxes payable after all non-refundable tax credits have been deducted. Ontario surtax is calculated based on net taxes payable after all non-refundable tax credits except for dividend tax credits have been deducted. Once federal and provincial/territorial income taxes including surtaxes and net of non-refundable tax credits are calculated (zero if negative), the refundable tax credits are then deducted. If they exceed the net taxes payable, they will be refunded to the taxpayer.

Low-Income Tax Reductions

Some provinces also have a low-income tax reduction which increases the amount that can be earned before any tax is paid.

Although the tax reductions are non-refundable, they are deducted after the addition of surtaxes, and before the deductions for non-refundable dividend tax credits and political contribution tax credits.

The above credits can only be used to reduce income tax to zero.

Ontario Health Premium

The Ontario health premium is added after the above additions and deductions.

Calculating Refundable Tax Credits

There are a few federal refundable tax credits, including the Canada Workers Benefit. Several provinces and territories also have refundable tax credits.

Calculating Taxes Payable or Refund Due

Once your income tax payable or refundable is determined, the following are added or deducted to arrive at the tax payment required, or the tax refund due:

Add:

	Clawbacks payable re Employment Insurance, Old Age Security Pension or Canada Recovery Benefit
	CPP & enhanced CPP on self-employment income

Less:

	total income tax deducted (withheld from employment income, RRSP/RRIF withdrawals, etc)
	instalment payments made

Canadian Income Tax Calculators

Detailed Income Tax Calculators

The Canadian Income Tax & RRSP Savings Calculator and the Quebec Income Tax & RRSP Savings Calculator show, in general, the order in which income, deductions, non-refundable and refundable credits are calculated. This calculator can give you a much more accurate calculation of your taxes than any "simple" calculators.

Simple Canadian Income Tax Calculator

This calculator is quick and easy to use, great for tax professionals and financial planners. The only tax credits included in the tax calculation are the basic personal amount and dividend tax credits.

The only input required in these calculators is your income from 4 different sources, and your choice of tax year.

The Basic Canadian Income Tax Calculator will display taxes payable for every province and territory for 6 years, as well as the marginal tax rate for each source of income for the year chosen. It also allows you to quickly & easily compare original and revised amounts when you change income amounts, tax years, or provinces.

Tables of Personal Income Tax Rates

The provincial/territorial tax rates before being combined with the federal rates are shown above the table of combined rates for each province/territory, in our Tables of Personal Income Tax Rates and Tax Brackets in Canada.

Canada Revenue Agency (CRA) Resources

Canadian Income Tax Rates for Individuals - Current and Previous Years. The CRA tables do not include any provincial/territorial surtaxes. The surtaxes are included in our combined tax rate tables.

Revised: February 09, 2025