Marginal Tax Rate

Your next dollar, not every dollar

Canadian income tax works like a staircase. Each bracket taxes only the income that falls inside it, so moving into a higher bracket changes the rate on the dollars above the threshold and nothing else.

"My raise pushed me into a higher bracket, so I take home less now." You will hear this in every workplace in the country, and it is mathematically impossible under a bracket system. Only the portion of income above the bracket line is taxed at the new, higher rate. Everything below it keeps its old rates. A raise cannot shrink your after-tax pay through the brackets alone.

Marginal vs average (effective) rate

Your marginal rate is the tax on your next dollar. Your average rate, also called the effective rate, is your total tax divided by your total taxable income, and it is always lower than your marginal rate.

Take a taxable income of $70,000 and look only at federal tax (as of July 2026). The first $58,523 is taxed at 14%, about $8,193. The remaining $11,477 is taxed at 20.5%, about $2,353. Total: roughly $10,546, an average federal rate of about 15.1%, even though the marginal federal rate is 20.5%. Use the average rate to understand your total bill, and the marginal rate to evaluate your next financial decision.

The 2026 federal brackets, and how provinces stack on top

The federal government sets one set of brackets for the whole country. Note the bottom rate: it fell to 14%, from 15% (as of July 2026), as part of the 2025 middle-class tax cut.

Each province and territory then applies its own brackets to the same taxable income. Your combined marginal rate is simply the federal rate plus the provincial rate at your income level, plus any provincial surtax.

The Ontario surtax: a quiet rate hike

Ontario adds a surtax of 20% on Ontario basic tax above $5,818, plus another 36% on Ontario basic tax above $7,446 (2026 thresholds, as of July 2026). Because the surtax is a tax on a tax, it multiplies the provincial rate without ever appearing in the bracket tables.

Worked through: an Ontario resident with about $90,000 of taxable income in 2026 pays 20.5% federally and sits in Ontario's 9.15% bracket. Their Ontario basic tax is high enough to trigger the first surtax tier, so the effective provincial rate is 9.15% × 1.20, about 10.98%. Combined marginal rate: roughly 31.48% (as of July 2026). At the other end of the scale, the top combined rate in Ontario is 53.53% (as of July 2026) on taxable income above $258,482.

What your marginal rate is actually for

Your marginal rate is the most useful single number in Canadian personal finance, because it prices your next move:

• An RRSP deduction is worth your contribution multiplied by your marginal rate. A $10,000 contribution at a 31.48% marginal rate saves about $3,148 (as of July 2026).
• Capital gains are only 50% taxable (as of July 2026), so the marginal rate on a gain is half your regular rate.
• Eligible Canadian dividends come with a gross-up and dividend tax credit, so their marginal rate is different, often much lower than the rate on salary or interest.
• For seniors in the OAS clawback zone, each extra dollar of income also claws back Old Age Security, adding 15 percentage points (as of July 2026) to the true marginal rate.
• Withdrawals from a TFSA are not income at all, so they never touch your marginal rate.

The Québec difference

Québec is the only province that runs its own complete tax return through Revenu Québec, with its own brackets and rules, so Québec workers file two returns and receive both a T4 and an RL-1 slip. To reflect the province collecting more tax directly, Québec residents get the federal abatement of 16.5% (as of July 2026), a reduction of their federal tax. The net effect is that combined marginal rates in Québec are built differently than everywhere else, and you cannot reuse Ontario numbers for a Québec paycheque.