Federal Tax Brackets and Rates

Federal income tax is calculated by applying graduated rates to taxable income. Each rate applies only to the portion of income that falls inside its bracket. The bracket thresholds are indexed to inflation every January using the change in the Consumer Price Index; the indexation factor was 2.7 percent for 2025 and 2.0 percent for 2026.

2026 FEDERAL BRACKETS

14 percent on taxable income up to $58,523
20.5 percent on taxable income over $58,523 up to $117,045
26 percent on taxable income over $117,045 up to $181,440
29 percent on taxable income over $181,440 up to $258,482
33 percent on taxable income over $258,482

2025 FEDERAL BRACKETS

14.5 percent on taxable income up to $57,375
20.5 percent on taxable income over $57,375 up to $114,750
26 percent on taxable income over $114,750 up to $177,882
29 percent on taxable income over $177,882 up to $253,414
33 percent on taxable income over $253,414

THE 2025 LOWEST-RATE REDUCTION

The lowest federal rate was cut from 15 percent to 14 percent effective July 1, 2025. Because the change took effect mid-year, the rate for the full 2025 taxation year is a blended 14.5 percent; from 2026 onward it is 14 percent. Payroll withholding tables were updated on July 1, 2025.

The lowest rate is also the rate used to convert most federal non-refundable credit amounts into tax savings. As a result, the value of credits such as the basic personal amount also fell, to 14.5 percent for 2025 and 14 percent from 2026. To prevent people with large credit claims from paying more tax, a new non-refundable Top-Up Tax Credit (line 34990) keeps a 15 percent rate on credit amounts above the first bracket threshold for 2025 through 2030. See Top-Up Tax Credit.

CALCULATING FEDERAL TAX: EXAMPLE

For taxable income of $90,000 in 2026:

First $58,523 at 14 percent: $8,193.22
Next $31,477 ($90,000 minus $58,523) at 20.5 percent: $6,452.79
Federal tax before credits: $14,646.01

Non-refundable credits are then subtracted. With only the basic personal amount ($16,452 × 14% = $2,303.28), CPP, EI and the Canada employment amount, the basic federal tax falls substantially. The process is shown in full on From Total Income to Tax Payable.

RATES ON DIFFERENT KINDS OF INCOME

Ordinary income (salary, interest, rent, business profit) is taxed at the full bracket rates.
Capital gains are taxed at half the bracket rate, because only 50 percent of the gain is included in income. The proposed increase of the inclusion rate to two-thirds was cancelled in March 2025.
Eligible dividends from large Canadian corporations are grossed up by 38 percent and receive a federal dividend tax credit of 15.0198 percent of the grossed-up amount.
Non-eligible dividends from small private corporations are grossed up by 15 percent and receive a federal dividend tax credit of 9.0301 percent of the grossed-up amount.

OTHER FEDERAL TAXES

Alternative minimum tax: a parallel calculation at 20.5 percent on adjusted taxable income above an exemption equal to the start of the fourth bracket ($181,440 for 2026). See Alternative Minimum Tax.
Tax on split income: certain income from family businesses is taxed at the top rate of 33 percent. See Tax on Split Income.
Federal surtax for non-residents and deemed residents: 48 percent of basic federal tax, in place of provincial tax.
Quebec abatement: Quebec residents receive a refundable abatement of 16.5 percent of basic federal tax, because Quebec funds certain programs itself.

KEY POINTS

Moving into a higher bracket only raises the rate on dollars inside that bracket; it never increases tax on income already earned below it.
Brackets are indexed each year, so the same nominal salary can fall into a lower relative bracket over time.
The credit rate is tied to the lowest bracket rate.

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