MARGINAL AND AVERAGE TAX RATES

Two different rates describe a person's tax burden. The marginal rate is the combined federal and provincial rate on the next dollar earned. The average (effective) rate is total tax divided by total income. Decisions about earning, deducting or deferring income should be made using the marginal rate; comparisons of overall tax burden use the average rate.

ONTARIO COMBINED MARGINAL RATES, 2026 (ORDINARY INCOME)

• Up to $16,452 (federal basic personal amount): effectively nil, after credits

• $16,452 to $53,891: about 19.05 percent (14 + 5.05)

• $53,891 to $58,523: about 23.15 percent (14 + 9.15)

• $58,523 to about $94,900: about 29.65 percent (20.5 + 9.15)

• About $94,900 to $107,785: about 31.48 percent (Ontario 20 percent surtax begins)

• $107,785 to about $111,800: about 33.89 percent

• About $111,800 to $117,045: about 37.91 percent (36 percent surtax begins)

• $117,045 to $150,000: about 43.41 percent

• $150,000 to $181,440: about 44.97 percent

• $181,440 to $220,000: about 48.29 percent (including the BPA phase-out)

• $220,000 to $258,482: about 49.85 percent

• Over $258,482: 53.53 percent

The surtax thresholds are approximate because they depend on Ontario credits claimed. Ontario Health Premium bands add small spikes at several thresholds.

WORKED EXAMPLE: $80,000 SALARY IN ONTARIO, 2026

• Federal tax on brackets: 14% × $58,523 + 20.5% × $21,477 = $8,193 + $4,403 = $12,596

• Federal credits (BPA, CPP base portion, EI, Canada employment amount) at 14%: roughly $3,300

• Net federal tax: about $9,300

• Ontario tax: 5.05% × $53,891 + 9.15% × $26,109 = $2,722 + $2,389 = $5,111, less Ontario credits of about $900, plus Health Premium of $750: about $4,960

• Total income tax: about $14,260

• Average rate: about 17.8 percent

• Marginal rate: 29.65 percent

The person's next $1,000 of salary costs about $296.50 in tax, while the average dollar is taxed at less than 18 cents. Adding CPP and EI payroll contributions raises the total marginal cost of an extra dollar of employment income.

MARGINAL RATES ON OTHER INCOME (TOP ONTARIO BRACKET, 2026)

• Interest and ordinary income: 53.53 percent

• Capital gains: 26.76 percent

• Eligible dividends: 39.34 percent

• Non-eligible dividends: 47.74 percent

EFFECTIVE MARGINAL RATES

For lower- and middle-income families, the true cost of extra income includes the loss of income-tested benefits. The Canada Child Benefit phases out at 7 to 23 percent of income above $38,237 (depending on number of children), the Canada Workers Benefit at 15 percent, and the Groceries and Essentials Benefit at 5 percent. When combined with tax, a family can face an effective marginal rate above 50 percent at modest incomes. Seniors face a similar effect from the OAS clawback (15 percent above $95,323) and the Guaranteed Income Supplement reduction.

USING MARGINAL RATES

• RRSP contributions are most valuable when deducted in a high-rate year and withdrawn in a low-rate year.

• Timing: deferring a bonus or a capital gain to a year with lower income can reduce tax.

• Income splitting moves income from a high-rate spouse to a low-rate spouse, within the limits of the attribution rules.

RELATED PAGES

• Federal Tax Brackets and Rates

• Provincial and Territorial Tax

• RRSP Deduction

• Attribution Rules