Updated 22 September 2026

Federal tax brackets 2026: rates, thresholds, credits

Complete guide to the 2026 CRA federal income tax brackets with examples showing how progressive taxation works in Canada. Includes BPA and tax credits.

By Radif Partners, passionate about personal finance, Éditeur de calculateurs et de guides pratiques

2025 Federal Income Tax Brackets

The Canada Revenue Agency (CRA) adjusts federal tax brackets annually for inflation. For the 2025 tax year, Canada uses five progressive tax brackets:

Tax Rate	Taxable Income Range	Tax on Maximum
15.0%	$0 – $57,375	$8,606
20.5%	$57,375 – $114,750	$11,762
26.0%	$114,750 – $158,468	$11,367
29.0%	$158,468 – $220,000	$17,844
33.0%	$220,000 – and above	,

How Progressive Taxation Works

A common misconception is that earning more moves your entire income into a higher tax bracket. In reality, only the income within each bracket is taxed at that rate. This is called progressive or marginal taxation. The system works like a staircase: as your income climbs each step, only the income on that particular step is taxed at that step's rate. Your income on lower steps continues to be taxed at the lower rates, regardless of how much you earn in total.

For example, if you earn $80,000 in 2025:

First $57,375 is taxed at 15% = $8,606
Remaining $22,625 ($80,000 – $57,375) is taxed at 20.5% = $4,638
Total federal tax before credits: $13,244

Your marginal rate is 20.5 percent (the rate on your last dollar), but your effective rate is only 16.6 percent ($13,244 divided by $80,000). This distinction is crucial for financial planning. When evaluating a raise, bonus, or RRSP contribution, you should think in terms of your marginal rate. When budgeting or comparing your overall tax burden, the effective rate is more meaningful.

How Federal Tax Affects Different Income Levels

The progressive structure ensures that lower-income earners face a significantly lighter tax burden than higher earners. Here is how federal tax (before credits) scales across income levels:

$40,000 income: Entirely within the 15 percent bracket. Federal tax before credits: $6,000. Effective rate: 15 percent. After the BPA credit of approximately $2,498, net federal tax drops to about $3,502 (effective rate: 8.8 percent).
$75,000 income: Straddles the 15 percent and 20.5 percent brackets. Federal tax before credits: $12,215. After credits, net federal tax is approximately $9,717 (effective rate: 13.0 percent).
$120,000 income: Reaches the 26 percent bracket. Federal tax before credits: $20,544. After credits, net federal tax is approximately $18,046 (effective rate: 15.0 percent).
$200,000 income: Deep into the 29 percent bracket. Federal tax before credits: $38,224. After credits, net federal tax is approximately $35,726 (effective rate: 17.9 percent).
$300,000 income: Reaches the top 33 percent bracket. Federal tax before credits: $62,474. After credits, net federal tax is approximately $59,976 (effective rate: 20.0 percent).

Notice how the effective rate rises gradually from 8.8 percent at $40,000 to 20 percent at $300,000. Even at $300,000, the effective federal rate is well below the 33 percent top marginal rate, because the bulk of income is taxed at lower rates.

Basic Personal Amount (BPA)

The federal Basic Personal Amount for 2025 is $16,129. This provides a non-refundable tax credit at 15%, effectively making the first $16,129 of income tax-free for most Canadians.

High-income earners ($177,882+) receive a reduced BPA through a clawback. At $253,414 and above, the BPA is reduced to $14,538. This means very high earners effectively pay more federal tax on their lower income brackets.

Tax Calculation Example: $100,000 Salary

On a $100,000 salary (before deductions):

15% on first $57,375 = $8,606
20.5% on $57,375 to $100,000 ($42,625) = $8,738
Gross federal tax: $17,344
BPA credit: $16,129 × 15% = $2,419
CPP credit: ~$4,034 × 15% = ~$605
EI credit: ~$1,049 × 15% = ~$157
Net federal tax: ~$14,164

How Brackets Have Changed Over Time

Federal brackets are indexed annually to inflation using the Consumer Price Index (CPI). The 2025 brackets are approximately 2.7 percent higher than 2024, meaning you can earn slightly more before entering higher brackets. This prevents "bracket creep," where inflation-driven raises push you into higher tax brackets without increasing your real purchasing power.

Looking back over recent years, the indexation rates have varied: 6.3 percent for 2023 (reflecting high post-pandemic inflation), 4.7 percent for 2024, and 2.7 percent for 2025 as inflation moderated. The rate itself has not changed since 2016, when the government added the fifth bracket at 33 percent for income above approximately $200,000 (now $220,000 after indexation). Before 2016, Canada had four federal brackets with a top rate of 29 percent.

For historical perspective, Canada introduced its modern income tax system in 1917 as a "temporary" wartime measure with rates ranging from 4 percent to 25 percent. The number of brackets has varied from as many as 16 in the 1980s to the current five, with significant simplification occurring in the tax reforms of 1987 and 2000.

How Federal Tax Interacts with Provincial Tax

It is important to understand that federal tax brackets are only part of your total income tax burden. Each province and territory sets its own brackets and rates, which are calculated separately and added to your federal tax. For example, a worker earning $100,000 in Ontario pays approximately $14,164 in net federal tax plus approximately $4,100 in Ontario provincial tax, for a combined income tax of about $18,264. The same worker in Alberta would pay the same federal tax but only about $3,200 in provincial tax, for a combined total of about $17,364, roughly $900 less.

Quebec is unique because it administers its own income tax separately (you file a separate Quebec return), and Quebec residents receive a 16.5 percent federal tax abatement. This means their federal tax is reduced by 16.5 percent, but the Quebec provincial tax rates are significantly higher than other provinces.

Common Misconceptions

"A raise will push all my income into a higher bracket." False. Only the income above the bracket threshold is taxed at the higher rate. A raise always increases your after-tax income.
"The BPA means I do not pay tax on my first $16,129." Technically, the BPA is a non-refundable tax credit at 15 percent, not a deduction. The effect is similar (effectively making the first $16,129 tax-free), but the mechanism is different. High-income earners ($177,882 and above) receive a reduced BPA, so the tax-free amount is smaller for them.
"Capital gains are taxed at these rates." Capital gains receive preferential treatment in Canada. Only 50 percent of capital gains (for the first $250,000 annually as of 2024) are included in taxable income. Gains above $250,000 have a 66.67 percent inclusion rate. This means the effective tax rate on capital gains is roughly half the regular income tax rate for most Canadians.
"Everyone pays 33 percent on high income." The 33 percent rate only applies to taxable income above $220,000. Even someone earning $300,000 pays 33 percent only on the $80,000 above that threshold, not on their entire income.

Changes from 2024 to 2025: Specific Bracket Adjustments

The CRA applied a 2.7 percent indexation factor for 2025, based on the average monthly Consumer Price Index data from the 12-month period ending September 2024. This rate is significantly lower than the 4.7 percent indexation used for 2024 and the 6.3 percent applied for 2023, reflecting the moderation of inflation from the elevated post-pandemic levels. For each bracket, the threshold adjustments are as follows: the first bracket ceiling increased from $55,867 in 2024 to $57,375 in 2025, a jump of $1,508. The second bracket threshold rose from $111,733 to $114,750, the third bracket ceiling increased from $154,906 to $158,468, and the fourth bracket ceiling moved from $220,000 to $220,000 (unchanged). These increases mean that a worker who received a 2.7 percent cost-of-living raise will remain in approximately the same bracket position and face a similar effective tax rate as the prior year.

The Basic Personal Amount (BPA) also increased with indexation. For 2025, the maximum BPA is $16,129, up from $15,705 in 2024. This means the non-refundable tax credit at 15 percent is now approximately $2,419, effectively shielding more of your income from federal tax. The increased BPA benefits all taxpayers, though high-income earners (above $177,882) receive a gradually reduced BPA through a clawback mechanism that reaches its minimum of $14,538 at incomes of $253,414 and above.

Other notable changes for 2025 include increases to the RRSP dollar limit (now $32,490, up from $31,560), the TFSA annual contribution room ($7,000, unchanged from 2024), and the CPP maximum pensionable earnings ($71,300, up from $68,500). The EI maximum insurable earnings also rose to $65,700 from $63,200. Together, these adjustments ensure that inflation does not erode the real value of tax relief measures or force Canadians into higher brackets without any increase in real purchasing power. Workers and financial planners should update their tax projections annually to account for these indexation changes.

Practical Tax Planning Tips

Maximize RRSP contributions at high income. If your marginal rate is 29 percent or higher (income above $114,750), RRSP contributions provide substantial tax savings. A $10,000 contribution saves $2,900 to $3,300 in federal tax alone, plus provincial tax savings.
Use TFSA at lower income levels. If your income is below $57,375 (the 15 percent bracket), the RRSP deduction saves only 15 percent per dollar. A TFSA may be more valuable because withdrawals in retirement will be tax-free regardless of your future income.
Income splitting for couples. Pension income splitting allows retirees to shift up to 50 percent of eligible pension income to a lower-income spouse, potentially saving thousands in combined tax. Spousal RRSP contributions during working years achieve a similar result.
Time your income. If you expect a significantly different income next year (due to retirement, maternity leave, or a career change), consider shifting income or deductions across the year boundary to minimize total tax.

Key Takeaways

Canada has 5 federal tax brackets from 15 percent to 33 percent.
Only income within each bracket is taxed at that rate (progressive system).
The first $16,129 is effectively tax-free via the BPA credit.
Provincial tax is separate and additional (varies by province).
Brackets are indexed annually to inflation, preventing bracket creep.
Use our salary calculator to see your exact take-home pay.

Sources

CRA: Federal Tax Rates for 2025

Official sources

Every rate on this page comes from the publications below. No figure is taken from a third-party summary.

Canada Revenue Agency, income tax rates
Federal and provincial brackets, indexed each January, for the current and previous years.
Canada Revenue Agency, CPP contributions
Contribution rates, the basic exemption and both earnings ceilings, including CPP2.
Employment Insurance premium rates
Employee and employer premium rates and maximum insurable earnings, set annually.
Revenu Québec, income tax rates
Quebec administers its own income tax, its pension plan and its parental insurance plan.

Frequently asked questions

Does moving into a higher bracket reduce my take-home pay?

No. Each rate applies only to the portion of income within its bracket, so a raise never leaves you worse off. The confusion arises because the marginal rate, which applies to the next dollar, is always higher than the average rate paid across the whole salary. Benefits that phase out with income can create genuine cliffs, but the tax brackets themselves never do.

Are federal brackets the same in every province?

The federal brackets are identical across the country, but each province sets its own on top, with different rates and thresholds. Quebec is a special case: it collects its own income tax and residents receive a federal abatement in exchange. The combined rate therefore varies by several points depending on where you live, on exactly the same salary.

What is the basic personal amount?

It is the slice of income on which no federal tax is payable, delivered as a non-refundable credit rather than a deduction. It is reduced gradually for high earners and is indexed each January. Each province has its own equivalent at a different level, which is why two people with the same gross income in different provinces start paying tax at different points.

When are the brackets updated?

Thresholds are indexed to inflation and take effect on the first of January each year, based on the change in the Consumer Price Index over the twelve months to September. Rates themselves change only through a budget measure, which is far less frequent. A page quoting a threshold from an earlier year will be wrong by a few hundred dollars rather than by a whole bracket.