In Canada, federal income tax is levied on the worldwide income of individuals who are residents of Canada, and on certain types of Canadian-source income earned by non-residents. The federal income tax system is administered by the Canada Revenue Agency (CRA), which collects personal income taxes on behalf of all provinces and territories. The tax is calculated using a progressive system based on taxable income, with different tax rates applied to different portions of income.
For the 2025 tax year, the federal income tax brackets and rates are as follows:
14.5% on taxable income up to $57,375
20.5% on taxable income over $57,375 up to $114,750
26% on taxable income over $114,750 up to $177,882
29% on taxable income over $177,882 up to $253,414
33% on taxable income over $253,414
These rates apply to taxable income, which is calculated as gross income minus allowable deductions such as contributions to Registered Retirement Savings Plans (RRSPs), union dues, and child care expenses. The tax is not applied to the entire income at a single rate; instead, each portion of income falls into a specific bracket, and the applicable rate is applied only to that portion. This system is known as a marginal tax rate system, where higher income levels are taxed at higher rates, but only the income within each bracket is subject to that rate.
Taxpayers must file a T1 Tax and Benefit Return annually, with the deadline being April 30 of the following year, or June 15 for self-employed individuals and their spouses or common-law partners. Any balance owing must be paid by April 30 to avoid interest charges. The federal tax is calculated separately from provincial and territorial taxes, but both are reported on the same tax return for most provinces and territories.
In addition to tax rates, taxpayers can reduce their tax liability through non-refundable and refundable tax credits, such as the basic personal amount, Canada/Quebec Pension Plan (CPP/QPP) contributions, Employment Insurance (EI) premiums, and charitable donations. These credits are applied after calculating the tax payable before credits, and they help lower the final tax owed.