How your tax is calculated in Canada

In Canada, personal income tax is calculated using margin tax rate. This means tax you pay gradually increases as your income increases. The federal tax rates are the same for all individuals across Canada, whereas provincial and territorial tax rates vary depending on where you live.  The following table shows the 2025 federal tax rates alongside the Ontario provincial tax rates.

Federal personal tax rates				Ontario personal tax rates
Taxable Income Range (CAD)	Tax Rate				Taxable Income Range (CAD)	Tax Rate
	14.50%				Up to $52,886	5.05%
Over $57,375 to $114,750	20.50%				Over $52,886 to $105,775	9.15%
Over $114,750 to $177,882	26.00%				Over $105,775 to $150,000	11.60%
Over $177,882 to $253,414	29.00%				Over $150,000 to $220,000	12.16%
Over $253,414	33.00%				Over $220,000	13.16%

 

The combined marginal tax rates for residents of Ontario are as follows.

Up to $52,886:                                           ~19.55%

$93,133 to $105,775:                             ~31.48%

$177,883 to $220,000:                          ~48.29%

Over $253,414:                                          ~53.53%

Please follow this link if you reside in other than Ontario for your province specific income tax rate https://www.canada.ca/en/revenue-agency/services/tax/individuals/frequently-asked-questions-individuals/canadian-income-tax-rates-individuals-current-previous-years.html#toc1

Example how tax is calculated in Canada

Let’s say you have $120,000 of taxable income in 2025:

Federal Tax

• First $57,375 at 14.5% = $8,325.88
• Next $57,375 ($114,750 – $57,375) at 20.5% = $11,761.88
• Remaining $5,250 ($120,000 – $114,750) at 26% = $1,365.00
  Total Federal Tax ≈ $21,452.76

Ontario Tax

• First $52,886 at 5.05% = $2,670.08
• Next $52,889 ($105,775 – $52,886) at 9.15% = $4,839.36
• Remaining $14,225 ($120,000 – $105,775) at 11.16% = $1,587.96
  Total Ontario Tax ≈ $9,097.40

Combined Total

• Federal: $21,452.76
• Provincial: $9,097.40
• Grand Total Tax ≈ $30,550.16
• Average effective tax rate ≈ 25.5%

Meanwhile, your marginal tax rate (on the last dollar earned) would be around 26% (federal) + 11.16% (provincial) ≈ 37.16%.

 

Tax credits and benefit for individuals in Canada

Once tax is calculated on your taxable income, tax credits are applied, which reduces the amount of tax payable. Most tax credits are calculated at 15%, which directly reduce the amount of tax payable.

Total tax payable – (Tax credits X rate) = Final tax payable

There is various tax credit available to individuals. Some are non-refundable, are while others are refundable. Non-refundable means, the credit will be lost if cannot be used because your tax payable is less than the non-refundable credit. Refundable tax credits, on the other hand, are paid out to you if your tax payable is less than the total of your non-refundable and refundable credits.

Non-refundable credits

None-refund able credits are categorized into two types: personal non-refundable tax credits and expense-based non-refundable tax credits. Personal non-refundable tax credits are available to all individuals based on their specific situation, but expense-based non-refundable tax credits are only available if you have incurred expenses during the year.

Personal non-refundable tax credits

1. Basic personal amount

 This is available to all individuals regardless of age or income. This represents the minimum income that can be earned without paying any federal income tax. For 2025, the basic personal amount is $14,538. If your income is below or $177,882 or less, an additional $1,591 is available, brining the total to $16,129. This additional $1,591 will gradually reduce if your income is between $177,882 and $253,414 and fully eliminated over $253,414 (only $14,538 is available).

2. Age amount

This non- refundable credit is available to individuals who reach the age of 65 before the end of taxation year (December 31). For 2025, the credit amount is $9,028. This amount is reduced by 15% income over $45,522 and is completely eliminated for income over $105,709. You can transfer this amount to your spouse or common-law partner if your income is low and cannot fully used the credit yourself.

3. Spousal or common-law partner amount

This is available if you are married or in a common-law relationship at any time during the year and you provided support your spouse or common-law partner. This credit is the same as basic personal above ($14,538) and is reduces based on net income of your spouse or common-law partner. If you separated during the year, only the net income of the spouse before the separation is considered. However, if your spouse/common-law partner is physically or mentally impaired, an additional $2,616 is available.

4. Eligible dependent

If you do not have spouse but support a dependent relative, you can claim this credit equal to basic amount discussed above. For the purpose of this credit, an eligible dependent definition includes parent, grandparent, sons, daughters, brothers, and sisters related by blood, marriage or adoption. This credit is also reduced by the dependent’s income. You must provide in-home care for the dependent, who must be living with you, to be eligible for this credit. Unless the dependent is parent or grandparent, the dependent must be under the age of 18 at any time during the year or be dependent as a result of mental or physical impairment. Only one eligible dependent can be claim per household.

If you are making child support payments, you can not claim this credit. If you are separated and both you and your former spouse/common-law partner meet for the criteria for the same eligible dependent, you two must have agreed on who will claim this, not available for both.

5. Canada caregiver credit

This credit is available if you support infirmed (disabled) adult relatives, including child, grandchild, parent, grandparent, brothers, sisters, aunt, uncle, niece, or nephew. These relatives must be dependent on you due to metal or physical infirmity, and they do not need to live with you. However, you cannot claim the caregiver credit for a dependent for whom the eligible dependent credit is claimed. For 2025, you can claim up to $8,375 for each dependent 18-year age or older. You are also entitled to $2,616 for a dependent child under the age of 18, or for an eligible dependent or spouse, provided the spouse is infirm. The Canada caregiver credit is also available on a stand-alone basis for disabled child under 18.

6. CPP/EI credit

15% credit is available for the amount of CPP/EI you paid during the year.

7. Canada employment credit – This credit is available to all employed individuals earning Canadian-source employment income. This credit equals 15% of the lesser of $1,468 (for 2025) or your employment income for the year. It is automatically calculated, and it reduces your tax payable.
8. Disability amount credit

This is available to individuals with impairment with long-lasting (at least 12 months) and prevent from perform daily basic activities of daily living. The impairment can be mental or physical and must be certified by a medical doctor or other qualified health professionals. This credit is not available if you are also claiming medical expense credit for full time attendant or full-time care in nursing homes. However, claiming expense for a part time attendant does not preclude disability credit, provided the cost is less than $10,000. The maximum disability credit amount you can clam is $9,428 for 2025 and additional supplement of $5,758 (for 2025) is available if the child is disabled and under the age of 18.

Note that to be eligible for this credit,  you must obtain approved form T2202- Disability Credit Certificate signed by medical doctor or other medical professionals approved by the CRA. If the person with disability cannot claim full amount, this can be transferred to a spouse/common-law partner or supporting relatives

9. Adoption expense

 If you adopted a child under the age of 18, you may claim 15% of eligible adoption expenses (noted below). The maximum credit you can claim for 2025 is $18,210 (15% of this amount will reduce your federal tax payable). The eligible expenses must be incurred between the date of the adoption application is first submitted and the later of date the adoption order is issued and the time that the child commences living with you.

Eligible expense that you can claim are as follows

1. Fees paid to a licensed adoption agency
2. Court costs and legal expenses related to an adoption
3. Reasonable and necessary travel and living expenses of the child

and the adoptive parents

1. Document translation fees
2. Mandatory fees paid to a foreign institution
3. Mandatory fees related to the immigration of the child
4. Other reasonable expenses required by a provincial government or

an adoption agency

 

10. Medical expenses credit

 This is a non-refundable credit available for out-of-pocket for eligible medical expenses incurred for the 12-month period. The claim for medical expenses is calculated on a dependent-by-dependent basis The maximum credit you can claim is the total medical expenses incurred for the 12-month period minus the lesser of 3% of the dependent’s net income or $2,759 (for 2025).

Note that you can combine medical expenses for your spouse or common-law partner and dependent children under 18 for the claim. However, expenses for other relatives must be claimed separately and tested against their net income (3% of net income).

For example,

 

Facts

You (the taxpayer): Net income = $60,000

 

Medical expenses = $2,000

 

Your dependant (mother, age 70):

 

Net income = $18,000

 

Medical expenses = $5,000

 

She qualifies as your dependant under CRA rules.

 

Step 1: Calculate your own claim

• Threshold for you: lesser of 3% of net income ($60,000 × 3% = $1,800) or $2,759 → $1,800
• Eligible amount: $2,000 − $1,800 = $200
• Federal tax credit: $200 × 15% = $30

Step 2: Calculate claim for your dependent (mother)

• Threshold for your mother: 3% of her net income ($18,000 × 3% = $540)
• Eligible amount: $5,000 − $540 = $4,460
• Federal tax credit: $4,460 × 15% = $669

Step 3: Total credit

• Your claim: $30
• Dependent claim: $669
• Total federal credit = $699

TIPS: Since it is an income tested credit, it is a good idea to combine all family medical expenses and claim under low-income spouse.

The most common medical expense you can claim:

• Prescription drugs
• Dental services
• Certain medical devices (hearing aids, CPAP machines, insulin pumps, etc.)
• Premiums paid for private health insurance plans
• Travel expenses to obtain medical services (if not available locally)
• Attendant care and nursing home costs (with conditions)

 

For full list of eligible medical expense please visit https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/lines-33099-33199-eligible-medical-expenses-you-claim-on-your-tax-return.html

11. Home accessibility credit

If you renovate you house to make accessible for your parent/grate parent over age of 65 or is eligible for disability tax credit, you can claim credit for the expense you incurred for the renovation. The maximum amount of expense (on which 15% credit is applied) is up to $20,000, which means 15% of $20,000= $3,000 tax saving. To qualify for this credit, the expenses must be eligible and meet the following criteria: Expense must allow the person to:

• Gain access to their home
• Move around within their home, or
• Function safely and securely within their home

 

Common eligible expenses include, but are not limited to:

• Installing wheelchair ramps or stairlifts
• Widening doorways or hallways
• Installing walk-in bathtubs or roll-in showers
• Lowering cabinets/countertops
• Non-slip flooring
• Grab bars and handrails

 

12. Home buyer’s amount

This credit is available if you purchased your first home in Canada. This credit is designed to help with closing costs of your first home. The maximum claim amount is $10,000, which results in a non-refundable tax credit of up to $1,500 ($10,000 × 15%).

To be eligible, the following must be met:

• The home must be located in Canada.
  • Home can be single family house, townhouse, condos, mobile house,

Duplexes, triplex, etc.

• The home must be registered in the name of the individual or the

individual’s spouse or common-law partner.

• The individual or the individual’s spouse or common-law partner

must intend to inhabit the home as their principal residence within

one year of the date of purchase.

However, if you are qualified for Disability Tax Credit (DTC), you can claim first time   home buyer credit even if you are not first home buyer, as long as the home is purchased to be more accessible or be more accessible or better suited to your need.

 

 

13. Pension income amount

This credit is available if you are under or over 65 years of age and you have eligible pension income during the year. The maximum amount of pension income eligible for this credit is $2,000.

If you are under 65 year of age, the following types of pension income are eligible for this credit;

• Life annuity payments from a registered pension plan (RPP)
• Some annuity payments received as a result of the death of a spouse/partner

If you are over 65 years of age, following pension eligible for this credit;

• Periodic payments from a Registered Savings Plan (RSP)
• Annuity payments from a Registered Retirement Savings Plan (RRSP)
• Payments from a registered retirement income fund (RRIF)
• Annuity payments for a deferred profit-sharing plan (DPSP)

Tips – consider splitting pension income with your spouse so that both of you can claim this credit. You can also transfer this credit to your spouse if you cannot use it due to lower income

14. Interest on student loans

If you paid interest on student loans (such as OSAP), 15% of the interest paid can be claimed as a non-refundable tax credit. However, to be eligible, the loan must have been made under the Canada Student Loan Act, Canada Student Financial Assistance Act, Apprentice Loan Act, or a provincial equivalent. Private loans are not eligible.

15. Tuition credit

If you paid eligible tuition fees to a recognized post-secondary institution in Canada or certain institution abroad more than $100, you can claim 15% of total tuition fees paid as non-refundable credit (which reduces your tax payable). Eligible tuition fees include ancillary fees such as exam fees but do not include equipment. You can transfer unused tuition credit to your spouse/common-law partners, parents or grandparents. If your tuition is too high to be used in current year, the excess can be carried forward to a future year.

Note: You do not receive a refund from your tuition fee credit. It is non-refundable credit (equal to 15% of the total eligible tuition paid) that can only be used to reduce your tax payable.

 

 

Other credits

There are also other non-refundable credits available to reduce your federal tax payable, but these credits are applied with different rate other than 15%. The following incudes other credits available with different credit rates

 

1. Donation tax credit

If you donate gift (money) to a registered charity in Canada, you are eligible for donation credit. Donation credits are also available for other than cash (non-cash) donation such as, publicly traded shares, and other certain capital properties. The fair value of a non-cash donation is used when claiming it on your personal tax return. The maximum claim is limited to the lesser of the donation amount and 75% of your net income. This means you can claim donations up to 75% of your net income in any calendar year.

If you have unused donations that cannot be claimed in current year, they can be carried forward for up to 5 years. The federal donation credit is 15% on the first $200 of donations and 29% on the portion over $200. However, if your income falls into the top tax bracket, you may claim 33% on donations above $200.

 

2. Dividend tax credit

If you invest in a Canadian corporation and receive dividend income (reported on a T5 slip), you may be eligible for the dividend tax credit. The dividend tax credit is designed to prevent double taxation, since corporations have already paid corporate tax on their profits before distributing dividends.

The credit depend on whether you receive eligible dividends or non-eligible dividends. Eligible dividends are generally issued by public corporations or large private corporations taxed at the general corporate rate, while non-eligible dividends are typically paid by small private corporations taxed at the small business rate.

 

Since this is a complex area of taxation, please contact one of our tax specialists if you have any questions.