How Taxes Work in Canada
Canada uses a dual income tax system with both federal and provincial/territorial taxes. Federal tax rates range from 15% to 33% across five brackets. Provincial rates vary significantly — Alberta has the lowest top rate at 15%, while Nova Scotia reaches 21%.
Canada Pension Plan (CPP) and Employment Insurance (EI) premiums are mandatory payroll deductions. CPP contributions are 5.95% on pensionable earnings between $3,500 and the yearly maximum, while EI premiums are 1.64% of insurable earnings up to the maximum.
Canada offers tax-advantaged savings accounts including RRSPs (Registered Retirement Savings Plans) which reduce taxable income, TFSAs (Tax-Free Savings Accounts) for tax-free growth, and FHSAs (First Home Savings Accounts) which combine features of both.
Federal Tax Brackets
Canadian federal tax has five brackets: 15% on the first ~$57,375, 20.5% on $57,375-$114,750, 26% on $114,750-$158,468, 29% on $158,468-$220,000, and 33% on income above $220,000. A basic personal amount of approximately $16,129 means the first portion of income is effectively tax-free. The federal rates are the same across all provinces.
Provincial & Territorial Taxes
Each province/territory sets its own tax rates and brackets. Ontario has rates from 5.05% to 13.16%. British Columbia ranges from 5.06% to 20.5%. Alberta uses a simpler system starting at 10% up to 15%. Quebec is unique with its own tax collection system and rates from 14% to 25.75%. Provincial taxes are separate from federal taxes and are calculated on taxable income after provincial deductions.
CPP & Employment Insurance
Canada Pension Plan (CPP) contributions are 5.95% on earnings between the basic exemption ($3,500) and the first ceiling (~$71,300), plus 4% on earnings up to the second ceiling (~$79,400) through CPP2. Employment Insurance (EI) premiums are 1.64% on insurable earnings up to ~$65,700. These mandatory deductions fund retirement pensions and employment benefits, reducing your take-home pay by approximately 8-10%.
RRSP & Tax-Advantaged Accounts
RRSP contributions reduce your taxable income dollar for dollar, up to 18% of previous year's earned income (maximum ~$32,490). TFSAs allow investment growth and withdrawals to be completely tax-free, with an annual contribution limit of $7,000. The First Home Savings Account (FHSA) offers both a tax deduction on contributions and tax-free withdrawals for a qualifying first home purchase, up to $8,000/year.
Frequently Asked Questions
How much tax do I pay on a $90,000 salary in Canada?
On $90,000 in Ontario, your federal tax is approximately $13,000 and Ontario provincial tax is about $5,200. CPP contributions are roughly $4,000 and EI premiums about $1,050. Total deductions are approximately $23,250, leaving a net pay of around $66,750 (about $5,560/month). Rates vary significantly by province — in Alberta you would save roughly $1,500 in provincial tax.
What is the take-home pay on $100,000 in Canada?
On $100,000 in Ontario, your approximate take-home pay is $73,000-$75,000 annually ($6,100-$6,250 monthly). This includes federal tax (~$15,000), Ontario tax (~$6,100), CPP (~$4,000), and EI (~$1,050). RRSP contributions of $18,000 would reduce your taxable income and increase take-home pay by roughly $5,400 in tax savings.
How do RRSPs reduce taxes in Canada?
RRSP contributions reduce your taxable income dollar for dollar. If you are in the 29.65% combined marginal tax bracket (federal + Ontario) and contribute $10,000 to an RRSP, you save $2,965 in taxes. The investment grows tax-deferred inside the RRSP. You pay tax only when you withdraw funds in retirement, ideally at a lower tax rate. The contribution limit is 18% of your previous year's earned income, up to the annual maximum.
Which Canadian province has the lowest income tax?
Alberta and Nunavut have the lowest personal income tax rates in Canada. Alberta has no provincial sales tax and income tax rates from 10% to 15%. Nunavut has rates from 4% to 11.5%. By contrast, Quebec has the highest combined rates, with provincial income tax ranging from 14% to 25.75% (though it has a separate tax collection system with its own deductions). For a $100,000 salary, the provincial tax difference between Alberta and Quebec can be over $5,000.
Do I need to file taxes in Canada if I'm a new immigrant?
Yes, you must file a Canadian tax return if you are a tax resident of Canada, which typically begins from your arrival date. As a new immigrant, you report worldwide income earned from your date of arrival. You are eligible for the same tax credits and deductions as other Canadians, including the basic personal amount, GST/HST credit, and Canada Child Benefit if you have children. Filing your first return is important to establish eligibility for government benefits.