Canada Income Tax Brackets 2025: The Complete Reference
Understanding Canada’s income tax brackets is essential for every Canadian taxpayer, business owner, and financial planner. Canada uses a progressive tax system — you pay increasing rates as your income rises, but only on the income within each bracket. This guide covers all federal and Ontario provincial tax brackets for 2025, combined marginal rates, and what the brackets mean for your tax planning decisions.
For personalized tax planning based on your specific income and situation, contact Pathak Professional Corporation in Mississauga at 437-872-7399.
Federal Income Tax Brackets 2025
| Taxable Income Range | Federal Tax Rate | Tax on This Portion |
|---|---|---|
| $0 – $57,375 | 15% | Up to $8,606 |
| $57,375 – $114,750 | 20.5% | Up to $11,762 |
| $114,750 – $158,519 | 26% | Up to $11,380 |
| $158,519 – $220,000 | 29% | Up to $17,832 |
| Over $220,000 | 33% | 33% on every dollar above $220,000 |
Federal basic personal amount (2025): $16,129 — the first $16,129 of income is sheltered by the basic personal amount credit (reduces federal tax by $16,129 × 15% = $2,419).
Ontario Provincial Income Tax Brackets 2025
| Taxable Income Range | Ontario Tax Rate |
|---|---|
| $0 – $51,446 | 5.05% |
| $51,446 – $102,894 | 9.15% |
| $102,894 – $150,000 | 11.16% |
| $150,000 – $220,000 | 12.16% |
| Over $220,000 | 13.16% |
Ontario Surtax: Ontario imposes an additional surtax on top of provincial tax: 20% surtax when Ontario tax exceeds $5,315; an additional 36% surtax when Ontario tax exceeds $6,802. This effectively pushes the top combined Ontario surtax rate higher for upper-middle income earners.
Combined Federal + Ontario Marginal Tax Rates 2025
| Income Level | Combined Marginal Rate (Employment Income) | Combined Rate (Eligible Dividends) | Combined Rate (Capital Gains) |
|---|---|---|---|
| Up to $16,129 (basic personal amount) | 0% | 0% | 0% |
| $16,129 – $51,446 | 20.05% | -6.86%* | 10.03% |
| $51,446 – $57,375 | 24.15% | -1.42%* | 12.08% |
| $57,375 – $102,894 | 29.65% | 6.39% | 14.83% |
| $102,894 – $114,750 | 31.48% | 8.92% | 15.74% |
| $114,750 – $150,000 | 37.91% | 17.79% | 18.96% |
| $150,000 – $158,519 | 40.70% | 21.62% | 20.35% |
| $158,519 – $220,000 | 43.41% | 25.38% | 21.71% |
| Over $220,000 | 53.53% | 39.34% | 26.77% |
*Negative rates on eligible dividends at low income levels mean that dividend income at those levels receives a credit EXCEEDING the tax owed — effectively resulting in a tax refund on that income.
Capital Gains: The 2024 Inclusion Rate Change
In the 2024 federal budget, the government announced an increase in the capital gains inclusion rate — the proportion of capital gains subject to tax — from 50% to 66.67% for gains realized after June 24, 2024 (with exceptions):
| Type of Taxpayer | Inclusion Rate (pre-June 25, 2024) | Inclusion Rate (post-June 24, 2024) |
|---|---|---|
| Individuals — first $250,000 of annual capital gains | 50% | 50% (unchanged for first $250K) |
| Individuals — annual capital gains over $250,000 | 50% | 66.67% (2/3) |
| Corporations and trusts — ALL capital gains | 50% | 66.67% (2/3) |
Impact: For an Ontario individual in the top bracket with $500,000 in capital gains in 2025: first $250,000 still taxed at 50% inclusion (26.77% effective rate); next $250,000 taxed at 66.67% inclusion (35.69% effective rate). For corporations, all capital gains now at 66.67% inclusion, significantly impacting corporate investment strategies.
Alternative Minimum Tax (AMT) 2024 Changes
The federal government also significantly reformed the Alternative Minimum Tax (AMT) starting in 2024:
- AMT exemption increased from $40,000 to $173,205 (indexed to inflation)
- AMT rate increased from 15% to 20.5%
- Capital gains inclusion for AMT: 100% (vs. 50-66.67% for regular tax)
- Only 50% of non-refundable tax credits can offset AMT (down from 100%)
- Many more high-income Canadians claiming large capital gains, charitable donations, or other deductions will now trigger AMT
Ontario Tax Reduction and Low-Income Credits
Ontario provides tax reductions for lower-income residents:
- Ontario Tax Reduction: Reduces provincial tax by $257 for individuals whose taxable income is under approximately $17,291; phases out as income rises to about $18,424
- Ontario Trillium Benefit (OTB): Combines three credits — Ontario Energy and Property Tax Credit, Northern Ontario Energy Credit, and Ontario Sales Tax Credit — paid monthly to qualifying lower- and moderate-income residents
- Ontario Senior Homeowners’ Property Tax Grant: Up to $500 for qualifying seniors who own and live in their home
Frequently Asked Questions: Canadian Income Tax Brackets
How do Canadian income tax brackets actually work?
Canada’s tax system is progressive — you pay different rates on different portions of your income, not one flat rate on everything. Each bracket’s rate applies ONLY to the income within that bracket. For example, if your taxable income is $80,000 in Ontario 2025, you pay: 20.05% on the first ~$51,446, then 29.65% on the remaining ~$28,554 (from $51,446 to $80,000). Your top marginal rate is 29.65% but your average effective rate is much lower — approximately 22-24%. The top rate (53.53% combined) only applies to income above $220,000.
What is the top marginal tax rate in Ontario for 2025?
The highest combined federal + Ontario marginal tax rate for 2025 on employment or business income is 53.53%, applying to taxable income over $220,000. This rate includes the 33% top federal rate, the 13.16% top Ontario provincial rate, and the Ontario surtax. This is one of the highest personal income tax rates among OECD countries. At this rate, every additional dollar earned above $220,000 results in only 46.47 cents kept after tax — which is why high-income earners work with CPAs to use income splitting, RRSP deductions, and corporate structures to reduce their exposure to the top brackets.
How are capital gains taxed in Canada in 2025?
Capital gains are taxed more favourably than regular income in Canada through the “inclusion rate” mechanism. For individuals in 2025: the first $250,000 of annual capital gains has a 50% inclusion rate (only half is added to your taxable income), while capital gains above $250,000 have a 66.67% inclusion rate (new since June 2024). At the top Ontario combined rate of 53.53% on the included portion, the effective capital gains tax rate is approximately 26.77% (at 50% inclusion) or 35.69% (at 66.67% inclusion) on the gain. This compares favourably to employment income at the same top bracket. The Lifetime Capital Gains Exemption ($1,016,602 in 2024) provides completely tax-free capital gains on qualifying small business shares and farm property.
Does Ontario have a health care premium?
Yes — Ontario’s Ontario Health Premium (OHP) is an additional tax that applies when taxable income exceeds $20,000. It ranges from $0 to a maximum of $900 per year (on income over $200,600). The premium is calculated as follows: $0 at income under $20,000; scaled amounts from $60–$750 between $20,000 and $200,599; $900 for income of $200,600 and above. The OHP is NOT deductible for income tax purposes and is in addition to the Ontario provincial income tax rates shown in the table above — it is already factored into the combined marginal rate calculations that CPAs use when modelling after-tax income.
