Canadian income tax has two layers — federal and provincial — calculated separately and then added together. Here's how the full calculation actually works.
Add up your total income
Employment income, self-employment income, investment income, and other sources all combine into your total income on your tax return.
Subtract deductions to get net income
RRSP contributions are the big one here — they're deducted directly from income (not just a credit), meaningfully reducing your taxable income for the year you contribute.
Apply federal tax brackets
Federal tax uses progressive brackets from 15% up to 33% on the highest portion of income. See our Income Tax Calculator for the current thresholds.
Apply provincial/territorial tax separately
Each province and territory has its own tax brackets and rates, calculated independently of federal tax and then added on top. This is why take-home pay for the same salary can differ noticeably between, say, Alberta and Quebec.
Subtract the Basic Personal Amount and other credits
The federal Basic Personal Amount is a non-refundable credit everyone gets, reducing tax owed rather than taxable income directly — along with other credits you may qualify for (tuition, medical expenses, charitable donations).
Don't forget CPP and EI
Canada Pension Plan and Employment Insurance premiums are separate from income tax entirely — they're payroll deductions, not part of your income tax calculation, though they're withheld alongside it. See our CPP Calculator for those figures.
Get your combined federal + provincial estimate.
Use the Canada Income Tax Calculator →This is a simplified walkthrough — provincial rates, surtaxes (in some provinces), and credit phase-outs add complexity beyond this overview. For your exact figure, use our calculator or consult a Canadian tax professional.