Canada’s tax system uses marginal tax brackets, where portions of your taxable income are taxed at increasing rates.
In 2025, the federal brackets have shifted and a key rate cut is scheduled mid-year.
This article walks through how the 2025 CRA federal tax brackets work, the rate change, how taxes are calculated, and how provincial rates factor in.
What are the 2025 federal income tax brackets and rates?
According to the Canada Revenue Agency, for 2025 the federal tax brackets are:
Read More On CRA Taxes & Rates
- 14.5 % on taxable income up to $57,375 (effective rate for full year due to mid-year cut)
- 20.5 % on income over $57,375 up to $114,750
- 26.0 % on income over $114,750 up to $177,882
- 29.0 % on income over $177,882 up to $253,414
- 33.0 % on income over $253,414
Note: The lowest tax rate will be reduced from 15 % to 14 % on July 1, 2025. Because the cut happens mid-year, the effective full-year rate for the first bracket is 14.5 %.
Why the bracket change and how it’s implemented
In May 2025, the federal government announced a “middle-class tax cut”, lowering the lowest marginal tax rate by 1 %, starting July 1.
For the first half of 2025, taxpayers will still use the 15 % rate for that bracket.
From July onward, the 14 % rate applies to that same bracket. The blended effective rate for the year is 14.5 %.
CRA’s payroll tables reflect this change: for salaries paid from July 1 to December 31, tax withholding for income in the first bracket will use 14 %.
How marginal tax brackets work in practice
Marginal tax means each portion of your income is taxed at a specific rate:
- Income in the first bracket is taxed at the lowest rate (14.5 % in 2025).
- Income above that threshold up to the next bracket is taxed at the next rate (20.5 %), and so on.
- You don’t pay a single flat rate on all your income, but a combination of these rates.
For example, if your taxable income is $120,000:
- First $57,375 taxed at 14.5 %
- Next $57,375 taxed at 20.5 %
- Remaining amount (from $114,750 to $120,000) taxed at 26.0 %
This progressive structure ensures that higher earnings are taxed more heavily only on the portion above each threshold.
Interaction with provincial/territorial tax brackets
On top of the federal tax, each province or territory in Canada applies its own tax rates and brackets.
Your total marginal tax rate on a dollar of income is the sum of federal + provincial rates.
For example, in British Columbia for 2025:
- Provincial brackets: 5.06 % on the first $49,279, 7.70 % on the next portion, etc.
Thus, someone earning in a bracket that is federally taxed at 20.5 % will also pay whatever provincial rate applies to their income portion in BC (or whichever province they reside in).
Adjustments and indexing for inflation
The 2025 federal tax brackets were indexed upward by 2.7 % to account for inflation.
This ensures that inflation doesn’t push taxpayers into higher brackets too quickly.
Additionally, the personal basic amount (the portion of income you can earn before federal tax is applied) is also adjusted under indexation rules.
Why the blended 14.5 % rate matters
Because the 1 % tax cut starts mid-year, the full-year 2025 rate for the lowest bracket is effectively 14.5 %, not 15 % or 14 %.
In 2026 and later, the first bracket rate will fully be 14 %.
That means in 2025, during payroll and withholding calculations, special care is needed to reflect the transition.