What Are Marginal Tax Rates?
Marginal tax rates refer to the tax applied to an additional dollar of income. In Canada, tax rates progress incrementally, meaning the more you earn, the more tax you’re obligated to pay. However, this doesn’t mean all your income is taxed at a higher rate, rather just the income that falls within each progressive tax bracket. This system is called a progressive tax system.
How Marginal Tax Rates Work in Canada?
Canadian tax structure is comprised of federal and provincial tax rates. Both these rates apply to your income progressively. The federal government has seven tax brackets, while each province sets its own tax rates and brackets. For example, Manitoba, one of Canada’s provinces, has three tax brackets.
Understanding Your Tax Bracket
Your tax bracket is determined by your taxable income, which is your total income minus any deductions. For each tax bracket, there is a corresponding rate. This is the rate applied to the income within that bracket, not your total income.
Example of Calculating Marginal Rate
In this example, we will use Manitoba. To illustrate, let’s use a taxable income of $100,000 in Manitoba. As of 2023, the federal tax brackets are:
| Tax rate | Taxable income bracket |
| 15% | $0 to $53,359 |
| 20.5% | $53,359 to $106,717 |
| 26% | $106,717 to $165,430 |
| 29% | $165,430 to $235,675 |
| 33% | $235,675 and up |
In Manitoba, the provincial tax rates are as follows:
| Tax rate | Taxable income bracket |
| 10.8% | $0 to $36,842 |
| 12.75% | $36,842 to $79,625 |
| 17.4% | Over $79,625 |
On a $100,000 income in Manitoba, you would pay:
Federal Tax:
- 15% on $53,359 = $8,003.85
- 20.5% on $46,641 ($100,000 – $53,359) = $9,561.41
Provincial Tax:
- 10.8% on $36,842 = $3,978.94
- 12.75% on $42,783 ($79,625 – $36,842) = $5,454.83
- 17.4% on $20,375 ($100,000 – $79,625) = $3,545.25
Total tax paid on a $100,000 salary equals: $30,544.28, leaving you with a take-home salary of $69,455.72 (note: this does not factor in either the federal or provincial basic personal amounts, CPP, EI or other deductions or credits that may apply in your specific case).
Final Thoughts
Understanding marginal tax rates in Canada is critical for effective financial planning. It’s essential to note that these rates can change, so always check the most recent tax brackets and rates. This guide offers a basic understanding, but consulting with a tax professional or financial planner will ensure the most accurate tax planning
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For more information on Canada’s personal income tax rates and system, you can visit the Government of Canada’s site on this topic by clicking here.
