Everything you need to know about income tax brackets


Let’s talk income tax brackets – you know, the progressive system that Canada uses to ensure someone making an annual salary of $45,000 doesn’t pay the same amount in taxes as someone earning $200,000 a year. You may already know the basics of income tax brackets, but did you know that more than just your salary can affect which tax bracket you get lumped into?

Let’s talk tax bracket basics

We all get taxed based on our income every year. But income gets taxed at different rates depending on the amount. Anyone making less than $45,916 is taxed at the lowest rate of 15%. Now here’s where it gets more complicated. Those in the second tax bracket – making between $45,916 and $91,831 – are taxed at the same 15% rate for the first $45,916 and then at a 20.5% rate for the remaining amount, up to $91,831. The tax rate then increases to 26% for income between $91,831 and $142,353. It increases to 29% for income between $142,353 and $202,800. And finally, income over $202,800 gets taxed at the highest rate of 33%.

If you didn’t know your tax bracket before, you do now.

Changes to your salary

The most obvious change to your income (and a potential change to your tax bracket) is a salary adjustment. Let’s say you finally got that raise you deserve this year. Good for you! But before you crack open the champagne, ask yourself – does your new salary push you into a new income tax bracket? If you were making $45,000 and you are now making $50,000, any income you make over $45,916 will now be taxed at 20.5%.

If you received termination pay for being let go from your position, this will also count towards your income and could potentially put you into a new bracket. And unless you’ve been employed with your company since before 1996, you won’t be able to transfer any of your termination pay to your Registered Retirement Savings Plan tax-free.

 Taxable employee benefits

Your salary isn’t the only thing that can affect your tax bracket. There are quite a few employee benefits that are taxable and in turn, add to your overall income. A benefit is considered taxable when an employer pays or provides something personal in nature to the employee. Benefits such as prizes and awards, holiday trips, bonuses and personal use of an employer’s automobile, are likely taxable. Most of the time, this income won’t be substantial enough to move you into a new bracket.

But, one that might is an employee stock option. If you purchased shares in your company at a cheaper price than their fair market value, this difference will be included in your income as a taxable benefit. Depending on how much stock you purchased, this could add up and affect your tax bracket.

Knowing what contributes to your income and your income tax bracket is important, so there are no surprises when your T4 arrives in the mail. Most taxable benefits will be included in your statement of employment but you can always ask your employer if you’re unsure.


A tax expert at H&R Block can help you determine your income tax bracket and factors that might adjust your tax bracket. Find an office near you, or if you’re ready to file, do it yourself with our free online software.