Federal Tax Brackets

Definition

Federal personal income tax applies in layers: each rate taxes only the income within its bracket. A raise that crosses a threshold does not move all your income into the higher rate. Provincial or territorial tax is calculated separately and added to the federal amount.

This entry uses income earned in 2026, reported on the return filed in 2027. A 2025 return filed during 2026 uses the 2025 figures instead.

Key rules

CRA's 2026 federal rates and thresholds are:

• These brackets apply to taxable income after deductions, not gross revenue or the amount deposited into a bank account.
• Most federal personal non-refundable credits, including the Basic Personal Amount, use the lowest federal rate of 14% in 2026. Credits such as the dividend tax credit have their own calculation; do not apply 14% to every credit.
• The federal lowest rate for the whole 2025 tax year was 14.5%. Neither 2025 nor 2026 uses a flat 15% for the Basic Personal Amount credit.
• Dividends and capital gains require their own taxable-income adjustments before the brackets apply.
• The combined marginal rate also includes the province or territory's rules. For most residents, the relevant province is where they lived on December 31.

Example

An Alberta resident has $120,000 of taxable income in 2026. Before credits, the federal calculation is:

14%   x  $58,523                         =  $8,193.22
20.5% x  ($117,045 - $58,523 = $58,522)  = $11,997.01
26%   x  ($120,000 - $117,045 = $2,955)  =    $768.30
Federal tax before credits               = $20,958.53

Assume the person's net income also qualifies for the full 2026 Basic Personal Amount of $16,452. Its credit is $16,452 × 14% = $2,303.28. Federal tax after that credit alone is $18,655.25; other credits and Alberta tax remain to be calculated. The CRA indexation table gives the current personal amounts.

Common mistakes

• Applying the top marginal rate to all income. The lower layers retain their lower rates.
• Confusing the tax year with the year the return is filed.
• Treating a credit's base amount as a dollar-for-dollar tax saving. A $1,000 base amount at 14% produces a $140 credit.
• Treating a deduction and a credit as interchangeable. A deduction reduces taxable income; its value depends on the rates that income would otherwise face.
• Using a federal-only estimate as the full tax bill. Provincial tax and other applicable amounts are separate.

Related concepts

The T1 return applies the brackets after deductions and then applies credits, including the Basic Personal Amount. Owner-managers also need the dividend gross-up and credit rules when comparing salary with dividends.