How Canadian income tax works

Canada has a progressive tax system. As income rises, each new portion is taxed at a higher rate. Earlier income keeps its lower rate.

Think of a row of buckets, each with its own rate. Your income fills the first bucket before it spills into the next, and you pay each bucket's rate only on what is in that bucket.

Moving into a higher bracket never reduces your take-home pay from your regular income, because only the income above the threshold is taxed at the new rate. Some income-tested benefits can shrink as income rises, which is a separate effect.

You pay two income taxes on one return: federal tax and tax to your province or territory. Your province is generally the one you lived in on December 31. Quebec residents file a separate provincial return.

Who should file

You must file if you owe tax or the CRA asks you to. You should also file if you want benefits such as the Canada Child Benefit or the Canada Groceries and Essentials Benefit, even with little or no income.