It's almost time to file your personal income tax return. If you need a refresher on how Canadians are taxed, read on.

Individuals who reside in Canada are taxed on the worldwide income they receive in the calendar year. There is a federal layer of tax and a provincial layer of tax. The tax rate you pay depends on the amount of taxable income you received in the calendar year, and the tax brackets you fall into. The 2025 Federal tax brackets are shown in the table below (which are indexed each year for inflation). Each province also has its own tax brackets and rates.

^{*On July 1, 2025, the federal government reduced the lowest tax bracket from 15%to 14%. Since the change was effective mid-year, the rate for 2025 is 14.5%. The rate for 2026 will be 14%.}

As you can see, the rate you pay will be a blended rate depending on your taxable income for the year. You pay Federal tax at 14.5% on the first $57,375, then the rate increases to 20.50% for income above $57,376, etc. Once your income is over $253,415, then every dollar after that will be at the 33% Federal tax rate. With provincial taxes added on, the top combined income tax rate on regular income ranges from 44.50% in Nunavut to 54.80% in Newfoundland and Labrador. Check out these links for the combined Federal and Provincial tax rates for the province in which you reside: E&YEY Tax Calculators & Rates | EY - Canada (rates and a personal tax calculator), KPMG Combined Top Marginal Tax Rates For Individuals—2025 (tax rates and brackets), as well as this easy-to-use Tax Calculator. There is an alternative minimum tax (AMT) that could apply if you have certain preference items including charitable donations, interest expense and capital gains. A taxpayer pays the higher of AMT and regular income tax. There were changes to the AMT for 2024, outlined in this article Alternative Minimum Tax Changes – What You Need to Know.

Some types of income are more tax efficient than others. If you earn capital gains, only 50% of the gain will be included in your taxable income, while your employment and investment income will be fully taxed. Withdrawals from your RRSP or RRIF are also fully taxable. Dividends receive preferential tax treatment through the use of the dividend gross-up and tax credit. There are two types of dividends: eligible and non-eligible dividends. Non-eligible dividends are taxed at a higher rate than eligible dividends. Usually, dividends you receive in your investment portfolio would be eligible dividends (dividends from publicly traded securities). While preparing your 2025 tax return, review the types of income you earned and evaluate if you should make a change to the types of income you are receiving.

However, don’t let the taxation of the income be the only reason for changing an investment. Talk to an Advisor to help match your income to your planning goals.

Certain expenditures are deductible from your income and there are also tax credits available that can reduce your tax liability. The CRA’s website has a page that describes the deductions and tax credits that are available. The most common credits are for medical expenses, charitable donations and tuition fees.

To be applied to your tax return, expenses must have been paid by December 31 of the tax year in question (except for RRSP contributions which can be made 60 days after year end and still reduce the prior year tax liability - so for the 2025 tax year, RRSP contributions can be made up to March 2, 2026. The RRSP contribution limit is the lesser of 18% of your earned income from the prior year and the annual limit, which is $32,490 for 2025, and any unused contribution room carried forward).

For employees, there are less deductions than for those who are self-employed. The most common deductions are for RRSP contributions, childcare expenses and investment related expenses. Introduced in 2023, was the first home savings account (FHSA). The annual contribution limit for this account is $8,000 and is tax deductible. It is important to note that you can only carry forward one year of contribution limit, so if you missed making a contribution in 2023, 2024 and 2025, you are limited to making $16,000 in 2026 (and not $32,000) but you would have had to open an account in 2023 (which is different from the TFSA noted below where contribution room starts accruing at age 18). For more information on how this account works, consult CRA’s First Home Savings Account page.

Of course, there are also ways to save taxes on income in the long-term by investing in a tax-free savings account (TFSA) or registered education savings plan (RESP), for example. While contributions to these types of plans don’t result in a deduction on your tax return, the income earned in the plans are not taxable while in the plan. For TFSA, there is no tax to you on withdrawal. For RESP, the funds are taxed in the hands of the student. The TFSA annual contribution limit for 2026 is $7,000. If you have not made a TFSA contribution in the past, the contribution room carries forward. For example, if you were 18 years or older in 2009 and have never contributed to a TFSA, you could contribute $109,000 to a TFSA in 2026. For more information on how TFSAs work, read How to Use a TFSA to Get Better Investing Results and for more information RESPs, check out Getting the Most from Your RESP, SMART TALK… about registered education savings plans (RESPs) and this Start Education Planning Now calculator.

Now is also an opportune time to review your overall financial and estate plan which would include your wills, power of attorney and representation agreements, life insurance needs as well as critical illness and disability insurance.

Contact us to learn more or if you have any questions.

^{This article is for general informational purposes only and does not constitute personal tax advice. Every individual’s situation is different; please consult a qualified tax or financial advisor before making decisions. All figures and rules are current for the 2025 (and 2026 where noted) tax year. Laws or limits may change after this period.}