What Are Tax Brackets?
The Canada Revenue Agency collects federal income taxes using a marginal tax rate system. A different tax rate is applicable to each level of income, and these levels are called tax brackets.
Tax brackets are structured so that low-income Canadians pay a lower percentage in taxes than high-income Canadians. Changes are made annually to the income levels for the different tax brackets and periodically for the various tax rates for each bracket.
Why Do Tax Brackets Change?
Tax brackets are updated based on inflation rates using the Consumer Price Index. This means that tax bracket thresholds increase in relation to the increase of the costs of goods and services.
2025 Annual Inflation Adjustment
Several updates are being made for the 2025 tax year, including:
- Federal tax brackets will increase by 2.7% based on inflation
- The basic personal amount of tax-free annual income has increased from $15,705 to $16,129
- The Canadian Pension Plan contribution rate will remain at 5.95% for employees, and the maximum pensionable earnings have increased to $71,300 from $68,500
- The Canada Child Benefit has increased from $7,437 to $7,787 per child under the age of 6, and from $6,275 to $6,570 per child between the ages of six and 17, effective July 2024 to June 2025
Combined Federal and Provincial 2025 Tax Brackets for Alberta
Considering both Canadian and Alberta tax brackets and rates, salary and other income will be taxed according to these parameters for Albertans:
- 25% on the first $57,375, plus
- 30.5% on income over $57,375 up to $114,750, plus
- 36% on income over $114,750 up to $151,234, plus
- 38% on income over $151,234 up to $177,882, plus
- 41.32% on income over $177,882 up to $181,481, plus
- 42.32% on income over $181,481 up to $241,974, plus
- 43.32% on income over $241,974 up to $253,414, plus
- 47% on income over $253,414 up to $362,961, plus
- 48% on income over $362,961
Capital gains income is included in taxable income at 50% of the actual gain on the first $250K, and at 2/3 on capital gain income over $250K.
Canadian Tax Brackets in 2025
Federal tax brackets and rates have been updated as follows for 2025:
- 15% on the first $57,375, plus
- 20.5% on income over $57,375 up to $114,750, plus
- 26% on income over $114,750 up to $177,882, plus
- 29% on income over $177,882 up to $253,414, plus
- 33% on income over $253,414
Provincial Tax Brackets in 2025 for Alberta
Changes to Alberta’s tax brackets have been made for 2025. They are:
- 10% applicable to the first $151,234 of taxable income
- 12% applicable to taxable income from over $151,234 up to $181,481
- 13% applicable to taxable income from over $181,481 up to $241,974
- 14% applicable to taxable income from over $241,974 up to $362,961
- 15% applicable to taxable income over $362,961
What Do Tax Rate Changes Mean for You?
Though these annual changes may seem minor, they can have a big impact on your financial situation year over year. It’s important to understand how new tax rates and brackets will affect you and your family. Working with an accounting firm to prepare and implement tax planning strategies to help you save money and ensure optimal results will provide you with clarity and control over the impact that changing tax rates can have on you.
Your Trusted Advisor
We work with business owners to provide wealth management and financial planning support that considers your business and personal finances to maximize your tax savings.
KWB strives to keep our clients informed of news that could affect their business and livelihood. To become a KWB client, book an introductory meeting here.
