How do provincial tax rates work alongside federal tax in Canada?

In Canada, you pay both federal and provincial (or territorial) income tax on your taxable income. These are calculated separately and then combined on your T1 return. Each province and territory sets its own tax brackets, rates, and credits independently of the federal government.

How the system works:

• All provinces and territories (except Quebec) use the Tax on Income (TONI) system, where provincial tax is calculated as a percentage of your taxable income using provincial brackets.
• Your federal tax is calculated using the five federal brackets (15% to 33%).
• Your provincial tax is calculated separately using your province's brackets.
• The total tax you owe is the sum of both.

Example combined marginal rates for 2024 (on highest bracket):

Key points:

• Your province of residence on December 31 determines which province's tax rates apply to your entire year's income.
• Provincial tax credits (like the basic personal amount) differ from federal credits and vary widely between provinces.
• Some provinces add surtaxes (like Ontario) or health premiums on top of the basic provincial tax.
• Non-refundable credits such as charitable donations, tuition, and medical expenses typically have both a federal and provincial component.

Filing:

Your provincial tax is calculated on Form 428 for your province, which is included with your T1 return. If you use tax software, this is calculated automatically based on your province of residence.