The following table displays 3 factors:
- 2026 indexation percentage – this is used to increase the tax bracket thresholds and most personal tax credits. See Provincial/Territorial Indexation of the Personal Tax System below for how each province does their indexation.
- Actual inflation – increase in CPI from September 2024 to September 2025
- Indexation factor for 2026 if calculated in the same manner as the federal indexation but based on the provincial/territorial CPI
The indexation factors are our calculations, and have not been confirmed to CRA factors. The actual inflation amounts have been confirmed to Statistics Canada Consumer Price Index, September 2025.
| 2026 | Indexation Percentage | Actual Inflation 12 mos | Factor Using Fed Formula |
|---|---|---|---|
| Federal | 2.0% | 2.4% | 2.0% |
| AB | 2.0% | 1.9% | 2.1% |
| BC | 2.2% | 1.9% | 2.2% |
| MB | 2.1% | 2.9% | 2.1% |
| NB | 2.0% | 2.3% | 1.5% |
| NL | 1.1% | 2.0% | 1.1% |
| NS | 1.6% | 2.7% | 1.7% |
| NT | 2.0% | 1.9% | 2.1% |
| NU | 2.0% | 0.7% | 0.9% |
| ON | 1.9% | 2.0% | 1.9% |
| PE | 0.0% | 1.7% | 1.2% |
| QC | 2.05% | 3.3% | 2.10% |
| SK | 2.0% | 2.6% | 2.0% |
| YT | 2.0% | 2.9% | 2.9% |
Canadian Personal Income Tax System Indexation Method
Income Tax Act s. 117.1
For Canada and most provinces, the tax brackets and most other personal tax amounts are adjusted each year for inflation, using a calculated indexation factor. The federal indexation factor for 2026 is calculated as:
average of 12 months CPI All-Items Factors for the 12 months ending Sep 30, 2025
divided by
average of 12 months CPI All-Items Factors for the 12 months ending Sep 30, 2024
= indexation factor for 2026
For Canada and all provinces except Quebec, rounding is to the nearest one-thousandth, or, where the result obtained is equidistant from two consecutive one-thousandths, to the higher thereof, for:
- Each 12-month average
- The indexation factor
The provincial/territorial all-items CPI is used for all provinces and territories except Quebec, which uses all-items excluding alcoholic beverages, tobacco products and smokers’ supplies and recreational cannabis.
Each tax bracket amount has a “base year”. For the federal tax brackets, the base year is now 2025 for the tax bracket amounts, but many amounts have a base year of 2009. The indexation factor for year 1 after the base year is applied to the base year amounts. The result is rounded to even dollars to be used as the year 1 tax bracket amount. The result prior to rounding is used to calculate the indexed amount for year 2.
Most People Don’t Care About Rounding Methods
We calculate the indexed amounts for all provinces and territories for the coming year long before these amounts are available on the Canada Revenue Agency (CRA) website. Some amounts for the coming year will not be available until January of the following year, in the tax forms. Many other tax professionals also do these calculations, and would love the results to always match CRA amounts. However, there are always $1 rounding errors in many amounts, even though the calculations are done properly from the appropriate base year.
Business tax setup
In most jurisdictions, indexation is applied to the prior year’s non-rounded amounts, with the results then rounded to the nearest dollar. Quebec uses a more streamlined approach less prone to error: the indexation factor is applied to the previous year’s rounded amounts, and amounts are then rounded to the nearest $1 or $5. This method offers greater simplicity and consistency, and its broader adoption by the federal government and other provinces would be a welcome improvement.
Not All Provinces Index All Tax Credits!
The federal indexation rate is used by
- New Brunswick,
- Northwest Territories,
- Nunavut,
- Saskatchewan, and
- Yukon
Prince Edward Island does not increase their tax bracket thresholds or most personal tax credits for indexation, but they increase their basic personal amount (BPA) and spousal amount through legislation following their budget each year. For 2026, the BPA and spousal amounts increased by 2.4%, and tax bracket thresholds increased by 1.8%.
Alberta skipped indexing for 2020 and 2021, but started it again for 2022. Late in 2024, they passed Bill 32, which caps the indexation factor at 2% starting with 2025.
Manitoba indexes only their tax brackets and basic personal amount.
Nova Scotia, which started indexation for the 2025 tax year, uses the NS CPI factors for the 12-month periods ending in August, instead of September.
Quebec Annual Adjustment as per s. 31.1 of the Quebec Taxation Act:
- The 12-month averages are not rounded
- If the indexation factor has more than four decimal places, only the first four decimal digits are retained and the fourth is increased by one unit if the fifth is greater than 4.
The provinces that do their indexation using their own indexation factors will also have base years from which their indexation is calculated.
Calculating Taxable Income In Canada
First, taxable income is calculated. Taxable income is always the same for the federal and provincial/territorial calculations, except for Quebec, for which the taxable income may differ from the federal amount.
Calculating Income Taxes Payable
Then, federal and provincial/territorial income taxes are separately calculated based on taxable income. See the detailed calculation in the Federal Income Tax and Benefit Return, or form 428 for your province or territory. For Quebec, see the income tax return and work chart 401 on the Quebec website in the income tax forms.
See the following example of the federal initial tax calculation for a taxpayer with taxable income of $250,000 for 2023.
| Tax Calculated on | Taxable Amount | Tax Rate | Tax | |
|---|---|---|---|---|
| First | $53,359 | $53,359 | 15.0% | $8,003.85 |
| up to | 106,717 | 53,358 | 20.5% | 10,938.39 |
| up to | 165,430 | 58,713 | 26.0% | 15,265.38 |
| up to | 235,675 | 70,245 | 29.0% | 20,371.05 |
| up to | 250,000 | 14,325 | 33.0% | 4,727.25 |
| Total Federal tax before tax credits | $59,305.92 | |||
In the example above, you can see that tax is only paid at the highest rate on the amount of taxable income that exceeds $250,000. This is called a Progressive tax System.
Canada Has A Progressive Tax System
The Canadian tax system is a progressive tax system, which means the tax rates increase as taxable income increases. Everyone pays the lowest tax rate for the amount of their taxable income within the lowest tax bracket. Taxable income in excess of this is taxed at the next higher rate, as you can see in the above table.
Calculating Non-Refundable Tax Credits
After income tax amounts are calculated, non-refundable tax credits are deducted from the federal or provincial/territorial tax payable.
Non-refundable tax credits include the basic personal amount, which is available to every taxpayer. The tax credits are calculated in a particular order, as defined in the federal Income Tax Act and the provincial/territorial Income Tax Acts. A list of most of the non-refundable tax credits can be seen in the Tables of Non-Refundable Tax Credits.
Tax filing software
Tax Rate for Non-Refundable Tax Credits
The actual tax amount of each credit is calculated by multiplying by the tax rate for the lowest tax bracket. Quebec uses their lowest tax rate of 14% for 2023 and later years, except for the tax credits for student loan interest and medical expenses, which still use the 20% rate.
Ordering of Non-Refundable Tax Credits
Non-refundable tax credits are calculated and applied on the tax return in an order defined by the Income Tax Act. The tuition and education tax credit can cause other tax credits to be lost, because the amount claimed will be whatever is needed to reduce taxes to zero before certain other tax credits are claimed. See Ordering of Tax Credits.
Basic Personal Amount (BPA) Tax Credit
The basic personal amount federally and for each province and territory is listed in their tax rate table (link in first paragraph above), as well as the tax rate that is applied to calculate the tax credit. The basic personal amount is the amount that can be earned before any federal/provincial/territorial tax is paid. Every person can claim the BPA. The lowest tax rate applied to taxable income is the same as the tax rate used for personal tax credits. This means that income up to the amount of the BPA is shielded by the BPA.
The Federal basic personal amount was enhanced starting with the 2020 taxation year, as were the spousal and eligible dependant amounts, so that the amount of the credits are affected by the taxpayer’s taxable income. The effect of this is included in the federal and combined federal + provincial or territorial marginal tax rate tables. The tax brackets that are affected are highlighted in blue.
Nova Scotia has a similar enhancement to its basic personal, spousal, and eligible dependant amounts, for the 2018 and subsequent taxation years. The effect of the enhanced basic personal amount is included in the NS tables of marginal tax rates.
The Manitoba basic personal amount (BPA) for 2025 is reduced for taxpayers with net income (line 23600) in excess of $200,000, and reaches zero when net income is $400,000 and above. The BPA is indexed, but the adjustment thresholds are not.
Donation Tax Credit and Dividend Tax Credits
Donations have a 2 or 3 part tax credit calculation, and dividend tax credits are calculated separately. The tax credit amounts are then deducted from the previously calculated income tax, but are non-refundable, so can only reduce taxes payable to zero.
Political Contribution Tax Credits
The federal political contribution tax credit and all provincial/territorial political contribution tax credits are non-refundable, except for Ontario and Nunavut, which have refundable political contribution tax credits.
Calculating Provincial Surtaxes
PEI provincial surtax, which is eliminated for 2024 and later taxation years, was calculated based on net taxes payable after all non-refundable tax credits have been deducted. Ontario surtax is calculated based on net taxes payable after all non-refundable tax credits except for dividend tax credits have been deducted. Once federal and provincial/territorial income taxes including surtaxes and net of non-refundable tax credits are calculated (zero if negative), the refundable tax credits are then deducted. If they exceed the net taxes payable, they will be refunded to the taxpayer.
Low-Income Tax Reductions
Some provinces also have a low-income tax reduction which increases the amount that can be earned before any tax is paid.
Although the tax reductions are non-refundable, they are deducted after the addition of surtaxes, and before the deductions for non-refundable dividend tax credits and political contribution tax credits.
The above credits can only be used to reduce income tax to zero.
Ontario Health Premium
The Ontario health premium is added after the above additions and deductions.
Calculating Refundable Tax Credits
There are a few federal refundable tax credits, including the Canada Workers Benefit. Several provinces and territories also have refundable tax credits.
Calculating Taxes Payable or Refund Due
Once your income tax payable or refundable is determined, the following are added or deducted to arrive at the tax payment required, or the tax refund due:
- Add:
- Clawbacks payable re Employment Insurance, Old Age Security Pension or Canada Recovery Benefit
- CPP & enhanced CPP on self-employment income
- Less:
- total income tax deducted (withheld from employment income, RRSP/RRIF withdrawals, etc)
- instalment payments made
Canadian Income Tax Calculators
Detailed Income Tax Calculators
The Canadian Income Tax & RRSP Savings Calculator and the Quebec Income Tax & RRSP Savings Calculator show, in general, the order in which income, deductions, non-refundable and refundable credits are calculated. This calculator can give you a much more accurate calculation of your taxes than any “simple” calculators.
Simple Canadian Income Tax Calculator
This calculator is quick and easy to use, great for tax professionals and financial planners. The only tax credits included in the tax calculation are the basic personal amount and dividend tax credits.
The only input required in these calculators is your income from 4 different sources, and your choice of tax year.
Financial planning tools
The Basic Canadian Income Tax Calculator will display taxes payable for every province and territory for 6 years, as well as the marginal tax rate for each source of income for the year chosen. It also allows you to quickly & easily compare original and revised amounts when you change income amounts, tax years, or provinces.
Tables of Personal Income Tax Rates
The provincial/territorial tax rates before being combined with the federal rates are shown above the table of combined rates for each province/territory, in our Tables of Personal Income Tax Rates and Tax Brackets in Canada.
Canada Revenue Agency (CRA) Resources
Canadian Income Tax Rates for Individuals – Current and Previous Years. The CRA tables do not include any provincial/territorial surtaxes. The surtaxes are included in our combined tax rate tables.
Revised: October 28, 2025