Two rates describe every Canadian paycheque. A full $100,000 Ontario example shows where each comes from, takes apart the raise myth, and explains when to use which.
Ask two people what tax rate they pay and you'll hear two different numbers — "about 20%" from one, "my bracket is 31%" from another — and on the same salary, both can be right. Canada gives every paycheque two rates. The effective (average) rate is your total income tax divided by your total income: the share of everything you earn that goes to income tax. The marginal rate is the rate on your next dollar: what a raise, an overtime shift, or a bonus loses to tax, and what an RRSP deduction saves. They answer different questions, and mixing them up produces the most durable myth in Canadian personal finance — that earning more can leave you with less.
| Line | Amount |
|---|---|
| Gross salary | $100,000 |
| Federal tax | $13,375 |
| Ontario tax (incl. surtax + health premium) | $6,778 |
| Total income tax | $20,153 |
| CPP + CPP2 (at the 2026 maximum) | $4,646 |
| EI (at the 2026 maximum) | $1,123 |
| Net pay | $74,077 |
| Effective (average) tax rate | 20.2% |
| Marginal tax rate | 31.48% |
The effective rate is 20.2% because most of the $100,000 was never taxed at 31.48%. The first $16,452 earned a federal credit that zeroes its federal tax; the next slices were taxed at 14% federally and 5.05% provincially; only the dollars between $58,523 and $100,000 saw the 20.5% federal bracket, and Ontario's 9.15% bracket (with the first surtax layer once Ontario tax passed $5,818) applies to the top slice. Stack every slice, divide by the whole salary, and you get 20.2%. The marginal rate, 31.48%, is only the price of the next dollar: 20.5% federal plus 9.15% Ontario multiplied by 1.20 for the surtax. Note what it excludes — at this salary CPP and EI are already maxed, so extra dollars pay no payroll contributions at all; at $60,000, the same calculation would add 5.95% CPP and 1.63% EI on top until those ceilings are reached.
"If I take that raise, I'll jump a bracket and keep less." Run it. Our $100,000 earner gets a $5,000 raise. The raise dollars all sit in the same brackets as the top of the old salary — nothing below $100,000 is re-taxed — so the extra tax is roughly $5,000 × 31.48% = $1,574, and take-home rises by about $3,426. There is no income at which earning another dollar of employment income in Canada makes your net pay fall: the highest combined marginal rate in the country is 54.8%, which still keeps 45 cents of the dollar. Bracket boundaries are not cliffs; they are lines drawn inside the stack, and only the dollars above the line pay the higher rate. (Benefit clawbacks — the Canada Child Benefit, GST credit, and similar — can add a few points of effective marginal rate for families, which is a real planning consideration, but they still don't reach 100%.)
Decisions about the next dollar use the marginal rate. Is overtime worth it? Compare it after marginal tax. Should you contribute to an RRSP or a TFSA? The RRSP deduction saves your marginal rate today; if your retirement marginal rate will be lower, the RRSP wins the arbitrage — that's the whole trade. Negotiating a raise or pricing freelance work on the side: marginal. Describing the whole picture uses the effective rate. Budgeting, comparing your burden with another province or country, judging whether your total tax "feels" high: effective — and remember it excludes CPP/EI, which is why our calculator shows income tax and payroll contributions as separate lines. Both rates are printed on every result on this site, computed from the same 2026 engine. Enter your salary in the take-home pay calculator and you'll see yours side by side — plus, in the income tax calculator, what an RRSP contribution does to the bill at your marginal rate.