What Is Income Tax?

Income tax is a portion of your annual income that’s paid to the government each year.

Income tax is collected by the Canada Revenue Agency (CRA) and used to fund government services such as health care, public education, and the military.

Some income tax revenue is also used to provide assistance to eligible Canadians through programs for families, such as the Canada Child Benefit, and seniors, such as Old Age Security and the Guaranteed Income Supplement.

How income tax works in Canada

Canadian employers typically deduct income tax from your earnings each pay period. You should be able to see these deductions on your pay stub every time you get paid.

Even though your employer’s deductions ensure you’re paying income tax, you still need to report your employment earnings and any other income you receive — including passive income, government benefits, interest/investment earnings and pension income — to the CRA by filing an annual tax return.

Your tax return allows the CRA to determine if you paid enough tax on the income you earned in the past year. If you didn’t pay enough income tax, you’ll have to submit the outstanding amount to the CRA. If you paid too much, the CRA will issue you a tax refund.

When are income taxes due?

There are two different dates to be aware of when doing your taxes, the file date and the payment date.

If you are self-employed you have until June 15 to file your return as these taxes are considered to be more complicated. This date also applies if you’re not self-employed but your spouse or common-law partner is. However, the payment due date is still April 30.

Not everyone is in a rush to get their taxes done, but adhering to the CRA’s tax deadlines can save you money. There are late fees for not filing on time if you have taxes owing. You will also be charged interest on any outstanding tax payments.

💰 Federal income tax rates in Canada

Canada has what is known as a graduated tax system for individual federal income taxes.

The more money you make, the higher the rate of tax you pay. You don’t, however, pay the highest tax rate on every dollar you earn — only on the amount of income that falls within each tax bracket.

In contrast, corporations pay a flat federal tax rate on all income.

Federal income tax rates for 2025

You’ll also need to factor in the provincial and territorial tax rates when calculating your total annual tax bill.

How to do your taxes

If your taxes are straightforward, you can prepare your own return.

You can go old school and file a paper return, or choose one of the many digital options available.

Make sure to use CRA-approved tax software that will help you input your data, calculate your taxes and file your return. These free or "pay-what-you-want" tax software options include CloudTax and Wealthsimple Tax.

You can also have someone do your taxes for you — just make sure they're properly trained and capable of doing so. It can be a friend or family member, or a hired professional, such as an accountant, bookkeeper, or tax-preparation service. The cost will vary depending on the preparer you use and how complicated your return is.

If you have a modest income and simple tax situation, you may also be able to use a free tax clinic. This is a volunteer-run service available to Canadian residents who earn less than certain income thresholds based on their household size, and type of income.

How to pay your income tax bill

Paying your taxes is easy and can be done through several methods:

No matter what method you choose, be sure to confirm that your payment is received. You can do this online through CRA My Account. Allow three days for online payments or up to 10 days for payments by cheque. Some of these methods also come with service fees.