Question 1

How is Canadian federal income tax calculated?

Accepted Answer

Canadian federal income tax uses a progressive tax system with five brackets for 2025: 15% on the first $55,867, 20.5% on the next $55,866, 26% on the next $61,472, 29% on the next $73,547, and 33% on income over $246,752. You also get a basic personal amount of $15,705 that is tax-free.

Question 2

What are CPP and EI deductions?

Accepted Answer

CPP (Canada Pension Plan) is 5.95% on pensionable earnings between $3,500 and $71,200 (2025), with a maximum contribution of $4,027.50. EI (Employment Insurance) is 1.64% on insurable earnings up to $65,700, or 1.31% in Quebec. These fund your retirement pension and unemployment insurance.

Question 3

How do provincial taxes vary across Canada?

Accepted Answer

Each province and territory has its own tax rates and brackets. Alberta has the lowest rates starting at 10%, while provinces like Quebec and Nova Scotia have higher rates. The combined federal and provincial marginal tax rate can range from 25% to over 50% depending on income and location.

Question 4

What is an RRSP and how does it reduce my taxes?

Accepted Answer

RRSP (Registered Retirement Savings Plan) is a tax-deferred retirement account. Contributions reduce your taxable income, lowering your immediate tax bill. You can contribute up to 18% of previous year's income, with a maximum of $32,490 for 2025. Unused contribution room carries forward indefinitely.

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