Canadian tax terms, explained simply

Short definitions of the tax terms used across our Canadian guides and calculator. In the guides, tax words link to this page; hover over any linked term to see its meaning without leaving the page.

Tax bracket: An income range that is taxed at one rate. Your income is split across the brackets, and each part is taxed at that bracket's rate.
Bracket threshold: The dollar amount where one bracket ends and the next begins. Only the income above a threshold is taxed at the next, higher rate.
Marginal tax rate: The tax rate on your last dollar of income: the rate of the highest bracket your income reaches. It only applies to the income inside that bracket, not to everything you earn.
Effective tax rate: Your total tax divided by your total income. It shows what share of your income actually goes to tax, and it is usually much lower than your marginal rate.
Taxable income: The income your tax is actually calculated on, after deductions like RRSP contributions are subtracted. It is usually less than your salary.
Progressive tax: A system where higher portions of income are taxed at higher rates. Canada's federal and provincial income taxes both work this way.
Basic personal amount (BPA): A tax credit every filer gets. It removes tax on the first part of your income. The federal government and each province set their own amount.
Non-refundable tax credit: A credit that lowers the tax you owe, but cannot take it below zero. The basic personal amount is one example.
Surtax: An extra tax calculated on tax you already owe, not on your income. Ontario uses one at higher incomes.
CPP (Canada Pension Plan): A required contribution taken from your pay for retirement benefits. It is separate from income tax. Quebec has its own version, the QPP.
EI (Employment Insurance): A required contribution taken from your pay that funds benefits like parental leave and support between jobs. It is separate from income tax.
RRSP (Registered Retirement Savings Plan): A retirement account. Money you put in is subtracted from your taxable income for the year, which usually lowers your tax.
Quebec abatement: A 16.5% reduction in federal tax for Quebec residents. It exists because Quebec runs some programs itself that other provinces get from the federal government.
Take-home pay: What is left of your pay after income tax and required contributions like CPP and EI.

See these terms in use in our Canada tax guides.