Each time you look at your paystub, do you find yourself asking, “Where does it all go?”
Understanding what percentage of your income you actually pay in taxes is the first step to taking control of your wealth. While there isn’t one single rate that applies to everyone, this guide breaks down exactly how the Canadian and British Columbia tax systems work for the 2025 tax year (filed in 2026).
By understanding the numbers, you can make informed decisions and legally keep more of your hard-earned money.
How Canada’s Income Tax Percentage Works
The percentage of income tax you pay in Canada is not a single flat rate. It is a personalized figure determined by three things:
- Federal Tax Brackets: The rate paid to the Government of Canada.
- Provincial Tax (BC): The rate paid to British Columbia based on where you live.
- Deductions & Credits: The specific claims that lower your final bill.
To understand your percentage, you must understand the difference between your Marginal Tax Rate and your Average Tax Rate.
2026 Federal & BC Tax Brackets (The Numbers)
Canada uses a progressive tax system. This means you don’t pay the highest rate on all your income—only on the portion that falls into the higher bracket.
Here are the combined Federal + BC tax brackets for the 2025 tax year. This gives you a clear picture of the “top rate” on your next dollar earned.
| Taxable Income Range | Combined Federal + BC Tax Rate* |
| First $47,937 | 20.06% |
| $47,938 – $57,375 | 22.70% |
| $57,376 – $95,875 | 28.20% |
| $95,876 – $110,076 | 31.00% |
| $110,077 – $126,290 | 32.79% |
| $126,291 – $181,232 | 40.70% |
| Over $252,752 | 53.50% |
(Note: These are estimated combined marginal rates for 2025 income. Rates vary slightly by specific situation.)
Marginal vs. Average: A Surrey Example
This is the single most misunderstood concept in Canadian taxes.
- Marginal Rate: The tax you pay on the next dollar you earn.
- Average Rate: The total tax you paid divided by your total income.
Example: If you live in Surrey and earn $100,000, your Marginal Rate is roughly 31%. However, because your first $47k was taxed at only 20%, your Average Tax Rate is actually closer to 22-24%. You are keeping more than you think!
Factors That Lower Your Tax Percentage
Now that you know the brackets, the goal of tax planning is to prevent your income from climbing into those higher percentages. We use two main tools to do this.
Tax Deductions (Lowering Your Income)
Deductions lower your total taxable income. If you earn $100,000 but have $10,000 in deductions, the CRA taxes you as if you only earned $90,000.
- RRSP Contributions: The most powerful tool for high-income earners.
- Child Care Expenses: Essential for working families.
- Investment Loan Interest: Interest paid on money borrowed to invest is often deductible.
Learn More: How to Design a Deductible Expense
Tax Credits (Reducing the Bill)
While deductions lower your income, tax credits lower the tax bill dollar-for-dollar.
- Charitable Donations: Generous credits for giving to registered charities.
- Medical Expenses: Claims for prescriptions, dental, and other health costs.
- Political Contributions: Credits for donations to federal or provincial parties.
The Business Advantage: Personal vs. Corporate Rates
To truly understand how drastically tax percentages can vary, I often show my clients the difference between personal and corporate tax rates.
If you are a high-income earner or contractor in BC, staying a sole proprietor means paying personal rates up to 53.5%.
However, by incorporating, you access the Small Business Deduction (SBD). For eligible Canadian-Controlled Private Corporations (CCPCs), the combined Federal/BC tax rate on the first $500,000 of active business income is just 11%.
- Personal Top Rate: ~53.5%
- Small Business Corp Rate: ~11%
This huge gap is why many BC entrepreneurs choose to incorporate.
Read More: Incorporation & Start-Up Services
What Happens if You Don’t Pay on Time?
Missing the deadline doesn’t just mean paying tax later; it means paying more.
The CRA charges a late-filing penalty starting at 5% of the balance owing, plus 1% for every full month the return is late (up to 12 months). This is on top of daily compounding interest.
If you are behind on your taxes, ignoring the problem is the most expensive option. We specialize in helping clients get back on track.
Solution: Late Tax Filing Services
Conclusion: Plan Ahead to Manage Your Rate
Your income tax percentage isn’t just “what it is”—it’s a number you can influence. The biggest mistake I see clients make is treating taxes as a springtime chore. True savings come from year-round planning.
Whether you are looking to optimize your personal return or structure a corporation to access that 11% tax rate, we can help.
Ready to lower your effective tax rate?
Contact Phoenix Knight Financial Solutions today for professional tax advice across BC.
