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Average vs Marginal Tax Rates (2025)

Canada utilizes a progressive tax system where your financial obligation grows alongside your earnings through a series of increasing tax brackets. This source clarifies the distinction between the average tax rate, which represents the total percentage of income paid to the government, and the marginal tax rate, which is the specific percentage applied to your last dollar earned. By categorizing income into various levels, the federal and provincial governments ensure that only the portion of wealth exceeding specific thresholds is subject to higher rates. To help citizens retain more of their earnings, the text highlights how tax deductions and RRSP contributions can lower taxable income, while tax credits provide a direct reduction in the amount owed. Ultimately, understanding these metrics allows taxpayers to visualize their total tax burden and use strategic financial planning to minimize their liabilities.