New Ontario Income Tax Brackets for 2025: What You Need to Know
The Canadian government has unveiled the updated federal income tax brackets for 2025, marking a significant adjustment to account for inflation. These changes are designed to protect Canadians from the unintended consequences of rising prices, ensuring that inflation does not unfairly push individuals into higher tax brackets.
For the 2025 tax year, the federal income tax brackets have been increased by 2.7%, a smaller adjustment compared to the 4.7% increase in 2024. While the tax rates themselves remain unchanged, the income thresholds for each bracket have been raised to reflect the current economic landscape.
The updated federal tax brackets are as follows:
- 15% on incomes of $57,375 or less.
- 20.5% on incomes between $57,375.01 and $114,750.
- 26% on incomes between $114,750.01 and $177,882.
- 29% on incomes between $177,882.01 and $253,414.
- 33% on incomes above $253,414.01.
For Ontario residents, the combined federal and provincial income tax rates have also been updated. These rates vary depending on the type of income, such as salary, eligible dividends, ineligible dividends, and capital gains. The combined rates range from 20.05% for the lowest income bracket to 53.53% for incomes exceeding $253,414.
The key takeaway from these changes is the government’s focus on inflation adjustment. By increasing the income thresholds, the updated tax brackets aim to prevent Canadians from being pushed into higher tax brackets simply due to rising prices. This adjustment is part of a broader effort to provide financial relief and ensure that taxpayers are not disproportionately affected by economic changes.
Understanding these new tax brackets is essential for individuals and families to plan their finances effectively. The adjustments are intended to offer relief and ensure that the tax system remains fair and responsive to the needs of Canadians.

Understanding the Combined Federal and Ontario Personal Income Tax Rates
For residents of Ontario, the combined federal and provincial income tax rates for 2025 have been updated to reflect the new federal tax brackets. These combined rates vary depending on the type of income, such as salary, eligible dividends, ineligible dividends, and capital gains. The table below provides a detailed breakdown of the combined tax rates for different income levels and types.
Combined Federal and Ontario Personal Income Tax Rates
The following table outlines the combined tax rates for different types of income and income levels:
Taxable Income | Salary/Interest (%) | Eligible Dividends (%) | Ineligible Dividends (%) | Capital Gains (%) (First $250,000) | Capital Gains (%) (> $250,000) |
---|---|---|---|---|---|
First $52,886 | 20.05 | 6.86 | 9.24 | 10.03 | – |
$52,887–$57,375 | 24.15 | 1.20 | 13.95 | 12.08 | – |
$57,376–$93,132 | 29.65 | 6.39 | 20.28 | 14.83 | – |
$93,133–$105,775 | 31.48 | 8.92 | 22.38 | 15.74 | – |
$105,776–$109,727 | 33.89 | 12.24 | 25.16 | 16.95 | – |
$109,728–$114,750 | 37.91 | 17.79 | 29.78 | 18.95 | – |
$114,751–$150,000 | 43.41 | 25.38 | 36.10 | 21.70 | – |
$150,001–$177,882 | 44.97 | 27.53 | 37.90 | 22.48 | 29.98 |
$177,883–$220,000 | 48.29 | 32.11 | 41.72 | 24.14 | 32.19 |
$220,001–$253,414 | 49.85 | 34.26 | 43.51 | 24.92 | 33.23 |
Over $253,414 | 53.53 | 39.34 | 47.74 | 26.76 | 35.69 |
Key Takeaways from the Combined Tax Rates
- Eligible Dividends: These are taxed at a lower rate compared to regular income and ineligible dividends, making them a more tax-efficient form of income.
- Ineligible Dividends: These are taxed at a higher rate than eligible dividends, reflecting their different treatment under tax law.
- Capital Gains: The first $250,000 of capital gains is taxed at a lower rate, while amounts above $250,000 are subject to a higher tax rate.
- Progressive Taxation: The tax rates increase as income levels rise, ensuring that higher-income individuals contribute a larger share of their income in taxes.
These combined tax rates are essential for individuals and families to accurately calculate their tax liabilities and plan their finances accordingly. Understanding how different types of income are taxed can help optimize tax strategies and reduce overall tax burdens.

Conclusion
The new Ontario income tax brackets for 2025 reflect the government’s commitment to adjusting for inflation and ensuring a fair tax system. With a 2.7% increase in federal tax brackets and updated combined federal and provincial rates, Canadians can better plan their finances and avoid unintended tax burdens. Understanding these changes is crucial for optimizing tax strategies, especially for different types of income like dividends and capital gains. The progressive taxation system ensures that higher-income individuals contribute a larger share, while lower-income individuals benefit from lower rates. These updates underscore the importance of staying informed to make the most of the tax system and achieve financial stability.
Frequently Asked Questions (FAQ)
- What are the new federal income tax brackets for 2025?
- The federal income tax brackets for 2025 are as follows: 15% on incomes up to $57,375, 20.5% on incomes between $57,375.01 and $114,750, 26% on incomes between $114,750.01 and $177,882, 29% on incomes between $177,882.01 and $253,414, and 33% on incomes above $253,414.01.
- How are the combined federal and Ontario tax rates calculated?
- The combined tax rates are calculated by adding the federal and provincial tax rates for Ontario. These rates vary based on the type of income, such as salary, eligible dividends, ineligible dividends, and capital gains.
- What is the tax rate on eligible dividends in Ontario for 2025?
- The tax rate on eligible dividends ranges from 6.86% to 39.34%, depending on the income level and type of dividend.
- How are capital gains taxed in Ontario for 2025?
- The first $250,000 of capital gains is taxed at a lower rate, while amounts above $250,000 are subject to a higher tax rate, depending on the income level.
- Why are the tax brackets increasing by 2.7% in 2025?
- The 2.7% increase in tax brackets is an inflation adjustment to prevent individuals from being pushed into higher tax brackets due to rising prices. This ensures the tax system remains fair and responsive to economic changes.
No comment