A few years ago, a client of ours called in a panic.
She had just gotten a raise — something she’d worked hard for, something she should have been celebrating — but instead she was convinced it was going to make her “lose money to taxes.”
In her words: “If I move into a higher tax bracket, won’t I end up taking home less?”
If you’ve ever wondered the same thing, you’re in good company.
Canadian tax brackets confuse a lot of people, and honestly, it’s not your fault. The way they’re usually explained can feel like a math textbook trapped in a legal document.
So, let’s fix that and walk through how tax brackets really work with a little story...
First: No, earning more never makes you earn less.
Let’s go back to our client for a moment.
Her raise bumped part of her income into the next bracket, so she assumed all her income would now be taxed at that higher rate.
Nope. Not even close. This is the biggest misunderstanding about Canadian taxes and the easiest one to clear up.
Canada uses a marginal tax system. That means your income is divided into chunks, and each chunk is taxed at its own rate.
Think of it like climbing stairs. You don’t suddenly jump to the top step. You climb one step at a time. You pay the lower rate on the lower “steps,” and only the amount above each step gets taxed at the new rate.
What Tax Brackets Actually Look Like
While each province adds its own layer, we’ll use simplified federal numbers for this example. Now, imagine these brackets:
- 15% on the first chunk
- 20.5% on the next chunk
- 26% on the one after that
- And so on…
If you move into a higher bracket, you’re only paying that higher rate on the portion of income that falls into that bracket — never the whole thing.
Why This Matters (and Why You Can Celebrate Your Raise)
When we walked our client through this idea, you could practically hear the relief through the phone.
“Wait — so the raise is ACTUALLY a raise?”
Yes. Always. Every time. You will always take home more when you earn more.
Tax brackets don’t punish you for earning higher income. They just make sure everyone pays a fair share based on what they earn — not more, not less.
A Simple Example (No Calculator Needed)
Let’s say your income goes from $50,000 to $52,000. Only the extra $2,000 spills into the next tax bracket. The rest stays exactly where it was.
So instead of losing your raise to taxes, what actually happens is:
- Part of your income is taxed at the lower rate
- A small slice is taxed at the higher rate
The result? You get more money in your pocket than you had before.
Why Understanding Tax Brackets Helps You Make Better Decisions
When you understand how tax brackets really work, a few things become easier:
- Accepting a raise (no fear of a “tax penalty”)
- Planning year-end deductions
- Making RRSP contributions strategically
- Understanding how a second job or side gig affects your income
- Feeling confident when you look at your pay cheque
Knowledge = empowerment. And tax brackets are one of the most empowering pieces of the financial puzzle because they affect everyone.
If you remember one thing, let it be this:
You never move “into a higher tax bracket” entirely.
Only part of your income does — and you always take home more when you earn more.
That’s the whole secret.
Need Help Navigating Your Own Tax Situation?
If tax season feels overwhelming, you’re not alone. Many Canadians aren’t sure how brackets connect to their real income, deductions, credits, or benefits.
At Numberra, we help individuals and business owners make sense of this stuff without the stress. If you want clarity before filing, or guidance on how to reduce your tax burden for next year, we’re here.
Reach out anytime. Understanding your taxes shouldn’t feel like a puzzle.
Photo credit: victoriarising.ca - Rose Creative Co.
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