Your average tax rate is your total tax divided by your total income. Your marginal tax rate is the tax rate incurred on your next dollar of income. These rates are different because Canada has a progressive taxation system.
Take this screenshot of the federal T1 General:
- Her average federal tax rate is 15.90% ($9,539.17 divided by $60,000), and
- Her marginal federal tax rate is 20.5% (the percentage on line 67).
This is progressive taxation. Regardless of your total income, you pay 15% federal tax on the first $50,197 (the first tax bracket). You pay 20.5% on any income in the second tax bracket, 26% on any income in the third tax bracket, 29% on any income in the fourth tax bracket, and 33% on any income in the highest tax bracket.
Each province also has their own marginal rates and tax brackets.
Please note, this example is from 2022 and it doesn’t take any tax credits or deductions into account.