Marginal tax rate
The tax rate applied to your next dollar of income, not your average rate overall.
Last reviewed May 20, 2026
Reviewed for accuracy and clarity by Sandeep Singh before publication. Learn about our editorial process.
What it means
Your marginal tax rate is the rate you'd pay on your next dollar of income — not the rate applied to all of your income. Canada's tax system is bracketed, so different portions of your income are taxed at different rates.
Why it matters
It's the number that actually matters for decisions like RRSP contributions — the value of a deduction depends on your marginal rate, not your average one.
Common misunderstandings
- Moving into a higher tax bracket doesn't mean all of your income gets taxed at the higher rate — only the portion within that bracket does.
- It's often confused with your average (effective) tax rate, which is always lower than your marginal rate.
Where you'll see it
In any real conversation about RRSP contributions or year-end tax planning.
Related terms
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