Taxes & Accounts

What Is Income Tax?

Income tax is tax charged by federal and provincial or territorial governments on taxable income under the rules that apply to you.

4 min

Taxes 101 • 01

Income tax is part of how governments collect revenue.

In Canada, individuals can owe federal income tax and provincial or territorial income tax.

Tax is calculated using rules, not one flat percentage of everything you earn.

The system looks at income, deductions, credits and tax rates.

A basic tax picture can include

01Income you report02Deductions that reduce certain income amounts03Tax rates and brackets04Credits that reduce tax05Tax already withheld or paid

Tax withheld and final tax are different.

01

Tax withheld

Money sent to the government during the year, often from a paycheque.

02

Final tax result

What your return calculates after applying the tax rules.

A tax return compares what happened with what was already paid.

Tax calculatedExample $8,000
Tax already withheldExample $8,500
DifferenceExample $500 refund
Real resultDepends on your return

A refund is not automatically free money from the government.

It can simply mean more tax was paid or withheld during the year than the final calculation required.

Income tax becomes easier when you separate

01Income02Deductions03Tax rates04Credits05Amounts already paid

Remember this

Income tax is a calculation, not one percentage.

Your return brings income, deductions, rates, credits and payments together.

Lesson complete

Reviewed 2026-08-18

Sources

Canada Revenue AgencyTax rates and income brackets ↗Canada Revenue AgencyAll deductions, credits and expenses ↗
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