Income-tax concepts; hypothetical example excludes benefit reductions and payroll contributions.
Your marginal income-tax rate is the rate applying to an additional slice of taxable income. Your average rate compares total income tax with an income base. A decision about the next dollar and a summary of the whole year need different measures.
Average is a backward-looking ratio
For an illustration, assume $60,000 of income and $12,000 final income tax. The average rate on that stated income base is 20%. This says nothing by itself about the rate on a further $1,000. Always check whether a published average uses gross or taxable income.
Example: the next $1,000
Suppose the entire extra $1,000 falls in a hypothetical combined 30% band. Income tax on that slice would be $300 before other effects, even though the earlier example's average was 20%. Applying the average would predict only $200 and miss the decision's assumed rate.
These rates are teaching assumptions, not a Canadian bracket quotation. If the slice crosses a threshold, divide it between the applicable bands instead of applying one rate to all of it.
Combined rate does not mean complete effect
Federal and provincial brackets contribute to the marginal income-tax rate. Income-tested credits, surtaxes and benefit reductions can change the effective result. CPP/EI and household benefit changes also affect take-home money but are not captured by a simple sum of two bracket rates.
Sources: CRA — 2025 income tax rates and brackets; CRA — Deductions, credits and expenses
Use a before-and-after comparison
For a substantial RRSP deduction, compare the full supported calculation before and after rather than multiplying by today's top rate. For donations, use the donation-credit schedule instead: a personal donation is not ordinarily a deduction valued at the marginal rate.
Sources: CRA — Contributing to an RRSP, PRPP or SPP; CRA — How to claim donations (2025)