Introduction

When you receive your paycheck in Canada, the amount deposited into your bank account (net pay) is always lower than your contract salary (gross pay). This is due to mandatory source deductions managed by the Canada Revenue Agency (CRA) and Revenu Québec.

For employees and employers alike, understanding these deductions is essential for accurate budgeting and personal tax planning.

In this guide, we will break down the primary deductions subtracted from your Canadian gross salary. You can estimate your exact take-home pay for any province using our Canada Payroll Calculator.

1. Federal Income Tax

Federal income tax is a progressive tax deducted from all employees in Canada. This means your tax rate increases as your income crosses into higher tax brackets.

• Basic Personal Amount (BPA): You do not pay federal tax on the first portion of your earnings. For 2026, the basic personal amount is indexed to shield low-income earners.
• Progressive brackets: Federal tax brackets start at 15% and increase up to 33% for high-income earners.

2. Provincial Income Tax

Each province and territory in Canada levies its own income tax on top of federal tax. Just like federal tax, provincial taxes are progressive, but the rates and brackets vary widely depending on where you reside:

• British Columbia: BC features some of the lowest tax rates in Canada for low-to-middle income earners, starting at 5.06%. Check your BC take-home pay with the BC Take-Home Pay Calculator.
• Quebec: Quebec manages its own tax system separate from the CRA. It has higher tax rates to fund provincial programs like parental leave. Compute Quebec-specific deductions using the Quebec Payroll Calculator.
• Ontario & Alberta: Ontario uses a surtax system, while Alberta features a progressive system scaling from 10% to 15%.

3. Canada Pension Plan (CPP)

The Canada Pension Plan is a mandatory retirement pension plan. Both you and your employer contribute to CPP on earnings above the basic exemption of $3,500 up to an annual maximum ceiling.

• Employee Contribution Rate: The basic rate is 5.95% of your pensionable earnings.
• CPP2 (Second Tier): If you earn above the first ceiling, a secondary contribution rate (CPP2) of 4% applies to earnings up to the second ceiling.
• Self-Employed: If you are self-employed, you must pay both the employee and employer portion (11.9% total). You can evaluate your self-employed compensation mix using our Salary vs Dividend Calculator.

4. Employment Insurance (EI)

Employment Insurance provides temporary financial assistance to workers who lose their jobs through no fault of their own, or who take leave due to illness, pregnancy, or caring for a newborn.

• Employee Contribution Rate: A percentage of your insurable earnings (around 1.6% to 1.7% depending on the year) up to an annual maximum threshold.
• Employer Contribution: Employers pay 1.4 times the employee contribution amount.

Summary Table of Deductions

Conclusion

Understanding your paystub deductions helps you make smarter financial choices. If you want to see exactly how your gross salary splits between federal tax, provincial tax, CPP, and EI deductions in your province, check out the Canada Payroll Calculator.