How the average rate is worked out
The calculation is simple: take the total tax you owe and divide it by the income you are measuring it against. The result is a percentage that blends every bracket your income passed through. Because each rate applies only to its own slice of income, the blended figure sits below the rate on your top slice.
You must decide what the denominator is. Many people use taxable income. Others use total income, which gives a lower percentage. Neither is wrong, but you should say which one you used, particularly if you compare years or compare yourself with someone else.
An illustrative Ontario calculation
Take $80,000 of taxable income and the 2026 federal and Ontario brackets, and ignore credits and other provincial amounts. Federal tax is 14% on the first $58,523 plus 20.5% on the remaining $21,477, about $12,596. Ontario tax is 5.05% on the first $53,891 plus 9.15% on the remaining $26,109, about $5,110.
The two together come to roughly $17,700, which is about 22% of $80,000. The same person’s marginal rate is 29.65%, the combined rate on the top slice. The gap between 22% and 29.65% is the effect of the lower brackets. These are illustrative numbers, not a return.
What the average rate is good for
The average rate is useful for judging your overall tax burden and comparing one year with another. It is a poor guide to the cost or benefit of a single decision. A deduction or an extra dollar of income changes your tax at the marginal rate, not the average rate.
Your actual average rate also depends on credits and deductions, which reduce the tax that the brackets produce. Claiming more of them lowers your average rate even though your brackets stay the same.
What to discuss with your accountant
Ask your accountant to show both rates for your situation, using the same income measure each time. If your average rate rose sharply from one year to the next, ask whether the cause was higher income, fewer deductions, a lost credit or a different mix of income types.
For the conversation, bring last year’s notice of assessment and your return. Comparing two full returns usually explains a change faster than looking at the percentage on its own.
Sources & editorial notes
Sources checked October 24, 2026. The examples are illustrative and provide general information. Discuss how the guidance applies to your circumstances with your accountant.
- 2026 personal income tax rates and bracketsCanada Revenue Agency
- Claiming deductions, credits, and expensesCanada Revenue Agency
Rules and guidance can change. Use the current official source and confirm the treatment for your facts. To flag an error, contact Sora.