Deductions in Canada: Cracking the Code by Unraveling Wage Dynamics highlights how taxes, pensions, and insurance premiums reduce Canadian paycheques, while funding benefits like EI, CPP, and healthcare. It helps workers understand where their deductions go and what protections they provide.
Canadian employees are subject to a variety of different deductions from their gross income, meaning that the amount or net, of each pay cycle is always going to be lower than the gross amount
In this article, we discuss the range of different deductions that are made from Canadians’ pay cheques, as well as the different sort of pension and insurance arrangements workers in Canada can make to secure their futures, both as they get older and in case of illness or injury, as well as the maternity and paid leave Canadian workers are entitled to.
Income Tax Rates in Canada
Canadian residents pay both federal and provincial income taxes. Federal income tax rates for 2025 are as follows:
- 15% on income up to $55,867
- 20.5% on income from $55,867 to $111,733
- 26% on income from $111,733 to $173,205
- 29% on income from $173,205 to $246,752
- 33% on income over $246,752
In addition to these federal taxes, each province and territory applies its own income tax rates. For instance, in Ontario, the 2025 rates range from 5.05% to 13.16%, depending on your income bracket.
These combined taxes mean that higher-income earners can face a total marginal tax rate of over 50% in some provinces.
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Get A QuoteHow Do Canada’s Taxes Compare Internationally?
Compared to other OECD countries, Canada’s federal tax rates are relatively moderate. In 2025:
- Canada ranks 25th globally for personal income tax burden.
- Countries like Denmark (46.9%), France (45.6%), and Belgium (43.5%) still lead with the highest rates.
- The United States maintains a lower federal average at 24.4%, although this varies widely by state.
- Canada remains slightly higher than the UK (33%), New Zealand (32.4%), and Australia (28.7%).
However, when provincial taxes are factored in, Canada's overall tax burden becomes significantly higher than the raw federal rate suggests.
CRA My Account: Managing Your Tax Online
The CRA My Account portal continues to be an essential tool for Canadians in 2025. It allows users to:
- View tax returns and notices of assessment
- Access T4 slips and employment earnings summaries
- Track RRSP and TFSA contribution limits
- Apply for benefits and credits (GST/HST credit, Canada Child Benefit)
- Submit documents and amend prior filings
The system has been enhanced with more intuitive navigation and biometric login options to improve security and ease of use.
Mandatory Employer and Employee Deductions
There are also a variety of deductions that both employers and employees in Canada are required by law to make each pay cycle. These include a mix of pension, insurance and health tax deductions and, in some cases, employers can also make deductions from an employee’s paycheck as a result of a court order or collective agreements, or for other reasons authorized by a worker.
Canada Pension Plan (CPP) Deductions
- Employees contribute 5.95% on earnings up to $68,500
- Employers match this amount
- Self-employed individuals pay both portions, totalling 11.90%
CPP provides income support during retirement or in the case of disability or death. Residents of Quebec contribute to the QPP (Quebec Pension Plan) instead, which has slightly different rates and thresholds.
Employment Insurance (EI)
- Employees pay 1.66% on insurable earnings up to $63,200, maxing out at $1,049.12
- Employers pay 1.4x the employee's premium, up to $1,468.77
- In Quebec, EI premiums are lower due to the province’s own parental insurance plan
EI provides temporary financial support to eligible workers who are unemployed, on parental leave, or unable to work due to illness or caregiving duties.
Employer-Specific Deductions
Employers may also be required to:
- Contribute to Workplace Safety and Insurance Board (WSIB) or equivalent programs
- Pay provincial health premiums or payroll taxes
- Deduct funds for union dues, court-ordered garnishments, or company-sponsored benefits
All such deductions must comply with both federal and provincial employment standards legislation.
How Are Salaries Paid in Canada?
Canadian employers must issue a new employee’s first pay within one month of their start date. Subsequent payments must be made at regular intervals no longer than 16 days, although monthly pay is permitted for managers or professionals.
When payday falls on a statutory holiday, payment must be made on the preceding business day. Direct deposit is the most common method, though printed cheques remain an option for some employers.
Working Conditions in Canada
Standard Workweek
- Typically Monday to Friday
- Maximum of 40 hours/week, with up to 8 additional hours of overtime
Overtime Pay
- Overtime is paid at 1.5x the regular wage rate
- Alternatively, employees may receive paid time off in lieu
Employment standards may vary by province, but these guidelines reflect federal law and are widely adopted.
Maternity and Parental Leave in Canada
Maternity Leave
- 17 weeks unpaid, if employed for at least 12 months
- Up to 19 weeks if the actual birth is later than the expected date
Parental Leave
- Up to 63 weeks unpaid for either parent
- Additional 8 weeks if leave is shared by both parents
- Biological mothers can combine maternity and parental leave for up to 78 weeks
EI benefits during maternity and parental leave may cover up to 55% of earnings, subject to maximums.
Paid Vacation Entitlements in Canada
Vacation entitlements vary by province, but federal minimums in 2025 are:
- 2 weeks after 1 year of employment
- 3 weeks after 5 years
- 4 weeks after 10 years
Vacation pay is calculated based on earnings:
- 4% of annual income for 2 weeks
- 6% for 3 weeks
- 8% for 4 weeks
Employers must issue vacation pay either with each paycheque or in a lump sum before the vacation starts.
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View ArticleIn Conclusion
Exploring the intricate landscape of wage deductions in Canada sheds light on the crucial balance between employees' financial security and the provisions offered by various insurance types such as life and health and dental plans.
It is evident that these deductions play a pivotal role in safeguarding employees' well-being and future while ensuring they have access to essential benefits and protection in the event of illness, important life events and inside retirement. The link between wage deductions and insurance offerings is profound, as both are intertwined in the pursuit of providing comprehensive support to the Canadian workforce. Wage deductions facilitate the accessibility of different insurance plans, empowering employees to prioritize their health, protect their loved ones, and prepare for unforeseen circumstances.
This is where Insurdinary comes in. We have helped millions of Canadians achieve financial wellness by way of our insurance products. As a trusted provider, we are dedicated to offering comprehensive coverage that aligns with the diverse needs of individuals, empowering them to embrace the future with confidence and security. With our tailored insurance solutions, we aim to continue supporting the well-being and prosperity of the Canadian workforce for years to come.
