Your marginal tax rate is the rate of tax you pay on your next dollar of income, which rises as income moves through Canada's progressive tax brackets.
Canada taxes income progressively: the first band of income is taxed at a low rate, and each higher bracket at a higher rate. Your marginal rate is the combined federal and provincial rate on your next dollar, and it is the rate that matters for decisions, an RRSP deduction or an extra expense saves tax at your marginal rate, not your average rate.
Top combined marginal rates exceed 50% in most provinces. This is different from your average tax rate, total tax divided by total income, which is always lower because the lower brackets pull it down. Confusing the two leads to poor decisions about deductions and additional income.
You earn $95,000 and consider $5,000 of RRSP contributions. At a 43% marginal rate, that deduction saves $2,150 in tax, far more than your average rate of perhaps 25% would suggest.
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