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Canada vs. US taxes: full comparison for 2025

Canada vs. US taxes: full comparison for 2025
Last updated May 30, 2025

US taxes vs. taxes in Canada? There’s a lot to unpack. Income tax rates, payroll deductions, and tax incentives all play a role. If you’re an expat, cross-border worker, or business owner, understanding these differences is essential.

Both countries use progressive tax systems – the more you earn, the more you pay. But beyond that, their tax structures and benefits vary widely. In this article, we’ll break down Canada’s tax system and compare it with the US tax system.

This article is brought to you by Taxes for Expats (TFX) – a top-rated tax firm serving US citizens, residents, and anyone with US tax obligations, both at home and abroad. Planning to move to Canada and need help with your US return or tax planning? Learn more about the expat tax services we offer.

Tax comparison between the US and Canada

Canada and the United States use progressive income tax systems, but their tax rates vary. Both countries also levy income taxes at federal and subnational levels – Canada at the provincial level, and the US at the state level. However, provincial tax rates in Canada are more consistent than US state tax rates, which range from zero in some states to quite high in others.

Income tax rates: Canada vs. US

Income tax rate comparison: Canadian tax rates vs. in the US for 2025 (all amounts in USD)
Canada United States
Taxable income (USD) Tax rate (%) Taxable income (USD) Tax rate (%)
0 - 41,589 15 0 - 11,925 10
41,589 - 83,178 20.5 11,926 - 48,475 12
83,178 - 128,476 26 48,476 - 103,350 22
128,476 - 183,528 29 103,351 - 197,300 24
183,528 and above 33 197,301 - 250,525 32
    250,526 - 626,350 35
    626,351 and above 37

The Canadian brackets have been adjusted to reflect the US dollar equivalent based on the current exchange rate. These figures are approximate and intended for comparative purposes. As of May 30, 2025, the exchange rate is approximately 1 CAD = 0.7241 USD.

In Canada, provincial taxes add an extra layer on top of federal taxes, impacting your overall tax burden.

Canada provincial tax rates for 2025
British Columbia Alberta Ontario Quebec
Taxable income (CAD) Tax rate (%) Taxable income (CAD) Tax rate (%) Taxable income (CAD) Tax rate (%) Taxable income (CAD) Tax rate (%)
0 - 49,279 5.06 0 - 151,234 10 0 - 52,886 5.05 0 - 53,255 14
49,279 - 98,560 7.7 151,234 - 181,480 12 52,886 - 105,775 9.15 53,255 - 106,495 19
98,560 - 113,158 10.5 181,481 - 241,974 13 105,775 - 150,000 11.16 106,495 - 129,590 24
113,158 - 137,407 12.29 241,974 - 362,961 14 150,000 - 220,000 12.16 129,590 and above 25.75
137,407 - 186,306 14.7 362,961 and above 15 220,000 and above 13.16    
186,306 - 259,829 16.8            
259,829 and above 20.5            

 

Example calculation: $60,000 income in Canada vs. the US (2025)

  • Canada (Ontario resident): Federal tax is about $9,144, plus provincial tax around $3,470. Total income tax: approximately $12,614.
  • United States (California resident): Federal tax is roughly $6,962, plus state tax near $2,427. Total income tax: about $9,389.
Tax tip from Taxes for Expats
Your total tax liability can differ significantly depending on your province or state of residence. Location is an important factor in your tax planning.

Corporate taxes

Where a company chooses to do business often depends on corporate taxes. Canada and the US tax corporations, both require corporations to file tax returns federally and at the provincial or state level.

Corporate taxes in Canada

Federal corporate tax rates: The basic federal rate is 38%, reduced to 28% after a 10% deduction, with the net rate currently at 15%. The Small Business Deduction (SBD) lowers the rate to 9% for Canadian-controlled private corporations (CCPCs) on active business income up to their business limit.

Provincial corporate tax rates: Provinces add corporate taxes on top of the federal rate, with lower rates for income eligible for the SBD and higher rates for other income.

For example, combined rates on eligible income in 2024:

  • Ontario: 12.2% (3.2% provincial + 9% federal)
  • British Columbia: 11% (2% provincial + 9% federal)
  • Newfoundland and Labrador: 11.5% (2.5% provincial + 9% federal)

Quebec and Alberta administer their corporate tax systems separately from the Canada Revenue Agency (CRA).

Corporate taxes in the United States

Federal corporate tax rate: a flat 21% applies to all corporations.

State corporate tax rates: Added on top of the federal rate, state rates vary widely:

  • lowest: North Carolina at 2.5%
  • highest: Minnesota at 9.8%
  • six states have no corporate income tax: Nevada, South Dakota, Texas, Washington, Wyoming, and Ohio (which uses a gross receipts tax instead).

Many small businesses in the US, like S corporations and LLCs, are pass-through entities, taxed at individual rates rather than corporate rates.

Capital gains taxes

In Canada, only a portion of the capital gain is taxable, based on the inclusion rate. Until June 25, 2024, 50% of the gain is taxable for individuals and corporations. After that date, gains over $250,000 for individuals and all gains for corporations are taxed at a higher inclusion rate of 66.67%.

In the US, capital gains tax depends on how long you hold an asset. Short-term gains (held 1 year or less) are taxed as ordinary income (10%37%). Long-term gains (held more than 1 year) benefit from lower rates of 0%, 15%, or 20%, depending on income. Additional taxes include the Net Investment Income Tax (3.8%) on high earners, plus varying state taxes.

2025 long-term capital gains tax brackets (US)
Rate (%) Single Filers (USD) Married Filing Jointly (USD) Head of Household (USD)
0 0 - 48,350 0 - 96,700 0 - 64,750
15 48,351 - 533,400 96,701 - 600,050 64,751 - 566,700
20 533,400 and above 600,050 and above 566,700 and above

 

The table below highlights the key differences in how each country taxes capital gains, including rates, exemptions, and holding period requirements.

Key differences between Canada and US capital gains taxes
Aspect Canada US
Taxable portion 50% (rising to 66.67% on gains > $250,000 after June 2024). 100% of capital gains are taxable.
Rates The marginal tax rate on the taxable portion of the gain. 0%, 15%, or 20% based on income (long-term gains).
Short-term gains No distinction between short- and long-term gains. Taxed as ordinary income at rates of 10% to 37%.
Additional taxes None are directly linked to capital gains. NIIT adds 3.8% for higher earners; state taxes may apply.

 

Canada taxes only part of your capital gains, generally resulting in lower effective rates, though higher earners face increased rates starting mid-2024. The US offers preferential rates for long-term gains but includes additional taxes and state variations.

Sales taxes

Canada has a federal Goods and Services Tax (GST) on most goods and services. Some provinces combine the GST with their provincial sales tax into a Harmonized Sales Tax (HST). Most goods and services are subject to GST or HST. Some basic products and services are exempt or zero-rated.

In the US, there is no federal sales tax. Instead, sales taxes are set at the state and local levels, resulting in a wide range of rates and rules. Sales tax applies mainly to tangible goods, with many states exempting groceries, prescription drugs, etc.

How sales taxes are applied in purchases:

  • Canadian GST/HST is generally added at the point of sale and collected by retailers, then remitted to the government.
  • In the US, sales taxes vary by location, with state and local governments imposing their own rates. Businesses must calculate and collect the appropriate tax based on where a sale occurs, making compliance more complex.

Estate and inheritance taxes

Canada does not have a formal estate or inheritance tax. Instead, when someone dies, their assets are treated as if sold at fair market value on the date of death. This deemed disposition triggers capital gains taxes on any appreciation. The estate pays these taxes before transferring assets to beneficiaries.

Probate fees or estate administration taxes may also apply, varying by province or territory. Some capital gains exemptions, like for a principal residence or small business, may reduce the tax burden.

The US imposes a federal estate tax on the value of an estate above exemption thresholds. In 2024, estates under the exemption limit are not taxed. Amounts exceeding the limit face rates up to 40%. The estate is responsible for paying these taxes before distribution. Many states impose their own estate or inheritance taxes with varying rates and exemptions.

Tax tip from Taxes for Expats
Cross-border estates may face taxation in both countries. The US-Canada tax treaty provides mechanisms like tax credits and defined taxing rights that help prevent double estate taxation. Proper planning using these treaty benefits can reduce your overall estate tax burden.

Property taxes

In Canada, property taxes are primarily administered at the municipal level. Rates differ across provinces and cities. For example, in 2024, annual property taxes on a $100,000 home ranged from about $250 in Vancouver, BC, to $620 in Toronto, Ontario, and $800 in Montreal, Quebec.

In the US, property taxes are collected locally by counties, cities, and school districts. Rates and assessment methods vary not only by state but also within jurisdictions, leading to significant regional differences.

Property tax rates tend to be higher in some US states compared to Canadian cities, especially in parts of the Northeast and Midwest. However, variability within both countries means your exact tax depends heavily on local rates.

In the US, homeowners can often deduct property taxes on their federal income tax returns, subject to limits. Canada does not offer a federal property tax deduction, but some provinces provide credits or relief programs for certain taxpayers.

US citizen or green card holder in Canada? Know your tax obligations
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Social security and payroll contributions

Canada’s system includes the Canada Pension Plan (CPP) for retirement and Employment Insurance (EI) for temporary benefits. In the US, Social Security provides retirement and disability benefits, while Medicare covers healthcare for those 65 and older.

Both countries require contributions from employees and employers.

Retirement benefit implications

Benefits differ in amount and eligibility. CPP and Social Security provide monthly retirement income based on lifetime contributions, but formulas and payout amounts vary. Medicare offers healthcare coverage after age 65, while Canada’s publicly funded healthcare system covers most medical services regardless of age.

Aspect Canada US
Social security programs Canada Pension Plan (CPP) provides retirement, disability, and survivor benefits; contributions split between employers and employees. Employment Insurance (EI) offers temporary income support during unemployment, illness, or parental leave. Social Security provides retirement, disability, and survivor benefits funded by FICA payroll taxes. Supplemental Security Income (SSI) provides federal payments ($967/month for individuals, $1,450/month for couples in 2025) to aged, blind, and disabled individuals with low incomes.
Healthcare coverage Universal healthcare (Medicare) covers all residents for medically necessary services with no direct cost at the point of care. Mixed public-private system: Public programs (Medicare, Medicaid) cover specific groups, while others rely on employer-sponsored or private insurance. Many remain uninsured or underinsured.
Healthcare funding Primarily funded through taxes, ensuring access for all residents regardless of income. Funded through a combination of government programs, private insurance premiums, and out-of-pocket payments, often tied to employment.
Access to healthcare Canadians enjoy equitable access with minimal direct costs. Basic services are covered, but private insurance is used for additional needs (e.g., dental care, and prescriptions). Americans often face high out-of-pocket costs, including deductibles, co-pays, and uncovered services, even with insurance.
Cost to individuals Minimal or no direct payments for essential services; private insurance is optional for extras. Individuals often pay higher costs, including premiums, deductibles, and co-pays.
Public program highlights - Medicare: Administered by provinces and territories, covering essential hospital and physician services.
- Funded through taxation.
- Medicare: Covers seniors.
- Medicaid: Supports low-income individuals.
- Public programs leave significant gaps in coverage, requiring private insurance.

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Tax benefits and credits

Both Canada and the US offer various tax credits and deductions to help reduce the tax burden. The way these benefits are structured and applied differs significantly between the two countries.

Aspect Canada US
Child/family benefits Canada Child Benefit (CCB): Tax-free monthly payments for families with children under 18. Child Tax Credit (CTC): Up to $2,000 per child under 17, with $1,400 refundable.
Sales tax relief GST/HST credit: Quarterly payments for low- to moderate-income families to offset sales tax. No equivalent federal sales tax credit, as sales taxes are managed at the state level.
Disability support Disability Tax Credit (DTC): Non-refundable credit for individuals with severe impairments. No specific disability tax credit, though deductions for medical expenses may apply.
Low-income worker benefits Canada Workers Benefit (CWB): Refundable credit to assist and encourage low-income workers. Earned Income Tax Credit (EITC): Refundable credit for low- to moderate-income workers, especially those with children.
Education benefits Canada Training Credit (CTC): Refundable credit for training and skills development. - American Opportunity Tax Credit (AOTC): Up to $2,500 for the first 4 years of college.
- Lifetime Learning Credit (LLC): Up to $2,000 per return for tuition and educational expenses.
Standard deduction Not applicable in Canada. Standard Deduction (2025):
- $15,000 for single filers.
- $30,000 for joint filers.
- $22,500 for heads of household.
Homeowner benefits Mortgage interest is not deductible in Canada. Mortgage Interest Deduction: Deduct interest on the first $750,000 of mortgage debt ($375,000 for married filing separately).
State and local taxes No specific equivalent deduction for property or local taxes. SALT Deduction: Deduct up to $10,000 ($5,000 if married filing separately) for state/local property and income or sales taxes.

Need help with cross-border taxation?

Cross-border tax rules can be complex, but with expert guidance, managing your US tax obligations alongside Canadian taxes doesn’t have to be overwhelming.

Whether you’re a US citizen, a green card holder, or a Canadian resident with US tax responsibilities, Taxes for Expats will guide you through your unique situation with clear and practical advice.

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FAQ

1. As an expat, do I have to pay taxes in both Canada and the US?

It depends. The Canada-US tax treaty can help prevent double taxation. For example, you may be able to claim foreign tax credits for taxes paid in the other country.

2. Are taxes higher in Canada?

Canadian federal and provincial income tax rates tend to be higher, especially for middle- and high-income earners. Some US states have low or no income tax, which lowers overall taxes for residents there. However, Canada’s higher taxes fund public healthcare and social services, which many Americans pay for separately.

3. Can I deduct mortgage interest in Canada?

No. Unlike the US, Canada does not allow a mortgage interest deduction for your principal residence.

4. Are Social Security benefits taxed in Canada and in the US?

Canada: CPP and OAS benefits are taxable as income.

US: Social Security benefits are taxable based on income level, with up to 85% subject to tax for high earners.

5. Does Canada have an estate or inheritance tax?

No. There are no inheritance or estate taxes in Canada, but capital gains taxes may apply at death.

6. Which country offers better tax advantages for families?

The Canada Child Benefit (CCB) provides tax-free monthly payments to families with children under the age of 18.

The US Child Tax Credit (CTC) provides a refundable credit of up to $2,000 per child.

7. How do expat healthcare systems compare?

Canada. Health care is publicly funded, providing universal access at no direct cost.

The US. Expats often need private insurance, which can be expensive.

Further reading

Tax guide for Americans in Canada
How to move to Canada: A step-by-step guide for US Citizens
US-Canada tax treaty: simple guide for expats
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