Marginal Tax Rate Prince Edward Island: A Comprehensive Guide for 2026
Understanding tax rates is crucial for financial planning, whether you're an individual or a business owner. Prince Edward Island (PEI), like other Canadian provinces, has its own set of tax brackets and rates that determine how much income tax residents pay. This article provides a detailed overview of the marginal tax rate in Prince Edward Island for 2025, along with comparisons to 2026 rates and relevant tax information.
Prince Edward Island Tax Brackets and Rates for 2025
Prince Edward Island's tax system, unlike the federal system, does not automatically adjust for inflation. However, the 2026 Budget introduced significant changes to the tax brackets and rates for 2025. These changes include raising two tax bracket thresholds, lowering the tax rates for the first four tax brackets, and increasing the tax rate for the highest tax bracket. Bill 66, An Act to Amend the Income Tax Act (No. 2), which includes these changes, was tabled on November 8, 2026.
Here's a breakdown of the PEI tax brackets and rates for 2025, compared to 2026:
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| 2025 Taxable Income | 2025 Tax Rates | 2026 Taxable Income | 2026 Tax Rates |
|---|---|---|---|
| first $33,328 | 9.50% | first $32,656 | 9.65% |
| over $33,328 up to $64,656 | 13.47% | over $32,656 up to $64,313 | 13.63% |
| over $64,656 up to $105,000 | 16.60% | over $64,313 up to $105,000 | 16.65% |
| over $105,000 up to $140,000 | 17.62% | over $105,000 up to $140,000 | 18.00% |
| over $140,000 | 19.00% | over $140,000 | 18.75% |
It is important to note that the tax brackets and personal tax credit amounts are not automatically increased for inflation in Prince Edward Island. If they were indexed, the increase for 2025 would have been based on an indexation factor of 1.02 (a 2.0% increase). However, the 2026 Budget implemented specific changes, resulting in varying increases for different brackets.
Combined Federal and Prince Edward Island Marginal Tax Rates
Residents of PEI pay both federal and provincial income taxes. Therefore, it's essential to consider the combined marginal tax rates to understand the overall tax burden. The table below shows the combined federal and PEI marginal tax rates for 2025 and 2026, considering different types of income:
| 2025 Taxable Income (1) | PE 2025 Marginal Tax Rates | 2026 Taxable Income (1) | PE 2026 Marginal Tax Rates | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Other Income | Capital Gains | Canadian Dividends | Other Income | Capital Gains | Canadian Dividends | ||||
| Eligible | Non-Eligible | Eligible | Non-Eligible | ||||||
| first $33,328 | 24.50% | 12.25% | -1.41% | 16.30% | first $32,656 | 24.65% | 12.33% | -1.20% | 16.47% |
| over $33,328 up to $57,375 | 28.47% | 14.24% | 4.07% | 20.86% | over $32,656 up to $55,867 | 28.63% | 14.32% | 4.29% | 21.04% |
| over $57,375 up to $64,656 | 33.97% | 16.99% | 11.66% | 27.19% | over $55,867 up to $64,313 | 34.13% | 17.07% | 11.88% | 27.37% |
| over $64,656 up to $105,000 | 37.10% | 18.55% | 15.98% | 30.79% | over $64,313 up to $105,000 | 37.15% | 18.58% | 16.05% | 30.84% |
| over $105,000 up to $114,750 | 38.12% | 19.06% | 17.39% | 31.96% | over $105,000 up to $111,733 | 38.50% | 19.25% | 17.91% | 32.40% |
| over $114,750 up to $140,000 | 43.62% | 21.81% | 24.98% | 38.28% | over $111,733 up to $140,000 | 44.00% | 22.00% | 25.50% | 38.72% |
| over $140,000 up to $177,882 | 45.00% | 22.50% | 26.88% | 39.87% | over $140,000 up to $173,205 | 44.75% | 22.38% | 26.54% | 39.58% |
| over $177,882 up to $253,414 | 48.32% | 24.16% | 31.46% | 43.69% | over $173,205 up to $246,752 | 48.07% | 24.04% | 31.12% | 43.40% |
| over $253,414 | 52.00% | 26.00% | 36.54% | 47.92% | over $246,752 | 51.75% | 25.88% | 36.20% | 47.63% |
Notes:
(1) The marginal tax rates in blue have been adjusted to reflect changes to the enhanced federal personal amount.
The marginal tax rate for dividends is a percentage of actual dividends received, not the grossed-up taxable amount. The gross-up rate for eligible dividends is 38%, and for non-eligible dividends, it is 15%. The marginal tax rate for capital gains is a percentage of *total* capital gains, not taxable capital gains.
Prince Edward Island Basic Personal Amount
The basic personal amount is a non-refundable tax credit that all individuals can claim. It reduces the amount of income tax you owe. For 2025, the PEI basic personal amount has been increased to $14,250, up from $13,500 in 2026.
| 2025 Personal Amount | 2025 Tax Rate | 2026 Personal Amount | 2026 Tax Rate |
|---|---|---|---|
| $14,250 | 9.50% | $13,500 | 9.65% |
Federal Basic Personal Amount
It's also important to be aware of the Federal Basic Personal Amount. For 2025, the federal basic personal amount ranges from $14,538 to $16,129, taxed at a rate of 15%. The enhanced federal personal amount affects marginal tax rates for taxable incomes in the second-highest federal tax bracket.
| 2025 Personal Amount (1) Minimum / Maximum | 2025 Tax Rate | 2026 Personal Amount (1) Minimum / Maximum | 2026 Tax Rate |
|---|---|---|---|
| $14,538 $16,129 | 15% | $14,156 $15,705 | 15% |
(1) The enhanced federal personal amount affects marginal tax rates for taxable incomes in the second highest federal tax bracket.
Understanding Marginal Tax Rates vs. Average Tax Rates
It's crucial to distinguish between marginal tax rates and average tax rates. Your marginal tax rate, as previously defined, is the tax rate on your next dollar of income. Your average tax rate, on the other hand, is the total tax you pay divided by your total income. The average tax rate gives you a broader picture of your overall tax burden, while the marginal tax rate is more relevant for making decisions about additional income or deductions.
Frequently Asked Questions About PEI Taxes
Here are some frequently asked questions related to taxes in Prince Edward Island:
What are Prince Edward Island's most popular tax credits and deductions?
While a complete list is beyond the scope of this article, some common tax credits and deductions include the basic personal amount, age amount, spouse or common-law partner amount, and eligible dependent amount. Consult the official PEI government website or a tax professional for a comprehensive list.
What is the capital gains tax in Prince Edward Island?
The capital gains tax is integrated into the income tax system. Only 50% of capital gains are taxable. The tax rate applied to the taxable portion of your capital gains depends on your combined federal and provincial marginal tax rate, as shown in the table above.
What is Prince Edward Island's marginal tax rate?
As detailed throughout this article, PEI has a progressive tax system with multiple marginal tax rates. The rate you pay depends on your income level and the type of income (e.g., regular income, capital gains, eligible dividends).
Is there a carbon tax rebate in Prince Edward Island?
Prince Edward Island, similar to other provinces, has a carbon pricing system. However, details on rebates and how they are administered can change. It's best to consult official government sources for up-to-date information.
How much tax is deducted from a paycheque in Prince Edward Island?
The amount of tax deducted from your paycheque depends on your income, tax credits, and other factors. Your employer uses your TD1 forms (federal and provincial) to calculate the deductions.
When are taxes due in Canada?
Generally, personal income taxes are due on April 30th of each year. If you are self-employed, you have until June 15th to file, but your payment is still due on April 30th.
How long does it take to get a tax refund in Canada?
The Canada Revenue Agency (CRA) typically processes returns within two weeks for electronic filing and eight weeks for paper filing. However, processing times can vary.
How do I pay income taxes online?
You can pay your income taxes online through your financial institution's online banking service, through the CRA's My Payment service, or by using third-party payment providers.
Does everyone need to file an income tax return?
Generally, you need to file a tax return if you owe taxes, want to claim a refund, or are eligible for certain benefits. Even if you don't owe taxes, filing a return might be beneficial.
How long should I keep my income tax records?
You should keep your income tax records and supporting documents for at least six years from the end of the tax year to which they relate.
Conclusion
The marginal tax rate in Prince Edward Island is a key component of the province's tax system. The 2025 rates, as outlined in the 2026 Budget and Bill 66, reflect changes to both the tax brackets and the rates themselves. Understanding these rates, along with the combined federal and provincial marginal tax rates, is essential for effective financial planning. Remember that the basic personal amount also plays a significant role in determining your overall tax liability. While this article provides a comprehensive overview, it's always recommended to consult official government resources or a tax professional for personalized advice.
How will these changes to the PEI marginal tax rates impact your financial planning for 2025? Are there any specific tax strategies you'll consider based on this information?
If you want to know other articles similar to Marginal Tax Rate Prince Edward Island: A Comprehensive Guide for 2026y ou can visit the category Marginal Tax Rate & Tax Brackets Canada 2025 - 2024.
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