Your side hustle income is added to your employment or other income, which can push you into a higher marginal tax bracket. This means you'll pay a higher percentage of tax on that additional income. For example, if you earn $55,000 from your day job in Ontario and add $15,000 in side hustle income, that extra $15,000 is taxed at your marginal rate, which could be 29.65% instead of the lower rate you'd pay on the first dollars earned. Understanding how your side income affects your marginal tax rate helps you plan deductions, savings, and cash flow for the 2026 tax year. Your marginal tax rate is the percentage of tax you pay on your last dollar earned. Canada uses a progressive tax system with different tax brackets at federal and provincial levels. Each bracket increases as your total income rises. For 2026, federal tax brackets are: - 15% on the first $55,867 - 20.5% on income between $55,867 and $111,733 - 26% on income between $111,733 and $173,205 - 29% on income between $173,205 and $246,752 - 33% on income over $246,752 Your province or territory adds its own brackets on top of these federal rates.
Your side hustle income is added to your total income and taxed at your marginal tax rate (the rate for your highest bracket). It doesn't all get taxed at the top rate unless you're already in the highest bracket. The extra income fills in from where your employment income leaves off.
Yes. Every legitimate business deduction you claim reduces your net side hustle income, which lowers your total taxable income and may keep you in a lower tax bracket. This makes your marginal rate on the remaining income lower.
Your average tax rate is the total tax you pay divided by your total income. Your marginal rate is the tax percentage on your last dollar earned. For side hustlers, marginal rate matters more because it tells you how much tax you'll pay on each new dollar of side income.
CPP contributions don't reduce your taxable income, so they don't affect your marginal tax rate directly. However, CPP costs about 11.9% (combined employee and employer portions in 2026), so your total cost per side hustle dollar is your marginal tax rate plus CPP.
Use a marginal tax rate calculator with your province and estimated total income (employment plus side hustle). The CRA's calculators and third-party tools show your combined federal and provincial marginal rate based on current brackets.