Millions of Canadians will soon pay less income tax with new cut

Prime Minister Mark Carney and Canada's department of finance have announced a major income tax cut promising billions of dollars in savings.

In one of the first orders of business on the government's legislative agenda for the new session of Parliament, Minister of Finance and National Revenue François-Philippe Champagne plans to introduce a middle class tax cut that would help nearly 22 million Canadians, saving two-income families up to $840 a year in 2026.

"Canadians elected our government on a promise for change — to bring down the cost of living and build an economy that serves everyone. We're delivering that. One of our first legislative priorities this session is a middle class tax cut for 22 million Canadians," Carney shared in an X post on Thursday.

According to the announcement, once legislated, the lowest marginal personal income tax rate will be reduced from 15 per cent to 14 per cent, effective July 1, 2025. The measure is expected to deliver over $27 billion in tax savings to Canadians over five years, starting in 2025 to 2026.

A majority of the tax relief will go to Canadians in the two lowest tax brackets (those with taxable income under $114,750 in 2025), including nearly half to those in the first bracket ($57,375 and below in 2025).

The rate applying to most non-refundable tax credits will continue to be the same as the lowest personal income tax rate.

Since the tax cut would come into effect halfway through the year, the department of finances says the full-year tax rate for 2025 will be 14.5 per cent and the full-year rate for 2026 and future tax years will be 14 per cent.

The Canada Revenue Agency (CRA) will update its source deduction tables for the July to December 2025 period so that pay administrators are able to reduce tax withholdings as of July 1.

"This means that, effective July 1, individuals with employment income and other income subject to source deductions could have tax withheld at 14 per cent," explained Finance Canada. "Otherwise, individuals will realize this tax relief when they file their 2025 tax returns in spring 2026."