2025/2026 CRA Tax Brackets: What the New Federal Tax Cuts Mean for Canadians, Families & Business Owners

The federal government has introduced a meaningful change to personal taxes: a reduction to the lowest federal income tax rate. This affects nearly every taxpayer in Canada — employees, families, retirees, and incorporated business owners deciding between salary and dividends.

Here is a clear, practical breakdown of what changed and how to take advantage of it.

1. The New CRA Tax Brackets for 2025 and 2026

Federal tax rate update

The lowest federal rate has been reduced:

• Old rate: 15%
• 2025 transitional rate: 14.5%
• 2026 onward: 14%

This rate applies to the first portion of taxable income, up to:

• 2025 first bracket: $58,523 (indexed annually)

Provincial layer still applies

Each province maintains its own tax brackets. Ontario residents will see modest but meaningful combined savings depending on their income, credits, and family structure.

2. How the New Tax Brackets Affect Canadians

Most Canadians receive tax relief

Everyone benefits from a lower tax rate on the first $58,523 of taxable income.

Impact on federal credits

Non-refundable credits calculated at the lowest federal rate, including:

• Basic Personal Amount
• Spousal Amount
• Disability Credit
• Tuition Credit

…offer slightly lower credit value due to the reduced rate — but overall tax owing still decreases.

Who benefits most

Low-to-middle income individuals and dual-income households.

3. Estimated Savings for Individuals and Households

Single-income example

A taxpayer earning ~$55,000 saves approximately:

• ~$275 in 2025
• ~$550 in 2026

Dual-income household

A couple each earning $55,000 could save:

• ~$550 combined in 2025
• ~$1,100 combined in 2026

4. Example for Ontario Residents (Toronto & GTA)

Ontario’s provincial brackets continue to be indexed separately.
Combined with the federal rate decrease, taxpayers in Toronto, Mississauga, Brampton, Vaughan, and the GTA will see:

• Slightly higher net pay starting mid-2025
• Smoother year-end tax results
• Modest but real tax relief on the first bracket

5. Payroll & Withholding: What Employees and Employers Need to Know

Employee impact

Starting July 2025:

• Net pay increases slightly
• Withholding amounts change
• Employees who filed updated TD1 forms earlier in 2025 may need to review them

Employer obligations

Businesses should:

• Confirm payroll software updates
• Review source deductions and bonus timing
• Update payroll accruals
• Reassess cash flow for the second half of 2025

6. Personal Tax Planning Opportunities

RRSP contribution planning

With a lower marginal rate on the first bracket, contribution timing matters more.

Household planning

Review eligibility for spousal credits and income-splitting strategies.

Installment adjustments

Self-employed taxpayers and investors should reassess CRA installment payments for 2025.

7. Business Owners: Salary vs Dividends under the New Rules

Salary becomes more attractive

Salary is now slightly more efficient because it benefits directly from the reduced first-bracket rate.

Dividends do not improve proportionally

The dividend system — gross-up + dividend tax credit — is not affected in the same way.

Blended compensation strategy

Most incorporated owners benefit from a mix of:

• Salary (RRSP room + CPP contributions + stability)
• Dividends (flexibility + cash flow efficiency)

A custom analysis yields the best results.

8. Corporate Tax Planning for 2025/2026

RRSP room creation

Only salary creates RRSP contribution room.

CPP considerations

Depending on your retirement plan, CPP can be viewed as either a payroll cost or a guaranteed return income stream.

Cash flow optimization

Corporations should review:

• Bonuses
• Management salaries
• Dividends
• Retained earnings strategy

9. Frequently Asked Questions

What is the new tax bracket for 2025?

The first federal tax bracket applies to income up to $58,523, taxed at 14.5% in 2025.

How much will Canadians save?

Most individuals save $200–$300; households save double.

Should business owners change their salary/dividend mix?

Yes — salary becomes slightly more beneficial. A mixed model is often best.

When do the new rates take effect?

Payroll changes in July 2025, but the rate reduction applies to the entire 2025 tax year.

Should I change my installment payments?

Possibly — many self-employed or rental income taxpayers should revisit their totals.

Final Thoughts

The 2025/2026 CRA tax bracket changes open new opportunities for smarter tax planning — especially for families and incorporated business owners.
If you’d like a personalized review of your financial and tax strategy, the MiAccounting team is ready to help.

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