Lowest federal tax rate is now 14% — The lowest federal personal tax rate dropped from 15% to 14%
Quick answer: The bottom federal personal income tax bracket fell from 15% to 14.5% for the 2025 tax year, and to 14% for 2026 and later years.
How it works
Canada taxes personal income in brackets. Each rate applies only to income inside its bracket, so someone in the second bracket still pays the first bracket’s rate on their first slice.
The lowest federal bracket’s rate dropped from 15% to 14%. Because that bracket is the first one, every taxpayer with income in it benefits, regardless of how much they earn in total.
The change also affects non-refundable tax credits. Most are calculated by multiplying a credit amount by the lowest rate, so when the lowest rate falls, those credits are worth slightly less. The net effect for most people is still a reduction in tax.
Your marginal rate, the most misunderstood term in personal tax, is the rate on your next dollar. Someone “in the 29% bracket” does not pay 29% on everything — only on the part of income in that band, with lower rates on the slices below.
That is why a cut to the lowest bracket reaches everyone. Income is taxed in layers, and every taxpayer has income in the bottom layer regardless of how high the top of their income goes.
How it applies to you
Every individual filing a Canadian return with income in the lowest bracket, which is nearly everyone who files.
The saving is capped by the size of the bracket, not by your income. A high earner does not save more than someone in the middle — both save the same amount on the same first slice of income.
Employers and payroll software apply this automatically through the withholding tables. If your software is current, your net pay already reflects it.
How to calculate it
To see the effect on your own tax:
| Step | Detail |
|---|---|
| Take the amount of your income that falls in the lowest bracket | |
| Multiply it by the old rate | 15% |
| Multiply it by the new rate | 14% |
| The difference is your saving | one percentage point of that slice |
The cut applies to the first bracket only. Someone earning $40,000 and someone earning $400,000 get the same reduction on the same slice; higher rates are unchanged.
What changed
The reduction took effect 1 July 2025. Because it applied for only half of that year, the CRA applies a blended rate of 14.5% to the 2025 return — 15% for January to June, 14% for July to December — and the full 14% from 2026.
What to do
A one-percentage-point cut to the lowest rate is a modest, universal reduction. It requires nothing from you.
If you calculate your own instalments or run payroll manually, use the current rate — a calculation carried over from last year overstates the tax due.
Because non-refundable credits are computed at the lowest rate, the headline saving overstates the benefit slightly for people claiming large credit amounts.
The practical point. Employers should confirm their payroll software is on the current tables. Owner-managers modelling salary versus dividends should rerun the comparison, because the personal side of that calculation moved.
A rate change reaches you through your personal return and your payroll withholding; a personal return prepared by a CPA reconciles the two.
The terms used on this page
- Marginal bracket
- A band of income taxed at a particular rate. The rate applies only to income inside that band.
- Non-refundable tax credit
- A credit that reduces tax owing but cannot create a refund on its own. Most are calculated at the lowest federal rate.
Common questions about lowest federal tax rate is now 14%
What rate applies to my 2025 return?+
Do I benefit if I am a high earner?+
Does this change how I should pay myself?+
Is there anything an employer needs to do?+
Where this comes from
Every figure on this page is taken from the source below, not from interpretation:
General information, not tax advice. This page explains a change in general terms. It cannot account for your circumstances and does not create a professional relationship. Confirm anything that affects a decision — send an enquiry.
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