In a significant move, Canada is set to adjust its federal income tax brackets in 2026. This change, proposed by the Canada Revenue Agency, aims to provide relief to the country’s lowest earners. If passed, this legislation will revise income tax rates, allowing some citizens to pay less.
Details of the Proposed Changes
The federal government previously introduced income tax cuts before the summer of 2025. The upcoming adjustments will expand these cuts to apply throughout the entire tax year starting in 2026. The key proposal includes a reduction in the federal income tax rate for the lowest tax bracket.
New Tax Bracket Rates and Thresholds
- Lowest Bracket: The tax rate will decrease from 15% to 14%. The income range for 2026 will start from the first $58,523.
- Second Bracket: A tax rate of 20.5% will apply to incomes from $58,523 to $117,045.
- Third Bracket: The tax will be set at 26% for income between $117,045 and $181,440.
- Fourth Bracket: For incomes ranging from $181,440 to $258,482, the tax rate will be 29%.
- Highest Bracket: Incomes exceeding $258,482 will be taxed at 33%.
Basic Personal Amount Increase
The Basic Personal Amount (BPA), which outlines income exempt from federal taxes, will also see an increase. In 2025, the BPA is set at $16,129 for earners with a maximum income of $177,882. This figure will rise to $16,452 in 2026.
Rationale Behind the Changes
Experts believe that adjusting tax brackets according to inflation is crucial. The aim is to maintain the purchasing power of Canadians. Ryan Minor, director of tax at Chartered Professional Accountants Canada, emphasized that while incomes may rise, the true purchasing power often does not keep up due to inflation.
These adjustments to Canada’s federal income tax system are aimed at ensuring fair taxation and improving economic conditions for those at the lower income levels. The legislation is currently progressing through Parliament and awaits final approval.
