Canada's Lowest Tax Rate Is Now 14%: What the Cut Means for Your 2025 and 2026 Taxes

The lowest federal income tax rate has dropped. Bill C-4, the Making Life More Affordable for Canadians Act, received Royal Assent on March 12, 2026, making the cut law. The government says it saves individuals up to $420 a year and two-income families up to $840.

The short version

The rate on the first federal tax bracket fell from 15% to 14%, effective July 1, 2025.
Because the change happened mid-year, the rate for the 2025 tax year is 14.5% (Bill C-4).
From 2026 on, the rate is 14%.
Most non-refundable credits are calculated at the lowest rate, so they're worth slightly less. A new top-up credit protects people with large credit claims.
Ontario's provincial rates didn't change.

Who benefits

Everyone with taxable income in the first federal bracket benefits. In 2026, that bracket covers taxable income up to $58,523. Because every taxpayer's first dollars of income fall in that bracket, people in higher brackets save too.

Here's the rough math for 2026. One percentage point on the first $58,523 of taxable income is about $585. Your real saving is lower because the same cut also reduces the value of your non-refundable credits, like the basic personal amount. That's why the government's estimate tops out at about $420 per person.

What happened to your paycheque

If you're an employee, your employer withholds tax using the CRA's payroll deduction tables, so the lower rate flows through your pay. If you're self-employed or have income with no tax withheld, the saving shows up when you file.

Why your credits are worth a bit less

Non-refundable credits such as the basic personal amount, the Canada employment amount, medical expenses, and tuition are generally multiplied by the lowest tax rate. When that rate went from 15% to 14%, each credit became worth a little less. For most people, the lower rate on income more than makes up for it.

For people with very large credit claims, Budget 2025 added a temporary top-up credit for 2025 to 2030. It keeps the 15% rate on the part of your non-refundable credits that's above the first bracket threshold. That became law through Bill C-15 on March 26, 2026, and tax software applies it automatically.

Charitable donations

The federal credit on your first $200 of donations follows the lowest rate, so it's 14.5% for 2025 and 14% for 2026. The 29% rate on donations above $200 hasn't changed, and the 33% rate still applies to amounts that offset income in the top bracket.

What to do

Nothing special, for most people. Tax software and the CRA apply the new rates automatically.
If you pay by instalments, your required payments may be slightly lower. Check your CRA instalment reminders.
Have more than one job or pension? Each payer applies your credits separately, so check whether enough tax is being withheld overall.

Sources

Want to see the effect on your own taxes? Try our tax calculator or book a consultation.