Canada Proposes Lower Income Tax Rate for July 2025

The Government of Canada announced on May 14, 2025, that it is proposing to reduce the lowest personal income tax rate from 15 per cent to 14 per cent, effective July 1, 2025, pending legislation. The Department of Finance Canada stated this change would benefit nearly 22 million Canadians, with two-income families potentially saving up to $840 in 2026.

According to the Department of Finance Canada, the measure is expected to result in over $27 billion in tax savings over five years, beginning in the 2025-26 fiscal year. This proposal impacts individuals and families with taxable income in the lower tax brackets.

For the 2025 tax year, the reduced rate would apply for half the year, meaning a blended annual rate of 14.5 per cent. The 14 per cent rate would apply for the entire 2026 tax year. The Canada Revenue Agency will update source deduction tables for July to December 2025. This will allow pay administrators to decrease the amount of tax withheld from pay as of July 1, 2025. Individuals who do not see reduced deductions during the year may receive the tax savings when filing their 2025 tax returns in spring 2026.

Most of the tax relief, as described by the Department of Finance Canada, would apply to taxpayers earning less than $114,750 in 2025, with nearly half of the relief going to those with incomes up to $57,375. The rate for most non-refundable tax credits will match the new lowest personal income tax rate.

The announcement was made in Ottawa by the Minister of Finance and National Revenue, François-Philippe Champagne.