Tax Relief for Middle-Class Canadians: Key Changes Starting July 1, 2025

In a significant step to alleviate financial pressures for middle-class Canadians, the government has announced a reduction in the lowest marginal personal income tax rate. Starting July 1, 2025, this rate will be cut from 15% to 14% for individuals earning up to $57,375 (in 2025). This change is expected to directly benefit nearly 22 million Canadians and is projected to result in tax savings of up to $420 per individual and $840 per couple in 2026.

What Does the Tax Cut Mean for Canadians?

The reduction of the lowest marginal tax rate will have a significant impact on taxpayers in the first income tax bracket. According to the Canada Revenue Agency (CRA), the main beneficiaries of this cut will be individuals with taxable income under $57,375 (for 2025). Here’s a breakdown of the changes:

• The tax rate will decrease from 15% to 14% for those in the lowest bracket starting July 1, 2025.

• Estimated savings for taxpayers: Individuals will see tax relief of up to $420 annually, while couples could save as much as $840 annually in 2026, once the full impact of the rate reduction is realized.

• Total savings: Over the next five years (2025-2026 through 2029-2030), middle-class Canadians will save over $27 billion in federal taxes due to these rate changes.

How Will This Affect Your Tax Filing?

The Canada Revenue Agency will update its source deduction tables for the July-December 2025 period, allowing payroll administrators to start reducing tax withholdings for affected individuals. This means Canadians will begin seeing the benefits of the tax cut directly in their paychecks by the second half of 2025.

For those who don’t see the immediate impact (for example, those who don’t have employment income), the tax relief will be reflected when you file your 2025 tax return in the spring of 2026.

Key Points to Note for Taxpayers:

• Reduction for middle-income earners: Those earning under $57,375 in 2025 will receive the bulk of the tax relief, particularly individuals in the first income tax bracket.

• Impact for households: Families with two-income earners could save up to $840 annually once the full effect kicks in by 2026.

• Tax brackets and tax credits: The rate on non-refundable tax credits will remain aligned with the lowest marginal tax rate, which will now be 14% starting in 2025.

This tax reduction is part of the Canadian government’s broader strategy to reduce the tax burden on middle-income earners, helping over 22 million individual taxpayers.

What’s Next for Canadians?

For many Canadians, particularly those who earn within the two lowest tax brackets, these tax cuts will directly improve disposable income. While some may not see immediate savings if they fall outside of the affected brackets, those who experience income growth may benefit in future years.

As a result of this policy shift, over $27 billion will be saved by Canadians over the course of the 2025-2026 to 2029-2030 period. Middle-class Canadians can expect this change to have a positive long-term impact on their financial well-being.