The federal Liberal government announced last week that it will bring in legislation to provide a tax cut for nearly 22 million Canadians.
Finance and national revenue minister Francois-Philippe Champagne announced the tax relief measure last Wednesday, saying Canadians expected to see a plan for change to address the high cost of living when they voted for a Liberal government, and that the government is now delivering that change.
The tax cut aims to provide relief to middle-class workers. Those with incomes in the two lowest tax brackets – those with taxable income under $114,750 in 2025 and those with taxable income of $57,375 and below in 2025 – will receive the bulk of the tax relief measure.
“With today’s middle-class tax cut, we are setting the stage for economic growth by helping hard-working Canadians keep more of their paycheques to spend on the priorities that matter most to them. Every Canadian should be able to afford necessities, feel secure and get ahead financially—and this tax cut will help them do just that,” said Champagne in a May 14 news release. “As Canadians continue to feel the impact of ongoing challenges including trade and tariff uncertainties, they should be able to keep more of what they earn to help build a stronger future and a more resilient Canada.”
Once legislated, the lowest marginal personal income tax rate will be reduced from 15 per cent to 14 per cent effective July 1, states the news release.
The tax cut is expected to deliver over $27 billion in tax savings to Canadians over five years, starting in 2025-26. Two-income families are expected to save up to $840 a year in 2026.
To reflect a one-percentage-point cut in the lowest tax rate coming into effect halfway through the year, the full-year tax rate for 2025 will be 14.5 per cent and the full-year rate for 2026 and future tax years will be 14 per cent, states the release.
The Canada Revenue Agency will update its source deduction tables for the July to December 2025 period so that pay administrators are able to reduce tax withholdings as of July 1. This means that, effective July 1, individuals with employment income and other income subject to source deductions could have tax withheld at 14 per cent. Otherwise, individuals will realize this tax relief when they file their 2025 tax returns in spring 2026.
