Federal Changes Taxpayers Will Face in 2026

Here’s a structured and current overview of the major federal tax changes affecting Canadian taxpayers in 2026 based on the latest government measures, and reliable reporting as referenced in brackets (Source). We also have included a comparative summary of major federal tax settings for Canadian taxpayers in 2025 vs. 2026, focusing on changes that affect individuals.

Personal Income Tax Changes in 2026

Lowest Federal Tax Rate Reduced

• The lowest federal personal income tax rate will be 14% for the full 2026 tax year (down from 15%). This change stems from the 2025 federal budget’s “middle-class tax cut,” which took effect part-year in 2025 and applies fully in 2026. (Canada)

Federal Income Tax Brackets for 2026

• For 2026 taxable income, the federal marginal tax rates will be:
  • 14% on the first portion (up to approximately $58,523)
  • 20.5% on income over $58,523 to $117,045
  • 26% on $117,045 to $181,440
  • 29% on $181,440 to $258,482
  • 33% on income above $258,482
    (These thresholds are indexed for inflation and reflect CRA updates.) (Yahoo News)

Basic Personal Amount (BPA) Increase

• The basic personal amount — the income you can earn without paying federal tax — is increasing for 2026 to about $16,452. An increase in the BPA reduces tax liability for almost all taxpayers. (Unpublished)

Top-Up Tax Credit (Non-Refundable)

• The 2025 budget introduced a top-up tax credit designed to effectively maintain a 15% rate for non-refundable credits above the first bracket threshold for 2025–2030. This may affect the value of tax credits beyond the basic personal amount. (EY Tax News)

Payroll and Contribution Taxes

CPP and EI Contribution Increases

• Federal payroll taxes — Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums — are increasing in 2026, raising the maximum mandatory contributions for workers and employers. This will increase the after-tax cost of labour for both employees and employers. (Taxpayer)

Capital Gains Tax Update

Capital Gains Inclusion Rate Change Deferred

• A previously proposed increase in the capital gains inclusion rate (from 50% to 66% for amounts over $250,000 for individuals and for all gains for corporations) has been deferred to take effect January 1, 2026. This means that disposition gains realized in 2026 and onward may be taxed more heavily if the legislation is enacted as proposed. (Canada)

Carbon and Excise Taxes

Consumer Carbon Tax Cancellation

• The federal consumer carbon tax was cancelled effective April 1, 2025, so it will no longer be charged in 2026. (Taxpayer)

Industrial Carbon Tax Increase

• The federal industrial carbon tax will increase to $110 per tonne in 2026, which may indirectly affect costs for businesses and consumers if businesses pass through costs. (Taxpayer)

Alcohol Excise Tax Increase

• Federal excise taxes on alcohol are scheduled to rise by approximately 2% on April 1, 2026, increasing the cost of beer, wine and spirits. (Taxpayer)

Other Notable Federal Measures (Planning and Administration)

Tax-Filing Developments

• Though not specific to 2026, there have been ongoing developments toward automatic tax filing for eligible low-income Canadians, potentially reducing compliance burden for some taxpayers. These measures could expand in coming years. (Reddit)

Indexation of Registered Plan Limits

• Registered accounts such as TFSA contribution limits and RRSP room will be adjusted for inflation for 2026. For example, the TFSA annual limit is expected to remain at $7,000 with typical indexing. (Reddit)

In summary, for taxpayers in 2026 you will find:

• Lower federal tax rates on the first income bracket (14%).
• Higher income thresholds and basic personal amount, reducing tax burden.
• Increased payroll taxes (CPP/EI).
• Possible increase in capital gains taxation depending on legislative progress.
• Changes in carbon and alcohol taxation that may affect costs.
• Ongoing indexing and administrative modernization impacting filing and account limits.

Keep reading for a comparative summary of major federal tax settings for Canadian taxpayers in 2025 vs 2026. The summary focuses on changes that affect individuals (personal income tax rates, tax brackets, basic personal amount, and related measures). All amounts and structures are federal only — provincial/territorial taxes are separate.

Personal Income Tax Rates

2025 Federal Tax Year (Tax return filed in 2026)

• Lowest federal tax rate (first bracket): 14.5%
  • This is an effective full-year rate reflecting a July 1, 2025 cut from 15% to 14% (half-year blend). (Canada)
• Other federal marginal rates:
  • 20.5%
  • 26%
  • 29%
  • 33%
    (These rates apply to higher income brackets and are unchanged from recent years, with thresholds indexed for inflation.) (taxtips.ca)

2026 Federal Tax Year

• Lowest federal tax rate (first bracket): 14% — the full-year rate after the tax cut completes. (Canada)
• Other federal marginal rates:
  • 20.5%
  • 26%
  • 29%
  • 33%
    (These bracket rates carry forward; only the first bracket’s rate is lower in 2026.) (Yahoo News Canada)

Key Difference

• The 14.5% rate in 2025 reflects a partial year implementation of the middle-class tax cut, whereas 14% in 2026 is the full implementation. (Canada)

Tax Bracket Thresholds (Federal)

Federal tax brackets continue to be indexed for inflation in both years. Typical bracket thresholds increase modestly year-over-year.

2025 (Applicable on 2025 tax returns)

• First bracket up to approximately $57,375. (Canada)
• Subsequent brackets indexed accordingly (e.g., second bracket to ~$114,750, third to ~$177,882, etc.). (taxtips.ca)

2026

• First bracket threshold increases to about $58,523. (Yahoo News Canada)
• All other bracket thresholds rise roughly in line with inflation (e.g., to $117,045, $181,440, $258,482, etc.). (Yahoo News Canada)

Key Difference

• Thresholds move upward for 2026 to reflect inflation, slightly reducing “bracket creep” relative to 2025.

Basic Personal Amount (BPA)

The basic personal amount (the income everyone can earn without paying federal tax) is indexed annually:

• 2025 BPA: ~$16,129 for most taxpayers. (taxtips.ca)
• 2026 BPA: ~$16,452. (taxtips.ca)

Key Difference:

• The BPA rises modestly for 2026, increasing the non-taxable income base.

Non-Refundable Tax Credits and Top-Up Credit

As part of the 2025 budget, the government proposed a Top-Up Tax Credit to prevent some taxpayers from losing value on non-refundable credits due to the cut in the lowest rate. It would effectively maintain the credit value at the old rate for amounts above the first bracket threshold. This measure is proposed to apply for 2025 through 2030. (PwC) Comparison:

• In 2025, the cut to 14.5% would have reduced the value of many credits (because they are calculated at the lowest personal rate). The top-up credit is intended to offset this.
• In 2026 the lowest rate is 14%, so the credit value will match that lower rate unless top-up provisions are claimed.

Payroll Taxes and Other Federal Contributions

CPP and EI Contributions:

• These payroll taxes are not part of the personal income tax brackets, but 2026 sees continued adjustments (CPP maximum contributions rise with the Yearly Maximum Pensionable Earnings, and EI rates remain adjusted for economic factors).
• Differences from 2025 relate to indexation of the underlying payment bases rather than a fundamental rate change.

Capital Gains Tax Proposals

A proposed increase in the capital gains inclusion rate (from 50% to 66% for certain gains) has been deferred to January 1, 2026, meaning it would not affect 2025 returns but could apply to 2026 dispositions if enacted. (Reuters) Comparison:

• 2025: Traditional 50% inclusion applies.
• 2026: New rules may increase inclusion for high-profit or business gains, increasing tax on realized capital gains (pending legislative approval).

Summary Table (Federal Tax Comparison)

Key Takeaways

2026 vs 2025 Federal Tax Impacts

• Lower federal tax burden for many taxpayers in 2026 due to a full 14% first bracket rate. (Canada)
• Bracket inflation indexing continues to moderate bracket creep. (taxtips.ca)
• BPA increases slightly in 2026 vs 2025, increasing non-taxable income. (taxtips.ca)
• Proposed capital gains tax changes and non-refundable tax credit top-up measures will influence overall effective tax bills differently across income levels between years. (PwC)

If you would like to meet with us to discuss how the coming changes will affect your taxes and plan a strategy to minimize what you must legally pay, contact our office to review your specific income profile.