Federal Government Announces Plan to Reduce Lowest Income Tax Rate to 14 Per Cent in July 2025
The Department of Finance Canada announced on May 14, 2025, that the federal government plans to reduce the lowest marginal personal income tax rate from 15 per cent to 14 per cent, effective July 1, 2025. According to the department, this change requires legislation and is projected to provide tax relief to nearly 22 million Canadians. The department estimates that two-income families could see annual savings of up to $840 starting in 2026.
The measure, once legislated, would affect individuals with taxable income under $114,750 in 2025, according to the Department of Finance Canada. The department also estimates that nearly half of the tax relief will benefit individuals earning $57,375 or less. The department projects the tax rate reduction will deliver over $27 billion in tax savings over five years, beginning in the 2025-26 fiscal year.
The Department of Finance Canada noted that, since the tax rate reduction will take effect halfway through the 2025 calendar year, the average lowest personal income tax rate for 2025 will be 14.5 per cent. The department said that in 2026 and later tax years, the rate will be 14 per cent for the full year. The department stated that the Canada Revenue Agency will update source deduction tables for the period from July to December 2025 to reflect the new rate. According to the department, these updates are expected to allow most employers to reduce tax withholdings for eligible employees beginning July 1, 2025. The department indicated that individuals who do not see reduced withholdings may receive the tax relief when they file their 2025 tax returns in spring 2026.
The department also indicated that the rate applied to most non-refundable tax credits will continue to align with the new lowest personal income tax rate. The announcement included statements from Prime Minister Mark Carney and Minister of Finance and National Revenue François-Philippe Champagne linking the policy to addressing the cost of living. All figures and specific details regarding implementation are sourced from the Department of Finance Canada.