On May 27, 2025, His Majesty King Charles III delivered a Speech from the Throne, marking the beginning of a new Parliament session. As promised by our newly elected federal government, a Notice of Ways and Means Motion was tabled to implement a middle class tax cut, which reduces the personal tax rate on the lowest tax bracket from 15% to 14%, effective July 1.
How does this tax reduction work?
Currently, the lowest federal personal income tax rate is 15%. The proposed reduction of this rate to 14%, being effective on July 1, means that the rate that would apply for the 2025 taxation year is 14.5%. Starting in 2026, the rate that will apply for the year will be 14%.
For 2025, the lowest federal tax bracket applies to income up to $57,375. All individuals who earn taxable income in this lowest tax bracket can benefit from this tax reduction, including those who earn more than this threshold.
When will I benefit from this rate cut?
As part of implementing this tax cut, the CRA will update its payroll source deduction tables for the second half of this year so that tax withholdings made at source, including employment income, can be reduced effective July 1. Which means less taxes may be withheld on your first paycheck in July.
For income not subject to source deductions, you will benefit from this tax cut when you file your 2025 tax return next year.
How does this impact personal tax credits?
Many federal non-refundable tax credits are calculated using the lowest tax rate. This means that this tax rate reduction also has the effect of reducing these tax credits, which in turn reduces your tax savings. The government confirmed that the rate that would apply to most non-refundable tax credits will continue to be the lowest personal rate.
Some of the most common personal tax credits calculated based on this lowest tax rate include the basic personal amount, spouse or common-law partner tax credit, eligible dependant tax credit, caregiver tax credit, and medical expense tax credit.
How much will I save?
According to the government, a two-income family can save up to $840 a year in 2026 when the 1% rate reduction applies for the full year. Since the rate that applies to the 2025 taxation year will be 14.5%, the maximum tax savings would be less. In addition, as mentioned, many personal tax credits are calculated based on this lowest tax rate and the reduction in your tax savings will vary depending on your situation.
How BDO can help
It is expected that passing the legislation to effect this tax cut will be a priority for the government. If you have questions about this personal tax cut or other government tax proposals, please contact us.
The information in this publication is current as of June 3, 2025.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.