Personal income tax changes that may impact your 2025 return

Tax rate reduction for lowest tax bracket

The lowest federal personal income tax rate was reduced to 14% from 15%, effective July 1, 2025, which means a rate of 14.5% will apply for the 2025 taxation year. Starting in 2026, the rate for the year will be 14%. 

For 2025, the lowest federal tax bracket applies to taxable 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.

Top-up tax credit

Most federal non-refundable tax credits are calculated using the lowest federal personal tax rate. Because the lowest tax rate was reduced, this also has the effect of reducing the value of these tax credits, which in turn could reduce your tax savings from the credits if you have gross tax credits in excess of the first bracket (i.e., taxable income more than $57,375). If this situation applies, individuals can claim a non-refundable top-up tax credit to ensure their tax liability would not be increased due to the reduced lowest personal tax rate. This top-up tax credit would apply for the 2025 to 2030 taxation years.  

Donations made in January and February 2025

Charitable donations can normally only be claimed if they were paid in the calendar year or were carried forward as unclaimed donations from any of the five previous calendar years. However, due to the Canada Post strike in late 2024, a two-month extension was allowed for 2024 so that eligible donations made in the first two months of 2025 could be claimed in your 2024 tax return. If you took advantage of this extension and claimed any of your January and February 2025 charitable donations in your 2024 tax return, it’s important to ensure you don’t inadvertently claim the same amounts in your 2025 tax return. If you donated additional amounts in the last 10 months of 2025, you may be able to claim a non-refundable donation tax credit on your 2025 tax return (or any of the next five years’ tax returns) to reduce your taxes payable.

Personal support workers tax credit

If you are a personal support worker (PSW), you may be aware that the 2025 federal budget announced a new PSW tax credit. For 2026 to 2030, the new temporary PSW tax credit will provide an eligible PSW working for an eligible health care establishment with a refundable tax credit of 5% of eligible earnings, up to a maximum of $1,100. Note that this credit is not available for the 2025 taxation year.

Elimination of the federal Underused Housing Tax

The federal Underused Housing Tax (UHT) is a 1% annual federal tax on certain vacant or underused residential properties in Canada, primarily affecting properties owned by non-Canadians. This tax has been eliminated as of the 2025 calendar year. As such, UHT returns and payments will not be required for the 2025 and subsequent years. 

Note that the UHT requirements for 2022 to 2024 remain in effect, including penalties and interest for failing to file a return or late payments. In addition, the cancellation of this federal tax does not affect existing provincial or municipal underused housing taxes. Read our article, Underused Housing Tax (UHT) update: Key details for property owners, for further information.

Tax-free savings account contribution limit

For 2026, the tax-free savings account (TFSA) annual contribution limit remains at $7,000 and any unused contribution room will carry forward. Contributions to a TFSA aren't tax deductible and when money is withdrawn, the accumulated contributions and income are received tax-free.