Background on the Tax Rate Change
Under Bill C-4, the Making Life More Affordable for Canadians Act, the federal lowest marginal income tax rate was reduced from 15% to 14.5% for the 2025 taxation year and to 14% effective in 2026 and subsequent years. The new rate applies to the first portion of taxable income — in 2026, that’s up to $58,523. (canada.ca)
What Are Non-Refundable Tax Credits & Why They Matter
Non-refundable tax credits reduce how much tax you owe, but they can’t create a refund. Examples include:
- Basic Personal Amount
- Canada Employment Credit
- Medical Expense Tax Credit
- Disability Tax Credit
- Volunteer Firefighter Amount
Each of these credits is multiplied by the “appropriate percentage”—which is the lowest marginal rate (now 14% in 2026) to determine how much tax relief you get. (canada.ca)
How the Reduced Rate Affects Your Tax Savings
| Scenario | Pre-2026 Rate (15%) | New Rate (14%) | Expected Difference on Typical Credit* |
|---|---|---|---|
| Basic Personal Amount (~$16,452) | $2,468 | $2,303 | $165 less tax savings |
| Disability Credit (~$9,000) | $1,350 | $1,260 | $90 difference |
*These are rough estimates: actual impact depends on your specific credits and amounts.
Practical Advice: What Can You Do
- Estimate the value of your non-refundable credits using the 14% rate – compare what you would have had before (15%) to now. This helps with withholding decisions or projected tax payments.
- Optimize timing: If you can defer or accelerate deductible expenses or eligible credits into years when rates or thresholds are more favorable.
- Review eligibility: Some thresholds (e.g. for the Basic Personal Amount) are indexed to inflation — ensure you’re claiming all credits to which you’re entitled.
- Use CRA’s tools and prefilled returns: Because Bill C-4 also introduced automatic prefilled returns for those with simple tax situations, CRA will fill in known credits and income for many taxpayers. Check and confirm details when filing. (canada.ca)
Example Case Study
Jane, a single taxpayer earning $50,000:
- She claims the Basic Personal Amount and the Canada Employment Credit. Suppose her non-refundable credits total $5,000.
- Under the old 15% rate, she would get $750 in tax savings (5,000 × .15).
- Under the new 14% rate, she gets $700, so savings drop by $50.
- But recall: she’s still paying less income tax overall because her marginal rate on income is lower.
Summary: The Bigger Picture
While the lowest tax rate cut to 14% offers real income tax relief, its interaction with non-refundable credits slightly dampens their value. For many taxpayers, the net effect is overall savings, but credits such as medical, disability, or volunteer amounts yield a smaller benefit than under previous rates. Understanding this nuance helps you manage expectations, plan taxable events, and ensure you’ve claimed every credit possible.
"Reducing the lowest marginal personal income tax rate from 15 % to 14 % … is anticipated to save individuals up to $420 and two-income families up to $840 in 2026." (canada.ca)