Tax Planning
How the New Margin Tax Rate Cut Affects Everyday Canadians
Canada’s reduction in the lowest personal income tax rate delivers **immediate savings**—especially for lower and middle-income earners. Learn step-by-step how this change works and how you can benefit this tax year.
By NomadicTax Research Team • 5-8 min read • June 15, 2026
## What Has Changed?
In **June 2026**, under *Bill C-4, the Making Life More Affordable for Canadians Act*, the federal government permanently reduced the **first (lowest) marginal personal income tax rate**:
| Tax year | Lowest marginal tax rate |
|----------|----------------------------|
| 2025 | 14.5% |
| 2026 onward | 14.0% |
This rate change also affects *non-refundable tax credits*, which use the lowest marginal rate to determine their value. That includes credits like the basic personal amount, spousal amounts, age amount, and more. ([canada.ca](https://www.canada.ca/en/department-finance/services/publications/report-impact-reducing-lowest-marginal-personal-income-tax-rate-non-refundable-tax-credits.html?utm_source=openai))
## Who Gains, and How Much?
- Nearly **22 million Canadians** will benefit. ([canada.ca](https://www.canada.ca/en/department-finance/services/publications/report-impact-reducing-lowest-marginal-personal-income-tax-rate-non-refundable-tax-credits.html?utm_source=openai))
- For individuals, savings are up to **CAD 420** annually; for a two-income family, as much as **CAD 840**. ([canada.ca](https://www.canada.ca/en/department-finance/services/publications/report-impact-reducing-lowest-marginal-personal-income-tax-rate-non-refundable-tax-credits.html?utm_source=openai))
- Most benefit goes to those in the two **lowest federal brackets**. If your taxable income is below roughly CAD 58,523 in 2026, the majority of the relief landed to you. ([canada.ca](https://www.canada.ca/en/department-finance/services/publications/report-impact-reducing-lowest-marginal-personal-income-tax-rate-non-refundable-tax-credits.html?utm_source=openai))
## What This Means for Non-Refundable Credits
Credits are worth less if you're in a higher bracket: the lowest rate amplifies their value but once it climbs, it’s reduced. With this cut:
- Each dollar’s worth of non-refundable credit is multiplied by **14%**, rather than 15% or more.
- If you claimed the **basic personal amount**, age amount, or the spousal amount, that credit yields ~1% more benefit under the new rate.
## Actions You Can Take
- **Reassess your tax withholding** if you’re an employee. Because of the lower rate, you may be having too much tax withheld. Adjust your TD1 provincial/federal forms if needed.
- **Estimate your taxes earlier**, especially if you're self-employed or have irregular income. This helps avoid surprises when filing in 2027.
- **Review all your credits**. The value of older tax credit carry forwards or planned deductions should be recomputed using the new lowest rate.
## Practical Example
Suppose Jane, a single individual, earns CAD 30,000 in a year. Before credits, her federal tax owed (on income above the basic personal amount) would be multiplied by **14%**, rather than 15%. If she claims CAD 15,000 in non-refundable credits, that portion now reduces her tax by 14%×15,000 = **CAD 2,100**, compared to the prior CAD 2,250. She saves an additional **CAD 150** for the year just from the credits adjustment.
## Key Takeaways
- The tax rate cut is **effective starting July 1, 2025** for 2025, and **fully in place for 2026 and subsequent years**. ([canada.ca](https://www.canada.ca/en/department-finance/services/publications/report-impact-reducing-lowest-marginal-personal-income-tax-rate-non-refundable-tax-credits.html?utm_source=openai))
- The benefit is **broad but uneven** — larger impact for those with incomes in lowest brackets or who claim many non-refundable credits.
- Always check **provincial/territorial rates** too—they add separately on top of the federal tax.
This change is one of several in the “Making Life More Affordable” suite designed to ease costs of living—so consider it as part of your holistic tax planning for 2026 and beyond.