What’s Changed
In Budget 2025, unveiled in October 2025, the Government of Canada confirmed that the lowest federal marginal tax rate will drop from 15% to 14% effective July 1, 2025. Since this change occurs mid-year, the full-year rate for 2025 will average 14.5%. This rate applies to the first $57,375 of taxable income. (canada.ca)
Additionally, a new non-refundable Top-Up Tax Credit has been introduced to maintain an effective 15% rate for certain non-refundable credits claimed above that first income threshold. (canada.ca)
Who Benefits
- Single income earners with taxable income over the threshold effectively will see savings.
- Couples filing separately will also benefit for each taxpayer’s own lowest bracket.
- Low and middle income households receive most of the relief, especially fuller in the first two brackets. (canada.ca)
Strategies to Maximize Benefit
1. Income timing
If you're close to having income in the first tax bracket, consider shifting some income or deductions to before July 1, 2025 to benefit from the prorated rate or maximizing deductions under the higher old rate versus the new credit. For example, with a bonus coming, see if it can be deferred until after the rate drop.
2. Leverage deductions and credits above the threshold
With the introduction of the Top-Up Tax Credit, credits that go beyond the first bracket threshold may get a higher rate. Make sure you're claiming all eligible non-refundable credits, such as:
- charitable donations
- medical expenses
- tuition and education amounts
These can now produce more tax savings when they fall in the post-threshold portion of your income.
3. Review payroll withholding
Since employers will start using updated source deduction tables for pay periods from July to December 2025, your withholding may drop. Verify your pay-cheque to ensure you’re not having too much tax withheld and adjust via TD1 forms if permitted. (canada.ca)
Example
Suppose Alice has a taxable income of $50,000 in 2025. Under the old rate she would pay 15% on the first $50,000 = $7,500. Under the new rate in effect July 1, she pays 14% on the first $57,375 prorated: for six months at 15%, six months at 14%. Net saving could be approximately $50-$60 across the year depending on timing. Multiply that across two taxpayers in a home and the savings add up.
Action Checklist Before August 2025
- Update your personal tax estimates and projections.
- If self-employed or have variable income, time income or deductions that you can control.
- Ensure employer has correct TD1 and payroll tables.
- Explore if the Top-Up Credit applies to planned non-refundable credits.
Bottom Line
This tax change gives most lower-income and many middle-income Canadians a solid boost. With thoughtful planning, such as timing income and deductions, everyone in this bracket — employees, small business owners, or self-employed — can maximize their savings.