Tax Planning
Maximizing Tax Savings Under Canada’s Lower First Income Tax Rate
With the first marginal federal income tax rate dropping to **14% in 2026**, many non-refundable tax credits also decrease in value. Here's how to plan to keep more of what you earn when credits lose their punch.
By NomadicTax Research Team • 5-8 min read • June 18, 2026
## Understanding the New First Bracket and Its Effects
In **2026**, Canada’s federal first personal income tax rate has decreased from **15% to 14%**, following Bill C-4 enacted through the *Making Life More Affordable for Canadians Act*. ([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)) This change not only lowers taxes for those in the first bracket—it also affects the value of non-refundable tax credits (like the basic personal amount, Canada caregiver credit, etc.) which are multiplied by that rate. ([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 Tax Planning
- **Deductions and Credits Are Slightly Less Powerful**: If you're using credits based on the first tax rate, your credit value drops slightly. For example, a $1,000 non-refundable credit now gives $140 off your tax bill (versus $150 previously).
- **Higher-Income Earners Need Different Strategies**: For those in higher brackets, the focus shifts to tax-deferral strategies, income splitting, or using investment accounts since the first bracket's influence diminishes as your marginal rate increases.
- **Maximize Deductible Contributions**: RRSPs, pension plan contributions, or other deductible expenses still give full value as they reduce taxable income before bracket thresholds.
## Practical Examples
| Scenario | 2025 First Bracket Value of $1,000 Credit | 2026 Value | Difference |
|---|---|---|---|
| Someone in lowest bracket | $150 | $140 | −$10 |
| Someone in a higher bracket | Still based on 14% for those credits tied to first bracket | Same calculation | Same loss |
So, when multiple credits apply, the cumulative loss could be **tens of dollars**, especially for low-income individuals who depend heavily on credits.
## Actionable Insights
- **Review all claimed non-refundable credits** in your 2025 and 2026 returns to see where value drops significantly.
- **Prefer deductions or refundable credits** where possible—they aren't tied to the marginal tax rate and often retain full value.
- **Plan large deductible contributions** before the end of 2026: RRSP, moving expenses, etc., to lower taxable income.
- **Track income carefully**, especially mid-career or multiple income sources, to avoid unexpected bracket creep.
## Summary
While the tax rate drop benefits nearly **22 million Canadians**, the corresponding decline in credit value means **tax planning matters more than ever** for low to moderate incomes. Understanding which credits to prioritize, maximizing deductions, and optimizing income sources can help preserve the full benefit of these policy changes.