Tax Planning
Tax Planning for Individuals After the First Marginal Rate Drop in Canada
With Canada lowering its lowest federal income tax rate from 15% to 14%, individuals can take advantage of specific strategies to optimize their tax situation under the new bracket.
By NomadicTax Research Team • 5-8 min read • March 24, 2026
## Understanding the Rate Change
Canada’s Budget 2025 introduced a **reduction in the lowest federal marginal income tax rate** from 15% to **14%**, effective **July 1, 2025**. For 2025, due to the rate change occurring half-way through the year, there’s a blended full-year rate of **14.5%**, shifting to 14% in full for 2026 and future tax years. This change also affects the rate applied to most **non-refundable tax credits**. ([canada.ca](https://www.canada.ca/en/department-finance/corporate/transparency/2025/senate-cow-c4-2025-06-17.html?utm_source=openai))
## Strategic Moves You Can Make
With the rate change in effect (or imminent), individuals should consider:
- **Timing income and deductions**: If you expect large deductions (e.g. RRSP contribution, charitable gifts), synchronizing them with a higher marginal rate year can maximize the benefit. For example, a big expense late in 2025 still benefits from the 15% rate for half the year.
- **Maximizing non-refundable credits**: Since most non-refundable credits are now calculated at the first rate, depositing eligible donations, medical expenses, etc. in 2025 will see them valued at ~14.5%, rising to 14%. You might accelerate these in advance of further rate changes.
- **Income splitting and family trusts**: If you have a spouse or family trust arrangement, consider shifting income-earning assets or income to lower-rate taxpayers to stay within or below the $57,375 bracket, where possible. Especially relevant before any further marginal rate shifts.
## Practical Examples
- *Example 1*: A single taxpayer earns $50,000 in 2025. Under the old system, all would be taxed at 15% for the first bracket. Under the new, as of July 1, half-year at 15% and half at 14%, yielding savings compared to full-year at 15%.
- *Example 2*: If you expect to make a large charitable donation, doing so before year-end (late 2025) means non-refundable credits valued at higher rate; if delayed to 2026, credit value will be 14%.
## Action-oriented Checklist
- Review and forecast your **taxable income for 2025 and 2026**.
- Accelerate or delay deductible expenses/receipts to align with higher rate periods.
- Use RRSPs, non-profit donations, medical expenses to take full advantage of credit value changes.
- If you operate a small business or own investment income, consider shifting income to family members in lower brackets.
- Consult an accountant when dealing with **trusts, capital gains, or splitting income**, as shifting may have legal and compliance implications.
## Key Risks to Watch
- Changes not yet legislated (some measures proposed, awaiting Royal Assent) may move or be adjusted. ([canada.ca](https://www.canada.ca/content/dam/cra-arc/migration/cra-arc/tx/bsnss/tpcs/pyrll/t4032/2026/t4032-on-1-26e.pdf?utm_source=openai))
- Watch for **claw-backs** in provincial credits or benefits that may reduce net gains.
- Over-shifting income might trigger attribution rules or anti-avoidance scrutiny.
This rate drop is an opportunity—but gains depend on properly timed planning. Making small adjustments now can lead to noticeable tax savings in both 2025 and 2026.