Tax Planning
Tax Planning in 2026: How the Lowest Marginal Rate Cut Affects Your Non-Refundable Credits
The recent cut to Canada’s lowest federal personal income tax rate reshapes how non-refundable credits work—this article helps you understand, plan, and maximize your savings.
By NomadicTax Research Team • 5-8 min read • June 25, 2026
## Understanding the Rate Change and Its Reach
In early 2026, through **Bill C-4, Making Life More Affordable for Canadians Act**, the federal government reduced the lowest marginal income tax rate:
- **15% → 14.5% for the 2025 tax year**
- **14% for 2026 and subsequent taxation 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))
This rate applies to the first income tax bracket (up to $58,523 in 2026). It also lowers the rate (called the “appropriate percentage”) used to calculate many **non-refundable tax credits**—such as the Canada Employment Credit, Medical Expense Credit, Disability Tax Credit, and others whose value depends on 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 Does That Mean for You?
### Broader groups benefit
Even if your income is well above the lowest rate bracket, any credits you receive that are calculated using the lowest rate will shrink slightly. But the flip side is that **everyone entitled to those credits keeps paying less**—even someone with straightforward deductions receives **all-up savings of up to $420 in 2026**, while two-income households could see about **$840** savings. ([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))
### Key credits affected
Credits that depend on the “appropriate percentage” include:
- Medical Expense Tax Credit
- Disability Tax Credit
- Volunteer Firefighters Amount, etc.
Credits that are refunded directly (like the Canada Workers Benefit, Canada Child Benefit) **do not use this rate**, so they are unaffected by this change. Know which bucket each credit falls into.
## Actions You Can Take to Optimize Benefits
- **Review estimates early**: If your taxable income is near the boundary of the first bracket ($58,523), small shifts (e.g. RRSP contributions, income splitting) may move you into or out of that bracket, altering how credits apply.
- **Maximize eligible credits now**: E.g., if you expect large medical expenses, understand how much they’ll be worth in after-tax savings under the lower rate—it’s slightly less, but still valuable. Prioritize those credits with higher magnitude.
- **Deferral strategies**: If you have flexibility in scheduling income or deductions, you might shift non-refundable credit-related expenses to years when rates or personal situation makes them more valuable.
## Why It Matters Beyond Dollars and Cents
- This adjustment shows how **tax policy levers can shift credit values**, sometimes invisibly—many will not notice until they calculate final tax.
- For self-employed people, retirees, and those earning passive income, non-refundable credits often form a larger portion of overall tax savings—this rate change will bite more if you rely heavily on those credits.
## Example Scenario
| Person | Situation | Estimated Tax Savings Change |
|--------|-----------|-------------------------------|
| Single person with $40,000 taxable income, eligible for $2,000 medical expenses | Previously, credit worth $2,000 × 15% = $300; now $2,000 × 14% = **$280**, –$20 loss | But **net savings from the rate drop** are applied across all income taxed at 14%, so overall you gain more from the rate cut than you lose from credit revaluation. |
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## Bottom-line Takeaway
The lowest rate cut is real and delivers meaningful savings—but non-refundable credits’ value is also tied to it. To make the most of your situation:
- Know which of your credits are affected
- Plan income and deductions to stay favourable under new bracket thresholds
- Don’t overlook filing requirements—many benefit automatic access depends on accurate and timely returns
Here’s to smarter planning and more tax savings in 2026.