What You Need to Know: Key Tax Updates Heading into 2026?

As we kick off the new year, keeping up with the latest tax changes can help you make smarter decisions about your income, payroll, and long-term financial planning. Here’s a breakdown of the most important updates on tax brackets, credits, thresholds, and planning opportunities for the 2025 and 2026 tax years.

Federal Tax Bracket Changes in Canada

Lowest Federal Tax Rate Cut

The federal government reduced the lowest marginal tax rate from 15% to 14%, effective July 1, 2025.
As a result:

• 2025 effective rate: 14.5% (blended year)
• 2026 onward: 14%

This change primarily benefits low- and middle-income earners by reducing the tax paid on the first portion of taxable income.

Federal Income Tax Brackets (2026)

For the 2026 tax year, the indexed federal brackets are approximately:

• 14% on the first ~$58,500 of taxable income
• 20.5% on income from ~$58,500 to ~$117,045
• 26% on income from ~$117,045 to ~$181,440
• 29% on income from ~$181,440 to ~$258,482
• 33% on income over ~$258,482

Indexation helps protect taxpayers from inflation-driven “bracket creep.”

Basic Personal Amount (BPA) and Credits

The Basic Personal Amount for 2026 is approximately $16,452, meaning you can earn this amount before paying federal income tax.

Most non-refundable tax credits (such as the basic personal credit) are calculated using the lowest federal tax rate, now set at 14%, which slightly affects their value.

Ontario Provincial Tax Brackets (2026)

If you are a resident of Ontario, your provincial tax is calculated separately from federal tax using Ontario’s own brackets.

Ontario Income Tax Brackets (2026 – indexed)

• 5.05% on the first ~$52,886
• 9.15% on income from ~$52,886 to ~$105,775
• 11.16% on income from ~$105,775 to ~$150,000
• 12.16% on income from ~$150,000 to ~$220,000
• 13.16% on income over ~$220,000

Ontario also provides a Basic Personal Amount (Ontario personal tax credit), which reduces provincial tax payable for lower- and middle-income taxpayers.

Important: Your combined marginal tax rate is the sum of federal and provincial rates, making tax planning (RRSPs, dividends vs. salary, capital gains timing) especially important.

Find Your Provincial Tax Brackets

Tax rates vary by province and territory. If you live outside Ontario (or want to confirm updated figures), the CRA maintains an official page with current and prior-year provincial tax rates:

🔗 CRA – Income Tax Rates for Individuals (Federal & Provincial)
https://www.canada.ca/en/revenue-agency/services/tax/individuals/frequently-asked-questions-individuals/canadian-income-tax-rates-individuals-current-previous-years.html

This page allows you to:

• Select your province or territory
• Compare current vs. previous years
• Review combined federal/provincial rates

Action Steps for the New Year

✔ Review payroll and withholding tables
✔ Reassess RRSP, TFSA, and dividend strategies
✔ Plan for capital gains changes
✔ Confirm provincial tax impacts based on residence
✔ Seek advice for cross-border or multi-province situations

Payroll and Withholding Adjustments

Because of:

• The reduced federal lowest tax rate
• Indexed federal and provincial brackets

Employers should ensure their payroll systems are updated for 2026 to avoid under- or over-withholding for employees.

Capital Gains – What to Watch

Proposed changes to the capital gains inclusion rules were deferred and are expected to take effect on January 1, 2026. This makes 2025–2026 an important planning window for individuals and business owners considering asset sales.

Cross-Border Context (U.S. Exposure)

For clients with U.S. tax exposure:

• U.S. standard deductions increased
• Tax brackets remain relatively stable
• New credits and planning opportunities are emerging

Cross-border planning remains critical to avoid double taxation and missed credits.

Staying informed about tax updates helps you optimize cash flow, reduce surprises, and make confident financial decisions.

If you’d like help reviewing how these changes affect your personal or business situation, our team at RGB Accounting is happy to help. Call us at (416) 932-1915 or contact us at [email protected].

Source: CRA