Canada’s Middle‑Class Tax Cut: What You Need to Know
On July 1, 2025, a major shift in Canada’s personal income tax landscape will take effect: the federal government is implementing a long-anticipated tax cut aimed at supporting middle-class Canadians. While this change has been broadly welcomed, its full impact will depend on your individual financial circumstances. At Senova we’re here to help you understand how this tax cut affects you — and how you can make the most of it.
What’s Changing?
The headline change is a reduction in the lowest federal personal income tax rate, dropping from 15% to 14%. This rate applies to the first $57,375 of taxable income for the 2025 tax year.
However, because the cut takes effect mid-year (on July 1), 2025 will effectively be a “blended” year. The Canada Revenue Agency (CRA) has confirmed that the average federal tax rate for the lowest bracket in 2025 will be 14.5%. The full 14% rate will apply starting January 1, 2026.
This change means that most working Canadians — nearly 22 million people — will see a modest reduction in the amount of tax withheld from their paycheques, beginning in the second half of 2025.
How Much Will You Save?
The federal government estimates that once the full tax cut is in effect in 2026, individual Canadians could save up to $420 annually, while couples could see savings of up to $840. In 2025, due to the mid-year implementation, average savings will be somewhat lower — between $110 and $210, depending on your income level and tax situation.
But like all things in tax, the story is a bit more nuanced. While the rate cut provides direct savings, it also slightly reduces the value of certain non-refundable tax credits — such as the basic personal amount — because these credits are calculated using the lowest tax rate. For example, the credit derived from a $15,000 basic personal amount will now offset $2,100 of tax (at 14%) rather than $2,250 (at 15%), a $150 reduction. For many taxpayers, the rate cut still results in net savings, but it’s important to understand how the pieces interact.
What This Means for Your Paycheque
Starting July 2025, most employers will begin using the CRA’s updated payroll deduction tables to withhold less income tax from employee pay. That means more take-home pay — a welcome change for many households facing rising costs of living.
If you're self-employed, you may want to revisit your installment payment schedule or adjust your withholding (if applicable) to ensure you're not overpaying during the remainder of 2025.
Final Thoughts
Canada’s new middle-class tax cut is good news for many taxpayers — but the true benefit depends on how well you plan around it. Whether you're a salaried employee, business owner, retiree, or self-employed professional, the team at Senova is here to help you make informed decisions and optimize your tax outcome.
Want to see how the tax cut will affect your 2025 and 2026 returns? Book a tax planning session with us today, and let’s chart a strategy that puts your hard-earned money to better use.