Ottawa [Canada]: In a major fiscal move aimed at easing the cost of living, Canada’s newly appointed cabinet has made a significant personal income tax cut its top legislative priority. Beginning July 1, 2025, the lowest marginal personal income tax rate will be reduced from 15% to 14%, delivering tax relief to nearly 22 million Canadians.
The announcement was made by Finance and National Revenue Minister Francois-Philippe Champagne, who said the tax cut would provide meaningful financial relief to middle-income families amid ongoing economic pressures.
Annual Savings of Up to $840 Per Household
According to Canada’s Department of Finance, the measure will provide over $27 billion in tax savings over five years, with two-income households projected to save up to USD 840 annually by 2026.
“This tax cut will help hard-working Canadians keep more of their paycheques to spend where it matters most,” said the Finance Department in an official release.
The government confirmed that while Canada calculates income taxes on an annual basis, the 2025 rate will be adjusted to 14.5% to reflect the mid-year implementation. From 2026 onward, the full 14% rate will apply.
PM Mark Carney: ‘Canadians Called for Change—We’re Delivering It’
In a post on social media platform X (formerly Twitter), Prime Minister Mark Carney highlighted the tax cut as an answer to voters’ concerns about affordability.
“Canada’s new cabinet met for the first time this morning. One of our first orders of business: a tax cut for the middle class,” Carney posted.
“Last month, Canadians called for change to bring down the cost of living… and my government will be delivering that change.”
CRA to Adjust Withholding Starting July 1, 2025
The Canada Revenue Agency (CRA) will update its source deduction tables for the second half of 2025 to ensure employers begin withholding taxes at the new 14% rate starting July 1. Those whose income is subject to source deductions—such as salaried employees—may begin seeing lower tax withholdings in their paychecks from that date.
Targeted Relief for Lower and Middle-Income Earners
The tax cut is designed to disproportionately benefit those in the two lowest income brackets:
- First bracket: Incomes up to USD 57,375 (2025 threshold)
- Second bracket: Incomes up to USD 114,750
Nearly half of the tax relief will go to individuals in the first income bracket, according to the Department of Finance.
Economic Context and Policy Rationale
Minister Champagne framed the tax cut as both a relief measure and an economic stimulus, referencing current global challenges such as trade and tariff uncertainty.
“We are setting the stage for economic growth by helping hard-working Canadians keep more of their paycheques,” he said.
“Every Canadian should be able to afford necessities, feel secure, and get ahead financially—and this tax cut will help them do just that.”
Outlook: A Defining Move for Carney’s Government
The tax cut marks a defining early initiative for Prime Minister Mark Carney’s administration, which took office following public discontent over rising living costs. As the new session of Parliament unfolds, the income tax reduction is expected to shape political and economic discourse leading into 2026.