Canada’s Middle-Class Tax Cut
Effective July 1, 2025, the federal government is rolling out a one-percentage-point reduction in the lowest personal income tax bracket. This move is part of its effort to provide direct relief to middle-income Canadians amid cost-of-living pressures and global economic uncertainty.
What’s changing?
- The lowest federal income tax rate is being reduced from 15% to 14%.
- This applies to taxable income up to $55,867 (2025 threshold).
- The change will not require any action from most employees—it will be reflected in updated payroll withholding tables used by employers starting in July 2025.
How much you will save?
- Middle-income earners, families with children, and Canadians who do not currently max out RRSP/TFSA contributions.
- Those who fully utilize tax deductions and credits (childcare, medical, donations) could see a boost to net income.
How to use extra income?
Even modest monthly increases in net income can go a long way when directed with intent. Here are some of the ideas to start saving more:
- Reinvest: Set up auto-contributions to your TFSA or RESP.
- Reduce debt: Use the savings to pay down high-interest credit or your mortgage faster.
- Pad your emergency fund: Boost liquidity, especially useful amid uncertain markets.
- Donate: Consider charitable contributions—paired with tax credits.
Why this Tax cut now?
This one-point cut—from 15% to 14% on the first federal tax bracket—comes at a time when Canadians are feeling the pinch of higher inflation rates, housing costs, and global uncertainty. The federal government has framed the cut as a way to:
- Support household purchasing power without stoking inflation.
- Stimulate domestic economic activity during global trade tensions (especially following recent U.S. tariff shifts), and
- Deliver tangible relief without waiting for a full federal budget, which has been deferred to Fall 2025.
Strategic tip from Assentt Wealth
- Re-evaluate RRSP/TFSA contribution strategies.
- Adjust withholding if your situation has changed significantly.
- Plan how to reinvest or reallocate those tax savings—toward debt, savings, or investments.
The information provided is for educational/entertainment purposes only. Actual information may vary, please consult our office for further details. Got a question? Feel free to reach us at helpdesk@assentt.com.
