Only Minor Changes to Federal Tax Regulations in 2026

What's new in 2026 to the world of federal personal income taxes? As it turns out, not very much.

The change Canadians are most likely to notice is the one percentage point reduction to the lowest marginal tax rate — taking it from 15 per cent to 14 per cent.

That measure first came into effect July 1, 2025, when taxes on the first $57,375 earned were only taxed at 14.5 per cent. (tax measures introduced in the middle of a tax year start at half the rate and then adjust to the full amount the following year).

Each year tax brackets increase to account for inflation, which means that beginning Jan. 1 the rate drops to 14 per cent on the first $58,523 someone earns in 2026. 

As a result of this measure, a dual-income couple with one child is projected to realize maximum tax savings of up to $750.

Personal Support Workers

There is also a new refundable tax credit for personal support workers equal to five per cent of eligible earnings, to a maximum of $1,100. As a result, individuals earning at least $22,000 annually would qualify for the full credit.

To be eligible, a personal support worker must be employed by an eligible health-care establishment, such as a hospital, nursing care facility, residential care facility, community care facility for the elderly, home health-care establishment, or another similar regulated health-care provider.

To qualify as a personal support worker, the individual must provide one-on-one care intended to maintain another person’s health, well-being, safety, autonomy, and comfort.

The credit is temporary and is currently scheduled to apply only to the 2026 through 2030 tax years.

Lifetime capital gains increase for small businesses

Over the past two years there have been proposals to change capital gains inclusion rates and exemptions in a way that created confusion over what did and did not apply, but those measures were cleared up and simplified in the 2025 federal budget. 

Carney's first budget increases the lifetime capital gains exemption when selling eligible small business shares, a farm or fishing property from just over $1 million to $1.25 million, making it retroactive to June 25, 2024.

A capital gain is the difference between the cost of an asset — an investment property, a stock or a mutual fund — and its total sale price.

You may remember that, in the 2024 budget, the federal government had also announced increases to the capital gains tax inclusion rate for businesses and some individuals.

The proposed capital gains hikes have since been cancelled.

CPP Maximum Contributions

2026 marks the third year of the enhanced Canada Pension Plan (CPP) contribution regime. Under these rules, two earnings ceilings are used to determine an individual’s maximum CPP contributions.

The first ceiling for 2026 is $74,600, an increase from $71,300 in 2025. The maximum employee contribution under this ceiling is calculated by applying the 5.95 per cent contribution rate to pensionable earnings up to the ceiling, after subtracting the $3,500 basic exemption. As a result, the maximum employee contribution for the first ceiling in 2026 is $4,230.45. Employers are required to match this amount, bringing the combined maximum contribution per employee to $8,460.90.

The second ceiling for 2026 is $85,000, up from $81,200 in 2025. Contributions under this ceiling apply to earnings between $74,600 and $85,000, a difference of $10,400. This amount is multiplied by the lower contribution rate of four per cent, resulting in a maximum employee contribution of $416. Employers again match this contribution, adding an additional $416.

Revised Income Tax Brackets

Beginning Jan. 1, federal income tax bracket thresholds in Canada, which increase in line with inflation, will rise two per cent across all brackets, compared to a 2025 rise of 2.7 per cent and a 2024 rise of 4.7 per cent. 

Provinces have their own income tax brackets, but for 2025 the federal thresholds will now be:

• From zero up to $58,523, taxed at 14 per cent.

• From $58,524 to $117,045 taxed at 20.5 per cent.

• From $117,046 to $181,440, taxed at 26 per cent.

• From $181,441 to $258,482 taxed at 29 per cent.

• $258,483 and above, taxed at 33 per cent.

Employment insurance

The maximum insurable earnings ceiling for employment insurance rises to $68,900 starting Jan. 1, up from $65,700 in 2025. That means the new maximum annual EI contribution for a worker will increase to $1,123.07, up from $1,077.48 in 2025. 

Employers contribute a matching amount of 1.4 multiplied by the employee contributions for a maximum contribution in 2026 of $1,572.30 up from $1,508.30 last year.

TFSA Limit

As mentioned in a previous article , the annual tax-free savings account (TFSA) contribution amount in 2026 will remain at $7,000.

Basic Personal Exemption Limit

Basic personal exemption amounts have also been adjusted to account for inflation. In 2026, the basic personal amount is $16,129.

The basic personal amount is a non-refundable federal tax credit that allows Canadian taxpayers to earn a certain amount of income each year without paying federal income tax. It reduces federal tax payable by applying the lowest federal tax rate to the basic personal amount, which is indexed annually.