Significant adjustments to Canada's income tax system, driven by inflation, are set to take effect in 2026. These changes, recently detailed by the Canada Revenue Agency (CRA), will impact tax brackets, key credits, and benefit amounts, potentially leaving more money in the pockets of many workers after federal and provincial taxes are deducted.
Inflation Drives Tax Bracket and Benefit Adjustments
The cornerstone of the 2026 changes is the standard indexation to inflation, calculated using Statistics Canada's Consumer Price Index (CPI). The inflation rate used for 2026 adjustments is two per cent, a decrease from the 2.7 per cent applied for 2025. This indexing means the thresholds for Canada's five progressive federal income tax brackets will rise on January 1, 2026.
Simultaneously, various benefit payments, such as GST/HST credit cheques and the Canada Child Benefit, will see increases starting July 1, 2026. For individuals whose income does not see a substantial jump, this indexation could translate to a slight boost in net take-home pay.
New Tax Rates and Brackets for 2026
A major shift for 2026 is the full implementation of a campaign promise by Prime Minister Mark Carney's government: a reduction of the lowest income tax bracket from 15 per cent to 14 per cent. This cut was partially introduced mid-year in 2025 at a rate of 14.5 per cent. The government initially projected savings of around $840 per year for an average two-person family, though the Parliamentary Budget Office later provided a more conservative estimate of approximately $280.
Here are the new federal income tax brackets and rates effective for the 2026 tax year:
- 14% on income up to $58,523
- 20.5% on income between $58,523 and $117,045
- 26% on income between $117,045 and $181,440
- 29% on income between $181,440 and $258,482
- 33% on any income above $258,482
Increased Basic Personal Amount for Taxpayers
Another critical change for 2026 is the increase in the Basic Personal Amount (BPA). This is the non-refundable tax credit representing the amount of income every taxpayer can earn without paying federal income tax.
For 2026, the BPA has been set at $16,452. This means individuals earning this amount or less will owe no federal income tax. The value of the credit itself is calculated using the lowest tax rate. Therefore, individuals with a net income of $181,440 or less will receive the full credit value of $2,303 (14% of $16,452).
The credit begins to phase out for higher earners. Those with a net income above $258,482 will receive a minimum BPA of $14,829, resulting in a credit of $2,076. Canadians with incomes between $181,440 and $258,482 will see a credit amount between these two figures.
These inflation-indexed modifications to brackets and credits, combined with the reduced tax rate on the first bracket, form the core of the tax changes Canadians can expect for the 2026 tax year. While the direct impact will vary based on individual income and circumstances, the adjustments are designed to prevent bracket creep and maintain the value of key tax benefits in an inflationary environment.
