Canadian taxpayers are set for a financial balancing act in 2026, with a mix of tax relief and new levies poised to impact paychecks and household budgets. The Canadian Taxpayers Federation (CTF) has outlined the coming changes, describing them as a combination of good and bad news for individuals and businesses across the country.
Payroll Taxes on the Rise: CPP and EI Contributions Increase
One of the most direct hits to take-home pay will come from higher mandatory contributions. Starting in 2026, Canadians will see larger deductions for the Canada Pension Plan (CPP) and Employment Insurance (EI) on their pay stubs.
The increase is tied to the Consumer Price Index (CPI), which measures inflation by tracking a basket of goods and services. While CPP benefits paid in 2025 will see a 2% increase in 2026—down from the 2.6% hike a year prior—the cost to workers is going up. According to Franco Terrazzano, Federal Director of the CTF, this will mean an extra $262 next year for workers.
For higher earners, the impact is more pronounced. Terrazzano notes that workers making over $85,000 annually will pay $5,770 for CPP and EI in 2026, with their employers contributing $6,219.
Income Tax Relief for Lower Earners
On the brighter side, a key election promise from Prime Minister Mark Carney's government is coming to fruition. The federal income tax rate for the lowest marginal tax bracket was reduced from 15% to 14%, effective July 1, 2025.
This cut is expected to provide tangible savings for many Canadians. The CTF estimates that the average taxpayer will save approximately $190 in 2026 because of this change. However, this relief comes at a cost to government coffers. The Parliamentary Budget Officer (PBO) projects the measure will reduce federal revenues by $4.2 billion in the 2025-26 fiscal year, with that figure growing to $6.4 billion by 2029-30.
Carbon and Alcohol Taxes Add to the Burden
While the consumer carbon tax was cancelled in April 2025, other related levies remain and are set to climb. The industrial carbon tax is scheduled to increase to $110 per tonne in 2026, a cost that many analysts and consumers fear will be passed down through higher prices for goods and services.
Furthermore, drivers are not entirely off the hook. The CTF points to a 'hidden carbon tax' within Canada's Clean Fuel Regulations, which the PBO estimates could add up to 17 cents per litre to gasoline prices.
Another automatic increase awaits consumers at the liquor store. Canada's alcohol escalator tax will trigger a 2% hike on beer, wine, and spirits on April 1, 2026. This mechanism, in place since 2017, raises taxes annually without a parliamentary vote. The CTF states this increase will cost Canadians $41 million in 2026/27, adding to an estimated $1.6 billion in total tax burden since the escalator's introduction.
Analysis and Calls for Broader Reform
Franco Terrazzano of the CTF framed these changes within a broader critique of government spending. 'Canadians pay too much tax because the government wastes too much money,' he stated. He urged the Carney government to pursue more significant tax and spending reductions, particularly targeting the carbon tax, arguing that serious cuts are needed to improve affordability and economic competitiveness.
The coming year presents a nuanced picture for Canadian finances. While the income tax cut offers welcomed relief for lower-income earners, the concurrent rises in payroll, carbon, and sin taxes ensure that the overall tax burden remains a central concern for households and businesses navigating an evolving economic landscape.
