The Canada Revenue Agency (CRA) has officially indexed the 2026 federal income tax brackets by 2%, reflecting inflation data from Statistics Canada. These changes could directly affect how much tax you pay this year — and how much you keep.

Starting January 1, 2026, the lowest federal tax rate drops again to 14%, down from 14.5% in 2025. At the same time, the Basic Personal Amount (BPA) increases to $16,452, meaning more income can be earned before federal tax applies.

Here’s a clear breakdown of what’s changing and how it impacts your 2026 return.

How Canada’s Progressive Tax System Works

Canada uses a progressive tax system, meaning:

• Income is divided into brackets
• Each bracket is taxed at a different rate
• You only pay the higher rate on the portion of income within that bracket

This means your entire income is not taxed at the highest rate you reach.

2026 Federal Income Tax Brackets

For the 2026 tax year, the federal rates are:

• 14% on the first $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 income over $258,482

These thresholds are 2% higher than in 2025 due to indexation.

Basic Personal Amount Increased to $16,452

The Basic Personal Amount (BPA) rises from $16,129 to $16,452 in 2026.

This non-refundable tax credit allows taxpayers to earn this amount before federal tax applies.

What It Means

• If you earn $16,452 or less, you pay no federal income tax.
• If you earn more, only the income above that threshold is taxed.

This adjustment slightly reduces federal tax for most Canadians.

Example: Federal Tax on $150,000 Income (2026)

Here’s how federal tax would apply to someone earning $150,000:

• $0 on first $16,452 (BPA)
• 14% on $42,071 = $5,889.94
• 20.5% on $58,522 = $11,997.01
• 26% on $32,955 = $8,568.30

Total Federal Tax: $26,455.25

This figure reflects federal tax only. Provincial tax — including Quebec’s rates if applicable — is calculated separately.

Why the Lowest Tax Rate Is Dropping

The government led by Mark Carney began reducing the lowest bracket rate from 15% to 14.5% in July 2025. As of January 1, 2026, it declines further to 14%.

This change is designed to:

• Increase disposable income
• Offset inflation pressures
• Provide targeted relief to middle-income earners

Because the lowest bracket applies to all taxpayers, the reduction benefits most filers.

What This Means for Your 2026 Finances

The combination of:

• A lower 14% entry rate
• Higher bracket thresholds
• A larger Basic Personal Amount

could result in slightly lower federal tax liability for many Canadians.

However, actual savings depend on:

• Total taxable income
• Provincial tax rates
• Available deductions and credits
• RRSP contributions

Smart Tax Planning for 2026

January is an ideal time to review your financial strategy.

Consider:

• Adjusting payroll source deductions
• Maximizing RRSP contributions
• Using your TFSA effectively
• Reviewing eligibility for federal tax credits
• Planning for provincial tax obligations

For self-employed Canadians, setting aside estimated quarterly payments remains critical.

Important Reminder About Provincial Tax

If you live in Quebec, provincial income tax is administered separately by Revenu Québec. Quebec has its own indexed brackets and tax rates, which apply in addition to federal tax.

Always calculate total tax owed using both federal and provincial tables.

Frequently Asked Questions (FAQ)

What is the lowest federal tax rate in 2026?

14% on the first $58,523 of taxable income.

Has the Basic Personal Amount increased?

Yes. It rises to $16,452 for 2026.

Are tax brackets indexed?

Yes. All 2026 brackets were indexed by 2%.

Does everyone benefit from the 14% rate?

Yes. All taxpayers pay 14% on income within the first bracket.

Does this include provincial tax?

No. Provincial tax is calculated separately.

Will this significantly lower my taxes?

Savings vary depending on income and deductions, but most taxpayers will see modest relief.

When do these changes apply?

They apply to income earned starting January 1, 2026.