In the coming year we will see some changes to existing tax measures, a rollback of others and some help for personal support workers. But overall changes in taxes that individuals pay in 2026 will be small.
Daniel Rogozinski, an accountant and professor at the University of Waterloo, says the changes that will affect people in 2026 can best be described as a “sleep holiday.”
“We've been waiting for months for something to happen: 'Wow, this is a big change that really changes, you know, how the Canadians play against the Americans and the rest of the world in terms of competitiveness,'” Rojoczyski said.
“He just wasn't there.”
The change Canadians are most likely to notice, he said, is a one percentage point drop in the lowest marginal tax rate, from 15 per cent to 14 per cent.
The measure was promised during the campaign and first went into effect on July 1, 2025, when taxes on the first $57,375 earned were only taxed at 14.5%. (tax measures introduced mid-tax year start at half the rate and then increase until they are cut completely the following year).
Each year, tax brackets increase to adjust for inflation, meaning that starting Jan. 1, the rate drops to 14 percent on the first $58,523 a person earns in 2026.
When the measure was introduced, Treasury Canada projected the maximum tax savings would be $840 for a two-income couple. In June, Yves Giroux, the previous parliamentary budget officer, said a two-income couple with a child will only get about $750 saved on average in 2026.
The Budget also introduces a new refundable tax credit for personal support workers worth five per cent of eligible earnings up to a maximum of $1,100. This means anyone who makes at least $22,000 a year is eligible for the full amount.
The credit is temporary and, at least for now, will only be available for tax years 2026 through 2030.
To be eligible for the loan, the personal assistant must be employed by an eligible health care facility, which the budget defines as: “hospitals, nursing facilities, assisted living facilities, community aged care facilities, home health care facilities and other similar regulated health care facilities.”
The budget says that to qualify as a personal support worker, a person must provide personal care to “support the health, well-being, safety, autonomy and comfort of another person.”
The credit does not apply to residents of British Columbia, Newfoundland and Labrador, and the Northwest Territories because those provinces have agreements with the federal government to increase wages for those workers.
Lifetime capital gains increase
Over the past two years, there have been proposals to change the capital gains inclusion and exclusion rules in ways that have created confusion about what applies and what does not, but these measures have been clarified and simplified in the 2025 federal budget.
Carney's first budget increases the lifetime capital gains tax exemption on the sale of qualifying small business shares, farm or fishing property from just over $1 million to $1.25 million, making it retroactive to June 25, 2024.
Capital gains are the difference between the value of an asset (investment property, stock, or mutual fund) and its total sales price.
“So if you have a plumbing company or a distribution company and you sell it for $1.25 million more than you paid for it, you won't have to pay tax,” Rogozinski said. “It’s a big incentive for people to go out and start a business.”
Rogozinski says that to offset this measure, which is good for small businesses but reduces federal revenue, the Liberal government announced in the 2025 budget that it was eliminating a measure announced in the 2024 budget that never became law: the Canadian Entrepreneur Incentive.
This incentive would reduce the inclusion rate from the proposed two-thirds to one-third, with a maximum lifetime capital gain of $2 million for business owners that were formed as Canadian controlled private corporations (CCPCs).
In Budget 2024, the federal government also announced an increase in the capital gains tax rate for businesses and some individuals.
But a couple of days before the start of the 2025 federal election, Prime Minister Mark Carney announced that the proposed capital gains hike would be scrapped.
Maximum CPP Contributions
The new year will be the third time that Canada Pension Plan (CPP) contribution requirements come into effect. Under these rules, two ceilings are used to determine the maximum CPP contributions that individuals must pay.
First ceiling for 2026 is now $74,600, up from $71,300 in 2025. To determine the employee's maximum contribution, the contribution rate of 5.95 percent is applied to the first cap, subject to the $3,500 base tax exemption.
This means that in 2026, an employee's first maximum contribution will be $4,230.45. The employer pays a matching amount, for a total maximum contribution per employee of $8,460.90.
Second ceiling in 2026 will be $85,000 compared to $81,200 in 2025.
To calculate the maximum CPP contribution under the second cap, employees must take the difference between $74,600 and $85,000, which is $10,400, and multiply that amount by the lower contribution rate of four percent to get $416. Employers make a matching contribution in the same amount.
Income taxes, EI premiums and TFSA
Effective January 1, Canadian federal income tax thresholds which increase in line with inflationwill grow by two percent across all groups, compared with 2025 growth of 2.7 percent and 2024 growth of 4.7 percent.
Provinces have their own income tax brackets, but by 2025 the federal thresholds will now be as follows:
- From zero to $58,523, taxed at 14 percent.
- Between $58,524 and $117,045 are taxed at 20.5%.
- From $117,046 to $181,440, taxed at 26 percent.
- Between $181,441 and $258,482 are taxed at 29 percent.
- $258,483 and above are taxed at 33 percent.
Employment insurance
maximum insurance income ceiling for employment insurance will rise to $68,900 starting Jan. 1, up from $65,700 in 2025. This 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 times employee contributions for a maximum contribution in 2026 of $1,572.30, up from $1,508.30 last year.
The tax-free savings account (TFSA) annual contribution amount will remain at $7,000 in 2026.
Basic personal exemption amounts have also been adjusted for inflation. depending on income and marital status.
