The Canada Revenue Agency (CRA) has unveiled key tax changes coming into effect for the 2025 tax year — and while it may not be a full-scale “overhaul”, the updates are significant enough that both workers and retirees should take note.
From a cut in the first federal tax bracket and higher tax credits, to increased contribution limits for retirement and savings plans, the landscape has shifted.
Understanding these changes now can help you adjust your pay-cheque, savings strategy, and retirement-income plan so you pay less tax and keep more of your money in 2025.
The Canada Revenue Agency (CRA) has confirmed a set of real, measurable changes for the 2025 tax year. Headlines about a “sweeping overhaul” are exaggerated, but there are important updates that affect workers, retirees, and savers:
- Lowest federal tax rate cut: The first bracket rate is reduced to 14% effective July 1, 2025. Because it starts mid‐year, the effective rate for 2025 is 14.5% (moving from 15%).
- Indexation: Federal brackets and key credits (like the Basic Personal Amount and Canada Employment Amount) are indexed for 2025; the federal indexation factor is 2.3% for January 1, 2025.
- Basic Personal Amount (BPA): The federal BPA is $16,129 for most taxpayers in 2025 (phased down at higher incomes).
- Canada Employment Amount: The maximum employment amount rises to $1,471 for 2025.
- TFSA limit: The Tax-Free Savings Account annual room is $7,000 for 2025.
- CPP payroll: The Yearly Maximum Pensionable Earnings (YMPE) increases to $71,300; employee and employer rates stay at 5.95% each, with a maximum contribution of $4,034.10 each (self‐employed contribute double at $8,068.20).
- EI premiums: For 2025, the employee EI rate is 1.64% on up to $65,700 of insurable earnings (maximum employee premium is $1,077.48; employers pay 1.4× that).
- Capital gains: The previously proposed increase to the capital gains inclusion rate was deferred and then cancelled in March 2025, so the 50% inclusion rate remains in place through 2025; the Lifetime Capital Gains Exemption (LCGE) stays at $1.25 million for qualified small business shares or farming/fishing property.
- OAS amounts & thresholds: Old Age Security payment amounts and associated clawback thresholds are updated periodically; retirees need to review the October–December 2025 values and bear in mind that a recovery tax applies above the annual threshold.
Quick reference — 2025 federal highlights
| Item | 2025 Key Figure | Why it matters |
|---|---|---|
| Lowest federal bracket rate | 14% from July 1 (effective 14.5% for full 2025) | Slightly lowers tax on first-bracket income in 2025 |
| Federal indexation factor | 2.3% (Jan 1, 2025) | Brackets/credits rise with inflation |
| Basic Personal Amount | $16,129 | You can earn this much before paying federal tax |
| Canada Employment Amount | $1,471 | Non-refundable credit for employees |
| TFSA limit | $7,000 | Extra tax-free room for saving/investing |
| CPP (employee/employer) | 5.95% to $71,300; max $4,034.10 each | Pay-cheque deductions & pension contributions |
| CPP (self-employed) | 11.90%; max $8,068.20 | You pay both sides if self-employed |
| EI (employee) | 1.64% to $65,700; max $1,077.48 | 2025 insurance cost for job-loss coverage |
| Capital gains inclusion rate | 50% (unchanged in 2025) | Only half of net gains are taxable in 2025 |
| OAS updates | Amounts and thresholds updated quarterly | Retirees should review net-income impacts |
What this means for workers
- Expect slightly lower tax on your first slice of income thanks to the mid-year cut to the first bracket. The combination of rate cut, higher BPA and employment amount gives a modest net benefit starting from July.
- Payroll deductions will shift: higher CPP maximum and updated EI ceiling change year-to-date totals. If you’re a high earner or hold multiple jobs, budget for the higher maximums.
- Consider filling the TFSA $7,000 room early in the year to give your investments more time to grow tax-free.
What this means for retirees
- The OAS and related benefits will adjust with inflation and your income. If you have income near the clawback threshold, review whether your RRSP/RRIF withdrawal timing or capital gains selling might push you over.
- With the capital gains inclusion rate unchanged at 50% for 2025, consider asset sales/harvesting as part of your year-end planning if it aligns with your goals and doesn’t bump your net income excessively.
Canada did not rewrite the entire tax code for 2025—but the rate cut on the first bracket, inflation indexation, higher BPA/CEA, updated CPP/EI limits, and a steady 50% capital-gains inclusion rate together make a meaningful difference for many households.
Workers get modest relief at source, retirees should revisit their income-planning to manage OAS thresholds, and savers can take full advantage of the $7,000 TFSA room to grow tax-free.
Taking a few minutes now to adjust your withholding, contributions, and draw-down plans can help you keep more of your money in 2025.
FAQs
Did the capital gains tax go up in 2025?
No. The previously proposed hike was deferred and then cancelled in March 2025, so the inclusion rate remains at 50% for 2025.
How does the mid-year rate cut show up on my paycheque?
The first federal tax bracket drops to 14% on July 1, 2025. Employers updated payroll tables mid-year; you’ll see the difference in your withholding from July onwards.
What’s my new tax-free amount for 2025?
Most residents can claim a Basic Personal Amount of $16,129 federally (with a phase‐down at higher incomes). Provinces and territories have separate amounts that may also increase for 2025.