What's new in Canadian taxes for 2026

Federal bottom rate cut to 14%

The most significant federal change for 2026 is that the lowest bracket rate dropped from 15% to 14%, effective January 1, 2026. This rate applies to the first $58,523 of federal taxable income (after subtracting the Basic Personal Amount and other deductions).

For a taxpayer earning $60,000 with no deductions, the saving is approximately $585 in federal tax alone (1% × $58,523). The combined federal-provincial saving varies by province — it is largest where provincial rates are lowest, such as Alberta and the territories.

This is the first reduction to the bottom federal bracket since 2016 and was a central commitment of the Carney government's first budget.

Basic Personal Amount rises to $16,452

The federal Basic Personal Amount (BPA) — the amount of income sheltered from federal tax — rises to $16,452 for 2026. The credit is calculated at 14% (the new bottom rate), making it worth up to $2,303 for most taxpayers.

The BPA phases out for high earners. Above $181,440 of net income, the enhanced portion of the BPA begins to claw back, reaching a base level of $14,829 at income of $258,482 and above. High earners still receive the base BPA credit; they simply do not benefit from the full enhancement.

Bracket indexation — 2.0%

CRA applied a 2.0% indexation factor to all federal bracket thresholds for 2026. This annual adjustment is based on the Consumer Price Index and ensures that Canadians are not pushed into higher brackets by inflation alone.

Most provinces applied a similar indexation factor, though rates vary by jurisdiction. Notable exceptions: British Columbia paused indexation on its provincial brackets from 2027 through 2030 as part of Budget 2026 — so BC's brackets are indexed for 2026 but will be frozen thereafter.

Alberta: new 8% bracket on the first $60,000

Alberta introduced a new bottom bracket for 2026: income up to $60,000 is now taxed at 8%, down from the previous entry rate of 10%. Income above $60,000 continues through the existing schedule (10%, 12%, 13%, 14%, 15%).

An Albertan earning exactly $60,000 saves approximately $1,200 in provincial tax compared to the old structure (2% × $60,000). Higher earners benefit from the same saving on their first $60,000 of taxable income. Alberta remains the only province with no provincial sales tax.

Combined with the federal rate cut, Albertans in the lower income range now have access to some of the lowest combined marginal rates in Canada.

British Columbia changes

BC made two changes via Budget 2026. First, the bottom provincial rate increased from 5.06% to 5.60%. Second, BC paused bracket indexation from 2027 through 2030, meaning bracket thresholds will not be adjusted for inflation during that period.

For 2026, the higher bottom rate partly offsets the federal rate cut for lower-income BC residents. The indexation pause will have a more pronounced effect starting in 2027, as inflation will gradually push more income into higher brackets without the thresholds rising to match.

CPP2 expansion

Canada Pension Plan contributions now operate on a two-tier system. The first ceiling — the Year's Maximum Pensionable Earnings (YMPE) — is $74,600for 2026. The second ceiling — the Year's Additional Maximum Pensionable Earnings (YAMPE) — rises to $85,000.

Employees earning between $74,600 and $85,000 pay an additional 4% CPP2 contribution on that band (up to $414 for employees; double for the self-employed). Unlike CPP1 contributions, which are a non-refundable credit, CPP2 contributions are deductible from income on line 22215 of the T1 return. This makes CPP2 more tax-efficient — the deduction is worth more than a credit for most taxpayers.

CPP2 contributions build enhanced CPP retirement benefits beginning in 2024 and beyond.

EI premiums 2026

Employment Insurance maximum insurable earnings rise to $65,700 for 2026. The employee premium rate is 1.64%, giving a maximum annual employee premium of approximately $1,078.

Quebec employees pay a lower rate of 1.31% because Quebec operates its own parental insurance plan (RQAP/QPIP), which covers benefits that EI covers in other provinces. Employers pay 1.4× the employee rate in all provinces.

Capital gains inclusion rate

The federal government proposed raising the capital gains inclusion rate from 1/2 to 2/3 on gains above $250,000 per year for individuals (corporations and trusts would face the 2/3 rate on all gains). If passed, this would meaningfully increase the effective tax rate on large investment gains, real estate dispositions, and business sales.

As of April 2026, the legislation remains in progress. We note this uncertainty prominently wherever capital gains are discussed on this site.

What did not change

Several key limits carried forward unchanged from 2025:

• TFSA annual limit: $7,000 — unchanged for the third consecutive year. Cumulative lifetime room since 2009 is now $102,000.
• FHSA: $8,000/year, $40,000 lifetime limit, rules unchanged.
• RRSP Home Buyers' Plan: $60,000 lifetime withdrawal limit, unchanged.
• RESP CESG: 20% grant on the first $2,500 of annual contributions ($500/year), unchanged.
• Age amount: indexed to inflation; no structural change.
• GST/HST rates: federal 5% GST unchanged; provincial HST rates unchanged.