An affordability crisis, shrinkflation, and more all point to a shrinking middle class in Canada, but the new Liberal government is taking steps to try to provide some relief.
Despite not having a budget after inheriting governance from Justin Trudeau, Mark Carney’s federal Liberal cabinet announced a middle-class tax cut to alleviate some growing pains in the Canadian economy. But, relief won’t be coming until next year for some Canadians.
“Last month, Canadians called for change to bring down the cost of living and to put money back in their pockets. My government will be delivering that change – cutting taxes for the middle class and saving families up to $840 a year,” said Carney.
After passing legislation, tax will shift from 15 to 14 per cent starting July 1, 2025, supposedly delivering $27 billion in tax savings for Canadians.
“The Minister of Finance and National Revenue, the Honourable François-Philippe Champagne, today announced one of the first orders of business on the government’s legislative agenda for the new session of Parliament: tax relief for nearly 22 million Canadians, saving two-income families up to $840 a year in 2026,” reads a release from the federal government.
“The bulk of tax relief will go to thosewith incomes in the two lowest tax brackets(i.e., those with taxable income under $114,750 in 2025), including nearly half to those in the first bracket ($57,375 and below in 2025)”
Although Minister Champagne faced scrutiny on CBC’s Power and Politics with David Cochrane because of this announcement preceding a budget, Champagne suggested this is “the logical order.”
“With today’s middle-class tax cut, we are setting the stage for economic growth by helping hard-working Canadians keep more of their paycheques to spend on the priorities that matter most to them,” said Champagne.
“Every Canadian should be able to afford necessities, feel secure, and get ahead financially—and this tax cut will help them do just that. As Canadians continue to feel the impact of ongoing challenges including trade and tariff uncertainties, they should be able to keep more of what they earn to help build a stronger future and a more resilient Canada.”
However, many Canadians might not see any of this announced relief until they file their taxes next year.
“To reflect a one-percentage-point cut in the lowest tax rate coming into effect halfway through the year, the full-year tax rate for 2025 will be 14.5 per cent and the full-year rate for 2026 and future tax years will be 14 per cent,” reads the release.
“The Canada Revenue Agency will update its source deduction tables for the July to December 2025 period so that pay administrators are able to reduce tax withholdings as of July 1. This means that, effective July 1, individuals with employment income and other income subject to source deductions could have tax withheld at 14 per cent. Otherwise, individuals will realize this tax relief when they file their 2025 tax returns in spring 2026.”
