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Canada’s July 1, 2025 Tax Rate Cut: What Small Businesses Need to Know

As of July 1, 2025, the lowest federal personal income tax rate in Canada has been reduced from 15% to 14%. This change applies to income up to $57,375, and because it came mid-year, the blended rate for 2025 is 14.5% and starting in 2026, the full 14% rate will apply to the entire year. […]

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As of July 1, 2025, the lowest federal personal income tax rate in Canada has been reduced from 15% to 14%. This change applies to income up to $57,375, and because it came mid-year, the blended rate for 2025 is 14.5% and starting in 2026, the full 14% rate will apply to the entire year.

To support this, the Canada Revenue Agency (CRA) has released updated:

How Canada’s July 1 Tax Rate Cut Impacts Your Business

Here’s how this tax rate cut will impact your payroll process and your employees:

  • Employees will see more take-home pay.
    A full-time employee earning $50,000 could see about $250 more in their pocket this year.
  • You’ll need to update your payroll software or process.
    New formulas and tables have been released by CRA. These are applicable to all pay periods starting July 1 onward.
  • Self-employed individuals and contractors won’t notice the change until they modify their installment payments or file taxes in 2026.

Canada’s July 1 Tax Rate Cut: What Employers Should Do Now

Here’s a quick checklist to keep your business on track:

  1. Update your payroll system
    Make sure your software is using the July 2025 CRA tables (T4032, T4127, etc.). Most major platforms like Wagepoint and QuickBooks have already rolled this out.
  2. Notify your employees
    Send a communication to your employees to inform them of the change and direct them to where they can find more information.
  3. Adjust manual payroll calculations if needed
    If you don’t use payroll software, download the updated T4032 and T4127 tables directly from the CRA.
  4. Review your remittance amounts
    Make sure your CRA payroll remittances are accurate and reflect the reduced tax deductions.

Accounting and Advisory Support for Canadian Business Owners

KWB helps business owners stay informed of changes that can affect you and your employees. We also help you to simplify your accounting, improve your profit, and achieve your goals. Book an introduction meeting with us to learn more.

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