If you run payroll in Canada, there are some meaningful tax changes kicking in this July. The federal government cut its lowest income tax rate, and several provinces are adjusting their brackets and personal amounts too. Here is a plain-English breakdown of what is new and who it affects.
The big one: a federal tax cut for lower earners
The federal government is cutting the lowest income tax bracket from 15% down to 14%, starting July 1st.
Since this change takes effect halfway through the year, payroll systems will use a blended rate of 14.5% for the full year. But from your first July payroll onward, you will apply the 14% rate going forward. This applies to income under $57,375.
What this means for employees: Anyone earning under that threshold will see a slightly lighter tax deduction on each paycheque for the rest of the year. The good news is this rate drop is permanent. 14% becomes the standard lowest bracket in 2026 and beyond.
Provincial changes at a glance
Alberta: two changes this month
Alberta has the most significant updates this July.
1. A new lower tax rate on the first $60,000. Alberta is introducing an 8% rate on the first $60,000 of income (down from 10%). Since employees were taxed at 10% for the first half of 2025, payroll systems will use a prorated 6% rate for July through December to balance things out.
2. A brand-new Supplemental Tax Credit. Alberta is also introducing a new tax credit (called K5P in the formula guide) for employees with higher personal credit amounts. This is a new calculation your payroll software needs to handle. It was not there before.
Bottom line: Alberta employees will see lower provincial tax deductions on their paycheques for the rest of the year.
Manitoba: indexation paused
Manitoba has decided not to index its basic personal amount or tax bracket thresholds for 2025. This is a reversal from prior years where these amounts automatically crept upward with inflation.
The Manitoba Basic Personal Amount settles at $15,780 for 2025. Because the indexed amount ($15,969) was already used in the first half of the year, the adjusted figure used from July onward is $15,591. Tax bracket thresholds are similarly adjusted downward for the second half.
Nova Scotia: simpler personal amount
Nova Scotia has simplified things by setting its Basic Personal Amount at a flat $11,744 for everyone, regardless of income. Previously, higher earners could qualify for a larger personal amount based on a sliding formula.
Most employees will not notice a change in their paycheque, but payroll systems that implemented the old sliding-scale formula will need to update to the flat amount.
Prince Edward Island: basic personal amount increase
PEI raised its Basic Personal Amount from $14,250 to $14,650, retroactive to January 1, 2025. Since the lower amount was used for the first six months, the adjusted figure applied from July onward is $15,050, slightly higher than the annual target, to compensate.
Saskatchewan: basic personal amount increase
Saskatchewan also increased its Basic Personal Amount, from $18,491 to $19,491, also retroactive to January 1, 2025. The compensating prorated amount used from July onward is $19,991.
What is NOT changing
No changes for British Columbia, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nunavut, Ontario, Yukon, or Outside Canada. CPP and EI rates and formulas are also unchanged.
The takeaway
- Federal: Lowest tax rate drops to 14% (prorated at 14.5% for full year)
- Alberta: New 6% prorated bottom bracket for the rest of 2025, plus a new Supplemental Tax Credit
- Manitoba: Indexation paused; BPA and bracket thresholds adjusted downward for the second half
- Nova Scotia: Flat $11,744 BPA for all employees
- Prince Edward Island: BPA increases to $15,050 (prorated)
- Saskatchewan: BPA increases to $19,991 (prorated)
PayCub update coming soon
We are working on these formula updates now. They will be live in PayCub in the coming weeks, well before your first July pay run. We will post here when they are ready.