Ways to experience tax freedom

One of the freedoms we get to enjoy as Canadians is tax freedom, which came on June 9 this year. You are now officially working for yourself and your family, and, as we celebrate our life in Canada, there could be future tax risks and rewards just around the corner.

Aside from collecting taxes, the CRA administers the government’s economic, social, and income redistribution goals. That’s complex for everyone. People are motivated to file to get their tax refunds, but even people with no income should file a tax return to collect refundable tax credits they may be eligible for.  

Income-testing is required, so it’s critical to file your tax return on time. It’s also a painful miss if you owe money and are late to file, as you’ll have to contend with expensive penalties and interest compounding daily at high rates.

Even if you file on time, it can be difficult to get reliable information from the CRA in preparation for a future tax audit. Increasingly, this has involved unreasonably long waits, frustrating chat bot conversations, and wrong answers to important questions. This also means taxpayers don’t always understand their rights to new (and potentially wealth-producing) tax changes. So, let’s review some of the more important ones for 2026.

Tax brackets and rates

From a federal government point of view, indexing (this year at 2%) will continue to bring marginal tax rates downward for those whose incomes are not keeping pace with inflation. For others, marginal tax rates could rise if the income bumps into the next federal tax bracket (see chart below). 

The lowest federal tax rate has been reduced to 14% for the full year for everyone. That said, it may not be noticeable as there was an increase in Canada Pension Plan (CPP) premiums. Fortunately, a small reduction in the CPP premium rate is on the horizon for 2027.     

Note that the Basic Personal Amount or “tax free zone” for individuals for 2026 is $16,452 if income falls below the 29% bracket; it’s as little as $14,829 for higher earners. In addition, any “what if” scenario used to estimate your 2026 taxes must include your provincial tax burden, calculated based on where you live on December 31.

The top-up tax credit

This provision was introduced for the 2025 tax year. It will rise to 1% from 2026 to 2030 and is used when non-refundable tax credits are higher than the first income tax bracket threshold, which is $58,523. Costs of tuition fees, medical expenses, charitable donations, and multiple disability tax credits could account for some of those high claims.  

The AMT

This is a refundable tax that could increase your taxes in 2026. The Alternative Minimum Tax is applied when taxable income falls into the 29% tax bracket ($181,440) and certain tax preferences apply, such as non-refundable tax credits for charitable donations. Income sources like capital gains and dividends, and deductions like child care, moving expenses, or the capital gains deduction could also trigger the tax. So beware if you decide to sell the family cottage this year.

The Canada Groceries and Essentials Benefit (CGEB)

For over 12 million low- and modest-income Canadians, the June 5 one-time top up credit was welcome relief from inflation in the grocery store and at the pumps. The amount paid was a 50% increase in the annual value of the 2025-26 GST/HST credit, which varies for everyone because it is income-tested.  

Starting with the regular payment in July 2026, the value of the regular credit will increase by 25% for five years.

Refundable personal support workers (PSW) tax credit

This is a new refundable tax credit available from 2026 to 2030 to personal support workers who work in provinces that did not sign a bilateral agreement to support wage increases with the federal government. The PSW will calculate the credit as 5% of eligible earnings up to $1,100 per year. This will be a nice surprise when you file your tax return in the spring. 

Home accessibility tax credit

In the past, it was possible to claim some of the same expenses under this provision, which has a $20,000 maximum claim, and the claim for medical expenses, which are reduced by 3% of net income or $2,890. But there is no “double-dipping” in 2026 and future years.  

Note that these two non-refundable tax credits are multiplied by 14% this year (that rate was 14.5% in 2025 and 15% prior to that). This means that the maximum home accessibility tax credit claimable is only $2,800 in 2026. It was $2,900 in 2025 and $3,000 in 2024 and prior years. 

Labor mobility tax credit for tradespeople

The annual deduction limit rises from $4,000 to $10,000 in 2026 for tradespeople who take a temporary relocation for work. The amount is limited to 50% of the individual’s employment income at that temporary work location and, moving forward, this deduction will be indexed annually to inflation.  

To qualify, the tradesperson must take up temporary lodging in Canada that brings them significantly closer to their temporary work location than their ordinary residence. The update proposes to reduce this minimum distance threshold from 150 kilometres to 120 kilometres.

Lifetime capital gains exemption

This provision survived the controversial tax hike that the government tried to implement in 2024. As of June 25 that year, the capital gains inclusion rates were to rise from 50% to 66.6%. That was taken off the table in March of 2025. 

The legacy provision from that highly controversial proposal was to maintain the proposed increase in the lifetime capital gains exemption (LCGE) limit. This is important news for those who are selling or transferring ownership of qualified small business corporation shares and qualified farm or fishing property.

The LCGE limit increased to $1.25 million of eligible capital gains for dispositions on or after June 25, 2024. It then remained the same in 2025 and, now, in 2026, is subject to indexing. The new amount is $1,275,000. 

The RRSP Home Buyer’s Plan

This is a program that helps eligible home buyers save for a down payment by allowing them to make tax-free withdrawals from their registered retirement savings plan (RRSP) to purchase or build their first home or a home for a “specified disabled person” who qualifies for the Disability Tax Credit.

It’s possible to withdraw up to $60,000 from an individual’s RRSP without paying tax on the withdrawal. If a home is being purchased jointly, each eligible home buyer can withdraw up to $60,000 from their respective RRSPs, making the opportunity a $120,000 one for couples.  

There are a few catches, though. The amounts withdrawn under the HBP must be repaid back into an RRSP over a period not exceeding 15 years. Any amounts that are due for repayment in a specific year but not repaid will be taxed as income for that year. What’s changing in 2026–2028 is that repayments don’t need to be made until five years following the initial withdrawal. That grace period limit was to be two years starting in 2026.  

First-time home buyers’ GST rebate

First-time new home buyers will also be delighted to know that GST/HST will be eliminated on homes up to $1 million and reduced for homes between $1 million and $1.5 million. This is in effect if the agreement of purchase and sale is signed on or after March 20, 2025.  

Oh, Canada

There will be challenges to face as trade talks with the US and Mexico continue. What’s important is what we can control, and taxes are one of those things. For these reasons, mid-year is a good time to review your options, save tax efficiently if you can, and consider your financial future carefully.  

Despite our annual frustrations with the CRA, it feels good to celebrate our beautiful life here and a taxation system that can help when the economic boat rocks.

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