Every January, the Canada Revenue Agency adjusts federal tax brackets and credits for inflation. It does not always make the news, but it affects every working person in the country. The 2025 tax year is no different. Between updated brackets, a higher basic personal amount, CPP2 changes, and the new capital gains inclusion rate, there is a lot going on.
The good news is that most of these changes are designed to keep up with inflation, so your buying power does not quietly shrink. But a few of the changes are genuinely new, and they could affect your pay in ways you might not expect. Let us walk through all of it in plain language.
Federal Tax Brackets Have Been Adjusted for Inflation
Each year, the CRA adjusts the income thresholds for each tax bracket so that inflation does not push you into a higher bracket without you actually earning more in real terms. For the 2025 tax year, the indexation factor is 2.7%, which means every bracket threshold has moved up by that amount.
Here is what the 2025 federal tax brackets look like:
- 15% on the first $57,375 of taxable income
- 20.5% on income between $57,375 and $114,750
- 26% on income between $114,750 and $158,468
- 29% on income between $158,468 and $221,708
- 33% on income above $221,708
If you earned $60,000 last year, you paid 20.5% on everything above $55,867 (the 2024 threshold). This year, that second bracket does not kick in until $57,375. It is not a huge difference, but it does mean slightly more of your income is taxed at the lower rate. Over a full year, that can put an extra couple of hundred dollars in your pocket.
Want to see exactly how the new brackets affect your pay? Our salary calculator is already updated for 2025 and shows you a full federal and provincial breakdown in seconds.
The Basic Personal Amount Is Going Up
The basic personal amount (BPA) is the amount of income you can earn before you pay any federal tax at all. For 2025, it has increased to $16,129, up from $15,705 in 2024. That is an extra $424 of tax-free income.
In dollar terms, this saves you about $64 in federal tax (15% of $424). It is not life-changing on its own, but combined with the bracket adjustments, it all adds up. Every province has its own basic personal amount too, so the total tax-free amount you enjoy depends on where you live.
You can check exactly how much tax-free income you get based on your province using our tax credits calculator.
CPP and CPP2: What Is Coming Off Your Paycheque
The Canada Pension Plan has been going through a multi-year enhancement, and 2025 is the second year of CPP2 — the additional contributions on earnings above the first ceiling.
Here is how it works. The first earnings ceiling for 2025 is $71,300. You pay CPP contributions at 5.95% on earnings between $3,500 (the basic exemption) and $71,300. That part has been around for a while. The maximum employee contribution for CPP1 is about $4,034.
But now there is a second ceiling at $81,200. If you earn between $71,300 and $81,200, you pay an additional 4% in CPP2 contributions. The maximum CPP2 contribution for 2025 is about $396.
If you earn over $81,200, you will see both CPP1 and CPP2 deductions on your payslip, for a combined maximum of roughly $4,430 in employee contributions. Your employer matches that amount, so the total going into your pension is nearly $8,860 a year.
It is worth understanding what these deductions are, because they are not just a tax — they directly fund your retirement pension. Use our CPP calculator to see exactly what gets deducted from your specific salary.
Employment Insurance Premiums
EI premiums have also been updated. The 2025 employee rate is 1.64% on insurable earnings up to $65,700. That works out to a maximum employee premium of about $1,077 for the year. If you are in Quebec, the rate is lower because Quebec runs its own parental insurance plan (QPIP).
You can see your exact EI deductions using our EI premium calculator.
Capital Gains Inclusion Rate Changes
This is the big one that has been in the news. Starting from the 2025 tax year, the capital gains inclusion rate has changed. For individuals, the first $250,000 of capital gains in a year is still included at the traditional 50% rate. But any capital gains above $250,000 are now included at a 66.67% (two-thirds) rate.
What does that mean in practice? If you sold an investment property and made a $400,000 capital gain, the first $250,000 would be included at 50% ($125,000 added to your income), and the remaining $150,000 would be included at 66.67% ($100,005 added to your income). Your total taxable capital gain would be $225,005 instead of the $200,000 it would have been under the old rules.
For most people who only have modest investment gains, this will not change anything. But if you are selling a property, a business, or have significant investment gains in a single year, it is worth running the numbers. Our capital gains tax calculator can help you figure out exactly what you will owe.
What About Provincial Changes?
Each province sets its own tax brackets, credits, and surtaxes. Most provinces also index their brackets for inflation each year, though a few (like Nova Scotia and PEI) have historically been slower to adjust. Ontario, for example, has its own set of brackets plus the Ontario Health Premium that kicks in at $20,000 of income.
The combined federal-provincial rate is what really matters for your take-home pay. In some provinces, the top combined rate is over 53%, while in others it is closer to 47%. Our salary calculator automatically factors in your province to give you an accurate picture.
What Can You Do About It?
Maximise your RRSP contributions. Every dollar you put into an RRSP reduces your taxable income. If you are near the top of a tax bracket, a well-timed RRSP contribution could bump you down to a lower bracket and save you real money. Check your contribution room on your CRA My Account. Our RRSP calculator shows you exactly how much tax you will save.
Use your TFSA. Any investment growth inside a TFSA is completely tax-free — no capital gains, no income tax on withdrawals. The 2025 TFSA contribution limit is $7,000. If you have not been contributing every year since you turned 18, you may have a lot of unused room. Use our TFSA calculator to see how your savings could grow tax-free.
Check your payslip. It sounds obvious, but many people have never actually looked at the breakdown on their pay stub. Make sure the deductions match what you expect. If something looks off, talk to your employer's payroll department. You can cross-reference with our payroll calculator to verify the numbers.
Plan around capital gains. If you are thinking of selling a property or investment, consider whether spreading the sale across two tax years could keep your gains below the $250,000 threshold in each year. This is not always possible, but when it is, it can save you thousands.
The Bottom Line
The 2025 tax year is not bringing any shocking surprises for most working Canadians. The bracket adjustments and higher BPA will put a little extra money in your pocket. CPP2 contributions will take a bit more off the top if you earn over $71,300. And the capital gains changes only matter if you have gains above $250,000 in a single year.
The best thing you can do is understand exactly where your money goes. Pop your salary into our free salary calculator and see a full breakdown of federal tax, provincial tax, CPP, and EI in about thirty seconds. Knowledge is the first step to keeping more of what you earn.