The Canadian Taxpayers Federation is out with its annual New Year’s Tax Changes Report, which serves to inform Canadians about the tax changes they can expect to see as 2026 rolls around.
According to Federal Director Franco Terrazzano, this year’s suite of federal tax changes will result in a mixed bag for most taxpayers.
“There’s some good news and some bad news for taxpayers in 2026,” said Terrazzano. “The federal government cut income taxes, but it’s hiking payroll taxes. The government cancelled the consumer carbon tax, but it’s hammering Canadian businesses with a higher industrial carbon tax.”
Indeed, the highlight of the report for most Canadians will be that the federal government cut the lowest income tax rate from 15 per cent to 14 per cent earlier this year, which will save the average Canadian $190.
At the same time, however, payroll taxes are going up and will cost a worker up to an additional $262 next year.
Ottawa giveth with one hand and taketh away with another.
Payroll taxes are made up of both Canada Pension Plan contributions and Employment Insurance Premiums.
When it comes to the Canada Pension Plan, employees and employers will be required to pay $4,230 in 2026 for workers making $74,600 or more. Because the maximum pensionable earnings is going up from $71,300 in 2025, that represents a contribution increase of $196 for both employees and employers.
There is also a second Canadian Pension Plan tax, according to the Canadian Taxpayers Federation, which kicked in back in 2024. The maximum pensionable earnings is going up from $81,200 in 2025 to $85,000 in 2026, which will lead to an overall contribution increase of $20 for both employees and employers.
Although the employment insurance tax rate is being slightly reduced, the maximum insurable earnings is increasing, leading to an average tax increase of $46 for employees and $64 for employers. The maximum insurable earnings is increasing from $65,700 this year to $68,900 next year, while the tax rate drops from 1.64 per cent to 1.63 per cent.
News on the carbon tax front is also a mixed bag. While the consumer carbon tax was eliminated in 2025, saving drivers 17.6 cents per litre on gasoline, the industrial carbon tax remains in place and will increase to $110 in 2026. A higher industrial carbon tax means higher taxes for businesses, including on things like utilities, fertilizer, and natural gas production, which increases costs for Canadians.
Alcohol taxes are also expected to go up automatically. Ottawa’s alcohol escalator tax, which triggers increases in alcohol taxes without requiring a new vote in Parliament, will hit Canadians once again in April 2026. Federal alcohol taxes are expected to increase by two per cent on April 1, costing taxpayers an estimated $41 million in 2026.
The Carney government also eliminated GST for first-time home buyers on new homes up to $1 million, which will save taxpayers roughly $735 million in 2026. As well, the luxury tax was scrapped, saving taxpayers $26 million in 2026, as was the underused housing tax, saving taxpayers $30 million.
How about changes here in the province of Ontario?
Ontario indexes most of its tax brackets to inflation, but not the top two brackets. That means bracket creep hits those making $150,000 or more, because even though income goes up with inflation, Ontario’s upper tax brackets remain at a fixed value.
The CTF also notes that the Low-Income Individuals and Families Tax Credit is not indexed to inflation, so low-income Ontarians will see a slight increase in their income tax bills.
Finally, Ontario charges an Ontario Health Premium as a surtax on top of income taxes. The OHP kicks in when a taxpayer earns $20,000 and its bracket thresholds are not indexed to inflation. That means bracket creep will impact anyone earning over $20,000 through higher OHP premiums.
Like Ottawa, Queen’s Park decided to eliminate sales taxes on new homes for first-time homebuyers for homes valued up to $1 million and is reducing the provincial portion of the HST for first-time homebuyers on new homes valued between $1 million and $1.5 million. That will save taxpayers an anticipated $190 million in 2026.
With a new year comes new year’s resolutions. And, when it comes to government, tax hikes, too.
Jay Goldberg is the Canadian Affairs Manager at the Consumer Choice Center. He previously served as the Ontario Director at the Canadian Taxpayers Federation and a policy fellow at the Munk School of Public Policy and Global Affairs. Jay holds a Ph.D. in Political Science from the University of Toronto.
