New Changes to Federal Tax Brackets

Effective Jan 1, 2025, the Federal tax bracket will increase by 2.7% allowing individuals to earn more income before being pushed into higher tax rates. This inflation-based adjustment means that even if your income remains unchanged from 2024 to 2025, you may find yourself paying less in taxes as a smaller portion of your earnings will be subject to higher rates.

Here are the new tax brackets:

  • 15% below $57,375 of income
  • 20.5% between $57,375 to $114,750 of income
  • 26% between $114,750 to $177,882 of income
  • 29% between $177,882 to $253,414 of income
  • Anything above that is taxed at 33%

Canada Pension Plan Contributions

In 2025, the Canada Pension Plan (CPP) is introducing significant changes that will impact both employed and self-employed individuals. The maximum CPP contribution for employees will rise to $4,034.10, from $3,867.50 in 2024, while self-employed individuals will see their maximum contribution increase to $8,068.20 from $7,735.

The changes include a new Year’s Maximum Pensionable Earnings (YMPE) of $71,300 and a second Year’s Additional Maximum Pensionable Earnings (YAMPE) of $81,200, which means higher-income earners will contribute more. These modifications aim to provide Canadians with more robust retirement income, ensuring greater financial security and increased pension benefits.

Claim the Dividend Tax Credit

Take advantage of the dividend tax credit in 2025. With tax brackets and credits in Canada indexed to inflation, you can receive eligible Canadian dividends of up to $53,375 if you do not have income from other sources. This can reduce your overall tax liability, as the dividend tax credit effectively lowers the tax rate on dividend income. Make sure to plan accordingly to maximize your tax benefits and to explore strategies that will optimize your situation.

RRSP Contribution Limit Increase

For 2025, the maximum RRSP contribution limit has risen to $32,490. With an increase of $930 from 2024. This will allow you to contribute more towards your retirements. Also consider making RRSP contributions to defer taxes on your income as your RRSP contribution gets deducted from your taxable income. 

TFSA Contribution Limit

In 2025, the Tax-Free savings account (TFSA) contribution limit will remain at $7,000 offering another year of tax-free investment growth. For individuals who have never contributed to a TFSA, you can contribute up to $102,000 if you were 18 or older and a Canadian resident since 2009.