While every effort is made to ensure accuracy, it cannot be guaranteed. This source should not be considered expert financial advice. Please seek guidance from a professional or the CRA website for accurate information.
As we approach 2025, Canadians should be aware of several key updates to tax brackets, contribution limits, and benefit thresholds that will impact personal financial planning. Staying informed about these changes is essential for optimizing tax strategies and retirement savings.
Federal Tax Brackets for 2025
The Canada Revenue Agency (CRA) has adjusted federal income tax brackets for 2025 to account for a 2.7% inflation rate. The updated brackets are as follows:
- 15% on the first $57,375 of taxable income
- 20.5% on income over $57,375 up to $114,750
- 26% on income over $114,750 up to $177,882
- 29% on income over $177,882 up to $253,414
- 33% on income over $253,414
These adjustments mean that more of your income will be taxed at lower rates compared to previous years, potentially reducing your overall tax burden.
Basic Personal Amount (BPA)
The BPA—the income level at which individuals begin paying federal income tax—has increased to $16,129 for 2025. This enhancement is gradually reduced for individuals with net incomes above $177,882 and is fully phased out at incomes over $253,414, where the BPA reverts to $14,538.
Canada Pension Plan (CPP) Contributions
For 2025, the Year’s Maximum Pensionable Earnings (YMPE) will rise to $71,300, up from $68,500 in 2024. The basic exemption amount remains at $3,500. Employee and employer contribution rates stay at 5.95%, resulting in a maximum contribution of $4,034.10 each. Self-employed individuals will contribute at a rate of 11.9%, with a maximum contribution of $8,068.20.
Additionally, the Year’s Additional Maximum Pensionable Earnings (YAMPE) for 2025 is set at $81,200. Earnings between the YMPE and YAMPE ($71,300 to $81,200) are subject to an additional CPP contribution rate of 4% for both employees and employers, with a maximum contribution of $396 each. Self-employed individuals will contribute 8% on this income range, up to a maximum of $792.
Registered Retirement Savings Plan (RRSP) Limit
The RRSP contribution limit for 2025 has increased to $32,490, up from $31,560 in 2024. This limit is based on 18% of your earned income from the previous year, up to the annual maximum, and is subject to any pension adjustments.
Tax-Free Savings Account (TFSA) Limit
The TFSA contribution limit for 2025 remains at $7,000. This limit is determined by indexing to inflation and is rounded to the nearest $500 increment. The cumulative contribution room for someone who has been eligible since the TFSA’s inception in 2009 will be $102,000 in 2025.
Employment Insurance (EI) Premiums
The EI premium rate for employees in 2025 is set at 1.64% (1.31% for Quebec), applied to maximum insurable earnings of $65,700. This results in a maximum annual employee contribution of $1,077.48 ($860.67 for Quebec).
Old Age Security (OAS) Clawback Threshold
The OAS repayment threshold for 2025 is $93,454. Seniors with net incomes above this amount will see a reduction in their OAS benefits.
Prescribed Interest Rate
The prescribed interest rate for the first quarter of 2025 will decrease to 4%. This rate is used for calculating taxable benefits for employees and shareholders, low-interest loans, and other related-party transactions.
Conclusion
These updates reflect the CRA’s adjustments to accommodate inflation and economic changes. Canadians are encouraged to review their financial plans and consult with financial advisors to optimize tax strategies and retirement savings in light of these new parameters.