Jerry
The 2025 tax season is bringing some major changes from the Canada Revenue Agency (CRA)—and they could impact your tax refund more than you expect.
From reduced federal tax rates to modifications in how non-refundable credits work, Canadians need to brace for what could be smaller refunds and adjusted paycheques.
This article breaks down the latest CRA updates, how they affect your personal income tax return, and how to prepare so you don’t end up owing money or missing out on a return.
Lower Federal Tax Rate in 2025 – But There’s a Catch
Starting July 1, 2025, the federal government is reducing the lowest personal income tax rate from 15% to 14%. However, since this takes effect mid-year, the blended tax rate for the 2025 calendar year will be 14.5%.
While this sounds like good news, there’s a twist. A lower tax rate means less tax withheld from your pay, so you’ll see larger paycheques starting in July. But less tax withheld also means you could receive a smaller tax refund when you file in spring 2026.
Reduced Value of Non-Refundable Tax Credits
The CRA calculates most non-refundable tax credits using the lowest federal tax rate. Because that rate is dropping to 14%, the value of credits like the Basic Personal Amount (BPA), spousal amount, caregiver amount, and others will be reduced.
Example:
- In 2024: BPA of $15,000 × 15% = $2,250 tax relief
- In 2025: BPA of $15,000 × 14.5% = $2,175 tax relief
- You lose: $75 in refund potential
This reduction applies to every non-refundable tax credit, including those for medical expenses, disabilities, tuition, and more. That’s why the total tax refund you typically count on may be noticeably smaller next year.
New CRA Payroll Deduction Tables
Employers will begin using new withholding tables starting July 1, 2025, to account for the 14% rate. This means:
- You’ll take home more pay starting in July
- Less tax will be deducted from your income
- You may owe tax or get a smaller refund when filing your 2025 return
If you rely heavily on your tax refund as a financial cushion, now is the time to consider adjusting your personal withholding amount or planning for the lower return.
Filing Dates and Tax Changes for 2025
Make sure you know the important CRA deadlines to avoid late filing penalties.
| Filing Type | Deadline |
|---|---|
| Standard return | April 30, 2026 |
| Self-employed taxpayers | June 15, 2026 |
| Online filing opens | February 24, 2026 |
Filing on time—even if you can’t pay your full balance—helps you avoid interest and late penalties.
How 2025 Changes May Affect You
| Change | Impact |
|---|---|
| Federal tax rate drops to 14% | Smaller tax refund, larger take-home pay |
| Blended rate for 2025 = 14.5% | Affects value of credits like BPA, disability credit |
| Reduced credit value | May lower your refund by $50–$150+ depending on claims |
| Updated CRA payroll tables | Mid-year pay increase, less tax withheld |
| Filing deadlines unchanged | Plan for April 30, 2026 for regular returns |
Refund Shrinking? Here’s What to Do
1. Estimate your 2025 refund early
Use online calculators to get a rough estimate based on the new 14.5% blended rate and credit reductions.
2. Adjust your withholdings
You can fill out a new TD1 form at work to have more tax deducted if you want a bigger refund later.
3. Track your credits carefully
If you rely on the disability amount, caregiver credit, or medical expense claims, note they will all offer less relief in 2025.
4. File on time, even if you owe
Avoid late penalties and interest by filing your return on time—even if your refund isn’t what it used to be.
While a lower federal tax rate in 2025 may initially seem like a win, it comes with hidden consequences—particularly for those who rely on a large tax refund.
The value of non-refundable credits is dropping, and less tax will be withheld from pay starting mid-year, leading to smaller returns next spring.
To avoid a surprise, be proactive. Review your tax situation now, adjust your withholdings if necessary, and keep track of the changing credit values. With good planning, you can stay ahead of the changes and protect your finances.
FAQs
Will my tax refund be smaller in 2025?
Yes, most likely. With the lowest federal tax rate dropping to 14%, the value of non-refundable credits decreases, which could reduce your refund.
Can I do anything to increase my refund next year?
You can increase your tax withholdings using a TD1 form or plan additional contributions to RRSPs, which reduce taxable income.
When do CRA’s new tax tables take effect?
Employers will begin using the new tax tables starting July 1, 2025, reflecting the new 14% federal rate.