Canada reduces income tax in first cabinet meeting of Carney government. How will it benefit Indians there?

The first cabinet meeting of the Mark Carney government decided to reduce the income tax for 22 million Canadians starting from July 1. This will help some families to save up to $840 a year, according to a calculation given by the government. This would benefit the large Indian population living in Canada, who pay taxes there.

“Last month, Canadians called for change to bring down the cost of living and to put money back in their pockets. My government will be delivering that change­­—cutting taxes for the middle class and saving families up to $840 a year," PM Mark Carney said.

“With today’s middle class tax cut, we are setting the stage for economic growth by helping hard-working Canadians keep more of their paycheques to spend on the priorities that matter most to them," finance minister François-Philippe Champagne said.

"Every Canadian should be able to afford necessities, feel secure, and get ahead financially—and this tax cut will help them do just that. As Canadians continue to feel the impact of ongoing challenges including trade and tariff uncertainties, they should be able to keep more of what they earn to help build a stronger future and a more resilient Canada," the finance minister said.

How will the reduction be calculated?

To reflect a one-percentage-point cut in the lowest tax rate coming into effect halfway through the year, the full-year tax rate for 2025 will be 14.5 per cent and the full-year rate for 2026 and future tax years will be 14 per cent. The Canada Revenue Agency will update its source deduction tables for the July to December 2025 period so that pay administrators are able to reduce tax withholdings as of July 1. This means that, effective July 1, individuals with employment income and other income subject to source deductions could have tax withheld at 14 per cent. Otherwise, individuals will realize this tax relief when they file their 2025 tax returns in spring 2026.

The bulk of tax relief will go to those with incomes in the two lowest tax brackets (i.e., those with taxable income under $114,750 in 2025), including nearly half to those in the first bracket ($57,375 and below in 2025), the government site said.

Indians with middle-income jobs will benefit from the tax cut. If an Indian individual is a tax resident of Canada (determined by factors like time spent in Canada, residential ties, etc.), they are subject to Canadian income tax on their worldwide income. The tax cut will directly benefit those earning up to $57,375 in taxable income, reducing their federal tax liability. An Indian family in Canada with two earners, for example, each with taxable income in the lowest bracket, could save up to $420 per person annually (totaling $840 for a two-income household). This applies to many Indian immigrants working in middle-income jobs, such as those in retail, hospitality, or entry-level professional roles.