The federal government’s proposal to reduce the lowest personal income tax rate by one percentage point to 14% will actually raise taxes for a small number of Canadians, the parliamentary budget officer (PBO) said in a report Thursday.
The report said the tax reduction will adversely affect less than 1% of single (19,690) and couple (19,420) tax filers in 2026. On average, this will increase their federal tax payable by an average of $141 and $155, respectively.
Those affected are either subject to the alternative minimum tax (AMT) or they have taxable income and the value of non-refundable tax credits exceeds the lowest income threshold, the PBO noted.
Those affected and subject to AMT will pay an average of $127 more in federal income tax ($132 for couples) in 2026.
Since the tax reduction proposed applies to the 15% rate (the lowest marginal rate), individuals subject to AMT will not benefit from the rate reduction since they face a flat rate of 20.5%. They will also receive a lower value of non-refundable credits as the income tax rate reduction is applied to non-refundable tax credits.
Those affected and not subject to AMT will pay an average of $166 more in federal income tax ($195 for couples). Of this group, 81% of single tax filers and 66% of couple tax filers have high medical expense claims. The medical expense tax credit isn’t capped and an individual can claim the medical expenses of the whole family.
Another tax credit linked to actual expenditure is the tuition tax credit, which affects 18% of single and 14% of couple tax filers who are not subject to AMT.