Tax Tip Thursday

Today we are going to talk about key tax numbers and some strategies to consider for 2026.

Key tax numbers and strategies to discuss with clients in 2026

Clients can make use of new TFSA contribution room and review income-splitting

The new year is an ideal time to review tax-planning opportunities with clients, from making use of new tax-free savings account (TFSA) contribution room to reviewing income-splitting strategies such as prescribed rate loans.

Here are some key tax changes and numbers for 2026:

2026 indexation rate and federal tax brackets

The federal indexation rate for tax brackets in 2026 is 2 per cent, down from 2.7 per cent in 2025. Increases to tax bracket thresholds take effect Jan. 1 of each year.

The federal government cut the rate on the lowest tax bracket to 14 per cent from 15 per cent on July 1, 2025. As the 1-percentage-point cut became effective halfway through last year, the full-year tax rate on the lowest tax bracket for 2025 is 14.5 per cent.

TFSAs

The annual contribution limit for 2025 remains at $7,000. The lifetime limit in 2026 for Canadians who were 18 or older when the TFSA was introduced in 2009 is now $109,000.

RRSPs

The maximum contribution limit for 2026 is $33,810, up from $32,490 in 2025. The contribution deadline for the 2025 taxation year is March 2.

OAS clawback

The Old Age Security (OAS) repayment threshold for 2026 begins at $95,323, up from $93,454 for 2025.

Retirees whose income was $93,454 or more in 2025 must pay an OAS recovery tax calculated at 15 per cent of the difference between their 2025 income and the OAS repayment threshold, to a maximum amount of the total OAS received.

Prescribed rate loan deadline

Couples who are using a prescribed loan strategy for income splitting should pay interest on any loan outstanding in 2025 by Jan. 30, to ensure the loan, and the interest rate on the loan, remain effective.

Attribution rules in the Income Tax Act generally prevent people from gifting money to a lower-income spouse for the purpose of income splitting. However, individuals can loan money to a lower-income spouse at the prescribed rate to allow the spouse to invest and take advantage of their lower tax rates.

The borrowing spouse should pay interest on a prescribed rate loan from an account in their name only to reduce the risk of the CRA challenging the transaction during an audit.

When the interest is paid from a couple’s joint account, the CRA “doesn’t know who’s actually paying – the lender or the borrower,”.

The CRA’s prescribed rate for the first quarter of 2025 is 3 per cent.

Bare trusts

Expanded trust reporting rules have been in effect since 2023. These extend to “bare trusts,” which are trusts in which a trustee’s only duty is to transfer property to a beneficiary on demand.

The CRA confirmed in December that bare trusts don’t have to file a tax return for 2025. (The government has already provided exemptions for 2023 and 2024 bare trusts.) However, they will be required to file for 2026 and future years.

Canada Pension Plan

The maximum pensionable earnings amount (the first earnings ceiling) for 2026 is $74,600, up from $71,300 last year.

Employees contribute 5.95 per cent (self-employed contribute 11.9 per cent) on earnings up to $74,600 to the CPP.

They also contribute 4 per cent (self-employed contribute 8 per cent) on earnings between the first earnings ceiling and the second earnings ceiling of $85,000 for 2026, up from $81,200 last year.

This translates into

$74,600 – premium – $4230

$85,000 – premium – $4646

Lifetime capital gains exemption

The lifetime capital gains exemption increases to $1.275-million in 2026, up from $1.25-million last year.

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Disclaimer:

This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.