Liberal Tax Cut to Raise Taxes for Nearly 40,000 Canadians, PBO Warns

The middle-class tax reduction proposal will adversely affect fewer than 1% of single and couple tax filers.

The federal government’s plan to decrease the lowest personal income tax rate by one percentage point to 14% will inadvertently result in higher taxes for a small segment of Canadians, the Parliamentary Budget Officer (PBO) stated in a report released on Thursday.

The PBO report indicates that the tax reduction will negatively impact less than 1% of both single tax filers (19,690 individuals) and couple tax filers (19,420 couples) in 2026. On average, this change will increase their federal tax payable by an average of $141 and $155, respectively.

The individuals affected are primarily those who are either subject to the Alternative Minimum Tax (AMT) or those whose taxable income and the value of non-refundable tax credits exceed the lowest income threshold, the PBO detailed.

Impact on Tax Filers Subject to AMT

Taxpayers who are subject to AMT will see their federal income tax increase by an average of $127 ($132 for couples) in 2026.

Since the proposed tax reduction applies to the 15% rate (the lowest marginal rate), individuals under the AMT framework will not benefit from the rate cut because they face a flat tax rate of 20.5%. Furthermore, they will receive a lower value for their non-refundable credits because the income tax rate reduction is applied to those credits.

Impact on Non-AMT Filers

Tax filers who are not subject to the AMT but are still negatively affected will pay an average of $166 more in federal income tax ($195 for couples).

Of this group:

• Medical Expenses: 81% of single filers and 66% of couple filers have high medical expense claims. The medical expense tax credit is uncapped and allows an individual to claim medical expenses for the entire family.

• Tuition Credit: The tuition tax credit, which is linked to actual expenditure, affects 18% of single and 14% of couple tax filers in this non-AMT group.