The CRA tax brackets are changing in 2025! If your salary stays the same, you might pay slightly less tax next year. This is because the federal government adjusts tax brackets every year to match inflation, which helps prevent something called “bracket creep.” Bracket creep happens when you move into a higher tax bracket without actually earning more in real terms.
For 2025, the CRA tax brackets are increasing by 2.7%. This is based on the Consumer Price Index (CPI) for the 12 months ending in October 2024. Let’s dive into what these new brackets mean for you and how you can use tools like a TFSA (Tax-Free Savings Account) to save on taxes now and in the future.
What Are the CRA Tax Brackets for 2025?
Here are the new CRA tax brackets for 2025 and the tax rates that apply to each bracket:
- $57,357 or less: 15%
- $57,357.01 to $114,750: 20.5%
- $114,750.01 to $177,882: 26%
- $177,882.01 to $253,414: 29%
- Over $253,414: 33%
These changes are small compared to last year, so they won’t affect most Canadians too much. However, even small adjustments can help reduce your taxes slightly if your income doesn’t increase.
How to Avoid a Higher Tax Bracket in 2025
If you’re worried about moving into a higher tax bracket, there are ways to lower your taxable income while still growing your wealth. One of the best tools for this is a Tax-Free Savings Account (TFSA).
Why Use a TFSA?
A TFSA allows your investments to grow tax-free. You won’t pay taxes on the income your investments earn, whether it’s interest, dividends, or capital gains. This can help you:
- Reduce your taxable income: By holding investments in a TFSA, you won’t have to report that income on your tax return, which keeps you in a lower tax bracket.
- Save for retirement: A TFSA isn’t just for short-term savings. You can use it to build wealth for retirement without worrying about paying taxes when you withdraw the money.
- Avoid bracket creep: If your income is close to the next tax bracket, keeping investment income in a TFSA can help you avoid paying higher taxes.
TFSA Benefits in Retirement
A TFSA is not only useful while you’re working—it’s also a great tool in retirement. Withdrawals from a TFSA are not considered taxable income, which means they won’t affect your eligibility for government benefits like Old Age Security (OAS) or trigger the OAS clawback.
Final Thoughts on CRA Tax Brackets and TFSA Savings
The CRA tax brackets for 2025 provide small tax relief for many Canadians, but planning ahead can make an even bigger difference. Using a TFSA is a smart way to save on taxes now and ensure you’re financially secure in retirement. Whether you’re saving for a big goal or just want to keep more of your hard-earned money, a TFSA can help you achieve that without pushing you into a higher tax bracket.
If you want to learn more about tax planning and saving for retirement, consider speaking with a financial planner or checking out my book, The Art of Retirement. Smart planning today means more financial freedom tomorrow!
