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With the party leaders’ debates now behind us, and the federal election just days away, what better time to take a brief look at a few of the more interesting tax policies announced by three of the major parties.

Lowest tax bracket

Both the Liberal Party of Canada and the Conservative Party of Canada have pledged to drop the tax rate for the lowest tax bracket. For 2025, that federal bracket is income below $57,375. The Liberals plan to reduce that rate by one percentage point, to 14 per cent from the current rate of 15 per cent, while the Conservatives have promised to drop the rate for that bracket to 12.75 per cent.

The Liberal cut would take effect on July 1, 2025, and, according to the party, would save dual-income families $825 annually. The Conservative tax cut promises to deliver the average Canadian worker who has $57,000 of earnings $900 in tax savings, with two-income families saving $1,800 annually.

But some experts have questioned whether those numbers are accurate, absent further tax changes not yet announced. In a memo published last week entitled Missing Detail: Tax Savings Lower than Advertised, authors Alexandre Laurin and Nick Dahir of the C.D. Howe Institute calculated that, on average, taxpayers would save only $180 per year under the Liberals’ 14 per cent rate, and $405 per year under the Conservatives’ 12.75 per cent rate.

The reason for the reduced tax savings is as a result of the way in which most of our federal non-refundable credits are calculated. As a reminder, income taxes are determined by first multiplying taxable income by the various applicable graduated tax rates, and then subtracting from that result the value of various non-refundable tax credits such as the basic personal credit, age credit, pension income credit, and medical expense credit (among many others).

The Income Tax Act establishes the method for calculating these non-refundable tax credits by applying an “appropriate percentage” to eligible amounts. That appropriate percentage is defined as the lowest rate of the tax bracket schedule. What that means is that lowering the lowest tax rate would indeed reduce tax, but would also reduce the value of most non-refundable credits.

If the new government decides to lower the rate applicable to the lowest federal bracket, and wants Canadians to realize the full tax savings promised in their campaigns, it will need to either change the way most of the non-refundable credits are calculated under the Tax Act, or perhaps increase the basic personal amount (BPA) to compensate for the value of the reduced credits.

Basic personal amount

The New Democratic Party has pledged to raise the BPA to $19,500, but only for lower-income earners. Currently, the BPA for 2025 is $16,129 meaning an individual can earn up to this amount in 2025 before paying any federal income tax. But higher-income earners don’t get the full BPA, as there is an income test. The enhancement to the BPA, introduced back in 2020, is gradually reduced, on a straight-line basis, for taxpayers with net incomes above $177,882 (the bottom of the fourth tax bracket for 2025) until it has been fully phased out once a taxpayer’s income is over $253,414 (the threshold for the top tax bracket in 2025). Taxpayers in that top bracket who lose the enhancement currently still get the “old” BPA, indexed to inflation, which is $14,538 for 2025.

Deferral of capital gains

While both the Liberals and Conservatives have vowed to keep the 50 per cent inclusion rate for capital gains, the NDP vowed to reintroduce the capital gains inclusion rate increase that the Liberals cancelled, bumping it up to 66 per cent.

The Conservatives, on the other hand, have taken a novel approach to the capital gains tax by proposing a deferral of the tax payable on any capital gain when the proceeds are reinvested in a Canadian asset. They are calling it the “Canada First Reinvestment Tax Cut,” which provides that any person or business selling an asset will pay no capital gains tax when they reinvest the proceeds in Canada. Companies that reinvest in active Canadian businesses will also be able to defer any capital gains tax. These gains will still be taxed later on when investors cash out or move the money out of Canada. The break would be available on any reinvestments done until the end of 2026, but could be made permanent if it “causes a major economic boom,” which is at least what one expert has predicted.

Jack M. Mintz, the President’s Fellow of the School of Public Policy at the University of Calgary, called the proposal “consequential.” In an analysis published earlier this month, he calculated that Canada’s capital stock could rise by $12.4 billion, GDP by $90 billion, and employment by 280,000 until 2026 under this proposal.

“Significant dynamic economic benefits can be realized by providing capital gains rollovers. Since capital gains taxes are applied only when assets are sold, investors and businesses tend to hold less profitable assets for longer periods of time in order not to trigger capital gains assets. Known as the lock-in effect, productivity is undermined since less capital becomes available for new opportunities that would yield better returns,” wrote Mintz in his analysis.

Wealth tax

Finally, the NDP announced its intention to bring in a wealth tax. Under their proposal, “super-rich multi-millionaires” with more than $10 million in wealth would face a new wealth tax of one per cent for wealth between $10 million and $50 million, two per cent from $50 million to $100 million, and three per cent for households with net worth of more than $100 million. The NDP first proposed this idea in the 2019 campaign platform, applying it to Canadians with more than $20 million in wealth.

Wealth taxes are not common around the world as they typically collect little revenue, are hard to administer, and disincentivize entrepreneurship, harming innovation and long-term growth, according to an OECD report. In 2025, only three European countries levy a net wealth tax: Norway, Spain, and Switzerland. France, Italy, Belgium, and the Netherlands levy wealth taxes on selected assets, but not on an individual’s net wealth according to research from the Tax Foundation Europe.

Jamie Golombek, FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Estate Planning with CIBC Private Wealth in Toronto. [email protected].

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