Budget Alert - Higher Taxes Coming

Geoff Currier & Evelyn Jacks

The federal government has been testing the waters to gauge reaction to potential tax increases for high income earners in the next Federal budget, anticipated sometime this fall. On January 26, 2026, Public Safety Minister Gary Anandasangaree tabled Motion M-24 in the House of Commons. It proposes to create three new personal income tax (PIT) brackets for your wealthier clients. You may want to review this possibility as part of your year end tax planning discussions. Here’s what you need to know.

The Brackets: M-24 contemplates a 1% increase at each of the following thresholds: 

• Between $500,000 and $750,000 (inclusive) would face a federal PIT rate of 34 per cent;
• Between $750,000 and $1 million (inclusive) would face a federal PIT rate of 35 per cent; and,
• Above $1 million would face a federal PIT rate of 36 per cent.

 Taxpayers with incomes above $1 million would be subject to all three. 

The Math: The Parliamentary Budget Officer was asked by MP Don Davies to determine the impact of this proposed increase. Here’s the important news, even before the math is done:  the PBO findings suggest that the anticipated revenue would be reduced by behavioural changes on the part of those clients impacted by the increases.

Specifically, Anandasangaree’s motion anticipates revenue of $8.7 billion over a five-year period, beginning January 1, 2027.

The Impact on AMT: The PBO report suggests that “taxpayers would shift from paying Alternative Minimum Tax (AMT) to paying higher regular income tax liabilities under the proposal. In total, the interaction with the AMT is estimated to increase net federal revenues by $596 million in 2027.”  The report does not examine the potential loss of provincial tax revenue due to behavioural changes. 

The Behavioral Impact.  However, the PBO has calculated the shift in behaviour of those at the upper end of the income spectrum and concludes that the gains would be just over half of the government’s projections.

It says that “behavioural adjustments” would result in a loss or revenues via this measure by about $4.2 billion, or roughly 48% of the gross revenue.

As for what those behavioural changes could be the PBO states they could include “potential changes in labour supply, such as working fewer hours, declining promotions, bonuses or other forms of compensation, as well as tax planning and optimization strategies, including changes in the timing of income realization, reducing or deferring capital gains realizations, income shifting and other forms of taxable income adjustment. “

Brain Drain Again?  The report does not acknowledge the potential loss of high-income earners to Canada from those who choose to more tax friendly jurisdictions.  And that’s a shame, because brain drain is a real phenomenon.  Statistics Canada, in its publication, The Daily, May 24, 2000, noted:

• During the 1990s, Canada suffered a net loss of skilled workers to the United States in several key knowledge-based occupations - about 0.1% of all taxfilers in 1996, and less than 1% of the stock of workers in any specific knowledge occupation.But, the number of people leaving Canada for the United States and other countries grew steadily during the 1990s. These people tended to be better-educated than the population as a whole, and they were higher-income earners and individuals of prime working age.
• As a side-effect, the influx of highly skilled workers into Canada from abroad also declined.
• Canada gained four university graduates from abroad for every one it lost to the United States. But, sadly, as many immigrants who entered Canada with a master's degree or doctorate as university graduates at all levels, left for the United States.
• Those who had incomes between $100,000 and $150,000 were five times as likely to move.

The Bottom Line: The fact that this idea was presented as a motion, rather than a bill in the House of Commons, suggests that the government is going to be sensitive to the potential impact of a measure of this type. It’s still an issue you will want to keep an eye on for your higher income clients.

Tax Literacy Resource:  Invite your clients to listen to Real Tax News with Evelyn Jacks and Friends to understand their tax system better. Go to learn.knowledgebureau.com/courses/real-tax-news-podcast