The CRA has published its mid-year payroll deductions update, effective July 1, 2026. Unlike last year's update, there are no federal changes this time. The changes are provincial only, affecting British Columbia, Newfoundland and Labrador, and Prince Edward Island. Here is a plain-English breakdown of what is new and who it affects.
No federal, CPP, or EI changes
First, the good news for most of the country: the federal tax formulas, CPP, and EI are all unchanged for the second half of 2026. The 14% lowest federal rate that took full effect in January carries on as-is. If your employees are outside BC, Newfoundland and Labrador, or PEI, nothing about their paycheque changes this July.
British Columbia: lowest tax rate goes up
BC is the big one this year, and unlike most mid-year changes, this one is a tax increase. The province is raising its lowest personal income tax rate from 5.06% to 5.60% for 2026 and beyond.
Because employers used the lower 5.06% rate for the first half of the year, payroll systems will apply a prorated rate of 6.14% from the first July payroll through December to balance out the full year. This applies to income under $50,363.
BC is also increasing its tax reduction credit for low-income earners, from $562 to $690 per year. Since the indexed amount of $575 was used for the first six months, a prorated amount of $805 applies for the second half. The reduction phases out for net income between $25,570 and $44,952.
What this means for employees: Most BC employees will see a slightly higher provincial tax deduction on each paycheque for the rest of the year. Lower-income earners are cushioned by the bigger tax reduction credit.
Newfoundland and Labrador: basic personal amount jumps
NL is increasing its Basic Personal Amount from $11,188 to $13,094, retroactive to January 1, 2026. Since employees received the lower amount for the first six months, a prorated BPA of $15,000 applies from July onward to compensate.
Employees do not need to file a new TD1NL. If they submitted one before July 1 with the lower amount, the prorated amount applies automatically.
What this means for employees: NL employees will see a lighter provincial tax deduction on every paycheque for the rest of the year.
Prince Edward Island: new top tax bracket
PEI is introducing a new income tax bracket for 2026 and beyond: taxable income above $200,000 is now taxed at 20%. Since the first half of the year used the old top rate, a prorated rate of 21% applies on income over $200,000 from July through December.
What this means for employees: Only high earners are affected. Anyone making under $200,000 sees no change.
Looking ahead to January 2027
The CRA also flagged two upcoming changes worth knowing about now:
- CPP rate cut: The federal government intends to reduce the base CPP contribution rate effective January 1, 2027. For employees and employers, the rate would drop from 4.95% to 4.75% (5.95% to 5.75% including the first additional contribution). This would be the first CPP rate cut in decades.
- BC indexation pause: BC is pausing inflation indexing of its tax brackets and credits at 2026 levels for the 2027 through 2030 tax years.
The takeaway
- Federal, CPP, EI: No changes
- British Columbia: Lowest rate rises to 5.60% (prorated at 6.14% for the rest of 2026); tax reduction credit increases to $690 (prorated at $805)
- Newfoundland and Labrador: BPA increases to $13,094 (prorated at $15,000 for the rest of 2026)
- Prince Edward Island: New 20% bracket on income over $200,000 (prorated at 21% for the rest of 2026)
- Everywhere else: No changes for Alberta, Manitoba, New Brunswick, Northwest Territories, Nova Scotia, Nunavut, Ontario, Saskatchewan, or Yukon
PayCub is ready for July 1
The updated formulas for BC, Newfoundland and Labrador, and PEI are built and tested. Every pay run dated July 1 or later automatically uses the new rates and prorated amounts. No settings to change, nothing to update on your end.