2026 CRA Payroll Deduction Changes (July T4127)
What changed July 1, 2026 for BC, NL and PE provincial income-tax withholding. The 123rd Edition does not change the CPP or EI formulas.
Last updated August 2026
At a glance
- The CRA 123rd Edition takes effect July 1, 2026. CRA says to use the new provincial rates and constants beginning with the first payroll in July; Beanflow selects the July edition from the payroll run's pay date.
- The July provincial changes called out by CRA are in British Columbia, Newfoundland and Labrador, and Prince Edward Island. Other provinces and territories have no July change list in the 123rd Edition.
- The 123rd Edition says there is no July formula change for CPP or EI. The mid-year changes covered here are provincial income-tax changes.
- Payroll income tax still uses the same T4127 building blocks: annualized taxable income, tax brackets and constants, non-refundable tax credits, and (where applicable) surtax, health premiums, and tax reductions.
- Quebec is excluded. Quebec provincial tax is administered by Revenu Québec (TP-1015.3-V), not the CRA T4127 formulas covered here.
What is new in the 123rd Edition
The following updates are based on the CRA T4127 123rd Edition provincial sections (Table 8.1) and reflect the values Beanflow uses for pay dates on or after July 1, 2026. Where CRA provides prorated Option 1 amounts for a mid-year change, the values below already include that proration. Quebec is not listed because it follows Revenu Québec’s separate source deductions guide.
British Columbia
BC’s lowest personal income tax rate increased from 5.06% to 5.60% for 2026. Because the lower rate was used for the first six months, the CRA 123rd Edition applies a prorated catch-up rate for the second half of the year.
- July-to-December lowest rate (Option 1, prorated): 6.14%
- 2026 basic tax reduction: $690; July prorated amount: $805
- Tax reduction phase-out ends at: $44,952
Newfoundland and Labrador
NL increased the basic personal amount from $11,188 to $13,094 for 2026. The 123rd Edition uses a prorated Option 1 amount for payroll deductions in the second half of 2026.
- Basic personal amount (Option 1, prorated): $15,000
Prince Edward Island
PE introduced a new top provincial tax bracket of 20% on taxable income over $200,000 for 2026. Because the bracket did not exist in the first half of the year, the CRA 123rd Edition uses a prorated catch-up rate for July through December.
- New bracket: 21.00% on taxable income over $200,000 (Option 1, prorated)
Unchanged in July (including Yukon)
CRA states there is no July 1, 2026 change for Alberta, Manitoba, New Brunswick, Northwest Territories, Nova Scotia, Nunavut, Ontario, Saskatchewan, Yukon, or Outside Canada. Those jurisdictions keep the January 2026 tables for the second half of the year.
- Yukon continues to use its territorial employment credit (K4P), capped using the Canada employment amount of $1,501 — an ongoing 2026 parameter, not a new July change.
How payroll income tax is calculated
Canadian payroll withholding follows the CRA T4127 Payroll Deductions Formulas. The exact formula has more inputs than a simple tax-bracket calculator, so this is a conceptual map rather than a replacement for T4127 or the CRA Payroll Deductions Online Calculator. Quebec uses Revenu Québec’s separate source-deduction formulas.
- Build the annualized taxable-income input
T4127 annualizes the taxable pay and applies the payroll deductions and adjustments that belong in the formula. Pay frequency matters, and non-periodic payments can use different formula branches.
- Apply the tax brackets and constants
The annualized taxable-income input is run through the federal and applicable provincial or territorial tax brackets and constants.
- Apply non-refundable tax credits
The employee's TD1 claim amount, including the basic personal amount when applicable, feeds into a tax-credit calculation such as provincial K1P. CPP and EI credits and other jurisdiction-specific credits can also apply. The BPA is not subtracted directly from annualized pay to create taxable income.
- Apply province-specific adjustments
Where they apply, T4127 then accounts for items such as Ontario surtax and the Ontario Health Premium, or provincial tax-reduction formulas such as British Columbia's.
- Convert the result to the pay-period withholding
The annual tax result is converted to the amount withheld from the current payroll, with T4127's applicable rounding and other formula rules.
Why the BPA is a credit, not an income deduction
For an Ontario employee, do not calculate payroll tax by taking annualized pay and simply subtracting the Ontario BPA before applying the 5.05% bracket. T4127 first calculates tax from the annualized taxable-income input, then applies non-refundable credits based on the employee's TD1 claim amount and other applicable credit formulas.
For an exact paycheque result, use the current T4127 formula or CRA Payroll Deductions Online Calculator with the employee's actual pay, TD1 claims, CPP/EI history, deductions, and pay frequency.
2026 provincial basic personal amounts
The basic personal amount is used in the provincial non-refundable tax-credit calculation; it is not a deduction that is simply subtracted from gross or annualized pay. An employee's actual TD1 claim amount and other credits can change payroll withholding. Quebec is excluded from this table because it follows Revenu Québec’s source-deduction rules, not CRA T4127.
| Province / Territory | Basic personal amount | Indexation | Special notes |
|---|---|---|---|
| Alberta | $22,769 | 2.0% | — |
| British Columbia | $13,216 | 2.2% | Tax reduction credit applies |
| Manitoba | $15,780 | — | Reduced above $200,000 |
| New Brunswick | $13,664 | 2.0% | — |
| Newfoundland and Labrador | $15,000* | 1.1% | *123rd Edition Option 1 prorated value |
| Nova Scotia | $11,932 | 1.6% | Static BPANS for 2026 (two-tier formula removed) |
| Northwest Territories | $18,198 | 2.0% | — |
| Nunavut | $19,659 | 2.0% | — |
| Ontario | $12,989 | 1.9% | Surtax + health premium |
| Prince Edward Island | $15,000 | — | No PE indexing; new top bracket over $200,000 in 2026 |
| Quebec | N/A | N/A | Excluded — uses Revenu Québec TP-1015.3-V, not CRA T4127 |
| Saskatchewan | $20,381 | 2.0% | — |
| Yukon | $16,452 | 2.0% | $1,501 territorial employment credit |
CPP and EI
Income tax is only part of the withholding picture. Employers also deduct Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums.
- CPP: deducted on pensionable earnings under the applicable CPP/CPP2 rules and annual limits published in CRA payroll tables. The 123rd Edition does not change the CPP formula for July 2026.
- EI: deducted on insurable earnings up to the maximum annual insurable earnings. The Canada Employment Insurance Commission sets the annual premium rate; the 123rd Edition does not change the EI formula for July 2026.