No First-Bracket Tax for Under-27s

Summary#

Bill 127 changes Ontario’s personal income tax rules for young adults. It sets the Ontario tax on the lowest tax bracket to $0 for people under age 27 at the start of the tax year. The goal appears to be lowering taxes for young workers early in their careers. The measure expires after five years unless the Legislature renews it.

• Main change: For individuals under 27 on the first day of the tax year, Ontario sets the tax owing on the lowest tax bracket (the first slice of taxable income) to $0.
• Timing: Applies to taxation years ending after December 31, 2026 (for most people, the 2027 tax year and after).
• Age test: If you are under 27 on January 1 of the tax year, you qualify for that whole year. If you turn 27 before the year starts, you do not.
• Sunset: The measure is automatically repealed five years after Royal Assent unless the Assembly passes a resolution to keep it. It must be renewed every five years to continue.
• Transition: If it is repealed mid‑cycle, it still applies for the tax year in which the repeal happens.
• Scope: This affects only Ontario personal income tax. It does not change federal income tax.

What it means for you#

• Young workers and students (under 27)

  • You would pay no Ontario tax on the portion of your taxable income that falls in the lowest tax bracket. You would still pay normal Ontario rates on income above that bracket.
  • Your take‑home pay over the year could increase, or you could get a larger refund at tax time.
  • If you are under 27 on January 1, you qualify for that entire tax year, even if you turn 27 later in the year.
  • If your income is very low and you already pay little or no Ontario tax, the change may have a small effect.
  • This does not change federal tax or other deductions.

• Employers and payroll providers

  • You may need to update payroll systems and withholding once government updates tax tables to reflect a $0 rate on the lowest bracket for eligible employees.
  • You may need to capture or confirm employees’ birthdates to apply correct withholding. The bill does not set out payroll procedures.

• Tax filers and preparers

  • Tax software and forms would need to apply a $0 Ontario rate to the lowest bracket for eligible filers starting with 2027 returns.
  • Records proving date of birth will matter if the return is reviewed.

• Most other residents

  • The change mainly affects how some people’s Ontario income tax is calculated. It does not change day‑to‑day public services directly.

Expenses#

The bill would reduce Ontario personal income tax revenue; no estimate is provided in the supplied material.

• Lost revenue: Ontario would forgo the tax that would otherwise be collected on the lowest bracket from taxpayers under 27. The amount depends on how many people qualify and their incomes. No publicly available estimate.
• Administration: The province would need to update tax forms, guidance, and systems. Employers and software providers would also need updates. No publicly available information on these costs.

Proponents' View#

• The bill appears intended to boost take‑home pay for young adults at the start of their working lives.
• Setting the lowest bracket to $0 for eligible filers could make early career work more rewarding without creating a new, complex credit.
• A clear age test (under 27 on January 1) is simple to apply for a full tax year.
• The five‑year sunset with required renewals could be seen as ensuring periodic review to confirm the policy is still needed.

Opponents' View#

• One concern is fairness: the benefit is based on age, not income, so higher‑earning people under 27 also get the break on the first bracket, while low‑income people over 27 do not.
• The change reduces provincial revenue, which may require offsetting measures or affect funding for programs. No estimate is provided.
• There is a “cliff” at age 27: taxpayers can lose the benefit entirely the year they are 27 on January 1.
• Implementation may add complexity for payroll and filing (tracking eligibility by age and updating systems), at least in the first year.
• The sunset creates uncertainty for taxpayers and employers about whether the measure will continue after five years.
• The bill does not change federal tax, so the overall impact on a young worker’s total tax bill may be modest for some, especially those with very low incomes.