2025 Changes to Canadian Payroll for Dynamics GP

January 23rd, 2026

By Debra Huntly, Senior Dynamics GP Solution Specialist

As we approach year-end, Canadian organizations using Microsoft Dynamics GP Payroll should prepare for several important tax changes. We have been given a tentative date of arrival for December 17, 2025. If you have not already booked your tax update, please contact your Account Manager.

Note: Not all information is available at the time of writing. These documents will be updated as new details are released.

Key Changes

Federal

Lowest Federal Tax Rate: The lowest federal tax bracket drops to 14%, completing the reduction that we saw in July 2025.

Indexing: Federal, Provincial, and territorial amounts are now indexed to the Consumer Price Index (CPI), ensuring annual adjustments for inflation.

Provincial

Alberta

If you did not install the July update, the tax rate bracket will be reduced.

Manitoba

Manitoba Basic Personal Amount (BPAMB) will be $15,780. Income tax brackets will be indexed.

Nova Scotia

Nova Scotia Basic Personal Amount (BPANS) is now set at the maximum, regardless of taxable income.

Prince Edward Island

Basic Personal Amount (BPA) increased to $15,000.

Saskatchewan

Basic personal exemption, spousal and equivalent-to-spouse exemption, dependent child exemptions, and senior supplementary amounts will increase by $500 each year for the next four years. BPA will reach $20,381.

British Columbia

BPA increased to $13,216 from $12,932.

Ontario

BPA increased to $12,989 from $12,747.

New Brunswick

BPA increased to $13,664 from $13,396.

Newfoundland

BPA increased to $11,188 from $11,067.

Northwest Territories

BPA increased to $18,198 from $17,842.

Yukon

BPA increased to $16,452 from $16,129.

Quebec

BPA increased to $18,952 from $18,571.

Note: If you did not install July’s tax update you will see some additional changes.

Microsoft Fixes Included in This Update

Microsoft has provided several fixes in this update for the following issues:

Canadian Payroll ROE Insurable Hours does not round Box 15A.
CRA rejected T4 XML for the 2024 year for all files – Transmitter and REP number changes.
Canadian Payroll T4 requirement and XML for Indian Act RPP contributions and Union dues (Codes 94 and 95).
CRA rejected T4 XML for the 2024 year due to postal code checks (zip code).
Canadian Payroll T4 Summary report needs to split CPP2 Box 16A and 16 (similar to other reports).

T4 XML Submission Rejection

When submitting your T4 XML file to the CRA, you may receive an error indicating that the file format is invalid. This is likely tied to the Employment Code field.

A rejection message stating an XML file submission failed due to a schema validation error, with details about the line and value causing the issue. Sensitive information is redacted.

The CRA has updated its XML requirements so that optional fields must be omitted entirely if they do not contain a value. This change affects the <empt_cd> (Employment Code) tag.

Most organizations do not use employment codes, so the XML often includes: <empt_cd>00</empt_cd>.

Because the field is optional, the CRA now rejects XML files that include the tag when the value is 00. If the field contains a valid employment code (11, 12, 13, 14, 15, 16, 17), the tag should remain.

To correct the file:

Create a backup of your XML file.
Open the file in Notepad or another text editor.
Search for <empt_cd>00</empt_cd>.
Remove the entire line everywhere it appears.
Save the file.

If you use search-and-replace to remove the lines, it may leave blank lines in the XML.

To clean these up, you can:

Manually delete the empty lines, or
Use Notepad++:
- Go to Edit > Line Operations > Remove Empty Lines
- If necessary, use Remove Empty Lines (Containing Blank Vjaracters)

After removing the blank lines, save the file again and resubmit it to the CRA. The file should now validate correctly.

Notes

Avoid altering any other formatting in the XML file. Adding or removing spaces, characters, or extra line breaks (even at the end of the file) can cause the CRA to reject the submission.
If you need Notepad++, you can download it here.

Doing Tax Updates

If you are doing your own tax update, please see our 2025 Year End Payroll Procedures document for updating tax credit amounts and running T4s.

Reporting Changes

RL-1: Will see both XML and Form changes.
T4: Will see both XML and Form changes.
T4A: Will see only XML changes.

You can find additional information in the following links:

If you require assistance with your tax update, please contact your Encore Account Manager as soon as possible.

If you have any questions about Canadian Payroll in Dynamics GP, feel free to get in touch with us.

Author

Debra Huntly

Specializing in all things Dynamics GP, Debra helps customers through every phase of their investment from the discovery phase through implementation and training. Debra holds several advanced certifications in Microsoft Dynamics GP and has extensive hands-on experience in payroll and HR processes. She can quickly provide help with sales, purchase orders, distribution, payroll and is Encore’s go-to expert for the Management Reporter module. Her expertise in Excel allows her to quickly teach customers how to transform the data gathered by Dynamics GP into meaningful intelligence.