By Canada Life Investment Management | November 5, 2025
Wilmot George Jr., Managing Director, Tax and Estate Planning, Canada Life Private Wealth,
Richard Chang, Director, Tax and Estate Planning, Canada Life Private Wealth
Canada’s Finance Minister, The Honourable François-Philippe Champagne, tabled the 2025 federal budget on Nov. 4, 2025, the first budget for Prime Minister Mark Carney’s government.
According to the Budget, after growing by more than 2% in the second half of 2024, real GDP in Canada rose at an annualised pace of 0.2%. Growth reached 2.0% in the first quarter of 2025 but contracted by 1.6% in the second quarter, as trade activity brought forward in the two previous quarters unwound and new tariffs came into effect.
The Canadian economy has shown resilience, however, and private sector forecasters expect modest growth to resume in the second half of 2025 with annualised real GDP growth of 0.2% and 0.9% in the third and fourth quarter, respectively. Tariffs and supply chain disruptions are expected to drag on business investment and productivity. Combined with slower population growth, the level of real GDP is projected to be 1.8% below what was anticipated in the 2024 Fall Economic Statement (FES) before the trade conflict. Budget 2025 forecasts a deficit of $78.3 billion, or 2.5% of GDP, for 2025-26, falling to 1.5% of GDP by 2029-30. The federal debt-to-GDP ratio is expected to remain stable across the horizon.
From a tax perspective, there were no changes to personal or corporate income tax rates. The Budget did include a new Personal Support Workers tax credit, tightened anti-avoidance rules for the 21-year deemed disposition rule for personal trusts and a confirmation that bare trust reporting won’t be required for the 2025 tax year.
The following is a summary of significant tax measures and other proposals announced in the budget. These measures will remain proposals until passed into law by the government.
Personal income tax rates and tax bracket
Tax brackets and other amounts have been indexed by 2.7% to recognize the impact of inflation. The table below shows federal personal income tax rates and brackets for 2025.
2025 tax rates
|
Taxable income range |
Other income |
Capital gains |
Eligible dividends |
Non-eligible dividends |
|---|---|---|---|---|
| First $57,375 | 14.50% | 7.25% | 0.00% | 6.29% |
| Over $57,375 - $114,750 | 20.50% | 10.25% | 7.56% | 13.19% |
| Over $114,750 - $177,882 | 26.00% | 13.00% | 15.15% | 19.52% |
|
Over $177,882 - $253,414 |
29.31% | 14.66% | 19.72% |
23.33% |
| Over $253,414 | 33.00% | 16.50% | 24.81% | 27.57% |
The table below shows the highest marginal federal tax rates for various types of income in 2025.
|
Income type |
2025 tax rates |
|---|---|
| Regular income | 33.00% |
| Capital gains | 16.50% |
| Eligible dividends | 24.81% |
| Non-eligible dividends | 27.57% |
Personal support workers tax credit
Budget 2025 proposes to introduce a temporary Personal Support Workers tax credit, which would provide eligible personal support workers working for eligible health care establishments with a refundable tax credit of 5% of eligible earnings, providing a credit value of up to $1,100.
Eligible personal support worker
A number of conditions would need to be met to be considered an eligible personal support worker. The person must ordinarily provide one-on-one care and essential support to optimise and maintain another individual’s health, well-being, safety, autonomy, and comfort, consistent with that individual’s health care needs as directed by a regulated health care professional or a provincial community health organization. The person’s main employment duties must include helping patients with activities of daily living and mobilization.
Eligible health care establishment
Eligible health care establishments would include hospitals, nursing care facilities, residential care facilities, community care facilities for the elderly, home health care establishments and other similar regulated health care establishments.
Eligible earnings
Eligible earnings would include all taxable employment income, including wages and salaries and employment benefits (as well as similar tax-exempt income and benefits earned on a reserve) that is earned as an eligible personal support worker performing employment duties for eligible health care establishments. Amounts earned in British Columbia, Newfoundland and Labrador and the Northwest Territories will not be eligible, as these jurisdictions have signed bilateral agreements with the federal government which provide funding over five years to increase personal support workers’ wages. Employers would need to certify their employees’ eligible earnings in prescribed form and manner.
Individuals would need to file a tax return to be eligible for this refundable tax credit and the measure would apply to the taxation years between 2026 and 2030.
Budget 2025 proposes to amend the Income Tax Act to grant the Canada Revenue Agency (CRA) the discretionary authority to file a tax return for a taxation year on behalf of an individual (other than a trust) who meets all the following criteria:
- The individual’s taxable income for the taxation year is below the lower of either the federal basic personal amount or provincial equivalent (plus the age amount and/or disability amount, where applicable).
- All income of the individual for the taxation year is from sources for which specified information returns have been filed with the CRA.
- At least once in the preceding three taxation years, the individual has not filed a return.
- The individual has otherwise not filed a return for the taxation year before, or within 90 days following, the tax filing deadline for the year.
- Any other criteria, as determined by the Minister of National Revenue.
Before filing a return on behalf of an eligible individual, the CRA would provide the individual with the information it has available at the time in respect of their tax return. The eligible individual would have 90 days to review the information and submit changes to the CRA. If the eligible individual doesn’t confirm the information (with or without changes) by the end of the 90 days, the CRA could file a tax return on the individual’s behalf. The CRA would then issue a notice of assessment and subsequently determine and issue the individual’s credit and benefit entitlements.
This measure would apply to the 2025 and subsequent taxation years and individuals would be able to opt out of automatic tax filing.
Top-Up tax credit
The rate applied to most non-refundable tax credits is based on the first marginal personal income tax rate. The middle-class tax cut announced in May 2025, and included in Bill C-4, currently before Parliament, would reduce the first marginal personal income tax rate, and thus the rate applied to most non-refundable tax credits, from 15% to 14.5% for the 2025 taxation year, and to 14% for the 2026 and subsequent taxation years.
In cases where an individual’s non-refundable tax credit amounts exceed the first income tax bracket threshold ($57,375 in 2025), the decrease in the value of these credits may exceed their tax savings from the rate reduction. This could happen in circumstances where an individual claims a large one-time expense, such as amounts for high tuition or medical expenses, or claims a combination of large tax credits. In some cases, these claims are for both themselves and a dependant, or include amounts carried forward from previous years.
To prevent this and to help Canadians transition to the lower credit rate, Budget 2025 proposes to introduce a new non-refundable Top-Up tax credit. The credit would effectively maintain the current 15% rate for non-refundable tax credits claimed on amounts in excess of the first income tax bracket threshold. The Top-Up tax credit would apply for the 2025 to 2030 taxation years.
Qualified investments for registered plans
Budget 2024 invited stakeholders to provide suggestions on improving the clarity and coherence of the qualified investments regime for seven types of registered plans: registered retirement savings plans (RRSPs), registered retirement income funds (RRIFs), tax-free savings accounts (TFSAs), registered education savings plans (RESPs), registered disability savings plans (RDSPs), first home savings accounts (FHSAs), and deferred profit sharing plans (DPSPs). The qualified investment regime governs what these plans can invest in. A broad range of assets are qualified investments, including mutual funds, publicly traded securities, government and corporate bonds and guaranteed investment certificates.
Based on feedback received through the consultation process, Budget 2025 proposes the following amendments to simplify, streamline, and harmonise the qualified investment rules.
Small business investments
Budget 2025 proposes to simplify and streamline the rules relating to registered plan investments in small businesses, while maintaining the ability of registered plans to make such investments. In particular, a more broadly applicable first set of rules would be maintained and extended to RDSPs, while a second set of rules would be repealed. As a result,
- RDSPs would be permitted to acquire shares of specified small business corporations, venture capital corporations and specified cooperative corporations; and
- Shares of eligible corporations and interests in small business investment limited partnerships and small business investment trusts would no longer be qualified investments.
These amendments would come into effect on Jan. 1, 2027. Interests in small business investment limited partnerships and small business investment trusts that are acquired before 2027 under the current rules would continue to be qualified investments. It’s intended that shares of eligible corporations would continue to be qualified investments under the rules relating to specified small business corporations that would be maintained.
Registered investment regime
Registered investments are qualified investments for all registered plans. For a corporation or a trust to be a registered investment, it must be registered with the CRA . Budget 2025 proposes to replace the registered investment regime with two new categories of qualified investments which don’t involve registration:
- Units of a trust that is subject to the requirements of National Instrument 81–102 published by the Canadian Securities Administrators (which regulates certain mutual funds and non-redeemable investment funds); and
- Units of a trust that is an investment fund (as defined in existing tax rules) managed by a registered investment fund manager as described in National Instrument 31–103 published by the Canadian Securities Administrators.
It’s generally expected that units or shares of funds that were registered investments would continue to qualify, either under existing rules or under one or both of the new categories of qualified investment trusts. The registered investment regime would be repealed as of Jan. 1, 2027. The new qualified investment trust rules would apply as of Budget Day.
Information sharing – worker misclassification
Budget 2024 announced that Employment and Social Development Canada (ESDC) and the CRA would enter into data-sharing agreements to facilitate inspections and enforcement to address worker misclassification. The misclassification of employees as independent contractors is of particular concern in the trucking industry. ESDC recently began sharing information with the CRA, but information-sharing restrictions in the tax rules prevent the CRA from sharing the required information with ESDC.
Budget 2025 proposes to amend the information sharing provisions of the Income Tax Act and the Excise Tax Act to allow the CRA to share taxpayer information (under the Income Tax Act) and confidential information (under the Excise Tax Act) with ESDC for the purposes of the administration and enforcement of the Canada Labour Code as it relates to the classification of workers. This measure would come into force on royal assent of the enacting legislation.
Home Accessibility Tax Credit
The Home Accessibility Tax Credit is a non-refundable tax credit that applies at the lowest personal income tax rate on up to $20,000 of eligible home renovation or alteration expenses per calendar year. Expenses must be incurred to improve the safety, accessibility, or functionality of an eligible dwelling of a qualifying individual who is aged 65 or older or eligible for the Disability Tax Credit.
The Medical Expense Tax Credit is a non-refundable tax credit that applies at the lowest personal income tax rate on the amount of qualifying medical and disability-related expenses in excess of the lesser of $2,834 (for 2025) and 3% of the claimant’s net income. Medical Expense Tax Credit-eligible expenses include certain costs to build or renovate a home to improve access or mobility for persons with disabilities.
Currently, if the eligibility criteria for both credits are met, taxpayers can claim both credits in respect of the same expense. Budget 2025 proposes to amend the Income Tax Act such that an expense claimed under the Medical Expense Tax Credit can’t also be claimed under the Home Accessibility Tax Credit. This measure would apply to the 2026 and subsequent taxation years.
21-year rule
Personal trusts are generally deemed to have disposed of their capital property and certain other property for fair market value proceeds on the 21st anniversary of their creation, and every 21st anniversary thereafter (the “21-year rule”). This prevents personal trusts from being used to indefinitely postpone tax on accrued gains.
Where property is transferred by a trust on a tax-deferred basis to a new trust, a rule prevents the avoidance of the 21-year rule. In that case, the new trust essentially inherits the earlier 21-year anniversary of the old trust. This ensures that the transferred property remains subject to the same 21-year period that applied to the old trust.
Certain tax avoidance planning techniques have been employed to transfer trust property indirectly to a new trust to avoid both the 21-year rule and the anti-avoidance rule. For example, this planning may involve trust property being transferred on a tax-deferred basis to a beneficiary that is a corporation owned by a new trust. This planning seeks to do indirectly what cannot be done directly.
Budget 2025 proposes to broaden the current anti-avoidance rule for direct trust-to-trust transfers to include indirect transfers of trust property to other trusts. This measure would apply in respect of transfers of property that occur on or after Budget Day.
Canada Carbon Rebate
The Canada Carbon Rebate (CCR) is the main mechanism for returning proceeds from the federal fuel charge directly to Canadians residing in provinces where the charge applied, provided they meet eligibility requirements (including filing a tax return). With the removal of the federal fuel charge as of April 1, 2025, the government provided a final quarterly CCR payment starting in April 2025 to eligible households.
To support the winding down of mechanisms to return fuel charge proceeds, Budget 2025 proposes to amend the Income Tax Act to provide that no CCR payments would be made in respect of tax returns, or adjustment requests, filed after October 30, 2026.
Corporate income tax rates
The table below shows federal tax rates and the small business limit for 2025.
|
Income type |
2025 tax rates |
|---|---|
| General rate | 15% |
| Manufacturing and processing rate | 15% |
| Small business rate | 9% |
| Small business limit | $500,000 |
Budget 2025 proposes to provide temporary immediate expensing for the cost of eligible manufacturing or processing buildings, including the cost of eligible additions or alterations made to such buildings. The enhanced allowance would provide a 100% deduction in the first taxation year that eligible property is used for manufacturing or processing, provided the minimum 90% floor space requirement is met.
Property that has been used, or acquired for use, for any purpose before it’s acquired by the taxpayer would be eligible for immediate expensing only if both of the following conditions are met:
- Neither the taxpayer nor a non-arm’s-length person previously owned the property.
- The property has not been transferred to the taxpayer on a tax-deferred “rollover” basis.
In cases where a taxpayer benefits from immediate expensing of a manufacturing or processing building, and the use of the building is subsequently changed, recapture rules may apply.
This measure would be effective for eligible property that is acquired on or after Budget Day and is first used for manufacturing or processing before 2030. An enhanced first-year CCA rate of 75% would be provided for eligible property that is first used for manufacturing or processing in 2030 or 2031 and a rate of 55% would be provided for eligible property that is first used for manufacturing or processing in 2032 or 2033. The enhanced rate wouldn’t be available for property that is first used for manufacturing or processing after 2033.
Scientific Research and Experimental Development tax incentive program
Under the Scientific Research and Experimental Development (SR&ED) tax incentive program, qualifying expenditures are fully deductible in the year they are incurred. Additionally, these expenditures are generally eligible for an investment tax credit.
Budget 2025 proposes to further increase the expenditure limit on which the SR&ED program’s enhanced 35-per-cent tax credit can be earned, from the previously announced $4.5 million to $6 million.
This measure would apply for taxation years that begin on or after Dec. 16, 2024 (i.e., the date of the 2024 Fall Economic Statement).
The government also confirms its intention to introduce legislation to implement the other 2024 Fall Economic Statement measures related to the SR&ED program, including:
- Increase the lower and upper prior-year taxable capital phase-out boundaries to $15 million and $75 million, respectively.
- Extend eligibility for the enhanced tax credit to eligible Canadian public corporations.
- Restore the eligibility of SR&ED capital expenditures for both the deduction against income and investment tax credit components of the SR&ED program.
Tax deferral through tiered corporate structures
Budget 2025 proposes to limit the deferral of tax on investment income using tiered corporate structures with mismatched year ends. In general terms, the proposed limitation would suspend the dividend refund that could be claimed by a payer corporation on the payment of a taxable dividend to an affiliated recipient corporation if the recipient corporation’s balance-due day for the taxation year in which the dividend was received ends after the payer corporation’s balance-due day for the taxation year in which the dividend was paid.
For example, a corporation may pay a taxable dividend at a time that is in the payer corporation’s 2025 taxation year and in the recipient corporation’s 2026 taxation year, in order to defer the tax liability on the investment income of the corporate group to the recipient’s balance-due day for its 2026 taxation year (rather than being payable on the payer corporation’s balance-due day for 2025).
This rule wouldn’t apply if each corporate dividend recipient in the chain of affiliated corporations pays a subsequent dividend on or before the payer’s balance-due day, such that no deferral is achieved by the affiliated corporate group. To accommodate bona fide commercial transactions, the rule would also not apply to a dividend payer that is subject to an acquisition of control where it pays a dividend within 30 days before the acquisition of control.
The payer corporation would generally be entitled to claim the suspended dividend refund in a subsequent taxation year when the recipient corporation pays a taxable dividend to a non-affiliated corporation or an individual shareholder.
This measure would apply to taxation years that begin on or after Budget Day.
Expansion of certain tax credits
Budget 2025 proposed to expand the applicability of certain tax credits for businesses, including:
- Critical mineral exploration tax credit
- Clean technology manufacturing investment tax credit
- Investment tax credit for carbon capture, utilization, and storage
- Clean electricity investment tax credit
Other measures
Underused Housing Tax
The Underused Housing Tax (UHT) took effect on Jan. 1, 2022 and applies to certain owners of vacant or underused residential property in Canada, generally non-resident, non-Canadians. The UHT is imposed on an annual basis at a rate of 1% on the value of the property.
Budget 2025 proposes to eliminate the UHT as of the 2025 calendar year. As a result, no UHT would be payable and no UHT returns would be required to be filed in respect of the 2025 and subsequent calendar years.
All UHT requirements continue to apply in respect of the 2022 to 2024 calendar years. Penalties and/or interest for failing to file a UHT return as and when required, or for failing to pay UHT when it becomes due, will also continue to apply in respect of the 2022 to 2024 calendar years.
Luxury tax on aircraft and vessels
The federal government imposes a tax on subject vehicles and subject aircraft with a value above $100,000 and subject vessels (e.g., boats) with a value above $250,000. The luxury tax is equal to the lesser of 10% of the total value of the subject item and 20% of the value above the relevant threshold. The tax is generally imposed on sales, importations, leases, and certain improvements of subject vehicles, subject aircraft, and subject vessels.
Budget 2025 proposes to amend the Select Luxury Items Tax Act (SLITA) to end the luxury tax on subject aircraft and subject vessels. All instances of the tax would cease to be payable after Budget Day, including the tax on sales, the tax on importations, and the tax on improvements.
Previously announced measures
Budget 2025 confirms that the government intends to proceed with many previously announced measures, as modified to take into account consultations and deliberations since their release.
Notable exclusions are the Canadian Entrepreneurs’ Incentive (CEI) that was previously announced, as well as the proposal to allow full deduction on resource expenses for Alternative Minimum Tax (AMT) purposes.
Previously announced measures that the government intends on proceeding with include:
- Lifetime capital gains exemption increase to $1.25 million.
- Amendments related to capital gains rollover on small business investments.
- Tax exemption for sales to employee ownership trusts.
- Extending the 2024 charitable donations deadline.
- Enhanced trust reporting rule amendments (but with the application date for bare trusts deferred to tax years ending on or after Dec. 31, 2026).
- AMT-related amendments, including limits to investment counsel fees to 50% (but not including allowing full deduction on resource expense deductions).
- Amendments to the loss carry-back for graduated rate estates to extend the time period for carrying back a loss.
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