Federal Budget 2025 – A roadmap to sustainable economic growth

Budget Tax Updates

November 8, 2025

Table of Contents

Introduction

Personal Income Tax Measures

Reduction of the Personal Income Tax Rate of the First Income Bracket
Personal Support Workers Tax Credit
Automatic Federal Benefits for Lower-Income Individuals
Top-Up Tax Credit
Home Accessibility Tax Credit
Bare Trust Reporting Rules
Personal Trust and the 21-Year Rule
Canadian Entrepreneurs’ Incentive
Qualified Investments for Registered Plans

Business Income Tax Measures

Immediate Expensing for Manufacturing and Processing Buildings
Scientific Research and Experimental Development (SR&ED) Tax Incentive Program
Boosting Clean Economy Investment Through Tax Credits
Critical Mineral Exploration Tax Credits

International Tax Measures

Investment Income Derived from Assets Supporting Canadian Insurance Risks
Transfer Pricing

Sales and Excise Tax Measures

Underused Housing Tax
Luxury Tax on Aircraft and Vessels
Carousel Fraud
GST/HST Treatment of Manual Osteopathic Services
Eliminating the GST for First-Time Home Buyers

Previously Announced Measures

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Introduction

On November 4th, 2025, the Honorable François-Philippe Champagne, Minister of Finance and National Revenue, tabled the 2025 Federal Budget which, he had claimed for weeks, would be a landmark budget presented once in a generation. Such bold statement had set high expectations among the business community. However, as our review of the key tax measures and related announcements will show, this year’s budget was more strategic and transitional (i.e., distinguishing capital investments from operational day-to-day expenditures, etc.), rather than setting a defining legacy for future generations.

Budget 2025 focuses on targeted government actions to boost investment, strengthen infrastructure, and enhance productivity and competitiveness, while curbing public spending. The government aims to generate a combined $60 billion in savings and new revenues over five years, despite persistent economic and geopolitical headwinds.

The measures and tax announcements included in Budget 2025, which are presented and discussed below, are designed to foster Canada’s sustainable long-term economic growth.

In the following sections, we provide an overview of the key fiscal initiatives introduced by the federal government (including modifications, changes and cancellation of existing measures), highlighting their objectives and potential implications for both individuals and corporations.

Personal Income Tax Measures

Reduction of the Personal income tax rate of the first income bracket

As announced in May 2025, as part of the tabling of Bill C-4, the first federal personal income tax bracket was proposed to be reduced from 15% to 14%, effective July 1, 2025, for taxable income up to $57,375. For the 2025 taxation year, the effective blended rate would be 14.5%, reverting to the full 14% rate as of 2026.

This change is expected to result in average tax savings of approximately $200 per taxpayer.

The income tax rates for 2025 and 2026, based on your taxable income, are as follows:

Taxable income	2025 Rate	2026 Rate
Up to $57,375	14.5 % (proposed)	14.0 % (proposed)
More than $57,376 but not more than $114,750	20.5 %	20.5 %
More than $114,750 but not more than $177,882	26.0 %	26.0 %
More than $173,882 but not more than $253,414	29.0 %	29.0 %
More than $253,414	33.0 %	33.0 %

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Personal Support Workers Tax Credit

Budget 2025 introduces a temporary refundable tax credit equal to 5% of eligible income, up to a maximum of $1,100, for personal support workers employed in eligible health care facilities, including hospitals, nursing homes, community care facilities, and home care services.

This credit targets workers who provide essential care services to maintain the health, safety, and independence of patients, particularly by assisting them with daily living activities.

This temporary measure would apply to taxation years from 2026 to 2030.

Automatic Federal Benefits for Lower-Income Individuals

To receive their benefits and refundable credits, individuals must file an annual personal income tax return. Accordingly, Budget 2025 proposes to amend the Income Tax Act to authorize the Canada Revenue Agency (“CRA”) to file an income tax return on behalf of an individual (other than a trust) who has not done so by the regular filing deadline or within 90 days thereafter.

This proposed measure is set to apply to low-income individuals whose entire income comes from sources already reported to the CRA, and who have not filed a tax return at least once in the previous three taxation years.

Before filing the personal tax return on behalf of the concerned taxpayer, the CRA would send the individual the income information it has in its possession. The individual would then have 90 days to review or modify such information. If no response is received, the CRA could file the return, issue the notice of assessment, and issue payments of the related benefits or credits.

Individuals will have the option to opt out of this automated filing program, and the existing rules for assessment, objection, and appeal would continue to apply.

This measure would take effect for the 2025 taxation year and is open for consultation until January 30, 2026.

Top-Up Tax Credit

As mentioned previously, the tax rate on the first income bracket for individuals is expected to be reduced to 14.5% in 2025, and then to 14% for 2026 and subsequent taxation years. The purpose of this reduction is to lower Canadians’ overall tax burden.

However, in very rare cases, the tax savings for certain Canadians could be less than the decrease in the value of their non-refundable tax credits. This could occur, for example, when a taxpayer has incurred and claimed more than $57,375 (in 2025) in medical or tuition expenses.

To ensure that no one experiences an increase in their actual tax liability, a new non-refundable top-up tax credit would be introduced. This credit would effectively maintain the current 15% rate for non-refundable tax credits exceeding the first income bracket (i.e. amounts over $57,375).

The Top-Up Tax Credit would apply for taxation years 2025 to 2030.

Home Accessibility Tax Credit

Budget 2025 introduces rules preventing the same expense from giving rise to two tax advantages. Taxpayers are no longer able to claim both the Home Accessibility Tax Credit and the Medical Expense Tax Credit for the same expense.

The Home Accessibility Tax Credit provides tax relief on up to $20,000 in renovation expenses aimed at improving the safety, functionality, or accessibility of a dwelling occupied by an individual aged 65 or older or by an individual eligible for the Disability Tax Credit.

The Medical Expense Tax Credit applies to eligible expenses that exceed the lesser of $2,834 or 3% of net income, and it includes certain renovation costs intended to enhance mobility for persons with disabilities.

This new measure would take effect for the 2026 taxation year and following years.

Bare trust reporting rules

Budget 2025 defers the mandatory reporting rules applicable to bare trusts to apply to taxation years ending on or after December 31, 2026. These rules were proposed on August 15, 2025

Personal Trust and the 21-Year Rule

To prevent the indefinite deferral of tax on accrued gains on personal trust’s properties, a specific anti-avoidance rule currently exists where every 21 years, certain trust’s properties (i.e. mainly capital properties) are deemed as having been disposed of at their fair market value.

Such an anti-avoidance rule prevents direct transfers of property between trusts from effectively resetting the 21-year deemed disposition clock. However, certain tax planning strategies have been used to circumvent this rule through indirect transfers. For instance, a trust may transfer property to a corporate beneficiary, and that corporation may, in turn, be owned by another trust.

To address this avoidance technique, the existing anti-avoidance rule targeting direct inter-trust transfers would be expanded to include indirect transfers of property between trusts, ensuring that accrued gains remain taxable on the same 21-year schedule basis.

This amendment would take effect on or after Budget Day 2025.

Canadian Entrepreneurs’ Incentive

Considering the abandonment of the proposed capital gains tax increase, Budget 2025 provides for of removal of this proposed tax incentive announced previously.

Qualified investments for registered plans

Budget 2025 proposes the following amendments to simplify, streamline and harmonize the current Qualified Investments for registered plans rules:

Extend to Registered Disability Savings Plans (“RDSP”) the ability to make eligible investments in specified small business corporations, venture capital corporations and specified cooperative corporations. However, eligibility of investments in shares of eligible corporations, small business investment limited partnerships and small business investment trusts would be repealed. These amendments would apply as of 1 January 2027.
Repeal of the registered investment regime starting January 1, 2027. It is proposed under Budget 2025 that this regime be replaced with two new categories of qualified investments which would not involve or require registration (i.e. mostly trusts units which would be compliant with certain requirements published by the Canadian Securities Administrators). The replacement of the registered regime in place would not prevent units or shares of funds that were registered investments from continuing to qualify, either under the existing rules or under one or both of the new categories of qualified investment trusts. These new qualified investment trust rules would apply as of 4 November 2025.
Consolidation of the qualified investment rules for six types of registered plans (i.e., all plans except deferred profit-sharing plans) into one definition in the Income Tax Act. Update and reorganization (by asset class, such as debt or equity) would also be performed to provide greater clarity and administrative simplicity.

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Business Income Tax Measures

No changes were proposed to the current Federal corporate tax rates.

The Federal corporate income tax rates in Canada for 2025 are as follows:

Type of corporation	Federal Tax Rate
General Corporate Income Tax Rate	15.0 %
Small Business Tax Rate on the first 500,000 of taxable income	9.00 %

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Immediate Expensing for Manufacturing and Processing Buildings

Under the current rules, when a corporation acquires an eligible building, which at least 90% of the floor space is used for manufacturing or processing goods for sale or lease in Canada, it may claim a capital cost allowance (CCA) deduction equal to 10% of the building’s capital cost.

To promote new investments in the manufacturing sector, Budget 2025 introduces a temporary measure that would allow businesses to immediately expense the entire cost of an eligible building, as well as the cost of qualifying additions, improvements or alterations made to such property.

To qualify, the building must be acquired on or after Budget Day 2025, and the entire deduction may be claimed in the first taxation year in which the building is put into use for manufacturing or processing activities, provided this occurs before 2030.

Buildings already in use or acquired for any purpose before they are acquired by the taxpayer would qualify only if both of the following conditions are met:

Neither the acquiror nor any person not dealing at arm’s length with such taxpayer owned the property before that time, and
The property was not transferred as part of a tax-deferred rollover.

If a building that benefited from this incentive is later used for other purposes, recapture rules would apply, requiring the corporation to add back part of the previously deducted amount to its taxable income.

This measure would then be phased out gradually according to the following schedule:

Period	Immediate Expensing
2025 to 2029	100 %
2030 and 2031	75 %
2032 and 2033	55 %
2034 and onward	Regular rate

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Scientific Research and Experimental Development (“SR&ED”) Tax Incentive Program

Budget 2025 confirms the government’s intention to proceed with the enhancements to the SR&ED program previously announced in the 2024 Fall Economic Statement, including increased expenditure limit, higher phase-out thresholds, and the restoration of capital expenditures eligibility for SR&ED tax credits.

In addition, Budget 2025 also proposes:

An increase in the expenditure limit eligible for the enhanced 35% SR&ED tax credit, from $4.5 million (as proposed per the 2024 Fall economic statement) to $6 million.

The above would apply to taxation years beginning on or after December 16, 2024.

Furthermore, in an effort to enhance predictability and improve and streamline the SR&ED program’s administration, the government has directed the CRA to undertake the following initiatives:

Implement an elective pre-claim approval process, providing businesses with:
- Up-front technical approval of eligible SR&ED projects before any work begins or costs are incurred.
- Reduced processing times for claims — expected to be cut in half, from 180 days to 90 days.
Increase the use of artificial intelligence (AI) in program administration to enable the CRA to adopt a risk-based review approach when assessing claims and limiting unnecessary audit interventions.
Enhance administrative efficiency through the removal of pointless procedures and by limiting onerous documentation requirements that hinder timely claim resolution.

These administrative changes will take effect on April 1, 2026. The government also announced its intention to launch targeted consultations aimed at further improving the program’s administration, including a comprehensive review of the SR&ED claim form.

Boosting Clean Economy Investment Through Tax Credits

It is expected that Canada’s growing economy and population will sharply increase clean energy demand, driven by industrial expansion and emerging sectors such as AI data centers and electric transport. Meeting this demand will require major investments in grid modernization and renewable energy. Additionally, to further support this transition, Budget 2025 announced the below enhancements to the following refundable clean economy tax incentives which have been set in law in 2024:

Carbon Capture, Utilization, and Storage investment tax credit: Budget 2025 proposes extending the availability of full credit rates (which range from 37.5 to 60 %) for five more years (extension from 2030 to 2035) while the half credit rate (18.75% to 30%) would remain unchanged from 2036 to 2040.
Clean Technology investment tax credit: Budget 2025 proposes extending the availability to this credit to include systems that produce electricity, heat, or both electricity and heat from waste biomass and changing the eligibility requirements for small nuclear energy property (30% credit applicable retroactively to both measures available respectively as of November 21, 2023, and March 28, 2023).
Clean Technology Manufacturing investment tax credit: Budget 2025 proposes extending the availability to this credit to include qualifying equipment used in eligible polymetallic mining projects (30% credit applicable retroactively to January 1, 2024).
Clean Hydrogen investment tax credit: Budget 2025 proposes extending the availability to this credit to include hydrogen produced from methane pyrolysis (credit of 15% to 40% applicable retroactively to December 16, 2024).

As it relates to the Clean Electricity investment tax credit, which has not yet been set in law, Budget 2025 confirms government’s intention to introduce such incentive into legislation. Additionally, it is proposed that the list of eligible entities to this 15% refundable credit will expand to include entities in the Canada Growth Fund while removing the conditions imposed on provincial and territorial governments for their Crown corporations to be eligible for the clean electricity ITC. It is also proposed that Canada Growth Fund related financing would not reduce the cost base of eligible property, effective for property acquired and available for use on or after Budget Day 2025.

Critical Mineral Exploration Tax Credits

In addition to the expense deductions (which allows for 30% to 100% taxable income deductions for individual flow-through shares owners) of certain resources related expenses which corporations will have renounced to the benefit of their investors, under an eligible flow-through share agreement, individuals owning such shares could also potentially benefit from the Critical Mineral Exploration Tax Credit (CMETC) which provides for a 30% income tax credit for individuals who invest in eligible flow-through shares tied to specified mineral exploration activities in Canada.

Currently, the following critical minerals qualify for the CMETC: nickel, cobalt, graphite, copper, rare earth elements, vanadium, tellurium, gallium, scandium, titanium, magnesium, zinc, platinum group metals, uranium, and lithium (including lithium derived from brines).

Budget 2025 proposes to expand the list of eligible critical minerals to include: bismuth, cesium, chromium, fluorspar, germanium, indium, manganese, molybdenum, niobium, tantalum, tin, and tungsten.

This measure would apply to expenditures renounced under eligible flow-through share agreements entered after November 4, 2025, and on or before March 31, 2027.

Tax Deferral Through Tiered Corporate Structures

The dividend refund mechanism allows Canadian-controlled private corporations (“CCPCs”) to recover part of the additional tax paid on investment income when they pay taxable dividends to shareholders. If the shareholders are Canadian corporations, they are exempt from Part I tax on the dividends received but must pay a refundable Part IV tax, which is refunded when they subsequently pay a taxable dividend onward.

When the corporation paying the dividend and the one receiving it have the same fiscal year-end, the refund received by one is equivalent to the tax paid by the other, resulting in no tax deferral within the corporate group. However, when the two corporations have different fiscal year-ends, the group may benefit from a tax deferral.

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).

Budget 2025 proposes to limit the deferral of Part IV 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. The determination of whether the dividend payer and payee are affiliated would be based on current affiliation rules included in the Income Tax Act.

This measure would apply to taxation years that begin on or after Budget Day.

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International Tax Measures

Investment Income Derived from Assets Supporting Canadian Insurance Risks

Under the Income Tax Act, certain income earned by a controlled foreign affiliate (CFA) of a Canadian taxpayer is treated as foreign accrual property income (FAPI) and included in the taxpayer’s income on an accrual basis. Specifically, subparagraph 95(2)(a.2)(i) generally includes in FAPI any income derived from the insurance or reinsurance of specified Canadian risks—that is, risks relating to Canadian-resident persons, property situated in Canada, or businesses carried on in Canada.
An exception currently applies where the affiliate earns more than 90% of its gross premium revenue from non-Canadian risks of arm’s-length persons.

Budget 2025 proposes to clarify and expand the scope of this rule. The proposed amendments would ensure that income earned by a foreign affiliate from holding property connected to the insurance or reinsurance of specified Canadian risks—by any person or partnership—would also be treated as FAPI.
In practical terms, investment income derived from assets held to support Canadian insurance risks will now be subject to FAPI inclusion, even if the related risks are insured by another entity within the corporate group.

This measure would apply to taxation years of foreign affiliates beginning after November 4, 2025.

Transfer Pricing

Budget 2025 introduces a comprehensive reform to Canada’s transfer pricing regime, following stakeholders feedback from the June 2023 consultation on modernizing section 247 of the Income Tax Act (ITA). These measures aim to align Canada’s framework with international standards, particularly the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (2022), and to provide greater clarity, consistency, and administrative efficiency.

An interpretation rule will also be introduced, as part of this new proposed reform, to ensure that Canada’s transfer pricing domestic rules are applied in a manner consistent with the analytic and interpretive framework of the OECD Transfer Pricing Guidelines, except where modified by regulation. This codifies Canada’s intention to adopt internationally recognized principles for transfer pricing analysis and compliance.

The budget also proposes to replace the existing transfer pricing adjustment and recharacterization rules with a single transfer pricing adjustment rule, which will apply when the “actual conditions” of a transaction (or series of transactions) differ from “arm’s length conditions.”

This newly proposed single adjustment rule would apply if the following two conditions are met:

There is a transaction (or series) between a Canadian taxpayer and a non-resident person with whom the taxpayer does not deal at arm’s length; and
The transaction (or series) includes actual conditions that differ from those that would exist between arm’s length parties in comparable circumstances.

Under the proposed legislation, each relevant transaction (or series) must be analyzed based on its “economically relevant characteristics”, which include the following five comparability factors:

The contractual terms of the transaction.
The characteristics of the property or service.
The functions performed, assets used, and risks assumed by the parties.
The economic and market context; and
The business strategies pursued by the participants.

The proposed rules emphasize on the importance that should be given to the factual substance of the parties’ conduct rather than only considering the legal form of the agreements in place binding such parties.

Under this new modernized regime, a transaction (or series) will be deemed to include non–arm’s length conditions if a condition that would have existed between arm’s length parties in comparable circumstances is absent.

The term “conditions” is broadly defined and encompasses price, rate, gross margin, net margin, profit allocation, cost contribution, and any commercial or financial terms relevant to the transaction.

Budget 2025 also proposes several changes to enhance compliance and streamline administration:

The threshold for transfer pricing penalties would increase from $5 million to $10 million.
Transfer pricing documentation requirements would be updated and clarified to align with the new definitions and principles, including:
- Expanding the scope of relevant transactions to include dealings with any member of a multinational enterprise (MNE) group; and
- Requiring the selection and application of the most appropriate transfer pricing method in accordance with the OECD Guidelines.
Simplified documentation requirements will be available when prescribed conditions are met.
The response time for taxpayers to provide documentation to the Canada Revenue Agency (CRA) will be reduced from three months to 30 days, while the existing deadline to prepare or obtain documentation by the documentation-due date remains unchanged.

These measures will apply to taxation years beginning after November 4, 2025.

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Sales and Excise Tax Measures

Underused Housing Tax

Introduced for the 2022 taxation year, the Underused Housing Tax was designed to discourage the ownership of vacant or underutilized residential properties in Canada, particularly by non-resident owners. The tax imposed an annual rate of 1% on the value of the property.

Budget 2025 proposes to abolish this tax, effective for the 2025 calendar year, meaning that no return or payment would be required for that year.

Luxury Tax on Aircraft and Vessels

The Luxury Tax currently applies to high-value vehicles, aircraft, and vessels, calculated as the lesser of 10% of the total price or 20% of the amount exceeding the applicable threshold. This tax is levied upon sale, importation, lease, or substantial modification of the property.

Budget 2025 proposes that the Luxury Tax be eliminated for high-value aircraft and vessels, effective after Budget Day 2025, covering sales, imports, and major improvements. It is important to note that the tax would remain applicable for Luxury vehicles.

Registered sellers would be required to file a final return, but their registrations would remain temporarily active to allow them to claim eligible refunds, particularly in cases involving exports.

Beginning February 1, 2028, all registrations related to aircraft and vessels would be automatically cancelled, thereby ending any remaining obligations or refund entitlements.

Carousel Fraud

Carousel fraud involves situations where a business collects GST/HST but does not remit it to the government, while others in the supply chain claim input tax credits on the same amounts. These schemes often rely on a chain of real or fictitious transactions between several entities to generate fraudulent tax refunds. For instance, fraudulent operators may circulate invoices for telecommunications or digital services among multiple companies to create the appearance of legitimate taxable sales.

To address this issue, Budget 2025 proposes amendments to the Excise Tax Act that would introduce a reverse charge mechanism for certain telecommunications services, such as voice-over internet protocol. Under this mechanism, the purchaser rather than the supplier would be responsible for assessing and remitting the applicable GST/HST, reducing opportunities for fraud.

The government has invited comments on these proposals until January 12, 2026, before finalizing the legislation and determining whether to extend the new rules to other sectors.

GST/HST Treatment of Manual Osteopathic Services

Health care services covered under a provincial plan, as well as most services provided by health professionals such as physicians and dentists, are generally exempt from the GST/HST.

Budget 2025 clarifies that only Doctors of Osteopathy would continue to qualify for this exemption, while services provided by non-physician osteopaths would become taxable.

This measure would apply to services rendered after June 5, 2025, subject to a brief transitional period.

Eliminating the Goods and Services Tax (GST) for First-Time Home Buyers

Announced on May 27, 2025, and confirmed in the current budget, the government plans to eliminate the GST on new homes valued at up to $1 million. A partial rebate of the tax would also apply to homes priced between $1 million and $1.5 million.

This measure aims to improve housing affordability and ease the financial burden of purchasing a first home. It would apply to purchase agreements signed on or entered into after May 27, 2025, and before 2031, as well as to construction projects that would begin before 2031 and are substantially completed before 2036.

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Previously Announced Measures

Budget 2025 confirms the implementation of various tax measures previously announced and modified to consider consultations, deliberations, and legislative developments, since their release. Below is a list of some of the key previously announced tax measures which government intends to set in law:

August 15, 2025, Legislative and regulatory proposals, including (among others):
- The capital gains rollover on small business investments.
- The SR&ED tax incentive program (as described above).
- The excessive interest and financing expenses limitation rules.
- The substantive CCPCs rules.
- Bare trust mandatory tax reporting rules (as described above).
- Technical amendments to the Global Minimum Tax Act.

2024 Fall Economic Statement Legislative and regulatory proposals, including those relating to:
- Expansion of eligibility of some of the clean economy tax credits (discussed above).
- Extension of the Accelerated Investment Incentive and immediate expensing measures.
August 12, 2024, Legislative and regulatory proposals, including (among others):
- Alternative minimum tax (other than changes related to resource expense deductions).
- Accelerated CCA for productivity-enhancing assets, and for purpose-built rental housing.
- Withholding for non-resident service providers.
- Regulations related to the application of the Enhanced (100%) GST Rental Rebate to cooperative housing corporations.
- Expanding eligibility of some of the clean economy tax credits (discussed above).
- Amendments to the Global Minimum Tax Act and the Income Tax Conventions Interpretation Act.

2024 budget: The proposed increase in the lifetime capital gains exemption to apply to up to $1.25 million of eligible capital gains.
2021 budget: Legislative amendments to implement the hybrid mismatch arrangements rules.

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