New Tax Measures in Budget 2025
Budget 2025 introduces a broad suite of tax measures affecting both corporations and individuals. Highlights include expanded scope for the so-called “Clean Investment Tax Credits”, accelerated deduction for certain capital expenses, and enhanced support for innovation through a more accessible Scientific Research and Experimental Development (SR&ED) regime. At the same time, some long-standing trust and corporate planning strategies face new restrictions, signalling a continued tightening of perceived loopholes.
Perhaps most extensively, the Budget proposes broad reforms to Canada’s transfer pricing framework. These changes reflect a global shift toward greater transparency and the alignment of profits with real economic activity, rather than tax-driven structures. Together, the measures suggest a strategic rebalancing focused on rewarding productive investment and innovation, while narrowing opportunities for aggressive tax minimization.
Personal Income Tax Measures
Personal Support Workers Tax Credit
Introduction of a temporary refundable tax credit of 5% of eligible earnings, for a credit value of up to $1,100 for Personal Support Workers Tax Credit.
Automatic Federal Benefits for Lower-Income Individuals
Consultation in respect of giving CRA discretionary authority to file tax returns for individuals with taxable income below the lower of the federal basic personal amount or provincial equivalent.
Top-Up Tax Credit
The “middle-class tax cut” currently before Parliament in Bill C-4 reduces the first marginal personal income tax rate; however, this also reduces the benefit realized from most non-refundable tax credits. Where an individual’s non-refundable tax credit amounts exceed the first income tax bracket threshold, thus decreasing the value of their non-refundable tax credits more than the tax savings realized from the rate reduction, the credit will maintain the current 15% rate for non-refundable tax credits above the first income tax bracket threshold.
Qualified Investments for Registered Plans
To improve the coherence of the qualified investments regime for registered plans including RRSPs, RRIFs, TFSAs, RESPs, RDSPs, FHSAs, and DPSPs, Budget 2025 proposes to harmonise the qualified investment rules, including the rules relating to registered plan investments in small businesses. This will expand the ability for RDSPs to acquire shares of specified small business corporations, venture capital corporations, and specified cooperative corporations. Shares of eligible corporations and interests in small business investment limited partnerships, as well as small business investment trusts, will no longer be qualified investments. Shares of eligible corporations will continue to be qualified investments under the rules relating to specified small business corporations.
Additionally, the registered investment regime will be simplified but will generally allow units or shares of funds that were registered investments to continue to qualify.
Information Sharing – Worker Misclassification
Employment and Social Development Canada (ESDC) and Canada Revenue Agency (CRA) will reciprocally share data to facilitate inspections and enforcement to address worker misclassification, for example as is seen in the “Truckers Inc” plans.
Eliminate ability to claim some expenses for both the Home Accessibility and Medical Tax Credits
Currently where an expense meets the eligibility criteria for both credits taxpayers can claim it for both credits. The ability to claim some expenses twice will be eliminated.
21-Year Trust Rule
The current anti-avoidance rule for direct trust-to-trust transfers will be broadened to include indirect transfers of trust property to other trusts, with the intent of reducing tax planning opportunities to avoid the “21-year rule”, thus preventing personal trusts from being used to indefinitely postpone tax on accrued gains.
Business Income Tax Measures
Immediate Expensing for Manufacturing and Processing Buildings
Budget 2025 proposes to temporarily enable immediate cost expensing for eligible manufacturing or processing buildings, and additions or alterations to such buildings.
The 100% expense rate will reduce to 75% for eligible property that is first used for manufacturing or processing in 2030 or 2031, and 55% for 2032 or 2033.
Scientific Research and Experimental Development Tax Incentive Program
The government confirmed its intention to move forward with previously announced changes to the SR&ED program and further increase the expenditure limit on which the enhanced 35 % tax credit can be earned from the previously announced $4.5 million to $6 million.
Critical Mineral Exploration Tax Credit
Expansion of the list of critical minerals eligible for the flow through Critical Mineral Exploration Tax Credit (CMETC) to also include bismuth, cesium, chromium, fluorspar, germanium, indium, manganese, molybdenum, niobium, tantalum, tin, and tungsten. This will apply for individuals who invest in eligible flow-through shares where expenditures are renounced under after Budget Day and on or before March 31, 2027.
Clean Technology Manufacturing Investment Tax Credit
This measure expands eligibility for the refundable 30% Clean Technology Manufacturing ITC to include investments in new machinery and equipment purchased for an expanded list of critical minerals including antimony, indium, gallium, germanium, and scandium.
Investment Tax Credit for Carbon Capture, Utilization, and Storage
Currently the applicable rates for the refundable Carbon Capture, Utilization, and Storage (CCUS) ITC go down starting in 2031. The Budget proposes extending the availability of the full credit rates by 5 years, with the full rates applying in respect of eligible expenditures incurred to the end of 2035.
Clean Electricity Investment Tax Credit and Canada Growth Fund
The 15% refundable Clean Electricity ITC for equipment related to low-emitting electricity generation, electricity storage, and the transmission of electricity between provinces and territories will be expanded to also apply to the Canada Growth Fund, and will provide for an exception so that financing provided by the Canada Growth Fund does not reduce the cost of property eligible for the Clean Electricity investment tax credit.
Eliminate Tax Deferral Through Tiered Corporate Structures
Budget 2025 proposes measures to limit the ability to defer tax on investment income which can currently be achieved by using tiered corporate structures with staggered year ends. Very generally, the dividend refund that could be claimed by a payer corporation on the payment of a taxable dividend to an affiliated recipient corporation will be suspended 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.
Eligible activities under the Canadian Exploration Expense
Clarification regarding the eligible expenses to which this measure applies will be provided to clarify that expenses incurred for the purpose of determining the quality of a mineral resource in Canada do not include expenses related to determining the economic viability or engineering feasibility of the mineral resource.
International Tax Measures
Transfer Pricing
Intended to more closely align Canada’s transfer pricing with the OECD, Budget 2025 proposes substantive changes to the rules which apply to cross-border transactions between non-arm’s length persons. This includes new methods for analyzing transactions between a taxpayer and a non-arm’s length non-resident persons that are based not only on contract terms, but also on economically relevant characteristics, which are more broadly defined to better reflect functions performed, risks assumed, assets used and actual conduct of the parties in a related-party transaction.
A “non-recognition and replacement” rule would allow replacement or re-characterisation of terms in a related-party transaction to terms that would have been agreed between independent parties under comparable circumstances.
Enhanced documentation, compliance and administrative measures include more rigorous contemporaneous documentation requirements and quicker deadlines for providing documentation in audits. This is balanced by an increase to from $5 million to $10 million with respect to the threshold at which the transfer pricing penalty applies.
Clarify Treatment of Investment Income Derived from Assets Supporting Canadian Insurance Risks
Foreign accrual property income (FAPI) rules as they apply to insurance businesses are clarified such that it is now clear that investment income derived from assets held by a foreign affiliate to back Canadian insurance risks is included in FAPI regardless of which entity holds those assets.
Sales and Excise Tax Measures
Underused Housing Tax
Implementation of the Underused Housing Tax (UHT) in 2022 was rocky at best, and Budget 2025 proposes to eliminate the UHT as of the 2025 calendar year such that no UHT would be payable and no returns would be required for 2025 and subsequent years.
Luxury Tax on Aircraft and Vessels
The luxury tax on aircraft and vessels will be eliminated, including the tax on sales, the tax on importations, and the tax on improvements.
Carousel Fraud
Carousel tax schemes use a series of real or fraudulent transactions where at least one person collects GST/HST in respect of a supply but never remits the taxes collected to the government. Consultations on proposed changes to the Excise Tax Act to prevent carousel fraud will take place, specifically with respect to a proposal to introduce a new reverse charge mechanism (RCM) beginning with certain supplies within the telecommunications sector.
GST/HST Treatment of Manual Osteopathic Services
Budget 2025 clarifies that osteopathic services provided by practitioners who are not osteopathic physicians are taxable under the GST/HST.
Previously Announced Measures
Additionally, Budget 2025 confirms government’s intent to proceed with many previously announced tax measures including:
- New reporting requirements for bare trusts that have been deferred to years ending on or after December 31, 2026,
- Capital Gains Rollover on Small Business Investments,
- The increase to the Lifetime Capital Gains Exemption to apply to up to $1.25 million of eligible capital gains;
- The Crypto-Asset Reporting Framework and the Common Reporting Standard.
Contact Our Team:
 | Elan Harper, LLM (Tax), MBA, TEP Director, Andersen LLP |
