Federal Budget 2025 Highlights

On November 4, 2025 Honourable François-Philippe Champagne , Minister of Finance and National Revenue, presented Budget 2025 – Canada Strong which included some personal and business measures and some tax filing and tax payment relief. Below are highlights of the Budget.

https://budget.canada.ca/2025/home-accueil-en.html

Business Measures

Accelerated Capital Cost Allowance (CCA)
Budget 2025 introduces new measures and extends the ability to claim accelerated CCA, helping businesses boost productivity by enabling faster write-offs and supporting investments in key sectors.

Extension of Accelerated Investment Incentive (AII)
The Accelerated Investment Incentive (AII) will be reinstated for manufacturing, clean energy, and zero-emission vehicle equipment acquired on or after January 1, 2025, after previous phase-outs.

The proposal would reinstate enhanced first-year CCA claims for assets acquired from 2025 to 2029, delaying the scheduled phaseout of enhanced first-year CCA claims from 2024 – 2027 to 2030–2034.

Immediate Expensing for Manufacturing and Processing Buildings
Budget 2025 proposes immediate 100% CCA expensing for eligible manufacturing or processing buildings, provided at least 90% of the floor space is used for those activities. If the building’s use changes after expensing, recapture rules may apply. Enhanced CCA rates for properties first put into use after 2030 will be phased out between 2030 and 2033.

Other measures:

Reinstatement of accelerated CCA for low-carbon liquefied natural gas (LNG) facilities.
Confirmation of Budget 2024 proposal to allow immediate expensing of the cost of certain productivity-enhancing assets acquired after April 16, 2024 which become available for use before January 1, 2027.

Dividend Refund Rules on Tiered Corporate Structures
Currently, Canadian-controlled private corporations (CCPCs) pay an additional refundable tax on investment income, which is refunded when taxable dividends are paid by the corporation, but timing differences can allow for deferral of tax. Budget 2025 proposes changes to the dividend refund rules for affiliated CCPCs to prevent tax deferral through tiered corporate structures with mismatched year-ends.

These measures will apply to taxation years beginning on or after November 4, 2025. Here is an example:

Payerco and Receiverco are affiliated CCPCs.
Payerco has a December 31 year end, and Receiverco has a June 30 year end.
On December 15, 2026, Payerco pays a taxable dividend to Receiverco.
Payerco’s tax return for the year ending December 31, 2026, is due by June 30, 2027.
Receiverco’s tax return for the year ending June 30, 2027, is due by December 31, 2027.

Because Receiverco’s tax for the year in which it receives the dividend is due after Payerco’s tax for the year in which it paid the dividend, the dividend refund to Payerco is suspended. Payerco cannot claim the dividend refund on its Decmeber 31, 2026 tax filing.

This rule closes a timing loophole created by mismatched year ends. If Receiverco pays a dividend to a non-affiliated party or an individual shareholders before December 31, 2027, Payerco can then claim the refund.

Scientific Research and Experimental Development (SR&ED)
The 2024 Fall Economic Statement and Budget 2025 propose to increase the SR&ED expenditure limit for the enhanced 35% tax credit from $3 million to $6 million, and expand eligibility to Canadian public corporations. The phase-out boundaries for taxable capital are raised to $15 million (lower) and $75 million (upper), and SR&ED capital expenditures are restored as eligible for both deduction and investment tax credit. These measures apply to taxation years beginning on or after December 16, 2024, confirming and expanding the previously announced enhancements to the SR&ED program.

For further information refer to this recent article: SR&ED Program Updates

Tax Incentives for a Clean Economy
The Critical Mineral Exploration Tax Credit (CMETC) is expanded to cover additional minerals, broadening eligibility for investors in flow-through shares.

The Clean Technology Manufacturing Investment Tax Credit now includes more critical minerals, encouraging investment in machinery and equipment for clean technology supply chains.

The Carbon Capture, Utilization and Storage (CCUS) Investment Tax Credit extends full credit rates for eligible expenditures by five years, with a review scheduled before 2035.

Finally, the Canada Growth Fund is made eligible for the Clean Electricity Investment Tax Credit, with new rules ensuring its financing does not reduce the credit available to other entities.

Transfer Pricing
In an effort to modernize Canada’s transfer pricing rules to better align with international standards, specifically the Organisation for Economic Co-operation and Developments (OECD’s) arm’s length principle and guidelines, new rules clarify how cross-border transactions between related parties must be analyzed, considering not just contracts but also economically relevant characteristics and participant conduct.

Administrative changes include raising the penalty threshold from a $5 million transfer pricing adjustment to a $10 million transfer pricing adjustment, simplifying and clarifying documentation requirements, and reducing the time to provide documentation from three months to 30 days. These measures will apply to taxation years beginning after November 4, 2025.

Additional Changes
The government is taking action to address misclassification of employees as independent contractors. The government will be focused on certain sectors including the trucking sector and will allow the CRA to share information other agencies including the Department of Employment and Social Development Canada to address worker misclassification.

Previously Announced Measures
Budget 2025 confirms the intention to proceed with a wide range of previously announced measures including:

Excessive interest and financing expenses limitation (“EIFEL”) rules;
Substantive CCPCs rules;
Accelerated capital cost allowance introduced for purpose-built rental housing.
Legislative and regulatory proposals to remove the GST on the construction of new student residences
New withholding requirements for service providers who are not residents.
Expansion of the eligibility for the clean electricity investment tax credit
Extension of the clean technology manufacturing investment tax credit.
Revisions to regulations for mutual fund corporations.
Regulations clarifying how the enhanced GST rental rebate applies to cooperative housing corporations.
Extension of the mineral exploration tax credit.

Personal Measures

Tax rates
The budget did not provide any changes to the personal tax rate. A change was announced earlier in the year to decrease the first federal income bracket to 14% effective on July 1, 2025. This tax rate would apply to credits as well. Budget 2025 proposes a new non-refundable top-up tax credit to keep the 15% rate for credits claimed on income above the first tax bracket threshold.

Automatic Tax Filing
The Canada Revenue Agency (CRA) will file personal income tax returns automatically for eligible individuals for the 2025 taxation year (i.e. tax returns due in 2026 and future years).

An eligible individual is a person who:

The only source of income is reported on specified information returns (i.e. T4/T5) filed with the CRA
Does not owe any federal taxes after certain credits;
Has not filed a tax return for at least one of the last three taxation years; and
Has not filed prior to or 90 days after the tax filing deadline for the year

Before filing, taxpayers will get a chance to review or update details with 90 days to respond. If no response is received, the CRA will file the return and issue the assessment, including any credits or benefits the taxpayer qualifies for. If the taxpayer was not an eligible individual their tax return will be deemed not to have been filed. Taxpayers will be able to opt out of the automatic tax filing. Note that this does not include any foreign reporting filings which may be required.

Tax credit for Temporary Personal Support Workers
Budget 2025 introduces a refundable tax credit of 5% (up to $1,100) for eligible personal support workers at qualifying health care establishments, except in BC, Newfoundland and Labrador, and the Northwest Territories.

To qualify, workers must provide direct care and support, mainly assisting with daily living activities, and their employers must certify eligible earnings. This measure applies to income earned from 2026 to 2030, and individuals must file a tax return to receive the credit.

Simplification and Streamlining for Registered Plan Investments
Budget 2025 aims to streamline the rules for registered plan investments in small businesses, maintaining the ability for registered plans to make such investments. RDSPs will be permitted to acquire shares in specified small business and venture capital corporations, while some investment options will be removed for other registered plans starting in 2027.

Investments made under current rules before 2027 will remain qualified, and further legislative amendments will consolidate qualified investment definitions for most registered plans.

Previously Announced Measures
Budget 2025 confirms the intention to proceed with a wide range of previously announced measures including:

Raising the lifetime capital gains exemption to $1.25 million.
Changes to the alternative minimum tax rules.
Extending the 2024 charitable donations deadline.
Capital gains rollover on small business investments;
Tax exemption for sales to employee ownership trusts;
Tax exemption for sales to worker cooperatives;
Exemption of the Canada Disability Benefit from income.
Updates to the disability supports deduction rules.

Other Measures

Underused Housing Tax (UHT)
The UHT will be eliminated starting in 2025, meaning no tax or returns will be required for that year and beyond. However, filing requirements and penalties for previous years remain unchanged.

Bare Trust Filings
Bare trust arrangements face new filing requirements, but the application date is deferred to years ending on or after December 31, 2026. CRA previously waived filing for 2023 and 2024 due to the administrative burden.

Luxury Tax on Aircraft and Vessels
The luxury tax on aircraft and vessels ends after November 4, 2025, but remains in place for vehicles valued over $100,000. Registered vendors must file a final return for affected items.

21-Year Deemed Disposition Rule for Trusts
The anti-avoidance rule is broadened to include indirect transfers of trust property, effective for transfers on or after November 4, 2025.

Non-profit Organizations’ (NPO) Reporting Obligations
Expanded reporting requirements for NPOs are deferred to taxation years beginning on or after January 1, 2027. Final rules will aim to minimize administrative burden and clarify which organizations are affected.

Our tax professionals are here to help you navigate through the changes that Budget 2025 entails. Reach out to your advisors for more information.