2025 Federal Budget Highlights

On November 4, 2025, Minister of Finance and National Revenue François-Philippe Champagne tabled Budget 2025: Building Canada Strong. Budget 2025 states that its focus is on strengthening productivity, investing in infrastructure and clean technology, and lowering costs for Canadians while maintaining a disciplined fiscal framework.

Budget 2025 projects a deficit of $78 billion for 2025–26, declining to $57 billion by 2029–30, consistent with the government’s plan to balance day-to-day operating spending with revenues by 2028–29. While corporate tax rates remain unchanged, the lowest personal income tax rate will fall beginning mid-2025.

From a tax perspective, Budget 2025 introduces targeted measures for individuals and businesses, confirms several previously announced initiatives, and repeals or scales back certain programs. Key highlights include:

• A new refundable tax credit for personal support workers
• Automatic tax filing for lower-income individuals
• Immediate expensing for manufacturing and processing buildings
• Enhancements to SR&ED and clean-technology investment credits
• Repeal of the Underused Housing Tax and removal of the Luxury Tax on aircraft and vessels

All measures outlined in Budget 2025 are proposals at this stage and will only become law once enacted through legislation. As Prime Minister Mark Carney leads a minority government, the budget will require support from at least one opposition party to pass. Failure to secure support could trigger a federal election.

Personal tax measures

Lower personal income-tax rate

As announced originally in May 2025, the lowest federal personal income-tax rate will be reduced from 15% to 14%, effective July 1, 2025. For 2025, the blended rate will be 14.5%, dropping to 14% for 2026 and later years. Roughly 22 million Canadians will benefit, saving a two-income family up to $840 per year once fully implemented.

A new temporary “Top-Up Tax Credit” is introduced in the Budget, which will apply from 2025 to 2030 to ensure no taxpayer pays more because credit rates are falling.

Personal Support Workers refundable tax credit

A new refundable credit provides 5% of eligible earnings, up to $1,100 per year, for personal support workers between 2026 and 2030. It excludes workers in British Columbia, Newfoundland and Labrador, and the Northwest Territories, where separate wage agreements apply.

Automatic filing for lower-income Canadians

The CRA will begin piloting automatic filing for lower-income individuals to ensure access to benefits like the Canada Workers Benefit and GST/HST Credit. Implementation will roll out gradually, beginning after 2027. Automatic filings will apply to individuals with taxable income below the federal basic personal amount. Further, the CRA will give taxpayers an opportunity to review the information and submit changes as needed.

Other personal measures

• Medical vs. Home Accessibility Tax Credits: Beginning in 2026, expenses claimed under the Medical Expense Tax Credit cannot also be claimed under the Home Accessibility Tax Credit.
• CRA–ESDC information sharing: Legislative changes will let the CRA share taxpayer data with Employment and Social Development Canada (ESDC) to combat worker misclassification once the budget bill receives Royal Assent.
• 21-year rule expansion: Anti-avoidance rules for trusts will broaden to curb long-term deferral strategies.
• Canada Carbon Rebate: Individuals must file by October 30, 2026 to remain eligible for payments.

Registered plans and small business investments: The rules surrounding registered plan investments in small businesses included a number of proposals to streamline the rules including extending to include Registered Disability Savings Plans (RDSP)

Business tax measures

Immediate expensing for manufacturing and processing buildings

Businesses can immediately deduct the full cost of eligible manufacturing and processing buildings first used for those activities on or after Budget Day, provided at least 90% of the floor space is used for M&P. The 100% expensing rate phases down to 75% for 2030–31 and 55% for 2032–33, ending after 2033.

SR&ED program enhancements

The enhanced Scientific Research & Experimental Development (SR&ED) credit limit increases from $4.5 million to $6 million, with the phase-out band widened to $15–75 million of taxable capital. Capital expenditures again qualify, and eligible Canadian public companies can now access the enhanced rate. These measures apply to taxation years beginning on or after December 16, 2024.

Critical-mineral and clean-technology incentives

The 30% Critical Mineral Exploration Tax Credit (CMETC) expands to cover antimony, indium, gallium, germanium, and scandium. The 30% Clean Technology Manufacturing (CTM) Investment Tax Credit (ITC) now includes those minerals as eligible inputs.

The 15% Clean Electricity ITC now recognizes the Canada Growth Fund as an eligible investor, and its financing will not reduce project cost bases.

The Carbon Capture, Utilization and Storage (CCUS) ITC retains full credit rates through 2035, with a gradual phase-down from 2036 to 2040.

Limiting tax deferral through tiered corporations

Limit the deferral of Part IV tax on investment income through tiered corporate structures with mismatched year-ends. A dividend refund will be suspended until a following taxation year where the dividend recipient corporation pays a taxable dividend to a non-affiliated corporation or an individual.

Clarification of Canadian exploration expense

The Budget clarifies that activities related to economic or engineering feasibility do not qualify as Canadian exploration expenses (CEE), ensuring consistent application across industries.

International tax measures

Transfer pricing

Canada will modernize its transfer-pricing rules to let CRA adjust transactions to what arm’s-length parties would have done, even if that means recognizing a different or no transaction. Draft rules are expected in 2026.

Foreign-affiliate income

Income earned by a foreign affiliate from assets held to back Canadian insurance risks will be included in Foreign Accrual Property Income (FAPI) for taxation years beginning after Budget Day.

Sales and excise tax measures

Repeal of the Underused Housing Tax

Budget 2025 proposes to repeal the Underused Housing Tax (UHT) effective for 2025 and subsequent years. Filing and payment obligations for 2022–2024 remain. The government cited compliance complexity and disproportionate impact on Canadians with limited foreign connections.

Removal of the Luxury Tax on aircraft and vessels

The Select Luxury Items Tax on aircraft and vessels is eliminated effective Budget Day. Vendors must file a final return for the period including Budget Day, and all related registrations will be cancelled on February 1, 2028. The tax on vehicles remains in place.

GST/HST clarification for osteopathic services

Manual osteopathic services provided by non-physician practitioners will be taxable supplies under the GST/HST, aligning treatment with other non-regulated health services.

Commitment to previously announced measures

Budget 2025 reaffirms the government’s intent to proceed with all previously announced but unenacted tax measures, including the new Alternative Minimum Tax (AMT) rules first introduced in August 2024.

The revised AMT framework increases the inclusion rate on capital gains and certain deductions to 100%, broadens the base of income subject to AMT, and raises the AMT exemption to $175,000 (indexed annually). These changes are designed to ensure higher-income individuals pay a minimum level of tax regardless of available deductions or preferences.

Several measures have also had their effective dates revised:

• Reporting by non-profit organizations: applies to taxation years beginning on or after January 1, 2027.
• Crypto-Asset Reporting Framework and Common Reporting Standard: effective January 1, 2027.
• Bare trust reporting: applies to taxation years ending on or after December 31, 2026.

What this means for you

Budget 2025 outlines targeted tax changes focused on productivity, competitiveness, and compliance, rather than sweeping tax reform.

Individuals will see modest mid-year relief from the lower tax rate and items like the a new refundable credit for personal support workers. Businesses in manufacturing, technology, and resources gain stronger capital investment incentives. The repeal of the UHT and Luxury Tax lightens compliance and administrative costs for affected industries.

As always, the details matter. If you have questions about how these changes may affect you or your business, contact your DMCL advisor.