2025 Federal Budget Tax Highlights

On November 4, 2025, the Minister of Finance and National Revenue, François-Philippe Champagne, released Budget 2025-Our Plan: Building Canada Strong.

Crowe MacKay’s tax experts break down the key tax highlights, providing insights on what’s changing and how it may affect the financial plans of both individuals and businesses.

Bare Trust Reporting

Budget 2025 defers the implementation of new rules for bare trust reporting, stating the change would now apply to taxation years ending on or after December 31, 2026.

Canadian Entrepreneurs’ Incentive

Budget 2025 confirms the cancellation of capital gains tax increase that was announced by the previous government, and also cancels the Canadian Entrepreneurs’ Incentive that was announced in the 2024 budget.

Personal Tax Credits and Benefits

Personal Support Workers Credit

The introduction of a temporary Personal Support Workers Tax Credit was proposed in Budget 2025, allowing a refundable tax credit of 5% of eligible earnings received by eligible personal support workers. This would provide eligible personal support workers for particular health care establishments with a credit of up to $1,100. This tax credit would apply to the 2026 to 2030 taxation years. 

Automatic Federal Benefits for Lower-Income Individuals

In general, individuals need to file a tax return annually to receive federal benefits and credit payments.  A proposed plan was announced in Budget 2025 to amend the Income Tax Act, granting the Canada Revenue Agency (CRA) the authority to file a tax return for the 2025 and subsequent taxation years on behalf of an individual who meets the following requirements:

• 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;
• the individual has not filed a tax return at least once in the preceding three taxation years;
• the individual has not filed a tax return for the taxation year prior to, or within the 90 days following the tax filing deadline for the year; and
• Any other criteria, as determined by the Minister of National Revenue.

It is noted that the CRA has an obligation to provide all available information to the individual for review prior to filing a tax return on the individual’s behalf. If the individual fails to review the information or submit changes within 90 days, the CRA can then proceed with filing the tax return.

Top-Up Tax Credit

Budget 2025 proposes the introduction of a non-refundable Top-Up Tax Credit applicable for the 2025 to 2030 taxation years. This would maintain the 15% rate for non-refundable tax credits claimed on amounts in excess of the first income tax bracket threshold and would address certain individuals having their tax liability increased by the middle-class tax cut.

Qualified Investments for Registered Plans

Based on feedback following Budget 2024, Budget 2025 proposes the following amendments to simplify, streamline, and harmonize the qualified investment rules that apply to seven registered plans (i.e., Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), Tax-Free Savings Accounts (TFSAs), Registered Education Savings Plans (RESPs), Registered Disability Savings Plan (RDSPs), First Home Savings Accounts (FHSAs), and Deferred Profit Sharing Plans (DPSPs)

• RDSPs will 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.

This rule change would be effective as of January 1, 2027.

The budget also proposes to replace the registered investment regime with two new categories of qualified investments which  are not required to be registered with the CRA:

• 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.
• 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.

This new qualified investment trust rules would be applicable as of Budget day, and the registered investment regime would be repealed as of January 1, 2027.

Home Accessibility Tax Credit

Currently, eligible individuals can claim the same medical expense under both the Home Accessibility Tax Credit and the Medical Expense Tax Credit.
For 2026 and onwards, Budget 2025 proposes amending the Income Tax Act to prevent expenses claimed under the Medical Expense Tax Credit from also being claimed under the Home Accessibility Tax Credit.

21-Year Rule for Trusts

In general, certain personal trusts are deemed to have disposed of their assets at fair market value every 21 years (the “21-year rule”), and there is an anti-avoidance rule in place to address situations where the 21-year rule has been circumvented by way of certain direct trust-to-trust transfers.  Budget 2025 includes a proposal to broaden this anti-avoidance rule by also applying to indirect transfers of trust property to other trusts.  This amended anti-avoidance rule would apply to the transfers of property that occur on or after Budget Day.

Canada Carbon Rebate

Budget 2025 proposes to end  the Canada Carbon Rebate payments in respect of tax returns or adjustment requests filed after October 30, 2026.
This rebate returned proceeds from the federal fuel charge directly to eligible Canadians living in provinces where the charge had been applied.

Immediate Expensing for Manufacturing & Processing  Buildings

Budget 2025 proposes to provide temporary immediate expensing for the cost of eligible manufacturing or processing buildings (including additions). If minimum manufacturing or processing usage requirements (i.e. 90% floor space) are met, the proposed allowance would provide a 100% deduction in the first taxation year that eligible property is used for manufacturing or processing. Property that has been used, or acquired for use, for any purpose before it is 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; and
• the property has not been transferred to the taxpayer on a tax-deferred “rollover” basis.

Recapture rules may apply if a taxpayer benefits from the immediate expensing of a manufacturing or processing building and the use of the building is subsequently changed.

This provision would apply to qualifying property purchased on or after Budget Day and put into use for manufacturing or processing before 2030. For property first used in 2030 or 2031, an enhanced first-year capital cost allowance rate of 75 % will apply, and for property first used in 2032 or 2033 a rate of 55 % will apply. Properties brought into use for manufacturing or processing after 2033 will not be eligible for the enhanced rate.

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

Budget 2025 confirms the government’s intention to follow-through with previously announced measures relating to the SR&ED program, such as increasing the enhanced expenditure limit and extending eligibility for the enhanced tax credit to eligible Canadian public corporations. Budget 2025 proposes to further increase the enhanced expenditure limit on which a 35% tax credit can be earned from $4.5 million to $6 million.

The proposed measures would apply to taxation years that begin on or after December 16, 2024.

Investment Tax Credits

Critical Mineral Exploration Tax Credit

The Critical Mineral Exploration Tax Credit (CMETC) provides an additional incentive for individuals to invest in eligible flow-through shares by allowing individual flow-through share investors to claim a tax credit equal to 30% of specified mineral exploration expenses incurred in Canada and renounced to them. Budget 2025 proposes to broaden the scope of the CMETC to cover additional critical minerals, including bismuth, cesium, chromium, fluorspar, germanium, indium, manganese, molybdenum, niobium, tantalum, tin, and tungsten.
 
This expansion applies to expenditures renounced under eligible flow-through share agreements signed after Budget Day and on or before March 31, 2027.

Clean Technology Manufacturing Investment Tax Credit

The Clean Technology Manufacturing Investment Tax Credit (CTMITC) is a 30% refundable tax credit on the cost of investments in new machinery and equipment used in certain manufacturing, extraction or recycling processes related to clean technologies and their supply chains. Budget 2025 plans to broaden the list of critical minerals that qualify for the CTMITC to include antimony, indium, gallium, germanium, and scandium.

This expansion applies to property that is purchased and becomes available for use on or after Budget Day.

Investment Tax Credit for Carbon Capture, Utilization and Storage

The Carbon Capture, Utilization, and Storage (CCUS) investment tax credit is a refundable tax credit on eligible expenditures relating to CCUS. The CCUS investment tax credit rate ranges from 37.5% to 60% depending on the purpose of eligible expenditures incurred from the beginning of 2022 to the end of 2030 then decreases to a range from 18.75% to 30% until the end of 2040. Budget 2025 extends the full credit rates for eligible expenditures by an additional five years, meaning that the maximum rates now apply through the end of 2035.

Expenditures made between 2036 and 2040 will continue to be subject to the reduced credit rates previously outlined.Additionally, the government is delaying the scheduled review of the CCUS investment tax credit rates, originally planned in Budget 2022, by 5 years (i.e., this review will now take place before 2035 instead of before 2030).

Clean Electricity Investment Tax Credit and Canada Growth Fund

The Clean Electricity Investment Tax Credit (CEITC) is a 15% refundable tax credit on the capital cost of eligible equipment related to low-emitting electricity generation, storage and transmission between provinces and territories. The tax credit is available to certain eligible entities and may be reduced by government assistance received. Budget 2025 proposes adding the Canada Growth Fund as an eligible entity for the CEITC. It also introduces an exception so that any financing provided by the Canada Growth Fund will not reduce the cost of the eligible property when calculating the tax credit.

These provisions apply to eligible property that is purchased and becomes available for use on or after Budget Day.

Tax Deferral Through Tiered Corporate Structures

The Budget proposes to restrict the ability of corporations to defer tax on investment where dividends are paid up through tiered corporate structures with staggered tax year ends to manipulate the timing of the Part IV refundable dividend tax obligation in a corporate group.

Under proposed measures, a payer corporation would not be able to immediately claim its dividend refund on the payment of a taxable dividend to an affiliated corporation, where the recipient’s balance-due day for the taxation year in which the dividend is received is after the payer’s balance-due day for the taxation year in which the dividend is paid.

The payer corporation can claim the suspended dividend refund once the recipient corporation pays a dividend to a non-affiliated corporation or an individual shareholder. Whether two corporations are considered affiliated will be determined under the existing rules in the Income Tax Act.

These rules would not apply in the following situations:

• If each recipient corporation in the chain pays a taxable dividend on or before the payer’s balance due date, such that no tax deferral actually occurs.
• If the payer corporation is subject to an acquisition of control and it pays a taxable dividend within 30 days before the acquisition of control.

Eligible Activities Under the Canadian Exploration Expense

The Budget proposes amendments to the Income Tax Act to clarify that expenses incurred for the purposes of determining the quality of a mineral resource in Canada will not include expenses incurred to determine the economic viability or engineering feasibility of the mineral resource. This will limit the scope of expenses included as Canadian exploration expenses.

This change takes effect starting on November 4, 2025.

Transfer Pricing

One of the main objectives of transfer pricing rules is the fair allocation of profits among entities of  multinational enterprise groups. The accepted standard is the arm’s length principle which requires that transactions between Canadian taxpayers and non-arm's length, non-resident persons be carried out under conditions that reflect arm’s length terms.

Budget 2025 proposes to modernize Canada’s transfer pricing rules to better align with the international consensus on the application of the arm’s length principle. The measures add a new interpretation rule to ensure Canada’s rules are applied in a manner consistent with those set out in the Organisation for Economic Co-operation and Development’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations. The new measures would add a transfer pricing adjustment application rule to provide greater detail on how cross-border transactions between non-arm's length persons are to be analyzed. In addition, the new rules would also modify certain administrative measures including:

• increasing the threshold for when the transfer pricing penalty applies on assessed adjustments from a $5 million transfer pricing adjustment to a $10 million adjustment;
• clarifying transfer pricing documentation requirements;
• introducing simplified documentation requirements when certain conditions are met; and
• reducing the time for providing transfer pricing documentation from 3 months to 30 days.

Underused Housing Tax

Budget 2025 proposes to eliminate the Underused Housing Tax (UHT) as of the 2025 calendar year. As a result, UHT would not be payable and UHT returns would not be required to be filed for 2025 and all subsequent years.

All UHT requirements still apply to the 2022 to 2024 calendar years. Failing to file any applicable UHT returns or pay UHT balances owing for these years will result in penalties and/or interest.

Luxury Tax on Aircraft and Vessels

Budget 2025 proposes to end the luxury tax on subject aircraft and vessels. Effective November 5, 2025  and onwards, all instances of the tax (including the tax on sales, importations and improvements) would cease to be payable.

Registered vendors must file a final return covering the reporting period up to and including November 4, 2025. Registration of subject aircraft and vessels will be maintained after November 4, 2025 to allow registered vendors the opportunity to claim any rebates they are eligible for. Registration of subject aircraft and vessels will be cancelled on February 1, 2028, after which time no vendors will be able to claim rebates.

Budget 2025 confirms that the government has considered each of the outstanding tax measures announced by the previous government and confirms that it intends to proceed with the following measures, among others, as modified to take into account consultations and deliberations since their release.

→ Legislative and regulatory proposals released on August 15, 2025, including with respect to the following measures:

• Capital Gains Rollover on Small Business Investments;
• Reporting by Non-profit Organizations, subject to a deferred application date for taxation years beginning January 1, 2027 or later (the government is reviewing the feedback it received from consultations with stakeholders and will release final proposals in due course);
• Scientific Research and Experimental Development Tax Incentive Program;
• Crypto-Asset Reporting Framework and the Common Reporting Standard (subject to a deferred application date of January 1, 2027);
• Tax exemption for sales to Employee Ownership Trusts and Worker Cooperatives;
• Non-Compliance with Information Requests;
• Excessive Interest and Financing Expenses Limitation Rules;
• Substantive CCPCs;
• Technical tax amendments to the Income Tax Act and the Income Tax Regulations (subject to a deferred application date for reporting by bare trusts, so that it would apply to taxation years ending on or after December 31, 2026); and
• Technical amendments to the Global Minimum Tax Act.

→ The extension of the Mineral Exploration Tax Credit as announced on March 3, 2025.

→ Legislative proposals released on January 23, 2025, to extend the 2024 charitable donations deadline.

→ Legislative and regulatory proposals announced in the 2024 Fall Economic Statement, including with respect to the following measures:

• Exempting the Canada Disability Benefit from Income;
• Expanding Eligibility under the Clean Electricity Investment Tax Credit to the Canada Infrastructure Bank;
• Expanding Eligibility under the Clean Hydrogen Investment Tax Credit to Methane Pyrolysis; and
• Extension of the Accelerated Investment Incentive and Immediate Expensing Measures.

→ Legislative and regulatory proposals to remove the GST on the construction of new student residences as released on November 19, 2024.

→ Legislative and regulatory proposals as released on August 12, 2024, including with respect to the following measures:

• Alternative Minimum Tax (other than changes related to resource expense deductions);
• Disability Supports Deduction;
• Charities and Qualified Donees;
• Registered Education Savings Plans;
• Accelerated Capital Cost Allowance for Productivity-Enhancing Assets;
• Accelerated Capital Cost Allowance for Purpose-Built Rental Housing;
• Withholding for Non-Resident Service Providers;
• Regulations related to the application of the Enhanced (100-per-cent) GST Rental Rebate to cooperative housing corporations;
• Clean Electricity Investment Tax Credit;
• Amendments to the Global Minimum Tax Act and the Income Tax Conventions Interpretation Act;

→ The proposed exemption from the Alternative Minimum Tax for certain trusts for the benefit of Indigenous groups announced in Budget 2024.

→ The proposed increase in the Lifetime Capital Gains Exemption to apply to up to $1.25 million of eligible capital gains announced in Budget 2024.

→ Legislative amendments to implement the Hybrid Mismatch Arrangements rules announced in Budget 2021.