What’s New for the 2025 Tax Season

Effective July 1, 2025, the lowest federal income tax rate will decrease from 15 per cent to 14 per cent. For the full 2025 tax year, this results in an effective blended rate of 14.5 per cent. The Basic Personal Amount (BPA), which is the portion of income an individual can earn tax-free, has increased to $16,129 for 2025 and is scheduled to rise to $16,452 for 2026.

The digital news subscription non-refundable tax credit that was previously available on amounts paid to qualified Canadian journalism organizations for qualifying subscription expenses is no longer available for the 2025 tax year and onwards.

The Lifetime Capital Gains Exemption (LCGE) allows individuals to realize tax-free capital gains if the disposed-of property qualifies (subject to alternative minimum tax). The LCGE amount is $1,250,000 for 2025 and is expected to rise slightly due to indexing for inflation in 2026.  

The Alternative Minimum Tax (AMT) is often applicable when an individual claims preferential deductions, exemptions or credits against their income. The AMT is an alternative calculation of an individual’s taxable income which excludes certain exemptions, deductions, and tax credits, notionally to ensure that the individual pays at least a certain minimum amount of tax. AMT is, however, effectively a prepayment of income taxes, as any AMT paid can generally be carried forward for up to seven years and used as a credit to offset regular income tax payable in a future year. Be mindful that if you do not pay enough regular income tax to recover the AMT within the seven year carry forward period, the AMT will become an unrecoverable permanent tax cost.

An individual may incur AMT in 2025 if their taxable income includes items such as capital gains, a deduction for the LCGE, and many other preferential deductions, exemptions or credits; depending on the individual’s other sources of income earned in 2025.

Personalized planning may be required to ensure the AMT is recovered in future years and does not end up becoming a non-recoverable tax. 

The Government of Canada announced measures to deny income tax deductions for expenses incurred to earn short-term rental income in provinces and municipalities that have prohibited short-term rentals, and where short-term rental operators are not compliant with the applicable provincial or municipal licensing, permitting, or registration requirements. These measures came into effect on January 1, 2024. 

Effective January 1, 2024, the government introduced a second CPP earnings ceiling which applies to individuals who have an income above the first earnings ceiling ($71,300 for 2025 and $74,600 for 2026). These individuals will be required to contribute an additional percentage of the income they earn above the first ceiling, up to the second ceiling ($81,200 for 2025 and $85,000 for 2026). The rate for the first ceiling is 5.95 per cent (11.9 per cent for self-employed individuals), while the rate for the second ceiling is four per cent (eight per cent for self-employed individuals).

The maximum Registered Retirement Savings Plan (RRSP) contribution limit for 2025 is $32,490 and $33,810 for 2026. Your RRSP contribution room for 2025 is generally calculated as 18 per cent of your 2024 earned income, less 2024 pension adjustments to a maximum of $32,490, plus any unused RRSP deduction room carried forward from prior years.

You can find your RRSP contribution room on your 2024 Notice of Assessment or on your CRA MyAccount.

The Tax-Free Savings Account (TFSA) annual contribution limit for the 2025 and 2026 tax years is $7,000 each and, the cumulative maximum contribution limit that could be available to an individual has increased to $109,000 for 2026. Investment income earned in your TFSA is not taxable, but the contributions you make to your TFSA are not deductible. 

The Home Buyers’ Plan (HBP) withdrawal limit is $60,000 per individual. The plan allows first time home buyers to withdraw money from their RRSP without triggering immediate income tax consequences. Amounts withdrawn under the HBP must be repaid to an RRSP over a period not exceeding 15 years, starting in the second year following the year in which the withdrawal was made to prevent any income inclusion. If you made a first withdrawal between January 1, 2022 and December 31, 2025, there is a further deferral such that the start of the 15-year repayment period is deferred to the fifth year following the year in which the withdrawal was made.

The Tax-Free First Home Savings Account (FHSA) is a registered plan (introduced in 2023) aimed at helping Canadians purchase their first home. The registered plan would enable eligible first-time home buyers to save $40,000 on a tax-free basis. An FHSA combines the features of an RRSP and a TFSA. Similar to an RRSP, contributions made to the FHSA will be deductible for tax purposes and, like a TFSA, withdrawals would be non-taxable if used to purchase a first home. Since this is a tax-free account, you will not pay any taxes on investment income earned within the account. Annual contributions are limited to $8,000 and lifetime contributions are limited to $40,000. You may carry forward up to $8,000 of your unused annual contribution to use at a later date, but a FHSA account must be open for you to be able to accrue the FHSA contribution amount for a year.

The Toronto Vacant Home Tax (VHT) is an annual tax on vacant homes in Toronto. The VHT requires residential property owners to submit a declaration of their property’s status, annually. Homeowners who choose to keep their properties vacant will be subject to this tax, which is 3 per cent of the Current Value Assessment (CVA) of the property. The VHT will be imposed on all Toronto residences that are declared, deemed or determined to be vacant for more than six months during the previous year.

Although all property owners are required to submit a declaration, the tax does not apply to properties that:

1. Are the principal residence of the owner;
2. Are the principal residence of a permitted occupant or tenant; or
3. Qualify for an exemption.

The deadline to declare a property’s 2025 occupancy status is April 30, 2026. Speak to your Crowe Soberman advisor regarding the VHT filing requirement. 

The Underused Housing Tax (UHT) is an annual one per cent tax on the ownership of vacant or underused housing in Canada. The UHT generally applies to individuals who are not Canadian citizens or permanent residents of Canada. The UHT also applies to foreign corporations, certain Canadian corporations that have foreign ownership, and certain trusts and partnerships. These types of owners (“Affected Owners”) are required to file a UHT return. 

The 2025 Federal Budget proposes to eliminate the UHT as of the 2025 calendar year. As a result, no UHT would be payable, and no UHT returns would be required to be filed for 2025 and subsequent years.

Payments under the Canada Disability Benefit (CDB) federal program started in July 2025. This is a new federal program aimed to provide financial support to low-income, working-age Canadians (age 18 to 64) with disabilities. Eligible individuals can receive up to $2,400 per year (maximum $200 per month), based on their adjusted family net income.

You may be able to deduct certain expenses, including any applicable GST/HST you paid to earn employment income. You can do so only if your employment contract required you to pay the expenses and you did not receive an allowance for them, or the allowance you received is included in your income. Generally, Form T2200, Declaration of Conditions of Employment must be completed by your employer for you to be able to deduct employment expenses from your income.

Unpaid taxes and instalments will accrue interest with daily compounding. The prescribed interest rate is currently seven per cent. Therefore, missing the payment deadline or making insufficient instalments could be costly.