The 2025 Canadian Federal Budget, released on November 4, outlines a fiscal plan under the theme “Canada Strong”, with a projected deficit of $78.3 billion for 2025–26.

Here’s a breakdown of the key proposed tax measures and what they mean for you.

Corporate Tax Measures

Immediate Expensing for Manufacturing & Processing Buildings

An incentive has been introduced for businesses investing in manufacturing and processing facilities.  Eligible buildings may now be fully expensed (claimed at 100% Capital Cost Allowance (CCA)) in the year they are first used.

This new measure applies to buildings acquired on or after November 4, 2025, and placed in use before 2030.

To qualify, at least 90% of the floor space must be used for manufacturing or processing goods for sale or lease.

For used buildings, acquisition must be at arm’s length and not through a tax-deferred “rollover” transaction.

If placed in use after 2030, the CCA rate is reduced to 75% (2030–31) and 55% (2032–33).  After 2033, the enhanced rate is no longer available.

This measure presents an opportunity for companies to accelerate capital investment and benefit from immediate tax deductions.  Strategic planning around acquisition timing and facility use will be essential.

SR&ED Program Enhancements (SR&ED)

The SR&ED expenditure limit for the 35% investment tax credit increases to $6 million (up from $4.5 million) beginning on or after December 16, 2024.

The enhanced credit will now be available to certain small Canadian public companies and larger private corporations, with phase-out beginning at $15 million in taxable capital and eliminated at $75 million.

In addition, certain capital expenditures used in SR&ED will qualify for a 100% deduction, and investment tax credits as well.

Tiered Group Structure

New anti-deferral rules target corporate groups using mismatched year-ends to delay tax payments on investment income beginning after November 4, 2025 .

Common structures involve a holding company and subsidiaries with different year-ends, allowing deferral of dividend refunds under the refundable tax system.  Dividend refunds are typically claimed when dividends are paid up the chain.  These refunds will now be suspended unless the dividends are paid to individual shareholders or non-connected corporations.

Businesses with tiered structures should review their corporate year-ends and dividend strategies to mitigate the impact of these new rules.

Critical Mineral Exploration Tax Credit

This tax credit has been expanded to include 13 new minerals; this 30% credit supports flow-through share investors in the clean tech and mining sectors.

Clean Economy Investment Tax Credits

Several updates have been made to support Canada’s transition to a low-carbon economy:

• Clean Electricity Investment Tax Credit (ITC): Canada Growth Fund is now eligible.
• Clean Technology Manufacturing ITC: Expanded to include minerals such as antimony, indium, gallium, germanium, and scandium.
• Carbon Capture, Utilization & Storage (CCUS) Credit: Full credit rates extended to 2035 (previously 2030).

Personal Tax Measures

Loss Carry Back for Estates

The budget confirms a technical amendment first announced in 2024: Graduated Rate Estates (GRE) will now be able to carry back capital losses incurred in the first three taxation years to a terminal tax return.  This change applies retroactively to deaths occurring on or after August 12, 2024.

Canada Entrepreneurs’ Incentive

The previously announced Canada Entrepreneurs’ Incentive, which would have provided a reduced capital gains inclusion rate for qualifying entrepreneurs, appears to have been dropped.  It is not mentioned in the current budget documents.

Health Care Workers Tax Credit

Starting in 2026, eligible healthcare workers will receive a refundable tax credit equal to 5% of eligible remuneration, up to a maximum of $1,100.  This measure is intended to recognize the contributions of frontline workers in the healthcare system.

Automatic Tax Filing by CRA

Beginning in 2025, the Canada Revenue Agency (CRA) will automatically file tax returns for individuals with income below the personal exemption threshold, provided certain conditions are met.  This initiative aims to ensure that low-income Canadians receive benefits such as the GST credit, which often go unclaimed due to non-filing.

Home Accessibility Tax Credit

The budget confirms that the expense can not be claimed as both a medical expense and be eligible for the home accessibility tax credit.

Bare Trust Reporting is Deferred

The budget proposes to defer the reporting obligations for bare trusts to apply only to taxation years ending on or after December 31, 2026.

Elimination of Underused Housing Tax

The UHT will be repealed effective January 1, 2025.  However, filing obligations for 2022 to 2024 remain in place for non-exempt taxpayers.  Penalties and interest may apply for late or missed filings.

Elimination of the Luxury Tax

The 10% luxury tax will be eliminated for purchases of boats and aircraft, but will remain in effect for automobiles priced over $100,000.

International and Cross Border Tax Measures

Transfer Pricing Modernization

Canada will align its transfer pricing rules with OECD standards, introducing:

• Updated definitions and comparability factors
• Shortened documentation deadlines (30 days)
• Increased penalty thresholds ($10 million)

Foreign Accrual Property Income (FAPI)

The budget clarifies that investment income from assets supporting Canadian reinsurance risks qualifies as FAPI, reinforcing Canada’s approach to international tax compliance.

If you have questions about how these changes may affect you, please contact your Lipton LLP advisor.