The 2025 Canadian Federal Budget, released on November 4, outlines a bold fiscal plan under the theme “Canada Strong,” with a projected deficit of $78.3 billion for the 2025–26 fiscal year.
Here’s a breakdown of the key proposed tax measures.
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 benefit from immediate tax deductions. Strategic planning around acquisition timing and facility use will be essential.
Scientific Research and Experimental Development 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.
Critical Mineral Exploration Tax Credit
Flow-through shares let corporations pass certain exploration and development expenses—like Canadian exploration expenses (CEE) and renewable or conservation costs—on to investors, who can then deduct these amounts from their taxable income.
The Critical Mineral Exploration Tax Credit (CMETC) gives investors an extra 30% tax credit on eligible mineral exploration expenses in Canada that are transferred to them through flow-through shares. Currently, eligible minerals include nickel, cobalt, graphite, copper, rare earth elements, vanadium, tellurium, gallium, scandium, titanium, magnesium, zinc, platinum group metals, uranium, and lithium.
Budget 2025 proposes to expand the list of eligible minerals for flow-through share agreements entered into after Budget Day and before March 31, 2027, to include: bismuth, cesium, chromium, fluorspar, germanium, indium, manganese, molybdenum, niobium, tantalum, tin, and tungsten.
Eligible Activities Under the Canadian Exploration Expense (CEE)
Currently CEE includes costs related to finding out whether a mineral resource exists, where it is, how much there is, and its physical quality.
A recent BC Supreme Court decision said that “quality” could also mean how economically viable the resource is—not just its physical traits.
The Budget proposes to make it clear that CEE does not include costs for evaluating whether a mineral resource is economically viable or technically feasible to develop.
Clean Economy Investment Tax Credits
Several updates have been made to this program:
- Clean Electricity Investment Tax Credit is a 15% refundable tax credit for the purchase of low-emitting electricity generation, electricity storage and interprovincial electricity transmission. The Budget proposes to expand access by making The Canada Growth Fund, an eligible entity.
- Clean Technology Manufacturing Tax Credit is a refundable tax credit designed to support investments in clean technology manufacturing in the critical minerals industry in Canada. The 2025 Budget expanded the list of minerals eligible or the 30% tax credit to include antimony, indium, gallium, germanium, and scandium, and made it easier to qualify for the tax credit. Previously, 90% of production had to be from eligible minerals. The Budget reduced this threshold to 50%.
- Carbon Capture, Utilization & Storage Tax Credit is a refundable tax credit for costs related to capturing, using and storing carbon emissions. The credit is available from 2022 to 2030, at different rates depending on the type of equipment:
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- 60% for capture equipment used in direct air capture projects
- 50% for other eligible carbon capture equipment
- 5% for transportation, storage, and usage equipment
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The Budget proposes to extend these rates until the end of 2035. After that lower rates will apply to expenses incurred from 2036 to 2040.
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 under subsection 164(6) of the Income Tax Act. This change applies retroactively to deaths occurring on or after August 12, 2024.
Capital Gains Inclusion Rate
The proposed increase to the capital gains inclusion rate (from 50% to 66.67%)—announced in the 2024 Budget—was cancelled earlier in 2025. The 2025 Budget confirms that the inclusion rate remains at 50% for all taxpayers.
Lifetime Capital Gains Exemption (LCGE)
The LCGE was increased in 2024 to $1,250,000, effective June 25, 2024. The 2025 Budget reaffirms the increase.
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.
Personal Support 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 excludes workers in BC, NL, and NWT due to existing wage agreements.
Top-Up Tax Credit
The government is implementing a reduction in the lowest federal personal income tax rate from 15% to 13.5% in 2025.
While this change reduces taxes for many Canadians, it also lowers the value of non-refundable tax credits, which are calculated using the lowest tax rate. To prevent a reduction in the value of these credits, the Top-Up Tax Credit will apply from 2025 to 2030. It ensures that the value of affected non-refundable tax credits remains at the 15% level, even though the lowest tax rate is being reduced.
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. Individuals will have 90 days to review the CRA’s pre-filled information, make any necessary corrections, and choose to opt out of automatic tax 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 for 2026 and future taxation years.
Canada Carbon Rebate (CCR)
With the removal of the federal fuel charge as of April 1, 2025, the CCR ends. Final payments were issued in April 2025. No claims accepted after October 30, 2026.
Qualified Investments for Registered Plans
Beginning January 1, 2027, the government is simplifying and harmonizing the rules for what investments are allowed in registered plans (RRSPs, RRIFs, TFSAs, RESPs, FHSAs, RDSPs).
Currently, there are two different sets of rules that allow registered plans to invest in small businesses. The first set applies to RRSPs, RRIFs, TFSAs, RESPs, and FHSAs, and allows investments in specified small business corporations, venture capital corporations, and certain cooperatives. The second set applies only to RRSPs, RRIFs, RESPs, and DPSPs, and allows investments in eligible corporations, small business investment limited partnerships, and small business investment trusts. RDSPs are currently excluded from both sets.
Key Changes in Budget 2025:
- The first set of rules will be extended to RDSPs.
- The second set of rules will be repealed.
- However, investments made under the second set before January 1, 2027 will continue to qualify after that date.
The current system, where certain corporations or trusts must register with the CRA to qualify as “registered investments,” will be eliminated and replaced with two new categories of qualified investments that don’t require registration:
- Units of trusts governed by National Instrument 81-102 (e.g., mutual funds).
- Units of investment funds as defined in subsection 251.2(1) of the Income Tax Act.
21 Year Rule for Trusts
The government is tightening anti-avoidance rules to address indirect transfers of property between trusts. Specifically, if a trust transfers property to another trust without triggering the 21-year rule, the new rules will now treat this as a deemed disposition. This applies to transfers made on or after November 4, 2025.
Bare Trust Reporting is Deferred
On August 15, 2025, technical amendments announced that bare trusts will have to file annual trust returns. The Budget confirms the government’s intention to move forward with new reporting requirements for bare trusts.
The application of these rules has been deferred and will apply to taxation years ending on or after December 31, 2026.
Sales and Excise Tax Measures
Underused Housing Tax (UHT)
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.
The Budget proposes changes to the Excise Tax Act by introducing a reverse charge mechanism (RCM). This new rule will initially apply to specific telecommunications services provided to GST/HST-registered businesses.
Under the proposed reverse charge system, suppliers will no longer collect GST/HST on affected supplies. Instead, the registered recipient will be responsible for calculating and reporting the tax on their own GST/HST return. If eligible, they can then claim an input tax credit for the same amount.
The government intends to expand the reverse charge rules to cover additional types of supplies through future regulations.
A public consultation on these proposals is currently open, and stakeholders are encouraged to provide feedback. The consultation period ends on January 12, 2026.
Manual Osteopathic Services
The Budget clarifies that only osteopathic services provided by licensed osteopathic physicians are exempt from GST/HST.
Services offered by other practitioners—such as manual osteopathic therapists who are not osteopathic physicians—will remain subject to GST/HST.
Charities and Non-Profits
Reporting requirements for Not-for-Profit Organizations (NPOs)
Enhanced reporting rules for NPOs were originally proposed to take effect for fiscal years beginning on or after January 1, 2026.
The Budget confirmed that the implementation date will be delayed until January 1, 2027, or later.
The enhanced reporting rules include:
- NPOs with gross annual revenues over $50,000 will be required to file the T1044 Non-Profit Organization Information Return.
- NPOs below the $50,000 threshold will be required to file a new short-form return with basic organizational details, including:
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- Name and address
- Directors/officers
- Description of activities (including those outside Canada)
- Total assets, liabilities, and revenue.
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Final rules are still under review to minimize administrative burden and clarify which organizations are affected.
Anti-Money Laundering
The budget proposed amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act will prohibit cash donations of $10,000 or more in a single or related series of transactions. The government may introduce new legislation to implement this measure, separate from previous bills.
Duty Drawbacks for Donated Surplus Goods
The Budget proposes that a pilot program will allow importers to claim duty refunds (drawbacks) when surplus or obsolete goods are donated to registered charities. The goods must be used in charitable programs and not resold.
Integrity Measures for Private Educational Institutions
The Budget proposes that Canada Student Grants and Loans will be restricted to students attending public or not-for-profit private institutions. Students at for-profit private institutions will no longer be eligible.
Dissolution of Terrorist-Listed NPOs
The Budget proposes amendments to federal corporate laws will allow for faster dissolution of non-profit corporations listed as terrorist entities under the Criminal Code.
Stablecoin Regulation
The government will introduce a regulatory framework for fiat-backed stablecoins, a type of cryptocurrency. This could open new avenues for charitable giving using digital assets. Oversight will be provided by the Bank of Canada, with legislation to ensure consumer protection and financial stability.
Hate Crime Prevention and Community Engagement
The 2025 Budget proposes reforms to address rising hate-related crimes in Canada. The Canada Community Security Program will be reformed to better protect places of worship, schools, and community centers. The Minister of Public Safety will engage with affected communities to develop a comprehensive and equitable approach.
Funding Opportunities
Budget 2025 includes new and ongoing funding for charities and NPOs across sectors.
Previously Announced Measures
The Budget confirms implementation of earlier proposals, including:
- Electronic notices from CRA to charities and qualified donees
- A new category of “registered foreign charity” with extended recognition periods and reporting requirements
- Updates to official donation receipt requirements, including digital signatures and simplified content rules
- Expanded CRA audit powers, including new penalties and compliance orders
- Changes to the Alternative Minimum Tax (AMT), increasing the charitable donation tax credit from 50% to 80% when calculating AMT.
International and Cross Border Tax Measures
Transfer Pricing Modernization
Canada will align its transfer pricing rules with OECD standards, introducing clearer guidance on how to analyze cross-border transactions between related entities. A new interpretation rule will ensure consistency with the OECD guidelines, and a new adjustment rule will allow the Canada Revenue Agency to revise transactions that do not reflect arm’s length terms.
Under the revised rules, a transaction or series of transactions will be considered inconsistent with arm’s length terms if it lacks a condition that independent parties would have included, or if independent parties would not have entered into the same transaction or would have structured it differently.
Both actual and hypothetical transactions will need to be analyzed using “economically relevant characteristics,” which include five comparability factors: contractual terms, functional profile, characteristics of the property or service, economic and market context, and business strategies.
The new transfer pricing adjustment rule will require that any amounts relevant to a taxpayer’s tax year be adjusted to reflect the quantum or nature of amounts that would arise under arm’s length conditions.
The 2025 Budget proposes updates to the administrative rules governing transfer pricing. The threshold for triggering transfer pricing penalties will increase from $5 million to $10 million, and documentation requirements will be clarified and updated to align with the new definitions and analytical framework.
A simplified documentation process will be available if certain conditions are met. The deadline for producing documentation will be shortened from three months to 30 days, although the requirement to prepare appropriate records by the original due date remains unchanged.
These amendments will apply to taxation years beginning after November 4, 2025.
Foreign Accrual Property Income Treatment of Insurance Related Investment Income (FAPI)
The budget clarifies that investment income earned by a foreign affiliate after November 4, 2025, in respect of assets held to support Canadian insurance risks is considered FAPI, regardless of which entity owns the assets. This includes both income from assets directly backing Canadian risks and income from related regulatory surplus assets.
Hybrid Mismatch Rules
The 2025 budget confirms that the government will move forward with the next set of rules to stop companies from using international tax mismatches. These new rules build on earlier ones introduced in Bill C-59 and will cover more types of tax avoidance strategies. The goal is to make Canada’s tax system more consistent with global standards set by the OECD.