2025 Federal Budget Highlights
On November 4, 2025, the budget was delivered by the Honourable François-Philippe Champagne, Minister of Finance and National Revenue.
The 2025 Federal Budget focuses on stability, simplicity, and long-term growth. There are no broad tax increases or major new spending programs. Instead, the government is emphasizing restraint, modernization, and productivity.
For individuals and business owners, the goal is clear: help Canadians access benefits more easily, encourage investment in innovation and clean energy, and update trust and estate rules to maintain fairness across the system.
Economic Overview
Canada’s federal deficit is projected at $78.3 billion for 2025–26. The government aims to stabilize the debt-to-GDP ratio while maintaining funding for priorities such as housing, defence, and clean energy.
Spending will focus on programs that improve productivity, while efficiency reviews across departments are expected to reduce overlap and administrative costs. This marks a shift toward sustainable fiscal management and practical, targeted investments.
Personal and Family Tax Measures
Several measures are designed to make life more affordable, particularly for first-time home buyers, caregivers, and lower-income households.
Eliminating the GST for First-Time Home Buyers
First-time home buyers will not pay the 5 percent federal GST on new homes priced up to $1 million. For new homes between $1 million and $1.5 million, a partial GST reduction applies. This change provides meaningful savings and makes new construction more accessible for Canadians entering the housing market.
Home Accessibility Tax Credit
Starting in 2026, expenses can no longer be claimed under both the Home Accessibility Tax Credit and the Medical Expense Tax Credit. The rule prevents duplicate claims but continues to support renovations that make homes safer and more accessible for seniors or individuals with disabilities.
Top-Up Tax Credit
To balance the reduction in the lowest federal tax bracket—from 15 percent to 14.5 percent in 2025, and 14 percent in 2026—the government introduced a Top-Up Tax Credit to preserve the value of non-refundable credits such as tuition, medical, and charitable amounts. This temporary measure, available from 2025 through 2030, ensures Canadians receive the same credit value even as rates decrease.
Personal Support Workers (PSW) Tax Credit
A new refundable tax credit equal to 5 percent of eligible income, up to $1,100 per year, will be available for certified personal support workers beginning in 2026. The measure acknowledges the importance of care professionals and provides direct relief to those in long-term and community-care roles.
Automatic Federal Benefits
Starting in 2025, the Canada Revenue Agency will begin automatically filing simple tax returns for eligible Canadians who do not normally file. This will allow low-income earners and seniors to receive benefits such as the Canada Workers Benefit, GST/HST Credit, and Canada Carbon Rebate automatically. Those with more complex financial situations will continue to file regular returns.
Registered Plans, Trusts, and Estate Planning
The budget introduces several changes affecting trusts and registered plans—key tools in long-term financial and estate planning.
Bare Trust Reporting Rules
Implementation of new bare trust reporting requirements has been delayed. The rules will now apply to taxation years ending December 31, 2026, or later. This postponement gives individuals, trustees, and professionals more time to prepare for the new filing obligations.
The 21-Year Rule for Trusts
Trusts—particularly most personal or family trusts—are generally considered to have sold and repurchased their capital property every 21 years (a “deemed disposition”). This rule prevents indefinite deferral of capital-gains tax on assets that grow in value.
When property is moved on a tax-deferred basis from one trust to another, the receiving trust normally inherits the original 21-year anniversary date so that tax timing does not reset.
Some estate-planning arrangements have transferred trust property indirectly—for example, through a corporation or a beneficiary connected to a second trust—so that the transfer did not appear to be trust-to-trust. These arrangements effectively extended the period before capital gains would be recognized.
Budget 2025 broadens the anti-avoidance rule to include indirect transfers. Any transfer of property made on or after November 4, 2025, that effectively moves assets from one trust to another will retain the original 21-year schedule.
For families that use trusts in estate or business-succession planning, this change reinforces the importance of reviewing structure and timing. Trusts remain valuable for asset protection, legacy planning, and income distribution—this update simply ensures consistent application of the 21-year rule.
Qualified Investments for Registered Plans
Beginning January 1, 2027, all registered plans—RRSPs, TFSAs, FHSAs, RDSPs, and RESPs—will follow a single harmonized list of qualified investments. Small-business shares will no longer qualify for new contributions, though existing holdings will remain grandfathered. The update simplifies compliance and clarifies which assets can be held in registered accounts.
Business and Investment Incentives
For business owners, Budget 2025 provides opportunities to reinvest, innovate, and modernize operations, with emphasis on manufacturing, research, and clean technology.
Immediate Expensing for Manufacturing and Processing Buildings
Businesses can now claim a 100 percent deduction for eligible manufacturing and processing buildings acquired after Budget Day and available for use before 2030. This full write-off improves cash flow and encourages earlier expansion. The benefit will gradually phase out after 2033.
Scientific Research and Experimental Development (SR&ED)
The refundable SR&ED tax credit limit has increased from $3 million to $6 million per year, effective for taxation years beginning after December 16, 2024. This expansion strengthens support for small and medium-sized Canadian businesses investing in innovation and technology.
Tax Deferral Through Tiered Corporate Structures
To prevent deferrals of tax on investment income, new rules will suspend dividend refunds for affiliated corporations with mismatched fiscal year-ends. This ensures consistent taxation within corporate groups and aligns refund timing with income recognition.
Agricultural Co-operatives
The tax deferral for patronage dividends paid in shares has been extended to December 31, 2030, continuing to support agricultural co-operatives and their members.
Clean Technology and Clean Electricity Investment Credits
Clean-technology and clean-electricity incentives have been expanded to include additional critical minerals—such as antimony, gallium, germanium, indium, and scandium—used in advanced manufacturing and renewable energy production. The Canada Growth Fund can now invest in qualifying projects without reducing the amount of credit companies can claim, keeping the incentive structure attractive for green investment.
Canadian Entrepreneurs’ Incentive
The government has confirmed it will not proceed with the previously proposed Canadian Entrepreneurs’ Incentive. The existing Lifetime Capital Gains Exemption remains unchanged and continues to apply to the sale of qualified small-business shares.
Tax Simplification and Repealed Measures
To simplify administration and reduce complexity, two taxes are being repealed:
– Underused Housing Tax, beginning in 2025
– Luxury Tax on aircraft and vessels for purchases made after November 4, 2025
In addition, the Canada Carbon Rebate will issue its final household payment in April 2025, with no rebates available for returns filed after October 30, 2026. These changes are meant to streamline compliance and eliminate programs that were costly to administer.
Government Direction and Spending Priorities
Beyond taxation, the budget sets out the government’s broader policy priorities.
Downsizing Government: A comprehensive efficiency review is underway to eliminate duplication across departments and generate long-term savings.
Cuts to Immigration: To ease pressure on housing and infrastructure, temporary-resident levels will be reduced by about 20 percent over two years, while maintaining pathways for essential workers.
Defence Spending: Canada will invest an additional $7 billion over five years to strengthen NATO participation, Arctic defence, and cybersecurity. By 2030, defence spending is expected to reach 1.8 percent of GDP.
Oil and Gas Emission Cap: A phased-in cap starting in 2026 will allow companies to meet targets through carbon-capture and clean-tech investments rather than penalties.
Final Thoughts
For individuals, the most relevant updates include GST relief for first-time home buyers, improved benefit access, and continued tax relief for caregivers and support workers. For business owners, the focus remains on productivity—through immediate expensing, expanded SR&ED credits, and clean-tech investment incentives. For families using trusts or inter-generational structures, the clarified 21-year rule reinforces transparency in estate planning.
If you’d like to review what these changes mean for you or your business, please get in touch. We can look at your goals and make sure you’re well prepared for the year ahead.