Finance Minister Francois-Philippe Champagne tabled the 2025 Federal Budget on November 4th. This budget reinforced the government’s intent to proceed with several previously announced changes and also identified several areas for modification. The budget also projected a $78 billion deficit.

From a tax perspective, there were no changes to personal or corporate income tax rates. The Budget did include a new Personal Support Workers tax credit, tightened anti-avoidance rules for the 21-year deemed disposition rule for personal trusts, and confirmation that bare trust reporting won’t be required for the 2025 tax year.

Summary of tax measures of interest

The Budget is noteworthy for the following proposed tax measures:

1. Repeal of the Underused Housing Tax Act and related filing requirements;
2. Repeal of the luxury tax on aircraft with a value above $100,000 and vessels (e.g., boats) with a value above $250,000;
3. New Personal Support Workers tax credit;
4. Confirmation that postmortem tax planning provisions will be extended from the first year to the first three taxation years of a graduated rate estate;
5. Restriction and tightening of anti-avoidance rules in 21-year planning for Trusts;
6. Increase in the lifetime capital gains exemption to apply to up to $1.25M of eligible capital gains as announced in Budget 2024;
7. Elimination of the Canadian Entrepreneurs’ Incentive and the reduction of capital gains inclusion rate on dispositions of certain small business corporation shares;
8. Restrictions of tax-free inter-corporate dividends where corporate structures include tiered year ends to limit potential deferral of tax on investment income; and
9. The delay of the bare trust tax reporting obligations to 2026.

Just as significant, there are no proposals that introduce:

1. Personal tax rate increases, wealth or estate taxes, or changes to the taxation of dividends, interest or changes to the principal residence exemption;
2. Changes to the taxation of group insurance, exempt life insurance, corporate-owned insurance or the capital dividend account arising from life insurance; and
3. Changes to the taxation of private corporations, including the TOSI and passive investment rules.

Other Areas of Note

1. Provides temporary immediate expensing for the cost of acquiring, or making additions or alterations to, eligible buildings used for manufacturing & processing;
2. Confirms changes to the scientific research and experimental development tax incentive program previously announced in the 2024 Fall Economic Statement and further increases the expenditure limit on which enhanced credits can be earned;
3. Expands the list of critical minerals eligible for existing tax credits and extends the availability of full tax credit rates for carbon capture, utilization and storage expenditures; and
4. Modifies Canada’s transfer pricing rules.

Budget 2025 is disappointing, as it does not include any measures related to the promised corporate tax system reform or to the RRSP/RRIF contribution and withdrawal rules.