Introduction
On November 4, 2025 (Budget Day), the Honourable François-Philippe Champagne, Finance Minister, delivered the 2025 federal budget titled, "Canada Strong" (Budget 2025), the Liberal Party's first federal budget under Prime Minister Mark Carney.
The Federal Government (Government) announced its desire to maintain its global economic position as part of its release. Although Budget 2025 did not amend federal corporate or personal tax rates under the Income Tax Act (Canada) (Tax Act) certain tax measures were announced, including the following:
- Introducing a productivity super-deduction and enhancing the Scientific Research and Experimental Development program, driving growth and innovation;
- Broadening an anti-avoidance rule targeting trust structures;
- Advancing measures related to critical minerals;
- Simplifying and streamlining qualified investment opportunities; and
- Adopting international tax measures to align with global standards and ensure fairness in cross-border taxation.
The following is a summary of select tax measures announced in Budget 2025 that are most relevant to taxpayers, including:
- Personal Income Tax Measures;
- Business Income Tax Measures;
- International Tax Measures;
- Sales and Excise Tax Measures;
- Indigenous Tax Measures;
- Previously Announced Measures; and
- Charity and Not-for-profit Measures.
Top-Up Tax Credit
In May 2025, the Government announced that the basic income tax rate will be cut from 15% to 14.5% for the 2025 tax year, and to 14% for 2026 and subsequent tax years. Since many of the non-refundable tax credits are in reference to the basic income tax rate, it is possible that individuals may end up paying more taxes as a result of the rate reduction. For example, if an individual claims a large one-time expense such as high tuition expenses. Budget 2025 proposes to introduce a new non-refundable top-up tax credit to effectively maintain the 15% rate for non-refundable tax credits.
Qualified Investments for Registered Plans
Budget 2025 proposes certain amendments to simplify, streamline, and harmonize the "qualified investment" rules that dictate the types of investments that may be made to the following seven types of registered plans: registered retirement savings plans (RRSPs), tax-free savings accounts (TFSAs), registered education savings plans (RESPs), registered disability savings plans (RDSPs), registered retirement income funds (RRIFs), first home savings accounts (FHSAs), and deferred profit sharing plans (DPSPs).
Small Business Investments
RDSPs will be permitted to invest in shares of specified small business corporations, venture capital corporations, and specified cooperative corporations, similar to RRSPs, TFSAs, RESPs, RRIFs and FHSAs.
Shares of eligible corporations and interests in small business investment limited partnerships and small business investment trusts would no longer be qualified investments.
These amendments would apply as of January 1, 2027.
Registered Investment Regime
Registered investments are qualified investments for all registered plans. For a corporation or a trust to be a registered investment, it must be registered with the Canada Revenue Agency (CRA). Units of a mutual fund trust are qualified investments, but the mutual fund trust can also be a registered investment.
Stakeholders have suggested that the registration process does not add sufficient value to justify its associated compliance and administration burdens. As such, Budget 2025 proposes to replace the registered investment regime with two new categories of qualified investments which do not involve registration:
- units of a trust that is subject to the requirements of National Instrument 81- 102 published by the Canadian Securities Administrators; and
- units of a trust that is an investment fund (as defined in the Tax Act) managed by a registered investment fund manager as described in National Instrument 31-103 published by the Canadian Securities Administrators.
The registered investment regime would be repealed as of January 1, 2027. The new categories of qualified investment trust rules would apply as of Budget Day.
Other Changes
Budget 2025 also proposes to make a number of other technical legislative amendments to simplify the qualified investment rules. Notably, the qualified investment rules for six types of registered plans (except DPSPs) would be consolidated into one definition in the Tax Act. These changes would apply as of January 1, 2027.
Information Sharing - Worker Misclassification
Budget 2024 (released on April 16, 2024) announced that Employment and Social Development Canada (ESDC) and the CRA would enter into data-sharing agreements to facilitate inspections and enforcement to address worker misclassification.
Although ESDC recently began sharing information with the CRA, information-sharing restrictions prevent the CRA from sharing the required information with ESDC. Budget 2025 proposes to amend the information sharing provisions of the Tax Act and the Excise Tax Act (Canada) (ETA) to allow the CRA to share taxpayer information (under the Tax Act) and confidential information (under the ETA) with ESDC for the purposes of the administration and enforcement of the Canada Labour Code as it relates to the classification of workers.
21-Year Rule
Generally, Canadian resident trusts are subject to a deemed disposition of trust property every 21 years (21-Year Rule). The 21-Year Rule can generally be addressed by having trust property distributed on a tax deferred basis to a beneficiary who is a resident of Canada within the 21-year period. The 21-year period cannot be restarted by transferring trust property directly to a new trust since the new trust will inherit the 21-year period of the original trust under an Anti-Avoidance Rule. With the goal of effectively avoiding both the 21-Year Rule and Anti-Avoidance Rule, planning could be done to indirectly transfer trust property to a new trust by way of a corporate beneficiary that is owned by a new trust. This planning technique was already required to be disclosed under the notifiable transaction regime, but Budget 2025 proposes to broaden the current Anti-Avoidance Rule for direct trust-to-trust transfers to include indirect transfers of trust property to other trusts. This measure would apply in respect of transfers of property that occur on or after Budget Day.
Canada Carbon Rebate
Budget 2025 proposes to amend the Tax Act to provide that no Canada Carbon Rebate payments would be made in respect of tax returns, or adjustment requests, filed after October 30, 2026.
Miscellaneous Personal Tax Measures
Budget 2025 also introduced the following personal tax measures:
- A credit up to $1,100 for eligible personal support workers (for 2026 to 2030 taxation years);
- Taxpayers will no longer be able to double dip on the Home Accessibility Tax Credit and the Medical Expense Tax Credit where taxpayers were eligible for both credits on the same expense (for 2026 and subsequent taxation years). Therefore, if an individual claims the Home Accessibility Tax Credit in relation to an expense they can no longer claim the Medical Expense Tax Credit for that same expense (and vice versa); and
- Granting the CRA the authority to automatically file tax returns for the 2025 and subsequent taxation years for individuals whose income is less than the federal basic personal amount of the provincial equivalent while still allowing them access to certain benefit and credit payments.
Immediate Expensing for Manufacturing and Processing Buildings
Productivity Super-Deduction
Budget 2025 proposes a "productivity super-deduction", comprising a combination of previously announced and new immediate expensing and accelerated depreciation measures. This "super-deduction" is targeted at businesses making specific types of productivity-enhancing investments, such as investments in machinery, equipment and technology.
Budget 2025 claims that the effect of the "super-deduction" will reduce Canada's marginal effective tax rate (METR) by over 2 percentage points, from 15.6% to 13.2%, enhancing Canada's competitiveness with the US following its own tax reforms implemented in the One Big Beautiful Bill Act (OBBBA). However, the productivity super-deduction will be most beneficial to capital-intensive industries, such as manufacturing and processing.
Budget 2025 indicates that these measures are expected to provide an average of $2.7 billion in annual support, attracting private capital investment and generating an economic output of up to $9 billion annually over the next ten years.
Previously Announced Measures
The Government intends to move forward with all previously announced measures:
- reinstating the Accelerated Investment Incentive, which provides an enhanced first-year write-off for certain capital assets;
- immediate expensing of manufacturing or processing machinery and equipment;
- immediate expensing of clean energy generation and energy conservation equipment, and zero-emission vehicles;
- immediate expensing of productivity-enhancing assets, including patents, data network infrastructure, and computers; and
- immediate expensing of capital expenditures for scientific research and experimental development.
New Measures
Currently, the capital cost allowance (CCA) rate applicable to eligible buildings used in Canada to manufacture or process goods for sale or lease (manufacturing or processing buildings) is 10% (4% applicable to...
