Canada Federal Budget 2025: What It Means for You

Canada’s 2025-2026 federal budget came out this week, and while the general consensus seems to be “nothing major to see here,” there were a fair number of small details that are likely to impact specific groups of people. 

A lot of the new budget details had been previously announced, but that doesn’t make them less consequential. Additionally, there were some notable promises that didn’t make it into the 2025 budget.

Less Federal Income Tax – Promise Made… Promise Kept

As PM Carney promised in his campaign, the first federal income tax bracket will drop from 15% to 14.5% for 2025 and then to 14% for 2026 onward. This means every taxpayer’s first $57,000 or so of income will be taxed at a lower rate. For a dual-income family, that’s up to $825 of annual tax savings once fully implemented. 

No other federal tax brackets or rates are changed (top tax bracket earners will be happy to note that the top rate stays put). 

It might be worth a reminder that many Canadians don’t really understand how tax brackets work – and consequently, they might think that if they earn more than $57,000, they will not benefit from this tax reduction. That’s incorrect – every Canadian who earns more than $15,000 or so in income will benefit from this tax reduction.

New Top-Up Tax Credit: If you claim large deductions or credits (like big medical or tuition expenses) that exceed the first tax bracket ($57,375 in 2025), you usually benefit a lot from that 15% credit rate. That’s because the tax credit is calculated based on that income tax rate.

The government had faced criticism, because lowering that first tax bracket rate to 14% could have ironically raised some people’s tax bills (if their credits’ value dropped more than their tax rate savings). Budget 2025 fixes this with a Top-Up Tax Credit from 2025 through 2030.

It effectively keeps a 15% credit rate on the portion of credits above the threshold. In plain terms, if you have an unusually large credit claim one year, this temporary credit tops it up so you’re not worse off. This ensures no one ends up paying more tax because of the rate cut.

Automatic Tax Filing for Low-Income Canadians

Starting with 2025 income (filed in 2026), the CRA can automatically file returns for certain lower-income folks who aren’t filing now. This probably isn’t a big deal for people who are reading a personal finance website, but it’s actually going to make a pretty big difference for some Canadians.

If all your income is reported on T4s and similar slips, and you earn below the basic personal amount (plus any age or disability amounts) – in other words, you likely owe nothing – the CRA will prefill a return for you to confirm. If you don’t respond within 90 days, they’ll go ahead and file it for you. 

The goal is to make sure people get benefits like the GST Credit or Canada Child Benefit even if they don’t usually file. In short: if you’re a low-income senior or worker who hasn’t been filing taxes, the CRA might do it for you – sending you any refunds or credits you’re entitled to.

Move Brokerages Without Paying Any Transfer Fees!

Given that there wasn’t a ton of new information for DIY investors in the 2025 budget, the most pertinent announcement was that Ottawa is looking to ban investment account transfer fees. This means that you’ll be able to switch to any of Canada’s best online brokerages and not be penalized by your current online broker for doing so.

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End of the Underused Housing Tax (UHT)

Real estate investors and cottage owners will be happy to hear that the Underused Housing Tax is being eliminated as of 2025. The UHT was a 1% annual levy on vacant or underutilized residential property owned by non-residents (with several exemptions). The idea was to provide a disincentive for foreign residents to buy up property in Canada as a means of “getting wealth out of their home country” – and thus artificially inflating the price of Canada’s housing stock. 

It came into effect for 2022, but it’s proving more trouble than it’s worth as it was a major headache to collect on and was especially a PITA for cottage owners. Now, it’s important to note that this doesn’t absolve obligations for past years. Owners still must file UHT returns (and pay any tax if applicable) for 2022, 2023, and 2024. Penalties for not filing those years can be steep, so don’t ignore them. But from 2025 onward, no filing, no tax. 

Provincial and municipal vacant home taxes, like in BC or Toronto, are separate and unaffected.

GST Eliminated for First-Time Home Buyers on New Builds

In another example of keeping a widely-reported promise, the Carney government is removing the 5% GST on new homes below $1 million – but only for new homebuyers. For new homes priced between $1 million and $1.5 million, a partial GST rebate will apply.

If you’re a first-time buyer purchasing, say, a brand-new condo for $800k, the 5% GST (which would be $40k) is fully waived. This new First-Time Home Buyer GST Rebate is on top of any existing GST New Housing Rebate (which was limited to homes under ~$450k and provided at most a 36% rebate of GST). It also incentivizes builders to cater to first-time buyers knowing those buyers effectively have more purchasing power (thanks to the tax savings). The rebate is usually credited at closing (builders will handle it in price adjustments).

Help for Vulnerable Canadians

Canada Disability Benefit – $150 Supplement: For Canadians with disabilities, the new Canada Disability Benefit (CDB) is being implemented, and the budget adds a small sweetener. If you qualify for the CDB, you’ll get a one-time $150 payment to help cover the costs of getting your Disability Tax Credit (DTC) certificate

Basically, when you’re approved for the DTC – either as a new applicant or through renewal – the government will give you $150 extra (tax-free) to offset any fees or hassle from the medical certification. This is retroactive to the CDB’s launch (the benefit started paying out in July 2025), and they plan to issue these $150 payments by the end of fiscal 2026-27. Eligible people can get up to $2,400/year through the CDB.

Help for Personal Support Workers: A new refundable tax credit will boost the pay of low-to-mid income personal support workers (PSWs) outside certain provinces. From 2026 through 2030, eligible PSWs can get 5% back on their earnings, up to $1,100 per year. 

It’s like a wage top-up of up to $1,100 if you’re a PSW in a hospital, nursing home, home care, or similar licensed care facility. For example, if you earn $20,000 as a PSW, you’d get $1,000 (5%) as a refundable credit when you file taxes. If you earn $50,000, you’d hit the $1,100 max. 

British Columbia, Newfoundland & Labrador, and NWT are excluded – those governments already signed agreements with Ottawa to raise PSW wages. This new tax credit is meant to improve retention in caregiving fields. 

What Wasn’t In Budget 2025

I think many Canadians will be just as interested in what wasn’t in this budget, as what actually made it through. There was much talk of sacrifice in the lead up to the budget, and that always makes folks a bit nervous. Here’s the shortlist on “stuff that was talked about but won’t change.”

No change to OAS: There have been a lot of news columns written in regards to the growing share of the budget Old Age Security (OAS) is going to take in the years to come. No changes will be coming this year, and to be honest, I remain very skeptical of any changes to this high-visibility program going forward. You can read all the details about why I think the program is on solid footing in my Ultimate Guide to OAS article.

GIS Boost Shelved: The budget does not include the one-time GIS increase that was promised. The Liberal platform had committed a temporary 5% boost to the Guaranteed Income Supplement, worth up to an extra $652 for low-income seniors. This means if you’re a low-income senior, you won’t see that promised bump (at least not yet), but the GIS and OAS enhancements from recent years (10% OAS boost at 75+, the 10% GIS boost for single seniors in 2016) remain in place.

No Change to RRIF Minimum Withdrawals: Despite a lot of clamour during last year’s election, the budget does not reduce the mandatory RRIF withdrawal rates. If you’re not familiar with how RRIF withdrawals work, check out my article on RRSP to RRIF Conversions.

The Liberals had floated a one-time 25% reduction to minimum withdrawals. So the standard RRIF factors still apply: at age 71, you must withdraw at least 5.28% of your RRIF annually, increasing each year (6.82% at 80, 11.92% at 90, etc.)

Capital Gains Inclusion Rate stays at 50%: Despite rampant speculation, there’s no change to the capital gains tax inclusion rate in this budget – and it’s highly unlikely going forward. The government had previously planned to raise it to 2/3 for large gains (over $250k) effective mid-2024, but that was deferred and ultimately scrapped.

This was the big news in last year’s budget, and I wrote about how it was a tax specifically aimed at people’s inheritance, cottages (2nd properties), and small business owners. Given the focus on getting people to invest money within Canada’s economy, I’d be pretty surprised if this one made a comeback any time soon.

No New Tax on Principal Residences or TFSA Gains: Worth noting – nothing in this budget taxes your home sale gains (principal residence exemption stays untouched) or introduces any inheritance tax. TFSAs and other investment shelters remain as they are. The TFSA Contribution limit will increase by another $7,000 in 2026.

Small-Business Owners and Incorporated Professionals Win Budget 2025

The budget is branded as pro-growth, and indeed it rolled out a “Productivity Super-Deduction” – essentially a suite of generous tax write-offs – for businesses investing in Canada. The idea here is that we have to do our very best to compete with the USA when it comes to attracting businesses and keeping what we have here in Canada. The government didn’t lower the corporate tax rate – but they did make it A LOT more attractive for businesses to put money to work ASAP. 

A lot of this stuff gets into eyes-glazed-over accounting territory – but it’s pretty important to the bottom line of not only large businesses, but corporations like dentists offices, doctors practices, and many other types of small businesses as well. If you think this might affect you, don’t miss my ultimate guide to Canadian Controlled Private Corporation (CCPC) Taxes.

Here are the key measures:

Immediate Expensing for Manufacturing & Processing Buildings: If your company builds or buys a facility for manufacturing or processing goods, you can now deduct 100% of the cost in the first year (instead of depreciating over 25+ years). Also, 90%+ of the building’s floor space must be used for M&P activities to get this treatment. 

For example, if a food processor builds a $10 million plant in 2026, then they can expense the full $10M against income that year (potentially creating a loss to carry forward). This is a huge tax deferral advantage and really makes it attractive to invest money sooner rather than later.

Some small business gurus that I read believe that this will bring the actual tax rate many companies pay (called the “effective tax rate”) down pretty close to what most American companies pay. The devil will be in the details. PM Carney is hoping this triggers $1 Trillion+ of corporate spending… I’m a bit skeptical on that number, but I’m glad to see the general direction we’re looking anyway.

Extended Accelerated Investment Incentive (AII): The budget resurrects and extends the enhanced first-year CCA that was set to expire in 2028. It includes expensing certain intangible assets such as patents legal work, eligible software, data network infrastructure, and computer hardware (these were mentioned as part of the “super-deduction” toolkit). 

Additionally, clean energy and conservation equipment, and zero-emission vehicles continue to qualify for immediate expensing. This keeps Canada in line with U.S. tax policy (which had 100% bonus depreciation, now phasing down). In combination with the above building write-off, the government boasts these moves will cut our marginal effective tax rate on new business investment to 13.2% (down from 15.6%), which would be the lowest in the G7.

New Accelerated CCA for LNG Projects: Gone are the days of Justin Trudeau’s “there is no business case for Liquified Natural Gas.” To support Canada’s energy sector (and likely appease certain provinces), the budget grants accelerated write-offs for Liquefied Natural Gas facilities. Specifically, equipment and structures for LNG production can depreciate faster if they meet “strong emissions performance” criteria.

Critical Mineral Exploration Tax Credit Expanded: The 30% exploration credit for critical minerals (in place since 2022) will now cover a broader range of critical minerals. Budget 2025 adds bismuth, cesium, chromium, tin, and tungsten to the eligible list for this credit. These minerals join lithium, cobalt, copper, nickel, graphite, rare earths, etc., as qualifying for the extra exploration incentive.

If you’re a junior mining company or an investor using flow-through shares, expenses to explore for these newly added minerals now get the boosted 30% credit (instead of the normal 15%). This encourages more prospecting in those materials critical for electronics and clean tech.

SR&ED R&D Tax Credit Overhaul: Big changes arrive for the Scientific Research & Experimental Development program . As previewed in the Fall 2024 update, the expenditure limit for the enhanced 35% credit is doubling to $6 million. That means a Canadian-controlled private corporation (CCPC) can now earn up to $2.1 million in refundable SR&ED credits per year. This is up from a $3M limit (which gave $1.05M max credit). 

They’re also letting public companies in on the action: for the first time, Canadian public corporations will be allowed to claim the 35% refundable credit on that first $6M of SR&ED/ To qualify, the public company must be Canadian-owned and listed in Canada (and not controlled by non-residents). This could significantly boost R&D in larger firms.

Other Random Stuff in Budget 2025

Some of the following are only sort-of related to personal finance, but I thought it was interesting nonetheless.

• The luxury tax on private airplanes and yachts has been scrapped. Basically it was just too much trouble for the small amount of revenue. However – the luxury tax on cars over $100,000 hasn’t changed. This is notable considering the inflation rate on vehicles. 
• A new government fiat-stablecoin is set to begin operation in the next two years. I don’t know who in the world is clamouring for a crypto-currency based on the Canadian Dollar – but sure.
• We’re done planting trees – or at least 2 billion of em. They think about 1 billion will be planted by 2031, and that’s where we’re cutting it off. The Trudeau government had allocated $3.2 billion for the program. Given that only 228 million trees have been planted since 2019, perhaps we shouldn’t hold our breath.
• We’re cutting 30,000-40,000 federal government employees. Given that we have 368,000 people working for the federal government, that seems relatively doable. Given the massive increase in government employee numbers we’ve seen over the last 10 years (far outpacing population growth) it’s surprising to see a bit of a pullback here.
• Budget 2025 contains massive increases for the Canadian military (which was widely promised beforehand) It earmarks roughly $82 billion in new defence spending over five years. This includes money for NORAD modernization, new navy ships and aircraft, and addressing personnel shortfalls. For instance, $20.4 billion over 5 years is dedicated to military recruitment and retention – covering pay raises and better health services. Over the next decade, this sets Canada on course to approach the NATO target of 2% of GDP on defence (though likely still under that). 
• There’s always money for the CBC! Even when we’re cutting the overall federal government, the CBC gets a $150 million boost to its funding.
• Part of the CBC’s new treasure trove is supposed to go towards getting us into the Eurovision singing contest. Always good to have priorities.

Canada’s 2025 Federal Budget Big Picture: Please Invest in Canada

Budget 2025 is likely to go down as a bridge from the Trudeau years to the Carney years. While there is a gradual move to a more business-friendly Canada, there are still plenty of the “sunny ways” policies that have led to massive deficits over the last ten years. Many of the forecasted “sacrifices” appear to have been a public relations game to lower the expectations bar.

The 2025–26 deficit shortfall is pegged to come in around $78.3B at roughly 2.5% of GDP. Supposedly, by 2029–30 it will drift down to about $56.6B at roughly 1.5% of GDP. That’s based on some pretty rosy economic projections though – personally I think we’ll have a very hard time meeting those goals.

Carney’s new accounting split between operating and capital is the bigger philosophical change. The government wants day-to-day costs paid out of revenues by 2028-29, with any remaining deficit tied to long-life assets like housing, roads, plants, ships and planes. You can call that accounting optics. You can also call it discipline. Either way, it forces choices. I personally like the idea as it makes it easier for Canadians to understand where money is being spent.

With continuing deficits, federal debt will rise from about $1.2 trillion now to about $1.5 trillion by 2030. I predict it will be closer to $1.6 trillion – but to be honest, that’s not a crazy high number within the context of a healthy and growing Canada. IF (and that’s a massive IF) the Carney government can get economic growth going again, our debt-to-GDP ratio will stay much lower than the USA’s and somewhat sustainable. 

Interest costs will go up from today’s 9% to about 11% if interest rates don’t go down as forecasted. While 11% is a big chunk of the budget (and is starting to get scary) it should be pointed out that it’s substantially below the 30% figure that threatened Canada’s economy in 1996!

In the meantime, control what you can control. Make sure your financial advisor is up on the latest changes to the tax code, and that you’re using your RRSP and TFSA to their fullest capability!