The federal government has introduced several significant tax changes for 2025, affecting both individuals and businesses. Key updates include a reduction in the lowest personal income tax rate, an increase in the Canada Pension Plan (CPP) contributions, new benefits for low-income individuals and seniors, and the elimination of the consumer carbon price and the Underused Housing Tax (UHT).
Individual tax changes for 2025
Lowest income tax bracket reduction: The lowest personal marginal income tax rate was reduced from 15% to 14.5% for the 2025 tax year, effective July 1, 2025. This is set to drop to 14% for 2026 and future years.
Top-Up Tax Credit: To address situations where the lowest tax rate reduction could reduce the value of certain non-refundable tax credits, a new temporary Top-Up Tax Credit has been introduced for 2025 to 2030.
CPP contribution increases: Contribution rates for the Canada Pension Plan (CPP) and a second additional CPP contribution (CPP2) have increased for 2025, following the multi-year enhancement plan.
Basic Personal Amount (BPA) increase: The maximum federal BPA has increased to $16,129 for 2025 due to inflation indexing.
New Canada Disability Benefit (CDB): Starting in 2025, eligible working-aged Canadians with a disability can receive up to $2,400 per year.
Seniors’ pension top-up: The federal government has issued a one-time $844 supplement to eligible pensioners to help with cost-of-living increases, distributed starting in November 2025.
Automatic filing for low-income individuals: The CRA now has the discretion to automatically file tax returns for certain lower-income individuals with simple tax situations, ensuring they receive applicable benefits.
Elimination of the Underused Housing Tax (UHT): As of the 2025 calendar year, the UHT has been eliminated, meaning no tax will be payable and no UHT return needs to be filed for 2025 and subsequent years.
Canada Carbon Rebate ends: The federal fuel charge and the corresponding Canada Carbon Rebate for individuals ended on April 1, 2025, with the final payment distributed in April 2025.
Business tax changes for 2025
Underused Housing Tax (UHT) eliminated: The UHT, which primarily affected non-resident and non-Canadian owners, is eliminated for the 2025 calendar year.
Luxury Tax repealed on aircraft and vessels: The luxury tax on aircraft and vessels has been repealed for transactions after November 4, 2025.
Changes for manufacturing and processing buildings: Eligible businesses can now claim a temporary 100% immediate expensing for the cost of manufacturing and processing buildings acquired on or after November 4, 2025.
SR&ED tax credit enhancement: The enhanced 35% tax credit rate for Scientific Research and Experimental Development (SR&ED) has been expanded and the expenditure limit increased to $6 million for taxation years starting on or after December 16, 2024.
Repeal of Entrepreneurs’ Incentive: The planned Canadian Entrepreneurs’ Incentive (CEI), which would have reduced the capital gains inclusion rate for entrepreneurs, has been canceled.
New rules for registered investments: The framework for qualified investments in registered plans like RRSPs and TFSAs has been simplified, replacing the registration process for trusts with two new categories of qualified investment trusts.
Information sharing for worker misclassification: The CRA is now authorized to share information with Employment and Social Development Canada to address worker misclassification, particularly in the trucking industry.