The coming year will see some changes to existing tax measures, but those changes are expected to have only minor impacts on individuals.
Daniel Rogozynski of the University of Waterloo’s School of Accounting and Finance told CBC News that, for the most part, 2025 will be a “status quo year” on the tax front.
“There’s not a lot there because they really can’t do a lot,” he said. “You can’t reduce taxes because they’re borrowing all this money, and they really can’t spend a ton of extra money because they’re borrowing all this money.”
Rogozynski said the tax change Canadians are most likely to notice is the GST/HST holiday, which will give consumers a break on the cost of some essential goods for a two-month period.
That measure took effect on December 14, runs until February 15, 2025 and affects a specific list of goods and food items.
The parliamentary budget officer says the tax break will cost the federal government $1.46 billion and cost provinces with harmonized sales taxes $1.26 billion — but all of that could end up on the federal government’s books if the provinces decide not to waive compensation for the federal government’s measure.
“It really doesn’t change the economics of people that much and it doesn’t change the economics of Canada, other than spending money that we don’t have,” Rogozynski said.
“I think that if you really look at the GST thing, it’s a two-month sugar high.”
Capital gains
In the 2024 budget, the federal government increased the capital gains tax inclusion rate — the taxable percentage — from 50 to 66 per cent on capital gains above $250,000 per year for individuals.
It also announced that all capital gains earned by corporations and trusts would start being taxed at the two-thirds rate, instead of the 50 per cent rate.
A capital gain is the difference between the cost of an asset — an investment property, a stock or a mutual fund — and its total sale price.
The change was introduced in the budget’s annex but has yet to pass through Parliament.
The Canada Revenue Agency (CRA) began enforcing the change provisionally on June 25 and will continue to do so until the legislation passes or a new government ends the measure.
Next year will be the first full year for the new capital gains inclusion rate.
Before Parliament rose on Dec. 17, the House of Commons was engaged in a debate on a question of privilege that prevented MPs from moving forward with their usual work, such as passing legislation.
“It’s a function of a dysfunction, if you will, of the system right now, which is they’re not able to pass laws to actually effect what they want to do from a policy standpoint,” said Rogozynski.
Canadian Entrepreneurs’ Incentive
Another tax measure that is being enforced by CRA despite the fact that Parliament hasn’t passed enabling legislation is the Canadian Entrepreneurs’ Incentive.
Also announced in the 2024 budget, the incentive reduces the inclusion rate from two-thirds to one-third on a lifetime maximum of $2 million in capital gains for business owners set up as Canadian Controlled Private Corporations.
The program is being phased in over five years beginning in 2025 at a rate of $400,000 a year until the exemption reaches $2 million a year by 2029.
“The world of tax for individuals with capital gains is going to be immensely more complicated,” Rogozynski said.
“If you have a capital gain on shares of a business, it’s much, much more complicated than it’s ever been because of these different rules that are all kicking in around the same time.”
CPP maximum contributions
The new year will be the second year of enhanced Canada Pension Plan contribution requirements. Under those rules, two ceilings are used to determine the maximum CPP contributions individuals have to pay.
The first ceiling is now $71,300, up from $68,500 in 2024. To work out the maximum contribution for an employee, the contribution rate of 5.95 per cent has to be applied to the maximum of the first ceiling, once the $3,500 exemption is factored in.
That means that in 2025, the first ceiling maximum contribution for an employee is $4,034.10. The employer pays a matching amount for a total maximum contribution per employee of $8,068.20.
The second ceiling in 2025 is $81,200, up from $73,200 in 2024.
To work out the maximum CPP contribution under the second ceiling, employees have to take the difference between $71,300 and $81,200, which is $9,900, and multiply that amount by the lower contribution rate of four per cent to get $396. Employers make a matching contribution of this same amount.
Other notable changes in 2025
On April 1, 2025 the price on carbon will go from $80 a tonne to $95 a tonne in provinces where the federal backstop applies.
The backstop does not apply in Quebec, British Columbia and the Northwest Territories because they have their own carbon pricing systems that meet the federal standard.
In provinces using the federal backstop, the price on carbon is applied to emitting fuels through fuel charge rates that vary from fuel to fuel, based on the amount of CO2-equivalent emissions they generate when burned.
On April 1, provinces and territories using the federal backstop will see gasoline fuel charges rise at the pump to 20 cents a litre from the 2024 rate of 17 cents a litre, while the propane fuel charge will increase to 14 cents a litre from 12 cents.
Ninety per cent of government revenue from the carbon tax is returned to households through a rebate program. The other 10 per cent is directed to programs to help businesses, schools, municipalities and other grant recipients reduce their fossil fuel consumption.
The parliamentary budget officer and a recent study by two University of Calgary professors concluded that nearly all households receive more from the carbon tax rebate than they pay in direct and indirect costs.
Only households in the highest income quintile are projected to pay out more than they receive because they consume more.
Income taxes, EI premiums and TFSAs
Beginning Jan. 1, federal income tax bracket thresholds in Canada will rise 2.7 per cent across all brackets, compared to a 2024 rise of 4.7 per cent and a 2023 rise of 6.3 per cent. Basic personal exemption amounts have also been adjusted to account for inflation.
Provinces have their own provincial income tax brackets, but for 2025 the federal thresholds will now be:
- From zero up to $57,375, taxed at 15 per cent.
- From $57,376 to $114,750, taxed at 20.5 per cent.
- From $114,751 to $117,882, taxed at 26 per cent.
- From $117,883 to $253,414, taxed at 29 per cent.
- $253,415 and above, taxed at 33 per cent.
With inflation now back in the target range of one to three per cent, the income tax threshold increases have also come back down. Before the inflation spike in 2022, income tax thresholds were increased by 1 per cent in 2021 and 2.4 per cent in 2022.
The maximum insurable earnings ceiling for employment insurance rises to $65,700 starting Jan. 1, up from $63,200 in 2024. That means the new maximum annual EI contribution for a worker will increase to $1,077.48, up from $1,049.12 in 2024.
The annual tax free savings account contribution in 2025 will remain at $7,000.
