Tax rates didn’t move in the 2025 budget, for people or for companies. Following capital gains tax changes in Canada, what did show up were a few tax ideas that could matter for families and businesses. None of it is final yet, so changes are possible, and some items might never become law. At times of uncertainty, seek advice from a legal professional before implementing any tax guidelines.
The Government of Canada’s new budget cycle, announced on October 6, 2025, represents a notable shift in how federal financial planning is presented. In a departure from past practice, the government will now table its full Federal Budget in the fall, followed by an economic and fiscal update in the spring.
Traditionally, the opposite was true. The main Budget was released each spring, setting out the government’s overall fiscal and economic direction for the year. The fall update, commonly called the economic statement, then provided Canadians with a mid-year progress report. As discussions around the income tax rate continue to shape fiscal planning, the newly adopted schedule essentially swaps the two, giving policymakers a chance to align decisions more closely with current economic realities.
This document outlines the primary tax proposals contained in Budget 2025 and their anticipated effects on taxpayers. It is a targeted overview of decision-relevant items and should not be read as a complete examination of all budget provisions.
Updated Reporting Rules for Bare Trusts
The government in Canada is proceeding with enhanced trust disclosure requirements, with bare trusts receiving particular attention. The measures are intended to increase transparency by mandating additional data on the parties to the trust.
In essence, most trusts, including bare trusts, will soon have to file a T3 trust income tax rate and information return. This filing will capture more extensive details about trustees, beneficiaries, settlors, and anyone with controlling influence. As recent capital gains tax changes in Canada continue to reshape reporting expectations, the federal government is also tightening rules around trust transparency. A bare trust typically exists when you hold legal title to an asset but not beneficial ownership; you are essentially acting as an agent on behalf of the true owner. Bare trust relationships often arise in routine arrangements, including ITF accounts, joint banking or investment accounts, and situations where an individual is added to a real property title solely to assist with financing or estate management.
These changes to capital gains tax in Canada, these updates signal broader shifts in federal tax policy, starting with draft rules released in August 2024 and refreshed in August 2025. They aren’t law yet, but the 2025 federal budget signals the plan to go ahead. As drafted, the new trust reporting would apply to tax years ending on or after December 31, 2026.
This one-year deferral comes as a relief for many Canadians, offering more time to review their financial structures, determine whether a bare trust arrangement applies to them, and explore any possible exemptions before the rules officially take effect.
Alternative Minimum Tax
High-income Canadians may notice some changes to how the Alternative Minimum Tax (AMT) is calculated if pending proposals become law, as the 2025 Federal Budget indicates the government plans to move forward with earlier draft tax changes. Alongside the ongoing discussions around adjustments to the personal income tax rate, one notable change would cap the AMT deduction for investment counsel fees at 50% of the actual amount, which could increase AMT for investors who pay significant advisory fees. The Budget also makes clear that the government will not proceed with a plan to fully allow resource expense deductions under the AMT, so that earlier idea is off the table for now.
Top-up tax credit
The lowest federal tax rate is slated to drop to 14.5% in 2025 and 14% in 2026, and because most non‑refundable credits are calculated at that lowest rate, their value would drop too. Although recent capital gains tax changes in Canada have captured much of the public’s tax-policy attention. If your total non‑refundable credits are unusually large and exceed the first‑bracket threshold (57,375 in 2025, indexed), that drop could outweigh the tax you save from the rate cut. To prevent anyone from paying more tax because of this quirk, the 2025 Budget proposes a non‑refundable top‑up tax credit that keeps the credit rate effectively at 15% on amounts above the threshold. The top‑up would apply for the 2025 through 2030 tax years.
If you’re interested in learning more about tax-saving strategies, be sure to explore our article on 8 tax tips for Canadian small businesses.
Home accessibility tax credit
The Home Accessibility Tax Credit helps cover renovation costs that make a home safer and easier to use for someone who’s 65+ or eligible for the Disability Tax Credit. It’s non-refundable, so it lowers tax owing but won’t create a refund by itself.
You can claim up to $20,000 of qualifying expenses each year at the lowest personal income tax rate. The work must improve access, mobility, or basic functionality in the home for the qualifying person.
The Medical Expense Tax Credit is another non-refundable credit that can include certain renovation costs for accessibility or mobility. It applies to the portion of medical expenses that exceed the lesser of 3% of your net income or the annually indexed threshold.
Starting with the 2026 tax year, the same expense can’t be claimed under both credits, you’ll have to choose one.
The proposal aims to simplify administration and prevent dual crediting, without diminishing support for taxpayers’ funding accessibility improvements that sustain independence.
Personal Support Workers Tax Credit – Budget 2025
The federal government’s 2025 budget introduces a new initiative aimed at acknowledging the essential work performed by personal support workers across Canada. While Recent capital gains tax changes in Canada have dominated much of the federal tax discussion, the Personal Support Workers Tax Credit is a temporary, refundable measure designed to provide financial recognition for individuals who deliver hands-on care and daily support to patients, seniors, and people living with disabilities.
Under this proposal, eligible personal support workers would receive a refund equal to five percent of their qualifying earnings, up to a yearly limit of $1,100. This means workers who dedicate their time to providing compassionate, essential care will see a direct tax benefit tied to the income earned from that work.
Who Qualifies
In light of the recent changes to capital gains tax in Canada, eligibility focuses on roles centred on direct, one‑on‑one support. Day‑to‑day duties usually involve mobility assistance, personal hygiene, and other essential activities that help clients live well. Care must be delivered under the guidance of a regulated clinician or approved community care organization.
Where the Work Must Take Place
The credit applies to individuals working in recognized care environments such as hospitals, long-term care homes, assisted living facilities, and licensed home care agencies. These are workplaces where care is delivered under regulated health standards and where personal support workers play an integral role in maintaining both comfort and continuity of care.
Although much of the national conversation has centred on recent capital gains tax changes in Canada. This measure excludes income earned in British Columbia, Newfoundland and Labrador, and the Northwest Territories. These jurisdictions already participate in separate funding agreements with the federal government that provide similar wage enhancements for personal support staff.
Eligible Income and Employer Role
The tax credit covers a worker’s employment income, such as wages, salaries, and applicable benefits earned while performing eligible duties. In the broader landscape of recent changes to capital gains tax in Canada, for those working under special tax-exempt conditions, certain comparable income may also qualify.
Employers will have an important part to play in confirming eligibility. They must certify the amount of income earned by their qualifying staff through an approved verification process, ensuring transparency and proper administration of the program.
Purpose and Impact
This tax credit reflects a broader recognition of the vital role personal support workers play in Canada’s health system. In a fiscal environment where the income tax rate remains a focal point of federal planning, the government aims to strengthen worker retention, ease staffing pressures, and reinforce the respect owed to those who dedicate their careers to caring for others.
Automatic Federal Benefits for Lower-Income Canadians
Federal credits and benefits flow through the tax system, so filing a return is typically required. Even as recent capital gains tax changes in Canada dominate much of the federal tax conversation, lower‑income Canadians can be left out when they don’t file. Whether because access to support is limited or they assume there’s no need.
The 2025 budget proposes giving the CRA authority to file for eligible non‑filers below basic thresholds, ensuring they receive entitled payments. The CRA would share a pre‑filled return based on existing records for the person to confirm.
If you are concerned about tax reporting and how these changes might impact your business, we recommend reading our comprehensive post on how long to keep tax records in Canada for more guidance on tax compliance.
How the Automatic Filing Process Would Work
Under the proposed model, the CRA would identify individuals who appear to meet the eligibility requirements, such as those whose income is below the federal basic personal amount for the year. Using the income and personal information already available, the CRA would draft a preliminary tax return on the person’s behalf.
Before anything is filed, you will get a summary of the details the CRA plans to use. You then have 90 days to check it, confirm it’s right, or send updates if something needs fixing. If there’s no reply within 90 days, the CRA will file the return, issue a notice of assessment, and calculate any benefits or credits you are owed. It can be applied to:
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Canadian Entrepreneurs’ Incentive:
Budget 2025 cancels the CEI that was introduced alongside a now‑abandoned increase to the capital gains inclusion rate. With the rate hike off the table, the CEI is also withdrawn.
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Underused Housing Tax:
The government proposes eliminating the 1% UHT for 2025 and later years. Owners must still comply for 2022–2024, including any required returns.
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Luxury tax on aircraft and vessels:
The budget would end the luxury tax on eligible aircraft and boats, with no comparable change announced for vehicles such as sedans, SUVs, or light pickups. The tax would stop applying after Budget Day.
Qualified investments for registered plans
Budget 2024 opened a consultation on tightening up and clarifying what registered plans are allowed to invest in. Today, those plans can hold many common assets, including mutual funds, listed securities, bonds, and GICs. In the broader context of recent changes to capital gains tax in Canada, Budget 2025 proposes streamlined rules for investing in small businesses and would apply the same framework to RDSPs.
21‑year rule for personal trusts:
To stop family and other personal trusts from deferring capital gains forever, the law treats them as if they sold and re‑bought their assets at fair market value every 21 years, starting on the trust’s 21st birthday and then every 21 years after. Following the changes to capital gains tax in Canada, some structures try to sidestep this by shifting assets to a new trust; the 2025 budget would widen the anti‑avoidance rules so indirect transfers to a new trust after Budget Day are caught.
Tiered corporations:
The budget also targets tax deferral that can occur when related corporations with different year‑ends pay dividends to each other. If the recipient’s balance‑due day falls after the payer’s, the payer’s dividend refund would be paused. It would generally be released in a later year when the recipient pays a taxable dividend to an individual or a non‑affiliated corporation. The change would apply to tax years that start on or after Budget Day.
Business incentives:
The budget keeps a range of business credits and write‑offs, including immediate expensing for certain manufacturing and processing buildings, SR&ED support, patronage dividends in shares for agricultural co‑ops, credits for clean technology manufacturing, carbon capture, utilization and storage, and clean electricity. Eligibility for the critical mineral exploration tax credit tied to flow‑through shares would also be expanded to more minerals.
Make every move tax-efficient with SMR CPA!
As you weigh timelines, structures, and after-tax outcomes, the smartest move isn’t rushing a deal but clarifying the right one. At SMR CPA, our work begins with understanding your ownership goals, industry realities, and the numbers that drive both. Then we model the scenarios, translate the trade-offs, and help you choose a path that feels right on paper and in practice.
If you are mapping a sale for 2025, restructuring assets for 2026, or simply sense that this new inclusion rate changes your next move, let’s discuss it early. A short, candid review today can prevent expensive surprises later, and often surfaces cleaner, simpler options you can act on with confidence. When you’re ready, SMR CPA is here to help you make the next decision, the best one.
