Federal Budget 2025

Here’s a summary of the 2025-2026 federal budget speech delivered by the Minister of Finance, the Honourable François-Philippe Champagne, on November 4, 2025. 

To help you understand how the 2025-2026 budget affects individuals and businesses financially, our Tax and Estate Planning Team has provided this analysis of key measures affecting individuals and businesses. 

Measures concerning individuals

Qualified investments for registered plans

Budget 2024 invited stakeholders to provide suggestions on improving the clarity and coherence of the qualified investments regime for seven types of registered plans:

Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), Tax-Free Savings Accounts (TFSAs), Registered Education Savings Plans (RESPs), Registered Disability Savings Plans (RDSPs), First Home Savings Accounts (FHSAs), and Deferred Profit Sharing Plans (DPSPs).

The qualified investment regime governs what these plans can invest in. A broad range of assets are qualified investments, including mutual funds, publicly traded securities, government and corporate bonds, and guaranteed investment certificates.

Based on feedback received through the consultation process, Budget 2025 proposes the following amendments to simplify, streamline, and harmonize the qualified investment rules.

Small business investments

There are two sets of rules for registered plan investments in small businesses.

The first set of rules applies to RRSPs, RRIFs, TFSAs, RESPs, and FHSAs, while the second set of rules applies only to RRSPs, RRIFs, RESPs, and DPSPs. Neither set of rules applies to RDSPs.

The first set of rules provides for investments in what are known as specified small business corporations, venture capital corporations, and specified cooperative corporations. The second set of rules provides for investments in eligible corporations, small business investment limited partnerships, and small business investment trusts.

Budget 2025 proposes to simplify and streamline the rules relating to registered plan investments in small businesses, while maintaining the ability of registered plans to make such investments. In particular, the more broadly applicable first set of rules would be maintained and extended to RDSPs, while the second set of rules would be repealed. As a result, RDSPs would be permitted to acquire shares of specified small business corporations, venture capital corporations, and specified cooperative corporations.

These amendments would apply as of January 1, 2027. 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 (i.e., all plans except DPSPs) would be consolidated into one definition in the Income Tax Act.

Home Accessibility Tax Credit

The Home Accessibility Tax Credit is a non-refundable tax credit that applies at the lowest personal income tax rate on up to $20,000 of eligible home renovation or alteration expenses per calendar year. Expenses must be incurred to improve the safety, accessibility, or functionality of an eligible dwelling of a qualifying individual who is aged 65 or older or eligible for the Disability Tax Credit.

The Medical Expense Tax Credit is a non-refundable tax credit that applies at the lowest personal income tax rate on the amount of qualifying medical and disability-related expenses in excess of the lesser of $2,834 (for 2025) and 3% of the claimant’s net income. Medical Expense Tax Credit-eligible expenses include certain costs to build or renovate a home to improve access or mobility for persons with disabilities.

At present, if the eligibility criteria for both credits are met, taxpayers can claim both credits in respect of the same expense.

Budget 2025 proposes to amend the Income Tax Act such that an expense claimed under the Medical Expense Tax Credit can’t also be claimed under the Home Accessibility Tax Credit.

This measure would apply to the 2026 and subsequent taxation years.

Personal Support Workers Tax Credit

Budget 2025 proposes to introduce a temporary Personal Support Workers Tax Credit, which would provide eligible personal support workers (working for eligible health care establishments) with a refundable tax credit of 5% of eligible earnings, providing a credit value of up to $1,100.

A number of conditions would need to be met to be considered an eligible personal support worker. The person must ordinarily provide one-on-one care and essential support to optimize and maintain another individual’s health, well-being, safety, autonomy, and comfort, consistent with that individual’s health care needs, as directed by a regulated health care professional or a provincial community health organization.

Eligible earnings would include all taxable employment income, including wages and salaries, and employment benefits (as well as similar tax-exempt income and benefits earned on a reserve) earned as an eligible personal support worker performing employment duties for eligible health care establishments.

Amounts earned in British Columbia, Newfoundland and Labrador, and the Northwest Territories wouldn’t be eligible, as these jurisdictions have signed bilateral agreements with the federal government to include a “Personal Support Workers and Related Professions Addendum” to their Aging with Dignity funding agreements, which provide funding over five years to increase personal support workers’ wages.

Employers would need to certify their employees’ eligible earnings in prescribed form and manner.

This measure would apply to the 2026 to 2030 taxation years.

Lowering barriers to access the Canada Disability Benefit

For many, obtaining a valid Disability Tax Credit certificate to become eligible for the benefit can represent a financial barrier. To lower barriers to access the Canada Disability Benefit, Budget 2025 proposes funding for a one-time supplemental Canada Disability Benefit payment of $150 in respect of each Disability Tax Credit certification, or re-certification, giving rise to a Canada Disability Benefit entitlement.

This one-time payment would be retroactive to the launch of the Canada Disability Benefit. Following successful completion of the regulatory process, the first supplemental payments are expected to be made to Canada Disability Benefit recipients before the end of 2026-27. 

Measures regarding businesses

Immediate expensing for manufacturing and processing buildings

The capital cost allowance (CCA) system determines the deductions that a business may claim each year for income tax purposes in respect of the capital cost of its depreciable property.

Depreciable property is generally divided into CCA classes with each having its own rate in the Income Tax Regulations. These rates generally align with the expected useful life of the assets in their classes.

Currently, eligible buildings in Canada used to manufacture or process goods for sale or lease (manufacturing or processing buildings) are prescribed a CCA rate of 10%. This includes the regular CCA rate of 4% under Class 1, plus an additional allowance of 6% for manufacturing or processing buildings. To be eligible for the 6% additional allowance, at least 90% of the building’s floor space must be used to manufacture or process goods for sale or lease.

Budget 2025 proposes to provide temporary immediate expensing for the cost of eligible manufacturing or processing buildings, including the cost of eligible additions or alterations made to such buildings. The enhanced allowance would provide a 100% deduction in the first taxation year that eligible property is used for manufacturing or processing, provided the minimum 90% floor space requirement is met.

Property that has been used, or acquired for use, for any purpose before it’s acquired by the taxpayer would be eligible for immediate expensing only if both of the following conditions are met:

• neither the taxpayer nor a non-arm’s-length person previously owned the property; and
• the property has not been transferred to the taxpayer on a tax-deferred “rollover” basis.

In cases where a taxpayer benefits from immediate expensing of a manufacturing or processing building, and the use of the building is subsequently changed, recapture rules may apply.

This measure would be effective for eligible property that’s acquired on or after Budget Day and is first used for manufacturing or processing before 2030.

Tax deferral through tiered corporate structures

The Income Tax Act includes a set of rules that seek to prevent the use of Canadian-controlled private corporations (CCPC) to defer personal income tax on investment income. Investment income earned by a CCPC is subject to an additional refundable tax that increases the corporation’s tax rate to approximate the highest marginal combined federal-provincial personal income tax rate. A corporation is entitled to a refund of a portion of this additional tax when it pays a taxable dividend. The refund reflects the fact that a shareholder who is an individual is subject to personal income tax on a taxable dividend.

Unlike an individual shareholder, a corporate shareholder is generally not subject to income tax on a taxable dividend received from another corporation because it can claim an offsetting inter-corporate dividend deduction.

However, additional anti-deferral rules in Part IV of the Income Tax Act may impose a special refundable tax on the recipient corporation when it receives the taxable dividend. In particular, if the recipient corporation receives a taxable dividend from a “connected corporation” (generally, a corporation that owns shares carrying more than 10% of the votes and value of the payer corporation), a refundable tax is levied on the recipient corporation corresponding to the amount of the payer corporation’s dividend refund.

Part IV tax is payable by the recipient corporation on the balance-due day for its taxation year in which the dividend is received. This day can be after the balance-due day for the payer corporation’s taxation year in which the dividend was paid. Certain tax planning techniques have been employed to take advantage of this timing difference to defer, at times indefinitely, the tax liability on investment income by interposing corporations with staggered year ends in a corporate chain.

Budget 2025 proposes to limit the deferral of tax on investment income using tiered corporate structures with mismatched year ends. In general terms, the proposed limitation would suspend the dividend refund that could be claimed by a payer corporation on the payment of a taxable dividend to an affiliated recipient corporation if the recipient corporation’s balance-due day for the taxation year in which the dividend was received ends after the payer corporation’s balance-due day for the taxation year in which the dividend was paid. The determination of whether the dividend payer and payee are affiliated would be based on current affiliation rules in the Income Tax Act.

The payer corporation would generally be entitled to claim the suspended dividend refund in a subsequent taxation year when the recipient corporation pays a taxable dividend to a non-affiliated corporation or an individual shareholder.

Other measures

Transfer fees

Budget 2025 announces that the government intends to publish draft regulations by spring 2026 to prohibit investment and registered account transfer fees, currently costing Canadians on average $150 per account. The government will also require the timely transfer of these accounts and clear presentation of information on the process and lack of fees.

Trusts 21-year rule

Personal trusts are generally deemed to have disposed of their capital property and certain other property for fair market value proceeds on the 21st anniversary of their creation, and every 21st anniversary thereafter (the “21-year rule”).

This prevents personal trusts from being used to indefinitely postpone tax on accrued gains.

Where property is transferred by a trust on a tax-deferred basis to a new trust, a rule prevents the avoidance of the 21-year rule. In that case, the new trust essentially inherits the earlier 21-year anniversary of the old trust. This ensures that the transferred property remains subject to the same 21-year period that applied to the old trust.

Certain tax avoidance planning techniques have been employed to transfer trust property indirectly to a new trust to avoid both the 21-year rule and the anti-avoidance rule. For example, this planning may involve trust property being transferred on a tax-deferred basis to a beneficiary that is a corporation owned by a new trust. This planning seeks to do indirectly what can’t be done directly.

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.

Protecting workers against improper classification

The deliberate misclassification of employees as independent contractors means that employers are not withholding and remitting the proper amounts of income tax, or Canada Pension Plan and employment insurance contributions. Misclassified employees may lose out on labour law protections, as well as benefits and pensions available to employees. This misclassification of employees has been particularly common in the trucking industry.

To reduce the number of employers that misclassify employees, Budget 2025 proposes for the Canada Revenue Agency (CRA) to implement a program that addresses non-compliance related to personal services businesses, as well as lift the moratorium on reporting fees for services in the trucking industry.

Budget 2025 also proposes to amend the Income Tax Act and the Excise Tax Act to allow the CRA to share information with the Department of Employment and Social Development Canada for the purpose of addressing worker misclassification.

Underused Housing Tax

The Underused Housing Tax (UHT) took effect on January 1, 2022, and applies to certain owners of vacant or underused residential property in Canada, generally non-resident, non-Canadians. The UHT is imposed on an annual basis at a rate of 1% on the value of the property.

Budget 2025 proposes to eliminate the UHT as of the 2025 calendar year. As a result, no UHT would be payable and no UHT returns would be required to be filed in respect of the 2025 and subsequent calendar years.

Luxury tax on aircraft and vessels

The federal government imposes a tax on subject vehicles and subject aircraft with a value above $100,000 and subject vessels (e.g., boats) with a value above $250,000. The luxury tax is equal to the lesser of 10% of the total value of the subject item and 20% of the value above the relevant threshold. The tax is generally imposed on sales, importations, leases, and certain improvements of subject vehicles, subject aircraft, and subject vessels.

Budget 2025 proposes to amend the Select Luxury Items Tax Act (SLITA) to end the luxury tax on subject aircraft and subject vessels. All instances of the tax would cease to be payable after Budget Day, including the tax on sales, the tax on importations, and the tax on improvements.

Previously announced measures

Budget 2025 confirms that it intends to proceed with the following measure:

• Technical tax amendments to the Income Tax Act and the Income Tax Regulations, subject to a deferred application date for reporting by bare trusts, so that it would apply to taxation years ending on or after December 31, 2026.

For more information

To find out more about the 2025-2026 Federal Budget, visit https://budget.canada.ca/2025/report-rapport/intro-en.html.