On November 4, 2025, the Government of Canada tabled Budget 2025, 18 months after the last Budget. In an era of economic and political uncertainty, Budget 2025 provides for significantly increased spending on defence, housing, and other areas, and projects a deficit of $78.3 billion for 2025–26, well in excess of last year’s estimate.

Budget 2025 was fairly light on taxation measures. There are no proposed increases in corporate or personal tax rates and, for the most part, the proposed tax measures are aimed at streamlining certain provisions or proposing tax integrity measures (with limited fiscal impact).

 
 

For the business community, the most significant measure proposes to allow immediate expensing of the acquisition cost of buildings to be used in manufacturing and processing, which, together with the proposal to allow the immediate (100 per cent) expensing of machinery and equipment, is intended to incentivize Canadian-based manufacturing.

On the clean economy front, Budget 2025 proposes to reinforce certain aspects of the clean electricity tax credits and clean manufacturing tax credits (critical mineral processing space). 

For R&D expenditures, Budget 2025 confirms the measures previously announced in the Fall 2024 Economic Statement, including the immediate expensing of capital expenditures and the enhanced credits for eligible Canadian public corporations, while proposing increased thresholds for enhanced credits.

On the international tax front, Budget 2025 introduces a reform of transfer pricing rules.

Budget 2025 also announced the launch of the review of fines and penalties to ensure the charges are achieving their objectives.

Given the shift of the Federal Budget cycle to the fall, a question remains as to whether this will be the only occasion for tax measures to be introduced over the next 12 months. Much of Budget 2025 was not accompanied by draft legislation.

 

Table of contents

  1. Immediate expensing for manufacturing and processing buildings
  2. SR&ED updates
  3. Flow-through shares: More “critical minerals,” but CEE returns to pre-Seabridge
  4. Clean economy investment tax credits
  5. Information sharing – Worker misclassification
  6. Modernization of Canada’s transfer pricing rules
  7. Qualified investments for registered plans
  8. Sales and excise tax measures
  9. Technical amendments
  10. Personal Support Workers Tax Credit
  11. Automatic federal benefits for lower-income individuals
  12. Top-up tax credit
  13. Home accessibility tax credit
  14. Charities, non-profits, and tax-exempt entities

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1. Immediate expensing for manufacturing and processing buildings

Budget 2025 proposes a significant investment in Canadian manufacturing by introducing temporary immediate expensing for the cost of eligible manufacturing and processing (M&P) buildings, including additions and alterations to such buildings. The enhanced CCA rate will provide a 100 per cent deduction in the first taxation year that the eligible property is first used for M&P, if it is acquired on or after Budget Day and is first used for M&P before 2030, and provided it meets the 90 per cent floor space requirement. This floor space requirement is the same as the existing floor space requirement for M&P buildings to qualify for the enhanced 10 per cent CCA rate under section 1100(1)(a.1) of the Regulations that existed prior to Budget 2025.

Eligible property that has been used, or acquired for use, for any purpose before it is acquired by the taxpayer would be eligible for the new 100 per cent CCA rate only if both of the following conditions are met:

  1. neither the taxpayer nor a non-arm’s-length person previously owned the property; and

  2. the property has not been transferred to the taxpayer on a tax-deferred “rollover” basis.

It is further proposed that a reduced version of the enhanced CCA rate would apply for eligible M&P buildings that are first used for M&P in 2030 to 2033, with a CCA rate of 75 per cent applying for 2030 or 2031, and a CCA rate of 55 per cent applying for M&P property first used in 2032 or 2033.

No draft legislation was included with the Budget materials.

For Ontario manufacturers, this new accelerated CCA will be available in addition to the existing provincial Ontario made manufacturing tax credit (OMMTC). The OMMTC provides qualifying CCPCs with a refundable tax credit of 15 per cent of eligible M&P expenditures up to $3 million for eligible investments made after May 14, 2025, and before 2030, as well as a non-refundable tax credit for non-CCPCs.

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2. SR&ED updates

The scientific research and experimental development (SR&ED) tax incentive program allows eligible taxpayers to deduct qualifying expenditures in the year they are incurred, or to add them to a pool that can be used on a discretionary basis in future years. Additionally, these expenditures are generally eligible for ITCs, with enhanced refundable ITCs available to CCPCs that meet certain income and taxable capital criteria. For detailed background on the SR&EDs program, please refer to our article on “SR&ED tax incentives: What's changed and what to know.”

Budget 2025 increases the expenditure limit on which the fully refundable, enhanced 35 per cent ITC rate can be earned from $3 million to $6 million, effective for taxation years that begin on or after December 16, 2024. This change goes further than the proposal in FES 2024, which had suggested increasing the expenditure limit from $3 million only to $4.5 million. As a result, qualifying CCPCs would be able to claim up to $2.1 million per year in enhanced, fully refundable ITCs, representing an increase of $1,050,000 compared to the current regime.

Budget 2025 further confirms the Government’s intention to implement measures that were previously announced in FES 2024, which include:

  1. Increasing the taxable capital phase-out thresholds for determining the expenditure limit from $10 million and $50 million, to $15 million and $75 million, respectively.

  2. Extending eligibility for the enhanced ITC to eligible Canadian public corporations.

  3. Restoring the eligibility of SR&ED capital expenditures for both the deduction against income and ITC components of the SR&ED program.

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3. Flow-through shares: More “critical minerals,” but CEE returns to pre-Seabridge

The Government of Canada has emphasized Canada’s resources, particularly its reserves of so-called “critical minerals,” for being important to building a stronger, more resilient, and sovereign economy. Budget 2025 purports to lay out “a generational investment strategy” to “unlock the full value of our critical minerals.” Apparently, this will not be done primarily through tax measures, as Budget 2025 contains only one tax measure which directly expands the scope of incentives related to critical minerals, and contains another measure which curbs the types of qualifying expenditures eligible for tax incentives.

Exploration for critical minerals is a financially high-risk endeavour. The flow-through share regime exists to incentivize investment by allowing corporations to renounce, among other things, Canadian exploration expenses (CEE) to investors, who can then deduct the expenses in calculating their own taxable income. In 2022, the Critical Mineral Exploration Tax Credit (CMETC) was introduced to further incentivize exploration for critical minerals and investment in the corporations that do so. On March 3, 2025, the federal government proposed to extend the METC for an additional two years, until March 31, 2027. Budget 2025 confirms this extension.

Expanded definition of “critical minerals”

Budget 2025 proposes to add the following to the definition of “critical minerals”: bismuth, cesium, chromium, fluorspar, germanium, indium, manganese, molybdenum, niobium, tantalum, tin, and tungsten. These minerals have been identified as necessary for defence, semiconductors, energy and clean technologies.

The measure would apply to expenditures renounced under flow-through share agreements entered into after Budget Day and on or before March 31, 2027.

Budget 2025 notes that a strategic environmental assessment was conducted on this proposed measure, and it was found that mineral exploration and related activities could be associated with a variety of environmental impacts and give rise to potential nature and biodiversity effects. However, it was also noted that such activities are subject to environmental regulations and exploration for certain critical minerals could be important in supporting the transition to a low carbon economy.

“Quality” of a mineral resource does not refer to its economic viability

As stated above, only certain expenditures can be renounced and are eligible for the CMETC. In the case of CEE, one requirement is that such expenses must have been incurred “for the purpose of determining the existence, location, extent, or quality of a mineral resource.”

The word “quality” has been the subject of debate. It has generally been the CRA’s position that “quality” relates to a resource’s underlying physical characteristics and does not mean “economic or market value.” Therefore, expenses incurred to assess the economic or market value of a mineral resource, such as consultants’ studies aimed at assessing whether a mine at a particular site might be economically viable, were in the CRA’s view excluded from CEE.

In the recent case, Seabridge Gold Inc. v British Columbia, 2025 BCSC 558, the Supreme Court of British Columbia, however, found that the purpose of a deposit, within the context of mining, is to be mined for minerals and that “quality” in this context refers to those aspects of a deposit that affect its ability to be mined, such as its concentration, ease of access, by-products, and the ease with which it may be refined. These variables are “indistinguishable from economic viability.” As a result, the court held that expenses for a range of pre-feasibility expenses, such as mine plans and engineering, geotechnical investigations, metallurgical testing, and process plant design met the “purpose test” and qualified as CEE.

Budget 2025 now proposes to amend the ITA to make clear that expenses incurred for the purpose of determining the quality of a mineral resource in Canada do not include expenses related to determining the economic viability or engineering feasibility of the mineral resource, with such amendments to apply as of Budget Day.

As feasibility studies are critical to mitigating the risk of economic failure, are in many cases mandatory under securities legislation, and are often scrutinized by investors – in other words, are part and parcel of the work needed to “unlock the full value of our critical minerals” that the Canadian government wants to stimulate – it is difficult to reconcile the proposed measure with the overall goals of Budget 2025.

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4. Clean economy investment tax credits

Updates from the Fall Economic Statement 2024 and Budget 2025

Canada has now introduced five major clean economy investment tax credits (ITCs) over Budgets 2022 to 2025. Four of these, namely the Clean Technology ITC, Clean Hydrogen ITC, Clean Technology Manufacturing ITC, and Carbon Capture, Utilization and Storage ITC, were enacted through Bills C-59 and C-69 in June 2024. Draft legislation for the Clean Electricity ITC was released in August 2024, and enabling legislation is still expected in 2025.

For detailed background on each ITC, please refer to our Budget 2022, Budget 2023, FES 2023, and Budget 2024 bulletins, as well as our summary “Canada’s clean economy tax credits receive royal assent.”

The Fall Economic Statement 2024 (FES 2024) introduced several new measures relevant to the clean economy ITCs, and Budget 2025 confirms the government’s intention to proceed with these measures while also introducing additional targeted changes.

(a) Treatment of government assistance

FES 2024 proposed to clarify how government assistance affects the computation of the clean economy ITCs. Under the general rules, government assistance (such as grants, forgivable loans, or low-interest financing) reduces the capital cost of eligible property for ITC purposes.

To encourage greater access to public financing for clean energy projects, FES 2024 proposed that financing provided by the Canada Infrastructure Bank would not reduce the cost of eligible property for purposes of the Clean Electricity ITC. Budget 2025 expands this exception to include financing from the Canada Growth Fund, allowing taxpayers receiving support from either institution to claim the full Clean Electricity ITC.

This relief is currently limited to the Clean Electricity ITC and does not extend to financing from other government or quasi-government bodies, such as Investissement Québec, which must still meet the “excluded loan exception” in the ITA to avoid cost reduction.

(b) Updates to specific clean economy ITCs

FES 2024 and Budget 2025 together provide several technical and policy refinements to specific ITCs:

  • Clean Electricity ITC: Budget 2025 removes the previously proposed conditions requiring provincial and territorial governments to commit to ratepayer reductions and net-zero energy roadmaps for Crown corporations to qualify.

  • Clean Hydrogen ITC: FES 2024 proposed to expand eligibility to include hydrogen production through methane pyrolysis, without requiring carbon capture and storage for the pyrolysis process. Budget 2025 confirms this expansion, effective for property available for use on or after December 16, 2024.

  • Carbon Capture, Utilization and Storage ITC: Budget 2025 extends the full credit rates by five years, so they apply to eligible expenditures incurred up to the end of 2035 (previously 2030) and postpones the next review of credit rates to before 2035.

  • Clean Technology Manufacturing ITC: Budget 2025 broadens the list of eligible critical minerals to include antimony, indium, gallium, germanium, and scandium, for property available for use on or after Budget Day (November 4, 2025).

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5. Information sharing – Worker misclassification

Budget 2025 proposes amendments to the ITA and the ETA to expand information sharing between the CRA and Employment and Social Development Canada (ESDC) for the purpose of enforcing the Canada Labour Code (CLC) as it relates to worker misclassification.

This measure builds on efforts already underway. In March 2025, the CRA and ESDC entered into an information-sharing arrangement focused on the federally regulated trucking industry. That agreement allows ESDC to share data with the CRA to help identify situations where workers may have been incorrectly treated as independent contractors. However, the CRA’s existing confidentiality rules prevent it from sharing taxpayer information in return.

To address this limitation, Budget 2025 proposes to amend both the ITA and the ETA to expressly permit the CRA to share information with ESDC for the same purpose. The ITA and the ETA currently contain strict confidentiality rules that generally prohibit officials from disclosing taxpayer information, except through limited exceptions. The proposed amendments would add a new paragraph 241(4)(d)(x.2) to the ITA and a corresponding subparagraph 295(5)(d)(v.2) to the ETA, allowing disclosure “to an official of the Department of Employment and Social Development solely for the purpose of the administration or enforcement of the Canada Labour Code as it relates to the misclassification of employees.”

Although the trucking sector was referenced in earlier initiatives, the proposed amendments are not limited to that industry. The CRA would be authorized to disclose information to ESDC whenever it is required for the administration or enforcement of the CLC as it relates to the misclassification of any employee covered by the CLC, including those working in banking, telecommunications, transportation, and other federally regulated sectors.

This proposal complements the broader compliance measures introduced in Budget 2024. Last year’s changes strengthened the CRA’s authority to obtain taxpayer information, while Budget 2025 focuses on enabling the CRA to share that information with other federal bodies to support enforcement. Together, these measures reflect a continued move toward greater inter-agency cooperation and integrated compliance efforts to address systemic non-compliance in both tax and labour contexts.

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6. Modernization of Canada’s transfer pricing rules

Budget 2025 introduces long-anticipated amendments to Canada’s transfer pricing rules following the consultation process announced in Budget 2021. These measures represent the most significant modernization of section 247 of the ITA since its introduction in 1998. The amendments incorporate key elements from the Department of Finance’s June 6, 2023, consultation paper and align Canada’s transfer pricing framework with the OECD’s Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD TP Guidelines).

Some of the administrative measures may reduce the compliance burden or penalty risk for certain taxpayers, while others are likely to increase it. The non-administrative amendments, which introduce new definitions and interpretive provisions, are primarily aimed at providing the CRA with greater flexibility and clearer legislative tools to raise transfer pricing adjustments.

Administrative measures

The administrative measures include:

  • A new 30-day deadline to provide contemporaneous documentation following a written request from the CRA, reduced from the previous three-month period. Many taxpayers have historically relied on the longer timeline to complete their documentation only after receiving a request. The shorter window will make that approach impractical and is expected to drive a stronger emphasis on maintaining documentation on a real-time basis.

  • An increase in the transfer pricing penalty threshold from a $5 million adjustment to a $10 million adjustment.

  • Clarified documentation requirements to align with the new statutory definitions and the requirement to select and apply the “most appropriate method.”

  • Simplified documentation rules where prescribed conditions are met, although these conditions were not included in Budget 2025.

These administrative reforms are intended to balance the CRA’s need for timely, accurate information with a recognition that compliance obligations should not be unduly burdensome. However, in practice, the 30-day deadline will be a significant tightening for most taxpayers, especially in light of the CRA’s practice to request documentation for several taxation years at once.

Alignment with the OECD TP Guidelines

The ITA will now expressly require that the identification of arm’s length conditions and the determination of transfer pricing adjustments be made so as to best achieve consistency with the OECD TP Guidelines. This elevates the OECD framework to a legislated interpretive standard within Canadian law.

Transfer pricing adjustment application rules

Under the new rules, a transfer pricing adjustment will apply where:

  • There is a transaction or series of transactions between a Canadian taxpayer and a non-arm’s-length non-resident; and

  • The actual conditions of the transaction or series differ from arm’s length conditions, determined not only by the contractual terms but also by reference to economically relevant characteristics, including the conduct of the participants.

New definitions

The introduction of new definitions in subsection 247(1) is a central feature of these amendments.

The new definition of “arm’s length conditions” refers to the conditions that would have existed had the actual participants been dealing at arm’s length in comparable circumstances. This definition focuses the analysis on what the participants themselves would have done if acting independently, rather than what hypothetical unrelated parties might have done. It interacts with the new definition of “actual conditions,” which captures the conditions that actually exist in relation to the transaction or series, including those evidenced by the parties’ conduct and other economically relevant characteristics. Together, these concepts delineate both the factual and hypothetical benchmarks necessary for a proper comparability analysis.

For the purposes of the definitions “actual conditions” and “arm’s length conditions,” the word “conditions” is to be interpreted broadly and includes, but is not limited to, price, rate, gross margin, net margin, the division of profit, contributions to costs, or any other relevant commercial or financial information.

The definition of “economically relevant characteristics” lies at the core of the revised comparability analysis. These characteristics must be considered:

  • To identify and delineate the in-scope transaction or series; and

  • To determine the appropriate arm’s length comparator.

The five key comparability factors to be considered are the:

  • Contractual terms;

  • Functional profile;

  • Characteristics of the property or services;

  • Economic and market context; and

  • Business strategies.

Both the contractual terms and the functional profile require consideration of the parties’ actual conduct, not merely what is set out in their written agreements.

Replacement of recharacterization concept

The existing recharacterization rule, which permitted the CRA to substitute an alternative transaction for the one that was actually implemented between the parties, will be replaced by the new definition of “arm’s length conditions.” This framework allows for adjustments where, had the participants been dealing at arm’s length, they would have entered into a different transaction or no transaction at all. The Department of Finance has stated that such outcomes should arise only in exceptional circumstances.

Determination and adjustment rules

Under the new framework, a transfer pricing adjustment will apply where a taxpayer and a non-arm’s-length non-resident participate in a transaction or series that includes actual conditions differing from arm’s length conditions. A new rule provides that such differences will also be deemed to exist where a condition does not exist in the actual transaction but would have existed had the participants been dealing at arm’s length in comparable circumstances. Where these conditions are met, adjustments are to be made to the quantum or nature of the amounts that would have been determined if arm’s length conditions had applied.

Key takeaways

The amendments represent a comprehensive modernization of Canada’s transfer pricing regime. By incorporating the OECD TP Guidelines directly into the ITA, the Government of Canada has provided clearer statutory guidance on how arm’s length conditions are to be determined.

From a practical standpoint, the higher $10 million penalty threshold and simplified documentation requirements will provide limited relief for some taxpayers, but the shorter 30-day deadline to provide contemporaneous documentation will increase ongoing compliance pressure.

These measures come as the CRA continues to receive enhanced audit powers from the Department of Finance, giving auditors expanded authority to compel information, enforce compliance, and conduct more probing reviews. In combination, the new rules will give the CRA broader tools and greater flexibility to challenge transfer pricing outcomes. The amendments will apply to taxation years and fiscal periods that begin after Budget Day.

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7. Qualified investments for registered plans

Budget 2024 invited stakeholders to provide suggestions to simplify and streamline the qualified investment regime for seven types of registered plans: Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), Tax-Free Savings Accounts (TSFAs), 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 the investments each type of plan can invest in. There is duplication and complexity within certain areas of the rules creating uncertainty in their application.  This often leads to inadvertent non-compliance by taxpayers resulting in onerous penalties.

Small business investments

One such area relates to so-called “small business investments,” where one set of rules (governing investments in specified small business corporations, venture capital corporations, and specified cooperative corporations) applies to RRSPs, RRIFs, TFSAs, RESPs, and FHSAs while a second set of rules (governing investments in eligible corporations, small business investment limited partnerships, and small business investment trusts) applies only to RRSPs, RRIFs, RESPs, and DPSPs. Neither set of rules applies to RDSPs. The duplication and complexity within these rules also lead to uncertainty as to which rules were meant to apply in particular cases (the eligible corporation rules, for example, had significant overlap with the specified small business corporation rules) and to certain categories of investments being underutilised (no small business investment trusts were reported in 2024).

Budget 2025 proposes to simplify and streamline the small business investment regime by maintaining the more broadly applicable first set of rules and extending their application to RDSPs while repealing the second set of rules.

As a result, RDSPs would be permitted to acquire shares of specified small business corporations, venture capital corporations, and specified cooperative corporations while shares of eligible corporations and interests in small business investment limited partnerships and small business investment trusts would no longer be qualified investments.

The amendments would apply as of January 1, 2027. Interests in small business investment limited partnerships and small business investment trusts acquired before 2027 would continue to be qualified investments. Shares of eligible corporations would continue to be qualified investments under the rules relating to specified small business corporations, which would be maintained.

Registered investment regime

Registered investments are qualified investments for all seven types of registered plans but must be registered with the CRA.

Trusts or corporations that are not sufficiently widely held to qualify as mutual fund trusts or mutual fund corporations (which are both qualified investments for all types of registered plans) can qualify as registered investments by themselves by only holding only qualified investments for the types of plans in respect of which they are registered. Stakeholder feedback was that the registration process was cumbersome and did not add sufficient value to justify the compliance and administrative burden.

Budget 2025 proposes to replace the registered investment regime with two new categories of qualified investment not requiring registration with the CRA. These are: (1) units of a trust that is subject to National Instrument 81-102 published by the Canadian Securities Administrators; and (2) units of a trust that is an investment fund (as defined in the existing tax rules) managed by a registered investment fund manager as described in National Instrument 31-103 published by the Canadian Securities Administrators.

The registered investment regime would be repealed as of January 1, 2027. The new qualified investment trust rules would apply as of Budget Day.

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8. Sales and excise tax measures

Elimination of underused housing tax

Budget 2025 proposes to eliminate the underused housing tax as of the 2025 calendar year. As a result, no underused housing tax returns will have to be filed for 2025, and no underused housing tax will be payable in respect of 2025. It may be that the $30 million in underused housing tax revenues were insufficient relative to the CRA’s costs of administering this regime. The obligation to file prior calendar year returns and to pay related taxes, penalties and interest will remain.

Elimination of select luxury items tax on subject aircraft and vessels

In a similar measure, Budget 2025 proposes to end the application of the select items luxury tax to aircraft and vessels. While the tax will continue to apply to subject motor vehicles, it will cease to apply to subject aircraft and subject vessels from Budget Day. The select items luxury tax had been criticized for its detrimental impact on domestic manufacturers, vendors and lessors of aircraft and vessels to which the tax was applied. Registered vendors of aircraft and vessels will be required to file a final return for the period ending on November 4, 2025. However, CRA will maintain their registrations to facilitate administration in respect of prior periods.

New anti-fraud measures

The GST/HST has always been subject to fraudulent schemes that deploy a series of real and fraudulent transactions. In these schemes, at least one person collects the GST/HST but does not remit it, while the other participants in the series recover the GST/HST by claiming input tax credits. As a result, the CRA experiences revenue loss from such schemes, which are referred to as “carousel fraud.”

Budget 2025 announced proposed changes to the Excise Tax Act to introduce a new reverse charge mechanism (RCM), initially only on specified supplies of telecommunications services but with the ability to add further supplies by regulation. The specified telecommunications services will be limited to certain speech communication, including voice-over internet protocol.

The new rules would relieve suppliers of such specified telecommunications services from having to collect the GST/HST and instead require the recipients to self-assess and report the GST/HST payable on their GST/HST returns, subject to any entitlement to input tax credits. The RCM would only apply on supplies made to a GST/HST registered recipient, and only when all or substantially all of the specified telecommunications services are acquired by the recipient for purposes of resupply.

The ability to claim a rebate for tax paid in error would be limited to instances where the GST/HST has been remitted to the Receiver General. The supplier will be required to note the application of the RCM on invoices issued to the recipient.

The Federal Government is inviting interested parties to provide feedback on this new measure until January 12, 2026.

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9. Technical amendments

21-year rule avoidance

Personal trusts are subject to a deemed disposition of most of their property every 21 years at fair market value. This rule prevents personal trusts from being used to indefinitely postpone payment of tax on accrued gains. Where a trust transfers property on a tax-deferred basis to a new trust, the ITA prevents the avoidance of the 21-year rule by causing the transferee trust to inherit the 21-year rule that applied to the transferor trust.

The Department of Finance appears to have become concerned with a planning opportunity whereby trust property could be indirectly transferred to a new trust, by way of a direct transfer to a corporate beneficiary of the transferee trust that is owned by a new trust. The CRA has previously stated that it would consider applying the GAAR in such circumstances. Budget 2025 proposes to address the concern by broadening an existing specific anti-avoidance rule in the ITA to include indirect transfers of trust property to other trusts. The measure would apply in respect of transfers of property that occur on or after Budget Day.

Part IV tax deferral

The ITA contains a set of rules to prevent the use of a CCPC to defer personal tax on investment income. A CCPC that earns investment income is subject to an additional refundable tax under Part IV of the ITA in the year the investment income is earned, that increases the corporate tax rate to approximately the highest personal marginal tax rate. The corporation is entitled to a refund of this tax once it pays a taxable dividend to its shareholders. The theory being that the income will then be subject to personal tax in the hands of the individual shareholder. Where the shareholder is itself a corporation, there is no personal level tax but the recipient corporation is subject to a refundable tax to the extent the payer corporation receives a dividend refund. This preserves the anti-deferral goal of the Part IV regime.

Timing issues can become relevant. Part IV tax is payable on the balance due date for the taxation year of the corporation receiving the dividend, which can be later than the balance due date for the taxation year of the payer corporation in which the dividend was paid, resulting in a dividend refund to the payer corporation prior to the payment of the Part IV tax by the recipient corporation. Certain planning techniques have interposed corporations with staggered taxation year ends in a corporate chain of ownership to exploit this timing difference.

Budget 2025 proposes to limit this potential tax deferral by temporarily suspending the dividend refund to a payer corporation in respect of a dividend paid by it to an affiliated corporation if the recipient corporation’s balance due date for the taxation year in which the dividend was received ends after the payer corporation’s balance due date.

The proposed suspension would not apply if each corporate dividend recipient in the chain of affiliated corporations pays a subsequent dividend on or before the payer corporation’s balance due date. Further, in order to accommodate acquisition transactions, the proposed suspension would also not apply to a payer corporation that is subject to an acquisition of control and has paid a dividend within 30 days prior to the acquisition of control.

Where the suspension does apply, the suspension would be lifted in a subsequent taxation year when the dividend recipient pays a taxable dividend to a non-affiliated corporation or to an individual shareholder.

This measure would apply to taxation years that begin after Budget Day.

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10. Personal Support Workers Tax Credit

 

Budget 2025 proposes a Personal Support Workers Tax Credit, available from 2026 until 2030. Under the proposal, eligible personal support workers (PSWs) can claim a refundable tax credit equal to 5 per cent of their eligible earnings, up to a maximum of $1,100 per year.

To qualify for the tax credit, PSWs must primarily provide one-on-one care and assistance with daily living and mobility, helping to maintain a patient’s health, safety, and comfort under the direction of a regulated health care professional or provincial health organization.

Eligible PSWs must also earn employment income from “eligible health care establishments” to qualify for the tax credit, such as hospitals, nursing and residential care facilities, community care facilities for the elderly, and home health care establishments. Employers of PSWs would be required to certify such income with the CRA.

PSWs in British Columbia, Newfoundland and Labrador, and the Northwest Territories would not be eligible for the tax credit. Each of these jurisdictions had previously entered into agreements with the federal government under which they receive funding for wage enhancements for PSWs.

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11. Automatic federal benefits for lower-income individuals

 

Individuals whose incomes are too low to have tax payable often do not file tax returns. As a result, they often miss out on significant refundable tax credits and income-tested benefits to which they are entitled. These include the Canada Workers Benefit, GST/HST Credit, and Canada Child Benefit and other programs for which eligibility depends on income.

As previously announced, Budget 2025 proposes to address this issue by introducing automatic tax filing for low-income individuals. The measure would apply to returns for the 2025 taxation year and subsequent years.

The proposal would give the CRA the authority to automatically file tax returns on behalf of an individual who has taxable income below the federal or provincial basic personal amount, earns income only from sources reported to the CRA, has not already filed a return for at least one of the previous three years, and meets other criteria to be determined by the CRA.

Under the proposal, the CRA would first provide the eligible individual with a summary of information on file, the individual would have 90 days to confirm or correct it, and the CRA would then proceed to issue a notice of assessment with the individual’s benefit entitlements. Individuals would retain all rights to object to assessments and could choose to opt out of automatic filing.

The government has opened a public consultation on this proposal and is inviting comments until January 30, 2026.

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12. Top-up tax credit

 

Budget 2025 proposes a top-up credit to ensure that its previously announced tax cut does not result in a higher rate of tax for certain individuals.

In May 2025, the Government announced a “middle-class tax cut” to the first marginal income tax rate from 15 per cent to 14.5 per cent for the 2025 taxation year, and to 14 per cent for the 2026 and subsequent years. In certain cases when taxpayers claim large non-refundable tax credits (e.g. for medical expenses, tuition, or dependants) the decrease in the value of these credits could be greater than the benefit of the tax rate cut. The proposed top-up tax credit would effectively maintain the 15 per cent rate for credits applied to amounts above the first income tax bracket threshold ($57,375 for 2025).

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13. Home accessibility tax credit

 

Budget 2025 proposes to eliminate the ability to claim the Home Accessibility Tax Credit (HATC) and the Medical Expense Tax Credit (METC) in respect of the same expense. The HATC is a non-refundable tax credit, applied at the lowest personal income tax rate, on up to $20,000 of eligible home renovation or alteration expenses per year. Eligible expenses are those incurred to improve the safety, accessibility or functionality of an eligible dwelling of a qualifying individual who is age 65 or older, or eligible for the Disability Tax Credit. The METC is sufficiently broad that it can cover certain expenses to build or renovate a home to improve access or mobility for persons with disabilities, creating overlap with the HATC. Budget 2025 proposes to amend the ITA so that an expense claimed under the METC cannot also be claimed under the HATC. This measure would apply to the 2026 and subsequent taxation years.

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14. Charities, non-profits, and tax-exempt entities

Budget 2025 includes a variety of inclusions relevant to charities, non-profits, and other tax-exempt entities and individuals (the “Charitable Sector”). Notably, there were also items included in Budget 2024 that are not included in Budget 2025 but have also not passed into legislation.

Customs tariff relief for donations to Canadian registered charities

Budget 2025 proposes a pilot program for the donation of obsolete or surplus goods to Canadian registered charities. The Government of Canada proposes to amend the Customs Tariff to allow for duty drawback for certain goods when they are donated to a registered charity under the ITA, provided they are to be used in the organisation’s charitable programs and not re-sold in Canada. The specific criteria related to any requirements for the timeline, valuation, and prohibition against resale are not included in Budget 2025. Such measures could have profound impact on the Charitable Sector, especially when specific goods used in for-profit sectors could be immediately utilized in impactful charitable programming inside and outside of Canada.

Funding cuts to federal departments which support the Charitable Sector

Many federal departments which support the Charitable Sector and Indigenous peoples living in Canada are impacted by Budget 2025’s 15 per cent Government of Canada savings target which will impact funding available for certain segments of the Charitable Sector.

  • Global Affairs: Consequential to some segments of the Charitable Sector, there will be reductions in development funding to global health programming where it is determined by this federal department that Canada’s contributions have grown disproportionately relative to similar economies and financial institutions for entities and programs that receive funding from other sources. Global Affairs is tasked with implementing reforms to its funding accordingly.

  • Health Canada: Other segments of the Charitable Sector may be impacted by Health Canada’s reforms aimed at supporting the Government of Canada’s savings target to reduce its day-to-day operational spending by enabling and implementing more modern procedures. It is unclear how funding may be implemented at this time.

  • Indigenous Services: It appears that Indigenous Services will not be required to expressly partake in the 15 per cent Government of Canada savings target, with the small caveat that Indigenous Services will be identifying savings of two per cent of its review base while recognizing the essential role of effective and efficient program and service delivery. This prescriptive amount seems smaller than what is being required of other federal departments.

  • Department for Women and Gender Equality: It appears that the Department for Women and Gender Equality will also not be required to expressly partake in the 15 per cent Government of Canada savings target with the same caveat that it will also identifying savings of two per cent of its review base.

Other federal departments required to participate in the 15 per cent Government of Canada savings target that may impact funding available to the Charitable Sector include: Innovation, Science and Economic Development Canada (especially impactful for advancement of education charities active in research) and Justice (especially impactful for charities advocating for access to justice reforms and representation of marginalized communities disproportionately impacted by access to justice issues).

National School Food Program is now permanent

The National School Food Program is presented as a permanent federal program. It was launched in the 2024-2025 fiscal years and aimed at providing meals to 400,000 more kids every year with an investment of $1 billion over five years. It works with existing food program partners and informed partners across the provinces and territories, as well as Indigenous partners. This is particularly impactful to reduction of poverty charities, especially when aimed at supporting youth.

More funding for co-operative housing

A significant portion of Budget 2025 details the Government of Canada’s plans to support the development of affordable housing in Canada. The Build Canada Homes federal agency was announced to support these ambitious goals. Unique to the Charitable Sector, the Co-op Housing Development Program was announced earlier in 2025 and is intended to develop thousands of affordable rental co-operative housing units in the next three years.

Extended deadline for year-end donations for donation tax receipts

In January 2025 the Government of Canada announced an extension of the deadline for 2024 charitable donations to February 28, 2025. While Budget 2025 recognized this decision by the Government of Canada’s previous leadership, there were no representations that similar extensions would be made for the upcoming or future tax year-ends.

Amendments for non-profit reporting obligations in Budget 2024 not included in Budget 2025

Budget 2024 included expanded CRA filing requirements for many non-profit organizations which purported to increase transparency, likening non-profits’ filings to those currently in place for qualified donees. Those measures have not yet been passed into legislation and Budget 2025 was silent on their implementation. It remains to be seen whether such measures will become a priority under the Government of Canada’s current leadership.

Budget 2024 recommendations not advanced in Budget 2025

Budget 2024 also included a Canadian parliamentary committee’s recommendation to consider amending the ITA to remove advancement of religion as a head of charity and to also stop providing charitable status to what it termed “anti-abortion” organizations. Budget 2025 did not mention these recommendations or include any language on these topics.

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This analysis was prepared by the following members of the Gowling WLG Tax Group:

 

The Gowling WLG Tax Group delivers expert and innovative advice to our clients. Our team of tax professionals have leading practices in income tax, international tax planning, transfer pricing, Indigenous tax, executive compensation, indirect tax and customs, and tax dispute resolution.