With the arrival of a new year, Canadians’ attention shifts to the 2025 tax season, which begins on February 17. It’s more crucial than ever to keep up with the most recent tax changes because so many people are impacted by the rising cost of living. To prevent surprises when tax season rolls around, you must know what’s new this year and plan. This comprehensive 2025 update covers everything from capital gains tax adjustments to new savings account contribution caps. Seize the opportunity and take charge, armed with the knowledge to rule tax season like never before.
Capital Gains Tax Inclusion Rate Change (Pending Legislation)
One of the most noteworthy potential changes involves the capital gains inclusion rate. Although it is not law yet, the federal government has announced an increase to this rate as part of Bill C-47. The CRA is currently operating based on the notice of ways and means motion.
What are Capital Gains? Capital gains are the income from the sale of investments such as stocks, investment properties (other than your principal residence), and other investments.
Here’s how the changes would work, in brief:
| Details | Previous Rule | 2025 Changes |
|---|---|---|
| Inclusion Rate | 50% | 67% (above $250,000) |
| Annual Threshold | No specific threshold | $250,000 exemption |
| Principal Residence Exemption | Applicable | Remains unchanged |
Key Takeaway: For individuals, the first $250,000 of annual capital gains would still be taxed at the 50% inclusion rate, while gains above that threshold would be subject to the new 67% rate. The change also would apply to corporations and most trusts. The principal residence exemption remains in place.
Important Note: These amendments are yet to be approved by a legislative body. It’s always best to check for any additional updates.
GST/HST Break on Groceries (Temporary Measure)
The temporary GST/HST relief on specific grocery items, including prepared foods, snacks, restaurant meals, takeout, alcoholic beverages, and children’s clothing, is set to expire on February 15, 2025. After this date, these items will once again be subject to the applicable GST/HST.
Adjustments to Government Benefits Based on Inflation:
Most of the government benefits are indexed annually to the Consumer Price Index (CPI) to keep up with inflation. Here’s how that works out for 2025:
| Benefit | Adjustment Method | 2025 Update |
|---|---|---|
| Canada Child Benefit (CCB) | Recalculated annually in July based on previous year’s family net income and inflation. | To be determined in July 2025 based on 2024 income and inflation. |
| Old Age Security (OAS) | Reviewed quarterly (January, April, July, October) based on CPI. | Payments won’t change for Q1 2025 (Jan-Mar) since the CPI did not rise in the last three-month period. Any future adjustments will be based on CPI. |
| GST/HST Credit | Paid quarterly to low- and modest-income individuals and families; amount varies based on income and family size. | Maximum annual amount for single individuals (July 2024 – June 2025) is $519. This credit is non-taxable. |
Retirement Savings Contribution Limits for 2025
Canadians can now contribute more to registered savings plans; now is the time to maximize tax-exempt investments.
| Account Type | 2024 Limit | 2025 Limit |
| Registered Retirement Savings Plan (RRSP) | $31,560 | $32,490 |
| Tax-Free Savings Account (TFSA) | $7,000 | $7,000 |
CPP Contribution Changes:
The Year’s Maximum Pensionable Earnings (YMPE) is also increasing, which impacts CPP contributions:
| CPP Metric | 2024 Value | 2025 Value |
|---|---|---|
| YMPE | $68,500 | $71,300 |
| Basic Exemption | $3,500 | $3,500 |
| Employee/Employer Rate | 5.95% | 5.95% |
| Max Employee/Employer Contribution | $3,867.50 | $4,034.10 |
| Self-Employed Rate | 11.90% | 11.90% |
| Max Self-Employed Contribution | $7,735.00 | $8,068.20 |
Tip: Max out higher limits by planning contributions at the beginning of the year.
Vehicle Expense Deduction Limits for Businesses
For Canadian small business owners, contractors, and self-employed professionals, there are a few big changes coming to the vehicle expense deduction limits in 2025. Here is how it works:
| Expense Type | 2024 Limit | 2025 Limit | Details |
|---|---|---|---|
| Leasing Costs | $1,050/month | $1,100/month | Applies to new leases entered into on or after January 1, 2025. Maximum amount of monthly lease costs that can be deducted for tax purposes. |
| Capital Cost Allowance (CCA) | $37,000 | $38,000 | The maximum amount that you can deduct for depreciation of your Class 10.1 passenger vehicle, both new and used, acquired on or after January 1, 2025. |
| Kilometre Allowance (Provinces) | 70¢/km (first 5,000 km) | 72¢/km (first 5,000 km) | This is the tax-exempt allowance an employer can pay to an employee who uses his or her personal vehicle for business. For kilometers driven beyond the first 5,000, the rate is 64¢/km in 2024; it rises to 66¢/km in 2025. |
| Kilometre Allowance (Territories) | 74¢/km (first 5,000 km) | 76¢/km (first 5,000 km) | This is the tax-exempt allowance employers can pay to employees who use their personal vehicles for business in the territories. For kilometers driven beyond the first 5,000, the rate is 68¢/km in 2024 and increases to 70¢/km in 2025. |
Action Point: Update your business expense tracking to reflect these changes for accurate deductions.
Bare Trust Reporting: Extended Exemption
The CRA has extended the exemption for bare trust reporting for the 2024 tax year. Unless specifically requested by the CRA, Canadians with bare trusts will not need to file T3 or Schedule 15 documentation for the 2024 tax year (filing in 2025). However, T3 returns for trusts with a December 31, 2024 year-end are still due by March 31, 2025.
Electronic Tax Filing Updates for 2025
The CRA is updating the T619 electronic transmittal record for those filing online for the 2025 tax year. You’ll need to use the updated version for electronic submissions. The CRA is also restricting submissions to one return type per transmission. New online validations will also be implemented to help catch errors during filing.
Automatic Tax Filing Expansion
The CRA is expanding its SimpleFile by Phone program to include two million Canadians, up from 1.5 million. This initiative simplifies tax filing for eligible individuals by automating the process.
Final Thoughts
The 2025 tax season brings significant changes that could affect how you manage your taxes, investments, and benefits. By staying informed and proactive, you can make the most of new opportunities while avoiding potential pitfalls. Consult with a tax professional if you need guidance navigating these CRA updates and maximizing your financial position for the year ahead.
