The 2025 federal budget was released on November 4, 2025 (“Budget Day”). It proposes significant tax changes that could impact individuals, estates, and businesses across Canada. Below is a summary of these proposals which are subject to change until voted on and signed into law. View the Prime Minister’s statement on the 2025 Canada Federal Budget here.
Personal Tax Returns
This section summarizes the 2025 Canada federal budget tax proposals for individuals.
New Tax Credit for Personal Support Workers (PSWs)
Starting in 2026, personal support workers (PSWs) employed in eligible health care establishments will be able to claim a new temporary tax credit. Moreover, this measure will be available from 2026 to 2030.
Value?
- 5% of eligible earnings, up to $1,100 per year.
Who qualifies?
- PSWs working in hospitals, nursing homes, residential care, community care for the Older people, home health care, and similar regulated facilities.
- The worker must provide one-on-one care and essential support to optimize and maintain another individual’s health, well-being, safety, autonomy, and comfort. Furthermore, their main duties of employment for the year must include helping individuals with daily living and mobilization activities as directed by a regulated health professional or a provincial or community health organization
Automatic Tax Returns for Low-Income Canadians
Beginning in 2025, the Canada Revenue Agency (CRA) will automatically complete tax returns for individuals whose income is below the personal exemption amount and who meet certain other criteria.
Aim?
- This ensure that all eligible Canadians receive the tax credits and benefits they’re entitled to, even if they don’t file a return themselves.
Trusts and Estates
The budget introduces important changes that impact executors, trustees, and estate planning.
Bare Trust Reporting Delayed
The government planned new reporting requirements for bare trusts starting in 2025, unless exemptions applied. However, the budget has once again delays this obligation until the 2026 tax year, giving trustees and advisors more time to prepare.
Action for Trustees
- If you participate in or believe you are part of a bare trust arrangement, contact a tax professional. They can determine if the current bare trust reporting rules apply to your situation. So you can begin preparing for the 2026 tax year.
Extended Loss Carry-Back for Estates
When someone passes away, their assets are deemed to be sold at fair market value, and any capital gains realized at this time are taxed on their final (terminal) tax return.
If the Estate sells those assets within the first year and they lose value, it can carry back the resulting capital losses to offset gains on the terminal return, potentially generating a tax refund.
Current rules
- The primary issue is Graduated Rate Estates (GREs) can remain open for up to three years and some may take longer than a year before they are even able to begin selling assets. Under current rules, only losses realized in the first year can be carried back. So those GRE’s which have losses in years two or three are not eligible, which can mean missed tax savings.
- The budget reaffirms the government’s plan to allow GREs to carry back capital losses realized in any of the first three years to the terminal return. This will apply retroactively to deaths on or after August 12, 2024.
Expected Result
- If this passes, GREs can use capital losses recognized in the second or third year after death to offset gains reported on the deceased’s final return, resulting in a refund for the Estate.
Corporate Taxes
The budget introduces incentives to spur industrial activity and new rules for corporate tax integrity.
Canada Carbon Rebate for Small Businesses
The government reaffirms its intention to make Canada Carbon Rebate payments for small businesses tax-free and extend the filing deadline for rebates from 2019 to 2023.
Aim?
- This ensures small businesses benefit fully from these rebates without additional tax liability.
Part IV Tax Planning – New Anti-Avoidance Rules
Previous Rule
- Previously, some corporate groups used different year-ends for their operating and holding companies. This allowed them to defer Part IV tax in one corporation by paying inter-corporate dividends to a connected corporation. The result was a dividend refund of Part IV taxes for the dividend-paying company and a transfer of the Part IV tax liability to the dividend recipient.
- If the recipient had a later fiscal year end than the payor, this allowed a delay in paying the Part IV tax for up to 11 months or more depending on the complexity of the corporate structure.
New Rule
- The budget proposes new anti-avoidance rules that if in effect, would suspend dividend refunds if Part IV tax is being deferred in this kind of arrangement. The suspended refund would only be released when the top company pays dividends to individual shareholders or to non-connected corporations (those owning less than 10% of shares).
- These new rules would apply to tax years beginning on or after November 4, 2025.
How to avoid?
To avoid these new rules, companies can align their corporations’ year-end dates or pay dividends earlier so as not to defer Part IV taxes into a later year-end. To change an already established year-end of a corporation, a request to change the year-end must be submitted to the CRA.
Enhanced SR&ED Tax Credits
The budget raises the annual limit for the enhanced 35% Scientific Research & Experimental Development (SR&ED) tax credit from $4.5 million to $6 million. This change applies to tax years beginning after December 16, 2024. This means more innovation spending will qualify for the higher credit rate. Read more about SR&ED on CRA updates 2025.
Immediate Expensing for Manufacturing and Processing Buildings
Businesses can now immediately expense 100% of the cost of new or arm’s-length acquired buildings used at least 90% for manufacturing or processing goods. This measure is to encourage investment in new facilities.
Repealed and Adjusted Taxes
- Underused Housing Tax (UHT) Cancelled
The government will eliminate the Underused Housing Tax starting in 2025. No UHT returns or taxes will be required for 2025 and beyond, but filings and penalties for 2022–2024 still apply.
- Luxury Tax Changes
The government will remove the 10% luxury tax from boats and aircraft but keep it for vehicles costing over $100,000.
Other Notable Points
Canadian Entrepreneurs’ Incentive
Originally announced in 2024 to provide a reduced capital gains inclusion rate for entrepreneurs. This incentive was not mentioned in the 2025 budget and appears not to be moving forward.
2025 Canada Federal Budget Means for You
The 2025 federal budget introduces new tax credits. In addition, It expands incentives, and targeted anti-avoidance rules. However, If you have questions about how these changes may affect your personal or business tax situation, or if you need help planning for the new rules, our team is here to help.
Therefore, for guidance on navigating the 2025 Canada Federal Budget tax changes, contact our Canadian tax experts today.
You can read Budget 2022 Article also.
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