2025 Federal Budget – Summary of Tax Initiatives

On November 4, 2025, the Liberal Government tabled its budget – Building Canada Strong – in the House of Commons (“Budget”). The Budget’s goals are to:
-Supercharge economic growth and increase competitiveness;
– Empower Canadians by reducing cost of living, investing in affordable housing and focusing spending on infrastructure and capital through reductions to operational spending; and
-Protecting Canadian sovereignty and keeping Canada safe.

To help achieve these goals, the Budget includes tax measures primarily targeted at Canadian businesses to promote investment and innovation, though there are some that impact individuals as well, such as amendments to the Home Accessibility Tax Credit and automatic federal benefits for lower-income Canadians.
 
Below is a summary of the tax initiatives that are of most relevance to our clients.
 
Business Tax Measures:
 
Productivity Super-Deduction
The Budget introduced a new “productivity super-deduction” (“PSD”), a combination of tax incentives to promote investment and innovation. The PSD reinstates immediate expensing of most depreciable capital assets and introduces it for manufacturing and processing buildings. To be eligible, a building must:
 
–              Be acquired on or after November 4, 2025;
–              Become available for use for manufacturing or processing before 2030; and
–              Have at least 90% of its floor space used to manufacture or process goods for sale or lease.
 
Previously used buildings that otherwise meet the immediate expensing criteria are eligible provided the building was not:
-Previously owned by the acquiring taxpayer (or any person that does not deal at arm’s length with the taxpayer); and
-Transferred to the taxpayer on a tax-deferred basis.

Eligible Buildings Available for Use in 2030 or Later:
Where an eligible building is acquired on or after November 4, 2025 but not available for use until 2030 or later, first-year enhanced capital cost allowance (“CCA”) rates are:
-If first used between January 1, 2030 and December 31, 2031, the accelerated CCA rate is 75%; and
-If first used between January 1, 2032 and December 31, 2033, the accelerated CCA rate is 50%.

SR&ED Enhancements
The Budget includes the following enhancements to the SR&ED program:
-Increases the taxable capital thresholds at which the 35% refundable tax credit is progressively eliminated to $15 million and $75 million from $10 million and $50 million;
-Extends eligibility for the 35% refundable tax credit to eligible Canadian public corporations;
-Restores eligibility of certain capital expenditures; and
-Increase the annual expenditure limit eligible for the 35% refundable tax credit to $6 million for taxation years that begin on or after December 16, 2024. The limit was previously $4.5 million.

Tiered Group Structure – Part IV Tax
The Budget introduces an anti-avoidance rule with respect to dividends paid within tiered corporate structures – such as where a holding company (“Holdco”) owns the shares of an operating company (“Opco”) – with differing year-ends. It applies where a dividend refund received results in tax deferral. The Budget aims to eliminate this deferral opportunity by suspending the payer corporation’s dividend refund where the anti-avoidance rule applies.
 
If enacted, the dividend refund suspension rules would apply to taxation years that start on or after November 4, 2025.
 
Personal and Trust Tax Measures:
 
Personal Support Workers’ Tax Credit
The Budget proposes introducing a temporary refundable tax credit of 5% of an eligible personal support worker’s eligible earnings, to a maximum of $1,100 (“PSWTC”).
If enacted, the PSWTC will be available for the 2026 to 2030 taxation years.
 
Automatic Federal Benefits for Lower-Income Individuals
To obtain certain federal benefits – such as the GST/HST credit and the Canada Child Benefit – an individual must file an income tax return. However, many lower-income Canadians do not file their T1s annually and miss out on these benefits. The Budget proposes allowing the Canada Revenue Agency (“CRA”) to file a personal tax returns on behalf of eligible low income  individuals.
 
Automatic federal benefits would apply to the 2025 and subsequent taxation years.
 
Top-Up Tax Credit
The as yet enacted middle-class tax previously announced in May 2025 would reduce the first personal tax bracket rate credit rate from 15% to 14.5% in 2025, and to 14% thereafter. Since most personal non-refundable tax credits use this rate, the reduction would blunt the benefit of the reduced income tax rate. To alleviate this, the Budget proposes to keep the 15% credit rate in place for the 2025 to 2030 taxation years.
 
Home Accessibility Tax Credit – Double-Dip Removal
When the Home Accessibility Tax Credit (“HATC”) was enacted, it allowed for double-dipping whereby an expenditure qualifying for the HATC and the Medical Expense Tax Credit could be claimed towards both credits. The Budget proposes to amend the ITA so that an expenditure claimed under the Medical Expense Tax Credit cannot also be claimed for the HATC.
 
If enacted, this measure would apply for 2026 and subsequent taxation years.
 
Reporting for Bare Trusts
While the Budget does not eliminate the requirement for bare trusts to a file a T3 trust income tax return – including Schedule 15 which discloses the settlor(s), beneficiaries and trustees – the requirement is being deferred until taxation years ending on or after December 31, 2026.
 
21-Year Rule for Trusts
To prevent circumvention of ITA s.104(5.8), which denies rollover treatment of assets transferred from one trust to another to avoid the 21-year deemed disposition rules, the Budget strengthens s.104(5.8) to apply to indirect trust-to-trust transfers. The proposed rule applies  where an asset has been transferred “directly or indirectly in any manner whatever” from one trust to another where one of the rollover provisions applies.
 
If enacted, the measure would apply to transfers that occur on or after November 4, 2025.
Sales and Excise Tax Measures
 
Underused Housing Tax
In general, the Underused Housing Tax (“UHT”) applies to non-resident owners of vacant or underused residential property in Canada. Where applicable, the UHT assesses a 1% tax on the value of the underused property. The Budget proposes eliminating the UHT for 2025 and subsequent years.
 
Luxury Tax on Aircraft, Vessels and Vehicles
The Select Luxury Items Tax Act (Canada) (“SLITA”) provides for a luxury tax on aircraft with a value in excess of $100,000, vessels (watercraft) with a value exceeding $250,000 and vehicles with a value above $100,000. SLITA applies a tax equal to the lesser of 10% of the aircraft, vessel or vehicle’s value and 20% of the value above the relevant threshold.
 
The Budget proposes eliminating the luxury tax on aircraft and vessels effective November 5, 2025. The luxury tax on vehicles is unchanged.