New year, new tax measures — what to expect in 2025

The upcoming year will see some modifications to existing tax measures, though their impact on individuals is expected to be minimal.

Daniel Rogozynski from the University of Waterloo’s School of Accounting and Finance explained that 2025 will likely be a "status quo year" for tax changes. He noted, "There's not a lot there because they really can't do a lot. You can't reduce taxes because they're borrowing all this money, and they really can't spend a ton of extra money because they're borrowing all this money."

The most noticeable tax change for Canadians may be the GST/HST holiday, which offers a temporary reduction on some essential goods for two months. This holiday, effective from December 14, 2024, until February 15, 2025, will apply to a select list of goods and food items.

Rogozynski also pointed out that the measure doesn’t substantially impact the broader economy, stating, “It really doesn't change the economics of people that much and it doesn't change the economics of Canada, other than spending money that we don't have.” He described the GST holiday as "a two-month sugar high."

Capital Gains In the 2024 budget, the federal government increased the capital gains tax inclusion rate from 50% to 66% on capital gains exceeding $250,000 per year for individuals. Additionally, capital gains earned by corporations and trusts will be taxed at the higher two-thirds rate instead of the previous 50%. A capital gain is the difference between the purchase cost of an asset and its selling price.

While this change is already being provisionally enforced by the Canada Revenue Agency (CRA) since June 25, 2024, it will become official once the legislation is passed by Parliament. This upcoming year will mark the first full year of the revised capital gains inclusion rate.

Rogozynski mentioned that the process is becoming more complicated for individuals dealing with capital gains, especially for those who own shares in businesses, due to the new rules.

Canadian Entrepreneurs’ Incentive Another tax initiative that is already in effect is the Canadian Entrepreneurs’ Incentive. This measure, announced in the 2024 budget, reduces the capital gains inclusion rate from two-thirds to one-third on a lifetime maximum of $2 million in capital gains for business owners structured as Canadian Controlled Private Corporations. The incentive will be phased in over five years, beginning in 2025, at a rate of $400,000 per year, reaching the $2 million cap by 2029.

CPP Contributions 2025 will also mark the second year of enhanced Canada Pension Plan (CPP) contribution requirements. The first contribution ceiling has increased to $71,300 from $68,500 in 2024, meaning the maximum contribution for an employee will be $4,034.10, with the employer matching that amount. The second ceiling has also risen to $81,200, up from $73,200, with employees contributing $396 on the difference between the two ceilings.

Other Changes Starting April 1, 2025, the carbon tax will rise from $80 per tonne to $95 per tonne in provinces where the federal backstop is applicable. In these provinces, fuel charges on gasoline and propane will also increase, with gasoline charges going up to 20 cents per litre and propane charges rising to 14 cents per litre.

A recent study revealed that 90% of government revenue from the carbon tax is returned to households through a rebate program, with the remaining 10% directed toward initiatives that help businesses, schools, and municipalities reduce fossil fuel consumption.

Income Taxes and Other Adjustments As of January 1, 2025, federal income tax brackets will rise by 2.7%, following a smaller increase from the previous years. The new income tax thresholds will be as follows:

• Up to $57,375, taxed at 15%
• $57,376 to $114,750, taxed at 20.5%
• $114,751 to $177,882, taxed at 26%
• $177,883 to $253,414, taxed at 29%
• Over $253,415, taxed at 33%

In addition, the maximum insurable earnings ceiling for Employment Insurance (EI) will rise to $65,700, up from $63,200 in 2024, resulting in a slightly higher EI contribution for workers. The tax-free savings account (TFSA) contribution limit will remain at $7,000 for 2025.

These changes reflect a range of measures that will affect individual taxpayers, businesses, and corporations in Canada, with the most noticeable adjustments being the temporary GST/HST holiday and the rise in carbon taxes.