Next year will see some changes to existing tax measures, but those changes are expected to have only minor impacts on people.
Daniel Rogozynski of the University of Waterloo’s School of Accounting and Finance told CBC News that, for the most part, 2025 will be a “status quo year” on the fiscal front.
“There’s not much there because they can’t really do much,” he said. “You can’t lower taxes because you’re borrowing all this money, and you can’t really spend a ton of extra money because you’re borrowing all this money.”
Rogozynski said the tax change Canadians will most likely notice is the GST/HST holiday, which will give consumers a discount on the cost of some essential goods for a two-month period.
This measure came into force on December 14, extends until February 15, 2025 and affects a specific list of goods and food.
The parliamentary budget officer says the tax break will cost the federal government $1.46 billion and provinces with harmonized sales taxes $1.26 billion, but all of that could end up on the federal government’s books if provinces decide not to give up to compensation for the federal government’s measure. .
“It doesn’t really change people’s economies much and it doesn’t change Canada’s economy, other than spending money we don’t have,” Rogozynski said.
“I think if you really look at the GST, it’s a two-month sugar high.”
Capital gains
In the 2024 budget, the federal government increased the capital gains tax inclusion rate (the taxable percentage) from 50 percent to 66 percent on capital gains over $250,000 a year for individuals.
He also announced that all capital gains made by corporations and trusts would begin to be taxed at the two-thirds rate, instead of the 50 percent rate.
A capital gain is the difference between the cost of an asset (an investment property, stock, or mutual fund) and its total sales price.
The change was introduced in the budget annex, but has not yet been approved by Parliament.
The Canada Revenue Agency (CRA) began applying the change provisionally on June 25 and will continue to do so until legislation is passed or a new government ends the measure.
Next year will be the first full year for the new capital gains inclusion rate.
Before Parliament adjourned on December 17, the House of Commons was locked in debate over an issue of privilege that prevented MPs from carrying on with their normal work, such as passing laws.
“It’s a function of a dysfunction, so to speak, of the system right now, which is that they can’t pass laws that actually effect what they want to do from a political standpoint,” Rogozynski said.
Incentive for Canadian entrepreneurs
Another tax measure that the CRA is implementing even though Parliament has not passed enabling legislation is the Canadian Entrepreneur Incentive.
Also announced in the 2024 budget, the incentive reduces the inclusion rate from two-thirds to one-third on a lifetime maximum of $2 million in capital gains for business owners established as Canadian Controlled Private Corporations.
The program will be phased in over five years starting in 2025 at a rate of $400,000 per year until the exemption reaches $2 million per year by 2029.
“The world of taxes for people with capital gains is going to be immensely more complicated,” Rogozynski said.
“If you have a capital gain on shares of a company, it’s much, much more complicated than ever because of these different rules that are coming into effect at around the same time.”
Maximum CPP Contributions
The new year will be the second year in which contribution requirements to the Canada Pension Plan will be improved. Under those rules, two caps are used to determine the maximum CPP contributions people must pay.
The first limit is now $71,300, up from $68,500 in 2024. To calculate the maximum contribution for an employee, the 5.95 percent contribution rate must be applied to the maximum of the first limit, once it is taken into account the $3,500 exemption.
That means that in 2025, the first maximum contribution cap for an employee is $4,034.10. The employer pays an equal amount for a total maximum contribution per employee of $8,068.20.
The second cap in 2025 is $81,200, up from $73,200 in 2024.
To calculate the maximum CPP contribution under the second ceiling, employees must take the difference between $71,300 and $81,200, which is $9,900, and multiply that amount by the lowest contribution rate of four percent to get $396. Employers make a matching contribution of this same amount.
Other notable changes in 2025
On April 1, 2025, the carbon price will go from $80 per ton to $95 per ton in provinces where federal support applies.
The support does not apply in Quebec, British Columbia and the Northwest Territories because they have their own carbon pricing systems that meet the federal standard.
In provinces using federal support, carbon pricing is applied to emitting fuels through fuel charge rates that vary from fuel to fuelbased on the amount of CO2 equivalent emissions they generate when burned.
On April 1, provinces and territories using federal support will see gasoline fuel charges at the pump increase to 20 cents per liter from the 2024 rate of 17 cents per liter, while the propane fuel charge will increase to 14 cents per liter from 12 cents. .
Ninety percent of government revenue from the carbon tax is returned to households through a rebate program. The other 10 percent goes to programs to help businesses, schools, municipalities and other grant recipients reduce their consumption of fossil fuels.
He parliamentary budget officer and a recent study of two professors from the University of Calgary concluded that almost all households receive more from the carbon tax rebate than they pay in direct and indirect costs.
Only households in the highest income quintile are projected to pay more than they receive because they consume more.
Income taxes, EI and TFSA premiums
Starting January 1, federal income tax thresholds in Canada will increase by 2.7 per cent across all brackets, compared to a 4.7 per cent increase in 2024 and a 6.3 per cent increase in percent in 2023. The basic personal exemption amounts have also been adjusted to take into account inflation.
Provinces have their own provincial income tax brackets, but by 2025 the federal thresholds will now be:
- From zero to $57,375, taxed at 15 percent.
- From $57,376 to $114,750, taxed at 20.5 percent.
- From $114,751 to $117,882, taxed at 26 percent.
- From $117,883 to $253,414, taxed at 29 percent.
- $253,415 and more, taxed at 33 percent.
Now that inflation has returned to the target range of one to three percent, income tax threshold increases have also dropped again. Before the increase in inflation in 2022, income tax thresholds were increased by 1 percent in 2021 and 2.4 percent in 2022.
The maximum insurable income limit for employment insurance increases to $65,700 starting January 1, up from $63,200 in 2024. That means the new maximum annual EI contribution for a worker will increase to $1,077.48, up from $1,049. 12 in 2024.
The annual contribution to the tax-free savings account in 2025 will remain at $7,000.
