Highlights of the federal budget
Capital Gains Inclusion Rate
As announced on March 21, 2025, the Government of Canada confirms the cancellation of the proposed increase to the capital gains inclusion rate. It therefore remains at 50%.
Qualified Investments for Registered Plans
Budget 2025 proposes to simplify and harmonize the qualified investment rules that apply to certain registered plans (e.g., Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs) etc. This measure would streamline the rules relating to small business investments and replace the registered investment regime with new categories of qualified investments as of 2027.
Immediate Expensing for Manufacturing and Processing Buildings
Budget 2025 proposes to introduce immediate expensing for manufacturing or processing buildings that are acquired on or after Budget Day and that are used for manufacturing or processing before 2030. This measure would be phased out over a four-year period between 2030 and 2033.
21-Year Rule Regarding Trusts
Budget 2025 proposes to broaden the current anti-avoidance rule for direct trust to trust transfers to include indirect transfers of trust property to other trusts. This measure would apply in respect of transfers of property that occur on or after Budget Day.
Underused Housing Tax (UHT)
Budget 2025 proposes to eliminate the UHT that applies to certain owners of vacant or underused residential property in Canada, generally non-resident, non-Canadians, as of the 2025 calendar year. As a result, no UHT would be payable and no UHT returns would be required to be filed in respect of the 2025 and subsequent calendar years.
Luxury Tax on Aircraft and Vessels
To provide relief to the aviation and boating industries and increase the overall efficiency of the luxury tax framework, Budget 2025 announces the government’s intention to end the luxury tax on aircraft and vessels as of the day after Budget Day.
Home Accessibility Tax Credit
Budget 2025 proposes to amend the Income Tax Act such that an expense claimed under the Medical Expense Tax Credit cannot also be claimed under the Home Accessibility Tax Credit. This measure would apply to the 2026 and subsequent taxation years.
Personal Support Workers Tax Credit
Budget 2025 proposes to introduce a temporary Personal Support Workers Tax Credit, which would provide eligible personal support workers working for eligible health care establishments with a refundable tax credit of 5 per cent of eligible earnings, providing a credit value of up to $1,100. This measure would apply to the 2026 to 2030 taxation years.
Critical Mineral Exploration Tax Credit (CMETC)
Budget 2025 proposes to expand eligibility for the CMETC to include an additional 12 critical minerals necessary for defence, semiconductors, energy, and clean technologies. This measure would apply to expenditures renounced under eligible flow-through share agreements entered into after Budget Day and on or before March 31, 2027.
Scientific Research and Experimental Development (SR&ED)
Budget 2025 proposes to further increase the expenditure limit on which the SR&ED program’s enhanced 35% tax credit can be earned, from the previously announced $4.5 million to $6 million.
Eligible activities under the Canadian Exploration Expense (CEE)
Canadian exploration expenses may include expenses incurred by a taxpayer for the purpose of determining the existence, location, extent, or quality of a mineral resource in Canada. Budget 2025 proposes to amend the Income Tax Act to clarify that expenses incurred for the purpose of determining the quality of a mineral resource in Canada do not include expenses related to determining the economic viability or engineering feasibility of the mineral resource. This amendment would apply as of Budget Day.
Previously announced measures
Budget 2025 confirms that the government intends to proceed with the following previously announced measures, as modified, including, but not limited to:
- Technical tax amendments to the Income Tax Act and the Income Tax Regulations (subject to a deferred application date for reporting by bare trusts, so that it would apply to taxation years ending on or after December 31, 2026);
- Extension of the Accelerated Investment Incentive and Immediate Expensing Measures;
- Changes to the Alternative Minimum Tax (other than changes related to resource expense deductions);
- Proposed increase in the Lifetime Capital Gains Exemption to apply to up to $1.25 million of eligible capital gains announced in Budget 2024;
- A reduction to the first marginal personal income tax rate from 15 per cent to 14 per cent, effective July 1, 2025.
Budget 2025 confirms the cancellation of the following previously announced measures, including:
- Canadian Entrepreneurs’ Incentive;
- Proposal to fully allow resource expense deductions under the Alternative Minimum Tax.
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