As Canadians welcome 2025, many are focused on managing their finances amidst ongoing concerns over the cost of living.
Several significant changes are set to take effect starting January 1, which may impact personal finances, tax filings, and government benefits.
The official tax season for 2025 is set to begin in mid-February, but there are key updates worth preparing for before that time.
Capital Gains Tax Updates
Earlier this year, the federal government proposed changes to the capital gains tax, though formal legislation is still pending.
A notice issued in June suggested that the inclusion rate for taxable capital gains would rise from 50% to 67% for any gains exceeding $250,000 annually. These changes could affect individual taxpayers, corporations, and trusts. However, capital gains from the sale of a principal residence will remain exempt.
While these changes have not yet passed in Parliament, the Canada Revenue Agency (CRA) is moving forward with them in the lead-up to the 2025 tax season, as outlined in the notice of ways and means motion.
“Tax Holiday” Continues
A temporary “tax holiday” will continue until February 15, 2025, offering Canadians relief from the GST/HST on various items, including prepared foods, restaurant meals, children’s clothing, and certain groceries. This initiative is expected to save taxpayers an estimated $1.5 billion.
Government Benefits Adjustments
In 2025, Canadians may see an increase in government benefits like the Canada Child Benefit (CCB) and Old Age Security (OAS), based on inflationary adjustments tied to the Consumer Price Index (CPI).
OAS benefits are reviewed quarterly, with the first quarter of 2025 seeing no increase due to stable CPI numbers. CCB payments, calculated annually based on family income, are non-taxable and can reach up to $519 for individuals without children between July 2024 and June 2025.
Higher Contribution Limits for Retirement Savings
For those planning for retirement, 2025 brings higher contribution limits. The registered retirement savings plan (RRSP) limit rises to $32,490, up from $31,560 in 2024. Additionally, the Year’s Maximum Pensionable Earnings (YMPE) increases to $71,300, allowing higher pension plan contributions.
The contribution room for the tax-free savings account (TFSA) will remain steady at $7,000, following consecutive increases in previous years.
Vehicle Deduction Changes
New tax-deductible leasing limits for vehicles will come into effect on January 1. Businesses leasing vehicles can now deduct up to $1,100 per month for new leases. Furthermore, the capital cost allowance (CCA) for new and used Class 10.1 passenger vehicles will increase to $38,000, up from $37,000 in 2024.
For employees using their personal vehicles for business purposes, the allowance for tax-exempt mileage will increase to 72 cents per kilometer (for the first 5,000 kilometers) and 66 cents for each additional kilometer. In the territories, the limits will be slightly higher.
Bare Trust Reporting Exemption
The CRA has extended the exemption for reporting bare trusts for the 2024 tax year. Canadians with bare trusts will not need to file T3 or Schedule 15 forms unless specifically requested by the CRA. However, trusts with a December 31, 2024, tax year-end will still need to file their T3 return by March 31, 2025.
Updates for Tax Filing in 2025
For Canadians filing their taxes electronically in 2025, several updates will take effect, including a new T619 electronic transmittal record requirement. Additionally, the CRA is expanding its SimpleFile by Phone service to allow two million Canadians to file their taxes automatically.
With Ottawa’s push toward automatic tax filing, the CRA is also restricting submissions to a single return type to streamline the process. New online validations will help identify errors before submission, improving the filing experience.
As the new year begins, it’s essential for Canadians to stay informed of these changes to optimize their finances, tax filings, and benefit claims in 2025.
Also Read
Massive XRP Transfer in 2025: A Routine Operation or Cause for Concern?