7 Proposed Tax Changes That Could Save You Money
Investors could save thousands, depending on which tax changes are enacted in Canada’s federal budget. Three changes are already in effect.
Prime Minister Mark Carney’s 2025 federal budget introduces a handful of changes—some proposed and others already in effect—to Canada’s tax rules. Taxpayers can take action now to maximize their tax dollars based on the newly enacted rules while keeping an eye out for updates on further measures.
Important to note is that some of the proposed changes have yet to receive legislative approval, meaning they may never come to fruition. The 2025 federal budget does not propose major changes to personal or corporate income tax rates. At the same time, new changes already in effect include the elimination of the Underused Housing Tax and adjustments to capital gains rates.
Potential changes to look out for include first-time homebuyers relief, the elimination of the Underused Housing Tax, and the reversal of the capital gains rate hike. Familiarity with these changes could equip taxpayers with the information they need to prepare for the upcoming filing season.
While the measures are designed to streamline the tax system and help Canadians save, experts caution that some of these measures are only proposals which may or may not be enacted into law. We recommend that you consult with your tax and legal experts before implementing any new strategies.
New changes effective immediately include:
The elimination of the Underused Housing Tax and select luxury taxes
The expansion of the 21-year rule for personal trusts
Adjustments to the capital gains rate
Additional proposed changes to watch for include:
Personal income tax adjustments
Simplification of home accessibility tax credits
New first-time homebuyers relief
Simplification of registered plan rules
New Tax Changes from the Federal Budget, Effective Immediately
If any of these changes apply to you, consult an expert to determine how they will impact your year-end tax planning. Prompt and appropriate measures could help maximize your savings and avoid potential penalties.
The Elimination of Underused Housing and Luxury Taxes
One of the biggest announcements in the 2025 federal budget included the removal of the Underused Housing Tax, an annual federal 1% tax on the ownership of vacant or underutilized residential property in Canada, which came into effect on Jan. 1, 2022. The budget proposes to phase out these taxes, which generally targets high-income earners. The budget also did away with the luxury tax, which would no longer be payable on aircraft and yachts valued at C$100,000 or lower, effective Nov. 5.
Under the proposed measure, the luxury tax would continue to be applicable to vehicles valued above C$100,000.
Expansion of the 21-Year Rule for Personal Trusts
The federal government stretched anti-avoidance rules to cover indirect transfers of property between trusts—a strategy used to circumvent the 21-year rule. Under this rule, trusts are deemed to have disposed of their property at fair market value every 21 years. This triggers taxation on any unrealized capital gains at the trust level, with the assets then deemed reacquired at that new value. Certain tax-avoidance planning techniques are currently used to transfer trust property indirectly to a new trust to avoid both the 21-year rule and the anti-avoidance rule, indefinitely deferring taxes on accrued gains.
The budget aims to remove the use of indirect transfers between trusts as a method of avoiding this 21-year rule. The new proposal broadens the scope of the current anti-avoidance rule to include indirect transfers of trust property to other trusts. The change affects individuals and their financial advisors who used or planned to use this specific strategy. The affected transfers are those occurring on or after Nov. 4.
Capital Gains Rate Adjustments
The federal government has formally cancelled the previous government’s proposed increase to the capital gains inclusion rate to 66.67% from 50.00%. This means the rate remains at 50% for individuals and is applicable to all capital gains realized before Jan. 1, 2026.
The budget also affirmed the government’s intention to increase the lifetime capital gains exemption limit to C$1.25 million from the current C$1 million. This allows taxpayers to shelter more gains on qualifying investments, such as small business corporation shares and qualifying farm or fishing property.
Proposed Tax Changes from the Federal Budget
Proposed Adjustments to Personal Income Taxes
The government has proposed to reduce the lowest personal marginal income tax rate to 14.5% from 15.0% for 2025 and then to 14.0% for 2026 onward for taxable income up to C$57,375. Taxpayers earning this amount or less annually would be eligible.
This also reduces the value of many personal tax credits, so [to mitigate that tax liability] a new top-up tax credit will maintain the current 15% rate for non-refundable credits exceeding the first income bracket [C$57,375 in 2025]. The top-up tax credit (which maintains the 15% rate for credits claimed on amounts above the first income tax bracket threshold) would apply for 2025-30.
The budget also proposed to amend the Income Tax Act to grant the CRA the discretionary authority to file tax returns on behalf of some low-income Canadians who meet certain criteria, such as if an individual’s taxable income for the taxation year is below the federal basic personal amount. In 2025, the maximum BPA was set at C$16,129 for taxpayers earning C$177,882 or less. Lower-income individuals may benefit from automatic federal benefits, as the CRA can file returns on their behalf to ensure credits/benefits are received.
Proposed Simplification of the Home Accessibility Tax Credit
The budget puts forward a plan to simplify the rules for the Home Accessibility Tax Credit and the Medical Expense Tax Credit. Under the current regime, taxpayers can claim both credits for the same expense if each credit’s eligibility criteria are met, effectively allowing double dipping.
The 2025 Budget proposes to amend the Income Tax Act to prevent an expense claimed under the Medical Expense Tax Credit from also being claimed under the Home Accessibility Tax Credit, and [the amended rule] would apply to the 2026 tax year and subsequent years.
The Home Accessibility Tax Credit is a non-refundable tax credit that applies at the lowest personal income tax rate on up to C$20,000 of eligible home renovation or alteration expenses per calendar year.
The Medical Expense Tax Credit is a non-refundable tax credit which allows individuals to reduce the amount of income tax they owe by claiming eligible, unreimbursed medical expenses for themselves and their dependents. It applies at the lowest personal income tax rate on the amount of qualifying medical and disability-related expenses in excess of the lesser of C$2,834 (for 2025) and 3% of the claimant’s net income.
Proposed First-Time Homebuyers Relief
The 2025 budget proposes to introduce a new goods and services tax rebate for first-time homebuyers. The measure would eliminate the GST on new homes valued up to C$1 million and provide a partial rebate for homes valued between C$1 million and C$1.5 million. Depending on the value of the property, the move could potentially save Canadians up to C$50,000 if they’re buying or building their first home. The new home must be the buyer’s primary place of residence to be eligible for the rebate. There is no rebate if the home’s value exceeds C$1.5 million.
Proposed Simplification of Qualified Investment Rules for Registered Plans
The budget puts forward some suggested changes to simplify and harmonize the qualified investment rules related to seven registered plans, including Registered Retirement Savings Plans, Registered Retirement Income Funds, Tax-Free Savings Accounts, Registered Education Savings Plans, Registered Disability Savings Plans, First Home Savings Accounts, and Deferred Profit Sharing Plans. These plans are limited to holding qualified investments.
The proposal seeks to remove two groups from the scope of qualified investments: shares of eligible corporations and interests in small business investment limited partnerships and small business investment trusts. Those investing through registered plans will also need to consider their portfolios as changes to the qualifying investment rules come into effect.
I recommend working with a trusted Certified Financial Planner to plan ahead with these changes and to take advantage of RRSP and spousal RRSP planning, as well as TFSA, and RESP planning.