Canada’s 2025 Federal Budget brings several important changes and updates affecting personal taxes, aiming to provide relief for middle-class Canadians while fostering economic growth and innovation.
Key Tax Changes for Individuals
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Reduction of the Lowest Personal Income Tax Rate:
The federal basic personal income tax rate will decrease from 15% in 2024 to 14.5% in 2025 and then drop further to 14% in 2026. This gradual reduction lowers tax liabilities for millions of Canadians, effectively putting more money back into taxpayers’ pockets. -
Introduction of a Non-Refundable Top-Up Tax Credit:
To counterbalance the reduced tax rate’s impact on the value of certain personal tax credits for higher earners, the government proposed a new top-up tax credit. This credit maintains the current value of non-refundable credits at 15% for income above the first tax bracket threshold, ensuring taxpayers do not face higher liabilities despite rate cuts. -
Expansion of the Scientific Research and Experimental Development (SR&ED) Program:
The budget increases the expenditure limit for the enhanced 35% SR&ED tax credit from $3 million to $6 million and extends eligibility to certain Canadian public corporations. This supports innovation and research activities within Canada, providing incentives for businesses to invest in technological development. -
Homebuyer Tax Rebates:
In alignment with efforts to improve housing affordability, the budget eliminates the 5% Goods and Services Tax (GST) on new homes priced up to $1 million for first-time buyers and reduces the GST on new homes priced between $1 million and $1.5 million. Eligible buyers could receive rebates of up to $50,000. -
Introduction of Temporary Supplemental Canada Disability Benefit Payment:
To help offset the certification costs for the Disability Tax Credit, the government plans a one-time $150 supplementary payment to recipients of the Canada Disability Benefit before the end of 2026-2027.
Impact on Taxpayers
These measures collectively reduce the tax burden on individuals, especially middle-income earners and families, alongside incentives for scientific innovation and home ownership. However, higher earners will see some personal credits’ value adjusted to reflect lower tax rates, balanced by the new top-up credit.
Summary Table
| Tax Measure | Description |
|---|---|
| Personal Income Tax Rate | Reduced from 15% to 14.5% (2025) and 14% (2026) |
| Top-Up Tax Credit | Maintains value of non-refundable credits at 15% |
| SR&ED Tax Credit | Enhanced credit limit raised to $6 million |
| GST Rebate for First-Time Homebuyers | Eliminates/reduces GST on new homes up to $1.5 million |
| Canada Disability Benefit Supplement | One-time $150 payment to offset DTC certification costs |
FAQs
Q1: When does the lowest personal income tax rate change take effect?
A: The rate drops to 14.5% for the 2025 tax year and to 14% in 2026.
Q2: Who benefits from the GST rebate on new homes?
A: Eligible first-time homebuyers purchasing new homes priced up to $1.5 million.
Q3: What is the purpose of the top-up tax credit?
A: To prevent higher tax liabilities for individuals with tax credits exceeding the first bracket due to lower tax rates.
Canada’s 2025 Federal Budget offers meaningful tax relief and targeted benefits aimed at supporting middle-class Canadians and fostering innovation, making it a critical piece of financial planning for taxpayers in the coming years.
