The 2025 federal budget, titled "Building Canada Strong," aims to support Canadians through strategic investments in housing, infrastructure, and defense while aiming to control spending and gradually reduce the deficit. Notably, the budget preserves key Trudeau-era social programs, including the $10-a-day childcare program, dental care, Pharmacare, Canada Child Benefit and Canada Disability Benefit. From a tax and wealth perspective, there are no proposed changes to general personal or corporate income tax rates, capital gains inclusion rates or other broad tax measures. There are no changes to the calculation of the registered retirement income fund (RRIF) minimum amount. Below, we summarize the key changes and take a closer look at the tax and wealth changes proposed.

Key Budget Highlights

• Deficit: The budget projects a $78.3-billion deficit for the 2025-26 fiscal year, gradually declining to $56.6-billion by 2029-30.
• Public Service Cuts: The government plans to reduce the federal public service by approximately 30,000 employees by 2028-29, primarily through attrition and early retirement incentives. This aims to bring the public service back to a "sustainable level."
• Defense Spending: A significant increase in defense spending is proposed, with $84-billion allocated over five years. This includes funds for pay raises, recruitment, infrastructure repair, training, digital infrastructure, cyber-defense, and military capabilities enhancement.
• Immigration and Labour: Permanent resident admissions target lowered to 380,000 annually for 2026-2028. Temporary admissions will also be reduced, with a target of 385,000 for next year.
• Investment and Trade: The budget emphasizes investment, with capital investments projected to rise to nearly $60-billion by 2029-30. It includes measures to boost corporate spending and proposes a $5-billion Trade Diversification Corridors Fund to enhance non-U.S. exports.
• Climate Strategy: Maintain the federal cap on emissions from the oil and gas sector but suggests it may not be needed if other measures, such as strengthened methane leak regulations and industrial pricing reforms, are implemented.
• Productivity incentives: To enhance business competitiveness, the budget introduces tax measures like the "productivity super-deduction," allowing businesses to write off a larger share of new capital investments. This aims to reduce Canada's marginal effective tax rate to the lowest in the G7.
• Miscellaneous: The budget includes various other initiatives, such as renewing the Canada Strong Pass, providing funding to the CBC for potential Eurovision participation, scrapping the luxury tax on private aircraft and vessels, and creating 100,000 summer jobs for students.

This article Federal budget 2025: A summary of key measures that may impact you provides an overview of the key tax and wealth planning measures proposed in the 2025 federal budget in detail. We have summarized the key measures below for your reference:

Personal Tax Measures

• Temporary Personal Support Workers Tax Credit: A refundable tax credit of 5% on eligible earnings, up to $1,100, for personal support workers in healthcare.
• Automatic Tax Filing: The Canada Revenue Agency (CRA) will file tax returns for certain individuals (low income Canadians) to ensure they receive income-tested benefits.
• Middle-Class Tax Cut (announced in May 2025): Reduction in the first marginal personal income tax rate to 14.5% in 2025 and 14% in 2026, with a new Top-Up Tax Credit to maintain the current 15% rate for non-refundable tax credits.
• Medical Expense Tax Credit: Expenses claimed under this credit cannot also be claimed under the Home Accessibility Tax Credit starting in 2026.
• Disability Tax Credit: A one-time $150 supplemental payment for Canada Disability Benefit recipients applying for the DTC.
• Canadian Carbon Rebate: No CCR payments will be made after October 30, 2026, as the federal fuel charge was removed in April 2025.
• Qualified Investments for Registered Plans: Simplified rules for RRSPs and TFSAs, with new categories of qualified investments starting in 2027.
• 21-Year Rule: Broadened anti-avoidance rule to prevent indirect transfers of trust property to avoid the 21-year rule.

Business Tax Measures

• Clean Technology Incentives: Expanded list of critical minerals eligible for the Clean Technology Manufacturing investment tax credit and extended availability of the CCUS investment tax credit.
• Immediate Expensing: Temporary 100% deduction for eligible manufacturing or processing buildings.
• Scientific Research and Experimental Development Enhancements: Increased thresholds and expenditure limits, extended to public corporations, and restored eligibility for capital expenditures.
• Tiered Corporate Structures: Limits on deferral of refundable tax on investment income through tiered structures.

Other Measures

• Underused Housing Tax (UHT): Eliminated as of 2025.
• GST for First-Time Home Buyers: Eliminated for new homes up to $1 million and reduced for homes between $1 million and $1.5 million.
• Luxury Tax: Ended for aircraft and vessels after November 4, 2025.
• Transfer Pricing: Intent to modernize transfer pricing rules to protect Canada's tax base.

Previously Announced Measures

• Bare Trusts Reporting: Deferred to taxation years ending on or after December 31, 2026.
• Alternative Minimum Tax (AMT): Proceeding with proposals except for changes related to resource expense deductions.
• Lifetime Capital Gains Exemption (LCGE): Increased to $1.25 million.
• Canada Entrepreneurs’ Incentive: Not proceeding with this measure.

The 2025 federal budget marks the start of a new fiscal cycle, tabled in the fall with updates in the spring. With Carney's minority government just shy of a majority, the budget's passage depends on support from opposition parties in the weeks and months ahead. We will continue to monitor and provide any updates on the measures that may impact you or your portfolio.

If you have any questions, please don't hesitate to reach out by email at hayesvickers@rbc.com