On November 4, 2025, the Minister of Finance and National Revenue, François-Philippe Champagne, presented the 2025 federal budget, titled “Canada Strong”. Budget 2025 projects a current deficit of $78 billion, with a subsequent reduction to $57 billion by 2029–2030. The budget is proposing $141 billion in various spending over the next five years, including defence and infrastructure (such as housing, roads, hospitals, etc.). As a savings measure, the government also intends to reduce the size of the federal public service by 40,000 jobs by 2028–2029. In addition, Budget 2025 marks the start of the government’s transition to a fall budget cycle to enable better planning among provincial and territorial governments, investors, and taxpayers.
From a tax perspective, the budget maintains the overall status quo of our tax system. It reduces the lowest income tax bracket from 15 to 14 per cent, a measure accounting for approximately $27 billion from the above $141 billion in proposed spending. It also contains a variety of mostly technical changes, new and expanded incentives, and a number of small simplifications to our overly complex tax system, which are outlined below.
As part of Budget 2025, the government has announced the cancellation of the Canadian Entrepreneurs’ Incentive, originally proposed in the 2024 federal budget. This incentive would have allowed individuals to benefit from a reduced effective tax rate on up to $2 million of capital gains on the disposition of a qualifying business, in addition to the lifetime capital gains exemption. Furthermore, the budget withdraws the proposal to fully permit resource expense deductions under the Alternative Minimum Tax (AMT) regime.
At the same time, the budget confirms the government’s intention to proceed with a multitude of previously announced but still outstanding tax measures, including changes to excessive interest and financing expenses limitation rules, substantive CCPCs, the tax exemption for sales to Employee Ownership Trusts, additional changes to AMT regime, and the proposed increase in the lifetime capital gains exemption up to $1.25 million, among others. Last but not least, the budget defers the application of the proposed “bare trust” reporting rules until taxation years ending on or after December 31, 2026.
Personal Support Workers Tax Credit
Budget 2025 proposes a temporary refundable tax credit of five per cent of eligible earnings, up to a maximum of $1,100, for eligible personal support workers working for eligible health care establishments. The tax credit is effective for the 2026 to 2030 taxation years. Certain conditions must be met for an individual to be considered an eligible personal support worker. Eligible health care establishments include hospitals, nursing care facilities, residential care facilities, community care facilities for the elderly, home health care establishments, and other similar regulated health care establishments. Employers must certify the eligible earnings of their employees in the prescribed form and manner.
It should be noted that this credit will only be available in provinces and territories not covered by a bilateral agreement with the federal government to increase wages for personal support workers. Only British Columbia, Newfoundland and Labrador, and the Northwest Territories are signatories to this bilateral agreement.
Automatic federal benefits for lower-income individuals
Since most benefit entitlements are determined by the Canada Revenue Agency (CRA) based on an individual’s net income, it is imperative that individuals file an annual tax return in order to receive any applicable benefits and credit payments.
Budget 2025 proposes to grant the CRA a discretionary authority to file an income tax return on behalf of an individual (other than a trust), for the 2025 and subsequent taxation years, where the individual meets all the following criteria:
- The individual’s taxable income for the taxation year is below the lower of either the federal basic personal amount or the provincial equivalent, plus the age amount and/or disability amount, where applicable.
- All income for the taxation year is from sources for which specified information returns have been filed with the CRA.
- The individual has not filed a return in at least one of the three preceding taxation years.
- The individual has otherwise not filed a return for the taxation year prior to, or within 90 days following, the tax filing deadline for the year.
- Any other criteria, as determined by the Minister of National Revenue.
Once processed, the individual will have 90 days to review and submit any changes to the CRA. Individuals will have the option to opt out of automatic tax filing.
