As Canadians look ahead to 2025, managing the cost of living and planning their finances will be important for many. Several tax changes are set to take effect early in the year, which will impact how Canadians file their taxes, claim benefits, and contribute to savings. Here’s a simplified guide to what you can expect in the 2025 tax season.
Capital Gains Tax Adjustments
The federal government is proposing significant changes to the capital gains tax, which could affect investors and property owners starting in 2025. While the legislation is still in progress, the Canada Revenue Agency (CRA) has confirmed it will implement these new rules based on the federal notice of June 25, 2024.
What Are Capital Gains?
Capital gains refer to profits made from selling assets, such as stocks or real estate. A portion of these profits is included in your taxable income.
New Inclusion Rate
- Higher Taxable Portion: If your capital gains exceed $250,000, the taxable portion of your gains will increase from 50% to 67%.
- Smaller Gains: People with capital gains under $250,000 will still pay tax on only 50% of their profits.
- Principal Residence Exemption: No capital gains tax will be charged on your primary home.
- Corporations and Trusts: The new 67% inclusion rate will also apply to many corporations and trusts.
These adjustments aim to make the tax system fairer by taxing higher earnings more, while protecting lower-income earners.
Changes to Tax Filing
If you’re filing taxes online in 2025, there are a few key updates to note:
- T619 Form Update: The CRA is updating the T619 form, which must be included when filing taxes electronically.
- Separate Return Types: You can no longer submit different types of returns together. Each return must be filed separately.
- Real-Time Error Checks: Online systems will check for mistakes while you file, helping to catch errors immediately.
Expansion of Automatic Tax Filing
The government is expanding its automatic tax filing program:
- SimpleFile by Phone: In 2025, the government will invite two million Canadians to file their taxes automatically by phone, up from 1.5 million in 2024.
Contribution Limits for 2025
RRSP Contribution Limit
The contribution limit for RRSPs will increase to $32,490 in 2025, up from $31,560 in 2024, giving you more opportunity to save for retirement and reduce your taxable income.
Canada Pension Plan (CPP) Contributions
- Maximum Pensionable Earnings (YMPE): The maximum amount you can earn and contribute to the CPP will rise to $71,300 in 2025, up from $68,500 in 2024.
- Employee and Employer Contributions: The contribution rate will stay at 5.95%, but the maximum contribution will increase to $4,034.10, up from $3,867.50.
- Self-Employed Contributions: These remain at 11.90%, with a higher maximum contribution of $8,068.20, up from $7,735.00.
Tax-Free Savings Account (TFSA)
The annual TFSA contribution limit will remain at $7,000 for 2025.
Benefits Adjusted for Inflation
As inflation continues to affect daily life, the government will adjust certain benefits to help families keep up with the rising cost of living.
Old Age Security (OAS)
OAS payments are reviewed quarterly and will be adjusted for inflation. For the first quarter of 2025, the payments will stay the same as CPI levels have been stable.
Canada Child Benefit (CCB)
The government recalculates the CCB each year based on your family’s income and adjusts it for inflation. In 2025, the benefit will increase to $7,997 per year for children under six.
GST/HST Credit
The GST/HST credit helps low- and modest-income families offset the cost of sales taxes. For 2025, single individuals can receive up to $533, up from $519 in 2024. For couples, the amount will increase to $698, plus an additional $184 for each child.
Business Vehicle Deduction Changes
Starting January 1, 2025, there will be updates to the tax rules for businesses claiming vehicle expenses:
- Leasing Costs: The monthly deductible leasing cost will rise to $1,100, up from $1,050.
- Capital Cost Allowance (CCA): The limit for Class 10.1 passenger vehicles will increase to $38,000, up from $37,000.
- Mileage Allowances: Rates for business mileage will go up:
- Provinces: 72 cents per kilometre for the first 5,000 kilometres (an increase of two cents), and 66 cents for additional kilometres.
- Territories: 76 cents per kilometre for the first 5,000 kilometres, and 70 cents for additional kilometres.
How These Changes Will Affect Canadians
Financial Planning
With the higher inclusion rate for capital gains, Canadians may want to review their investments to minimize tax exposure. Staying below the $250,000 threshold for capital gains can help reduce taxes.
Retirement Savings
The increase in RRSP and CPP contribution limits gives Canadians a chance to save more for retirement and take advantage of tax-deferred growth.
Tax Filing Preparation
With the new validation checks and updated rules, it’s wise to start preparing your taxes early to avoid errors and simplify the filing process.
Stay Informed
As these tax changes come into effect, staying updated will help Canadians manage their finances. Consulting with tax professionals or using CRA resources can ensure you’re compliant and able to take full advantage of the available benefits.
In 2025, tax changes present both challenges and opportunities. Understanding the new rules for capital gains, tax filing, and contribution limits will help Canadians better manage their finances and make the most of the benefits available.
