Below is a summary of some business and personal tax highlights from the 2025 federal budget delivered last week on November 4, 2025:  

BUSINESS INCOME TAX MEASURES

Immediate Expensing for Manufacturing and Processing (M&P) Buildings

A temporary immediate expensing measure was announced for eligible M&P buildings, including eligible additions or alterations, allowing for 100% Capital Cost Allowance “CCA” deduction in the first year.     

This is a significant increase from the current CCA rate for eligible M&P buildings of only 10% provided an election is filed to put the property into a separate class 1. 

Eligible M&P buildings are property acquired on or after November 4, 2025, where at least 90% of the building’s floor space is used for manufacturing or processing goods for sale or lease before 2030.

The immediate expensing measure will begin to be phased out starting in 2030, with only 75% CCA being provided in the first year for property first used in 2030 or 2031; 55% CCA for property first used in 2032 or 2033; and no enhanced rate for property that is first used for manufacturing and processing after 2033.

Used property is eligible only if neither the taxpayer nor a non-arm’s length person previously owned it, and it was not acquired on a tax-deferred rollover.

In cases where a taxpayer benefits from immediate expensing of a M&P building, and the use of the building is subsequently changed from M&P, special recapture rules may apply to effectively reverse the previously claimed CCA.

Tax Deferral of Refundable Taxes Through Tiered Corporate Structures

The budget proposes to limit the potential deferral of refundable tax on investment income through tiered corporate structures with staggered year ends.

The current refundable tax rules for Canadian Controlled Private Corporations (CCPCs) are designed to prevent CCPCs from being used to defer personal tax on investment income by requiring the company to pay an additional refundable tax that raises the effective corporate tax rate to approximate the top personal tax rate.  

The refundable tax is refunded to the corporation when a taxable dividend is paid to its shareholders. 

Where an individual receives the dividend, they will generally be subject to personal taxes on the dividend at applicable marginal rates.

However, since corporate shareholders are generally entitled to a deduction for intercorporate dividends, they are not subject to regular Part I corporate tax on intercorporate dividends. Instead, the recipient corporation is subject to a special refundable Part IV tax, which for a connected corporation is equal to that company’s share of the dividend refund of the payer corporation.

The Part IV tax for the corporation receiving the dividend is due on the dividend recipient’s balance-due day for the year the dividend is received, which can be later than the dividend payor’s balance-due day for the year the dividend was paid if the recipient corporation has a different year end.  

Accordingly, by timing dividends across different fiscal years within a corporate group with staggered year ends, the dividend payor can receive its dividend refund, while payment of Part IV tax by the recipient can be deferred to its later balance due date. 

The proposals aim to prevent this deferral by temporarily suspending the payor’s dividend refund in situations where a payor corporation pays a taxable dividend to an affiliated recipient corporation whose balance-due day is later than the payor’s balance-due day.  

The payor corporation would eventually be entitled to claim the suspended dividend refund only when the recipient corporation ultimately pays a taxable dividend to a non-affiliated corporation or individual. 

The suspended dividend mechanism would not apply if the recipient received the dividend in a tax year with an earlier balance due date, or if each recipient in the chain pays a subsequent dividend on or before the payor’s balance-due date, as in these circumstances there would not be deferral within the group. A special provision is also proposed to exempt dividends paid within 30 days before an acquisition of control from the refund suspension mechanism to allow for flexibility in an acquisition scenario.

These rules are proposed to apply to dividends paid in taxation years beginning on or after November 4, 2025.

Enhancements to the Scientific Research and Experimental Development (SR&ED) Program

Eligible CCPCs that carry on SR&ED activities may be eligible to claim an investment tax credit with respect to qualifying expenditures under the existing SR&ED incentive program. The current tax credit is equal to 35% on up to a $3 million of qualifying expenditures, shared among an associated group.   

The budget proposes to increase the $3 million limit of qualifying expenditures to $6 million effective for taxation years beginning after December 16, 2024.

In addition, the budget confirmed the government’s intentions to move forward with previous proposals introduced in the 2024 Fall Economic Statement extending the enhanced credit to eligible Canadian public corporations, increasing the taxable capital where eligibility for the enhanced credit is clawed back and restoring the ability to claim a deduction against income and investment tax credits for eligible SR&ED capital expenditures.  

Transfer Pricing Regime Modernization

Certain changes are proposed for Canada’s transfer pricing rules for taxation years beginning after November 4, 2025 aligning more closely to international standards.

The changes to the rules attempt to emphasize a focus on substance over form in transactions.  

As in the past, the CRA may adjust the quantum or nature of amounts to reflect arm’s length conditions, with broad powers to substitute or exclude transactions in exceptional circumstances.

Where adjustments are made by CRA and it is determined that reasonable efforts were not made to determine and use arm’s length prices or allocations, a special transfer pricing penalty can apply. The penalty is calculated as 10% of the net amount of transfer pricing adjustment that exceeds the lesser of i) 10% of the taxpayer’s gross revenue for the year, or ii) $10M (increased from $5M by the budget).

If the taxpayer fails to prepare or provide contemporaneous documentation as required, they are deemed not to have made reasonable efforts. The time frame allowed to provide contemporaneous transfer pricing documentation to the CRA upon written request is proposed to be reduced from three months to 30 days.

PERSONAL INCOME TAX MEASURES

Reduction in the First Marginal Tax Rate ("Middle-Class Tax Cut")

The personal income tax rate for the first federal tax bracket is reduced from 15% to 14.5% for the 2025 taxation year, and to 14% for 2026 and subsequent years. For 2025 the first bracket threshold of $57,375 will be eligible for the reduced rates. 

As most non-refundable tax credits are calculated using the lowest personal income tax rate, their value would decrease as a result of the rate reduction. To prevent this, the budget proposes a top up credit to maintain the 15% rate for the purpose of calculating most non-refundable tax credits for the 2025 to 2030 tax years on amounts over the first bracket threshold.

This adjustment is likely to only be relevant for individuals claiming significant medical expenses (nursing home, attendant care, out of country uninsured costs) or foreign tuition carried forward into a year with full time employment.

Automatic Federal Benefits for Lower-Income Individuals

The budget proposes to provide CRA with discretionary authority to file a tax return on behalf of certain low-income individuals (other than trusts) for 2025 and subsequent years, if they meet certain conditions.

Eligible Individuals will have 90 days to review and confirm or amend the pre-filled return before the CRA files it on their behalf, however, if the eligible individual does not confirm the information (with or without changes) or proactively opt out of the automated filing by the end of the 90 days the CRA could still move forward with processing the filing.   

Existing assessment, objection, and appeal processes, including timeframes and deadlines, would apply to assessments issued under this program.

Interaction of the Home Accessibility and Medical Expense Tax Credits. 

For 2026 and subsequent years, an expense claimed under the Medical Expense Tax Credit cannot also be claimed under the Home Accessibility Tax Credit.  Previously taxpayers were allowed to double dip on these credits. 

Personal Support Workers Tax Credit

A temporary refundable tax credit for eligible personal support workers has been proposed for 2026–2030, which will provide a credit of 5% of eligible earnings up to $1,100 per year.

Luxury tax on boats and aircraft Repealed

The special 10% luxury tax which came into effect September 1, 2022, will be removed from boats and aircraft, but will remain applicable to vehicles costing over $100,000.

OTHER NOTEWORTHY TAX ITEMS: 

Trust Reporting and Bare Trusts deferral

The budget exempts bare trusts from the expanded trust reporting rules for the 2025 taxation year, deferring implementation of the rules to taxation years ending on or after December 31, 2026.

The budget also confirmed the government’s intention to proceed with legislation proposed in August 2025 intended to clarify and ease the new tax filing burden on trusts to some extent. 

A separate SPARK article will be published providing additional details on these proposals.    

Underused Housing Tax Repealed

The Underused Housing Tax which came into effect January 1, 2022, will be fully repealed for 2025 onwards. However, the filing requirements for 2022 to 2024 as described in the following link remain for taxpayers who are not exempt, with potential penalties and/or interest for failing to file if applicable. 

Elimination of Canada Carbon Rebate (CCR)

The CCR program for both individuals and businesses have been eliminated. The final tax-free payments for both individuals and small businesses will be made in 2025.    

No CCR payments will be issued for tax returns or adjustment requests submitted after October 30, 2026.

21-Year Trust Rule – Anti-Avoidance Expansion

There is a special 21 year deemed disposition rule which requires most personal trusts to be considered as having sold their capital property at fair market value every 21 years from the date they were created. 

The purpose of this rule is to ensure that accrued gains on assets are subject to taxation periodically, preventing the indefinite deferral of tax on accrued capital gains that would otherwise be triggered upon the death of an individual.    

An existing anti avoidance rule prevents circumventing the 21-year rule through a direct transfer to a new trust by causing the new trust to inherit the earlier 21-year anniversary of the original trust. However, certain indirect transfers to a new trust (i.e. transfers to a corporate beneficiary owned by a new trust) were able to avoid the anti avoidance rule.

The 2025 budget proposes to expand the anti avoidance rules to capture indirect transfers of property occurring on or after November 4, 2025.  

Conclusion

The above represents a summary of select 2025 budget proposals that may be of interest to clients. Should you wish to discuss how any of these proposals may impact your tax situation, please contact your Shimmerman Penn LLP advisor.