As 2025 approaches, Canadians are gearing up for a series of tax adjustments. While these changes are anticipated to have limited impact on individuals, they encompass significant updates such as a GST/HST holiday, revised capital gains rates, and increases in carbon pricing. Experts forecast a “status quo year” for most Canadians, with only minor economic shifts expected.
GST/HST Holiday: A Temporary Tax Break
Starting December 14, 2024, and lasting until February 15, 2025, a GST/HST holiday is providing short-term relief for consumers on select essential goods and food items.
- Impact on Government Budgets:
- Federal cost: $1.46 billion
- Provincial cost (for provinces with harmonized sales taxes): $1.26 billion
The provinces may choose not to waive compensation for this measure, potentially shifting the entire cost to federal accounts. Despite its financial impact, experts like Daniel Rogozynski of the University of Waterloo have referred to the GST holiday as a “two-month sugar high,” with negligible long-term effects on household economics.
Capital Gains Tax: Significant Adjustments for 2025
The federal budget introduced notable changes to the capital gains tax inclusion rate, which is the taxable portion of capital gains.
| Category | Previous Rate | New Rate (2025) |
|---|---|---|
| Individual capital gains > $250,000 | 50% | 66% |
| Capital gains for corporations/trusts | 50% | 66% |
- Implementation Timeline:
- Provisionally enforced by the Canada Revenue Agency (CRA) since June 2024.
- Full enforcement awaits parliamentary approval or new government legislation.
This measure aims to increase revenue but has also introduced complexities for taxpayers dealing with capital gains, particularly business owners.
Canadian Entrepreneurs’ Incentive: Support for Small Businesses
The Canadian Entrepreneurs’ Incentive, announced in the 2024 budget, aims to reduce the tax burden on business owners.
- Key Details:
- Reduces the inclusion rate for lifetime capital gains to one-third on up to $2 million.
- Phased implementation from 2025 to 2029, increasing the exemption by $400,000 annually.
Business owners with Canadian-Controlled Private Corporations stand to benefit, though experts warn of the increasingly complex tax environment surrounding capital gains.
CPP Contributions: Incremental Increases
Enhanced Canada Pension Plan (CPP) contribution rules are entering their second year, with adjustments to contribution ceilings.
| Ceiling Type | 2024 | 2025 | Contribution Rate | Employee Contribution | Employer Contribution |
|---|---|---|---|---|---|
| First Ceiling | $68,500 | $71,300 | 5.95% | $4,034.10 | $4,034.10 |
| Second Ceiling | $73,200 | $81,200 | 4% | $396.00 | $396.00 |
Employers and employees alike will experience these incremental increases, with the combined contribution for the first ceiling reaching $8,068.20 in 2025.
Carbon Pricing: Rising Costs at the Pump
Effective April 1, 2025, the carbon tax will increase from $80 to $95 per tonne in provinces where the federal backstop applies.
- Fuel Charges:
- Gasoline: 20 cents/litre (up from 17 cents).
- Propane: 14 cents/litre (up from 12 cents).
While 90% of revenue generated is rebated to households, the remaining 10% funds programs to help businesses and communities transition to cleaner energy sources. Studies indicate that most households receive more through rebates than they pay in direct and indirect carbon tax costs.
Income Taxes, EI Premiums, and TFSAs
Federal Income Tax Brackets (2025)
The federal income tax bracket thresholds will rise by 2.7%, reflecting inflation adjustments.
| Income Range | Tax Rate |
|---|---|
| $0–$57,375 | 15% |
| $57,376–$114,750 | 20.5% |
| $114,751–$177,882 | 26% |
| $177,883–$253,414 | 29% |
| $253,415+ | 33% |
Employment Insurance (EI)
The maximum insurable earnings for EI will increase to $65,700, resulting in a maximum annual contribution of $1,077.48, up from $1,049.12 in 2024.
Tax-Free Savings Account (TFSA)
The annual TFSA contribution limit remains unchanged at $7,000.
FAQs
What is the GST/HST holiday, and who benefits from it?
The GST/HST holiday waives sales taxes on essential goods and food items for two months, providing short-term financial relief for Canadian consumers.
How does the capital gains tax change affect individuals and businesses?
Individuals earning over $250,000 and businesses with capital gains now face a higher taxable inclusion rate of 66%, up from 50%.
What is the purpose of the Canadian Entrepreneurs’ Incentive?
This initiative supports small business owners by reducing the taxable inclusion rate on lifetime capital gains up to $2 million.
