New Tax Changes Implemented in 2025
Introduction of 2025 Tax Reforms
Effective January 1, 2025, the Canadian government has enacted several tax reforms aimed at updating financial regulations and providing relief to businesses and individuals. These changes encompass adjustments to capital cost allowances, deductible leasing costs for passenger vehicles, and modifications to capital gains tax rates.
Adjustments to Capital Cost Allowances
The ceiling for capital cost allowances (CCA) for Class 10.1 passenger vehicles has been increased from $37,000 to $38,000, before tax, for vehicles acquired on or after January 1, 2025. This adjustment allows businesses to claim higher depreciation expenses for eligible vehicles.
Increase in Deductible Leasing Costs
Deductible leasing costs have risen from $1,050 to $1,100 per month, before tax, for new leases entered into on or after January 1, 2025. This change enables businesses to deduct a greater portion of their vehicle leasing expenses.
Modifications to Tax-Exempt Allowances
The limit on the deduction of tax-exempt allowances paid by employers to employees using personal vehicles for business purposes has increased by two cents. In the provinces, the rate is now 72 cents per kilometre for the first 5,000 kilometres driven and 66 cents for each additional kilometre. In the territories, the rates are 76 cents and 70 cents, respectively.
Changes to Taxable Benefits for Personal Vehicle Use
The general prescribed rate used to determine the taxable benefit of employees for the personal portion of automobile expenses paid by employers has increased by one cent to 34 cents per kilometre for 2025. For employees primarily involved in selling or leasing automobiles, the rate has also increased by one cent to 31 cents per kilometre.
Capital Gains Tax Rate Increase
The government has raised the inclusion rate for taxable capital gains from 50% to 66% for individuals with gains exceeding $250,000 annually. This change means a larger portion of capital gains will be subject to taxation, impacting investors and businesses with significant asset sales.
Impact on Executive Compensation
The increase in the capital gains tax inclusion rate may influence how companies structure executive compensation packages, particularly concerning stock options and other equity-based incentives. Firms might reconsider their compensation strategies to maintain competitiveness.
Continuation of Capital Gains Tax Collection
Despite the suspension of Parliament, the Canadian government will continue collecting the modified capital gains tax. The Canada Revenue Agency (CRA) has been administering this tax since June 2024, and collection will persist unless legislative changes occur.
Introduction of Tax Holiday
A two-month “tax holiday” has been implemented, during which GST/HST will not be applied to certain items, including prepared foods, restaurant meals, snacks, alcoholic beverages, and children’s clothing. This measure aims to provide temporary financial relief to consumers.
Adjustments to Benefit Payments
Government benefits such as the Canada Child Benefit and Old Age Security are subject to inflation-based adjustments. Recipients may see changes in their benefit amounts in 2025, reflecting cost-of-living increases.
Increased Contribution Limits for Retirement Savings
The contribution limit for Registered Retirement Savings Plans (RRSPs) has increased to $32,490 for the 2025 tax year, up from $31,560 in the previous year. This change allows individuals to save more for retirement on a tax-deferred basis.
Vehicle Deduction Limit Enhancements
In addition to the increased CCA ceiling and deductible leasing costs, the limit on deductible automobile loan interest remains at $350 per month for loans entered into on or after January 1, 2025. These measures aim to support businesses in managing vehicle-related expenses.
Bare Trust Reporting Requirements
The CRA has extended an exemption for reporting bare trusts for the 2024 tax year. Unless specifically requested, Canadians with bare trusts are not required to file T3 or Schedule 15 documentation for this period.
Tax Filing Process Updates
Starting January 2025, the CRA is updating the T619 electronic transmittal record, affecting all information returns filed electronically. Filers need to include the updated T619 to ensure accurate submissions.
Government’s Fiscal Position
The Canadian government maintains that it has a strong fiscal position, with a low debt-to-GDP ratio, justifying the recent tax changes and spending measures aimed at supporting consumers and businesses.
Conclusion
The tax changes effective January 1, 2025, reflect the Canadian government’s efforts to adjust fiscal policies in response to economic conditions, aiming to provide relief and support to both individuals and businesses across the country.
