DFK Tax Newsletter

2025 Federal Budget – Personal Tax Measures

The Federal Government released its budget on November 4, 2025.  Below is a brief summary of the personal income tax measures included in the budget.

Personal Support Workers Tax Credit

Eligible personal support workers working for eligible health care establishments will receive a refundable tax credit of 5% on up to $22,000 of eligible earnings, providing a credit value of up to $1,100.  This measure will apply to the 2026 to 2030 taxation years.

Automatic Federal Benefits for Lower-Income Individuals

CRA will be given the discretionary authority to file a tax return for a taxation year on behalf of lower-income individuals who meet certain criteria.  CRA will provide the information to the individual and the individual will have 90 days to review the information and submit changes to CRA.  The existing assessment, objection and appeal processes would apply to assessments issued under these provisions and individuals would have the ability to opt out of automatic tax filing.  This measure would apply to the 2025 and subsequent taxation years.  Allowing automatic filing of returns for lower-income individuals will allow some Canadians to access government benefits that they would otherwise not have access to if they did not file a return.  It will also be beneficial for individuals who might not have the ability to pay for tax return preparation or who may not otherwise have access to technology or the technical ability to file a return on their own.

Top-Up Tax Credit

The middle-class tax cut announced in May 2025 would reduce the personal income tax rate that applies to the lowest personal tax bracket, and thus the rate applied to most non-refundable tax credits.  In some rare cases, the decrease in value of the tax credits could exceed the tax savings from the rate reduction.  This measure will ensure that no one in this circumstance has their tax liability increased as a result of the middle-class tax cut by introducing a new non-refundable Top-Up Tax Credit.  This measure would apply for the 2025 to 2030 taxation years.  This change to prevent a tax increase resulting from a tax cut makes sense and is one example of fixing unintended consequences from a prior tax change.

21-Year Rule

Personal trusts are generally deemed to have disposed of their capital property every 21 years (“the 21-year rule”) and are taxed on the resulting deemed capital gains.  Certain tax avoidance planning techniques have been employed to avoid the 21-year rule and the existing anti-avoidance rule.  Budget 2025 proposes to broaden the current anti-avoidance rule to prevent these planning techniques and to ensure that the 21-year rule applies.  This measure would apply in respect of transfers of property that occur on or after November 4, 2025.

Home Accessibility Tax Credit

The Hom Accessibility Tax Credit is a non-refundable tax credit that applies to up to $20,000 of home renovation or alteration expenses per year that are incurred to improve the safety, accessibility, or functionality of the home of a senior or an individual who is eligible for the Disability Tax Credit.  In some cases, the same expenses can also be claimed for the Medical Expenses Tax Credit.  Budget 2025 proposes to amend the Income Tax Act such that an expense claimed under the Medical Expense Tax Credit cannot also be claimed under the Home Accessibility Tax Credit.  This measure would apply to the 2026 and subsequent taxation years.

Underused Housing Tax

The Underused Housing Tax (UHT) took effect on January 1, 2022 and applies to certain owners of vacant or underused residential property in Canada.  Budget 2025 proposes to eliminate the UHT as of the 2025 calendar year.  As a result, no UHT would be payable and no UHT returns would be required to be filed in respect of the 2025 and subsequent years.

Luxury Tax on Aircraft and Vessels

The Select Luxury Items Tax Act (SLITA) applies to subject aircraft with a value above $100,000 and subject vessels with a value above $250,000.  Budget 2025 proposes to amend the SLITA to end the luxury tax on aircraft and vessels.  All instances of the tax would cease to be payable after November 4, 2025, including the tax on sales, the tax on importations, and the tax on improvements.  The luxury tax on motor vehicles with a value above $100,000 remains unchanged.

Qualified Investments for Registered Plans

The budget proposes to simplify and streamline the rules relating to registered plan investments in small businesses.  Registered Plans include Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), Tax-Free Savings Accounts (TFSAs), Registered Education Savings Plans (RESPs), Registered Disability Savings Plans (RDSPs), First Home Savings Accounts (FHSAs), and Deferred Profit Sharing Plans (DPSPs).  As a result of these changes,

• RDSPs would be permitted to acquire shares of specified small business corporations, venture capital corporations, and specified cooperative corporations; and
• Shares of eligible corporations and interests in small business investment limited partnerships and small business investment trusts would no longer be qualified investments.

These changes would apply as of January 1, 2027.  The government intends that shares of eligible corporations would continue to be qualified investments under the rules relating to specified small business corporations that would be maintained.  Interests in small business investment limited partnerships and small business investment trusts that are acquired under the current rules before 2027 would continue to be qualified investments.

Information Sharing – Worker Misclassification

The misclassification of employees as independent contractors results in employers not withholding and remitting the proper amounts of income tax, or Canada Pension Plan and Employment Insurance contributions.  Misclassification of employees may also mean the loss of labour law protections and benefits and pensions available to employees.  Budget 2025 proposes to amend the information sharing provisions of the Income Tax Act and the Excise Tax Act to allow CRA to share taxpayer information and confidential information with Employment and Social Development Canada for the purposes of the administration and enforcement of the Canada Labour Code as it relates to the classification of workers.  Budget 2025 also proposes additional funding for CRA to implement a program that addresses non-compliance related to personal services businesses.

The majority of these tax changes are targeted at a very small percentage of the population. As always, you should consult your DFK tax professional to determine if these changes will impact your personal circumstances.

 ¹ https://budget.canada.ca/2025/report-rapport/tm-mf-en.html#wb-cont