On November 4, 2025, the Minister of Finance and National Revenue, the Honourable François-Philippe Champagne, presented Budget 2025 – Canada Strong, to the House of Commons.

No changes were proposed to personal or corporate tax rates. Some highlights include the following:

A. Personal Measures:
– Automatic tax filings for low-income Canadians to commence for the 2025 tax year.
– A 5% credit for eligible personal support workers working for eligible health care establishments.

B. Business Measures
– A variety of new and extended measures for accelerated CCA on asset acquisitions.
– An anti-avoidance measure to prevent tax deferrals related to refundable dividend tax where dividends are paid within a corporate group.
– Various modifications to tax incentives related to the clean economy.

C. International Measures
– Revisions to the transfer pricing rules and requirements.

D. Sales and Excise Measures
– Elimination of the underused housing tax.
– Removal of the luxury tax on vessels and aircraft (but not on vehicles).

E. Other Measures
– Deferral of bare trust filing requirements until the 2026 tax year.
– Deferral of expanded filing requirements for non-profit organizations until the 2027 tax year.

F. Previously Announced Measures
– Intention to proceed with previously announced measures, including the capital gains rollover on small business investments, making the Canada carbon rebate for small businesses tax-free, allowing charitable donations made in early 2025 to be claimed in 2024 and increasing the lifetime capital gains exemption limit to $1,250,000 effective in 2024.
– Confirming the cancellation of the proposed increase to the capital gains inclusion rate and the Canadian entrepreneurs’ incentive.

THE NUMBERS

The Government’s fiscal position includes the following projected surplus (deficit):

A. Personal Measures

Automatic Federal Benefits for Lower-Income Individuals
Budget 2025 proposed to provide CRA with the discretionary authority to file a tax return on behalf of an individual who meets all of the following criteria:

• the individual would have no taxes on a federal tax return after considering only the basic personal amount, plus any age and disability credits they are entitled to;
• all income of the individual for the taxation year is from sources for which specified information returns have been filed with CRA;
• the individual has not filed a tax return for at least one of the three immediately preceding taxation years; and
• the individual has otherwise not filed a return for the taxation year prior to, or within 90 days following, the tax filing deadline for the year.

CRA may also implement any other criteria as appropriate.
Prior to filing a return, the individual would be provided with the tax information reflected by CRA for their review. The individual would have 90 days to confirm or update it. If they take no action, CRA could file the return, issue a notice of assessment, and determine any credit or benefit entitlements.
In some cases, CRA may need the individual to confirm basic details, such as marital status, before issuing benefits. Some benefits also require a return from the spouse or common-law partner, which CRA could also file if the eligibility criteria are met.

The existing assessment, objection, and appeal processes would apply to assessments issued under these provisions. If it is determined after a tax return has been filed by CRA that the taxpayer did not meet the requirements for automatic tax filing, the tax return would be deemed not to have been filed.
Individuals would be able to opt out of automatic tax filing.
This measure would apply to the 2025 and subsequent taxation years. That is, filing could begin in 2026.
Interested parties can send comments to autotaxfiling-autoimpot@fin.gc.ca by January 30, 2026.

Temporary Personal Support Workers Tax Credit
Budget 2025 proposed to provide eligible personal support workers working for eligible health care establishments with a refundable tax credit of 5% of eligible earnings (providing a credit of up to $1,100). Amounts earned in British Columbia, Newfoundland and Labrador and the Northwest Territories would not be eligible, as federal funding is already provided to increase personal support workers’ wages in these jurisdictions.
To qualify, the person must ordinarily provide one-on-one care and essential support to optimise and maintain another individual’s health, well-being, safety, autonomy and comfort, consistent with that individual’s health care needs as directed by a regulated health care professional or a provincial community health organization. The person’s main employment duties must include helping patients with activities of daily living and mobilization.
The person must work for an eligible health care establishment, which would be hospitals, nursing care facilities, residential care facilities, community care facilities for the elderly, home health care establishments and other similar regulated health care establishments.

Eligible earnings would include all taxable employment income, including wages and salaries, and employment benefits (as well as similar tax-exempt income and benefits earned on a reserve) that is earned as an eligible personal support worker performing employment duties for eligible health care establishments.
Employers would need to certify their employees’ eligible earnings in prescribed form and manner.
Individuals would need to file a tax return to be eligible. This measure would apply to the 2026 to 2030 taxation years.

Top-Up Tax Credit
The lowest marginal personal tax rate is being reduced to 14.5% for the 2025 taxation year, and to 14% for the 2026 and subsequent taxation years. This rate is also applied to most non-refundable tax credits. In very rare cases where an individual’s non-refundable tax credit amounts exceed the first income tax bracket threshold ($57,375 in 2025), the decrease in the value of these credits may exceed their tax savings from the rate reduction.
Budget 2025 proposed to introduce a new non-refundable top-up tax credit, which would effectively maintain the current 15% rate for non-refundable tax credits claimed on amounts in excess of the first income tax bracket threshold.
The top-up tax credit would apply for the 2025 to 2030 taxation years.

Qualified Investments for Registered Plans – Small Businesses
Budget 2025 proposed to simplify and streamline the rules relating to registered plan investments in small businesses, while maintaining the ability of registered plans to make such investments.
In particular, RDSPs would be permitted to acquire shares of specified small business corporations, venture capital corporations and specified cooperative corporations (as is currently allowed for RRSPs, RRIFs, TFSAs, RESPs and FHSAs). In addition, shares of eligible corporations and interests in small business investment limited partnerships and small business investment trusts would no longer be qualified investments (for RRSPs, RRIFs, RESPs and DPSPs).
These amendments would apply as of January 1, 2027. Interests in small business investment limited partnerships and small business investment trusts that are acquired before 2027 under the current rules would continue to be qualified investments. The government noted that it is intended that shares of eligible corporations would continue to be qualified investments under the rules relating to specified small business corporations.
Budget 2025 also proposed to make a number of other technical legislative amendments to simplify the qualified investment rules. Notably, the qualified investment rules for six types of registered plans (i.e. all plans except DPSPs) would be consolidated into one definition in the Income Tax Act.

Home Accessibility Tax Credit Modification
Budget 2025 proposed to prohibit an expense claimed under the medical expense tax credit from also being claimed under the home accessibility tax credit. Under existing law, if the eligibility criteria for both credits are met, taxpayers can claim both credits in respect of the same expense.
This measure would apply to the 2026 and subsequent taxation years.

Canada Carbon Rebate Payments to Individuals – Program Wind-up
With the removal of the federal consumer carbon tax as of April 1, 2025, the government provided a final quarterly payment starting in April 2025 to eligible households. To support the winding down of mechanisms to return fuel charge proceeds, Budget 2025 proposed to provide that no payments would be made in respect of tax returns, or adjustment requests, filed after October 30, 2026.

Canada Disability Benefit – One-time Supplemental Payment
Budget 2025 proposed to provide a one-time supplemental Canada disability benefit payment of $150 in respect of each disability tax credit certification, or re-certification, giving rise to a Canada disability benefit entitlement, retroactive to the launch of the Canada disability benefit. Following the successful completion of the regulatory process, the first supplemental payments are expected to be made to recipients before the end of 2026-27.

B. Business Measures

Accelerated Capital Cost Allowance (CCA)
The CCA system determines the deductions that a business may claim each year for income tax purposes in respect of the capital cost of its depreciable property. Depreciable property is divided into CCA classes with each having its own rate, generally aligning with the expected useful life of the assets.
Budget 2025 referred to a series of proposals to allow accelerated CCA, many announced previously, as the “productivity super-deduction.”

Accelerated Investment Incentive (AII) Extended
Budget 2025 confirmed that the 2024 Fall Economic Statement proposal to reinstate the AII, including accelerated first-year CCA for manufacturing or processing equipment, clean energy generation and energy conservation equipment and zero-emission vehicles, would proceed. All of these incentives began to be phased out in 2024. The reinstatement of the incentives would begin for assets acquired on or after January 1, 2025. The current and proposed rates are summarized as follows:

(1) manufacturing or processing machinery and equipment (class 53 until 2025, class 43 thereafter), clean energy generation and energy conservation equipment (class 43.1 and class 43.2 for property acquired before 2025) and zero-emission vehicles (classes 54, 55, and 56)

(2) Normal CCA refers to the typical first-year CCA claim when no incentive was available, including application of the half-year rule. For example, normal CCA for a class 8 asset is 20% subject to the half-year rule. So, normal first-year CCA is 10%, with the current 2025 rate being 20% (210%) and the proposed rate being 30% (310%).

In summary, the proposal would restore the enhanced first-year CCA claims that had started to phase out for assets acquired in 2024, ensuring that the full incentives would apply to assets acquired in the calendar years 2025 to 2029. The existing scheduled phaseout from 2024 to 2027 would instead occur from 2030 to 2034.

Immediate Expensing for Manufacturing and Processing Buildings
Eligible buildings in Canada used to manufacture or process goods for sale or lease (manufacturing or processing buildings) have a CCA rate of 10% provided that at least 90% of the building’s floor space is used in manufacturing or processing.

Budget 2025 proposed to provide immediate 100% CCA expensing of the cost of eligible manufacturing or processing buildings, including eligible additions or alterations made to such buildings, provided the minimum 90% floor space requirement is met.

Property that has been used, or acquired for use, for any purpose before it is acquired by the taxpayer would be eligible for immediate expensing only if neither the taxpayer nor a non-arm’s-length person previously owned the property and the property was not transferred to the taxpayer on a tax-deferred “rollover” basis.
In cases where a taxpayer benefits from immediate expensing of a manufacturing or processing building, and the use of the building is subsequently changed, recapture rules may apply.

This measure would be effective for eligible property that is acquired on or after November 4, 2025 and is first used for manufacturing or processing before 2030. An enhanced first-year CCA rate of 75% would be provided for eligible property that is first used for manufacturing or processing in 2030 or 2031, and a rate of 55% would be provided for eligible property that is first used for manufacturing or processing in 2032 or 2033. The enhanced rate would be phased out entirely for property that is first used for manufacturing or processing after 2033.

Reinstatement of Accelerated CCA for Low-Carbon Liquefied Natural Gas Facilities
An accelerated CCA measure for liquefied natural gas (LNG) equipment and related buildings expired at the end of 2024. The measures increased the CCA rate for liquefaction equipment from 8% to 30% and for non-residential buildings used in LNG facilities from 6% to 10%. Budget 2025 proposed reinstating accelerated CCAs for LNG equipment and related buildings, but only for low-carbon LNG facilities.

Details regarding the new emissions performance requirements for these additional allowances will be provided at a later date. These measures would apply to property acquired on or after November 4, 2025 and before 2035.

Productivity-Enhancing Assets
Budget 2025 confirmed that a Budget 2024 proposal to provide immediate 100% CCA expensing of the cost of property acquired on or after April 16, 2024 that becomes available for use before January 1, 2027 will proceed. Assets in the following three classes would be eligible:
• class 44 (patents or the rights to use patented information for a limited or unlimited period);
• class 46 (data network infrastructure equipment and related systems software); and
• class 50 (general-purpose electronic data-processing equipment, such as computers and systems software).

This immediate expensing would only be available for the year in which the property becomes available for use. The claim would be prorated when the taxation year is less than 12 months.

Dividend Refund – Tiered Corporate Structures
The Income Tax Act includes rules that seek to prevent the use of Canadian-controlled private corporations (CCPC) to defer personal income tax on investment income. Investment income earned by a CCPC is subject to an additional refundable tax that increases the corporation’s tax rate to approximate the highest marginal combined federal-provincial personal income tax rate. A corporation is entitled to a refund of a portion of this additional tax when it pays a taxable dividend, referred to as a dividend refund.

A corporation is generally not subject to income tax on a taxable dividend received from a connected corporation (generally, a corporation that owns shares carrying more than 10% of the votes and value of the payer corporation), except to the extent that the corporation paying the dividend (Payerco) received a dividend refund. In those cases, the corporate shareholder (Receiveco) is subject to a tax equal to the dividend refund received by Payerco, multiplied by Receiveco’s portion of the total dividends paid by Payerco. For example, if Payerco paid a $100,000 dividend and received a $10,000 dividend tax refund, and Receiveco’s dividend received from Payerco was $20,000, Receiveco would pay $2,000 of tax on the dividend. This tax would also be refundable when Receiveco pays dividends.

The government is concerned that tax planning techniques have been employed to take advantage of a timing difference where Payerco and Receiveco have different year-ends. For example, Payerco might pay a taxable dividend on October 25, 2025 and receive a dividend refund for its tax year ended on October 31, 2025. If Receiveco’s year-end is August 31, it would not be subject to the tax on its dividend received until its August 31, 2026 year-end, resulting in a 10-month deferral of tax.

Budget 2025 proposed to limit the deferral of tax in corporate structures with mismatched year-ends. In general terms, the proposed limitation would suspend Payerco’s dividend refund on the payment of a taxable dividend to Receiveco where two conditions are met. First, the suspension would apply only if Receiveco and Payerco are affiliated corporations. Second, the suspension would apply only if a tax deferral such as the one described in the example above will otherwise be achieved. Specifically, the suspension would apply if Receiveco’s taxes payable for the year in which it received the dividend are due later than Payerco’s taxes are due for the year in which it paid the dividend. Payerco would generally be entitled to claim the suspended dividend refund in a subsequent taxation year when Receiveco pays a taxable dividend to a non-affiliated corporation or an individual shareholder.

If Payerco’s dividend refund is suspended in this manner, Receiveco would not be required to pay the tax described above in respect of the dividend.

The dividend refund would not be suspended in Payerco if each Receiveco in the chain of affiliated corporations pays a subsequent dividend on or before the date on which Payerco’s taxes are due, as no deferral would result for the affiliated corporate group. The rule would also not apply to a Payerco that is subject to an acquisition of control within 30 days after the dividend payment.

This measure would apply to taxation years that begin on or after November 4, 2025.
The proposed new rules are complex. A detailed review of the structure of corporate groups will be required to determine situations where dividend refunds will be delayed, and to assess any changes in historical dividend strategies to minimize the impact of this proposal. As the details of the proposal may change during the legislative process, it will be preferable to delay this review until dividend planning is being done for fiscal years that will be affected by these proposals.

Scientific Research and Experimental Development (SR&ED)
Under the SR&ED tax incentive program, qualifying expenditures are fully deductible in the year they are incurred. Additionally, these expenditures are generally eligible for an investment tax credit.
The tax credit is provided at two rates. A fully refundable tax credit at an enhanced rate of 35% is available for Canadian-controlled private corporations (CCPCs) on up to $3 million of qualified SR&ED expenditures annually. The $3 million expenditure limit is gradually phased out where a CCPC’s taxable capital employed in Canada for the previous taxation year is between $10 million and $50 million. This limit is shared within an associated group of corporations.
A non-refundable tax credit at the general rate of 15% is available for corporations other than CCPCs and for qualified SR&ED expenditures of CCPCs that do not qualify for the enhanced credit.

The 2024 Fall Economic Statement proposed the following additional changes to the SR&ED program:

• increase the expenditure limit from $3 million to $4.5 million;
• increase the lower and upper prior-year taxable capital phase-out boundaries to $15 million and $75 million, respectively;
• restore the eligibility of SR&ED capital expenditures for both the deduction against income and investment tax credit components of the SR&ED program; and
• extend the enhanced tax credit to eligible Canadian public corporations.

Budget 2025 confirmed that these proposed measures would proceed.
In addition, Budget 2025 proposed to further increase the expenditure limit on which the SR&ED program’s enhanced 35% tax credit can be earned, from the previously announced $4.5 million to $6 million.
These measures would apply for taxation years that begin on or after December 16, 2024 (i.e. the date of the 2024 Fall Economic Statement).

Worker Misclassification – Employee vs Independent Contractor
The government is concerned that the deliberate misclassification of employees as independent contractors means that employers are not withholding and remitting the proper amounts of income tax, CPP and EI contributions. Misclassified employees may lose out on labour law protections, as well as benefits and pensions available to employees.

Trucking sector
The government noted that this misclassification of employees has been particularly common in the trucking industry.
Budget 2025 proposed to provide $77 million over 4 years starting in 2026-27, with ongoing funding of $19.2 million annually, for CRA to implement a program that addresses non-compliance related to personal services businesses, as well as to lift the moratorium on reporting fees for services in the trucking industry.

Information sharing
Budget 2025 also proposed to amend the Income Tax Act and the Excise Tax Act to allow CRA to share information with the Department of Employment and Social Development Canada for the purpose of addressing worker misclassification.
This measure would come into force on royal assent of the enacting legislation.

Agricultural Cooperatives: Patronage Dividends Paid in Shares
Prior to 2005, patronage dividends paid in shares by an agricultural cooperative to its members were taxable to the members in the year the shares were received. The cooperative paying the dividend was also required to withhold an amount from the dividend and remit it to CRA on account of the recipient’s tax liability.

A temporary deferral of income taxes and withholding obligations on patronage dividends received from agricultural cooperatives by their members in the form of eligible shares until the disposition (including a deemed disposition) of the shares has been in place since 2005, and was set to expire at the end of 2025. Budget 2025 proposed to extend this measure to apply in respect of eligible shares issued before the end of 2030, a five-year extension.

Clean Economy Tax Incentives
Budget 2025 announced a number of amendments and enhancements to tax incentives related to the clean economy.
Critical Mineral Exploration Tax Credit (CMETC)
Budget 2025 proposed to expand the eligibility of the 30% CMETC to include the following additional critical minerals: bismuth, cesium, chromium, fluorspar, germanium, indium, manganese, molybdenum, niobium, tantalum, tin and tungsten. This credit is available in respect of Canadian exploration expenses (CEE), including Canadian renewable and conservation expenses (CRCE) and Canadian development expenses (CDE) flowed out to individuals who invest in flow-through shares.

The following critical minerals are currently eligible for the CMETC: nickel, cobalt, graphite, copper, rare earth elements, vanadium, tellurium, gallium, scandium, titanium, magnesium, zinc, platinum group metals, uranium and lithium (including lithium from brines).

This measure would apply to expenditures renounced under eligible flow-through share agreements entered into after November 4, 2025 and on or before March 31, 2027.

Clean Technology Manufacturing Investment Tax Credit
Budget 2025 proposed to expand the list of critical minerals eligible for the 30% clean technology manufacturing investment tax credit to include antimony, indium, gallium, germanium and scandium. This refundable investment tax credit applies to investments in new machinery and equipment used to manufacture or process key clean technologies, or to extract, process, or recycle critical minerals essential for clean technology supply chains, currently including lithium, cobalt, nickel, graphite, copper and rare earth elements.

This measure would apply in respect of property that is acquired and becomes available for use on or after November 4, 2025.

Carbon Capture, Utilization and Storage (CCUS) Investment Tax Credit (ITC)
The CCUS ITC provides three different credit rates depending on the purpose of the equipment, with the following credit rates applying to eligible CCUS expenditures incurred from the start of 2022 to the end of 2030, declining for eligible expenditures that are incurred from the start of 2031 to the end of 2040:
• 60% (declining to 30%) for eligible capture equipment used in a direct air capture project;
• 50% (declining to 25%) for all other eligible capture equipment; and
• 37.5% (declining to 18.75%) for eligible transportation, storage and use equipment.

The extent to which the CCUS tax credit is available to a CCUS project and respective eligible equipment depends on the end use of the carbon dioxide (CO2) being captured. Eligible uses include dedicated geological storage and storage in concrete, but not enhanced oil recovery (EOR).

Budget 2025 proposed to extend the availability of the full credit rates by 5 years, so that the full rates apply to eligible expenditures incurred from the start of 2022 to the end of 2035, declining to the lower rates for eligible expenditures that are incurred from the start of 2036 to the end of 2040. A previously announced review of the CCUS investment tax credit rates will be undertaken before 2035 (rather than before 2030).

Clean Electricity Investment Tax Credit (ITC) and Canada Growth Fund
Budget 2025 proposed to include the Canada Growth Fund as an entity eligible for the 15% clean electricity ITC. Budget 2025 also proposed to introduce an exception so that financing provided by the Canada Growth Fund would not reduce the cost of eligible property for the purpose of computing the clean electricity ITC available to other entities. These measures would apply to eligible property that is acquired and that becomes available for use on or after November 4, 2025.

C. International Measures

Transfer Pricing
Transfer pricing rules are used to allocate profit among the various entities of a multinational enterprise (MNE) group. The accepted international standard is the arm’s length principle set out in Article 9 (Associated Enterprises) of the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention on Income and Capital and included in Canada’s bilateral tax treaties. In addition, the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (the “OECD Transfer Pricing Guidelines”) present internationally agreed principles and provide guidelines for the application of the arm’s length principle.
Budget 2025 proposed to modernise Canada’s transfer pricing rules to better align with the international consensus on the application of the arm’s length principle. In addition, an interpretation rule would be added to ensure that Canada’s transfer pricing rules are applied in a manner consistent with the analytic framework set out by the OECD Transfer Pricing Guidelines.

The new rules would provide more detail on how cross-border transactions between non-arm’s length persons must be analysed. A new transfer pricing adjustment application rule would apply if two conditions are met: (i) there is a transaction or series of transactions between a taxpayer and a non-resident person with whom the taxpayer does not deal at arm’s length; and (ii) the transaction or series (once it has been analysed and determined) includes actual conditions different from arm’s length conditions. The actual conditions are determined not only by the contractual terms of the transaction or series, but also by other “economically relevant characteristics,” including the conduct of the participants.

The intention of transfer pricing analysis is to determine the price that would have been charged between arm’s length parties in comparable circumstances, taking into account the options realistically available to them at the time of entering into the transaction or series. The arm’s length price is the fair market value that should be charged, and the tax authorities can reassess taxpayers transacting at other values.
In addition to modifying the manner in which acceptable transfer prices must be determined, the new rules would modify certain administrative measures. These include the following items:

• increasing the threshold for the transfer pricing penalty to apply from a $5 million transfer pricing adjustment to a $10 million adjustment;
• clarifying the transfer pricing documentation requirements and also more closely aligning them with the new definitions and the requirements to select and apply the most appropriate method;
• providing for simplified documentation requirements when prescribed conditions are met; and
• reducing the time to provide transfer pricing documentation from 3 months to 30 days (the requirement for taxpayers and partnerships to make or obtain the appropriate records or documentation by their documentation-due date, generally the due date for their tax return for the year in which the transactions occurred, would remain unchanged).

This measure would apply to taxation years that begin after November 4, 2025.

D. Sales and Excise Measures

Underused Housing Tax (UHT)
Budget 2025 proposed to eliminate the UHT (which first took effect on January 1, 2022) as of the 2025 calendar year. No UHT would be payable and no UHT returns would be required in respect of the 2025 and subsequent calendar years. Filing requirements, penalties and interest in respect of prior periods would not be removed.

Luxury Tax on Aircraft and Vessels
Budget 2025 proposed to end the luxury tax on subject aircraft and subject vessels. All instances of the tax would cease to be payable after November 4, 2025. Registered vendors in respect of these items would be required to file a final return. The tax would remain applicable to vehicles (such as cars and SUVs) with a value above $100,000.

Carousel GST/HST Frauds
Carousel schemes use a series of real or fraudulent transactions where at least one person collects GST/HST in respect of a supply of property or services but does not remit the amounts to the government.
Budget 2025 proposed changes to help prevent these schemes by introducing a new reverse charge mechanism (RCM) beginning with certain supplies in the telecommunications sector (such as providers of voice-over internet protocol, VoIP, services).

Under the proposed new rules, suppliers would not be required to collect the GST/HST payable on the supply. Instead, recipients would be required to self-assess and report the tax payable in their GST/HST return. If entitled, the recipient could claim an input tax credit (ITC) in the same return provided that they accounted for the GST/HST payable. This system appears to be intended to prevent the collection of GST/HST by parties that may not remit the funds to CRA.
The government will continue to monitor and assess the presence of carousel fraud in order to determine whether other supplies should also be subject to an RCM in the future.

Feedback on these proposals can be submitted by email to Consultation-Legislation@fin.gc.ca by January 12, 2026.

Manual Osteopathic Services
Budget 2025 proposed to clarify that osteopathic services rendered by individuals who are not osteopathic physicians are taxable under the GST/HST regime. This measure would apply to supplies made after June 5, 2025. However, it would not apply to a supply of osteopathic services made from June 6, 2025 to November 4, 2025 if the supplier did not charge, collect or remit any amount as or on account of tax in respect of the supply.

E. Other Measures

Bare Trust Filings
Historically, a trust was required to file a T3 income tax return only if it met one of a number of parameters, and certain arrangements commonly referred to as bare trusts were excluded from the definition of trusts, and thus from filing requirements, entirely.

Effective for trust years ended December 31, 2023 or later, further requirements were added for a trust to be excluded from the filing requirements, new requirements to disclose substantial information regarding a trust’s settlors, trustees, beneficiaries and certain other persons were added (filed on Schedule 15 ) and bare trust arrangements were also required to file.

Due to concerns that bare trust arrangements were extremely common, and often not recognized as trust arrangements by their participants, significant media attention focused on the administrative burden the obligation to file returns for bare trusts imposed on Canadians in late 2023 and early 2024. CRA waived the filing requirements for bare trusts first for 2023, shortly before the filing deadline, and again for 2024, five months before the filing deadline.
Draft legislation to modify these requirements was released on August 12, 2024. On August 15, 2025, revised draft legislation and explanatory notes were released. Neither of these proposals was ever tabled as a Bill. While these proposed measures would reduce the bare trust arrangements for which filings would be required, many common arrangements would still require T3 income tax returns to be filed, leaving a considerable administrative burden.
Budget 2025 confirmed that the government intends to proceed with the August 15, 2025 proposals, subject to further modifications for consultations and deliberations since their release. However, the application date for reporting by bare trusts would be deferred to apply to taxation years ending on or after December 31, 2026, and not require such filings for the 2025 taxation year.

Avoiding the 21-Year Deemed Disposition Rule for Trusts
Trusts are generally deemed to have disposed of their property for fair market value proceeds on the 21st anniversary of their creation, and every 21st anniversary thereafter (the “21-year rule”). Where property is transferred by a trust on a tax-deferred basis to a new trust, a rule prevents the avoidance of the 21-year rule. This rule prevents transactions that would indefinitely postpone tax on accrued gains. However, certain tax avoidance planning techniques have been used to avoid both the 21-year rule and the anti-avoidance rule. For example, this planning may involve transferring trust property on a tax-deferred basis to a beneficiary that is a corporation owned by a new trust.
Budget 2025 proposed to broaden the current anti-avoidance rule for direct trust-to-trust transfers to include indirect transfers of trust property to other trusts. This measure would apply in respect of transfers of property that occur on or after November 4, 2025.

Non-profit Organizations’ (NPO) Reporting Obligations
The Government stated that it intends to proceed with proposed expansions to the existing reporting requirements for NPOs by requiring basic filings for smaller NPOs not otherwise required to file and adding regular filing requirements for entities with receipts over $50,000. However, this would be deferred to apply for taxation years beginning on or after January 1, 2027 rather than commencing for 2026. The government is reviewing the feedback it received from consultations with stakeholders and will release final proposals in due course with the objective of minimising any additional administrative burden and clarifying which organizations are, or are not, subject to the new requirement.

Various Other Matters
Budget 2025 proposed several other measures, including the following:

• A 2-year pilot project would be conducted to assess whether EI eligibility and entitlement can be determined accurately and securely using real-time payroll information.
• Claimants receiving EI parental benefits would be eligible for an additional eight weeks of parental benefits in the event of the death of the child.
• Temporary flexibility would be provided in respect of the EI Work-Sharing program, as announced on March 7, 2025, to provide benefits to eligible employees who agree to work reduced hours due to a decrease in business activity beyond their employer’s control.
• Temporary EI measures that enhance income supports for Canadian workers whose jobs have been impacted by the economic uncertainty caused by foreign tariffs would be provided.
• The Canada Labour Code would be amended to restrict the use of non-compete agreements in employment contracts for federally regulated businesses, with consultations beginning in early 2026.
• $97 million would be provided over five years, starting in 2026-27, to establish the Foreign Credential Recognition Action Fund to work with the provinces and territories to improve foreign credential recognition, with a focus on health and construction sectors.
• Legislation would be introduced to regulate the issuance of fiat-backed stablecoins in Canada.
• Limits to access the informal procedure in the Tax Court would be reviewed.
• The Proceeds of Crime (Money Laundering) and Terrorist Financing Act would be modified to restrict the acceptance of: cash deposits from one person into the account of another person; and a cash payment, donation or deposit of $10,000 or more.

Budget 2025 also noted that a comprehensive expenditure review was conducted to identify ways to reduce annual spending on an organization-by-organization basis, intended to result in more than $9 billion in savings annually. For example, spending would be reduced in CRA by winding down initiatives such as the digital services tax, the federal fuel charge and the Canada carbon rebate and the underused housing tax. Further, artificial intelligence (AI) and process automation would be used to reduce labour needs in compliance and collection activities.

F. Previously Announced Measures

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional.
No individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

A Career Defined by Excellence and Leadership 

Spencer Brooks, a partner at Hendry Warren LLP, just won the 2024 Emerging Leader award from CPA Ontario. This award is significant, recognizing CPAs who show strong leadership, innovation, and serious dedication.

Spencer’s journey in accounting has been nothing short of inspiring. From his early days navigating the complexities of financial reporting to becoming a trusted advisor and mentor, he has consistently demonstrated a commitment to strategic growth, ethical leadership, and client success. His expertise has not only contributed to the firm’s expansion but has also played a key role in mentoring the next generation of CPAs.

As a forward-thinking leader, Spencer embraces innovation in financial services, ensuring that businesses receive proactive, data-driven solutions. His ability to adapt to industry changes, foster team collaboration, and drive results has made him a standout in the accounting community.

We caught up with Spencer after a busy tax season to get his thoughts on leadership.

Insights from Spencer Brooks

What leadership qualities do you believe have been most crucial to your success in the accounting industry?

“I believe a strong leader has the ability to adapt and remain accountable. The world moves fast, so it is important to understand the ever-changing needs of our clients and staff members and be accountable to these individuals. I believe that this leads to mutual respect.”

What’s one piece of advice you would give to young CPAs or professionals looking to take on leadership roles?

“It might be impossible to master leadership. Professionals should always strive to be better, learn new things and listen to different viewpoints. Always being open and learning is the key.”

Winning the Emerging Leader award is a considerable achievement. What does this recognition mean to you, and how will it influence your future goals?

“The accomplishments of all the current year and previous winners are very impressive. I am honoured to be among such a highly accomplished group. I want to make sure that I continue to make an impact on my community, which includes a broad group of individuals and organizations.”

A Bright Future Ahead

Spencer’s well-deserved recognition is a testament to his dedication, leadership, and impact on both our firm and the broader accounting industry. We are incredibly proud to have him as a partner and look forward to seeing how he continues to shape the future of accounting and leadership.

Join us in congratulating Spencer Brooks on this incredible achievement!
Connect with him on LinkedIn to celebrate his success!

Trust reporting rules in Canada

Recent updates to trust reporting rules in Canada have raised new compliance requirements, particularly for “bare trusts.” In this post, we’ll explore what a trust is, recent legislative changes, and how these affect you.

What Is a Trust and Its Purpose?

A trust is a legal arrangement where one party, the trustee, holds assets on behalf of another party, the beneficiary. Trusts serve various purposes, including:

• Tax planning: Income splitting and multiplying lifetime capital gains exemptions.

• Creditor protection: Shielding assets from potential claims.

• Estate planning: Facilitating the transfer of wealth with flexibility and tax efficiency.

What Is a Bare Trust?

A bare trust occurs when the trustee acts purely as an agent for the beneficiary, holding legal title to the property without real decision-making authority. The beneficiary remains responsible for all tax reporting related to the assets in the trust. For example, if a parent is added to the legal title of a child’s home purely for mortgage purposes, the parent is merely a trustee, and the child is the sole beneficial owner.

Key Legislative Changes for 2023-2024

Historically, bare trusts did not have to file trust income tax returns. However, significant changes were introduced in 2023 that expanded the filing requirements to include bare trusts. This change required both regular and bare trusts to file returns and disclose information about trustees, beneficiaries, and settlors.

Penalties:
Missing filing deadlines could incur a penalty of $25 per day, up to a maximum of $2,500, even if no taxes are owed.

Filing Deadline:
Trust returns are typically due 90 days after the year-end, with most trusts following a December 31 year-end, making the deadline March 31 of the following year.

CRA Relief:
The CRA offered a temporary reprieve for bare trusts for the 2023 tax year, exempting them from penalties if they missed the filing deadline.

2024 Proposed Amendments

n response to widespread criticism, the Canadian government announced proposed changes in August 2024. These amendments narrow the scope of trusts that must file returns, reducing the compliance burden on certain arrangements:

Filing Requirements for Bare Trusts:
Bare trusts will now need to file returns beginning in 2025, not 2024, with a more limited scope of applicability.

Updated Exemptions:
Trusts holding specific assets worth $50,000 or less were exempt under previous rules, but this now applies to all asset types.

Trust accounts that hold separate fund accounts for clients pursuant to the rules of professional conduct or law of Canada or a province, that hold funds of $250,000 or less for the entire year (e.g., by lawyers or real estate agents) are now exempt.

New Exemptions for 2024 and Beyond

The 2024 amendments also introduced new filing exemptions for bare trust structures:

Trusts with Small Assets: If all trustees and beneficiaries are individuals and related, and the trust holds $250,000 or less in certain assets, such as mutual funds or GICs, the trust may be exempt.

Principal Residence Exemption: A bare trust holding a property that qualifies as a principal residence for any legal owner that is an individual and related to all other legal owners will now be exempt from filing requirements, with no dollar limit attached.

General Partners Holding Property for Partnerships: Trusts where a general partner holds property as an agent for a partnership (which files its own tax return) are exempt from separate filing.

Planning Ahead for 2025

As bare trust reporting requirements return in 2025, individuals and businesses should review their arrangements:

Review Trust Arrangements: Assess existing trust setups to determine if the new filing rules will catch them.

Wind Up or Restructure:
If a bare trust arrangement has a filing requirement for 2025, consider taking action before the end of 2024 to avoid filing obligations for 2025.

Final Thoughts

The 2024 amendments provide much-needed relief for many bare trust arrangements. However, navigating these changes requires careful planning and consultation with tax advisors to ensure compliance and avoid penalties.

By staying proactive and understanding the evolving regulations, you can optimize your trust’s setup while avoiding unnecessary reporting burdens.

What You Need To Know

• Paper mail will end for existing businesses with My Business Account; ensure email notifications are set up. 
• New businesses will be automatically set for digital correspondence. 
• Non-resident businesses and those without a My Business Account will still receive paper mail.
• If you prefer paper mail, you must ask the CRA 30 days in advance, and you’ll need to renew this request every two years.  
• You can request paper mail online or, if you don’t use My Business Account, a paper form will be available (coming soon). 
• Non-resident businesses without a My Business Account will keep receiving paper mail. 

How to Register for My Business Account

• Go to canada.ca/my-cra-business-account and select “CRA register.” 
• Enter your Social Insurance Number, postal/ZIP code, birthdate, and a tax return amount from a recent year. 
• Choose a CRA security code delivery method and confirm your details. 
• Create a CRA user ID, password, and security questions. 
• Agree to the terms and enter your password. 

After receiving the CRA code, log in, enter the code, provide your business number, and agree to the terms to access your account. 

Video – My Business Account – How to Register for My Business Account

Going forward, it will be critical that you monitor your emails for CRA notifications, or something may be missed. Please do not hesitate to contact us with any questions you may have. 

Want to stay informed with more updates like these? 

Fairness for Every Generation

On April 16, 2024, the Deputy Prime Minister and Finance Minister, the Honourable Chrystia Freeland, presented Budget 2024 – Fairness for Every Generation to the House of Commons.

No changes were made to personal or corporate tax rates. Some highlights include the following: 

A. Personal Measures

• An increase to the capital gains inclusion rate to 2/3, however, individuals will retain the 1/2 inclusion rate on the first $250,000 of capital gains annually.

• An increase to the lifetime maximum capital gains exemption, and two new incentives on specific types of business sales.

• Modifications to the proposed amendments to focus the alternative minimum tax regime on high-income individuals.                  

B. Business Measures

• A Canadian carbon rebate for small businesses that will begin by delivering payments to eligible CCPCs for five years of carbon tax.

• Accelerated capital cost allowance on purpose-built residential rental properties.

• Immediate expensing of certain productivity-enhancing assets, including computer hardware, acquired on or after April 16, 2024.

C. International Measures

• A crypto-asset reporting framework that will require annual reporting by crypto-asset service providers on their clients’ activities using these assets.

D. Sales and Excise Measures

• Extension of the GST exemption for new purpose-built rental housing projects to not-for-profit universities, public colleges and school authorities.

E. Other Measures

• Details on the Canada disability benefit are intended to commence in July 2025.

F. Previously Announced Measures

• Intention to proceed with previously announced measures, including the denial of expenses for non-compliant short-term rental activities; the exemption of certain services of psychotherapists and counselling therapists from GST/HST; proposals related to the underused housing tax; temporarily pausing the fuel charge on heating oil; various clean energy tax credits; and other initiatives related to the clean economy.     

A. Personal Matters

Capital Gains Inclusion Rate

Currently, one-half of capital gains are included in a taxpayer’s income. Budget 2024 proposed to increase this inclusion rate to two-thirds of the actual gain, effective for capital gains realized on or after June 25, 2024. Similarly, the deduction available for some employee stock option benefits will be reduced from one-half to one-third of the benefit. This adjustment to the inclusion rate will also apply to capital losses applied to offset capital gains.

Only half of the first $250,000 of capital gains (net of gains offset by capital losses, the lifetime capital gains exemption, the proposed employee ownership trust exemption and the Canadian entrepreneurs’ incentive) realized by an individual will be included in their income each year. Two-thirds of capital gains over this amount will be included in their income. Other taxpayers, such as trusts and corporations, will be required to include two-thirds of all capital gains realized on or after June 25, 2024, as income.

For taxation years that straddle June 25, 2024 (calendar 2024 for individuals), capital gains will be segregated between gains realized on or before June 24, 2024 (one-half included in income) and gains realized on or after June 25, 2024 (two-thirds will be income). For individuals, only half of the first $250,000 realized on or after June 25, 2024, will be included in their income.

Budget 2024 estimated that this change will impact only 0.13% of individual taxpayers and 12.6% of corporations.

Lifetime Capital Gains Exemption

Individuals are eligible to offset up to $1,016,836 (2024; indexed for inflation annually) of capital gains on qualified small business corporation shares and qualified farm or fishing property. Budget 2024 proposed to increase this lifetime limit to $1,250,000 for dispositions taking place on or after June 25, 2024. This amount would be indexed for inflation commencing in 2026.

Canadian Entrepreneurs’ Incentive

Budget 2024 proposed to reduce the capital gains inclusion rate on capital gains realized on the disposition of qualifying shares by an eligible individual. The inclusion rate would be halved, resulting in one-third of such gains being taxable under the inclusion rates proposed in Budget 2024. This reduced inclusion rate would apply to gains not offset by the lifetime capital gains exemption.

There would be a lifetime limit on gains eligible for this reduced rate, set at $200,000 commencing in 2025, and increasing by $200,000 annually until reaching a total of $2 million in 2034.

To be eligible for this reduced inclusion rate, several conditions would need to be met, including the following:

• The taxpayer directly owned the shares at the time of sale.

• The shares meet the asset tests required to be qualified small business corporation shares (generally, at the time of sale, all or substantially all assets were used in an active business carried on in Canada, and throughout the 24 months preceding the sale, more than 50% of the assets were so used);

• The taxpayer was a founding investor at the time the corporation was initially capitalized.

• The shares were held by the taxpayer for a minimum of five years prior to the sale.

• At all times from the initial share subscription until immediately before the sale, the taxpayer directly owned shares accounting for more than 10% of the votes and 10% of the fair market value of the corporation;

• Throughout the five years immediately preceding the sale, the taxpayer was actively engaged on a regular, continuous and substantial basis in the activities of the business; and
• The shares were acquired for fair market value consideration.

This incentive would not be available where the shares sold represented a direct or indirect interest in any of the following types of corporations:

• A professional corporation (that is, a corporation that carries on the professional practice of an accountant, dentist, lawyer, medical doctor, veterinarian or chiropractor);

• A corporation whose principal asset is the reputation or skill of one or more employees;

• A corporation that carries on a business operating in the financial, insurance, real estate, food and accommodation, arts, recreation or entertainment sector;
  or

• A corporation providing consulting or personal care services.

Employee Ownership Trust (EOT) Tax Exemption

Last year, Budget 2023 proposed tax rules to facilitate the creation of EOTs. An EOT is a form of employee ownership where a trust holds shares of a corporation for the benefit of the corporation’s employees. EOTs can be used to facilitate the acquisition by employees of their employer’s business, without requiring them to pay directly to acquire shares. These proposed rules are currently before Parliament in Bill C-59.

The 2023 Fall Economic Statement proposed to exempt the first $10 million in capital gains realized on certain sales of a business to an EOT from taxation. Budget 2024 provided further details on this proposed $10 million exemption.

The exemption would be available in respect of capital gains realized by an individual (whether directly, as a beneficiary of a trust, or as a partner in a partnership) on the sale of shares to an EOT where the following conditions are met:

• The corporation is not a professional corporation.

• The sale is a qualifying business transfer (QBT; meeting several requirements in the proposed rules for EOTs discussed below);

• The trust acquiring the shares is not already an EOT or a similar trust with employee beneficiaries.

• Throughout the 24 months immediately prior to the QBT (the holding period), the shares were owned by the individual, a related person or a partnership in which the individual is a partner;

• Throughout the holding period, over 50% of the fair market value of the corporation’s assets were used principally in an active business;

• At any time prior to the QBT, the taxpayer, or their spouse or common-law partner, was actively engaged in the qualifying business on a regular and continuous basis for a minimum period of 24 months;

• Immediately after the QBT, at least 90% of the beneficiaries of the EOT were resident in Canada; and

• no disqualifying event (see below) occurs within 36 months of the QBT.

If the above conditions are satisfied, an exemption for up to $10 million in capital gains from the QBT would be available. If multiple individuals disposed of shares to an EOT as part of a QBT and met the conditions described above, they would be required to share the $10 million exemption. The taxpayers would be required to agree on how to allocate the exemption.

The exemption would be available for dispositions that occur between January 1, 2024 and December 31, 2026.

Qualifying business transfer (QBT)

The rules proposed in Budget 2023 require both the EOTs themselves and the QBTs by which they acquire businesses to meet numerous complex requirements. These subsections describe the general rules that would apply to EOTs.

A QBT would occur when a taxpayer disposes of shares of a qualifying business for proceeds that do not exceed fair market value. The shares must be disposed of to either a trust that qualifies as an EOT immediately after the sale or a corporation owned 100% by the EOT. The EOT must own a controlling interest in the qualifying business immediately after the qualifying business transfer. At the time of transfer, all or substantially all of the fair market value of the qualifying business’s assets must be attributable to assets used in an active business carried on in Canada. The business cannot be carried on through a partnership.

A qualifying business would be required to be a Canadian-controlled private corporation. No more than 40% of the corporation’s directors can be individuals who were significant owners of the qualifying business prior to the QBT, or were related to, or otherwise not dealing at arm’s length with, such owners.

Employee ownership trusts (EOT)

To be an EOT, a trust would be required to be resident in Canada and have only two purposes. First, it would hold shares of qualifying businesses for the benefit of the employee beneficiaries of the trust. Second, it would make distributions to employee beneficiaries, where reasonable, under a distribution formula that could only consider an employee’s length of service, remuneration and hours worked. Otherwise, all beneficiaries must generally be treated similarly.

At least one third of the trustees would be required to be employees of a qualifying business controlled by the trust. Trustees of the EOT would generally be elected by the beneficiaries every five years. If any trustee is appointed (other than by such an election), no more than 40% of all trustees can be persons that sold shares of a qualifying business to the EOT (or be related to, or otherwise not act at arm’s length with, such individuals).

Trust beneficiaries would be limited to, and include all, qualifying employees (potentially including former employees and the estates of deceased employees). A qualifying employee would be an employee of a qualifying business controlled by the EOT. Employees could be excluded as beneficiaries until they complete a reasonable probationary period. Individuals, and persons related to, or otherwise not acting at arm’s length with, them who hold, or held prior to the QBT, a significant economic interest in the qualifying business would be excluded from being qualifying employees, and therefore could not be beneficiaries of the EOT.

Disqualifying event

If a disqualifying event occurs within 36 months of the QBT, the exemption would not be available. Where the individual has already claimed the exemption, it would be retroactively denied.

A disqualifying event would occur if an EOT loses its status or if less than 50% of the fair market value of the qualifying business’s shares is attributable to assets used principally in an active business at the beginning of two consecutive taxation years of the corporation.

If a disqualifying event occurs more than 36 months after a QBT, the EOT would be deemed to realize a capital gain equal to the total amount of capital gains in respect of which the vendors claimed the exemption. The normal reassessment period of an individual for a taxation year in respect of this exemption is proposed to be extended by three years, so CRA would have six years from the date of initial assessment to reassess in respect of any exemption claims under these proposals.

A claim for this exemption would require the EOT (and any corporation owned by the EOT that acquired the transferred shares) and the individual to elect to be jointly and severally liable for any tax payable by the individual as a result of the exemption being denied due to a disqualifying event within the first 36 months after a QBT.

Other matters

Under the proposed amendments to the alternative minimum tax (AMT), 30% of capital gains eligible for this exemption would be included in income for AMT purposes.

Budget 2024 also proposed to expand QBTs to include the sale of shares to a worker cooperative corporation. The worker cooperative would generally need to meet the definition set out under the Canada Cooperatives Act. Provided the relevant requirements are met, this would allow access to the same tax benefits as a QBT to an EOT, including the $10 million exemption. Budget 2024 indicated that additional details on this proposal will be released in the coming months.

Alternative Minimum Tax (AMT)

Individuals will owe AMT if the tax amount calculated under the AMT regime is greater than the tax calculated under the ordinary progressive tax rate regime. Under the legislated rules, the calculation of AMT allows fewer deductions, exemptions and tax credits than under the ordinary income tax rules. In 2023, the government proposed changes to AMT that would focus on high-income individuals and certain trusts by amending the following:

• The AMT rate would be increased from 15% to 20.5%; 

• The exemption would be increased from $40,000 to the start of the fourth tax bracket (for 2024, this is $173,205); and

• The AMT base would be broadened by further limiting tax preferences (i.e., exemptions, deductions and credits).

• Budget 2024 proposed to make further changes to the AMT regime, such as the following:

• to allow 80% of the donation tax credit (the 2023 proposals only provided for a 50% claim);

• to fully allow deductions for the guaranteed income supplement, social assistance, and workers’ compensation payments;

• to fully exempt employee ownership trusts from the AMT; and

• to allow certain disallowed credits under the AMT to be eligible for the AMT carry-forward (i.e., the federal political contribution tax credit, investment tax credits, and labour-sponsored funds tax credit).

Budget 2024 also proposed to provide exemptions for certain trusts established for the benefit of various Indigenous groups. Interested parties can send comments to the Department of Finance Canada, Tax Policy Branch at consultation.legislation@fin.gc.ca by June 28, 2024.

All proposed AMT amendments would apply to taxation years that begin on or after January 1, 2024 (that is, the same day as the 2023 AMT amendments).

There were no broad-based changes to address concerns that many smaller trusts would be subject to AMT under the 2023 proposals. There was also no change to the 2023 proposal that only 50% of interest and financing costs incurred to earn income from property would be deductible for AMT purposes.

Volunteer Firefighters and Search and Rescue Volunteers Tax Credits

Budget 2024 proposed to double the credit amount for the volunteer firefighters tax credit and the search and rescue volunteers tax credit to $6,000. This would increase the maximum tax relief to $900. This enhancement would apply to the 2024 and subsequent taxation years.

Mineral Exploration Tax Credit

As announced on March 28, 2024, the government proposed to extend eligibility for the mineral exploration tax credit for one year to flow-through share agreements entered into on or before March 31, 2025.

Canada Child Benefit (CCB) – Death of a Child

Budget 2024 proposed to extend eligibility for the CCB for six months after the child’s death (the “extended period”) if the individual would have otherwise been eligible for the CCB in respect of that particular child. The extended period would also apply to the child disability benefit, which is paid with the CCB in respect of a child eligible for the disability tax credit. This measure would be effective for deaths that occur after 2024.

Disability Supports Deduction

The disability supports deduction allows individuals who have an impairment in physical or mental functions to deduct certain expenses that enable them to earn business or employment income or to attend school.

Budget 2024 proposed to expand the list of expenses recognized under the disability supports deduction, as follows:

• Where an individual has a severe and prolonged impairment in physical functions, the cost of an ergonomic work chair, a bed positioning device and purchasing a mobile computer cart;

• Where an individual has an impairment in physical or mental functions, the cost of purchasing an alternative input device to allow the individual to use a computer and purchasing a digital pen device to allow the individual to use a computer;

• Where an individual has a vision impairment, the cost of purchasing a navigation device for low vision; and

• For individuals with impairments in mental functions, the cost of purchasing memory or organizational aids is significant.

Budget 2024 also proposed that expenses for service animals would be recognized under the disability supports deduction. Taxpayers would be able to choose to claim an expense under either the medical expense tax credit or the disability support deduction.

This measure would apply to the 2024 and subsequent taxation years.

Home Buyers’ Plan

Budget 2024 proposed to increase the withdrawal limit from the home buyers’ plan from $35,000 to $60,000. This measure would apply to the 2024 and subsequent calendar years for withdrawals made after Budget Day.

Budget 2024 also proposed to temporarily defer the start of the 15-year repayment period by an additional three years for participants making a first withdrawal between January 1, 2022, and December 31, 2025. Accordingly, the 15-year repayment period would start the fifth year following the year the first withdrawal was made.

Qualified Investments for Registered Plans

Budget 2024 invited stakeholders to suggest how the qualified investment rules could be modernized on a prospective basis. Issues under consideration include the following: whether and how the rules relating to investments in small businesses could be harmonized to apply consistently to all registered savings plans; whether annuities that are qualified investments only for RRSPs, RRIFs, and RDSPs should continue to be qualified investments; whether and how qualified investment rules could promote an increase in Canadian-based investments; and whether crypto-backed assets are appropriate as qualified investments for registered savings plans.

Stakeholders are invited to submit comments to QI-consultation-PA@fin.gc.ca by July 15, 2024.

Indigenous Child and Family Services Settlement

Budget 2024 proposes to exclude the income of the trusts established under the First Nations Child and Family Services, Jordan’s Principle, and Trout Class Settlement Agreement from taxation. This would also ensure that payments received by class members as beneficiaries of the trusts would not be included when computing income for federal income tax purposes.

This measure would apply to the 2024 and subsequent taxation years.

Deduction for Tradespeople’s Travel Expenses

Eligible tradespeople and apprentices in the construction industry can currently deduct up to $4,000 in eligible travel and relocation expenses per year under the labour mobility deduction for tradespeople. A previously tabled proposal provided for an alternative deduction for certain travel expenses of tradespeople in the construction industry, with no cap on expenses, retroactive to the 2022 taxation year.

Budget 2024 announced that the government will consider bringing forward amendments to provide a single, harmonized deduction for tradespeople’s travel that respects the proposal.

B. Business Measures

Accelerated Capital Cost Allowance (CCA)
Productivity-Enhancing Assets

Budget 2024 proposed to provide immediate 100% CCA expensing for new additions of property in respect of the following three classes, provided that the property is acquired on or after April 16, 2024 and becomes available for use before January 1, 2027:

• class 44 (patents or the rights to use patented information for a limited or unlimited period);

• class 46 (data network infrastructure equipment and related systems software); and

• class 50 (general-purpose electronic data-processing equipment, such as computers and systems software).

This expensing would only be available for the year in which the property becomes available for use. The claim would be prorated when the taxation year is less than 12 months.

Purpose-Built Rental Housing

Budget 2024 proposed to provide an accelerated CCA of 10% for new eligible purpose-built rental projects that begin construction on or after April 16, 2024 and before January 1, 2031. The property must be available for use before January 1, 2036. Eligible property would be residential complexes with at least four private apartment units or 10 private rooms or suites. At least 90% of the units must be held for long-term rental. Conversions of non-residential real estate, such as an office building, into a residential complex would be eligible. While renovations of existing residential complexes would not be eligible, the cost of a new addition to an existing structure would be. All the normal rules applicable to CCA would apply.

Restrictions

Property that has been acquired on a tax-deferred “rollover” basis, or from a non-arm’s length person, would not qualify for this acceleration of CCA.

Interest Deductibility Limits – Purpose-Built Rental Housing

Rules were previously proposed that would limit the amount of net interest and financing expenses that may be deducted by certain taxpayers in computing taxable income (the EIFEL rules). These proposed rules are currently before Parliament in Bill C-59.

The EIFEL rules provide an exemption for interest and financing expenses incurred in respect of arm’s length financing for certain public-private partnership infrastructure projects. Budget 2024 proposed expanding this exemption to also include situations in which arm’s length financing is used to build or acquire eligible purpose-built rental housing in Canada.

Canada Carbon Rebate for Small Businesses

In general, the federal government has intended to return 90% or more of the fuel charge collected in a province to individuals in that province through the Canada carbon rebate. A portion of the remainder is returned to farmers via a refundable tax credit. The government has committed to returning the remainder of fuel charge proceeds to Indigenous governments and small and medium-sized businesses. The participating provinces include Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador.

Budget 2024 proposed an accelerated and automated process to provide direct carbon rebates (a refundable tax credit) to Canadian-controlled private corporations (CCPCs) in provinces where the federal fuel charge applies. The rebate will be calculated by multiplying the number of persons employed in the province during the calendar year in which the fuel charge year begins, by a payment rate to be specified by the Minister of Finance. For example, the number of persons employed in the 2022 calendar year would be used to calculate the rebate in respect of the 2022-23 fuel charge year. To be eligible for the rebate, the corporation would need to have had no more than 499 employees throughout Canada in the calendar year. The payment rates for each applicable province for the 2019-20 to 2023-24 fuel charge years will be determined once sufficient information is available from the 2023 taxation year.

The tax credit would be paid automatically, with no application required. CRA would automatically determine the tax credit amount for an eligible corporation and pay the amount. It appears as if the number of employees would be determined by reference to the number of T4s filed.

With respect to the 2019-20 to 2023-24 fuel charge years, the rebate would be available where a tax return for the 2023 taxation year is filed by July 15, 2024. Budget 2024 indicated that this would deliver over $2.5 billion directly to 600,000 small- and medium-sized businesses.

Clean Economy Investment Tax Credits

Budget 2024 included a new 10% electric vehicle supply chain investment tax credit on the cost of buildings used in key segments of the electric vehicle supply chain, for businesses that invest in Canada across three supply chain segments:

• electric vehicle assembly;

• electric vehicle battery production; and

• cathode active material production.

The credit would apply to property that is acquired and becomes available for use on or after January 1, 2024 (it would be fully eliminated by the end of 2034).

Budget 2024 also proposed that the clean technology manufacturing investment tax credit would be adjusted to incorporate polymetallic projects (projects engaged in the production of multiple metals; draft legislation will be released for consultation in summer 2024 and the government targets introducing legislation in fall 2024).

More details on the clean electricity investment tax credit were also provided (draft legislation was not included).

Mutual Fund Corporations

Budget 2024 proposed to preclude a corporation from qualifying as a mutual fund corporation where it is controlled by or for the benefit of a corporate group (including a corporate group that consists of any combination of corporations, individuals, trusts, and partnerships that do not deal with each other at arm’s length). This measure would apply to taxation years that begin after 2024.

Non-Compliance with Information Requests

Budget 2024 proposed several amendments to expand CRA’s ability to gather information. They are intended to enhance the efficiency and effectiveness of tax audits of uncooperative taxpayers and facilitate the collection of tax revenues on a timelier basis. The proposed measures included the following:

• CRA would be permitted to issue a “notice of non-compliance” to a taxpayer that fails to comply with a requirement or notice to provide information;
• Where a notice of non-compliance is issued, a penalty of $50 per day ($25,000 maximum) would apply until the request is complied with;
• CRA would be permitted to require that information (oral or written) or documents included in a requirement or notice be provided under oath or affirmation;
• When CRA obtains a compliance order against a taxpayer from a court, the taxpayer would be subject to a penalty equal to 10% of the aggregate tax payable by the taxpayer for each related taxation year for which aggregate tax payable exceeds $50,000; and
• Various extensions of the time limit for reassessments would apply, generally providing CRA with additional time equal to the period of non-compliance, or of any legal dispute related to a requirement or notice.

C. International Measures

Crypto-Asset Reporting Framework

Budget 2024 proposed to impose a new annual reporting requirement on crypto-asset service providers that deliver business services effectuating exchange transactions in crypto-assets (e.g. crypto exchanges, crypto-asset brokers and dealers, and operators of crypto-asset automated teller machines).

Crypto-asset service providers would be required to report to CRA, in respect of each customer and in respect of each crypto-asset, the annual value of:

• exchanges between the crypto-asset and fiat currencies;

• exchanges for other crypto-assets; and

• transfers of the crypto-asset, including the requirement to report information in respect of a customer of a merchant where the crypto-asset service provider processes payments on behalf of the merchant and the customer has transferred crypto-assets to the merchant in exchange for goods or services with a value exceeding US$50,000.

Reportable crypto-assets would exclude central bank digital currencies and specified electronic money products (e.g., digital representations of fiat currencies), which would be reportable under proposed amendments to the Common Reporting Standard included in Budget 2024.

In addition to information on crypto-asset transactions, crypto-asset service providers would be required to obtain and report information on each of their customers, including name, address, date of birth, jurisdiction(s) of residence and taxpayer identification numbers for each jurisdiction of residence. If a customer is a corporation or other legal entity, the same information would need to be collected and reported in respect of the natural persons who exercise control over the entity. Reporting would be required with respect to both Canadian resident and non-resident customers.

Withholding for Non-Resident Service Providers

Budget 2024 proposed to provide CRA with the legislative authority to waive the 15% withholding requirement on payments to non-residents for services provided, over a specified period, if either of the following conditions are met:

the non-resident would not be subject to Canadian income tax in respect of the payments because of a tax treaty between its country of residence and Canada; or

the income from providing the services is exempt income from international shipping or from operating an aircraft in international traffic.

D. Sales and Excise Measures

Extending GST Relief to Student Residences

In 2023, the government announced that it would temporarily remove the GST from new purpose-built rental housing projects, such as apartment buildings, student housing and senior residences built specifically for long-term rental accommodation.

Budget 2024 proposed to apply the normal GST/HST rules that apply to other builders (i.e., paying GST/HST on the final value of the building) in respect of new student housing projects such that they can claim the enhanced GST rental rebate. Budget 2024 also proposed to allow universities, public colleges and school authorities that operate on a not-for-profit basis to access the rebate with respect to new student housing. This would not be available to universities, public colleges and school authorities that operate on a for-profit basis.

The proposed measures would apply to student residences that begin construction after September 13, 2023 and before 2031, and that complete construction before 2036.

GST/HST on Face Masks and Face Shields

Budget 2024 proposed to repeal the temporary zero-rating of certain face masks or respirators and certain face shields under the GST/HST. This measure would apply to supplies made on or after May 1, 2024.

E. Other Measures

Housing Plan

Budget 2024 included a variety of proposed initiatives to stimulate home construction. In addition to tax-related measures discussed elsewhere in this document, a variety of non-tax measures were proposed, including the following:

• First-time homebuyers will be permitted to obtain CMHC-insured mortgages with a 30-year amortization period if they purchase a newly built home, commencing August 1, 2024;

• The Canada Mortgage Charter will include an expectation that permanent amortization relief will be provided to allow existing homeowners to reduce their payments by extending their mortgage term in order to facilitate homeowners being able to retain their homes; and

• Expanded efforts will be undertaken to unlock government-owned real estate to be used for home construction, including the use of land held by the Department of National Defence and converting underused federal offices into homes.

Canada Pension Plan (CPP)

Budget 2024 proposed to coordinate with provincial partners to make amendments to the CPP, including the following:

• Enhance the death benefit for certain contributors;

• Add a children’s benefit for part-time students whose parent is deceased;

• Extend eligibility for children’s benefits where a disabled parent reaches age 65; and

• End eligibility for survivor’s benefits to people who are legally separated after a division of pensionable earnings.

Canada Disability Benefit

Budget 2024 provided additional details on the launch of the Canada disability benefit. Payments under this benefit are intended to commence in July 2025, following the successful completion of the regulatory process and consultations with persons with disabilities. A maximum annual benefit of $2,400 would be available to low-income persons between the ages of 18 and 64 eligible for the disability tax credit. The benefit is expected to support over 600,000 individuals.

Student Loan Forgiveness

Forgiveness of student loans for health care and social services professionals working in rural or remote areas would be expanded from its current coverage of, doctors and nurses to also be available to early childhood educators, dentists, dental hygienists, pharmacists, midwives, teachers, social workers, personal support workers, physiotherapists and psychologists.

Canada Learning Bond

• The Canada learning bond is a government contribution of up to $2,000 per year to registered education savings plans (RESPs) for children in low-income families. In order to increase the receipt of these amounts, Budget 2024 proposed the following initiatives:
• commencing with children born in 2024, RESPs would be opened automatically for children eligible for these payments in the year they turn four years of age;
• caregivers of older children eligible for these payments will be permitted to apply for the creation of a similar RESP, and the automatic deposit of these funds; and
• the maximum age to retroactively claim the Canada learning bond will be increased to 30 from 20.

Charities and Qualified Donees

Budget 2024 proposed several amendments relating to the charitable sector, including the following:

• modernizing the way in which CRA provides services and communicates information relating to registered charities and other qualified donees;
  
• amending certain rules for qualifying foreign charities;

• removing the requirement that official donation receipts contain:

• the place of issuance of the receipt;

• the name and address of the appraiser, if an appraisal of the donated property has been done; and

• the middle initial of the donor; and

• updating the regulations to expressly permit charities to issue official donation receipts electronically, provided that they contain all required information, they are issued in a secure and non-editable format and the charity maintains an electronic copy of the receipts.

The above measures, other than those related to foreign charities, apply upon royal assent.

Canada Revenue Agency (CRA) Funding

Additional funding will be provided to CRA for initiatives, including the following:

• Ongoing efforts to identify non-compliance in real estate transactions.
  
• Pilot new automatic filing services, SimpleFile Digital and SimpleFile by Paper to increase filings by low-income taxpayers; and
  
• Improve the efficiency of its call centres.

Consultations and Reviews

Budget 2024 also announced the following areas proposed to be reviewed, some with formal consultations:

• modernizing the scientific research & experimental development tax incentive program, with an intention to increase annual funding by $150 million;

• implementing a tax on residentially zoned vacant land; and

• issuing draft legislation to limit non-sufficient funds (NSF) charges to $10, and restrict their application in various other ways.

F. Previously Announced Measures

Budget 2024 confirmed the government’s intention to proceed with the following previously announced tax and related measures, as modified to consider consultations, deliberations and legislative developments, since their release.

• Legislative proposals released on March 9, 2024, to extend by two years the 2% cap on the inflation adjustment on beer, spirit and wine excise duties, and to cut by half for two years the excise duty rate on the first 15,000 hectolitres of beer brewed in Canada.
• Legislative proposals released on December 20, 2023, including with respect to the following measures:
• the clean hydrogen investment tax credit and clean technology manufacturing investment tax credit;
• bona fide concessional loans;
• denial of expenses for certain short-term rentals;
• vaping excise duties; and
• international shipping.
• Legislative and regulatory proposals announced in the 2023 Fall Economic Statement, including with respect to the following measures:
• The Canadian journalism labour tax credit.
• proposed expansion of eligibility for the clean technology and clean electricity investments tax credits to support the generation of electricity and heat from waste biomass;
• The addition of psychotherapists and counselling therapists to the list of health care practitioners whose professional services rendered to individuals are exempt from GST/HST;
• proposals relating to the GST/HST joint venture election rules;
• The application of the enhanced GST rental rebate to qualifying co-operative housing corporations; and
• proposals relating to the underused housing tax.
• Regulatory proposals released on November 3, 2023, to temporarily pause the federal fuel charge on deliveries of heating oil.
• Legislative and regulatory amendments to implement the enhanced GST rental rebate for purpose-built rental housing announced on September 14, 2023.
• Legislative proposals released on August 4, 2023, including with respect to the following measures:
• carbon capture, utilization and storage investment tax credit;
• clean technology investment tax credit;
• labour requirements related to certain investment tax credits;
• enhancing the reduced tax rates for zero-emission technology manufacturers;
• flow-through shares and the critical mineral exploration tax credit – lithium from brines;
• employee ownership trusts;
• retirement compensation arrangements;
• strengthening the intergenerational business transfer framework;
• The income tax and GST/HST treatment of credit unions;
• a tax on repurchases of equity;
• modernizing the general anti-avoidance rule;
• providing relief in relation to the GST/HST treatment of payment card clearing services;
• extending the quarterly duty remittance option to all licensed cannabis producers;
• including revised luxury tax draft regulations to provide greater clarity on the tax treatment of luxury items; and
• excessive interest and financing expenses limitations.
• Legislative proposals released on August 9, 2022, including with respect to the following measures:
• substantive Canadian-controlled private corporations;
• remaining legislative and regulatory proposals relating to the GST/HST,
• excise levies and other taxes and charges announced in the August 9, 2022 release;
• legislative amendments to implement the hybrid mismatch arrangements rules announced in Budget 2021; and
• regulatory proposals released in Budget 2021 related to information requirements to support input tax credit claims under the GST/HST.

The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional. No individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.

If you have any questions, please reach out to our team: (613) 235-2000 or info@hwpartners.ca

Do’s and Don’ts for Better Results

Tax season can be a daunting time for many individuals, but with the right knowledge and guidance, you can navigate through it smoothly. At Hendry Warren, we understand the intricacies of personal taxes and are here to offer you some valuable tips to improve your tax results. If you missed our most recent live webinar on Navigating Personal Taxes, you can view it on our YouTube channel. 

Let’s delve into some of the do’s and don’ts: 

Payment and Filing Deadlines 

Knowing your deadlines is crucial to avoid penalties. For most taxpayers, the deadline for filing taxes and any balance owing is April 30th. However, self-employed individuals have until June 15th to file, although taxes owed are still due by April 30th.   

DO: Keep an eye on HST deadlines if you’re registered and ensure compliance with installment requirements. 

DON’T: Ignore instalment requirements and reminders sent by CRA 

Capital Losses  

Understanding how to utilize capital losses can optimize your tax situation. These losses can be carried back up to three years, applied in the current year, or carried forward indefinitely to offset capital gains.  

DO: Analyze your marginal tax rates across different periods to make the most beneficial choice. 

DON’T: Miss the opportunity to recover income tax by carrying losses back to offset capital gains in previous years. 

Principal Residence Reporting 

Ensure you meet the criteria for designating your property as a principal residence, as this can have significant tax implications.  

DO: Be mindful of reporting requirements related to the sale or change of use of your principal residence. 
DON’T: Discount the value of income tax advice when selling your principal residence.

Home Office Costs 

With the elimination of the simplified method for claiming home office expenses, it’s essential to follow the detailed method and meet eligibility criteria. 

DO: Keep records of eligible expenses and consult with your employer regarding Form T2200 requirements. 
DON’T: Miss out on deducting expenses you might be eligible to claim on your tax return.

Deductions 

Deductions can lower your taxable income and potentially save you money. Taking the time to discuss your options with your accountant and understand the qualifications can have a significant impact on your personal taxes. 

DO: Explore various deductions available to you, such as childcare costs, moving expenses, support payments, accounting fees, investment fees, and RRSP contributions. 

DON’T: Miss out on deducting amounts you might be eligible to claim on your tax return. 

Pension Splitting 

Understanding pension splitting requirements can lead to lower income taxes and other benefits. Ensure eligibility criteria are met and explore the advantages of equalizing income with your spouse. 

DO: Optimize your family net tax result by splitting eligible pension income as appropriate. 

DON’T: Assume certain types of income will not qualify for pension splitting. 

Disability Tax Credit 

Individuals with severe and prolonged mental or physical impairments may be eligible for the disability tax credit. Familiarize yourself with the application process and supplementary credits available to maximize your tax savings. 

DO: Speak to your doctor about completing the application form for the disability tax credit for yourself or dependent family members 

DON’T: Assume an ailment or impairment would not qualify for the disability.

Record Keeping Requirements 

Maintaining accurate records is essential for tax compliance. Keep records for at least six years and be aware of any exceptions to this rule. 

DO: Set yourself up for success ASAP by using a standardized record-keeping system (QuickBooks Online, Excel, etc) with appropriate back-ups. 

DON’T: Discard your records before the expiration of the required timeframe. 

Still with us? Navigating personal taxes can be complex, but with these tips and the assistance of the Hendry Warren team, you can ensure a smoother and more successful tax season. Don’t hesitate to reach out to us for personalized guidance tailored to your specific tax situation. Remember, proper tax planning and compliance can lead to significant savings in the long run!

If you have a severe and prolonged impairment, you may apply for the credit. If you are approved, you may claim the credit on your tax return for the eligibility period. If the impairment has been ongoing for more than one year, you could be approved retroactively to the start of your impairment. CRA has published guidance to assist in determining whether your impairment meets the DTC eligibility criteria.

How to apply?

There are two methods to apply: 1) digital form or 2) paper form. We suggest completing the digital form where possible as this will ensure the quickest processing times. Your medical practitioner may charge a fee for completion of the form.

Digital Form

In order to complete the digital form, you must fill out Part A online or by phone and provide the reference number to your medical practitioner.

Online:

To fill out Part A online follow the steps below:

1. Sign in to My Account
2. Scroll down to Benefits and credits
3. Select ”Benefits and credits”
4. Select the ”Apply for DTC” button to open the digital form

By Phone:
To fill out Part A by phone follow the steps below:

Phone the CRA individual line at (1-800-959-8281) or use the automated voice service (1-800-463-4421) and they will complete the form for you and provide the reference number. You must be able to confirm your identity before you begin so you will need to have your income tax information with you.

After obtaining the reference number, provide it to your medical practitioner and they will complete Part B of the DTC application form.

Paper Form

If you are unable to, or prefer not to, complete the digital application form, you can complete the traditional form on paper. You should complete Part A of the form and then provide it to your medical practitioner so that they can complete Part B. Once your medical practitioner has completed Part B, they will provide the completed form to you so that it can be submitted to the CRA. If you provide us the completed form, we can submit the form to CRA online on your behalf.