2025 Canadian personal tax changes: What you need to know

1. Federal tax rate cut (effective July 2025)

The lowest federal personal income tax rate is reduced from 15% to 14% effective July 1, 2025. Because the change applies mid-year, the blended rate for 2025 is 14.5%.

Most federal non-refundable tax credits are tied to the lowest marginal rate, meaning their base value will decrease slightly in 2025.

2. Top-up tax credit

To offset the reduced value of certain non-refundable credits, the government introduced a targeted top-up mechanism. This preserves an effective 15% credit rate for specific claims above the first federal tax bracket threshold.

This primarily affects individuals with unusually large credit claims, such as significant medical or tuition expenses.

3. Capital gains inclusion rate increase cancelled

The proposed increase to the capital gains inclusion rate (from 50% to 66.67%) has been cancelled. The inclusion rate remains at 50% for individuals and most trusts. This removes major planning uncertainty for investors and business owners.

However, some taxpayers who claimed the Lifetime Capital Gains Exemption (LCGE) in 2024 may still be awaiting corrective reassessments from the CRA. The CRA has confirmed adjustments are in progress but has not provided specific timelines.

4. Alternative minimum tax (AMT) still a planning risk

The revised AMT rules introduced in 2024 continue in 2025. The AMT rate remains 20.5%, with an indexed exemption amount. Large capital gains, stock option exercises, and significant charitable donations remain common triggers.

AMT can apply even where regular tax is otherwise low, making projections advisable for major transactions.

5. CPP2 contributions continue to increase

The second phase of CPP enhancement (CPP2) continues in 2025. Contributions apply to earnings between the Year’s Maximum Pensionable Earnings (YMPE) and the Year’s Additional Maximum Pensionable Earnings (YAMPE).

Higher-income earners will continue to see incremental increases in required CPP contributions.

6. CRA business mail now online by default

Business correspondence for GST/HST, payroll, and self-employed program accounts is now delivered electronically through CRA My Business Account, and is considered received when posted.

Failure to monitor online accounts could result in missed deadlines.

Key takeaways

While 2025 does not introduce sweeping structural reforms, several targeted changes warrant attention. The federal rate reduction, capital gains stability, continued AMT exposure, enhanced CPP contributions, and expanded CRA digital enforcement all have practical implications for taxpayers with investment income, business activity, or significant deductions.

Please contact a member of our team to help assess your 2025 tax position, model potential tax exposure (including AMT), review capital gains planning opportunities.