2025 Canadian Federal Budget

This year’s budget comes at a pivotal time as Canadians and businesses face complex economic conditions shaped by geopolitical pressures, constrained growth, and mounting concerns about housing and affordability. Persistently low productivity highlights the urgent need for transformative and innovative solutions.

Finance Minister Francois-Philippe Champagne described Budget 2025—the first under Prime Minister Mark Carney—as an “ambitious plan to Canadians” amid global economic uncertainty. Nationwide consultations took place over six weeks this summer to discuss issues such as the impact of U.S. tariffs, internal trade and labour mobility, defence, and advancing digital transformation through artificial intelligence (AI).

The following analysis provides key considerations for the upcoming budget that may impact Canadians and businesses.

Budget 2025 may address several previously announced tax proposals that had not been enacted into law before the 2025 election period began. The upcoming Budget 2025 may provide clarity on whether the government intends to move forward with these measures.

In March, the federal government announced it would cancel the proposed hike in the capital gains inclusion rate to “strengthen Canada’s ability to catalyze the enormous private investment needed to create jobs and opportunities and to build a stronger future.” The government plans to maintain the increase for the lifetime capital gains exemption limit to $1.25 million on the sale of small business shares and farming and fishing property.

It’s also possible the government will announce a review of the corporate tax system based on the principles of fairness, transparency, simplicity, sustainability, and competitiveness.

The election platform stated that a Liberal government would, “Lead an international effort with partners in Europe and across the G7 to get a fair and consistent set of international tax rules completed.” This statement presumably refers to the international tax "Pillars” proposed by the Organisation for Economic Cooperation and Development (OECD) rules and interest deductibility limits.

Pillar One aims to allocate more taxing rights to market jurisdictions over a portion of income from the largest, most profitable multinational corporations. Canada had rescinded its proposed 3% Digital Services Tax (DST) in June to support trade negotiations with the U.S.

Pillar Two imposes a 15% minimum tax rate on multinational enterprises with annual revenues of at least €750 million. The Global Minimum Tax Act (GMTA)—Canada’s version of OECD’s Pillar Two—received Royal Assent on June 20, 2024, and applies to taxation years beginning on or after Dec. 31, 2023.

Recently, Canada and members of the G7 forum jointly announced plans to implement a “side-by-side system” that would preserve the global progress of the OECD’s Pillar Two framework, while also addressing U.S. concerns about these rules. This side-by-side system would fully exclude U.S. parented groups from the Undertaxed Profits Rule (UTPR) and the Income Inclusion Rule (IIR) for both their domestic and foreign profits. The IIR is currently in effect in Canada as part of the GMTA, while UTPR legislation remains in draft form. The budget may indicate whether the government plans to proceed with or pause UTPR implementation, amid ongoing questions about U.S. participation.

Canada’s lack of housing supply is continuing to put pressure on affordability. The Build Canada Homes initiative, announced in September, aims to double the pace of housing construction using Canadian workers, technology, and lumber. It is expected additional measures to lower costs for builders and attract private capital in homebuilding will be announced in Budget 2025.

The federal government has promised to reintroduce the Multi-Unit Rental Building (MURB) Capital Cost Allowance. Starting with the 2025 taxation year, this tax incentive would allow investors to claim CCA to increase or create a rental loss to offset other income.

The government has also tabled Bill C-4 to eliminate GST on new homes up to $1 million and reduce it for homes between $1 million and $1.5 million for first-time buyers; the bill has passed second reading in the House of Commons.

Bill C-4 also aims to reduce the federal rate for the lowest income tax bracket by 1%—down to 14.‍5% for the 2025 tax year and 14% for the 2026 and subsequent tax years.