2025 Canadian Federal Budget

Originally published November 10, 2025. For the latest developments, read TaxNewsFlash.

Canada’s Minister of Finance and National Revenue, François-Philippe Champagne, delivered the 2025 Federal Budget in the House of Commons on November 4, 2025. The first budget under Prime Minister Mark Carney introduced a mix of fiscal measures aimed at addressing trade disruption, rising costs, and economic uncertainty, with a strong focus on encouraging greater corporate investment in Canada.

The budget totals $280 billion of capital spending, which could see the deficit rise to $78.3 billion.

The budget focused on boosting economic security, physical security, trade enablement, and diversification through major nation-building infrastructure and industrial projects. The government is engaging the private sector through incentives and co-investment to catalyze economic growth and help move away from overreliance on a single trading partner. It also introduces a new capital budgeting framework that separates capital investment from operational spending, with plans to balance the operational budget within three years.

Budget 2025 sets the stage for transformation—but success will depend on action and execution. Businesses should prioritize agility, investment planning, and partnering with the public sector to align with new incentives and drive impact.

One of the notable measures in Budget 2025 is the Productivity Super-Deduction, which packages the immediate write-off announced in the budget for manufacturing and processing buildings with previously-announced tax incentives allowing businesses to accelerate depreciation on investments in machinery, equipment, and digital tools, including AI. The measure is intended to improve Canada’s investment climate and support reinvestment and modernization. For Canadian firms, it represents an opportunity to enhance competitiveness and adopt productivity-enhancing technologies.

Despite calls for broader tax reform, Budget 2025 made no changes to the general, personal or corporate income tax rates, capital gains inclusion rates, or other broad tax measures. Instead, it introduced targeted incentives like immediate expensing and expanded clean economy tax credits, while permanently scrapping the proposed capital gains increase, the digital services tax and the Canadian Entrepreneurs’ Incentive. There was no action on simplifying the tax system and no relief on mandatory Registered Retirement Income Fund (RRIF) withdrawals.

The most notable international tax change is the rewrite to Canada’s transfer pricing regime. The budget provided more detail on analyzing cross-border transactions between non-arm’s length parties, considering not only contractual terms but also economically relevant characteristics. These changes introduce stricter compliance standards by requiring deeper economic analysis, expanding documentation obligations, and reducing response timelines. There was no substantive discussion in the budget of the Pillar 2 framework—a core component of the Global Minimum Tax Act (GMTA)—and there’s uncertainty as to whether the Undertaxed Profits Rule (UTPR) will apply to 2025.

Overall, Budget 2025 delivered a restrained approach to tax policy, favoring targeted incentives over sweeping reforms and leaving core tax structures largely intact.

Budget 2025 focused on trade diversification and growth in new markets, with several measures announced to support current challenges. A new Strategic Exports Office at Global Affairs Canada will curate international business opportunities and help Canadian businesses break down market access barriers in foreign markets—even addressing financing needs. The Trade Diversification Corridors Fund will focus on building trade-enhancing infrastructure to help increase GDP, as well as supporting supply chain efficiencies. The federal government previously announced a new ‘Buy Canadian’ policy for government procurement, as well as a new reskilling package, the launch of a digital jobs and training platform, and the extension of temporary EI measures for workers affected by U.S. tariffs.

Tariffs have had a profound impact on trade relations between Canada and the U.S., and the pace of change is accelerating with the impending review of the Canada-United States-Mexico Agreement (CUSMA) in 2026. As these negotiations unfold, businesses need to continue to prepare for the potential repercussions and leverage opportunities presented in this budget. Explore the latest insights from our trade and tariffs hub.

Budget 2025 signals a strong commitment to infrastructure as a driver of long-term economic growth, emphasizing collaboration between public and private sectors. While the budget announcements reflect optimism for attracting significant capital investment that is estimated at over $1 trillion over the next five years, success will depend on creating a predictable regulatory environment and mechanisms to de-risk large-scale projects. The clarified mandate of the Major Projects Office is a positive step toward improving coordination and structuring financing across federal, provincial, territorial, and private partners.

Infrastructure development is now positioned as a cornerstone of Canada’s competitiveness and resilience, requiring a balance between industrial and energy priorities and climate objectives. Businesses should anticipate a more integrated approach to infrastructure planning, where regulatory efficiency, risk management, and sustainability considerations will shape investment decisions.

The federal budget positions innovation and AI as central to Canada’s economic strategy, committing significant resources to sovereign AI infrastructure, advanced research, and stronger intellectual property frameworks. These measures signal an environment where businesses that invest in digital transformation, leverage AI-driven efficiencies, and align with emerging R&D incentives will be better placed to capture growth opportunities and maintain competitiveness in a rapidly evolving market.

While Budget 2025 advanced Canada’s AI infrastructure and broader innovation agenda, it placed limited focus on addressing the country’s AI literacy gap. The trust, attitudes and use of artificial intelligence: A global study show Canada ranks 44th in AI training and literacy out of 47 countries. While building sovereign compute capacity is critical, so is ensuring Canadians have the skills and understanding to use AI responsibly and effectively.

The budget did not include measures such as a patent box regime, an artificial intelligence adoption tax credit, or a new flow-through share regime for scientific research initiatives referenced in the Liberal Party’s April 2025 election platform. It remains unclear whether these proposals have been deferred or removed from consideration.

KPMG Canada surveyed 501 Canadian companies between Sept. 11 to Oct. 2, 2025, to gauge the views and priorities of business leaders ahead of the November 4th federal budget. All respondents are business owners or executive-level decision makers and are from all industry sectors. Thirty-five per cent lead companies with $500 million to $1 billion in annual gross revenue; 31 per cent, over $1 billion; 20 per cent, between $300 million to $499 million; 9 per cent, between $100 million and $299 million; and the remaining 5 per cent, between $10 million to $99 million. Fifty-seven per cent of the companies are privately held, 30 per cent are owned by private equity, 11 per cent are publicly traded, and 2 per cent are foreign-owned subsidiaries. The survey used Sago's Methodify online research platform.