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      Prime Minister Mark Carney and Finance Minister François-Phillipe Champagne presented Canada’s 2025 federal budget on November 4, 2025.1

      Featured in the budget’s tax measures that could affect individuals (including globally mobile employees), and their employers were changes related to the Underused Housing Tax, a Top-Up Tax Credit, a Personal Support Workers Tax Credit, the Home Accessibility Tax Credit and Medical Expense Tax Credit, and the Canadian Entrepreneurs’ Incentive.

      For the complete analysis, see special edition of TaxNewsFlash-Canada summarizing the announced tax changes prepared by members of the KPMG National Tax Centre, as well as other publications and communications from KPMG in Canada by clicking here.

      WHY THIS MATTERS

      • Repeal of Underused Housing Tax (“UHT”) – The elimination of the UHT for calendar 2025 and onward removes any obligation for non-resident, non-Canadian owners of vacant or underused residential real estate to pay a one percent annual tax. Removal of the UHT may increase the willingness of employees to relocate from Canada to another country.

      • Introduction of Top-Up Tax Credit – This measure addresses situations where an individual could have their tax liability increased by the middle-class tax cut announced earlier this year. The Top-Up Tax Credit should result in lower taxes for employees.

      • Personal Support Workers Credit – A tax credit for certain personal support workers providing one-to-one patient care in eligible health care establishments. This measure creates incentives for more personal care workers.

      • Home Accessibility Tax Credit and Medical Expense Tax Credit – This measure addresses potential duplication of credits for the same expenses. This measure increases tax fairness.

      • Elimination of Canadian Entrepreneurs’ Incentive (“CEI”) – The proposed measure was introduced in the 2024 federal budget and was intended to allow a reduction in the capital gains rate and was cancelled in this budget. This measure will increase the taxes paid on disposition of a qualifying property.

      Key Highlights

      Repeal of Underused Housing Tax (UHT)

      The budget eliminates the UHT as of the 2025 calendar year. As a result, no UHT would be payable and no UHT returns would be required to be filed in respect of the 2025 and subsequent calendar years. The budget states that all UHT requirements continue to apply for the 2022 to 2024 calendar years, including penalties and interest.

      Introduction of Top-Up Tax Credit

      The federal government introduced the middle-class tax cut on May 27, 2025.2 The lowest marginal tax rate was reduced from 15 percent to 14 percent effective July 1, 2025. The lowest marginal tax rate for 2025 will therefore be 14.5 percent and for 2026 and onward will be 14 percent.

      The budget introduces a new non-refundable Top-Up Tax Credit that would effectively maintain the current 15 percent for non-refundable tax credits claimed on amounts in excess of the first income tax bracket threshold rate (rather than the 14.5 percent rate for 2025 and 14 percent rate for 2026 and subsequent years). The Top-Up Tax Credit applies for the 2025 to 2030 taxation years.

      The budget notes that this measure is intended to address situations in which an individual could have their tax liability increased by the middle-class tax cut (e.g., where an individual claims a large one-time expense, such as amounts for high tuition or medical expenses, or claims a combination of large tax credits).

      Personal Support Workers Credit

      The budget introduces a temporary Personal Support Workers Tax Credit applicable for the 2026 to 2030 taxation years. This tax credit provides certain eligible personal support workers working for certain health care establishments with a refundable tax credit of 5 per cent of eligible earnings up to $1,100.

      Home Accessibility Tax Credit and Medical Expense Tax Credit

      Currently, taxpayers can claim both a Home Accessibility Tax Credit (of up to $20,000) for eligible home renovation or alteration expenses, for disabled individuals, in addition to the medical expense tax credit for the same expenditures.

      The Budget proposes to deny Home Accessibility Tax Credit for expenses claimed as a Medical Expense Tax Credit (for taxation years 2026 and onward).

      This measure prevents taxpayers from double dipping – claiming two separate credits for the same expense.

      Elimination of Canadian Entrepreneurs’ Incentive (CEI)

      The CEI was announced in the 2024 federal budget and was intended to support entrepreneurs by reducing the capital gains inclusion rate to half of what would otherwise apply. This measure was in response to the announced increase in capital gains rates from 50 percent to 66.67 percent (and reduction in stock option deduction from 50 percent to 33.34 percent) effective June 25, 2024. The CEI was to be phased in over five years with a $400,000 maximum in 2025 and reaching a $2 million maximum in 2029. The proposed changes to the capital gains inclusion rate and stock option deduction did not receive Royal Assent and in January 2025 the government announced a deferral of the effective date of the proposed changes to January 1, 2026.3 On March 21, 2025, the government subsequently cancelled the proposed changes to the capital gains inclusion rate and stock option deduction.4 With the cancellation of these proposed changes the CEI has been eliminated.

      KPMG INSIGHTS

      Steps to Consider

      The 2025 budget had limited personal taxation measures but repeal of the UHT may result in more employees being willing to accept assignments outside of Canada.

      The reduction of the lowest marginal tax rate along with the introduction of the Top-Up Tax Credit should slightly decrease employee taxes and would slightly reduce the estimated cost of equalization policies for employers that have assignments into Canada. The lower tax rate would correspondingly reduce hypothetical tax withholdings for employees on assignments out of Canada, increasing assignment costs for the employer.

      If assignees and/or their programme managers have any questions or concerns about the scope of the updated framework, its application and potential impacts, and appropriate next steps, they should consult with their qualified tax professional or a member of the GMS tax team with KPMG in Canada (see the Contact Us section).

      FOOTNOTES:

      1  For the budget speech and related documentation, see Government of Canada website, available at: https://budget.canada.ca/2025/home-accueil-en.html

      2  See Department of Finance Canada, “Delivering a middle-class tax cut.”

      3  See Flash Alert 2025-029: “Canada – Government Deferring Capital Gains Tax Changes to 2026” (February 4, 2025).

      4  See Prime Minister of Canada, “Prime Minister Carney cancels proposed capital gains tax increase” (March 21, 2025). 

      Contacts

      sonia-gandhi
      Sonia Gandhi

      Partner

      KPMG in Canada

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