As we gear up for 2025, several significant tax changes are set to impact Canadians. From adjustments to income tax brackets to new rules for short-term rentals and trust reporting, here’s a comprehensive look at what’s changing—and how you can plan ahead.
Part 1: Updates for Everyone
1. Federal and Provincial Tax Bracket Adjustments
Good news for taxpayers: income tax brackets for 2025 have been adjusted to account for inflation. This means a greater portion of your income will be taxed at lower rates.
Example: Combined Federal and Ontario Tax on $100,000 Income
2024: You pay $21,031 in taxes, netting $78,969 after tax.
2025: You pay $20,646 in taxes, netting $79,354 after tax.
Impact: If you earn $100,000, you’ll save approximately $385 in taxes for 2025 compared to 2024. Every little bit helps!
2. CPP Contributions: You’re Paying More in 2025
The Canada Pension Plan (CPP) enhancements continue, leading to higher contributions in 2025—but with the promise of greater retirement benefits.
Key Details:
Basic Exemption: $3,500 remains unchanged.
Contribution Rate (2025): 5.95% for employees (11.90% for self-employed).
YMPE (Year’s Maximum Pensionable Earnings): $71,300 (up from $67,700 in 2024).
CPP2 Tier: Contributions apply to income between $71,300 and $81,200.
Example: Self-Employed Earning $100,000
2024: Total CPP contribution = $8,275
2025: Total CPP contribution = $8,860.20
Impact: An increase of $585 in contributions for 2025.
3. RRSP Contribution Limit Increase
The RRSP annual contribution limit rises to $31,560 for 2025 (up from $30,780 in 2024).
Example:
Earned Income: $80,000 in 2024.
RRSP room = ($80,000 × 18%) - $6,000 (Pension Adjustment) = $8,400.
Check your CRA Notice of Assessment (NOA) for exact contribution room—no need to break out the calculator unless you’re a math enthusiast!
4. TFSA Contribution Limit Increase
The TFSA annual contribution limit rises to $7,000 in 2025, up from $6,500 in 2024.
Cumulative Contribution Room: If eligible since 2009 and never contributed, your total room by 2025 is $102,000.
Pro Tip: Non-residents face a 2% monthly penalty for overcontributions. If you’re unsure about your residency status, consult a tax advisor before contributing.
5. First Home Savings Account (FHSA)
The FHSA combines the best of RRSPs and TFSAs:
Tax-Deductible Contributions: Reduce your taxable income.
Tax-Free Withdrawals: When used for your first home.
Example:
Emma sold her condo five years ago and has been renting. In 2025, she qualifies for an FHSA because she hasn’t owned a home in the past four calendar years.
Annual contribution limit: $8,000. Lifetime limit: $40,000. Carry unused room forward to the next year.
6. GST/HST Holidays for Certain Goods and Services
From December 14, 2024, to February 15, 2025, select items are GST/HST-free:
Children’s clothing, diapers, car seats.
Physical books, newspapers.
Holiday trees, restaurant bills, and more.
Action Steps: Stock up on essentials or plan celebratory meals to take full advantage of the tax break.
Part 2: Updates for Real Estate Investors
7. Changes to Short-Term Rental Deductions (Airbnb)
New rules target non-compliant short-term rentals. Starting January 1, 2024, properties not registered locally can’t deduct expenses like mortgage interest, property taxes, or maintenance costs.
Action Steps:
Ensure your property complies with local regulations.
Maintain proper documentation for tax filings.
8. Enhanced Trust Reporting Requirements
The CRA now requires most trusts to file detailed information about trustees, beneficiaries, and settlors. However, bare trusts are exempt unless specifically requested.
Example:
If you’re on title for a rental property co-owned with a spouse or joint venture partner, you’ll likely need to file. Due date: March 31, 2026.
9. Capital Gains Inclusion Rate Changes
Individuals: Gains up to $250,000 are subject to the traditional 50% inclusion rate. Gains above $250,000 are taxed at 66.67%.
Corporations and Trusts: The 66.67% rate applies to all gains starting June 25, 2024.
Example:
Alex sells shares for a $300,000 gain in 2025.
$250,000: 50% inclusion = $125,000 taxable.
$50,000: 66.67% inclusion = $33,335 taxable.
Total Taxable Gain: $158,335.
Takeaway: Plan asset sales carefully to minimize tax exposure.
Key Takeaways
Plan Ahead for Tax Liabilities: If you anticipate significant capital gains, budget for higher taxes or offset them using RRSPs, TFSAs, or FHSAs.
Review Timing of Asset Sales: Structuring sales below the $250,000 threshold for individuals can help save on taxes.
Optimize Deductions: Track all losses to offset gains and reduce taxable income.
Pro Tip: Consult a tax professional for tailored strategies to navigate these changes effectively.
Final Thoughts
The 2025 tax updates bring both challenges and opportunities. Whether you’re maximizing contributions or strategizing real estate investments, staying informed is key. By acting now, you can save money and ensure a stress-free tax season in 2025.
Until next time, here’s to savvy financial planning and smart Canadian real estate investing!