Stay Ahead: 2025 New Tax Rules and Deadlines

Tax Compliance
Barb Veda 2023

Written By Barb

I’m a bookkeeping technology geek who has been in this industry for over 20 years. My specialty is helping small business streamline their workload with paperless business systems. I have also worked as a purchaser and a controller for several businesses. Currently I am Advanced Certified in Quickbooks and a variety of accounting programs.

January 6, 2025

As 2025 approaches, Canadians must prepare for a series of important tax updates. From adjusted tax brackets to changes in savings plans, these updates will impact individuals, self-employed professionals, and corporations alike. Here’s a detailed breakdown of the upcoming changes and deadlines to help you stay ahead and aware of the 2025 tax changes.

2025 Canadian Tax Brackets

For 2025, all five federal income tax brackets have been indexed to inflation using the 2.7 percent rate. (Last year, that number was 4.7 percent, as inflation was much higher). The new 2025 federal brackets are: zero to $57,375 of income (15 percent); above $57,375 to $114,750 (20.5 percent); above $114,750 to $177,882 (26 percent); above $177,882 to $253,414 (29 percent), with anything above that taxed at 33 percent. Each province also has its own set of provincial tax brackets, most of which will be indexed to inflation using their respective provincial indexation factors.

Understanding the Basic Personal Amount for 2025

The Basic Personal Amount (BPA) represents the income you can earn without paying any federal income tax. This tax credit, a cornerstone of Canada’s tax system, ensures that all Canadians have a tax-free threshold for their earnings.

In 2019, the government committed to increasing the BPA annually until it reached $15,000 in 2023. Beyond that, the BPA is indexed to inflation, reflecting changes in the cost of living. For 2025, the BPA will rise to $16,129, allowing individuals to earn up to this amount before they owe any federal tax.

How the Basic Personal Amount Works

For taxpayers earning above the BPA, the value of the federal credit is calculated by applying the lowest federal personal income tax rate of 15% to the BPA. This means the BPA provides a non-refundable tax credit worth up to $2,419 in 2025. However, as a non-refundable credit, it only offsets taxes you would otherwise owe. If your total federal tax payable is less than $2,419, the credit is limited to your tax liability.

Basic Personal Amount Reductions for High-Income Earners

The BPA enhancement does not apply to everyone equally. For higher-income earners, the BPA is subject to a gradual reduction, known as an income test:

  • The BPA enhancement starts to phase out for taxpayers with net incomes above $177,882 (the bottom of the fourth tax bracket for 2025).
  • The phase-out occurs on a straight-line basis and is fully eliminated when a taxpayer’s income exceeds $253,414 (the threshold for the top tax bracket in 2025).
  • Taxpayers in the top tax bracket will still receive the “old” BPA, indexed to inflation, which will be $14,538 for 2025.

This means that while middle-income Canadians will benefit from the increased basic personal amount, those in the highest income brackets will see only the base amount indexed for inflation.

Tax Deadlines
2025 Canada Pension Plan (CPP) Limits

For 2025, employee and employer Canada Pension Plan (CPP) contribution rates will remain at 5.95 percent. The maximum pensionable earnings under the CPP will rise to $71,300 in 2025, up from $68,500 in 2024. For self-employed individuals, the maximum contribution increases to $8,068.20, compared to $7,735 in 2024. Employers will see their CPP contributions rise to $4,034.10, up from $3,867.50.
For 2025, pensionable earnings between $71,300 and $81,200 will be subject to “second CPP contributions” (CPP2) at an employee and employer rate of four percent, with a maximum contribution of $396 each. The 2025 self-employed CPP2 contribution rate will be eight percent, and the maximum self-employed contribution will be $792.

Employment Insurance Premiums

Employment insurance (EI) premiums are also rising, with a contribution rate for employees of 1.64 percent (1.31 percent for Quebec) up to a maximum contribution of $1,077.48 ($860.67 for Quebec) on 2025 maximum insurable earnings of $65,700.

Tax-Free Savings Account (TFSA) Limit for 2025

Good news for savers: the annual TFSA contribution limit remains at $7,000 for 2025. For those who have been eligible since the TFSA’s inception and never contributed, the cumulative room now totals $102,000.

TFSA and RRSP contribution deadlines for 2025 in Canada is March 3rd. The annual contribution limit can be checked on the Canada Revenue Agency (CRA) website.

Home Buyers’ Plan Enhancement

Buying your first home just got a little easier. Starting in 2025, the maximum withdrawal limit under the Home Buyers’ Plan increases to $60,000 from $35,000. This enhancement comes with a 15-year repayment period, beginning five years after the withdrawal date for eligible withdrawals made between January 1, 2022, and December 31, 2025.

First Home Savings Account.

Your FHSA participation period starts the moment you open your first account. This period ends on December 31 of the year when the earliest of the following occurs:

  • The 15th anniversary of opening your first FHSA.
  • You turn 71 years old.
  • The year after you make your first qualifying withdrawal from your FHSA.

If you opened an FHSA in 2024, you can contribute up to $8,000 before the December 31, 2024 deadline. This amount can then be claimed as an FHSA deduction on your 2024 income tax and benefit return.

Proposed Capital Gains Changes

Legislation to increase Canada’s capital gains inclusion rate is still in progress as of December 2024. Political factors, such as the possibility of an election, could influence its final implementation. If enacted, the following changes would apply:

  • A 66.67% (two-thirds) inclusion rate for capital gains for corporations and trusts.
  • A 66.67% inclusion rate for individuals for capital gains exceeding $250,000 annually.

Taxpayers are advised to stay informed and consult a tax professional to navigate potential impacts.

Lifetime Capital Gains Exemption (LCGE) for 2025

Pending legislative approval, the LCGE for 2025 is set to increase to $1,250,000, up from $1,016,836. This exemption allows taxpayers to shelter a portion of capital gains from taxes on the sale of qualified small business shares or farm and fishing properties.

GST Holiday for Essential Goods

To provide financial relief amid rising living costs, the Canadian government has proposed a temporary GST/HST exemption for specific goods during the holiday season. This initiative, pending parliamentary approval, is set to run from December 14, 2024, to February 15, 2025. Eligible items include:

  • Prepared Foods: Ready-to-eat meals, salads, and sandwiches.
  • Restaurant Meals: Dine-in, takeout, and delivery services.
  • Snacks and Beverages: Chips, candy, beer, wine, and low-alcohol drinks.
  • Children’s Essentials: Clothing, footwear, toys, and diapers.
  • Holiday Decorations: Christmas trees and ornaments.
2025 Canadian Tax Deadlines

Individuals

  • Tax Filing Deadline: For the 2024 tax year, individual tax returns are due by April 30, 2025.

Self Employed Individuals

  • Tax Filing Deadline: For self-employed individuals or those with a self-employed spouse/common-law partner, the filing deadline is extended to June 16, 2025 (as June 15 falls on a Sunday). However, taxes owed must still be paid by April 30, 2025, to avoid interest.

Corporations

  • Filing Deadline: A corporation’s tax return is due six months after its fiscal year ends. For example, if a fiscal year ends on December 31, 2024, the return is due by June 30, 2025. Taxes owed must be paid within two months after the fiscal year-end.

At KineticBooks & Tax Solutions, we’re here to help you navigate your numbers with confidence. For personalized support tailored to your business, reach out to us today! Together, let’s keep your books balanced and your business thriving.

Call us: 604-245-0418
Email us:
hello@kineticbooks.ca

Also Read 10 Tips To Avoid An Audit Confidently

0 Comments

Submit a Comment

Your email address will not be published. Required fields are marked *

KineticBooks Logo

phone 604.245.0418               email info@kineticbooks.ca