Key takeaways from the 2025 federal budget

A headline item is the reduction in the lowest personal income tax rate. Announced earlier in May and now included in Bill C-4, the first marginal personal income tax rate will drop from 15% to 14.5% for 2025, and to 14% in 2026 and beyond. The updated tax brackets and federal tax rates for 2025 are as follows:

This move is intended to put more money in the pockets of Canadians, particularly those in lower and middle-income brackets. However, a technical quirk threatened to reduce the value of the tax savings of non-refundable tax credits since the value of those credits is also based on the lowest tax bracket. To address this, the government introduced a “Top-up tax credit” designed to ensure that no taxpayer is worse off due to the rate reduction — a targeted fix that will apply from 2025 to 2030.

The Home Accessibility Tax Credit (HATC) and the Medical Expense Tax Credit (METC) have long provided relief to seniors and individuals with disabilities undertaking certain home renovations. Under current rules, it was possible to claim both credits for the same expense. The budget closes this advantage, effective January 1, 2026, meaning that Canadians have until the end of 2025 to make claims under both credits for a single expense.

Recognizing the essential role of personal support workers (PSWs), the budget introduces a temporary refundable tax credit for eligible PSWs working in health care establishments. The credit is worth 5% of eligible earnings, up to $1,100 annually, and will be available from 2026 to 2030. Notably, amounts earned in British Columbia, Newfoundland and Labrador, and the Northwest Territories are excluded, as these provinces have separate agreements in place to increase PSW wages.

Flow-through shares let corporations pass certain exploration and development expenses to investors, who can deduct these costs from their taxable income. The Critical Mineral Exploration Tax Credit (CMETC) gives investors a 30% tax credit on eligible mineral exploration expenses. The list of qualifying minerals is expanded in the 2025 budget to include bismuth, cesium, chromium, fluorspar, germanium, indium, manganese, molybdenum, niobium, tantalum, tin, and tungsten. This is designed to bolster Canada’s position in the global supply chain for clean technology and advanced manufacturing.
These new rules apply to flow-through share agreements made after November 4, 2025 and before March 31, 2027. However, the budget cancels a previously proposed change that would have allowed full resource expense deductions under the Alternative Minimum Tax (AMT) regime, which may result in higher taxes for some investors.

The “21-year rule” prevents trusts from indefinitely deferring capital gains taxes by deeming a trust to have disposed of its property every 21 years. Although this disposition can be avoided by transferring the property at its cost to beneficiaries, if the transfer is to another trust the original 21-year period will continue to apply. The budget tightens anti-avoidance rules to capture indirect transfers of property between trusts — an area where tax planners have previously found workarounds. This change, effective for transfers after November 4, 2025, underscores the government’s intent to ensure fairness and limit aggressive tax planning.