What’s New in Tax 2025

Every year, tax rules change.

For 2025 there are six main tax changes that you’ll want to know about.

And there’s good news: two major uncertainties are finally gone!

1. No more reporting requirements for “bare trusts”—saving many Canadians unnecessary paperwork and fees.
2. The proposed capital gains tax hike? Likely off the table.

In my latest YouTube video, podcast episode, and blog post you’ll learn

• What are the 2 big uncertainties that are gone now?
• What are the 6 main tax changes for 2025?
• What is the new picture for saving for your first home?

New reporting requirements for trusts 

• They no longer require anyone with a “bare trust” to file a T3 Trust tax return and a new Schedule 15. Last year, they announced deferring this requirement on the day it was due until this year. Many people had already filed these extra returns and paid their accountants $500 or $1,000, only to find they are not necessary. We were concerned there would be another last minute announcement this year, but they cancelled it completely.
• This would have affected a few tax planning tools many people use. “In trust for” (ITF) accounts for your kids over $50,000, and bank accounts, mortgages or homes that are in the names of both parents & children.
• ITF accounts are used by many parents to save for their kids, for education (in addition to RESPs), a home down payment, a wedding, a car or other reasons. A reasonable number would get over $50,000 eventually. We actually split the ITF accounts for a bunch of clients into separate ones for each parent in trust for each child to have each ITF account stay below $50,000.
• Parents often help their children with a down payment on their home, but then go on title for the home or the mortgage. Also many people change the names on their aged parents’ homes, bank accounts or investments to simplify their estate or to try to avoid probate fees. This often creates estate problems if this is not considered in the will. We have seen many people do crazy things to try to save probate fees that are only 1.5% (depending on the province. They are not 54% like income tax. These ideas can be useful, but must be done properly to help you. Many Canadians have done this, which is why we are glad they backed off requiring filing the extra T3 tax return.
• We think CRA realized that by trying to go after a handful of people that might be cheating, they were requiring onerous filing on possibly a million Canadians.

Capital gains inclusion 

• They deferred the proposed increase to the capital gains inclusion rate to 2026, which probably means it is gone. This was an increase from 50% of the capital gain being taxable to 67% (a 34% tax increase!) to individuals with capital gains over $250,000 or corporations with any capital gain.
• CRA was going to enforce it, even though the motion was never passed. It was stuck in the frozen parliament since September and cancelled by proroguing parliament in January.
• This is likely gone now, since it would have to be reintroduced from scratch and the likely next government is unlikely to restart it.
• For individuals, this would mainly affect people selling rental properties or cottages, since a gain of $250,000 is very common if you own the property for many years. Investors in stock market portfolios could mostly plan to trigger less than $250,000 in each year, even in a $5 million non-registered account.
• This would have affected a large number of small & large businesses and self-employed that have corporations. We advised many clients to create a corporation which can be used for a tax deferral by investing in their corporation and delaying paying it to themselves personally.
• We have been concerned this would make Canada’s tax on capital gains quite a bit higher than other countries, such as the US, so it could drive out of Canada more investment and doctors (who often invest inside their corporations). We have quite a few self-employed clients with corporations that would have been affected.

For this year, there are few new changes. This may be because parliament has been shut down since September. The main changes I see are:

Charitable donations deadline – The deadline for making donations for the 2024 tax year was extended to February 28, 2025, given the disruption of the Canada Post strike.

Home Buyers’ Plan (HBP) withdrawal limit increased – The HBP withdrawal limit increased to $60,000 from $35,000 for withdrawals made after April 16, 2024. The repayment is also deferred to start after 5 years, instead of after 3 years.

For first-time home buyers, by combining the First Home Savings Account (FHSA) and the Home Buyer’s Plan (HBP) from their RRSP, they can contribute $100,000 and get a tax deduction for it. They would then pay no tax to withdraw it to buy their new home. That is $200,000 for a couple. If you might buy a home within the next 15 years, contributing to your FHSA first is the best idea (before RRSP or TFSA). For the HBP, it is generally best to not use it if you don’t have to.

Short-term rental expenses limitation – If your client rents a residential property for short periods (less than 90 consecutive days), they must comply with provincial or municipal regulations and licensing, or else the CRA will deny them expense deductions. They are required to claim the rent income, but not allowed any expenses. Transitional relief is in place for the 2024 tax year, so that if a taxpayer was compliant by Dec. 31, 2024, the taxpayer is deemed compliant for all of 2024.

Signing up for CRA My Account simplified – It’s easier to register for a CRA My Account. The document verification service allows you to verify your identity and get immediate access to your online account. Up till now, signing up required that you wait 10 days for a code in the mail. We think it is a good idea for everyone to sign up for CRA My Account, to get notices and up-to-date figures from CRA.

Ed