Tax Changes in Canada’s 2025 Federal Budget: What Taxpayers Need to Know
- Dimitrios Zaravinos
- Nov 5
- 3 min read
The Liberal government unveiled its first budget under Prime Minister Mark Carney yesterday — and they will need to secure opposition support to pass it. The 2025 Federal Budget introduces a range of tax measures aimed at simplifying compliance, supporting targeted groups, and responding to evolving economic and social priorities. Below is a detailed overview of the most significant tax changes.
Elimination of the Underused Housing Tax (UHT)
1. Elimination of the Underused Housing Tax (UHT)
The Underused Housing Tax, introduced in 2022 and applied primarily to non-resident, non-Canadian owners of vacant or underused residential property, will be eliminated as of the 2025 calendar year. This means:
No UHT will be payable, and no UHT returns will be required for 2025 and subsequent years.
All UHT requirements, including filing and payment obligations, remain in effect for the 2022 to 2024 calendar years.
Penalties and interest for non-compliance will continue to apply for those earlier years.
RRIF Minimum Withdrawal Limits
The 2025 budget does not propose any changes to the minimum withdrawal requirements for Registered Retirement Income Funds (RRIFs). The existing rules, which set out the minimum amount that must be withdrawn annually from a RRIF, remain unchanged for 2025 and beyond. This provides continued certainty for retirees relying on RRIF withdrawals for income.
Bare Trust Reporting
The government confirms its intention to proceed with enhanced reporting requirements for bare trusts. However, the application date for these new rules has been deferred:
The new reporting requirements will apply to taxation years ending on or after December 31, 2026.
The government is reviewing stakeholder feedback to minimize administrative burdens and clarify which organizations are subject to the new requirements.
Home Accessibility Tax Credit
A significant change is being made to the Home Accessibility Tax Credit (HATC):
The HATC is a non-refundable credit for up to $20,000 of eligible home renovation expenses to improve the safety, accessibility, or functionality of a qualifying individual’s dwelling.
Starting in 2026, expenses claimed under the Medical Expense Tax Credit (METC) cannot also be claimed under the HATC. This eliminates the previous ability to claim both credits for the same expense, preventing double-dipping.
Introduction of the Personal Support Workers (PSW) Tax Credit
A new, temporary refundable tax credit is being introduced for personal support workers:
The PSW Tax Credit will provide eligible personal support workers with a refundable credit equal to 5% of eligible earnings, up to a maximum of $1,100.
Eligibility is limited to personal support workers employed by regulated health care establishments, such as hospitals, nursing care facilities, and home health care establishments.
The credit applies to the 2026 to 2030 taxation years.
Notably, earnings in British Columbia, Newfoundland and Labrador, and the Northwest Territories are excluded due to separate federal-provincial agreements in those jurisdictions.
Employers must certify eligible earnings, and individuals must file a tax return to claim the credit.
Cancellation of the Luxury Tax on Boats and Airplanes
The Select Luxury Items Tax Act previously imposed a tax on high-value vehicles, aircraft, and vessels. The 2025 budget proposes:
The immediate elimination of the luxury tax on subject aircraft and vessels (boats).
No luxury tax will be payable on sales, importations, or improvements to these items after Budget Day.
Registered vendors must file a final return for the period including Budget Day, but ongoing registration will be maintained until February 1, 2028, to allow for eligible rebate claims.
After February 1, 2028, all such registrations will be cancelled, and no further rebates can be claimed.
Status of the Canadian Entrepreneurs’ Incentive
The Canadian Entrepreneurs’ Incentive, which was proposed to provide a preferential capital gains tax rate for qualifying entrepreneurs, is not being implemented. The government has confirmed the cancellation of this measure, and it will not proceed as part of the 2025 budget package.
Changes and Clarifications Regarding Trusts and the 21-Year Deemed Disposition Rule
Personal trusts are generally subject to a deemed disposition of their capital property at fair market value every 21 years (the "21-year rule"), which prevents indefinite deferral of tax on accrued gains. If property is transferred from one trust to another, on a tax-deferred basis, the new trust inherits the 21-year anniversary of the old trust, ensuring the same 21-year period applies.
The above measures are designed to improve tax fairness, integrity, and administration, while providing relief and clarity in specific areas of the tax system.
How Trowbridge Can Help
At Trowbridge Professional Corporation, our team of tax experts specializes in optimizing tax strategies and helping clients navigate changing tax policies. If you're interested in learning more about how we can assist in optimizing your tax planning, we invite you to schedule a call with us today. Our dedicated professionals are here to guide you through the process and answer any questions you may have.
