The Liberal government, led by Prime Minister Mark Carney, tabled its first budget in the House of Commons on November 4, 2025. The budget included several notable tax measures targeting businesses, entrepreneurs, and individuals. The budget is designed to encourage investment to address the challenges in Canada to strengthen the economy and build “Canada Strong”.
Measures Impacting Businesses:
- Scientific Research and Experimental Development (SRED) Tax Incentive Program: The budget proposes to increase the expenditure limit for the enhanced 35% credit for Canadian Controlled Private Corporations from $4.5 million to $6 million. This change increases the maximum refundable federal investment tax credit from $1.05 million to $2.1 million.
- Immediate Expensing for Manufacturing and Processing Buildings: For eligible buildings acquired on or after November 4, 2025, where more than 90% of the floor space is used for manufacturing or processing, a temporary 100% first-year deduction (immediate expensing) may be claimed. Currently, such buildings only qualify for a 10% capital cost allowance rate per year.
- Tax Deferral Through Tiered Corporate Structures: The government has introduced measures to eliminate the deferral of refundable tax for inter-company dividends between stacked corporations with staggered year-ends.
- Transfer Pricing Changes: The budget updates Canada’s transfer pricing rules, effective for taxation years that begin after November 4, 2025, aligning them with OECD arm’s length principles. It clarifies analytical requirements based on both contractual terms and economically relevant characteristics, introducing new definitions and adjusted rules. The penalty threshold rises to $10 million for not maintaining the appropriate documentation, and time to provide documentation is reduced from 90 days to 30 days.
Measures Impacting Individuals and Trusts:
- Bare trust reporting rules: Bare trusts will not need to file a return until taxation years ending on or after December 31, 2026.
- Underused Housing Tax (“UHT”): The UHT is eliminated for the 2025 calendar year and beyond; no returns or taxes are required for 2025 and later years. However, all UHT rules, including penalties and interest, still apply for 2022 to 2024.
- Luxury Tax on Aircraft and Vessels: The budget also proposes to end the luxury tax on aircraft and vessels after November 4, 2025.
- Canada Carbon Rebates: Canada Carbon Rebate payments will not be issued to Individuals for any late tax returns or adjustments filed after October 30, 2026. The final quarterly payment was made in April 2025 after the federal fuel charge ended on April 1, 2025.
- Home Accessibility Tax Credit: The budget introduces changes to ensure that an expense claimed under the Medical Expense Tax Credit cannot also be claimed under the Home Accessibility Tax Credit. This measure applies to the 2026 and subsequent taxation years.
- Personal Support Workers Tax Credit: The budget creates a temporary Personal Support Workers Tax Credit for 2026 to 2030. Eligible workers can receive a refundable credit of 5% of their earnings, up to $1,100 per year.
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