New Year’s Day often represents the date that new tax legislation comes into play. The tax-related measures listed below are effective as of Jan. 1, with a caveat: Some are in draft legislation only, or haven’t even made it that far yet, which can leave taxpayers in limbo.
“Do you plan based on a government announcement and then hope that legislation passes?” John Oakey, CPA Canada’s vice-president of taxation, said in an interview, summarizing the dilemma.
Oakey, who says CPA Canada has recommended to the government in pre-budget consultations that tax policy be “practical” and “purposeful,” noted the volume of tax measures has grown over the past decade.
“We’re seeing that [growth] in the fall economic statement,” Oakey said, referring to the document’s two-page-plus list of provisions in various stages of legislation.
Further, the fall economic statement included additional proposals, and the lack of accompanying draft legislation is “very problematic,” Oakey said. “We saw that with the capital gains inclusions rate, [which] caused tremendous uncertainty.”
Capital gains tax changes, proposed in budget 2024, remain in legislative proposals included in a notice of ways and means motion from Sept. 23.
In addition to the proposed capital gains changes, other measures below that are not yet law include the Canadian Entrepreneurs’ Incentive and the accelerated investment incentive.
Canadian Entrepreneurs’ Incentive
This tax break for entrepreneurs who sell their businesses, proposed in budget 2024 and included in legislative proposals from Aug. 12, will apply to dispositions on or after Jan. 1.
The Canadian Entrepreneurs’ Incentive reduces the capital gains inclusion rate to one-third on a lifetime maximum of $2 million in eligible capital gains when an entrepreneur sells their business.
Combined with the budget’s increased lifetime capital gains exemption of $1.25 million, up from $1,016,836 in 2024, entrepreneurs will have a combined exemption of at least $3.25 million once the incentive is fully rolled out.
The lifetime limit would be phased in at $400,000 per year, beginning on Jan. 1, before reaching $2 million by 2029.
The incentive was proposed at the same time as an increased capital gains inclusion rate of two-thirds, up from one-half, on gains above $250,000 realized annually by individuals and on all capital gains realized by corporations and trusts.
Canada Pension Plan changes
Canada Pension Plan (CPP) changes from the 2024 budget take effect on Jan. 1, including a larger death benefit for certain contributors, a partial children’s benefit for part-time students, and extended eligibility for the disabled contributors’ children’s benefit when a parent reaches age 65. In addition, those who are legally separated after a division of pensionable earnings will no longer be eligible for a survivor pension.
Also in 2025, a second CPP earnings ceiling of $81,200, up from $73,200 in 2024, will be used to determine additional CPP contributions, known officially as the year’s additional maximum pensionable earnings. As a result, earnings between $71,300 and $81,200 will be subject to a second tranche of CPP contributions as part of the plan’s expansion that began in 2019.
TFSA contribution room of $7,000
In 2025, Canadians receive $7,000 in new TFSA contribution room, matching the 2024 amount. For someone who has been eligible for the TFSA since its launch in 2009 and has never contributed, total TFSA contribution room for 2025 is $102,000, up from $95,000 in 2024.
CRA charging 8% interest on overdue tax
Through the first quarter of the year, the Canada Revenue Agency will charge 8% interest on overdue tax balances, down from 9% in the previous two quarters.
Cracking down on predatory lending
Effective Jan. 1, the criminal rate of interest was lowered to a 35% annual percentage rate (APR), down from 48% APR previously. Also, payday loan costs are capped at no more than $14 per $100 borrowed. These measures were originally announced in budget 2023.
Measures with no draft legislation
Budget 2024 proposed extending the Canada child benefit and child disability benefit for six months after a child dies, with the measure proposed to begin in January 2025.
The fall economic statement proposed reinstating the accelerated investment incentive as well as immediate expensing for manufacturing or processing equipment, clean energy generation and energy conservation equipment, and zero-emission vehicles. The incentive would apply to qualifying property acquired on or after Jan. 1.