Key 2025 Federal Budget Tax Updates: What Canadians Need to Know – A Summary by Aura Finance Inc

Introduction

The 2025 Federal Budget introduces several personal income tax measures designed to support workers, simplify tax filing, enhance benefit delivery, and modernize investment rules. At Aura Finance Inc, we’ve summarized the key highlights that matter most for individuals, families, and businesses across Canada.

1. Personal Support Workers Tax Credit

To recognize the vital contributions of personal support workers (PSWs), Budget 2025 proposes a new temporary refundable tax credit.

• Credit amount: 5% of eligible earnings, up to a maximum of $1,100 per year.

• Eligibility: Applies to PSWs who provide one-on-one care and support in hospitals, nursing homes, residential or community care facilities, or home health care establishments.

• Exclusions: Earnings from British Columbia, Newfoundland and Labrador, and the Northwest Territories are excluded due to separate wage agreements.

• Effective period: 2026 to 2030 taxation years.

This measure aims to provide financial recognition to healthcare professionals on the frontlines of Canada’s care system.

2. Automatic Federal Benefits for Lower-Income Canadians

Recognizing that many lower-income Canadians miss out on federal benefits because they don’t file taxes, Budget 2025 introduces automatic tax filing.

• The CRA will be able to file tax returns automatically for individuals meeting certain income and filing criteria.

• The initiative targets non-filers with low or no taxable income, ensuring they receive benefits like the Canada Child Benefit or GST/HST Credit.

• Canadians will have 90 days to review and update the information before the CRA submits their return.

• Implementation: Begins for the 2025 taxation year (i.e., filing starts in 2026).

This measure simplifies access to benefits and supports financial inclusion for vulnerable Canadians.

3. Top-Up Tax Credit

With the reduction of the first marginal tax rate from 15% to 14.5% (2025) and 14% (2026+), certain taxpayers could see smaller credit values for large deductions.

To prevent this unintended consequence, the government proposes a non-refundable Top-Up Tax Credit to maintain the current 15% rate on non-refundable credits exceeding the first tax bracket threshold.

• Applicable years: 2025 to 2030

• Purpose: To ensure no taxpayer faces a higher liability because of the lower credit rate.

4. Qualified Investments for Registered Plans

To streamline investment rules for RRSPs, RRIFs, TFSAs, RESPs, RDSPs, FHSAs, and DPSPs, the government proposes:

• Simplifying and consolidating rules for investments in small businesses.

• Extending certain qualified investment categories to Registered Disability Savings Plans (RDSPs).

• Repealing the complex registered investment regime and replacing it with new categories for qualified investment trusts governed by Canadian Securities Administrators regulations.

• Effective date: January 1, 2027.

This simplification is designed to reduce compliance burdens while maintaining investor flexibility.

5. Information Sharing to Address Worker Misclassification

To better enforce labour laws and protect workers, Budget 2025 will allow the CRA to share taxpayer data with Employment and Social Development Canada (ESDC) to identify cases of worker misclassification, particularly in sectors like trucking.

This measure will take effect upon royal assent of the enacting legislation.

6. Home Accessibility and Medical Expense Tax Credits

Currently, some renovation expenses for accessibility can be claimed under both the Home Accessibility Tax Credit and the Medical Expense Tax Credit.

Starting in 2026, an expense can only be claimed under one of these credits, not both. This change ensures consistency and prevents duplicate claims while maintaining support for accessibility improvements.

7. The 21-Year Rule for Trusts

To close tax loopholes, the anti-avoidance rule for trusts will be expanded to include indirect transfers of property between trusts.

This ensures the 21-year deemed disposition rule cannot be avoided through complex restructuring.

• Effective: For property transfers occurring on or after Budget Day (2025).

8. Canada Carbon Rebate (CCR)

With the removal of the federal fuel charge effective April 1, 2025, a final quarterly CCR payment will be made in April 2025.

After October 30, 2026, no further CCR payments will be issued for late tax returns or adjustments.

Summary Table – Revenue Impact (Millions)

Final Thoughts

The 2025 Federal Budget continues Canada’s focus on affordability, fairness, and tax modernization. For individuals, the PSW Tax Credit and automatic filing represent new opportunities for support and simplicity. For investors and trusts, updated investment rules and anti-avoidance provisions bring clarity and accountability.

At Aura Finance Inc., our Personal Tax Accountants in Toronto are dedicated to helping clients understand and navigate evolving tax measures with confidence. Our expert team provides strategic tax planning, benefit eligibility assessments, and investment compliance guidance to ensure you stay ahead of regulatory updates and maximize your financial opportunities.

Source:
Content summarized and adapted from the Government of Canada’s Budget 2025 Tax Measures Report.