Federal budget 2025: key highlights (and how they might impact you)

After many months of anticipation, the latest federal budget has finally been tabled (and passed).

Besides investing in the long-term growth of Canada’s economy, Budget 2025 also includes a variety of measures that are meant to have more of an immediate impact at the individual level.

Here are some of those key takeaways:

NEW: Reduction of the lowest marginal tax rate

As previously announced in May 2025, this measure involves a reduction of the lowest federal personal income tax rate from 15% in tax year 2024 to 14.5% in 2025—leveling down further to 14% in 2026 (and subsequent tax years).

What does this tax rate reduction mean for Canadians in actual dollars?

According to the federal government, a two-income family could save as much as $420 in year one (when the 14.5% rate applies) and up to $840 in year two (when the 14% rate applies).

However, a cut to the marginal tax rate also comes with a reduction in the value of many non-refundable tax credits (which are calculated at that same rate).

For example, if you currently claim non‐refundable credits (for tuition, medical expenses, etc.) and you make enough income that your credits exceed the first tax bracket threshold ($57,375 in 2025), you might have expected a straight benefit.

But with the reduction in the marginal tax rate, this would no longer be the case.

In fact, for some individuals with sizeable non-refundable tax credit claims, the reduced value of those credits could lead to a slightly higher tax bill (than you previously would have had under the old rate).

That’s where the next measure comes in.

NEW: Top‑Up Tax Credit

To help address the non-refundable tax credit gap (caused by the reduction in the marginal tax rate), Budget 2025 has introduced the Top-Up Tax Credit (TUTC).

Just as the name applies, the TUTC effectively tops up the value of non-refundable tax credits claimed on amounts exceeding the first income tax bracket threshold (as outlined above).

Here’s how it works:

• Ensures the value of specific excess credit amounts is maintained at the former 15% rate (preventing an increase in tax liability)
• Canada Revenue Agency (CRA) will automatically determine eligibility and calculate the credit when processing tax returns (no separate application is needed)
• The credit is non-refundable, meaning it can reduce tax payable to zero—but won’t result in a refund on its own
• Applies for the 2025 through 2030 tax years

NEW: Eliminating the Goods and Services Tax (GST) for first-time home buyers

The budget confirms the previously announced proposal to eliminate the GST for first-time home buyers.

Specifics:

• Eligible homebuyers will receive a 100% rebate of the federal component of the HST (5% GST) up to a maximum of $50,000 on the purchase price of a new home
• There is a price cap—with the exemption only available on new homes up to $1 million
• The measure took effect on November 4, 2025 (and will apply to purchase agreements entered into on or after that date)

Budget 2025 also included a partial GST rebate for first-time homebuyers on new homes valued between $1 million and $1.5 million:

• The partial rebate is linearly reduced—meaning a home valued at the midpoint of $1.25 million would be available for 50% of the maximum rebate ($25,000)
• For homes priced at or above $1.5 million, the full GST amount applies (as no rebate is available)

NEW: Elimination of the Underused Housing Tax

First enacted in 2022, the Underused Housing Tax (UHT) was set up to collect an annual 1% tax on the value of vacant or underused residential properties in Canada.

With the tabling of Budget 2025:

• The UHT would be eliminated beginning with the 2025 calendar/tax year
• Note, however, that UHT filing requirements will still continue to be enforced for previous tax years (2022 through to 2024)

NEW: Tax credit for personal support workers

For those of you with family members working in eligible healthcare settings (homecare, nursing homes, etc.) or in a province without a wage agreement, Budget 2025 offers a temporary Personal Support Workers Tax Credit (PSWTC).

In a nutshell, the PSWTC would:

• Provide eligible personal support workers up to $55 dollars in tax credits—calculated at 5% of earnings (up to a maximum of $1,100 per tax year)
• Take effect beginning with taxation year 2026 and run annually until 2030

NEW: Automatic tax filing for lower income earners

Under new legislation proposed in Budget 2025, the CRA would have the authority to automatically file tax returns on behalf of all eligible lower-earning Canadians.

Synopsis:

• Builds on the existing SimpleFile service and is targeted at Canadians earning below the federal basic amount (or provincial equivalent)
• For 2025 and subsequent taxation years, the CRA would automatically file returns for eligible individuals (unless they choose to opt out)
• Automatic filing would ensure all eligible Canadians would receive the benefits they’re entitled to (and might be missing out on due to not filing a return)

NEW: One-time supplemental Canada Disability Benefit payment

To help offset the costs of applying for the Disability Tax Credit (DTC), Budget 2025 proposed a one-time supplemental Canada Disability Benefit payment of $150.

Background:

• Applicants of the DTC (or those requiring recertification) are obligated to submit a special form from their doctor in order to validate a malady or impairment
• Medical practitioners are allowed to charge a fee for their time, along with the administrative costs involved in completing these forms
• These fees are not covered by provincial health plans and range anywhere from $100 to $250
• The one-time supplemental Canada Disability Benefit payment is meant to help cover these costs
• Budget 2025 also includes the federal government’s intention to bring forward legislation to exempt the Canada Disability Benefit from being treated as income under the Income Tax Act

CHANGES: Canada Student Loans and Grants

Budget 2025 has extended the temporary 40% increase to the Canada Student Grants (CSG) and the increased limit for Canada Student Loans (CSL) for the 2025-2026 academic year.

The maximum limits for full-time students remains as follows:

• CSG: $4,200 per year (or $525 per month of study)
• CSL: $300 per week

Other related measures include:

• Loan Forgiveness Expansion: Eligibility for student loan forgiveness for family doctors and nurses has been expanded to include all communities in Canada with a population of 30,000 or less
• Student Work Placement Program: Budget 2025 has allocated $635.2 million over the next 3 years to expand the Student Work Placement Program (which could translate to creating up to 55,000 work-integrated learning oppprtunities)
• Permanent Elimination of Interest: The accumulation of interest on all Canada Student Loans was permanently eliminated as of April 1, 2023, a change that remains in effect

CHANGES: Medical Expense Tax Credit

For 2026 and subsequent taxation years, the 2025 federal budget proposes to amend the Income Tax Act so that an expense claimed under the Medical Expense Tax Credit (METC) can’t also be claimed under the Home Accessibility Tax Credit (HATC).

Background:

• Prior to the Budget 2025 amendment, a taxpayer could claim a single eligible expense (such as the cost of installing a wheelchair ramp or accessible shower) under both theMETC and HATC
• Starting with the 2026 taxation year, the double-dipping of credits will no longer be allowed
• Once this budget item becomes law, if an expense happens to qualify for both METC and HATC credits, individuals must choose the one (and only one) that applies to it

About the METC:

• A non-refundable tax credit calculated using the lowest federal personal income tax rate
• Applies to qualifying medical expenses that exceed a certain threshold based on the claimant’s net income

About the HATC:

• A non-refundable tax credit for up to $20,000 of eligible home renovation or alteration expenses per calendar ear (also applied at the lowest personal income tax rate)
• Eligible expenses must improve the safety, accessibility, or functionality of a dwelling for a qualifying individual (aged 65 or older or eligible for theDisability Tax Credit)

CHANGES: Amendment to the Select Luxury Items Tax Act

In 2022, the federal government introduced a luxury tax on the purchase, lease, and import of certain high-value vehicles and aircraft over $100,000—along with vessels (i.e. boats, yachts) in excess of $250,000.

Budget 2025 proposes the following changes:

• Amend the Select Luxury Items Tax Act to end the luxury tax on high-value aircraft and vessels
• As of November 4, 2025, all instances of the tax would cease to be payable (including the tax on sales, importations and improvements)

CHANGES: Qualified investment rules for registered plans

Budget 2025 proposes to simplify and harmonize the qualified investment rules that apply to certain registered plans (such as TFSA, RESPs, RRSPs, RRIFs, RDSPs, and FHSAs).

High-level amendments include the following:

• The rules governing investments in small businesses will be simplified and made consistent across most registered plans—specifically, RDSPs will now be able to invest in specified small business corporations, venture capital corporations, and specified cooperative corporations
• The qualified investment rules for six individual plans (all except DPSPs) will be consolidated into a single definition in the Income Tax Act for clarity
• New investment categories will be introduced, where individuals will see the removal of the old registered investment regime—replaced by new, non-CRA-registered qualified investment trusts
• All changes are set to take effect January 1, 2027

CHANGES: 21-year rule in the Income Tax Act

With Budget 2025 comes the introduction of an anti-avoidance rule to prevent taxpayers from using indirect transfers to circumvent the 21-year deemed disposition rule for personal trusts.

What does this mean in plain English?

• The existing 21-year rule requires most personal trusts to be deemed to have disposed of their capital property at fair market value on the 21st anniversary of the trust’s creation (to prevent personal trusts from being used to indefinitely postpone tax on accrued gains)
• Existing anti-avoidance rules enable the direct transfer of property to a new trust on a tax-deferred basis (in such cases, the new trust would assume the earlier 21-year anniversary of the old trust)—however, super sly strategies emerged to bypass the 21-year rule through indirect transfers (such as moving property to a corporate beneficiary owned by a new trust)
• Budget 2025 expands the anti-avoidance rule to cover indirect transfers of trust property to other trusts—a change ensuring that any trust receiving property from another trust (whether directly or indirectly) will inherit the transferor trust’s 21-year deemed disposition day
• This measure would apply in respect of transfers of property that occur on or after November 4, 2025

At the end of the day, federal budgets come and go.

An educator-specific financial plan on the other hand, now that’s something with staying power.

Whether you’re looking to make sense of how the latest federal budget might impact your current situation or would like some guidance managing your own day-to-day budget, we’re here to help.

Reach out to start working towards the financial future you deserve

Sources:
https://budget.canada.ca/2025/report-rapport/intro-en.html
https://budget.canada.ca/2025/report-rapport/overview-apercu-en.html
https://www.cpaontario.ca/insights/blog/2025-federal-budget-highlights-and-takeaways
https://www.pwc.com/ca/en/services/tax/budgets/2025/2025-federal-budget-analysis.html