Understanding the 2025 Canadian Tax Changes: What You Need to Know
Key tax updates for businesses and individuals and how they impact financial planning in Canada.
As we enter 2025, several tax changes are coming into effect in Canada that could impact your personal finances and retirement plans. From increases to contribution limits for retirement savings plans to updates on capital gains tax, this guide covers the essential tax updates Canadians should be aware of in the new year.
1. Increased RRSP Contribution Limit
One of the most important changes for Canadian taxpayers in 2025 is the increase to the Registered Retirement Savings Plans (RRSP) contribution limit.
An RRSP is a tax-advantaged savings plan designed to help people save for retirement. Contributions made to an RRSP are tax-deductible, meaning they reduce taxable income for the year. The investments grow tax-free until they are withdrawn in retirement, at which point they are taxed as income.
The contribution limit for RRSP for 2025 is $32,490, up from $31,560 in 2024.
This increase means that Canadians will have more room to contribute to their RRSPs and reduce their taxable income.
The government has increased this limit in an effort to help save more for retirement. This is especially beneficial for individuals with higher incomes who may have reached the contribution cap in previous years. RRSPs remain a popular option for those looking to lower their taxable income while investing for the future.
2. Higher TFSA Contribution Limit
The Tax-Free Savings Account (TFSA) contribution limit for 2025 has also increased.
A TFSA is a registered savings account that allows people to grow their money tax-free. Contributions to a TFSA are made with after-tax dollars, meaning they do not provide an immediate tax deduction like an RRSP. However, any investment growth within the account and withdrawals are completely tax-free, making it an excellent tool for both short-term savings and long-term investments.
The annual limit will rise to $7,000 from $6,500 in 2024.
This adjustment to the TFSA contribution limit reflects the government's effort to help citizens save more tax-free for both short-term and long-term goals. The TFSA provides a flexible and tax-efficient way to save, as the funds grow tax-free, and withdrawals are also tax-free. For those who have been contributing to their TFSAs since 2009, this means an accumulated contribution room of up to $102,000 by 2025.
3. First Home Savings Account (FHSA)
Introduced in 2024, the First Home Savings Account (FHSA) is a specialized tax-advantaged savings tool designed to help people purchase their first home. The FHSA combines key benefits of both the RRSP and TFSA, making it an effective way to build a down payment.
Like an RRSP, contributions to an FHSA are tax-deductible, meaning they reduce taxable income. However, similar to a TFSA, any investment growth within the account and withdrawals remain tax-free, provided the funds are used for purchasing a first home.
For 2025, the FHSA rules remain unchanged:
Lifetime contribution cap: $40,000
Annual contribution limit: $8,000
These limits provide a structured way to save toward homeownership while maximizing tax benefits.
To be eligible, individuals must be Canadian residents, at least 18 years old, and considered a “first-time homebuyer.” This status applies to those who have not lived in a home they owned in the past five years, broadening access to the program.
To maintain the tax-free withdrawal benefit, funds must be used for an eligible home purchase, ensuring the FHSA serves its intended purpose of supporting first-time homebuyers.
4. Canada Pension Plan (CPP) Contribution Changes
The Canada Pension Plan (CPP) is an essential part of retirement planning for many Canadians. CPP is a government-managed pension program that provides retirement, disability, and survivor benefits to those who areeligible. Employees and employers contribute a percentage of earnings to the CPP, which then provides a steady income stream in retirement.
2025 will also see some changes to CPP contributions.
The maximum annual contribution for employees and employers will increase to $4,034.10 in 2025, up from $3,867.50 in 2024. This increase is in line with a rise in the Yearly Maximum Pensionable Earnings (YMPE), which will be $71,300, up from $69,400 in 2024.
For self-employed individuals, who pay both the employee and employer portion, the total contribution will rise to $8,068.20, up from $7,735.00 in 2024.
Additionally, the enhancements to CPP, known as "CPP 2.0," will continue to be phased in. Starting in 2025, the Yearly Additional Maximum Pensionable Earnings (YAMPE) will increase to $81,200, allowing higher earners to contribute more to CPP, thereby increasing their future retirement benefits.
5. Capital Gains Tax Changes
For those who have investments in the stock market, real estate, or other assets, capital gains tax will be a significant consideration.
Capital gains tax is the tax applied to the profit made from selling an asset, such as stocks, real estate, or a business, for more than its purchase price. Only a portion of the gain is taxable, based on the inclusion rate set by the government.
In 2025, the Canadian government is proposing several changes to capital gains taxation:
The Lifetime Capital Gains Exemption (LCGE) for small business owners, farmers, and fishermen will rise to $1.25 million in 2025, up from $1.016 million in 2024. This increase will allow business owners to shelter more of their gains from taxation when selling eligible assets.
The capital gains inclusion rate could rise from 50% to 66.7% for capital gains on assets sold above $250,000, increasing the taxable portion of larger capital gains.
The Canadian Entrepreneurs' Incentive (CEI) could allow eligible business owners to apply a reduced inclusion rate of 33.3% on up to $200,000 in capital gains from the sale of qualifying small business shares.
These proposed changes aim to support small business owners and encourage entrepreneurship, but they could also result in higher taxes on larger investment gains.
6. Federal Tax Bracket Changes
Each year, the federal income tax brackets are adjusted to account for inflation. For 2025, these adjustments will affect taxpayers across all income levels, ensuring that people aren’t pushed into higher tax brackets as a result of inflation.
For example, the lowest federal tax bracket applies to income up to $57,375 in 2025, up from $55,867 in 2024. This increase means that a larger portion of your income will be taxed at the lower rate, potentially reducing your overall tax bill. These adjustments will help ensure that your taxes reflect the true purchasing power of their income.
A point to note is that the tax rates have not changed however, the tax brackets have changed. You can refer to the table below for the upcoming changes.
| Tax Rate |
2024 Tax Bracket
|
2025 Tax Bracket
|
|---|---|---|
| 20.5% |
First $51,446 |
First $52,886
|
| 24.15% |
Over $51,446 up to $55,867 |
Over $52,886 up to $57,375
|
| 29.65% |
Over $55,867 up to $90,599
|
Over $57,375 up to $93,132
|
| 31.48% | Over $90,599 up to $102,894 | Over $93,132 up to $105,775 |
| 33.89% | Over $102,894 up to $106,732 | Over $105,775 up to $109,727 |
| 37.91% | Over $106,732 up to $111,733 | Over $109,727 up to $114,750 |
| 43.41% | Over $111,733 up to $150,000 | Over $114,750 up to $150,000 |
| 44.97% | Over $150,000 up to $173,205 | Over $150,000 up to $177,882 |
| 48.29% | Over $173,205 up to $220,000 | Over $177,882 up to $220,000 |
| 49.85% | Over $220,000 up to $246,752 | Over $220,000 up to $253,414 |
| 53.53% | Over $246,752 | Over $253,414 |
7. Basic Personal Amount Increase
The Basic Personal Amount (BPA), which is a non-refundable tax credit that reduces the amount of income subject to federal income tax, will rise to $16,129 in 2025, up from $15,705 in 2024.
This increase provides relief to lower- and middle-income Canadians by allowing them to shield a larger portion of their income from taxation. The BPA ensures that all citizens receive a minimum amount of income tax-free, making it easier to manage the rising cost of living.
Key Takeaways
The tax changes for 2025 will bring both opportunities and challenges. By increasing the RRSP and TFSA contribution limits, introducing the First Home Savings Account, and adjusting the CPP contribution rates, the government is making efforts to help citizens save more for retirement and plan for their future. At the same time, proposed changes to capital gains taxation and income tax brackets could affect higher earners and those with significant investments.
By understanding these updates, you can make more informed financial decisions and take advantage of the new opportunities available in 2025.
At Accountroots, we understand how complex tax changes can impact your financial planning. Our team of experts is here to help you navigate the 2025 tax updates and make informed decisions about your retirement savings, investments, and overall tax strategy. Whether you're looking to optimize your RRSP contributions or understand the nuances of capital gains taxation, Accountroots provides personalized guidance to ensure you’re maximizing your financial opportunities while staying compliant with the latest regulations.
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