2025 Canada Tax UpdatesPosted on Feb 25, 2025

The Canada Revenue Agency (CRA) has announced the 2025 federal income tax brackets, adjusting them based on inflation. While tax rates remain unchanged, income thresholds have been revised, potentially impacting taxpayers’ tax burdens. Additionally, discussions on the capital gains tax reform are ongoing, drawing significant attention.

This summary outlines the updated income tax brackets, the status of the capital gains tax legislation, and the broader economic and tax implications for individuals and businesses. Staying informed about these changes is crucial for sound financial planning.

2025 Federal Income Tax Brackets

The CRA has adjusted the federal income tax brackets to reflect inflation:

• Up to $57,375 – 15%

• $57,375 – $114,750 – 20.5%

• $114,750 – $177,882 – 26%

• $177,882 – $253,414 – 29%

• Over $253,414 – 33%

According to the CRA, the inflation index for 2025 is 2.7%, lower than 4.7% in 2024.

Capital Gains Tax Reform & Legislative Status

In June 2024, the federal government proposed increasing the capital gains tax inclusion rate from 50% to 66.7% for annual capital gains exceeding $250,000. This measure was projected to impact only the wealthiest 0.13% of taxpayers.

However, the bill failed to pass in the House of Commons due to opposition from the Conservative Party. Additionally, Prime Minister Justin Trudeau’s resignation announcement and the parliamentary adjournment have put the legislation on hold. The government may attempt to reintroduce it in future sessions, but its prospects remain uncertain. Ongoing monitoring of legislative changes is advised.

Other Key Tax Changes

• Basic Personal Amount Increase: Raised to $16,129, exempting lower-income earners from federal tax.

• Canada Pension Plan (CPP) Contributions: Contribution ceiling increased to $71,300, with an extended additional maximum pensionable earnings (YAMPE) of $81,200.

• Employment Insurance (EI) Premium Increase: Employee rate increased to 1.64% (Quebec: 1.31%), with a maximum insurable earnings cap of $65,700, leading to a maximum contribution of $1,077.48 (Quebec: $860.67).

• Tax-Free Savings Account (TFSA) Limit: Remains at $7,000 for 2025.

• Registered Retirement Savings Plan (RRSP) Contribution Limit: Increased to $32,490.

• Old Age Security (OAS) Recovery Threshold: Increased to $93,454.

• Prescribed Interest Rate: Reduced to 4% for Q1 2025.

Given these tax bracket adjustments, pension and insurance contribution changes, and uncertainties around capital gains tax reforms, staying informed is critical for effective financial planning.