S in Canadian Taxes - Tax Accountant's Guide

The Canadian tax landscape is constantly evolving, with new legislative changes, technological advancements, and shifting trends shaping the way individuals and businesses navigate their tax obligations.

As we approach 2025, taxpayers need to stay informed about key changes that could impact their finances. This article outlines the most significant updates, enabling Canadians to navigate the shifting tax landscape with confidence.

As of January 2025, several notable changes have been implemented in the Canadian tax system:

1. Adjusted 2025 Federal Income Tax Brackets and Rates

To account for a 2.7% inflation rate, the federal income tax brackets have been updated as follows:

• 15%: Income up to $57,375
• 5%: Income from $57,376 to $114,750
• 26%: Income from $114,751 to $177,882
• 29%: Income from $177,883 to $253,414
• 33%: Income over $253,414

These adjustments aim to prevent "bracket creep," where inflation pushes taxpayers into higher tax brackets without an actual increase in real income.

2. Increased Canada Pension Plan (CPP) Contributions

Some Canadian workers will see a little more taken off their pay cheques because of a rising CPP contribution amount. As of 2024, there are now two additional earnings ceilings beyond the base level, with higher-income workers paying an additional premium on earnings within a second tier before maxing out.

Here are the CPP tax updates

• First-Tier Ceiling:Increases from $68,500 in 2024 to $71,300 in 2025. The maximum contribution for employees will rise to $4,034.10, with employers matching this amount for a total of $8,068.20.
• Second-Tier Ceiling: Increases from $73,200 in 2024 to $81,200 in 2025. The additional contribution rate of 4% will apply to the $9,900 difference, requiring employees to contribute $396, with employers matching this amount.

Self-employed individuals will continue to pay a contribution rate of 11.9%, with a maximum contribution of $8,068.20 in 2025 (up from $7,735.00 in 2024).

After 2025, the program will have been fully implemented and the base, first-tier, and second-tier limits will increase in line with wage growth rather than with the larger jumps seen in recent years.

Anyone who worked and contributed to CPP from 2019 onward is eligible for a higher CPP payout upon retirement for income from that period.

3. Enhanced Contribution Limits for Savings Accounts

• Registered Retirement Savings Plan (RRSP): The annual contribution limit has increased to $32,490 for 2025, up from $31,560 in 2024. It's important to note that individual contribution room may vary based on personal income and unused contribution room from previous years.
• Tax-Free Savings Account (TFSA ): The annual contribution limit has been raised to $7,000, an increase from the previous $6,500. If you have unused contribution room from previous years, it can be carried forward, allowing for a larger total contribution.

These increases provide Canadians with greater opportunities to save for retirement and other financial goals in tax-advantaged accounts.

4. Adjustments to Employment Insurance (EI) Premium Rates

The employee EI premium rate has decreased from $1.66 per $100 of insurable earnings in 2024 to $1.64 in 2025. Employers contribute at a rate of $2.30 per $100 of insurable earnings. The Maximum Insurable Earnings (MIE) has increased to $65,700 from $63,200 in 2024.

5. Increased Universal Child Care Benefit (UCCB)

The Universal Child Care Benefit (UCCB) is expected to see an increase in 2025, benefiting families with children. The government may adjust the eligibility thresholds and increase benefit amounts, especially for lower-income families.

a) Higher Inclusion Rate:

• Individuals:
  Capital gains over $250,000 are taxed % (previously 50% in 2024). Gains below this remain at 50%.
• Corporations:
  All capital gains are now taxed % (previously 50% in 2024).

b) Lifetime Exemption Increase:

• Small business, farming, and fishing property exemption increased to $1.25M (up from ~$1M).

c) Implementation & Uncertainty:

• Changes applied on June 25, 2024, but Parliament's suspension in 2025 left them in limbo.
• The CRA is still collecting taxes at the new rate, but potential policy reversals may occur.

7. Rising Tax Obligation on Energy Consumption

• Carbon Tax Increase

Federal carbon price rose to $95 per tonne of CO₂ in 2025 (up from $80 in 2024). Leads to higher fuel costs:

• Gasoline: ~$0.17 per liter increase
• Diesel: ~$0.20 per litre increase
• Natural gas: ~$9.50 per gigajoule increase
• Propane Fuel Charge:
  
  Jumps to 14 cents per liter from 12 cents.

8. Tax on Digital Services

The Canadian government is rolling out a tax on certain digital services provided by large multinational tech companies operating in Canada. This tax is aimed at addressing the tax gap created by global digital business models. The implementation could potentially impact tech giants, but businesses relying on these services should expect new rules in 2025.

In 2025, Canada is implementing new taxes on digital…