Canada’s 2025 Federal Budget: Key Tax Updates and What They Mean
Givens LLP | January 21, 2026
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On November 4, 2025, Canada’s federal government introduced its 2025 Budget, focusing on several personal tax measures that affect both individuals and organizations—especially those with globally mobile employees. Below is an in‑depth look at the crucial changes and what they mean for you and your business.
Repeal of the Underused Housing Tax (UHT)
What changed: The UHT is a 1% annual tax on non-resident, non-Canadian owners of underutilized residential properties, is being eliminated starting with the 2025 calendar year. For 2022–2024, returns remain mandatory, along with related penalties and interest. If the proposal is passed into law, filing and payment obligations would be removed for 2025 and future years.
Introduction of a Top‑Up Tax Credit
What changed: The federal government also introduced the Top-Up-Tax Credit. The Top‑Up Tax Credit is a temporary mechanism introduced in Budget 2025 (applicable through 2025–2030) to ensure middle-class tax relief stays effective—even for taxpayers with substantial non‑refundable credits.
The goal is to maintain non-refundable tax credit value at the former rate of 15%. With the basic federal tax rate dropping from 15% to 14.5% in 2025 (and 14% in 2026), the value of non‑refundable tax credits also fell. For taxpayers whose credit claims exceed the first tax bracket threshold ($57,375 in 2025), this reduction could otherwise offset or nullify the tax savings.
The Top‑Up Tax Credit effectively restores the value of excess non‑refundable credits above the threshold to the original 15% level. That ensures no taxpayer ends up paying more tax than before the reform.
Clarification of Home Accessibility vs Medical Expense Credits
What changed: Beginning in 2026, the Home Accessibility Tax Credit can no longer be claimed for expenses already claimed as part of the Medical Expense Tax Credit. The adjustment is aimed at eliminating duplicate claims for the same expense. The new rule clarifies that taxpayers must choose the most appropriate credit for each expense.
Elimination of the Canadian Entrepreneurs’ Incentive (CEI)
What changed: The Canadian Entrepreneurs Incentive (CEI) was introduced in Canada’s 2024 budget to lower capital gains tax on small business sales but is now eliminated. The comes as a result of backlash to the proposed capital gains tax increases. The Federal Budget 2025 reiterates the proposed increase to the lifetime capital gains exemption to $1.25 million (from $1,016,836) on the sale of qualifying small business shares and farming and fishing property.
How Givens LLP Can Help
The 2025 Federal budget introduces meaningful changes that may affect you. Navigating these developments can require careful analysis and proactive planning. If you have questions about how these measures apply to your business or personal circumstances, or if you need assistance with planning or compliance, we encourage you to reach out to your Givens LLP advisor or contact us directly. We would be happy to assist.
