As the new year approaches, Canadians are likely focused on managing their finances amidst rising costs of living. Several changes taking effect in January 2025 will influence how Canadians file their taxes, access government benefits, and plan for savings. Here’s a comprehensive breakdown of what’s changing.
Capital Gains Tax Updates
The capital gains tax is set for potential adjustments following a notice of ways and means motion introduced by the federal government earlier this year. Although the changes have not yet been passed into law, the Canada Revenue Agency (CRA) is preparing for their potential impact.
- Inclusion Rate Increase: The taxable inclusion rate for capital gains will rise from 50% to 67% for individuals earning gains above $250,000 annually.
- Exemptions: Principal residences will remain exempt from capital gains taxes.
- Threshold Introduction: A new $250,000 annual threshold ensures that individuals with modest gains will continue to benefit from the current 50% rate.
- Corporate and Trust Gains: The higher inclusion rate will apply to gains made by corporations and many trusts.
Two-Month ‘Tax Holiday’
A temporary GST/HST exemption will be in place for certain items through February 15, 2025, benefiting Canadians by reducing expenses on:
- Prepared foods, snacks, and restaurant meals
- Takeout and delivery
- Alcoholic beverages
- Children’s clothing
This initiative is estimated to save taxpayers $1.5 billion, according to the Parliamentary Budget Officer.
Changes in Government Benefits
Inflation will influence increases in key government benefits, including the Canada Child Benefit (CCB) and Old Age Security (OAS).
- OAS Adjustments: Payments are reviewed quarterly to align with changes in the Consumer Price Index (CPI). For the first quarter of 2025, OAS benefits will remain unchanged due to stable CPI figures.
- CCB Payments: Recalculated annually in July based on family net income and inflation.
- GST/HST Credit: Low- and modest-income individuals will continue to receive non-taxable quarterly payments, with single Canadians eligible for up to $519 between July 2024 and June 2025.
Savings Contribution Limits
The new year brings updates to savings contributions, offering Canadians more opportunities to save tax-free for retirement:
| Plan | 2024 Limit | 2025 Limit |
|---|---|---|
| Registered Retirement Savings Plan (RRSP) | $31,560 | $32,490 |
| Year’s Maximum Pensionable Earnings (YMPE) | $68,500 | $71,300 |
| Tax-Free Savings Account (TFSA) | $7,000 | $7,000 (unchanged) |
- Canada Pension Plan Contributions:
- Employee/employer rates remain at 5.95%, with maximum contributions increasing to $4,034.10.
- Self-employed contributors will see a rise to $8,068.20.
Vehicle Deduction Limits
Starting January 1, 2025, changes to tax deduction limits for businesses leasing or using vehicles include:
- Lease Costs: Deductible monthly costs will rise to $1,100 (up from $1,050).
- Capital Cost Allowances (CCA): The ceiling for new and used Class 10.1 passenger vehicles increases to $38,000.
- Mileage Allowances:
- Provinces: 72 cents per kilometer for the first 5,000 kilometers (66 cents for additional kilometers).
- Territories: 76 cents per kilometer for the first 5,000 kilometers (70 cents for additional kilometers).
Bare Trust Reporting Exemption
For the 2024 tax year, Canadians holding bare trusts will not need to file T3 or Schedule 15 documentation unless specifically requested by the CRA. However, trusts with a December 31, 2024, year-end must submit T3 returns by March 31, 2025.
Tax Filing Updates for 2025
The CRA is introducing several updates to simplify and modernize the tax filing process:
- Updated T619 Electronic Transmittal Record: Necessary for all electronically filed returns.
- Single Return Type Requirement: Multiple return types can no longer be combined in one submission.
- Error Flagging: New online validations will help identify filing errors in real time.
- Automatic Tax Filing Expansion: The CRA’s SimpleFile by Phone service will invite two million Canadians (up from 1.5 million) to participate.
FAQs
What is the inclusion rate for capital gains in 2025?
The inclusion rate for taxable capital gains will increase to 67% for annual gains exceeding $250,000.
How long will the GST/HST tax holiday last?
The tax holiday will remain in effect until February 15, 2025, covering select groceries, meals, and other items.
What is the RRSP contribution limit for 2025?
The maximum RRSP contribution for 2025 is $32,490.
