As Canadians prepare to welcome 2025, navigating the cost of living and financial planning for the new year remains a priority for many. Several tax-related changes will take effect in early 2025, impacting how people file their taxes, claim benefits, and manage savings contributions. This guide breaks down the upcoming updates and offers insights on how they could affect you.
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Capital Gains Tax Changes
The Canadian government has proposed significant changes to capital gains tax for 2025, impacting investors and property owners.
New Capital Gains Tax Structure
- Increased Inclusion Rate: The inclusion rate for taxable capital gains will rise from 50% to 67% for individuals earning over $250,000 annually.
- Modest Gains Threshold: The $250,000 threshold ensures individuals with smaller gains will continue to benefit from the 50% inclusion rate.
- Principal Residence Exemption: Gains from the sale of your primary residence remain exempt from capital gains tax.
- Impact on Corporations and Trusts: This new inclusion rate will also apply to corporations and many trusts.
While the legislation is still pending, the Canada Revenue Agency (CRA) has confirmed these measures will be in effect from June 25, 2024.
Updates to Tax Filing Procedures
Canadians filing their taxes online in 2025 should be aware of several updates to the filing process.
Changes to Electronic Filings
- T619 Transmittal Record: The CRA has updated the T619 form for 2025, which must be included with submissions.
- Single Return Type Submissions: Each return type must now be filed separately. Multiple return types cannot be submitted together.
- Real-time Validation: Online filings will now include automatic error checking to minimize mistakes and streamline the process.
Expansion of Automatic Tax Filing
The federal government is expanding its automatic tax filing initiative for eligible individuals:
- SimpleFile by Phone: Invitations for this service will increase to two million Canadians in 2025, simplifying tax filing over the phone for those eligible.
CRA Contribution Limits for 2025
Several contribution limits are being adjusted in 2025, offering Canadians more room to save for retirement and other long-term goals.
RRSP Contribution Limits
The contribution limit for the Registered Retirement Savings Plan (RRSP) will increase to $32,490 in 2025, up from $31,560 in 2024, providing Canadians with more opportunities for tax-deferred retirement savings.
Canada Pension Plan (CPP) Contributions
- Maximum Pensionable Earnings (YMPE): The YMPE will rise to $71,300, up from $68,500 in 2024.
- Contribution Rates: The employee and employer contribution rates will remain at 5.95%, with the maximum contribution rising to $4,034.10, up from $3,867.50.
- Self-Employed Contributions: Self-employed individuals will continue to pay at a rate of 11.90%, with maximum contributions increasing to $8,068.20 from $7,735.00.
Tax-Free Savings Account (TFSA)
The TFSA contribution limit will remain at $7,000 for 2025, after previous increases in earlier years.
Inflation-Driven Benefit Adjustments
Inflation continues to affect government benefits, ensuring that payments keep pace with the rising cost of living.
Old Age Security (OAS)
OAS benefits will be adjusted quarterly based on the Consumer Price Index (CPI). For the first quarter of 2025, OAS payments will remain unchanged due to stable CPI levels.
Canada Child Benefit (CCB)
The Canada Child Benefit (CCB) is recalculated each year in July. For 2025, CCB payments are expected to increase to $7,997 per year for children under 6 years old.
GST/HST Credit
The GST/HST Credit helps low- and modest-income families offset the Goods and Services Tax. For 2025:
- Single individuals can receive up to $533, up from $519.
- Couples can receive up to $698, plus $184 per child. For a family of four, this amounts to up to $1,066 annually.
Vehicle Deduction Limits for Businesses
Starting January 1, 2025, several updates will affect tax-deductible vehicle costs for businesses:
- Leasing Costs: The monthly tax-deductible leasing cost will increase to $1,100, up from $1,050.
- Capital Cost Allowance (CCA): The ceiling for Class 10.1 passenger vehicles will rise to $38,000, up from $37,000.
- Mileage Allowances: The tax-exempt allowance for business use of personal vehicles will increase:
- Provinces: 72 cents per kilometre for the first 5,000 km (up by two cents).
- Territories: 76 cents per kilometre for the first 5,000 km (up by two cents).
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What These Changes Mean for Canadians
Financial Planning
Canadians should review their portfolios to understand the impact of higher capital gains taxes. Staying below the $250,000 threshold will help minimize tax burdens, while also considering investment strategies that align with these new rules.
Retirement Savings
With increased contribution limits for RRSPs and CPP, Canadians have an opportunity to increase their retirement savings. Maxing out these contributions can result in significant long-term tax-deferred growth.
Tax Filing Preparation
The updates to tax filing procedures, including new online validation and separate return submissions, mean that Canadians should prepare early for the 2025 tax season. Doing so will help reduce errors and ensure smoother filing.
Staying Informed
Staying informed about these changes is essential for making the most of your finances in 2025. Regularly checking the CRA’s updates and consulting with tax professionals can help ensure you’re taking full advantage of these adjustments.
By understanding the capital gains tax changes, updates to tax filing procedures, and increased contribution limits, Canadians can take proactive steps toward managing their finances more effectively in 2025.
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