The new year is bringing several important changes to taxes in Canada that could impact your wallet and how you file your tax returns. These updates come into effect starting January 1, 2025, with the official tax season kicking off in mid-February. Let’s break down what’s changing, from tax brackets to government benefits and savings contributions, in a simple and easy-to-follow way.
Tax Brackets: What You’ll Pay in 2025
Tax brackets are adjusted each year to account for inflation, and in 2025, they are increasing by 2.7%. This helps ensure Canadians aren’t pushed into higher tax brackets just because of inflation.
Here’s what the federal tax rates look like for 2025:
- 15% for income up to $57,375
- 20.5% for income between $57,375.01 and $114,750
- 26% for income between $114,750.01 and $177,882
- 29% for income between $177,882.01 and $253,414
- 33% for income above $253,414
Basic Personal Amount: More Tax-Free Income
The basic personal amount (BPA) is the portion of your income that isn’t subject to federal taxes. For 2025, the BPA will range from $14,538 to $16,129, depending on your overall income. This is an increase from the 2024 range of $14,256 to $15,705. Lower-income Canadians will see the highest BPA amounts, helping reduce their tax burden.
Changes to the Canada Pension Plan (CPP)
If you’re working, you might notice slightly higher CPP contributions on your paycheque in 2025. This is part of a multi-year enhancement to provide better retirement benefits. Here’s what’s new:
- The first earnings ceiling increases to $71,300 (up from $68,500 in 2024).
- The second earnings ceiling rises to $81,200 (up from $73,200 in 2024).
Employee and employer contribution rates remain at 5.95%, but the maximum contribution amount increases to $4,034.10 each. If you’re self-employed, your contribution rate stays at 11.90%, with a maximum contribution of $8,068.20.
These changes ensure higher future payouts for anyone contributing to the CPP starting in 2019.
Capital Gains Tax Updates
Big changes are coming for those who earn significant capital gains. Starting in 2025, the inclusion rate for capital gains will rise from 50% to 67% for gains over $250,000 annually. However, gains from your principal residence will remain tax-exempt. For smaller gains below the $250,000 threshold, the current 50% inclusion rate will continue to apply.
A Tax Holiday for Canadians
A two-month tax holiday will remain in place until February 15, 2025. During this time, certain items are GST/HST-free, including:
- Prepared foods and snacks
- Restaurant meals and takeout
- Alcoholic beverages
- Children’s clothing
This tax break is expected to save Canadians around $1.5 billion.
Benefits Adjustments: What to Expect
Many government benefits are tied to inflation, so you might see increases in programs like the Canada Child Benefit (CCB) and Old Age Security (OAS):
- OAS: Payments are reviewed quarterly. While there was a 1.3% increase in late 2024, no additional increases are expected for the first quarter of 2025.
- CCB: Payments are recalculated each July based on the family’s net income and inflation.
- GST/HST Credits: Payments are made quarterly to help low- and modest-income Canadians offset the taxes they pay. For 2024-2025, individuals could receive up to $519.
Contribution Limits for RRSPs and TFSAs
Saving for retirement? Good news—you can save more in 2025:
- The RRSP contribution limit rises to $32,490, up from $31,560 in 2024. Don’t forget, you can also use any unused contribution room from previous years.
- The TFSA contribution limit remains at $7,000 for 2025 after consecutive increases in prior years.
Make a Plan for 2025
These changes could impact your finances in various ways, so it’s essential to stay informed and plan ahead. If you have questions about how these updates affect you, consider booking a meeting with me, a financial planner, to discuss your specific situation. You can also learn more by checking out my book, The Art of Retirement, which provides insights into managing your financial future effectively.
Stay prepared and make 2025 a financially successful year!
