Key Tax Updates from Canada's 2025 Federal Budget: CCA Incentives, Luxury Tax, Trusts, and more

Canada's federal Budget 2025 emphasizes productivity, investment incentives, and tax competitiveness in a volatile global economy. While individual tax rates remain mostly unchanged, the budget introduces business-friendly measures, eliminates select taxes, and provides some relief for families. Notable additions include further deferral of bare trust filing obligations and a proposed expansion of the 21-year trust anti-avoidance rule to curb deferral strategies involving corporate beneficiaries and indirect transfers. Overall, it projects rising deficits but a declining debt-to-GDP ratio, with a focus on unlocking $1 trillion in investments over five years.

We will elaborate on some of the more important proposals as tabled below:

1. Immediate Expensing for Eligible M&P and Beyond

Similar to the introduction of DIEP (Depreciable immediate expensing property) as introduced back in the federal budget 2021, budget 2025 rolls out a immediate expensing incentive (CCA) for Manufacturing and Processing buildings. This replaces the usual Class 1 (4%) rate, with an additional 6% allowance for M&P, providing a full, immediate write-off to boost manufacturing investment.

• Buildings where at least 90% of floor space is for M&P, plus eligible improvements.

  • Property acquired on or after Budget Day (Nov 4, 2025) and used for M&P before 2030.

  • 100% Capital Cost Allowance (CCA) in the first year.

The CRA has expanded this definition to include property that has been used, or acquired for use, for any purpose before it is acquired by the taxpayer would be eligible for immediate expensing only if both of the following conditions are met:

• neither the taxpayer nor a non-arm's-length person previously owned the property; and

• the property has not been transferred to the taxpayer on a tax-deferred "rollover" basis.

For eligible M&P property put to use before 2030 - the immediate expensing regime is available, but phases out for years after 2030 as such:

• After 2030 - 2031: 75% CCA regime

• After 2032 - 2033 - 55% CCA regime

• After 2033: no enhanced CCA regime - Pre-budget 2025 class 1 rules apply.

2. Luxury Tax on Vessels: Full Repeal in Budget 2025

Here in Kelowna, boats rule the fresh waters of the Okanagan's beautiful lakeshores! That being said, the Select Luxury Items Tax Act, introduced in 2022 as part of the Liberal government's push to fund social programs amid housing affordability woes, slapped a 10% levy on high-end purchases like yachts ("vessels"), jets, and supercars.

Enacted June 21, 2022, the tax applied to new (not used) "subject vessels"(defined in section 2(1)) – pleasure craft like yachts, sailboats, and motorboats (excluding commercial fishing or rescue vessels) – with a value exceeding $250,000 (including options and fees, but excluding GST/HST). The 10% rate kicked in on the amount over the threshold, so a $300,000 yacht owed $5,000 tax.

But after just three years of backlash from the marine industry (citing job losses and stifled sales), Budget 2025 pulls the plug: The tax on vessels (and aircraft) has now ended effective November 5, 2025 (post-Budget Day). The car portion survives, but for recreational boaters, importers, or marine business owners, it's a welcome exhale.

The repeal targets the "failed policy" that deterred investments and exports.

• Effective Date: November 5, 2025 – No tax on sales, imports, or uses after this.

• Transition: Pre-November 5 deals (contracts signed before) still taxed if vessel value >$250K. No refunds for prior payments.

• Why Vessels (and Aircraft)? Industry lobbying highlighted economic drag; cars stay taxed (over $100K) to hit "ultra-wealthy" harder.

• Broader Context: Pairs with introductions to productivity deductions (like immediate expensing on M&P eligible property) to boost sectors like marine manufacturing.

3. Trust and Estate Planning Updates

Budget 2025 addresses ongoing bare trust compliance issues and potential abuses in trusts and estate planning:

• Bare Trust Filing Obligations Deferred Again: Bare trusts – simple nominee arrangements often used for real estate or family holdings – will not require T3 returns or Schedule 15 filings for the 2025 taxation year (as these were previously defined within the scope of subsection 150(1.3)). This marks another deferral following exemptions for 2023 and 2024, giving time to refine rules amid backlash over complexity for everyday Canadians.

  
  

  • These compliance issues tie directly in with the proposed amendments to Section 150 (amendments for Section 150(1.3), (1.31), and 104(1)) as introduced back in August 2024's draft legislation. As these are not yet enacted into law (as of today December 9, 2025), it would make sense that bare trusts get another year for deferral. We will elaborate more on this in another article.

• 21-Year Trust Anti-Avoidance Rule Expanded: To prevent indefinite tax deferral, the budget proposes broadening of the anti-avoidance rule under subsection 104(5.8) of the Income Tax Act (ITA) specifically targets indirect transfers of property where property moves between trusts without triggering the rule, often involving corporations as intermediary beneficiaries to defer recognition, ensuring accrued gains are taxed every 21 years.

These trust changes aim to close loopholes while maintaining flexibility for legitimate planning.

4. Tax Eliminations and Simplifications

Several burdensome taxes are axed or phased out:

• Underused Housing Tax (UHT): Fully eliminated starting 2025 (previously 1% on vacant or underused residential properties, targeting non-residents).

• Luxury Tax on Aircraft and Vessels: Repealed effective November 5, 2025 (post-Budget Day), following industry pushback on job losses; the tax on cars over $100,000 remains.

• Consumer Carbon Pricing: Discontinued, with final Canada Carbon Rebate payments in April 2025.

• Low-Income Auto-Filing: CRA gains discretion to prepare and file returns for those below the basic personal amount, ensuring access to benefits like GST credits.

• Continued middle-class relief: From prior budgets, including phased reductions in the lowest federal rate.

• Personal Support Workers Tax Credit: A new temporary 5-year refundable credit offers eligible PSWs a temporary refundable credit of 5% on eligible earnings, up to $1,100 annually, for the 2026 to 2030 tax years.

2025 Inflation Adjustments (CRA-Indexed Amounts)

For indexed inflation adjustments to the federal tax brackets beginning in 2026, refer to our updated article titled (CRA's 2026 Tax Updates: Key Changes and What They Mean for Canadian Taxpayers)

This article may be updated for future reference