Inside the budget: How tax changes will impact clients

The 2025 federal budget introduced several tax measures set to impact both individuals and business owners, says Jamie Golombek, managing director, tax and estate planning, CIBC Private Wealth in Toronto.

In an interview immediately after the budget was tabled on Nov. 4, Golombek provided a breakdown of the most notable changes that will have the widest effect on advisors and clients.

Listen to the full conversation on the Advisor To Go podcast, powered by CIBC Asset Management.

What’s new for individuals?

In May 2024, the government announced the middle-class tax cut, which reduces the tax rate on the first bracket of income to 14.5% this year, from 15%. However, there was a problem with the reduction of the lowest tax bracket, Golombek said.

Individuals with large non-refundable tax credits that exceed the value of the first tax bracket (about $57,000 in 2025) could lose more from reduced credit value than they gain from the lower tax rate, Golombek said. This could occur for individuals with significant medical or tuition expenses, especially when tuition credits are carried forward.

To ensure individuals will not end up paying more tax as a result of the middle-class tax cut, the budget introduced a new non-refundable Top-Up Tax Credit, he said.

“This credit effectively maintains the current 15% rate, to the extent that any non-refundable credits claimed are higher than the first income tax bracket threshold,” he said.

Budget 2025 also announced a change to the Home Accessibility Tax Credit (HATC), which is a non-refundable credit for up to $20,000 in home renovations improving safety, accessibility, or functionality for seniors or those eligible for the Disability Tax Credit. Under current rules, individuals can double dip and claim both the HATC and Medical Expense Tax Credit, which is also available for medical- and disability-related renovations, he said.

“The budget will end this. Starting 2026, you’re no longer going to be able to claim any expense that was claimed under the medical expense credit as a Home Accessibility Tax Credit,” he said.

The budget also targets trust planning around the 21-year rule, which deems trusts to dispose of property every 21 years to prevent indefinite tax deferral. Some strategies allowed property to move from one trust to another to sidestep anti-avoidance rules, Golombek said.

“What can happen is you can transfer your property out of your trust on a tax-deferred basis to a beneficiary, which is a corporation, and that corporation ultimately is owned by another trust,” he said. “The government is shutting that down effective immediately.”

Also, the budget proposes amending the Income Tax Act to let the CRA file tax returns for eligible low-income Canadians whose income is fully reported on T-slips and who haven’t filed in the past three years.

“CRA will always ask for permission first before filing a return for you, but if they don’t hear back from you within 90 days, then they can file the return on your behalf, allowing you to collect government benefits,” he said. “You can always elect out of this, and this could actually begin as early as spring 2026 for 2025 tax returns.”

Other key highlights from budget 2025, Golombek said, include: a new refundable credit for personal support workers that starts in 2026 and runs through 2030, with a maximum of $1,100 per year; the cancellation of the Underused Housing Tax, which applied to vacant and underused properties owned by non-resident, non-Canadians; and the cancellation of the luxury tax on planes and boats as of Nov. 5.

What’s new for business owners?

The big news, Golombek said, is that the budget announced the immediate expensing for manufacturing and processing buildings. How does this work?

Capital cost allowance (CCA) lets a business deduct the cost of capital assets over time, he said. Assets are essentially grouped into CCA classes, each with a set depreciation rate, allowing businesses to write off a portion of the asset’s value annually on a declining balance basis.

Currently, he said, buildings used for manufacturing or processing goods qualify for a 4% CCA rate, plus an additional 6% allowance if at least 90% of the floor space is dedicated to manufacturing or processing goods for sale or lease.

“The budget is planning to provide an immediate expensing for the cost of those buildings – 100% write off in the first tax year that the property is used for manufacturing or processing,” he said, adding this is effective on buildings acquired as of Nov. 4. “As long as you put that building into use before 2030, you get 100%. If it’s 2030 or 2031, you get 75% declining write off. And then after that, 2032, 2033, it drops to a 55% write off.”

Also, the budget cancelled the Canadian Entrepreneurs’ Incentive, which had been introduced in budget 2024. The measure would’ve cut capital gains tax on up to $2 million from a qualifying business sale, from $400,000 in 2025, to $2 million by 2029. And this would’ve been on top of the $1.25 million lifetime capital gains exemption, he said.

This article is part of the Advisor To Go program, sponsored by CIBC Asset Management. The article was written without input from the sponsor.