Building Canada Strong: A Focus on Targeted Affordability and Strategic Investment
Executive Summary: Key Takeaways for Taxpayers
The tabling of Minister François-Philippe Champagne’s first fall budget, titled “Building Canada Strong,” signals a continued pivot towards focused government spending and tax policy aimed at addressing affordability challenges while providing strategic incentives for the clean economy and manufacturing sector.
This Budget prioritizes tax relief for low-to-middle income individuals and front-line healthcare workers, simplifies several compliance regimes, and closes long-standing loopholes. For businesses, the focus is squarely on driving capital expenditure (CAPEX) in manufacturing and processing through accelerated depreciation, alongside a push for enhanced tax compliance globally.
Our key observations and points of impact:
- Affordability: The reduction of the first marginal tax rate and the introduction of the Personal Support Workers Tax Credit represent a direct, targeted reduction in tax burden for lower-income earners.
- Business Incentives: The temporary 100% immediate expensing for certain manufacturing and processing buildings provides a significant, albeit time-limited, capital investment opportunity.
- Compliance Modernization: The Budget introduces major changes to both registered investment (RRSP/RSP/RDSP) rules and international transfer pricing, signaling a stricter and more formalized compliance environment.
- Tax Relief: The repeal of the Underused Housing Tax (UHT) and the Luxury Tax on aircraft and vessels offers welcome relief from complex or punitive indirect tax burdens.
I. Individual Tax and Affordability Measures
The Budget introduces several measures designed to provide relief and streamline compliance for individual taxpayers, effective across multiple years.
A. Targeted Tax Rate and Credit Adjustments
The core of the personal tax changes revolves around the previously announced reduction in the first marginal tax bracket, supported by a transitional measure.
| Taxable Income | 2024 | 2025 | 2026+ |
| Up to $57,375 (2025 threshold) | 15% | 14.5% | 14% |
Top-Up Tax Credit (2025–2030): A non-refundable credit is introduced to ensure that the transition to the lower rate does not inadvertently increase the tax liability for individuals claiming other non-refundable credits. This measure maintains a 15% credit rate for non-refundable tax credits claimed on amounts exceeding the first income bracket.
Personal Support Workers Tax Credit (2026–2030): A new refundable 5% tax credit (up to $1,100) is proposed for eligible personal support workers employed by qualifying health-care organizations, excluding those in BC, Newfoundland and Labrador, and the Northwest Territories (due to existing agreements).
B. CRA Modernization and Compliance
Automatic Filing of Federal Benefits (2025+): To ensure benefits reach eligible recipients, the CRA is proposed to gain the authority to automatically file tax returns for low-income individuals who meet specific criteria (e.g., income below the basic personal amount, income exclusively from information slips, and prior missed filings). Individuals will have 90 days to review the CRA’s data before assessment, and the measure is optional.
Qualified Investments for Registered Plans: Following consultations, the Budget significantly simplifies the rules governing qualified investments for registered plans (RRSP, RDSP, etc.).
- Small Business Investments: The rules for small business investments are streamlined, with one existing rule set extended to RDSPs. Notably, interests in small business investment partnerships and trusts will cease to be qualified investments as of January 1, 2027.
- Registered Investment Regime: The existing regime is replaced immediately with two new categories focusing on units of trusts governed by National Instrument 81-102 or units of funds managed by registered fund managers under NI 31-103.
Home Accessibility Tax Credit: To prevent double-dipping, expenses claimed under the Medical Expense Tax Credit will no longer be eligible for the Home Accessibility Tax Credit, effective for 2026 and later taxation years.
C. Integrity and Administrative Measures
- Trust Anti-Avoidance (21-Year Rule): Rules are expanded to prevent the avoidance of the 21-year deemed disposition rule through indirect trust-to-trust transfers, effective as of Budget Day.
- Canada Carbon Rebate (CCR): A deadline of October 30, 2026, is established for filing tax returns or adjustments to receive CCR payments for the 2025 year.
- Canada Disability Benefit: A one-time additional $150 payment is proposed for each Disability Tax Credit certification that generates a Canada Disability Benefit entitlement, with legislation to confirm its non-taxable status.
- Canadian Entrepreneurs Incentive: This incentive is formally cancelled, consistent with the reversal of the proposed capital gains inclusion rate increase.
II. Driving Business Investment and Competitiveness
The Budget maintains the current corporate tax rate structure while providing targeted incentives aimed at boosting domestic manufacturing, processing, and innovation.
A. Corporate Tax Rate Stability
| Tax | 2025 | 2026 |
| Federal Small Business Rate | 9% | 9% |
| General Corporate Rate | 15% | 15% |
B. Accelerated Capital Investment
Immediate Expensing for Manufacturing & Processing Buildings: The Budget proposes a temporary 100% first-year deduction for the cost of eligible new or substantially modified buildings used primarily (90%+) for manufacturing or processing.
- Implication: This is a powerful, short-term incentive for immediate CAPEX decisions in the manufacturing sector. Businesses should carefully review the phase-out rules (beginning in 2030) and restrictions on previously owned property.
C. Enhanced Innovation and Clean Economy Incentives
Scientific Research and Experimental Development (SR&ED) Program: The enhanced credit expenditure limit is increased from $4.5 million to $6 million, effective for taxation years starting on or after December 16, 2024. Furthermore, the administration of the program will be modernized (effective April 1, 2026) through:
- An optional pre-claim approval process with a 90-day processing commitment.
- Increased use of AI to reduce low-risk audits.
Critical Minerals and Clean Technology Investment Tax Credits (ITCs):
- Critical Mineral Exploration Tax Credit (CMETC): Eligibility is expanded to include a broader list of critical minerals (e.g., chromium, molybdenum, tungsten), applying to flow-through agreements entered into after Budget Day and until March 31, 2027.
- Clean Technology Manufacturing ITC: Eligibility is expanded to include additional critical minerals (e.g., indium, gallium, scandium), applying to property acquired and available for use on or after Budget Day.
Carbon Capture, Utilization & Storage (CCUS) ITC: Full credit rates are extended to the end of 2035, with the mandatory rate review postponed until before 2035.
Clean Electricity Investment Tax Credit & Canada Growth Fund (CGF): The CGF will be designated as an eligible entity for the Clean Electricity ITC, ensuring it can leverage the credit without reducing the cost base of eligible property.
D. Corporate Integrity and Administration
- Tax Deferral Through Tiered Corporate Structures: A new rule will prevent the deferral of dividend refunds achieved through mismatched corporate year-ends within affiliated groups, applying to taxation years starting on or after Budget Day.
- Canadian Exploration Expense (CEE) Clarification: Costs incurred solely to assess mineral quality (not economic or engineering feasibility) will qualify as CEE, effective as of Budget Day.
III. Global Tax Integrity and Compliance
The Budget addresses international tax matters with a clear focus on aligning with global standards and enhancing compliance enforcement.
Transfer Pricing Reform: Canada is set to modernize its transfer pricing rules, aligning them with OECD Guidelines. Key changes include:
- Raising the penalty threshold to $10 million of adjustments.
- Tightening documentation rules, requiring delivery within 30 days of request.
- Introducing simplified documentation options in prescribed cases.
- Application: Taxation years beginning after Budget Day.
Foreign Affiliate Rules: Canadian Insurance Risks: To address avoidance, investment income earned by a foreign affiliate that supports Canadian insurance risks will now be included in Foreign Accrual Property Income (FAPI), regardless of the holding entity.
Information Sharing: Worker Misclassification: The CRA will be funded to address non-compliance in the personal services business context and will be permitted to share income tax and GST/HST information with Employment and Social Development Canada to better enforce labour rules related to worker classification, effective upon Royal Assent.
IV. Indirect Tax Simplification and Integrity
Several important changes are proposed in the indirect tax space, primarily targeting simplification and anti-fraud measures.
A. Compliance Relief
Underused Housing Tax (UHT): Budget 2025 proposes to eliminate the UHT entirely, effective for the 2025 and future calendar years.
- Implication: This is a major simplification, removing a significant compliance burden for many property owners. However, all UHT obligations for 2022, 2023, and 2024 remain fully in force.
Luxury Tax on Aircraft and Vessels: The luxury tax on aircraft and vessels ends as of Budget Day. Registrants must file one final return for the period including Budget Day.
B. Anti-Fraud and Technical Measures
Carousel Fraud – Telecommunications Reverse Charge (RCM): A new GST/HST reverse charge mechanism will be introduced for specified telecommunication services (e.g., VoIP minutes). Suppliers will no longer collect GST/HST; recipients will self-assess and claim ITCs where eligible.
GST/HST on Manual Osteopathic Services: The Budget clarifies that osteopathic services provided by non-physician practitioners are taxable, restoring a longstanding policy intent.
V. Looking Ahead: Status of Outstanding Measures
The government confirms its intention to proceed with a broad range of previously announced legislative measures, though the implementation dates for several high-profile items have been adjusted:
| Measure | Status |
| Bare Trusts | Deferred to taxation years ending on or after December 31, 2026. |
| Non-Profit Organization Reporting | Deferred to years beginning on or after January 1, 2027. |
| Crypto-asset and Common Reporting Standard (CRS) | Delayed to years beginning on or after January 1, 2027. |
| Key Prior Initiatives | Reaffirms commitment to Employee Ownership Trusts, Capital Gains Rollover for small businesses, Alternative Minimum Tax reforms, and various clean energy credits. |
Disclaimer:This commentary summarizes proposals released by the Department of Finance Canada and is for general informational purposes only. Legislative outcomes may differ. Consultation with a ClearWealth Accounting Advisors professional should be undertaken prior to acting on this information.
