As we enter 2025, there are several important updates to Canada’s tax system that could have a direct impact on your finances. From changes to tax brackets to government benefits and contribution limits, it’s crucial to understand how these adjustments will affect your wallet. Let’s break down what’s new this year and how you can make the most of these changes.
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2025 Tax Brackets: What You’ll Pay in the New Year
Each year, Canada adjusts its tax brackets to account for inflation, and in 2025, these brackets are increasing by 2.7%. This helps ensure that Canadians don’t face higher taxes just because of inflationary wage increases. Here’s a breakdown of the federal tax rates for 2025:
- 15% on income up to $57,375
- 20.5% on income between $57,375.01 and $114,750
- 26% on income between $114,750.01 and $177,882
- 29% on income between $177,882.01 and $253,414
- 33% on income above $253,414
These new brackets reflect a 2.7% increase from last year, which will benefit most taxpayers by keeping them in lower tax brackets relative to inflation.
Essential Government Benefits Canadians Can Access from CRA in February 2025
New Ontario Taxpayer Rebate 2025: Everything You Need to Know About the $200 Relief Payment
Canada CRA Benefits Dates 2025: Your Complete Month-by-Month Guide to Payments and Updated Amounts
CPP & OAS Changes 2025 You Need to Know: Maximize Your Retirement
The Basic Personal Amount (BPA): More Tax-Free Income
The Basic Personal Amount (BPA), the portion of your income not subject to federal taxes, is increasing for 2025. This means you can earn more without paying taxes on that portion of your income. The BPA for 2025 will range from $14,538 to $16,129, depending on your overall income. This is up from the 2024 range of $14,256 to $15,705.
Lower-income Canadians will see the highest BPA amounts, which will help reduce their overall tax burden and provide more financial breathing room.
Key Dates for Filing Taxes in Canada 2025: Get Ready for Tax Season
16 Tax Behaviors That Can Trigger CRA Scrutiny: Avoid These Red Flags
CPP Changes: Higher Contributions and Enhanced Benefits
If you’re employed, you’ll notice slightly higher Canada Pension Plan (CPP) contributions in 2025. This is part of a multi-year enhancement aimed at providing better retirement benefits for Canadians. Here’s what’s new in 2025:
- First Earnings Ceiling: The ceiling increases to $71,300, up from $68,500 in 2024.
- Second Earnings Ceiling: The ceiling rises to $81,200, up from $73,200 in 2024.
- Contribution Rates: Both employees and employers will continue to contribute at 5.95%, but the maximum contribution increases to $4,034.10 each. For self-employed individuals, the contribution rate remains 11.90%, with a maximum contribution of $8,068.20.
These changes are aimed at ensuring Canadians have higher future payouts when they retire and have been contributing to the CPP since 2019.
Capital Gains Tax Updates: What You Need to Know
For those earning significant capital gains, 2025 brings important changes. 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, ensuring homeowners are not penalized for the sale of their home.
For smaller gains under the $250,000 threshold, the inclusion rate will remain 50%, meaning that only half of your capital gains will be taxable.
Tax Holiday for Canadians: Save More Before February 15
Canada is also offering a two-month tax holiday on certain goods, lasting until February 15, 2025. During this period, the following items will be GST/HST-free:
- Prepared foods and snacks
- Restaurant meals and takeout
- Alcoholic beverages
- Children’s clothing
This tax break is expected to save Canadians approximately $1.5 billion and will provide immediate savings for many families.
Benefit Adjustments: What to Expect in 2025
Several key government benefits are being adjusted for inflation, meaning more support for low- and middle-income Canadians. Here’s what’s changing:
OAS (Old Age Security)
- 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 (Canada Child Benefit)
- CCB payments are recalculated each July, based on a family’s net income and inflation, so families may see a slight increase in their payments depending on their financial situation.
GST/HST Credit
- The GST/HST credit will help offset taxes paid by low- and modest-income Canadians. In the 2024-2025 period, individuals could receive up to $519 in credits.
RRSP & TFSA Contribution Limits: Save More in 2025
If you’re planning for retirement, you can save more in 2025 with higher contribution limits for both RRSPs and TFSAs:
- RRSP: The contribution limit increases to $32,490, up from $31,560 in 2024. This gives you more room to contribute and lower your taxable income.
- TFSA: The contribution limit remains at $7,000 for 2025 after a series of increases in previous years. Take full advantage of this limit to grow your savings tax-free.
Make a Plan for 2025: Prepare Your Finances
With all these changes, 2025 is shaping up to be a year with important financial adjustments. It’s crucial to stay informed and plan ahead to make the most of these opportunities.
Stay on top of these updates and take action now to maximize your financial benefits in 2025!