Key Financial Updates in Canada You Need to Know This Year

Federal Policy Changes Impacting Canadian Finances in 2025

As the new year begins, several federal policy updates are poised to affect Canadians’ finances. While some changes are routine, others may require additional planning, especially for individuals managing investments and retirement savings.

Income Tax Brackets

To offset inflation, federal income tax brackets for 2025 are increasing by 2.7%, following a 4.7% adjustment in 2024. The new brackets are:

• 15% for earnings up to $57,375
• 20.5% for $57,375.01 to $114,750
• 26% for $114,750.01 to $177,882
• 29% for $177,882.01 to $253,414
• 33% for earnings above $253,414

Brian Quinlan, a chartered professional accountant with Allay LLP, explains that these adjustments prevent Canadians from paying higher taxes solely due to inflation. “Even with the same income as last year, you’ll pay less tax because less of it is taxed at higher rates,” Quinlan notes.

Basic Personal Amount

The basic personal amount—the income on which no federal tax is paid—will rise to a range of $14,538 to $16,129 in 2025, depending on income. This is an increase from the 2024 range of $14,256 to $15,705, providing greater relief to lower-income Canadians.

Canada Pension Plan Contributions

Canadian workers will see higher CPP contributions as part of a multi-year enhancement launched in 2019 to improve retirement benefits.

• The first-tier earnings ceiling will increase from $68,500 in 2024 to $71,300 in 2025.
• The second-tier earnings ceiling will rise from $73,200 to $81,200.

After 2025, contribution rates and ceilings will grow in line with wage inflation. Individuals who contributed to CPP since 2019 will benefit from enhanced payouts upon retirement.

Capital Gains Tax

New legislation could change how capital gains are taxed starting mid-2024, affecting gains over $250,000. Under the proposed rules:

• Gains up to $250,000 will still have 50% taxed.
• Gains exceeding $250,000 will have two-thirds taxed.

Quinlan advises careful planning when selling assets, suggesting a phased approach to mitigate tax impacts.

Registered Retirement Savings Plans (RRSPs)

For 2025, the RRSP contribution limit increases to $32,490 from $31,560. Contributions for the 2024 tax year can be made until March 3, 2025. Unused contribution room can be found on your CRA notice of assessment or online account.

These updates reflect a combination of routine adjustments and significant shifts that Canadians should account for in their financial planning.