On November 5, 2025 (“Budget Day”), the Federal Government released Budget 2025, titled Canada Strong: Budget 2025. Below, we outline some of the key tax changes and their practical implications for Canadian businesses.
Immediate Expensing and the Productivity Super-Deduction
A major highlight of Budget 2025 is the introduction of 100% immediate expensing for eligible manufacturing and processing buildings acquired on or after Budget Day and first put to use before 2030. This applies to new buildings or qualifying additions where at least 90% of the floor space is dedicated to manufacturing or processing goods for sale or lease.
This measure is part of the broader Productivity Super-Deduction, which reinstates accelerated investment incentives and immediate expensing for a wide range of productivity-enhancing assets, including manufacturing machinery, clean energy generation equipment, zero-emission vehicles, patents, data network infrastructure, and capital expenditures for scientific research and experimental development (“SR&ED”).
As an example, under current Class 1 rules, a $10 million building would generate only a $1 million deduction in the first year (10%). Under the new measure, the entire $10 million can be deducted immediately, providing a substantial cash flow advantage and accelerating tax savings. The measure phases out gradually after 2030, with deductions dropping to 75% in 2030–2031 and 55% in 2032–2033.
Scientific Research and Experimental Development Enhancements
Budget 2025 enhances Canada’s SR&ED program by increasing the enhanced credit expenditure limit to $6 million (up from $3 million), extending eligibility for the enhanced credit to certain Canadian public corporations, and restoring capital expenditures as eligible costs for both deduction and credit purposes.
To improve predictability and reduce administrative burden, the Canada Revenue Agency will implement reforms to the program’s administration starting April 2026. These include an elective pre-claim approval process, which will provide upfront technical validation of projects, and the use of artificial intelligence to streamline reviews and reduce unnecessary audits for low-risk claims.
Clean Economy Incentives
Budget 2025 reinforces Canada’s commitment to building a low-carbon economy by extending and expanding several clean energy tax credits. The Carbon Capture, Utilization, and Storage (CCUS) Investment Tax Credit will maintain its full credit rates for an additional five years, now applying to eligible expenditures incurred up to 2035. The Clean Technology Manufacturing Investment Tax Credit has been broadened to include additional critical minerals, such as antimony, indium, gallium, germanium, and scandium, essential for clean technology supply chains. Similarly, the Clean Electricity Investment Tax Credit now recognizes the Canada Growth Fund as an eligible entity, ensuring that financing from this fund does not reduce the cost base for credit purposes. Finally, the Critical Mineral Exploration Tax Credit has been expanded to cover 12 more minerals, including bismuth, chromium, manganese, molybdenum, tin, and tungsten, further supporting Canada’s role in global clean energy supply chains.
Accelerated CCA for LNG Facilities
Budget 2025 reinstates accelerated capital cost allowance for low-carbon LNG facilities. Facilities meeting high emissions performance standards will qualify for:
- 30% CCA for liquefaction equipment and 10% for related buildings (top 25% performers).
- 50% CCA for liquefaction equipment and 10% for related buildings (top 10% performers).
This measure applies to property acquired on or after Budget Day and before 2035.
Anti-Deferral Rules for Tiered Corporations
Budget 2025 also targets tax planning strategies that use tiered corporate structures (chains of affiliated corporations with mismatched year-ends) to defer Part IV tax on investment income.
Under current rules, a corporation paying a taxable dividend can claim a dividend refund, even if the recipient corporation’s tax payment deadline (i.e., balance-day day) falls later than the payor’s, creating a timing gap that allows for a deferral of Part IV tax otherwise payable.
Budget 2025 proposes to suspend the dividend refund available to a payor corporation when it pays a dividend to an affiliated corporation whose balance-due day occurs after the payor’s balance-due day, unless subsequent dividends eliminate the deferral. Exceptions apply where:
- each recipient in the chain pays a dividend on or before the payor’s balance-due day; or
- a dividend is paid within 30 days before an acquisition of control.
These measures apply to dividends paid in taxation years beginning after Budget Day and are intended to close a loophole that could otherwise allow deferrals of tax through multi-tiered corporate structures.
Other Key Measures
Budget 2025 introduces or reiterates a range of additional measures that impact taxpayers, housing and consumption taxes.
Corporate and International Tax Measures
- Transfer Pricing Modernization: Significant changes align Canada’s transfer pricing rules with OECD guidelines, introducing new definitions of “arm’s length conditions” and “economically relevant characteristics.” Documentation deadlines are shortened to 30 days (from 3 months), and the penalty threshold for adjustments increases from $5 million to $10 million. These changes apply to taxation years beginning after Budget Day.
- Anti-Avoidance Rule for 21-Year Trusts: Expanded to capture indirect transfers of property (such as transfers to corporations owned by new trusts) to prevent resetting the 21-year deemed disposition clock.
- Foreign Accrual Property Income (FAPI) Clarification: Investment income from assets backing Canadian insurance risks is now explicitly included in FAPI calculations.
- Canadian Exploration Expense (CEE) Clarification: Expenses incurred to determine the “quality” of a mineral resource exclude costs related to economic viability or engineering feasibility, effectively nullifying the recent Seabridge Gold decision.
- Patronage Dividends: The temporary deferral of income tax on patronage dividends paid in shares by agricultural cooperatives has been extended until 2030.
Housing Initiatives
- Launch of Build Canada Homes, a new federal agency tasked with doubling the pace of homebuilding over the next decade.
- $13 billion over five years for affordable housing, plus $1.5 billion for a Rental Protection Fund and $1 billion for transitional and supportive housing.
- GST eliminated for first-time home buyers on new homes priced up to $1 million, with a reduced GST rate for homes between $1 million and $1.5 million.
- Repeal of the Underused Housing Tax starting in 2025.
Luxury Tax Changes
- The Select Luxury Items Tax Act will be amended to remove the luxury tax on subject aircraft and vessels effective immediately after Budget Day. The tax will continue to apply to subject vehicles.
More Information
For any inquiries regarding this topic, please contact Max Walker, Katie Bois or any member of the Tax Group.