Canada’s tax system is undergoing major reforms starting 2025, affecting both individuals and businesses. Key changes include an increase in capital gains tax, higher alternative minimum tax (AMT), a new Digital Services Tax (DST), and hikes in Canada Pension Plan (CPP) contributions.
Additionally, GST/HST exemptions for certain goods will be available for a limited time. These updates will have significant implications for Canadian taxpayers, and it’s crucial to understand how they will affect your financial situation.
This article will break down the new tax changes, how to prepare, and ways to minimize your tax burdens.
Capital Gains Tax Increase: What You Need to Know
What’s Changing? One of the most notable changes is the increase in the capital gains tax. The capital gains inclusion rate will rise from 50% to 66.67% for individuals earning more than $250,000 in annual capital gains.
This means that a larger portion of your investment profits will be subject to tax.
| Capital Gains Tax Update | Old Taxable Amount | New Taxable Amount |
|---|---|---|
| Example: Capital Gain of $300,000 | $150,000 | $200,010 |
For example, if you sell stocks, real estate, or a business in 2026 and make $300,000 in capital gains, previously, only $150,000 was taxable. Under the new rule, $200,010 will be taxable, resulting in a 33% increase in taxable income.
How to Prepare:
- Sell assets before 2026 to lock in the 50% tax rate.
- Use Tax-Free Savings Accounts (TFSAs) and Registered Retirement Savings Plans (RRSPs) to shelter investment gains from taxes.
- Consult a tax advisor to develop a tax-efficient investment strategy.
Alternative Minimum Tax (AMT) – Higher Taxes for High Earners
What’s Changing? The AMT rate will increase from 15% to 20.5%, with the exemption threshold rising to $173,205. This means that high earners will face a higher minimum tax, even after deductions.
| AMT Update | Old AMT Rate | New AMT Rate |
|---|---|---|
| Exemption Threshold | $173,205 | Increased |
For example, if your adjusted taxable income is $200,000, the new AMT will calculate 20.5% tax on the amount over $173,205, meaning you will owe more tax than before.
How to Prepare:
- If you claim large deductions, check how the new AMT affects your return.
- Plan charitable donations and tax credits carefully to reduce your AMT burden.
New Digital Services Tax (DST) – Impact on Tech Companies
What’s Changing? The Canadian government is introducing a 3% Digital Services Tax (DST), which will apply to large tech firms that generate revenue from Canadian digital users.
While this tax directly targets companies like streaming services and e-commerce platforms, it may lead to higher prices for consumers as companies may pass the costs onto customers.
Example: If you regularly use streaming services or purchase digital ads, you might see price increases as companies adjust for the DST.
Canada Pension Plan (CPP) Increases – Higher Deductions for Employees
What’s Changing? Starting 2024, employees and employers will contribute an extra 4% on earnings above $68,500, up to $73,200. This increase will lead to higher deductions from paychecks but also increase future pension benefits.
How This Affects You:
- Expect higher CPP deductions from your paycheck starting in 2024.
- Self-employed Canadians will pay 8% extra in CPP contributions.
- Higher future pension benefits once you retire.
GST/HST Relief – Save on Essentials in 2025
What’s Changing? From December 14, 2024, to February 15, 2025, the Canadian government will remove GST/HST on select items, including:
- Food & beverages
- Children’s clothing & footwear
- Books, toys, and newspapers
How to Benefit:
- Time your purchases during this tax-free period.
- Save on essentials for your family, such as food and clothing.
Canada’s tax system is undergoing significant changes in 2025, with updates to the capital gains tax, alternative minimum tax (AMT), Canada Pension Plan (CPP) contributions, and the introduction of a Digital Services Tax (DST).
Canadians need to be aware of these changes to effectively plan their finances, reduce tax burdens, and ensure they are prepared for the future. Additionally, the temporary GST/HST exemptions on essential goods present an opportunity to save on key purchases.
By staying informed, Canadians can make strategic decisions to manage their tax liabilities and secure a better financial future.
FAQs
1. How will the capital gains tax increase affect my investment profits?
- If you earn more than $250,000 in capital gains annually, the taxable amount will rise from 50% to 66.67%, meaning more of your investment profits will be taxed.
2. How can I minimize the impact of the alternative minimum tax (AMT)?
- Review your deductions and plan charitable donations or tax credits to manage the new AMT rate of 20.5%.
3. What’s the impact of the new Digital Services Tax (DST)?
- While it affects tech companies, expect price hikes for services like streaming and e-commerce, as companies may pass the tax costs to consumers.