On November 4, 2025, Minister of Finance François-Philippe Champagne tabled Canada’s Federal Budget 2025, titled “Canada Strong.” As the first budget under the newly elected minority government, it introduces a Capital Budgeting Framework that separates operational and capital expenditures. When combined, the federal deficit is projected at $78 billion for 2025–26.
The government outlines major investments in housing, infrastructure, and defence, alongside productivity and competitiveness measures. Budget 2025 also includes several significant tax and funding initiatives summarized below.
Corporate Tax Measures
Immediate Expensing for Manufacturing and Processing Buildings
Budget 2025 proposes a temporary 100% first-year deduction for the cost of eligible manufacturing or processing buildings, including eligible additions or alterations. To qualify, at least 90 percent of the building’s floor space must be used for manufacturing or processing.
- Effective: Property acquired on or after November 4, 2025, and used before 2030.
- Phase-down: 75% for 2030–2031 and 55% for 2032–2033; not available after 2033.
- Conditions: Property must be new and not previously owned or transferred on a tax-deferred basis.
- Recapture: May apply if the building’s use changes after being expensed.
This measure aims to accelerate industrial investment and improve after-tax cash flow for capital projects.
Clean Economy Investment Tax Credits (ITCs)
Budget 2025 strengthens Canada’s clean-tech framework with several updates:
- Carbon Capture, Utilization, and Storage (CCUS) ITC: Full credit rates extended by five years (to the end of 2035); review postponed to 2035.
- Clean Technology Manufacturing ITC: Expanded to include five new critical minerals—antimony, indium, gallium, germanium, and scandium.
- Clean Electricity ITC: Canada Growth Fund added as an eligible entity; its financing will not reduce the eligible cost base.
These measures give long-term certainty to investors in energy transition projects and advanced manufacturing.
Tax Deferral Using Tiered Corporate Structures
To curb tax deferrals through mismatched year-ends, dividend refunds will be suspended where an affiliated corporation’s taxation year ends after the payer’s. The refund can be claimed later once dividends are paid to a non-affiliated shareholder.
- Effective: Taxation years beginning on or after November 4, 2025
International Income Tax Measures
Transfer Pricing Reform
Budget 2025 modernizes Canada’s transfer pricing rules to align with Organisation for Economic Co-operation and Development (OECD) standards. The new framework does the following:
- Defines “arm’s-length conditions” and “economically relevant characteristics” across five comparability factors: contractual terms, functional profile, property/service traits, market context, and business strategy
- Raises the penalty threshold from $5 million to $10 million
- Shortens the documentation response period from 3 months to 30 days
These changes reinforce alignment with the OECD Transfer Pricing Guidelines and emphasize accurate, timely documentation.
Investment Income of Foreign Affiliates Supporting Canadian Risks
Budget 2025 clarifies that investment income from assets held by foreign affiliates to support Canadian insurance risks is foreign accrual property income (FAPI).
- Effective: Taxation years beginning after November 4, 2025
Research and Development Measures
Enhancements to the SR&ED Program
The government confirms its commitment to expanding and streamlining the Scientific Research and Experimental Development (SR&ED) tax incentive program.
Enhancements include the following:
- Increasing the enhanced 35% credit expenditure limit from $3 million to $6 million (effective for taxation years beginning on or after December 16, 2024)
- Extending eligibility to Canadian public corporations
- Restoring capital expenditure eligibility
Administrative reforms:
- Introduction of an elective pre-claim approval process to secure up-front technical validation of research and development (R&D) projects, cutting review times from 180 to 90 days
- Increased use of AI to triage low-risk claims and reduce audit frequency
- Streamlined documentation and fewer redundant information requests
These improvements will apply starting April 1, 2026, and aim to provide greater certainty and speed for innovative companies.
Commodity and Indirect Tax Measures
Goods and Services Tax / Harmonized Sales Tax (GST/HST): Anti-Carousel Fraud Rules
A proposed reverse-charge mechanism will apply to specified telecommunications services, shifting tax-remittance responsibility to recipients and limiting fraud exposure. Consultations remain open until January 12, 2026.
GST/HST: Osteopathic Services Clarification
The GST/HST exemption now applies only to services provided by osteopathic physicians. Other practitioners’ services remain taxable, effective after June 5, 2025.
Underused Housing Tax (UHT) Eliminated
The UHT will be repealed for 2025 and future years. No filings or payments are required for 2025 onward; however, 2022–2024 returns must still be filed.
Luxury Tax on Aircraft and Vessels
The luxury tax on subject aircraft and vessels ends November 5, 2025. Registrations will be cancelled automatically by February 1, 2028, which also marks the last date to claim related rebates. The Luxury Tax on vehicles remains in effect.
Indigenous Taxation and Initiatives
Budget 2025 continues the government’s collaboration with Indigenous partners by investing in critical infrastructure and expanding fiscal capacity. Key measures include the following:
- Amendments to the First Nations Fiscal Management Act to allow the First Nations Finance Authority to lend to special-purpose vehicles
- Bonding and surety pilot program for First Nations contractors
- Renewed $2.3 billion over three years for the First Nations Water and Wastewater Enhanced Program
- $2.8 billion in new funding for urban, rural, and northern Indigenous housing
- Confirmation of FACTV (fuel, alcohol, cannabis, tobacco, vaping) frameworks with interested Indigenous governments
Key Government Funding Program Changes
Budget 2025 reinforces program consolidation and export competitiveness:
- Strategic Response Fund: $5 billion over six years to merge and streamline programs (including the Strategic Innovation Fund)
- Export Development Initiatives: $68.5 million for CanExport SME support; $46.5 million for the SME Export Readiness Initiative
- Industrial Research Assistance Program (IRAP): $39.9 million to expand international demonstration projects
- Workforce Measures:
- $570 million for Labour Market Development Agreements (retraining in tariff-affected sectors)
- $382.9 million for the Workforce Alliances and Innovation Fund
- $370.5 million for EI work-sharing flexibility and $3.7 billion for temporary EI income support
- Update to the Large Enterprise Tariff Loan (LETL) facility ($10 billion) to support firms affected by tariffs
- Implementation of the Regional Tariff Response Initiative (RTRI) ($1 billion) through Regional Development Agencies
- Establishment of the Trade Diversification Corridors Fund ($5 billion) to improve logistics and market access
- New Critical Minerals Sovereign Fund ($2 billion) and First and Last Mile Fund ($372 million) to strengthen domestic supply chains
- Renewal and expansion of forestry programs ($500 million) and new biofuels production incentives ($372 million) to bolster sector resilience
Previously Announced Tax Measures
The government will proceed with several previously announced initiatives, including capital gains rollovers, nonprofit reporting, employee ownership trusts, the global minimum tax, and various technical tax amendments.
Analysis and Implications
Budget 2025 blends significant capital investment with targeted tax measures intended to drive productivity, innovation, and energy transition.
Businesses should focus on the following:
- Timing capital expenditures to maximize accelerated write-offs and ITCs
- Preparing for SR&ED modernization and pre-claim filing procedures
- Reviewing transfer pricing documentation systems for new compliance deadlines
- Reassessing indirect tax processes as reverse-charge rules expand
- Exploring new funding streams for clean technology, exports, and workforce upskilling
Practical Guidance: Immediate Checklist
- Model after-tax impacts of new expenses and ITC provisions.
- Inventory all R&D projects and align documentation for CRA reforms.
- Review transfer pricing records and update documentation policies.
- Assess GST/HST invoicing processes and indirect tax compliance.
- Evaluate eligibility for government funding programs.
Further Information
More details on Budget 2025 are available on our Canadian Budget Hub.
Register for our Ryan Canada virtual roundtable today at 2:00 p.m. ET.: https://tax.ryan.com/canadian-budget-2025-webinar
For further assistance, contact your Ryan representative or the Ryan TaxDirect® line at 1.800.667.1600 or taxdirect@ryan.com.