It’s a new year. What financial changes take effect in 2025?

There are several federal policy changes in Canada for 2025 that could impact the finances of Canadians in the coming year.

According to Brian Quinlan, a chartered professional accountant at Allay LLP, many of the changes are standard adjustments, such as inflation-based modifications to tax brackets and changes to the contribution limits for Tax-Free Savings Accounts (TFSAs). However, some adjustments, like the capital gains tax changes, may require more careful planning.

Here are some key changes to keep in mind:

Tax Brackets

For the 2025 tax year, income tax brackets will increase by 2.7% to prevent inflation from pushing Canadians into higher tax brackets. This follows a 4.7% increase in 2024.

The 2025 federal tax rates will be as follows:

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

Quinlan explained that these adjustments are good news, as they ensure people are not paying more tax simply due to inflation. “Even if your income stays the same in 2024 as it was in 2023, you will pay less tax because less of your income will be taxed at higher rates,” he said.

Basic Personal Amount

For 2025, the basic personal amount, which is the income threshold on which Canadians do not pay federal income tax, will range from $14,538 to $16,129, depending on overall income. This represents an increase from 2024, when the range was from $14,256 to $15,705. Individuals with lower incomes will receive a higher basic personal tax credit.

Canada Pension Plan (CPP)

Some Canadian workers will see an increase in their paycheques due to rising CPP contributions. This change is part of a multi-year revamp of the pension system that began in 2019, aimed at enhancing benefits for retirees. Both individual contributions and employer contributions have been gradually rising as the changes are phased in.

In 2025, the earnings ceiling for first-tier contributions will rise to $71,300, up from $68,500 in 2024. The second earnings ceiling will increase to $81,200, from $73,200 in 2024. After 2025, the program will fully implement, with contribution limits rising in line with wage growth.

Anyone who has contributed to the CPP from 2019 onward will be eligible for higher payouts upon retirement, reflecting their contributions from that period.

Capital Gains Tax

Although the legislation is not yet passed, proposed changes to the capital gains tax could have significant financial implications. Quinlan advises those planning to sell assets in the new year to carefully consider the timing of their sales, especially since the new tax rate for capital gains over $250,000 will be fully implemented in 2025.

Under the new rules, a larger portion of capital gains will be taxed. Previously, 50% of capital gains were taxed, but the new rules will tax two-thirds of any gains above $250,000, effective for gains after June 24, 2024.

Registered Retirement Savings Plans (RRSPs)

Canadians can contribute to their RRSPs until March 3 for the 2024 fiscal year. The contribution limit for 2025 will increase to $32,490, up from $31,560, plus any unused contribution room from previous years. Canadians can find their unused contribution room on their notice of assessment from the Canada Revenue Agency or through their online CRA account.