Tax Updates 2025: What You Must Know

As we prepare for 2025, it’s a great time to review your financial spending and prepare for the upcoming tax season. The CRA has announced significant changes in tax regulations for the coming year, covering areas such as CPP, Capital Gains, tax credits, TFSA contribution limits, and more.

Here’s a quick overview of the key tax changes for 2025, which include both increases and reductions

Good News: Tax Reductions and New Benefits Tax-Free Savings Account (TFSA Limit):

1. Tax-Free Savings Account (TFSA Limit):
   The TFSA limit for 2025 will increase to $7,000, which is adjusted based on inflation every year. Remember, you don’t need to be a permanent resident of Canada to open a TFSA – just be 18 years old and a resident at the time of application.
2. Registered Retirement Savings Plan (RRSP Limit): For 2025, RRSP contributions will see a significant increase of 32% (up from 18%) for individuals with an income of $180,000. For others, the contribution limit will remain at 18% of your salary.
3. Homebuyer Tax Changes:
   In 2025, the amount you can withdraw from your RRSP for home purchases will increase to $60,000, up from $35,000 in 2024. Plus, you now have 5 years to repay the amount you withdraw, up from 2 years previously.
4. First-Home Savings Account (FHSA):
   The annual limit for FHSA contributions is set at $8,000, with a lifetime limit of $40,000. To take advantage of these benefits, you must create your FHSA by December 31, 2024.
5. Volunteer Firefighter and Search and Rescue Credit:
   The tax credit for eligible volunteers has doubled, increasing from $3,000 to $6,000 for those with at least 200 hours of volunteer service.
6. Federal Tax Brackets:
   The federal tax brackets have expanded, reducing the tax burden for those in lower income brackets. For example, individuals earning up to $57,375 will be taxed at 15%, and those earning between $57,375 and $114,750 will pay 20.5%.

Challenges: Tax Increase

1. CPP Deductions:
   While the contribution rate remains the same (5.95% for employees and employers), the maximum CPP contribution has increased, affecting those with higher incomes. For self-employed individuals, this means contributing double the rate (11.9%).
2. Capital Gains Tax:
   The inclusion rate for capital gains has increased to 67% for individuals earning over $250,000 in gains in 2025. This change only applies to second properties such as cottages or farms. However, there’s good news for business owners: the lifetime capital gains exemption for entrepreneurs has increased to $1.25 million

Other Important Updates

1. Charitable Donations:
   The deadline for charitable donations to apply to your 2024 taxes has been extended to February 28, 2025.
2. Short-Term Rentals:
   If you own a short-term rental property, be aware that stricter tax rules have been introduced. Ensure your property complies with regulations by December 31, 2024, to avoid higher taxes.
3. Digital Platform Sellers:
   For those involved in digital platforms, such as SaaS businesses or ride-sharing services, new reporting requirements are in place. Platform operators must now report income data for tax purposes by January 31, 2025

Conclusion:

Although the 2025 tax changes may seem overwhelming, there are plenty of opportunities for savings, especially with RRSP and homebuyer benefits. It’s important to balance the good news with the increased contributions to CPP and the new federal tax brackets. 

If you’re feeling uncertain about navigating these changes, don’t hesitate to reach out to a professional for expert advice.

At Zera Accounting and Tax, CPA, we’re here to assist you with any questions or tax preparation needs. Feel free to contact us anytime on 437-776-5464 or visit us on www.zeracpa.com or email us as [email protected]