On November 4, 2025, Minister of Finance François‑Philippe Champagne tabled Canada’s 2025 federal budget (“Budget 2025”). Titled “Canada Strong,” this year’s highly anticipated first budget for the recently elected minority government introduces a new budgeting framework that distinguishes between capital and operational spending. Notwithstanding the distinction, when both types of spending are combined, the budget projects a deficit of roughly $78 billion for 2025–2026.
At a Glance
- A focus on generational investments in housing, infrastructure, and defence, with measures to improve productivity and competitiveness amid ongoing international trade disruptions
- A commitment to reining in operational spending to offset the investment outlays
- Significant tax and government funding measures affecting corporate investments, clean economy projects, international tax, SR&ED, commodity tax, and Indigenous initiatives
Fiscal Context and Policy Lens
Touting generational investments in housing, infrastructure, defence, and various measures to improve productivity and competitiveness in the face of unrelenting economic uncertainty because of ongoing international trade disruptions, the government has also committed to reining in its operational spending to offset the enormous level of investment.
Why This Matters
- The new capital vs. operating framework is intended to separate long‑lived investments from day‑to‑day program spending.
- The projected deficit and investment profile will influence capital planning, financing, and after‑tax cash flow decisions for businesses through 2033.
How to Use This Deep Dive
This analysis prioritizes organization and clarity while preserving the original wording of key measures. Each section reproduces the government’s proposals as written below, followed by concise context or practical takeaways where helpful.
Corporate Tax Measures
Immediate Expensing for Manufacturing and Processing Buildings
To accelerate investments in manufacturing, Budget 2025 proposes temporary immediate expensing for the cost of eligible manufacturing or processing buildings, including the cost of eligible additions or alterations made to such buildings. The enhanced allowance would provide a 100% deduction in the first taxation year that eligible property is used for manufacturing or processing, subject to meeting a minimum 90% floor space requirement.
This measure would be effective for eligible property acquired on or after November 4, 2025, and first used for manufacturing or processing before 2030.
An enhanced first‑year capital cost allowance (CCA) rate of 75% would be provided for eligible property first used for manufacturing or processing in 2030 or 2031, and a rate of 55% would be provided for eligible property that is first used for manufacturing or processing in 2032 or 2033.
An enhanced CCA rate would not be available for property that is first used for manufacturing or processing after 2033.
Note that property used (or acquired for use) for any purpose before being acquired by a taxpayer would be eligible for immediate expensing only if neither the taxpayer nor a non‑arm’s‑length person previously owned it and the property was not transferred to the taxpayer on a tax‑deferred basis. In addition, recapture rules may apply in cases where the building is changed after expenses.
What to Consider Now
- Project timelines: Align construction/use dates to capture 100% expensing before 2030 or phased rates through 2033.
- Asset eligibility: Confirm the 90% floor space test and new property conditions to avoid recapture.
Clean Economy Investment Tax Credits
The government has renewed its commitment to recently enacted legislation introducing certain clean economy refundable investment tax credits, and Budget 2025 proposes the following enhancements to those credits.
Carbon Capture, Utilization, and Storage
Budget 2025 proposes to extend the full credit rates for the investment tax credit for Carbon Capture, Utilization, and Storage (CCUS) by five years, so that the full rates apply to eligible expenditures incurred from the start of 2022 to the end of 2035.
Eligible expenditures incurred from the start of 2036 to the end of 2040 will continue to be subject to lower tax credit rates, as previously announced.
The government will also postpone, by five years, the review of CCUS investment tax credit rates announced as part of the 2022 federal budget. Under this new timeline, the review will be undertaken before 2035 (rather than before 2030).
Clean Technology Manufacturing
The Clean Technology Manufacturing Investment Tax Credit is a refundable tax credit equal to 30% of the cost of qualifying investments in new machinery and equipment used to manufacture or process key clean technologies. Budget 2025 proposes to expand the list of critical minerals eligible for the Clean Technology Manufacturing Investment Tax Credit to include antimony, indium, gallium, germanium, and scandium.
This measure would apply in respect of property that is acquired and becomes available for use on or after November 4, 2025.
Clean Electricity
Budget 2025 proposes to include the Canada Growth Fund as an eligible entity under the Clean Electricity Investment Tax Credit criteria and introduce an exception so that financing provided by the fund would not reduce the cost of eligible property for computing the investment tax credit. This change would apply to eligible property acquired and available for use on or after November 4, 2025.
While the Clean Electricity Investment Tax Credit legislation remains in progress, investors should gain some certainty from this budget that measures will be retroactive to April 16, 2024, for projects that did not begin construction before March 28, 2023.
What to Consider Now
- Long‑dated planning: The extended CCUS full‑rate window through 2035 can reshape multiphase decarbonization budgets.
- Supply‑chain alignment: The expanded minerals list may alter eligibility mapping for component manufacturing roadmaps.
Tax Deferrals Using Tiered Structures
Budget 2025 proposes to limit the deferral of tax on investment income using tiered corporate structures with different year‑ends by Canadian‑controlled private corporations (CCPCs). The dividend refund due to a payer corporation (under Part IV of the Income Tax Act) on the payment of a taxable dividend would be suspended where an affiliated recipient corporation’s balance‑due day for the taxation year in which the dividend was received ends after the payer corporation's balance‑due day for the taxation year in which the dividend was paid.
This rule would not apply if each corporate dividend recipient in a chain of affiliated corporations pays a subsequent dividend on or before the payer's balance‑due day, such that the affiliated corporate group achieves no deferral. To accommodate bona fide commercial transactions, the rule would also not apply to a dividend payer subject to an acquisition of control where it pays a dividend within 30 days before the acquisition of control.
The payer corporation would generally be entitled to claim the suspended dividend refund in a subsequent taxation year when the recipient corporation pays a taxable dividend to a nonaffiliated corporation or individual shareholder.
This measure would apply to taxation years that begin on or after November 4, 2025.
What to Consider Now
- Year‑end alignment: Review affiliated group calendars and dividend flow ahead of 2025–2026 planning.
International Income Tax Measures
Changes to Transfer Pricing Rules
Following the consultation period set out in the 2021 federal budget as part of a review of Canada’s transfer pricing regime, Budget 2025 proposes adjustments to transfer pricing rules to better align with international application of the arm's length principle.
In addition, an interpretation rule would be added to ensure that Canada's transfer pricing rules are applied in accordance with the conditions of the analytic framework set out by the Organisation for Economic Co‑operation and Development (OECD) Transfer Pricing Guidelines. The actual conditions for an arm’s length standard would be determined not only by the contractual terms of the transaction or series, but also by other “economically relevant characteristics.”
The new rules would provide that this determination is made through an analysis where the most appropriate method is selected and applied in accordance with the Transfer Pricing Guidelines. The new rules would also provide that a transaction or series will be considered to include conditions that differ from arm's length conditions, where: (i) a condition does not exist as an actual condition, but would have existed had the participants to the in‑scope transaction or series had been dealing at arm's length in comparable circumstances; or (ii) the participants would not have entered the transaction or series, or would have entered into a different transaction or series, had they been dealing at arm's length in comparable circumstances.
The main factors required for a transfer pricing analysis would be set out in the new definition of “economically relevant characteristics,” and the new rules would require any in‑scope transaction or series to be analyzed and determined with reference to the economically relevant characteristics of the transaction or series.
The economically relevant characteristics of a transaction or series would be defined to include five comparability factors: contractual terms, functional profile, characteristics of the property or service, economic and market context, and business strategies.
In addition, a new definition of “arm's length conditions” would require the comparison to posit what the actual participants to the in‑scope transaction or series would have done if they had been dealing at arm's length and not what other theoretical parties dealing at arm's length might have done.
The new rules would also modify existing administrative matters, including:
- Providing relief for taxpayers through an increase in the threshold for the transfer pricing penalty to apply from an assessment (from $5 million to a $10 million transfer pricing adjustment)
- Clarifying the transfer pricing documentation requirements and more closely aligning them with the new definitions and requirements to select and apply the most appropriate method
- Providing simplified documentation requirements when prescribed conditions are met
- Reducing the time to provide transfer pricing documentation from 3 months to just 30 days (the requirements for taxpayers and partnerships to make or obtain the appropriate records or documentation by their due date for any given year or period would remain unchanged)
These measures would apply to taxation years that begin after November 4, 2025.
What to Consider Now
- Documentation readiness: Re‑map files to “economically relevant characteristics” and rehearse 30‑day response timelines.
Investment Income Derived from Assets Supporting Canadian Risk
Certain income earned by controlled foreign affiliates of Canadian‑resident insurers may be taxed at the Canadian taxpayer entity level on an accrual basis (i.e., foreign accrual property income or FAPI). Budget 2025 proposes to clarify that investment income derived from assets held by a foreign affiliate to back Canadian risks should be included in FAPI. The budget further clarifies that income to be included in FAPI includes both investment income generated from foreign‑owned assets held to back Canadian risks, as well as income from assets held for actuarial or regulatory purposes in relation to those risks.
This measure is proposed to apply to taxation years beginning after November 4, 2025.
What to Consider Now
- Portfolio mapping: Identify affiliate assets “backing Canadian risks” and model FAPI impacts prospectively.
Scientific Research and Experimental Development (SR&ED)
The government is proceeding with enhancements to the Scientific Research and Experimental Development (SR&ED) tax credit program, as proposed in the 2024 Fall Economic Statement and subsequent draft legislation. These enhancements include:
- Increasing the prior‑year taxable capital phase‑out thresholds for the SR&ED program’s enhanced 35% tax credit, with the lower and upper prior‑year taxable capital phase‑out boundaries increased to $15 million and $75 million, respectively
- Increasing the annual expenditure limit on which the enhanced credit can be earned from $3 million to $4.5 million
- Extending the enhanced credit to eligible Canadian public corporations
- Restoring the eligibility of capital expenditures for the SR&ED program
Budget 2025 proposes to extend the annual expenditure limit even further to $6 million. This limit must be shared within an associated group. These changes are effective for taxation years that begin on or after December 16, 2024.
In addition, the government will implement administration reforms to the SR&ED approval process through the Canada Revenue Agency (CRA). The proposed measures, designed to improve predictability and streamline the program's administration, include:
- Introducing an elective pre‑claim approval process to provide businesses with an up‑front technical approval of their eligible SR&ED projects. The claimant will submit a research and development (R&D) project plan for pre‑approval, and the CRA will assess the plan and provide a multiyear pre‑approval, if accepted. In addition, the new procedure will offer an improved processing time standard of 90 days from 180 days.
- Increasing the use of artificial intelligence by the CRA in the program’s administration to help avoid unnecessary audits of low‑risk claims and improve processing times.
- Eliminating unnecessary audit steps and reducing burdensome information requirements that can delay the final determination of claims.
While it remains to be seen what specific steps will be eliminated from the CRA’s Claim Review Manual, we applaud the spirit of these measures. Greater certainty as to the technical qualification of a project will in turn provide greater confidence for companies in making investments in R&D.
What to Consider Now
- Pipeline planning: Align multiyear R&D roadmaps with higher limits and pre‑claim approval to reduce financing risk.
Commodity and Indirect Tax Measures
GST/HST Enforcement on Carousel Schemes
Budget 2025 proposes complex changes to combat carousel fraud in the goods and service tax (GST)/harmonized sales tax (HST) system. While proposed new rules have been included in this year’s budget, the government is accepting comments and feedback on the proposals until January 12, 2026, before finalizing the rules and tabling enacting legislation.
These proposed new anti‑carousel fraud measures include the following:
- There is an introduction of a reverse charge mechanism (RCM) on specified telecommunication services.
- Specified telecommunication services would be defined broadly as those that enable instantly or with a negligible delay between transmission and receipt of signals, or the transmission of writing, images, and sounds or information of any nature when provided in connection with services that enable such speech communication.
- The RCM would require a recipient registered for GST/HST to self‑assess and remit the tax directly to the government. Once the self‑assessment has been reported on the return, the recipient would be eligible to claim an input tax credit on the same return. The supplier would not collect GST/HST on the supply. This would be like the self‑assessment rules already in place for certain supplies of real property and carbon emission credits.
- The RCM would only apply in scenarios where all or substantially all (90% or more) of the specified telecommunication services are acquired to resupply those services.
- The recipient of the specified telecommunication services would need to provide their GST/HST number to the supplier for tax to not apply.
- Eligibility for input tax credits for supplies subject to the RCM would be limited to persons registered for GST/HST at the time the tax is paid or becomes payable.
- Rebates for tax paid in error on supplies subject to the RCM would only be available where the amount has been paid to the government. Recipients who paid tax in error to a supplier would be required to contact the supplier for a refund.
- Suppliers would be required to indicate that a supply is subject to the RCM on their invoices.
- The new rules would grant the government the authority to designate other types of supplies as subject to the RCM.
GST/HST on Osteopathic Services
Budget 2025 proposes to clarify that the exemption for osteopathic services extends only to those services provided by osteopathic physicians. Osteopathic services provided by other practitioners remain subject to the GST/HST. This clarification applies to supplies made after June 5, 2025, but does not apply to osteopathic services made after that date and on or before November 4, 2025, if the supplier did not collect tax.
Underused Housing Tax Eliminated
Budget 2025 proposes to eliminate the Underused Housing Tax (UHT) as of the 2025 calendar year. This means no UHT is payable, and no further returns are required to be filed for 2025 and subsequent calendar years. However, returns for calendar years 2022 to 2024 must still be filed, and penalties and interest can still be applied for failing to do so.
This proposed change does not affect the federal foreign buyer ban, as well as several provincial, municipal, and regional vacancy taxes across Canada.
Luxury Tax Relief
To reduce the administrative burden on the airline and shipbuilding industries, Budget 2025 proposes eliminating the Luxury Tax on applicable aircraft and vessels, effective on November 5, 2025. Registered vendors will be required to file a final return for the reporting period, including November 4, 2025.
Persons previously required to be registered for sales may cancel their registration. Otherwise, all registrations for subject aircraft and vessels will be cancelled as of February 1, 2028. This date coincides with the final date to claim a rebate for the Luxury Tax, for example, in the case of an exported vessel or aircraft. After this date, no further refunds will be available.
Note that the Luxury Tax on subject vehicles and improvements is still in effect and continues to apply to passenger vehicle sales, leases, importations, and improvements more than $100,000.
Customs Duty Measure
Despite widely anticipated customs duty relief, Budget 2025 contains only a single proposed measure to amend the Customs Tariff to permit a duty drawback for goods donated to a registered charity for use in the charity’s activities and not for resale in Canada.
What to Consider Now
- Indirect tax controls: Update invoicing, procurement, and telecom billing processes to accommodate a potential RCM.
Previously Announced Tax Measures
In accordance with previous years, the government has expressed its intention to move forward with numerous previously announced tax and related measures, with introduction dates ranging from 2019 to 2025.
Interestingly, in 2023, the government introduced draft legislation to make substantial changes to the GST/HST rules for joint ventures. However, the government has intentionally omitted this legislation from the list of previously announced measures on which it intends to move forward, and it appears that the joint venture rule changes are no longer considered a priority for implementation.
Indigenous Taxation and Initiatives
The government has committed to consulting with Indigenous partners on major government initiatives and priorities affecting them. A number of new funding initiatives are aimed at addressing today’s challenges created by current and historical discrimination.
Strengthening Infrastructure Financing
Budget 2025 intends to make amendments to the First Nations Fiscal Management Act to enable the First Nations Finance Authority to lend to special purpose vehicles (SPVs), which are commonly used in scenarios where multiple nations come together to undertake a common economic activity.
In addition, the government intends to explore ways to facilitate major construction projects on reserves, including the creation of a bonding and surety backstop pilot program for First Nations contractors, as well as mechanisms to support financing for guarantees on reserve.
First Nations Access to Clean Water
Budget 2025 proposes to renew the First Nations Water and Wastewater Enhanced program for $2.3 billion over three years to continue to end boil‑water advisories in Indigenous communities.
Supporting Indigenous Housing and Infrastructure
Budget 2025 confirms $2.8 million in funding for urban, rural, and northern Indigenous housing. In addition, the required funding target for the Canadian Infrastructure Bank will be increased from $1 billion to at least $3 billion across various sectors.
Indigenous Tax Jurisdiction Frameworks
Budget 2025 confirms the government’s longstanding intention to conclude fuel, alcohol, cannabis, tobacco, and vaping (FACT) value‑added tax frameworks with interested Indigenous governments. This is in line with the previous year’s amendments to the FACT frameworks, as well as the First Nations Goods and Services Tax (FNGST).
What to Consider Now
- Partnerships and procurement: Monitor opportunities tied to SPV financing, bonding, and housing/water infrastructure commitments.
Key Government Funding Program Changes
Export Development Initiatives
Global Affairs Canada renewed its commitment to the popular CanExport program, with committed funding of $68.5 million over four years. This program assists small and medium‑sized businesses (SMEs) with the up‑front investments in foreign markets, including costs such as travel, distribution and agent fees, product licensing, and hiring staff.
Innovation, Science and Economic Development Canada will receive $46.5 million over four years, starting in 2026–27, for the SME Export Readiness Initiative to support capacity‑build training for SMEs contemplating investment in foreign markets.
Natural Resources Canada will receive $4.2 million over three years to maintain capacity to promote Canada’s nuclear energy exports in key markets.
In addition, Budget 2025 proposes to provide $39.9 million over four years to the National Research Council of Canada’s Industrial Research Assistance Program (NRC IRAP) to expand the Clean Technology Demonstration initiative for global markets.
Strategic Response Fund
Several government programs, including the Strategic Innovation Fund, will be combined into the Strategic Response Fund and receive $5 billion over six years to help companies impacted by tariffs maintain their capacity and help offset the cost of pivoting, growing, or diversifying their operations and finding new reliable markets abroad. This includes $1 billion in Strategic Innovation Fund support for the steel industry's pivot to new products and markets and to strengthen domestic supply chains, as announced in July 2025.
Workforce Measures
Budget 2025 announces a multiyear package to help Canadian workers adapt to labor market disruptions from tariffs, global market shifts, and technological change. Measures combine targeted fiscal supports, Employment Insurance (EI) flexibility, and partnerships to enhance skill development and workforce resilience.
Labor Market Development Agreements (LMDAs)
- Funding: $570 million over three years (starting in 2025–26).
- Purpose: Support training and employment assistance for workers affected by trade-related disruptions.
- Implications:
- Funds flow through existing LMDAs with provinces and territories.
- Employers and workers in tariff-impacted or volatile sectors may benefit from subsidized retraining programs.
- There are potential links with provincial training tax credits and federal workforce development incentives.
Workforce Alliances and Innovation Fund
- Funding: $382.9 million over five years (starting in 2026–27), plus $56.1 million ongoing.
- Purpose: Establish workforce alliances (employers, unions, and industry groups) to:
- Coordinate public and private investment in skills development.
- Identify regional or sectoral labor shortages.
- Finance local pilot projects.
- Implications:
- This may lead to industry-specific tax incentives or deductions for employer training.
- Employers may access funding for workforce transition initiatives (e.g., manufacturing, clean tech, or digital services).
Employment Insurance (EI) Flexibility
Work-Sharing Program
- Cost: $370.5 million over five years (starting in 2025–26), plus $18.5 million ongoing.
- Measure: Temporary flexibilities allow EI benefits for employees who agree to reduced hours as a result of external business downturns.
- Implications:
- This helps reduce layoffs while maintaining payroll continuity.
- Consider coordination with wage subsidy or payroll relief programs.
Temporary EI Income Support
- Cost: $3.7 billion over three years (starting in 2025–26).
- Measure: Enhanced income support for workers affected by foreign tariffs and economic uncertainty.
- Implications:
- This provides a fiscal buffer to affected sectors.
- It complements potential tax deferrals or loss carryback relief for businesses.
Digital Jobs and Training Platform
- Funding: Details pending ($50 million over five years plus $8 million ongoing from 2026–27).
- Purpose: Create a national online platform connecting Canadians to job opportunities, training programs, and private-sector partners.
- Implications:
- This streamlines access to retraining opportunities.
- It may reduce employers’ administrative costs in recruiting skilled workers via a centralized system.
Practical Guidance: Actions to Consider
- Model after‑tax impacts of immediate expenses, clean economy investment tax credits, and Luxury Tax relief on capital plans.
- Inventory R&D projects and prepare SR&ED pre‑claim approval and documentation reforms.
- Review transfer pricing policy architecture for the new “economically relevant characteristics” framework and 30‑day response standards.
- Update GST/HST compliance processes for potential telecom RCM and osteopathic services clarification.
- Evaluate eligibility for government funding programs (CanExport, IRAP, and Strategic Response Fund) and workforce support.
Further Information and Ryan Support
Further details on Budget 2025 can be found on the Government of Canada website.
To read key updates from all of Canada’s latest budgets, please visit our Key Changes | 2025 Canadian Federal and Provincial Budgets page.
If you have any questions about how these proposed changes might impact your organization, please contact your Ryan representative or the Ryan TaxDirect® line at 1.800.667.1600 or taxdirect@ryan.com.
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