There are several changes to federal policy that could impact Canadians’ finances in the new year.
Brian Quinlan, a certified public accountant with Alley LLP, says many of the changes are routine. These include inflation-based adjustments for which tax bracket you fall into.
Other changes, such as the capital gains tax changes that take effect for the first full year in 2025, may require further planning.
Here is a list of changes to be aware of:
Tax classification
Income tax brackets for 2025 are scheduled to rise by 2.7 per cent in the new year to prevent Canadians from being pushed into higher tax brackets by rising prices. This follows a 4.7% increase in 2024.
Federal tax in 2025 is 15% on earnings up to $57,375. 20.5% from $57,375.01 to $114,750. 26% between $114,750.01 and $177,882.
The tax rate is 29% for earnings between $177,882.01 and $253,414 and 33% above that.
“You don’t have to pay more in taxes just because of inflation, so (the adjustment) is good news for all of us,” Quinlan said.
“Even if your income is exactly the same in 2024 and 2023, you will pay less tax because you will be taxed at a lower rate,” he added.
Individual basic amount
For tax year 2025, the individual basic amount that you pay no federal income tax ranges from $14,538 to $16,129, depending on your gross income.
This is an increase from the 2024 figure ($14,256 to $15,705). The lower your income, the higher your basic personal tax credit.
canada pension plan
Some Canadian workers may see a little more taken out of their paychecks due to increased CPP contributions.
A multi-year pension review began in 2019, as both the Quebec Pension Plan and the CPP began phased in benefit expansions aimed at providing greater financial support to retirees. As the plan was implemented, individual contributions and employer matching increased.
As of 2024, there are two additional income caps above the basic level, with higher-income workers paying an additional premium on their second-tier income before reaching the cap.
The income cap for first-tier earners will rise from $68,500 in 2024 to $71,300 in the new year. The second income cap will jump from $73,200 to $81,200 in 2024.
From 2025 onwards, the program will be fully implemented and the base, tier 1 and tier 2 limits will increase in line with wage growth, rather than the large increases seen in recent years.
Anyone who has worked and contributed to CPP since 2019 will be eligible to receive a higher CPP upon retirement based on their earnings during that period.
capital gains tax
Although there is some uncertainty here as the bill has not yet been passed, the proposed changes to capital gains tax are significant.
Mr Quinlan said the new year should be the first full year in which profits over $250,000 would be taxed at a higher rate, and for those looking to sell assets in the new year, the change would be a “serious investment”. “Consideration” is necessary, he said.
Mr Quinlan said the timing of the asset sale was important.
“As opposed to selling an asset and making a huge profit of $300,000 in one year, you could sell some in one year and some in the next year,” he said. said.
Once effective, this change will apply to capital gains from June 24, 2024.
Under the new rules, most of an individual’s capital gains (profits earned on the sale of assets) will be considered taxable.
Previously, the government taxed 50% of capital gains. This amount represents capital gains up to $250,000, but increases by two-thirds for gains over $250,000.
Registered retirement benefit system
In fiscal year 2024, Canadians can make contributions to registered retirement savings accounts until March 3.
The threshold for registered retirement savings will rise from $31,560 to $32,490 in the new year, plus contribution room from the previous year.
You can check the amount of your unused contribution allowance on last year’s assessment notice from the Canada Revenue Agency or in your CRA online account.
This report by The Canadian Press was first published Jan. 1, 2025.
