The 2025 Federal Budget, tabled on November 4, 2025, contains several technical tax measures that may affect owner-managers and small business owners. While there are no major tax reforms, several proposed measures could impact corporate tax planning, investments, and compliance.
1. Part IV Anti-Deferral Rules
The Budget proposes new anti-deferral rules under Part IV of the Income Tax Act. These rules aim to limit the deferral of tax in tiered corporate structures with mismatched year-ends.
Key points:
- Dividend timing is critical: Part IV tax refunds may be suspended when dividends are paid to an affiliated corporation that has a later year-end.
- Exceptions:
- No deferral occurs if all affiliated corporations pay dividends before the payer’s balance-due day
- Relief is available in certain acquisition-of-control situations.
- Impact: Owner-managers should review corporate structures and dividend strategies to avoid unexpected tax deferrals.
2. Underused Housing Tax (UHT) Proposal
The Budget proposes repealing the UHT starting in 2025.
Highlights:
- If passed, no UHT payments would be required for 2025 and later years.
- No UHT returns would need to be filed for those years.
Note: This is still a proposal, not a law. Confirmation from legislation is required.
3. Previously Announced Measures
Several measures from prior announcements were confirmed or deferred:
- Lifetime Capital Gains Exemption (LCGE): Increased to $1.25 million for qualifying gains.
- Bare trust reporting: Deferred to taxation years ending December 31, 2026, or later.
- Other technical amendments: Various changes, including items relating to Alternative Minimum Tax (AMT) and Section 160 assessments.
4. Other Noteworthy Tax Updates
Personal / Other Measures:
- Personal Support Worker Tax Credit
- Automatic federal benefits enrolment for lower-income taxpayers
International Tax Measures:
- Updated transfer pricing rules aligned with OECD guidance
- Clarification of foreign affiliate income rules
Administrative Changes:
Increased Tax Court informal procedure limits for smaller tax disputes
5. Understanding the Budget Process
- Budget proposals are not law until passed by Parliament.
- Measures may be delayed, withdrawn or amended, so always confirm with your accountant or the CRA.
6. Takeaways for Owner-Managers
- Review corporate and trust structures for Part IV anti-deferral compliance.
- Monitor the UHT repeal proposal if owning residential properties.
- Track previously announced measures for tax planning opportunities.
- Stay informed on international tax and administrative updates.
