Tax Updates 2025
- dawnpoulin40
- Dec 21, 2024
- 4 min read
RRSP Contribution Limit
Increase
For 2025, the maximum RRSP contribution limit has risen to $32,490.
That’s an increase of $930 from the previous year.
First Home Savings Account (FHSA)
First Home Savings Account, or FHSA. Launched in 2024, the FHSA is designed specifically to help Canadians save for their first home purchase.
The FHSA combines features of both the RRSP and TFSA, making it an effective and tax-advantaged way to build up a home down payment.
The FHSA allows contributions that are tax-deductible, similar to an RRSP, meaning they reduce your taxable income. Like a TFSA, however, the investment growth within the account is tax-free, and withdrawals remain tax-free as long as they’re used for buying your first home.
For the FHSA, the rules remain unchanged for 2025:
Lifetime contribution cap: $40,000
Annual contribution limit: $8,000
These limits allow for a substantial amount to be saved over time, making homeownership more attainable for Canadians.
CPP Contribution Rate Update and CPP 2.0 Changes
There are updates to both regular CPP contributions and the newer "CPP 2.0" or second additional component for 2025.
The original CPP contribution rate for both employees and employers remains at 5.95%, but with an increased maximum contribution limit due to the rise in yearly maximum pensionable earnings (YMPE) to $71,300 for 2025. This means:
Maximum Contribution for Employees and Employers: Each will contribute up to $4,034.10 in 2025, up from $3,867.50 in 2024.
Self-Employed Individuals: Those who are self-employed pay both the employee and employer portions, totaling 11.9%, with a maximum contribution of $8,068.20 in 2025, up from $7,735.00 in 2024.
Introducing CPP 2.0
The Yearly Additional Maximum Pensionable Earnings , applies to earnings above the regular yearly amount and is meant to help Canadians save more for retirement.
Here’s what CPP 2.0 contributions look like in 2025:
Employee and Employer Contributions: Each contributes 4% on earnings between $71,300 and $81,200. This means a maximum CPP 2.0 contribution of $396.00 each for employees and employers, up from $188.00 in 2024.
Self-Employed Individuals: For self-employed Canadians, who pay both portions, the total CPP 2.0 contribution is 8%, resulting in a maximum contribution of $792.00 in 2025, up from $376.00 in 2024.
Total CPP Contribution Costs for 2025 vs. 2024
When considering both regular CPP and CPP 2.0, the maximum total CPP contribution for employees in 2025 is $4,430.10, an increase from $4,055.50 in 2024.
Employers will also see this increase per employee, raising payroll costs to match.
For self-employed individuals, who cover both the employee and employer portions, the total maximum CPP cost will be $8,860.20 in 2025, up from $8,111.00 in 2024.
Federal Tax Bracket Changes for 2025
the lowest tax bracket, taxed at 15%, now applies to income up to $57,375, up from $55,867 in 2024.
Basic Personal Amount Increase for 2025
In 2025, the BPA has increased to $16,129, up from $15,705 in 2024.
Proposed Capital Gains Changes for 2025
In 2025, Canada’s capital gains tax rules may see some significant updates.
Higher Lifetime Capital Gains Exemption (LCGE):
The LCGE may increase to $1.25 million (up from $1,016,836 in 2024) for selling small business shares or eligible farm and fishing properties.
Starting in 2026, this exemption would also be indexed to inflation.
Increased Capital Gains Inclusion Rate:
For individuals, the inclusion rate could rise from 50% to 66.7% on capital gains above $250,000.
For corporations, the proposed 66.7% inclusion rate would apply to all capital gains, without a reduced rate for the first $250,000.
Canadian Entrepreneurs’ Incentive (CEI):
This new incentive would allow qualifying business owners a reduced 33.3% inclusion rate on up to $200,000 in capital gains from the sale of eligible small business shares, with this limit increasing each year until it reaches $2 million in 2034.
Only certain sectors are expected to qualify, with exclusions for sectors like finance, real estate, and professional services.
These proposed changes would allow higher tax-free gains on business sales but could also mean a larger taxable portion for other capital gains.
Proposed GST Updates for December 2024 - February 2025 GST Holiday on Select Items
From December 14, 2024, to February 15, 2025, Canadians won’t have to pay the 5% GST on a variety of products. These include:
Children’s clothing and footwear
Children’s diapers
Children’s car seats
Certain children’s toys
Jigsaw puzzles
Video game consoles, controllers, and physical video games
Physical books
Printed newspapers
Christmas and similar decorative trees
Most food and beverages and related services
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Updates to the Home Buyers’ Plan (HBP)
The HBP allows first-time homebuyers to withdraw funds from their RRSPs to help purchase a home, tax-free, as long as the funds are repaid over time.
.Increased Withdrawal Limits
As of April 16, 2024, the maximum amount individuals can withdraw from their RRSP under the HBP has increased from $35,000 to $60,000.
For couples, this means each partner can withdraw $60,000 from their respective RRSPs, allowing for a combined total of $120,000 to be used toward a down payment.
Extended Repayment Grace Period
Previously, you had to begin repaying the borrowed funds by the second year after withdrawal. Now, there’s a five-year grace period for withdrawals made between January 1, 2022, and December 31, 2025.
This means buyers have more time to save before they start repaying their RRSP.
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