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For manufacturing or processing buildings, taxpayers may deduct 100 % of the cost in the year of acquisition if at least 90 % of the floor space is used for manufacturing or processing. The immediate expensing phases down to 75 % for buildings first used in 2030‑31 and 55 % for 2032‑33. This provision begins November 4, 2025 and can significantly accelerate write‑offs for companies investing in new facilities.
Immediate 100 % write‑offs continue for class 44 (patents), class 46 (data‑network equipment) and class 50 (general‑purpose electronic data‑processing equipment) for assets acquired between April 16, 2024 and December 31, 2026. Business owners making technology or intellectual property investments should consider advancing purchases to take advantage of this short window.
Complex anti‑deferral rules apply when a Canadian‑controlled private corporation (CCPC) earns passive investment income. A dividend refund is normally available when the corporation pays taxable dividends. Budget 2025 proposes to suspend dividend refunds in situations where a dividend is paid to an affiliated corporation with a later year‑end, thereby preventing a deferral.
For most of our clients, corporate year‑ends are aligned, so this proposal should not alter existing dividend strategies. Those with staggered year‑ends, however, may experience delayed access to dividend refunds unless they adjust year‑ends or dividend timing. Because the measure applies to taxation years beginning on or after November 4 2025 and the draft legislation may evolve, for corporate structures with mismatched year‑ends we may revisit dividend policies closer to implementation.
The CRA will receive funding to target misclassification of employees as independent contractors, particularly in the trucking industry. Proposed amendments will allow CRA to share information with Employment and Social Development Canada to enforce labour standards. Businesses using contractors should review their arrangements to mitigate risk.
SALES AND EXCISE MEASURES
The budget proposes to eliminate the UHT beginning with the 2025 calendar year, meaning no returns or tax will be required for 2025 and beyond. Filing obligations and penalties for prior years remain. This is good news for clients with recreational or investment properties held in corporate structures, although provincial speculation and vacancy taxes still apply.
The luxury tax on aircraft and vessels will end for transactions after November 4, 2025. Registrants must file final returns, but the tax remains on vehicles over $100 000. High‑net‑worth individuals purchasing aircraft or boats may welcome this change, though luxury cars continue to attract the tax.
OTHER MEASURES
Enhanced trust reporting requirements were introduced in 2023, but CRA waived them for bare trusts for 2023 and again for 2024. Budget 2025 confirms that bare trusts will not need to file T3 returns for 2025, with mandatory reporting deferred to years ending on or after December 31, 2026. Clients using bare trusts (e.g., for property ownership or estate planning) should still prepare for increased disclosure in future years.
Trusts are generally deemed to have disposed of their property for fair market value proceeds on the 21st anniversary of their creation, and every 21st anniversary thereafter (the “21-year rule”). Where property is transferred by a trust on a tax-deferred basis to a new trust, a rule prevents the avoidance of the 21-year rule. This rule prevents transactions that would indefinitely postpone tax on accrued gains. However, certain tax avoidance planning techniques have been used to avoid both the 21-year rule and the anti-avoidance rule. For example, this planning may involve transferring trust property on a tax-deferred basis to a beneficiary that is a corporation owned by a new trust.
Budget 2025 proposed to broaden the current anti-avoidance rule for direct trust-to-trust transfers to include indirect transfers of trust property to other trusts. This measure would apply in respect of transfers of property that occur on or after November 4, 2025.
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Planning for corporate groups: The suspension of dividend refunds in tiered structures could result in temporary double taxation and cash‑flow issues for holding companies. We may revisit dividend timing and consider aligning year‑ends where feasible.
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Maximizing deductions: The window for enhanced CCA and immediate expensing is temporary. Businesses contemplating significant capital investments (especially in manufacturing, processing, clean‑tech or technology) should model the after‑tax benefits of acquiring assets before 2030. If these changes are legislated and they would be of benefit to our clients who have already filed their returns, we will consider amending the tax filing.
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Real estate: Elimination of the UHT reduces federal exposure for owners of residential property held in corporations or trusts. However, provincial and municipal vacancy taxes remain, and these should be factored into investment decisions.
The proposals may have different implications depending on your personal or corporate circumstances. Clients should assess how measures such as enhanced depreciation incentives, trust amendments and dividend refund restrictions interact with their plans, and are invited to contact our office to discuss whether any of these proposals may affect them. As the legislation progresses, we will continue to monitor developments and provide updates.
View a list of our past newsletters here.
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