Tax planning with Bateman MacKay is a forward-looking, multi-year process. As 2025 approaches year-end, it is critical to review and adjust your strategies to ensure you are fully optimized for 2026 and beyond. This planner outlines key legislative changes, CRA policy updates and the most relevant planning opportunities for individuals and businesses. For questions or to explore how these updates apply to your situation, please contact your Bateman MacKay Business Advisor for tailored guidance.

2025 Tax Planning Highlights

• Accelerated Capital Cost Allowance (CCA) “Productivity Super-deduction”
• Capital Gains Inclusion Rate Increase (and Canadian Entrepreneurs Incentive) has been cancelled
• Tiered Corporate Structure Dividend Refunds
• Underused Housing Tax and Luxury Tax on personal aircraft and boats cancelled (but not cars)
• Bare Trust reporting delayed another year to the 2026 tax year

Corporate and Individual Tax Planning

CCA Productivity Super Deduction

The proposed federal Productivity Super-Deduction is a package of accelerated capital cost allowance measures designed to stimulate investment by allowing significantly faster write-offs of qualifying assets. It is made up of two core elements.

• First, a reset of the accelerated investment incentive (“AII”) has been proposed to be effective January 1, 2025 allowing businesses to claim up to 3x the normal first-year CCA deduction for most capital asset additions. Furthermore, a 100% deduction can be claimed if the capital asset addition is manufacturing or processing machinery and equipment, clean energy generation equipment and zero-emission vehicles. These incentives run through 2029 with a gradual phase-out from 2030-2034.
• Second, a 100% deduction can be claimed for the acquisition or an addition made to an eligible manufacturing & processing building made on or after November 4, 2025. Consistent with the current rules around manufacturing & processing buildings, at least 90% of the building’s floor space must be for manufacturing and/or processing activities. The building must be in use prior to 2030 to qualify for the 100% deduction. This deduction reduces to 75% for the 2030 and 2031 taxation years and further reduces to 55% for the 2032 and 2033 taxation years before fully being phased out by 2034.

Action: Review planned capital projects to determine which assets qualify for the Productivity Super-Deduction and align purchase and in-service dates to maximize accelerated CCA benefits.

Ontario Made Manufacturing Investment Tax Credit Temporary Enhancement

Ontario has temporarily enhanced the Ontario Made Manufacturing Investment Tax Credit for qualifying manufacturing & processing property acquired and available for use on or after May 15, 2025, and before January 1, 2030. During this period, the credit rate increases from 10 per cent to 15 per cent, the annual limit per associated group rises from $2 million to $3 million, eligibility is extended to certain non-CCPCs with a permanent establishment in Ontario (as a non-refundable credit) and a five-year recapture applies if the property is sold, relocated outside Ontario or converted to non-manufacturing use. These enhancements align favourably with federal accelerated CCA incentives, increasing the after-tax value of Ontario-based investments, although groups will need to coordinate capital spending to remain within the $20 million annual eligible investment cap and mitigate recapture exposure.

Action: Review and coordinate all planned capital projects for 2025 through 2029 to prioritise Ontario-based manufacturing investments that can be acquired and placed into use within the enhanced credit window, ensuring group-wide spending remains within the $20 million annual eligible investment cap, aligns with federal accelerated CCA incentives and avoids potential recapture.

Alternative Minimum Tax (AMT)

The updated AMT rules, effective 2024, may impact deductions and planning strategies. The AMT exemption for the 2025 tax year increased to $177,882.

Action: Review the potential effects on charitable donations, share sales, and other high-deduction activities with your tax advisor. View our 2024 webinar on this topic here.

Salary/Dividend Mix

Determine the most beneficial mix of salary and dividends for you and your family members. Consider all relevant factors including personal tax rates, corporate tax rates, RRSP and CPP contributions, provincial deductions and taxes, and available tax credits. Reasonable salaries can be paid to spouses or children who provide services to the business, which also allows for CPP, RRSP and other deductions.

Action: Consider a salary of $180,500 will provide the maximum $32,490 in RRSP room for 2025.

Tax on Split Income (TOSI)

Consider paying dividends to a lower income family member who is a shareholder of the company. However, the TOSI may be applicable which would frustrate such tax planning and the dividend income paid to the lower income shareholder would then be taxed at the highest marginal tax rate. The family member who receives such dividends often is required to be actively engaged in the company to avoid TOSI.

Action: Contact a Bateman MacKay tax advisor as tailored professional tax advice is crucial to navigate the TOSI rules.

Corporate Withdrawals

If corporate withdrawals are required, make sure to consider strategies to reduce the effective tax rate of these withdrawals.

Action: Discuss using potential options including the company’s capital dividend account, repaying shareholder loans or paying tax-effective dividends.

Income Timing

Action: If you expect to be in a lower tax bracket next year and receive a year-end bonus, consider deferring the receipt of your bonus to early 2026. You may also request the bonus, or a portion of the bonus, to be transferred directly into your RRSP to prevent the withholding of taxes provided you have sufficient unused RRSP deduction room in the year of the transfer.

Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA) & First Home Savings Account (FHSA) Contributions

You have until March 2, 2026 (the 1^st falls on a Sunday) to contribute to your RRSP or a spousal RRSP to be able to deduct the amount on your 2025 return. If you have contribution room (18% of earned income up to a maximum of $32,490) contributing before December 31, 2025, helps maximize the tax-deferred growth in your plan.

Contributions of up to $7,000 for 2025 (same as 2024) and any unused contribution room from 2009-2024 can be made to the TFSA. The TFSA allows for tax-free investment income including interest, dividends and capital gains, which may result in higher growth compared to a regular taxable account. Tax-free withdrawals can be made at any time, but caution that any amount withdrawn is not added back to your contribution room until January 1 of the following year.

The FHSA allows individuals saving for their first home to contribute up to $8,000 annually (plus carry forward room) with a lifetime limit of $40,000. Contributions are tax-deductible, grow tax-free, and qualifying withdrawals are also tax-free. Contributions must be made by December 31, 2025, to claim the deduction for 2025. Investment income earned within an FHSA happens on a tax-deferred basis. If a qualifying withdrawal is made, the withdrawal occurs on a tax-free basis similar to a withdrawal from a TFSA. The $8,000 of annual contribution room does not begin to accrue until the account is open, so even if you or your adult child are not yet ready to contribute, it may be beneficial to open an account.

Action: Open an FHSA if eligible, and ensure contributions to RRSP and TFSA accounts are made by year-end to maximise benefits.

Relevant Tax Changes for Business Owners

Capital Gains Inclusion Rate and Canadian Entrepreneurs Incentive (CEI) Cancelled

Federal Budget 2025 confirmed the cancellation of the announced and subsequently delayed increase in the capital gains inclusion rate from 50% to 66.7%. As a result, one-half of most capital gains remains taxable for individuals, corporations and most trusts. A byproduct of this increase is the Canadian Entrepreneurs Incentive which was also cancelled. Other measures linked to the 2024 Budget (for example the increased Lifetime Capital Gains Exemption) continue to be part of the planning landscape. The lifetime capital gains exemption limit has been increased to $1,250,000 (from $1,016,836) effective for qualifying dispositions on or after June 25, 2024. Beginning in 2026, this amount will be indexed for inflation.

Action: Existing capital gain planning frameworks (estate freezes, holding companies, use of the Lifetime Capital Gains Exemption) remain relevant and should be revisited in light of the cancellation.

Dividend Refund Suspension for Tiered Corporate Structures

Budget 2025 proposed to limit the deferral of tax in corporate structures with mismatched year-ends. In general terms, the proposed limitation would suspend Payerco’s dividend refund on the payment of a taxable dividend to Receiveco where two conditions are met.

• First condition: Receiveco and Payerco are affiliated corporations.
• Second condition: Receiveco’s tax payable due date in the year they received the dividend is later than Payerco’s tax payable due date in the year they paid the dividend.

This measure would apply to taxation years that begin on or after November 4, 2025.

Action: The proposed new rules are complex and tailored advice from a Bateman MacKay tax advisor is crucial. A detailed review of the structure of corporate groups will be required to determine situations where dividend refunds will be delayed, and to assess any changes in historical dividend strategies to minimise the impact of this proposal.

SR&ED Enhancement

The 2024 Fall Economic Statement proposed the following additional changes to the SR&ED program:

• increase the expenditure limit from $3 million to $4.5 million;
• increase the lower and upper prior-year taxable capital phaseout boundaries to $15 million and $75 million, respectively;
• restore the eligibility of SR&ED capital expenditures for both the deduction against income and investment tax credit components of the SR&ED program; and
• extend the enhanced tax credit to eligible Canadian public corporations.

Budget 2025 confirmed that these proposed measures would proceed. In addition, Budget 2025 proposed to further increase the expenditure limit on which the SR&ED program’s enhanced 35% tax credit can be earned, from the previously announced $4.5 million to $6 million. These measures would apply for taxation years that begin on or after December 16, 2024.

Non-profit Organizations’ Reporting Obligations

The Government stated that it intends to proceed with proposed expansions to the existing reporting requirements for NPOs by requiring basic filings for smaller NPOs not otherwise required to file and adding regular filing requirements for entities with receipts over $50,000. However, this would be deferred to apply for taxation years beginning on or after January 1, 2027, rather than commencing for 2026.

Relevant Tax Changes for Individuals

Minor Change to Lowest Personal Tax Brackets

The 2025 Federal Budget confirms that the lowest federal personal income tax rate will decrease from 15% to 14.5% for 2025, and further to 14% for 2026.

Charitable Donation Deadline Returns to Calendar Year End

The 2024 tax year extended the deadline for charitable donations to February 28, 2025, due to mail disruptions. The deadline for 2025 is December 31, 2025.

Action: Ensure to make any donations by the deadline and do not double claim donations from early 2025 that may have been on your 2024 return.

Trust Reporting

Originally announced in 2018 and delayed several times, updates to trust reporting now intend to apply for 2026 T3 trust returns (due in 2027). Notably, in 2024, the list of trusts exempt from reporting was expanded to remove several variations of bare trusts. Any bare trusts not exempt from reporting will not be required to file a T3 Trust tax return until the 2026 taxation year (2027).

Action: Understand your reporting and filing requirements for the updated trust reporting requirements that will apply for the 2026 taxation year.

2026 Canada Pension Plan (CPP) Changes

The Canada Pension Plan (CPP) enhancement is now fully phased in. For 2026, when a taxpayer surpasses the maximum annual pensionable earnings of $74,600 at 5.95% (including the basic exemption amount of $3,500), their maximum contribution in this bracket will be $4,230.45. In addition, they will pay 4% CPP on earnings between $74,600 and $85,000 (the additional maximum annual pensionable earnings) for a maximum additional contribution of $416. The maximum CPP contribution for an employee will be a total of $4,646.45.

Action: Understand personal CPP requirements and differences between employee and self-employed rates.

Underused Housing Tax & Luxury Tax Cancelled

Budget 2025 eliminates the Federal Underused Housing Tax (UHT) as of 2025. This does not impact previous years and any returns or taxes owed are still required.

The luxury tax on boats, personal aircraft and vehicles valued over $100,000 was originally implemented in 2022. The luxury tax will no longer be applicable to boats and personal aircraft, but will continue to remain applicable to vehicles valued over $100,000.

Vacancy Tax

Various Canadian municipalities, (and the British Columbia provincial government) including Toronto, Hamilton, Ottawa, Windsor and Sault Ste. Marie have implemented vacant home taxes. With the removal of the federal UHT, residential property owners must still be aware of their non-federal requirements.

Action: Determine if any of the vacancy taxes are applicable to your residential property and prepare to file and pay applicable taxes.

Contact us for help

Remember that the best outcomes come from acting early and aligning tax decisions with your broader business goals. Bateman MacKay LLP can help you identify practical opportunities, quantify the impact, and implement a clear plan before key deadlines, so you head into the new year with confidence. If you would like to discuss any item in this planner, please contact our team to schedule a conversation.