2025 year-end tax considerations

As we approach the end of the calendar year, now is a good time to evaluate the options available to manage your income tax liability and prepare for the upcoming tax filing season. Some of the points discussed below reflect the recurring maintenance items that are worth reviewing annually. Others highlight developments that could affect your planning now, and in the years ahead.

Contents

• Business considerations
• Personal considerations
• Recent and upcoming changes to consider

Business considerations

Accelerated and immediate expensing opportunities

The federal government intends to proceed with several accelerated and immediate-expensing measures to encourage capital investment. These measures would allow businesses to deduct a significantly larger portion of certain depreciable capital property more quickly. As a result, you may want to complete certain transactions before year-end to fully benefit from these enhanced deductions and reduce taxable income for your 2025 tax year.

To help make the most of these opportunities, it may be worth reviewing planned capital purchases and timing to see how these measures could apply to your business.

General depreciable property

The 2024 Fall Economic Statement proposed to fully re-instate the Accelerated Investment Incentive (AII) which was set to phase out for property that became available for use after 2023. Eligible property that is acquired on or after January 1, 2025, and that becomes available for use before 2030, can benefit from up to three times the normal first-year CCA deduction (for property subject to the half-year rule) under the AII. Most classes of depreciable property qualify for this accelerated incentive.

Manufacturing and processing, clean energy assets

The 2024 Fall Economic Statement also proposed to fully re-instate the immediate expensing measures for manufacturing or processing machinery and equipment, clean energy generation and energy conservation equipment, and zero-emission vehicles acquired on or after January 1, 2025, and that becomes available for use before 2030. 

Productivity-enhancing assets

There is currently a proposal to provide immediate expensing for capital asset purchases for new additions of property in the following CCA classes: 

• Class 44 (patents or the rights to use patented information) 
• Class 46 (data network infrastructure equipment and related systems software) 
• Class 50 (general-purpose electronic data-processing equipment and systems software) 

To benefit from this immediate expensing, assets must be acquired on or after April 15, 2024, and available for use prior to 2027.

Purpose-built rental housing

The capital cost allowance (CCA) rate for eligible new purpose-built housing projects is proposed to temporarily increase from four percent to 10 percent. This enhanced rate generally applies to multi-unit residential rental buildings where construction begins after April 15, 2024, and before 2031 — and is available for use by 2036.

Manufacturing and processing buildings

Budget 2025 proposed a temporary 100 percent immediate deduction for the cost of eligible manufacturing or processing buildings, including the cost of eligible additions or alterations, acquired on or after November 4, 2025, provided they are first used for manufacturing/processing before 2030. This measure is subject to a phase-out between 2030 to 2033.

Planning for the Lifetime Capital Gains Exemption

Whether shifting market conditions have you reassessing your long-term plans, or you’re simply looking ahead to the next chapter, you may be thinking about selling your business. For dispositions occurring after June 24, 2024, the federal government intends to increase the lifetime capital gains exemption (LCGE) to $1.25 million. This exemption can help individuals reduce or eliminate tax (subject to the application of alternative minimum tax) on gains realized from selling qualified farm or fishing property or shares of Canadian-controlled private corporations (CCPCs) that meet several requirements, including the extent to which their assets are used in an active business.

If you’re considering a sale, whether to a third party or as part of a family transition, it’s essential to monitor whether your corporation meets the active asset tests required to claim the LCGE. Because these tests include a 24-month lookback period, advance planning is critical. There is a range of strategies, from simple clean-up steps to more sophisticated restructuring, that can help keep a corporation onside. Common assets to be mindful of include excess cash, intercompany loans, life insurance policies, and other surplus assets that are not part of the main business such as portfolio investments or rental properties.

It’s also important to consider whether your structure allows you to fully leverage the exemption, potentially across multiple family members, to maximize tax efficiency on a future sale.

An MNP advisor can help you evaluate your readiness and ensure you’re positioned to take advantage of these rules.

Review your corporate structure

It’s also a good time to step back and review whether your current corporate structure is still serving your needs.

Over time, business owners may find that their structures have become overly complex, creating unnecessary administrative and compliance burdens, especially as tax rules and compliance obligations continue to grow more complex. Conversely, some structures are too simple, leaving potential tax planning opportunities on the table. Striking the right balance is key: your structure should support your business goals, allow for efficient transitions or sales, and limit the time and cost spent on compliance and administration. Proactively reviewing your structure can help identify areas where simplification is possible while ensuring that any planning opportunities are not overlooked.

An MNP advisor can help you assess whether your current setup is aligned with your current needs and your long-term objectives.

Loss utilization and related planning

If your company is experiencing losses or declining asset values, there are a few things you can do to optimize other tax attributes before applying losses. Operating losses can be carried back three years or forward 20 years Capital losses can be carried back three years or forward indefinitely.

GRIP and CDA planning

Eligible dividends should generally be paid from a general rate income (GRIP) pool annually, prior to a year where a loss is incurred and a loss carryback is requested. Eligible dividends paid to a holding company from an operating company will help manage the impact on shareholders’ personal income taxes. 

As well, ensure you review your Capital Dividend Account (CDA) before realizing a capital loss. There may be a cumulative balance a shareholder can access tax-free through the payment of a capital dividend prior to realizing a capital loss in their company.

Loss consolidation

If one company in a related group has losses and others are profitable, consider tax planning to use those losses. Strategies may include mergers or wind-ups, asset transfers with leasebacks, or partnerships that allow income and losses to offset.

Debts or shares of insolvent companies

If you hold debt or shares in an insolvent company, a special election may allow you to claim a capital loss without disposing of the investment. In some cases, the loss can offset all types of income, not just capital gains. The election is made in the income tax return for the year.

When facing potential operating or capital losses, thoughtful planning can make a difference. Connect with your MNP advisor to discuss strategies that help protect value and manage your tax position effectively.

Salaries or dividends?

Remuneration strategy is one of the key planning decisions for owner-managers and should be reviewed annually to reflect life changes and evolving business or tax circumstances. There is no single best approach; we must look at each corporation’s characteristics, the shareholder’s current circumstances and cash flow requirements, and applicable tax rates.

A sound remuneration plan considers both the amount and form of remuneration (salary vs. dividends) while giving care to Tax on Split Income (TOSI) rules affecting family members.

Salaries may be preferred to create RRSP contribution room, deduct certain personal expenses (e.g., childcare, moving costs), or recover alternative minimum tax.

Dividends can help recover refundable corporate taxes on investment income (see discussion below on changes announced in Budget 2025) or distribute tax-free capital dividends.

However, there are many more factors and circumstances that influence one remuneration strategy over another. Consult your MNP advisor to determine the optimal remuneration mix for you and your family in 2025.

Other employee remuneration

Implementing an Employee Stock Option Plan (ESOP) can be an effective strategy for rewarding and retaining key employees, particularly when preserving corporate cash is a priority. ESOPs motivate and align employees with the company’s long-term success without requiring immediate cash outlay. Employee participation often requires little or no upfront funding, allowing them to share in future growth and value creation.

For CCPCs, ESOPs can offer significant tax advantages. When structured properly, employees may acquire shares at a low cost and benefit from capital gains treatment rather than employment income taxation on future appreciation, provided certain holding period conditions are met.

ESOPs can also serve as an effective succession planning tool. Establishing a plan when company valuations are relatively low can minimize future employment benefit implications and facilitate a smoother transition of ownership to key employees.

If you’re exploring ways to reward key employees, support succession plans, or participate in future growth, an ESOP may be worth considering. Speaking with an advisor can help you determine whether this type of plan is a good fit for your business and how it could be structured to meet your objectives.

Tax balance due payments

Avoid interest charges by remitting final corporate income tax balances to the Canada Revenue Agency (CRA) and applicable provincial tax authorities by the balance due date for your business. The general balance due date is within two months following year-end, however there is a one-month extension to three months for CCPCs that meet certain conditions. CRA’s interest rates on overdue taxes is currently seven percent (Q4 2025). Making tax payments on time can help prevent costly non-tax-deductible interest charges.

Speak to your MNP advisor to confirm whether your business qualifies for the one-month extension for balances due for the current year.

Personal considerations

Important payments dates

As the end of the year approaches, remember that certain payments must be made by December 31 to qualify for 2025 tax deductions or credits (such as charitable donations or political contributions).

In addition, the following key dates also affect your 2025 tax compliance and planning:

• December 15, 2025 — Final 2025 instalment due date.
• December 31, 2025 – Contribution deadline to deduct payments to a First Home Savings Account (FHSA) in your 2025 tax return.
• January 30, 2026 — Payment due date of any interest on loans from your employer (to reduce your taxable benefit) and interest owed on loans from family members.
• February 16, 2026 — Deadline to reimburse your employer for any personal use of an employer-provided vehicle, to reduce your taxable benefit
• March 2, 2026 — Deadline to repay RRSPs withdrawn under a Home Buyers’ Plan or Lifelong Learning Plan; make RRSP contributions for yourself or a spouse / common-law partner.
• April 30, 2026 — Final personal tax payments for 2025 are due.

Make all instalment and final tax payments by the deadlines above to prevent incurring interest charges.

Trust income and allocations

When planning for year-end in a family trust where trustees have flexibility in how income is distributed, it’s important to review the trust’s income and potential allocations early to maximize tax efficiency. Trustees should consider practical factors such as each beneficiary’s marginal tax rate, available deductions, and cash-flow needs, as well as the type of income being allocated. These considerations help determine whether allocating income to beneficiaries will reduce the overall tax burden while meeting the trust’s financial objectives. Trustees should also assess whether the Tax on Split Income (TOSI) rules might apply if income is being allocated to family members who aren’t actively involved in a related business, since TOSI can result in income being taxed at the highest marginal rate.

Finally, to make any allocation effective for tax purposes, income must generally be either paid or payable by December 31 of the trust’s taxation year. Planning ahead ensures that distributions align with beneficiaries’ tax profiles and helps avoid unintended tax consequences.

Trusts approaching twenty-first year

Certain trust property is deemed to be disposed of at fair market value (FMV) and immediately reacquired on the trust’s twenty-first anniversary. Trusts approaching this milestone should assess whether planning is needed to mitigate the potential tax consequences of this deemed disposition. These discussions should generally begin about two years before the 21-year mark; earlier if the trust assets or family circumstances add complexity.

If your trust is within two years of its twenty-first anniversary, connect with an MNP advisor to review the potential implications and explore available planning options.

Self-employment expenses

Ensure you document all self-employment expenses with receipts and maintain a logbook to support all motor vehicle expenses.

Automobile Log

Stay on top of all the automotive-related expenses and information your business advisor needs to claim your deductions for tax purposes — and access our downloadable log template. 

Learn More

Employment expenses

If you incurred expenses to earn employment income which your employer required you to pay, you may be able to deduct them in your personal tax return. Track and retain receipts for expenses such as annual union, professional, or other dues not paid/reimbursed by your employer. If you are deducting certain other employment expenses, your employer will have to provide you with Form T2200.

Shareholder loans

Do you have an outstanding loan from your corporation? Consider whether it needs to be repaid by December 31 , 2025. Generally , shareholder loans must be repaid within 12 months from the end of the corporation’s tax year in which the loan was made. If it is not, the original advance may be taxed as income to you personally.

For example, if your corporation with a December 31 year-end loaned you money on April 15, 2024, you must repay the loan by December 31, 2025. Otherwise, the loan will be included in your 2024 personal income tax return.

RRSPs

Make contributions to your Registered Retirement Savings Plan (RRSP) to reduce taxable income for the year. Contributions made to a spouse or common-law partner’s RRSP are also deductible and can shift income from a higher-earning spouse to a lower-earning spouse at retirement.

The 2025 contribution limit is 18 percent of your 2024 earned income to a maximum of $32,490. Check your 2024 Notice of Assessment for your available contribution room for 2025. Contributions must be made on or before March 2, 2026, to be deductible for 2025.

Home Buyers Plan

The Home Buyers' Plan (HBP) allows you to withdraw from your RRSP to buy or build a qualifying home for yourself or for a specified disabled person where certain conditions are met. Currently the withdrawal limit is $60,000. Temporary relief has been in place to defer the start of the 15-year repayment period by an additional three years for participants making a first withdrawal between January 1, 2022, and December 31, 2025.

If you made your first withdrawal in 2023, your first year of repayment will be 2028 (rather than 2025). Further, if you make your first withdrawal before December 31, 2025, your first mandatory year of repayment will be 2030. For first withdrawals after 2025, your repayment period starts the second year after the withdrawal year.

RESPs

Contributions to a Registered Education Savings Plan (RESP) will not impact your 2025 income tax liability, but it will allow you to save for your child’s future education and utilize the Canada Education Savings Grant (CESG), which is a 20 percent top-up on the first $2,500 contributed annually to a RESP (i.e. up to $500 annually and a lifetime maximum of $7,200 per child). You can contribute any amount to a RESP, subject to a lifetime limit of $50,000 for each child.

While there is the opportunity to catch-up missed contributions from prior years and receive the associated CESG, that ability is limited to one extra year at a time, so there is a risk you miss out on the ability to catch-up the maximum available CESG grant the closer your child is to 17.

TFSAs

Contributions to a Tax-Free Savings Account (TFSA) are not tax-deductible but income earned in the account throughout its lifetime and amounts withdrawn are not subject to income tax. The 2025 limit is $7,000. It is important to keep track of your TFSA contributions so that you can maximize tax-sheltered growth of your investments and avoid over contribution penalties.

Calculate your TFSA contribution room and check with CRA and your financial institutions before you contribute.

FHSAs

A First Home Saving Account (FHSA) allows you to save for the purchase of a first home while reducing taxable income for the year through tax-deductible contributions. Additionally, qualifying withdrawals (including investment income earned) to purchase a first home are non-taxable.

The 2025 limit is $8,000. Unlike the TFSA, the FHSA contribution room does not automatically accrue. This means you should open an FHSA account now to start accruing contribution room, even if you are not quite ready to make the contributions this year.

Charitable donations

The federal and provincial governments offer donation tax credits, resulting in tax savings of up to 55 percent of the value of the gift. The right donation strategy can help minimize income taxes while meeting your philanthropic goals, with consideration given to the nature of the gift (i.e. cash or other property) and whether the best result is achieved by making donations individually, or by a corporation.

Recent and upcoming changes to consider

Scientific Research and Experimental Development (SR&ED) tax credits

The SR&ED program is a federal tax credit incentive program designed to support Canadian businesses undertaking research and development (R&D). Corporations, individuals, trusts, and partnerships that conduct eligible work may earn either a refundable or non-refundable tax credit for the research conducted, provided all other eligibility requirements are met.

Recent changes, effective for expenditures incurred on or after December 16, 2024, expand access to the program. More small and medium-sized CCPCs, and now certain small Canadian public companies, will qualify for the enhanced 35 percent credit rate, and capital expenditures will once again be eligible under SR&ED.

With these changes, now is an ideal time to review your company’s R&D activities to ensure you’re maximizing available SR&ED benefits. An MNP SR&ED advisor can help assess eligibility, prepare documentation, and ensure claims are filed within the required 18-month deadline (12 months after your tax return due date).

Recovery of refundable taxes

Budget 2025 proposed changes that would suspend the dividend refund (i.e. recovery of refundable taxes paid on investment income) for certain inter-corporate dividends. These rules would generally apply to tiered corporate structures with differing taxation year-ends and to dividends paid in taxation years that begin on or after November 4, 2025.

Corporations in a tiered structure may consider paying inter-corporate dividends before these changes come into effect in order to receive a dividend refund in the year the dividend is paid, rather than be suspended until a later year.

CRA activity and Voluntary Disclosures Program (VDP)

The CRA’s audit powers continue to expand, along with ongoing enhancements to risk assessment techniques and information sharing, leading to more reviews and information requests for both individuals and businesses. These interactions take time to manage and can put a strain on you or your business. While CRA audit trends can shift, common areas of focus include:

• real estate transactions,
• high-net-worth individuals and their related entities, and
• limited-scope reviews of personal tax return items such as donations, medical expenses, investment carrying charges, and foreign tax credits.

Recent updates have made CRA’s VDP program more accessible and increased the potential relief for taxpayers who proactively correct past filing errors. When accepted, a VDP submission can reduce or eliminate penalties and interest, though specific conditions must be met.

Speak with your MNP advisor if you’re concerned about past errors or omissions and are considering a VDP submission — or previously decided against one because you didn’t think you qualified. Individuals looking to manage unexpected CRA-review costs may also want to ask about AuditAssist.

Trust reporting rules

Effective for tax years ending December 31, 2023, most personal trusts resident in Canada that previously did not have to file an annual T3 income tax return are no longer exempt. Many more trusts are now required to file a T3 annually and report their beneficial ownership on the T3 Schedule 15 (Beneficial ownership information of a trust). Most significantly, these new rules extend to arrangements generally known as “bare trusts.”

Since then, the federal government has proposed several updates (in August 2024 and August 2025) to narrow and clarify these enhanced T3 filing requirements. Although not yet law, the proposals would remove the enhanced filing obligation for bare trusts for 2024 and introduce a new, more limited definition of a bare trust for years ending after December 30, 2025.

The government recently announced that it intends to defer the application date for the bare trust reporting further to taxation years ending on or after December 31, 2026. At the time of writing CRA had not yet issued its announcement that it will not require bare trusts to file the annual T3 return, including T3 Schedule 15 for 2025.

Connect with an MNP advisor to discuss whether these latest changes impact you and to understand your potential T3 filing obligations.

Online mail for businesses

Effective June 16, 2025, CRA has shifted to online mail as the default method of communicating with businesses. This means most businesses are now receiving CRA correspondence, including notices and requests for information, exclusively through CRA’s My Business Account (MyBA) portal. To ensure you don’t miss important CRA correspondence, ensure you are registered to receive email notifications from the CRA to be alerted of new mail and that your email address is current for all relevant business accounts. Alternatively, you may activate paper mail through your MyBA portal or by submitting Form RC681 – Request to Activate Paper Mail for My Business by mail.

Connect with an MNP advisor if you require assistance submitting Form RC681 to activate paper mail with CRA.