Federal Budget 2025: Business Measures
Accelerated Capital Cost Allowance (CCA)
The CCA system determines the deductions that a business may claim each year for income tax purposes in respect of the capital cost of its depreciable property. Depreciable property is divided into CCA classes with each having its own rate, generally aligning with the expected useful life of the assets.
Budget 2025 referred to a series of proposals to allow accelerated CCA, many announced previously, as the “productivity super-deduction.”
Accelerated Investment Incentive (AII) Extended
Budget 2025 confirmed that the 2024 Fall Economic Statement proposal to reinstate the AII, including accelerated first-year CCA for manufacturing or processing equipment, clean energy generation and energy conservation equipment and zero-emission vehicles, would proceed. All of these incentives began to be phased out in 2024. The reinstatement of the incentives would begin for assets acquired on or after January 1, 2025. The current and proposed rates are summarized as follows:
| Accelerated investment incentive (subject to half-year rule) (2) | Manufacturing or processing machinery and equipment, clean energy generation and energy conservation equipment and zero-emission vehicles (1) (2) | |||
| Current | Proposed | Current | Proposed | |
| 2023 | 3x normal CCA | N/A | 100% | N/A |
| 2024 | 2x normal CCA | N/A | 75% | N/A |
| 2025 | 2x normal CCA | 3x normal CCA | 75% | 100% |
| 2026 – 2027 | 2x normal CCA | 3x normal CCA | 55% | 100% |
| 2028 – 2029 | normal CCA | 3x normal CCA | normal CCA | 100% |
| 2030 – 2031 | normal CCA | 2x normal CCA | normal CCA | 75% |
| 2032 – 2033 | normal CCA | 2x normal CCA | normal CCA | 55% |
| 2034 onwards | normal CCA | normal CCA | normal CCA | normal CCA |
- manufacturing or processing machinery and equipment (class 53 until 2025, class 43 thereafter), clean energy generation and energy conservation equipment (class 43.1 and class 43.2 for property acquired before 2025) and zero-emission vehicles (classes 54, 55, and 56)
- Normal CCA refers to the typical first-year CCA claim when no incentive was available, including application of the half-year rule. For example, normal CCA for a class 8 asset is 20% subject to the half-year rule. So, normal first-year CCA is 10%, with the current 2025 rate being 20% (2*10%) and the proposed rate being 30% (3*10%).
In summary, the proposal would restore the enhanced first-year CCA claims that had started to phase out for assets acquired in 2024, ensuring that the full incentives would apply to assets acquired in the calendar years 2025 to 2029. The existing scheduled phaseout from 2024 to 2027 would instead occur from 2030 to 2034.
Immediate Expensing for Manufacturing and Processing Buildings
Eligible buildings in Canada used to manufacture or process goods for sale or lease (manufacturing or processing buildings) have a CCA rate of 10% provided that at least 90% of the building’s floor space is used in manufacturing or processing.
Budget 2025 proposed to provide immediate 100% CCA expensing of the cost of eligible manufacturing or processing buildings, including eligible additions or alterations made to such buildings, provided the minimum 90% floor space requirement is met.
Property that has been used, or acquired for use, for any purpose before it is acquired by the taxpayer would be eligible for immediate expensing only if neither the taxpayer nor a non-arm’s-length person previously owned the property and the property was not transferred to the taxpayer on a tax-deferred “rollover” basis.
In cases where a taxpayer benefits from immediate expensing of a manufacturing or processing building, and the use of the building is subsequently changed, recapture rules may apply.
This measure would be effective for eligible property that is acquired on or after November 4, 2025 and is first used for manufacturing or processing before 2030. An enhanced first-year CCA rate of 75% would be provided for eligible property that is first used for manufacturing or processing in 2030 or 2031, and a rate of 55% would be provided for eligible property that is first used for manufacturing or processing in 2032 or 2033. The enhanced rate would be phased out entirely for property that is first used for manufacturing or processing after 2033.
Reinstatement of Accelerated CCA for Low-Carbon Liquefied Natural Gas Facilities
An accelerated CCA measure for liquefied natural gas (LNG) equipment and related buildings expired at the end of 2024. The measures increased the CCA rate for liquefaction equipment from 8% to 30% and for non-residential buildings used in LNG facilities from 6% to 10%. Budget 2025 proposed reinstating accelerated CCAs for LNG equipment and related buildings, but only for low-carbon LNG facilities.
Details regarding the new emissions performance requirements for these additional allowances will be provided at a later date. These measures would apply to property acquired on or after November 4, 2025 and before 2035.
Productivity-Enhancing Assets
Budget 2025 confirmed that a Budget 2024 proposal to provide immediate 100% CCA expensing of the cost of property acquired on or after April 16, 2024 that becomes available for use before January 1, 2027 will proceed. Assets in the following three classes would be eligible:
- class 44 (patents or the rights to use patented information for a limited or unlimited period);
- class 46 (data network infrastructure equipment and related systems software); and
- class 50 (general-purpose electronic data-processing equipment, such as computers and systems software).
This immediate expensing would only be available for the year in which the property becomes available for use. The claim would be prorated when the taxation year is less than 12 months.
Dividend Refund – Tiered Corporate Structures
The Income Tax Act includes rules that seek to prevent the use of Canadian-controlled private corporations (CCPC) to defer personal income tax on investment income. Investment income earned by a CCPC is subject to an additional refundable tax that increases the corporation’s tax rate to approximate the highest marginal combined federal-provincial personal income tax rate. A corporation is entitled to a refund of a portion of this additional tax when it pays a taxable dividend, referred to as a dividend refund.
A corporation is generally not subject to income tax on a taxable dividend received from a connected corporation (generally, a corporation that owns shares carrying more than 10% of the votes and value of the payer corporation), except to the extent that the corporation paying the dividend (Payerco) received a dividend refund. In those cases, the corporate shareholder (Receiveco) is subject to a tax equal to the dividend refund received by Payerco, multiplied by Receiveco’s portion of the total dividends paid by Payerco. For example, if Payerco paid a $100,000 dividend and received a $10,000 dividend tax refund, and Receiveco’s dividend received from Payerco was $20,000, Receiveco would pay $2,000 of tax on the dividend. This tax would also be refundable when Receiveco pays dividends.
The government is concerned that tax planning techniques have been employed to take advantage of a timing difference where Payerco and Receiveco have different year-ends. For example, Payerco might pay a taxable dividend on October 25, 2025 and receive a dividend refund for its tax year ended on October 31, 2025. If Receiveco’s year-end is August 31, it would not be subject to the tax on its dividend received until its August 31, 2026 year-end, resulting in a 10-month deferral of tax.
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, the suspension would apply only if Receiveco and Payerco are affiliated corporations. Second, the suspension would apply only if a tax deferral such as the one described in the example above will otherwise be achieved. Specifically, the suspension would apply if Receiveco’s taxes payable for the year in which it received the dividend are due later than Payerco’s taxes are due for the year in which it paid the dividend. Payerco would generally be entitled to claim the suspended dividend refund in a subsequent taxation year when Receiveco pays a taxable dividend to a non-affiliated corporation or an individual shareholder.
If Payerco’s dividend refund is suspended in this manner, Receiveco would not be required to pay the tax described above in respect of the dividend.
The dividend refund would not be suspended in Payerco if each Receiveco in the chain of affiliated corporations pays a subsequent dividend on or before the date on which Payerco’s taxes are due, as no deferral would result for the affiliated corporate group. The rule would also not apply to a Payerco that is subject to an acquisition of control within 30 days after the dividend payment.
This measure would apply to taxation years that begin on or after November 4, 2025.
The proposed new rules are complex. 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 minimize the impact of this proposal. As the details of the proposal may change during the legislative process, it will be preferable to delay this review until dividend planning is being done for fiscal years that will be affected by these proposals.
Scientific Research and Experimental Development (SR&ED)
Under the SR&ED tax incentive program, qualifying expenditures are fully deductible in the year they are incurred. Additionally, these expenditures are generally eligible for an investment tax credit.
The tax credit is provided at two rates. A fully refundable tax credit at an enhanced rate of 35% is available for Canadian-controlled private corporations (CCPCs) on up to $3 million of qualified SR&ED expenditures annually. The $3 million expenditure limit is gradually phased out where a CCPC’s taxable capital employed in Canada for the previous taxation year is between $10 million and $50 million. This limit is shared within an associated group of corporations.
A non-refundable tax credit at the general rate of 15% is available for corporations other than CCPCs and for qualified SR&ED expenditures of CCPCs that do not qualify for the enhanced credit.
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 phase-out 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 (i.e. the date of the 2024 Fall Economic Statement).
Worker Misclassification – Employee vs Independent Contractor
The government is concerned that the deliberate misclassification of employees as independent contractors means that employers are not withholding and remitting the proper amounts of income tax, CPP and EI contributions. Misclassified employees may lose out on labour law protections, as well as benefits and pensions available to employees.
Trucking sector
The government noted that this misclassification of employees has been particularly common in the trucking industry.
Budget 2025 proposed to provide $77 million over 4 years starting in 2026-27, with ongoing funding of $19.2 million annually, for CRA to implement a program that addresses non-compliance related to personal services businesses, as well as to lift the moratorium on reporting fees for services in the trucking industry.
Information sharing
Budget 2025 also proposed to amend the Income Tax Act and the Excise Tax Act to allow CRA to share information with the Department of Employment and Social Development Canada for the purpose of addressing worker misclassification.
This measure would come into force on royal assent of the enacting legislation.
Agricultural Cooperatives: Patronage Dividends Paid in Shares
Prior to 2005, patronage dividends paid in shares by an agricultural cooperative to its members were taxable to the members in the year the shares were received. The cooperative paying the dividend was also required to withhold an amount from the dividend and remit it to CRA on account of the recipient’s tax liability.
A temporary deferral of income taxes and withholding obligations on patronage dividends received from agricultural cooperatives by their members in the form of eligible shares until the disposition (including a deemed disposition) of the shares has been in place since 2005, and was set to expire at the end of 2025. Budget 2025 proposed to extend this measure to apply in respect of eligible shares issued before the end of 2030, a five-year extension.
Clean Economy Tax Incentives
Budget 2025 announced a number of amendments and enhancements to tax incentives related to the clean economy.
Critical Mineral Exploration Tax Credit (CMETC)
Budget 2025 proposed to expand the eligibility of the 30% CMETC to include the following additional critical minerals: bismuth, cesium, chromium, fluorspar, germanium, indium, manganese, molybdenum, niobium, tantalum, tin and tungsten. This credit is available in respect of Canadian exploration expenses (CEE), including Canadian renewable and conservation expenses (CRCE) and Canadian development expenses (CDE) flowed out to individuals who invest in flow-through shares.
The following critical minerals are currently eligible for the CMETC: nickel, cobalt, graphite, copper, rare earth elements, vanadium, tellurium, gallium, scandium, titanium, magnesium, zinc, platinum group metals, uranium and lithium (including lithium from brines).
This measure would apply to expenditures renounced under eligible flow-through share agreements entered into after November 4, 2025 and on or before March 31, 2027.
Clean Technology Manufacturing Investment Tax Credit
Budget 2025 proposed to expand the list of critical minerals eligible for the 30% clean technology manufacturing investment tax credit to include antimony, indium, gallium, germanium and scandium. This refundable investment tax credit applies to investments in new machinery and equipment used to manufacture or process key clean technologies, or to extract, process, or recycle critical minerals essential for clean technology supply chains, currently including lithium, cobalt, nickel, graphite, copper and rare earth elements.
This measure would apply in respect of property that is acquired and becomes available for use on or after November 4, 2025.
Carbon Capture, Utilization and Storage (CCUS) Investment Tax Credit (ITC)
The CCUS ITC provides three different credit rates depending on the purpose of the equipment, with the following credit rates applying to eligible CCUS expenditures incurred from the start of 2022 to the end of 2030, declining for eligible expenditures that are incurred from the start of 2031 to the end of 2040:
- 60% (declining to 30%) for eligible capture equipment used in a direct air capture project;
- 50% (declining to 25%) for all other eligible capture equipment; and
- 5% (declining to 18.75%) for eligible transportation, storage and use equipment.
The extent to which the CCUS tax credit is available to a CCUS project and respective eligible equipment depends on the end use of the carbon dioxide (CO2) being captured. Eligible uses include dedicated geological storage and storage in concrete, but not enhanced oil recovery (EOR).
Budget 2025 proposed to extend the availability of the full credit rates by 5 years, so that the full rates apply to eligible expenditures incurred from the start of 2022 to the end of 2035, declining to the lower rates for eligible expenditures that are incurred from the start of 2036 to the end of 2040. A previously announced review of the CCUS investment tax credit rates will be undertaken before 2035 (rather than before 2030).
Clean Electricity Investment Tax Credit (ITC) and Canada Growth Fund
Budget 2025 proposed to include the Canada Growth Fund as an entity eligible for the 15% clean electricity ITC. Budget 2025 also proposed to introduce an exception so that financing provided by the Canada Growth Fund would not reduce the cost of eligible property for the purpose of computing the clean electricity ITC available to other entities. These measures would apply to eligible property that is acquired and that becomes available for use on or after November 4, 2025.
