Income Tax Brackets
For 2025, federal income tax brackets will increase by 2.7 per cent to account for inflation, following a 4.7 per cent increase in 2024. This adjustment aims to prevent taxpayers from being pushed into higher brackets due to rising prices.
The federal tax rates for 2025 are:
• 15 per cent on income up to $57,375
• 20.5 per cent on income from $57,375.01 to $114,750
• 26 per cent on income from $114,750.01 to $177,882
• 29 per cent on income from $177,882.01 to $253,414
• 33 per cent on income exceeding $253,414
According to Quinlan, this adjustment means Canadians won’t pay more tax solely due to inflation. “If your income remains the same as it was in 2024, you’ll pay less tax because less of your income is taxed at higher rates,” he noted.
Basic Personal Amount
The basic personal amount—the portion of income exempt from federal tax—will increase in 2025. It will range from $14,538 to $16,129, up from $14,256 to $15,705 in 2024. Lower-income earners will see a higher basic personal amount, offering more tax relief.
Canada Pension Plan (CPP)
Some workers will notice slightly higher CPP contributions in 2025 due to ongoing enhancements to the program.
The first-tier earnings ceiling will increase from $68,500 in 2024 to $71,300 in 2025. The second-tier ceiling will rise from $73,200 in 2024 to $81,200. These changes are part of a multi-year initiative to expand retirement benefits, which began in 2019. By the end of 2025, the program’s limits will adjust annually based on wage growth.
Workers who contributed to CPP since 2019 will be eligible for enhanced payouts upon retirement, reflecting higher contributions made during this period.
Capital Gains Tax
Proposed changes to the capital gains tax, expected to take full effect in 2025, may influence how Canadians manage asset sales. While the government has yet to finalize the legislation, the new rules would increase the taxable portion of capital gains above $250,000 from 50 per cent to two-thirds.
This means gains up to $250,000 would continue to be taxed at the current rate, but larger gains would face higher taxes. Quinlan advises individuals to carefully plan the timing of asset sales, potentially spreading them across multiple years to minimize the tax burden.
The new rules will apply to gains realized on or after June 24, 2024.
Registered Retirement Savings Plans (RRSPs)
The annual contribution limit for RRSPs will rise from $31,560 in 2024 to $32,490 in 2025. Contributions for the 2024 tax year can be made until March 3, 2025. Canadians can check their unused contribution room on their most recent Notice of Assessment or through their CRA online account.
