Federal Budget 2025 key considerations for accountants and small business advisors.

1.     Accelerated CCA – Several new and extended accelerated capital cost allowance (CCA) measures would apply to capital asset acquisitions, including:

• immediate expensing for manufacturing and processing buildings;

• immediate expensing for productivity-enhancing assets (class 44, 46 and 50), including computers and systems software;

• reinstatement of the accelerated investment incentive, with phase-out beginning in 2030; and

• reinstatement of accelerated CCA for manufacturing or processing machinery and equipment, clean energy generation and energy conservation equipment and zero-emission vehicles.

2.     Bare Trust Filing Deferral – The Government confirmed its intent to proceed with the August 15, 2025 proposals, subject to further modifications following consultations. However, the reporting requirements for bare trusts would be deferred to taxation years ending on or after December 31, 2026. No filings for bare trusts would be required for the 2025 taxation year.

3.     Underused Housing Tax (UHT) cancellation – The UHT would be eliminated as of the 2025 calendar year. No UHT would be payable and no UHT returns would be required for the 2025 and subsequent calendar years. Filing obligations, penalties and interest for prior periods would remain in place.

4.     Capital Gains Inclusion Rate and the Canadian Entrepreneurs’ Incentive – The government has confirmed the cancellation of the proposed increase to the capital gains inclusion rate and the Canadian entrepreneurs’ incentive.

5. Tiered Group Structure
An anti-avoidance rule is to be introduced with respect to tiered corporate structures, which have different year ends. It has become popular to have a holding company with a taxation year different to the subsidiary, particularly where that subsidiary derives investment income (for example from rental real estate). In such a situation, the subsidiary will commonly earn income which is subject to the refundable tax system. Under this system, the corporate tax rate is approximately 50%, but where a dividend is paid, a corporate tax refund, called a dividend refund, can be claimed. This dividend refund of around 30% of income, cascades through the structure, producing equivalent tax to the holding company and so on up the chain. Having different year ends can provide a tax deferral, generally of up to 11 months. It is conceivable that there could be multiple companies in a chain, all with different year ends, extending the tax deferral further. This practice has now been targeted.

In such a structure, the corporate tax refund (or dividend refund) will be suspended until a payment is made from the top company in the chain to individual shareholders, or to companies which have less than a 10% shareholding (referred to as non-connected corporations).

This rule will have a limited impact for corporations in general but will be a major issue for structures that have made use of this plan.

In order to avoid the implications of this rule, two alternatives can be considered. The first is to request a change of year end. If the year ends are aligned, the rule will not apply. The second alternative is to pay the dividend earlier, so it is not received in a later year-end but in one which ends before the year-end of the subsidiary.

The rule will apply to dividends paid in taxation years that begin on or after November 4, 2025. Thus, there is time to plan appropriately and make changes as required.