On Nov. 4, Minister of Finance and National Revenue Francois-Phillippe Champagne tabled his first budget. Anticipation has been high for this budget—the first since Mark Carney was elected Prime Minister—and the first since the last budget of the Justin Trudeau government tabled in April 2024. Since then, the election of President Trump in the U.S. has culminated in a trade war with Canada and caused increased economic uncertainty worldwide.
While this budget of necessity includes significant cost-reduction measures and reallocation of spending priorities, this analysis will focus on the proposed changes to income and indirect taxes, which are of significant interest to our clients.
The key areas of taxation targeted in this budget are mostly related to businesses. The government announced significant changes to the capital cost allowance that they are calling the “Productivity Super Deduction.” This will allow business, particularly Manufacturing and Processing (M&P) businesses to immediately deduct the cost of newly acquired assets. M&P businesses will now be allowed to deduct the full cost of newly acquired buildings that meet certain criteria. Other specific classes of assets will also be subject to the 100% write off rate.
The budget also announces a series of amendments to the Scientific Research and Experimental Development (SR&ED) program along with many of the previously announced amendments. Notably, the expenditure limit for the refundable 35% tax credit has been increased to $6 million for taxation years beginning on or after Dec. 16, 2024. In addition, as part of the Productivity Super Deduction companies will be allowed a 100% deduction of capital assets acquired for SR&ED purposes.
The CRA will modernize the SR&ED claim process starting April 1, 2026, to give businesses faster, more predictable outcomes. A new optional pre-claim approval process will allow companies to confirm project eligibility in advance, cutting processing times for reviewed claims from 180 days to 90 days. The CRA will also use AI to fast-track low-risk claims and simplify information requirements, reducing administrative burden and helping claimants receive SR&ED refunds more quickly and with greater certainty.
Finally, the 2025 budget proposes several changes to the transfer pricing system currently in place in Canada. The government is attempting to better align Canada’s transfer pricing rules with international models that are more focused on the arm’s length principal. The new rules will apply for taxation years that begin after budget day, therefore companies that currently do not use an arm’s length pricing methodology should ensure that they review their methodology and documentation in the next year.
A more detailed analysis of key budget measures is set out below under the following headings including many other measures not noted above:
