On August 15, 2025, the Department of Finance released several packages of draft legislation as part of its August 2025 proposals. This legislation aims to implement, update or amend the measures announced in Budget 2024, the August 2024 proposals, the 2024 Fall Economic Statement (FES), and earlier draft legislation. The proposals are currently open for public consultation, with feedback due by September 12, 2025.
For business owners, investors, and high‑net‑worth individuals, these changes could affect capital gains planning, innovation incentives, compliance obligations, and succession strategies. In this article, we outline the eight most important tax updates from the August 2025 proposals and what they could mean for you.
1. Expanded Capital Gains Rollover for Small Business Investments
The 2024 FES proposed broadening the definition of “eligible small business corporation shares” and relaxing certain conditions for the capital gains rollover on business investments. The August 2025 proposals aim to implement these changes, allowing investors to defer capital gains more easily, especially when selling shares in one qualifying small business and reinvesting in another.
2. New $10 Million Capital Gains Exemption for Worker Co‑ops
The August proposals include draft legislation for a new lifetime capital gains exemption of up to $10 million, applicable to qualifying sales of businesses to worker co-operatives. Technical changes to the existing exemption for sales to employee ownership trusts (EOTs) are also included. Both measures aim to promote employee ownership and succession planning for retiring owners. Owners considering a sale to employees or a co‑op should review eligibility criteria early to maximize tax benefits.
3. Enhanced SR&ED Tax Incentives
As announced in Budget 2024, the Scientific Research & Experimental Development (SR&ED) program would see several enhancements, including:
- Higher annual expenditure limits for the enhanced 35% credit
- Increased taxable capital phase‑out thresholds
- Refundable credit eligibility extended to certain small public corporations
- Capital expenditures once again eligible for the credit
These changes could make SR&ED more accessible and valuable for innovative SMEs, especially those scaling up.
4. EIFEL Rule Exemptions for Housing and Utilities
Under the proposed amendments, the Excessive Interest and Financing Expenses Limitation (EIFEL) rules would be relaxed for debt used to fund purpose‑built residential rental buildings, as well as regulated Canadian energy utility businesses. These exemptions could reduce financing costs for developers and utilities, supporting housing supply and infrastructure investment.
5. Crypto‑Asset Reporting Framework
The August proposals aim to update the Common Reporting Standard (CRS) and implement the Crypto‑Asset Reporting Framework (CARF) set forth by the Organisation for Economic Co-operation and Development (OECD). This change would increase transparency for cross‑border digital asset transactions; however, businesses and individuals dealing in crypto assets may face more detailed reporting obligations and potential compliance costs.
6. Enhanced CRA Audit Powers and Penalties
Originally announced in Budget 2024, the August proposals would grant the CRA greater authority to obtain information. This includes broader powers to issue compliance orders and a new penalty structure of up to 10% of tax payable for non‑compliance, with flexibility for proportional penalties. Businesses should ensure record‑keeping and reporting systems are robust to avoid disputes and penalties.
7. Non‑Profit Organization Transparency
Under the proposed changes, non‑profit organizations (NPOs) would face enhanced reporting requirements to improve sector transparency. This means that NPOs with total revenues over $50,000 will be required to file an annual NPO information return. Small NPOs with revenues below this threshold also face changes, with a new, short form return that must be completed annually.
8. Anti‑Deferral Rules for CCPCs with Foreign Affiliates
The proposals would implement the remaining portion of the substantive Canadian‑Controlled Private Corporation (CCPC) measure related to passive income from foreign affiliates. This change could limit the ability of certain CCPCs to defer Canadian tax on passive foreign income.
August 2025 Proposals - Action Steps
- Review your corporate structure – Identify whether you could benefit from the expanded capital gains rollover or new exemptions
- Assess innovation projects – Determine if SR&ED enhancements could improve your after‑tax returns
- Evaluate financing plans – If involved in housing or utilities, consider how EIFEL exemptions could lower costs
- Update compliance processes – Prepare for expanded CRA audit powers and crypto‑asset reporting
- Engage in the consultation – Submit feedback to the Department of Finance by September 12, 2025
Final Thoughts
The August 15, 2025, proposals represent a mix of opportunities and compliance challenges for Canadian businesses and individuals. While measures like the capital gains exemptions and SR&ED enhancements could create tax‑efficient growth opportunities, expanded CRA powers and reporting obligations will require careful planning.
This article was written by the NVS Professional Corporation team, your knowledgeable Barrie and Markham accountants. The content is intended as a general guide for informational purposes only. For specialist advice tailored to your specific situation, please reach out to our expert team.
