Canada’s 2025 Federal Budget, tabled on November 4, 2025, includes a suite of business tax measures aimed at boosting investment, innovation and competitiveness under the banner ‘Canada Strong’. Key new federal incentives include sweeping accelerated expensing rules for capital assets, expanded clean-energy tax credits and stronger R&D support. In this article, we look at the highlights most relevant to Canadian business owners and managers.
Productivity Super-Deduction (Accelerated Expensing)
Budget 2025 introduces a Productivity Super-Deduction – a package of immediate-expensing tax breaks for new business investment. In practice, businesses can now deduct 100% of the cost of many new assets in the year they are acquired. Key elements include:
- Capital equipment: A reinstated Accelerated Investment Incentive with full first-year write-off on most new machinery and equipment. In effect, manufacturing and processing equipment (as well as general-purpose technology assets) can be expensed immediately instead of being deducted over several years.
- Green and productivity assets: 100% expensing for clean energy and EV assets (solar panels, wind turbines, energy storage, high-efficiency equipment, zero-emission vehicles, etc.). The deduction also covers “productivity-enhancing” capital like patents, data networks, computers and SR&ED capital.
- Buildings and LNG: New manufacturing or processing buildings acquired on or after Budget Day qualify for 100% expensing (phasing to 75% in 2030–31 and 55% in 2032–33). Accelerated CCA rates for low‑carbon LNG facilities have also been reinstated, allowing 30% (or up to 50% for top-10% emissions performers) write-offs on equipment and 10% on related buildings.
Collectively, these measures mean most new productive investments in machinery, equipment, technology or facilities can be fully deducted in the year of purchase, dramatically lowering the after-tax cost of expansion. The government notes the result will be a much lower marginal effective tax rate (METR) on investment, dropping to ~13.2%, the lowest in the G7.
Clean Energy & Technology Tax Credits
Budget 2025 also expands “clean investment” credits to spur green growth. Notable measures include:
- Clean Tech Manufacturing ITC: The refundable Clean Technology Manufacturing Investment Tax Credit (30%) now covers a broader list of critical minerals (adding antimony, indium, gallium, germanium, scandium, etc.) used in clean-energy equipment. This rewards new factories and equipment that process those minerals.
- CCUS credits extended: The Carbon Capture, Utilization and Storage (CCUS) investment tax credit rates (up to 60%) were scheduled to start falling in 2031, but Budget 2025 pushes back that step-down. The full credit rates now apply through 2035.
- Clean Electricity ITC: The 15% Clean Electricity ITC for renewable generation, storage and grid equipment is broadened so that investments by the Canada Growth Fund qualify fully. Any financing provided by the Growth Fund will not reduce the eligible basis for the credit.
These changes complement the expensing incentives above by providing direct tax credits for major clean-energy projects, helping Canadian businesses invest in low-carbon infrastructure.
Innovation Support (R&D Tax Credits)
R&D-intensive firms gain enhanced support under the SR&ED (Scientific Research & Experimental Development) program. Budget 2025 builds on previously announced reforms and goes further:
- Higher SR&ED cap: The enhanced SR&ED tax credit (35%) can now be earned on up to $6 million of eligible expenditures (up from the prior $4.5M limit). This means larger claims for medium-sized companies. The enhanced credit is also extended to qualifying public corporations, and capital expenditures for R&D are again made eligible.
- Simpler administration: The CRA will streamline SR&ED processing to speed refunds. Proposed reforms include an elective pre-approval process for projects, greater use of AI risk screening and a shortened review cycle (target ~90 days). These measures aim to reduce red tape so firms can claim SR&ED faster and with more certainty.
These innovations together add roughly $440 million per year in R&D support, expected to triple into ~$1.2B of economic output. For SMEs scaling their tech or product development, this means more generous tax credits and fewer delays in receiving them.
Buy-Canadian Procurement Policy
To shore up domestic supply chains, Budget 2025 implements a Buy Canadian procurement requirement. Previously only a “best efforts” goal, this policy now obliges federal agencies and Crown corporations to favour Canadian-made products. Key points include:
- Funding for rollout: The budget provides roughly $98.2 million over five years (plus ongoing $9.8M) to Public Services and Procurement Canada (PSPC) and the Treasury Board Secretariat to implement the Buy Canadian policy.
- SME procurement program: An additional $79.9 million over five years is allocated to Innovation, Science and Economic Development Canada (ISED) to expand the Small & Medium Business Procurement Program. This will help Canadian SMEs bid on and win federal contracts.
Initially focused on defence, construction and “pillar” industries (steel, wood, aluminum), the policy is set to be fully in force by spring 2026. It aims to channel up to $70 billion in public investment toward Canadian suppliers, giving domestic businesses a competitive edge in government tenders.
Trust Changes
Business owners using trusts for estate planning or the deferral of gains should note the following changes included in Budget 2025:
- Bare trust reporting deferred: The enhanced T3 information-filing requirements for bare trusts have once again been postponed. Only trusts with taxation years ending on or after Dec. 31, 2026, will need to file the new reports.
- 21-year rule broadened: The existing “21-year deemed disposition” rule for personal trusts is extended. Transfers of property through an intermediary (e.g. a trust rolling assets into a corporation that’s then held by a new trust) will now trigger the 21-year disposition immediately. In effect, this closes the tax deferral loophole that allowed the indefinite rolling of gains through one trust into another.
Canadian Entrepreneurs’ Incentive Cancelled
Budget 2025 abandons the Canadian Entrepreneurs’ Incentive (CEI) that was introduced in Budget 2024. The CEI would have cut the capital gains inclusion rate to one-third (on up to $2M of gains) when an entrepreneur sold their business. Instead, this preferential regime will not proceed. Founders should now assume the standard 50% inclusion rate on business sales (no special CEI tax break).
Transfer Pricing Updates
Multinational businesses will see a major overhaul of Canada’s transfer-pricing regime with a shift towards aligning with international norms:
- Arm’s-length rule tightened: The new rules explicitly adopt the OECD Transfer Pricing Guidelines. A single “adjustment application” rule will apply whenever a cross‑border transaction (or series) between non-arm’s-length parties has actual conditions that differ from arm’s-length conditions. In practice, this means tax authorities can re-characterize or adjust transactions to match what independent parties would have done.
- Documentation and penalties: To streamline compliance, the threshold for transfer-pricing penalties is doubled (from a $5M adjustment to $10M). Documentation requirements will be clarified and more closely tied to the new definitions and methods. Taxpayers will get simpler documentation rules if certain conditions are met, and the deadline to file transfer pricing documentation is cut from 90 days to just 30 days after a request.
In short, Canada’s cross-border pricing rules are becoming more rigorous and aligned with global standards. Businesses should review intercompany pricing policies and ensure documentation is in place, while noting the eased penalty threshold and accelerated timelines for CRA audits.
Tiered Corporate Structures (Deferral Loophole Closed)
Budget 2025 also shuts down a common tax-deferral strategy among private corporations. Under current law, a CCPC can defer paying Part IV (refundable) tax on investment income by using multi-tier holding structures with staggered year-ends. The new rule stops that: if Company A pays a taxable dividend to an affiliated Company B, but Company B’s tax due date comes after A’s due date, then A’s dividend refund is suspended. Only when the dividend eventually flows out to an individual (or non-affiliate) will the refund be allowed. In practice, this eliminates indefinite deferrals of personal-type tax on passive income via layered corporations.
Other Notable Federal Measures
Removed taxes: The budget repeals several unpopular levies. The Underused Housing Tax on vacant homes is abolished (no returns needed for 2025), and the luxury tax on aircraft and boats is eliminated. This relief has little direct impact on most SMEs, but may ease compliance for businesses holding these assets.
Registered plan rules: Numerous changes will harmonize the rules for RRSPs, TFSAs, RESPs, etc., especially for small business shares (e.g. simplifying holdings of small-business corporation shares through registered plans). These are largely technical and were outlined in Budget 2024’s consultation.
Anti‑avoidance: Besides trusts and tiered corps, Budget 2025 proceeds with other previously announced anti-abuse measures (e.g. tweaking the General Anti-Avoidance Rule, investment trust rules, and qualified investment rules) with some updates.
Final Thoughts
Overall, Budget 2025 tilts Canada’s tax system heavily in favour of investment and growth. By accelerating write-offs for productive assets, expanding clean-energy credits and R&D incentives, and scrapping certain taxes, Ottawa aims to make Canada the most attractive country in the G7 to invest and build business. Canadian SMEs should see these measures as a call to action. Business leaders who act decisively will not only reduce tax burdens but also position their enterprises for long-term resilience in a competitive global economy.
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.
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