Amirmohammad Bagheri, Staff Writer | 

As the weather gets colder, the year of 2024 stays buried under a blanket of snow. As 2025 announces its arrival, Canadians will be navigating a new variety of tax rules and economic policy updates that could affect their finances. Here’s a brief overview of all these changes.

Increased taxes on capital gains

Capital gains, the profit from selling assets like stocks or real estate, are an important source of income for many Canadians. In 2025, capital gains tax will undergo a significant adjustment. The income tax rate (percentage of capital gain) has been increased from 50 per cent to 66 per cent for people with earnings of over $250,000 a year. This change also extends to corporations and trusts, resulting in a two-thirds higher ratio.

While this update has been provisionally enforced since mid-2024, it still awaits full approval in Parliament. For taxpayers, the increased inclusion rate adds complexity to financial planning and investment strategies.

Carbon tax increases

April 2025 marks another step forward in carbon pricing, with the federal carbon tax increasing from $80 to $95 per tonne. For provinces under federal protection, this means higher fuel prices. Gasoline prices will increase by three cents per litre, and propane by two cents.

Despite these price increases, most Canadians will receive refunds to offset the impact. 90 per cent of the tax revenue is redistributed to households, while the remaining 10 per cent goes to helping communities and businesses adopt more environmentally friendly practices. Studies show that for many families, these rebates outweigh their direct and indirect carbon tax costs.

Increased income tax brackets

Personal income tax brackets will also be changing for the incoming tax season. These brackets will be increasing by 2.7 per cent from the previous year’s tax brackets to account for inflation. Inevitably, citizens are also required to pay for any provincial or territorial taxes depending on where they are.  

With the failure to file taxes any later than April 30, the CRA will increase the balance owed by five per cent as well as one per cent for each passing month that a balance remains unpaid.

Helping small business owners

On the other hand, the government has introduced a new incentive for small business owners. The Canadian Entrepreneur Incentive lowers the inclusion rate for capital gains to 33 per cent on a lifetime maximum of $2 million, specifically for Canadian Controlled Private Corporations.  

Starting this year, the program will be gradually phased in, offering $400,000 in reduced-rate gains annually until the full $2 million is reached in 2029.

While the incentive provides some relief, the overlapping tax measures are expected to complicate financial management for small businesses.

Increased CPP payments

Changes to Canada Pension Plan (CPP) contributions continue in 2025, with two thresholds determining contribution levels.

The first earnings ceiling rises to $71,300, with employees contributing 5.95 per cent of their income up to that amount, after a $3,500 exemption. This brings the maximum annual contribution to $4,034.10 per employee, matched by employers for a total of $8,068.20.  

A second earnings ceiling, introduced in recent years, increases to $81,200. Contributions on income between the two ceilings are taxed at 4 per cent, adding another $396 per employee and employer.  

Alcohol tax

On April 1, 2025, taxes on alcohol will rise by 2 per cent. Although recent years have seen the government reduce inflation-linked hikes on beer and wine, this increase is estimated to cost Canadians $40.8 million, according to the Canadian Taxpayers Federation.  

Other than the changes mentioned, the province of Alberta itself will also introduce a wide variety of taxes and adjustments that may or may not impact your wallet. Let’s take a closer look at what they are.

Vaping tax

On Jan. 1, 2025, Alberta introduced a provincial vaping tax that will be added on top of the existing federal tax on these products. This change is expected to increase the cost of vaping products by approximately 20 per cent, according to Action on Smoking and Health (ASH) Canada. The provincial government estimates that the tax will generate $18 million in revenue for the 2025-26 fiscal year.  

Les Hagen, executive director of ASH Canada, believes the tax could significantly reduce vaping rates among youth, a demographic particularly sensitive to price increases.

“We know from tobacco taxes that higher prices are one of the most effective ways to reduce usage, especially among young people with limited disposable income,” Hagen said. “We expect similar results with vaping.”  

Despite this move, ASH continues to advocate for a federal ban on flavored vaping products to further reduce youth interest in vaping.

Electric vehicle tax

Electric vehicle (EV) owners in Alberta will soon face a new $200 provincial tax when registering their vehicles. While the exact implementation date hasn’t been announced, the finance ministry expects the tax to roll out in early 2025. Hybrid vehicles will be exempt from this fee.  

The Alberta government justifies the tax by claiming EVs contribute to wear and tear on provincial roads without paying fuel taxes. However, critics, such as the Electric Vehicle Association of Alberta (EVAA), argue that this reasoning is flawed.  

“Many EVs weigh less than gas-powered vehicles, so this flat fee unfairly penalizes smaller or low-mileage EV drivers,” said William York, president of the EVAA.

“This tax feels more ideological than practical, especially when other jurisdictions are offering incentives for EV ownership.”

This tax is expected to bring in $5 million in revenue for 2025-26, growing to $8 million by 2026-27.

Amirmohammed Bagheri is a Staff Writer for The Reflector 2024-2025.