2025 Federal Budget: Highlights and Takeaways

November 5, 2025

Introduction

On November 4, 2025, The Honourable François-Phillipe Champagne, Minister of Finance and National Revenue, presented the 2025 Federal Budget, Canada Strong. One of the most anticipated federal budgets in recent memory, Budget 2025 lays out the government’s plan to strengthen Canada’s economy and sovereignty in the face of tariffs, geopolitical uncertainty, lagging productivity and weak investment.

The Carney government’s first budget was built around a narrative of “spending less to invest more,” with a focus on infrastructure spending, nation building projects and incentives with the goal of spurring investment and attracting more capital to boost the Canadian economy.

Here are the key takeaways that CPAs need to know as well as insight into how the Carney government plans to make Canada more competitive and resilient in a time of global turbulence.

Structural Budget Changes

Budget 2025 introduces a new approach to budgeting, called the Capital Budgeting Framework. This framework differentiates between day-to-day government operations (operating budget) and capital investments (capital budget).

The operating budget covers “day-to-day” operating spending, including income transfers (through programs such as Employment Insurance and Old Age Security), and the costs of running government.

The capital budget covers spending that “contributes to capital formation.” It encompasses investments in infrastructure, measures to accelerate new housing supply, and large-scale capital investments. This approach reflects the belief that while routine expenditures serve immediate needs, capital investments generate long-term economic returns, justifying the use of debt to finance them. 

This change in framework also comes with a change in timing: future federal budgets will now be presented in the fall, and economic updates will move to the spring.

Canada’s Weakening Economic Position

Canada’s economic projections have weakened considerably compared to the 2024 Fall Economic Statement (FES), primarily due to continued trade uncertainty. Budget 2025’s economic forecast points to a period of subdued growth extending through 2026, with real GDP growth expected to stay below 2.0% until 2027.

Real GDP: The forecast projects growth in real GDP at only 1.1% in 2025 and 1.2% in 2026. This represents a significant decline from the 2024 Fall Economic Statement projections of 1.9% and 2.1%.

The economy is not anticipated to gain momentum until 2027, when real GDP growth is projected to reach 2.0%. Following that, real GDP growth is expected to moderate slightly to 1.9% in 2028 before returning to 2.0% in 2029.

Unemployment rate: The labour market outlook shows persistent weakness, with unemployment forecasted to average at 7.0% in 2025. From there, unemployment rates are projected to gradually improve to 6.8% in 2026, 6.4% in 2027, 6.1% in 2028, and 6.0% in 2029.

Inflation: Consumer price inflation is expected to average 2.1% in 2025, slightly higher than the 2.0% forecast in the 2024 FES. Inflation is expected to return to 2.0% in 2026 and remain at that level through 2029, in line with the 2024 FES projections.

Fiscal update: The combination of trade tensions and slower economic activity has deteriorated the government’s fiscal position. The budget shortfall for 2025/2026 is now projected at $78.3 billion, with only modest improvement expected over the following years, with anticipated deficits of $65.4 billion in 2026/2027, $63.5 billion in 2027/2028, $57.9 billion in 2028/2029, and $56.6 billion in 2029/2030.

Financial Crimes Agency

The federal government has continued to reinforce its commitment to combat financial crime as part of its strategy to help protect the financial system given Canada’s historic vulnerability to money laundering. In Budget 2025, the government announced that it will establish a new Financial Crimes Agency that will “unite the police and civilian expertise to investigate complex cases on money laundering, organised criminal activity, and online financial scams.” Legislation to stand up this new agency will be introduced in the Spring of 2026 by the Minister of Finance and National Revenue and the Ministers of Justice and Public Safety.

AI, Innovation and Canada’s Financial Sector

The federal government has made supporting Canada’s innovation economy one of the pillars of its plan to boost Canada’s sluggish productivity. In addition to changes to the Scientific Research & Economic Development (SR&ED) tax credit, the 2025 Budget also includes financial details on how the government proposes to support AI, address the rise of stablecoins and advance open banking in Canada.

The federal government is proposing to provide $925.6 million over five years for the large-scale sovereign public AI infrastructure to support access to sovereign AI compute capacity for public and private research, $800 million of which will be sourced from previously set aside funds. The budget also announced a proposal to enable the Canada Infrastructure Bank to invest in AI infrastructure projects. The Minister of Artificial Intelligence and Digital Innovation will engage with industry to identify “new promising AI infrastructure projects” and enter into Memoranda of Understanding with those projects.

Budget 2025 also includes measures to support innovation in the financial sector, with a commitment to advance open banking through the introduction of legislation to complete the Consumer-Driven Banking Act and provide for data-mobility rights in the Personal Information Protection and Electronic Documents Act. It also announces that oversight of the Consumer-Driven Banking Act will be delegated to the Bank of Canada.

In addition, the government announced its intention to introduce legislation to regulate the issuance of fiat-backed stablecoins in Canada. As part of its forthcoming stablecoin legislation, the government will introduce national security safeguards and require issuers to maintain and manage asset reserves, establish redemption policies, implement risk management frameworks and protect sensitive information.

The Bank of Canada will retain $10 million over two years from its remittances to the Consolidated Revenue Fund to administer stablecoin legislation, with future administrative costs offset from stablecoin issuers regulated under the Act.

Canada’s Climate Competitiveness Strategy

In Budget 2025, the Canadian government reaffirmed the previous government’s commitments to emissions reduction and to “build an affordable net-zero future in which Canadian businesses are well-positioned to compete and succeed in the global economy.”

This strategy includes measures such as engaging with provincial and territorial governments in setting an industrial carbon price trajectory that targets net-zero by 2050, setting the stage to end the proposed oil and gas emissions cap. The government also seeks to provide further clarity on regulations to complement its approach to industrial pricing.

The government also confirmed that they will continue to support “clean energy” investment through clean economy investment tax credits. Measures in the Budget include introducing legislation for the clean electricity investment tax credit, removal of the eligibility conditions imposed on provincial and territorial governments for their Crown corporations and extension of the full credit rates for the carbon capture, utilization and storage tax credit by five years, among others.

Leveraging Canada’s Critical Minerals

Critical minerals are a central theme running through Budget 2025 as the federal government looks to leverage Canada’s access to strategic resources for their economic benefit. For example, Budget 2025 confirms the expansion of the list of critical minerals eligible for the Clean Technology Manufacturing Tax Credit to include antimony, indium, gallium, germanium and scandium.

The government is also proposing to expand the eligibility of the Critical Mineral Exploration Tax Credit to include additional critical minerals that are important for defence, semiconductor production, energy and clean technologies.

In addition to expanding tax credit eligibility, the government is proposing to provide $2 billion over five years for the creation of a Critical Mineral Sovereign Fund. The fund will make strategic investment in critical minerals projects and companies, including equity investments and loan guarantees. Budget 2025 also proposes to provide $371.8 million over four years to a new fund which would support the development of critical minerals projects and supply chains with a focus on getting near-term projects into production.

Transfer Pricing

Budget 2025 proposes substantial changes to modernize Canada’s transfer pricing rules to better align with international standards, updating the rules to be more consistent with the OECD Transfer Pricing Guidelines and the arm’s length principle. Key changes include introducing a new transfer pricing adjustment rule that allows taxpayers to adjust amounts based on what would have been determined under arm’s length conditions, and replacing existing rules with a new definition that provides more flexibility in analyzing transactions.

On the administrative side, the budget also proposes increasing the threshold for transfer pricing penalties from $5 million to $10 million, clarifying documentation requirements, providing simplified documentation when certain conditions are met, and reducing the time to provide transfer pricing documentation from 3 months to 30 days.  

Tax Policy Recommendations

On October 7th, 2025, CPA Ontario released Tax Reform for Growth in Canada, 20 bold, practical recommendations to reform Canada’s tax system and drive economic growth. In August 2025, CPA Ontario provided commentary on Canada’s tax system through a pre-budget submission. Though Budget 2025 included some measures that were in alignment with the recommendations found in the report, there is still a need for further, bold tax reform if we are to change Canada’s economic trajectory.

Make Accelerated Capital Cost Allowances Permanent and Consider Full and Immediate Expensing

CPA Ontario recommended making Accelerated Capital Cost Allowance permanent and consider full immediate expensing for capital investments. Budget 2025 partially addressed this through the “Productivity Super-Deduction,” temporarily extending the Accelerated Investment Incentive for property acquired on or after November 4, 2025. The budget also introduced immediate expensing (a 100% first-year write off of expenses) for manufacturing and processing machinery and equipment, clean energy generation and energy conservation equipment, and zero-emission vehicles. However, Budget 2025 stopped short of applying these measures broadly or making them permanent, as recommended.

Reform the Scientific Research and Experimental Development Tax Credit

Budget 2025 proposes several enhancements to the SR&ED program that align with CPA Ontario’s recommendations, including making the enhanced refundable tax credit available to Canadian public companies, increasing the expenditure limit from $3 million to $6 million, raising the taxable capital phase-out thresholds to $15 and $75 million respectively, and revamping the SR&ED administration process. However, Budget 2025 did not include measures to review qualifying R&D expenditures to ensure they reflect the reality of expenditure for firms, nor did it significantly increase both the expenditure limit and the taxable capital phase-out thresholds, as recommended in Tax Reform for Growth in Canada.

Review Recent Legislative Changes and Tax Expenditures

Budget 2025’s commitment to “eliminate or modify tax measure that have proven to be inefficient, costly to administer, and challenging for Canadian industries” echoes CPA Ontario’s call for Income Tax Act simplification, but takes a much narrower approach than recommended. While the budget specifically targets the luxury tax on aircraft and vessels, and the Underused Housing Tax for elimination, Tax Reform for Growth in Canada recommended a systematic review of all tax expenditure using clear evaluation criteria; assessing relevancy, efficiency, and whether measures should be abolished, modified, or retained.

Implement Automatic Filing for Simplicity and Equity

Budget 2025 follows through on CPA Ontario’s recommendation for automatic tax filing, calling it “automatic federal benefits for lower-income individuals.” The budget proposes giving the CRA authority to file tax returns on behalf of eligible individuals with low or fixed incomes and simple, unchanged tax situations, beginning with the 2025 taxation year. This will help lower-income Canadians who often miss out on benefits simply because they don’t file their taxes. While the scope of automatic federal benefits is cautious, focusing on straightforward cases rather than a broader rollout, this measure represents genuine progress on tax simplification.

Conclusion

Canada Strong: Budget 2025 includes a host of other measures intended to build capacity, resilience and sovereignty. These include over $81 billion over five years for the Canadian Armed Forces to help meet Canada’s NATO commitments, up to $1.7 billion for a suite of measures to attract international talent and an initial investment of $13 billion for Build Canada Homes, a new federal agency that will build affordable housing at scale. The government also announced its intention to reduce public sector headcount by 16,000 in 2025, and 40,000 by 2028.

Budget 2025 reflects a government trying to balance competing pressures; addressing fiscal challenges while making strategic investments in AI, clean technology, critical minerals and infrastructure. The new capital budgeting framework signals a shift in thinking, but the modest growth projections and mounting deficits reveal just how tight a corner Canada finds itself in.

The tax measures represent incremental improvement rather than true reform. Automatic filing, SR&ED enhancements and expenditure simplification will help, but they won’t fundamentally reform Canada’s tax system to make it more competitive. The government is taking steps in the right direction, but there remains a lot of opportunity to tackle comprehensive tax reform, reduce complexity, improve rate competitiveness and address structural issues in the tax system.

Budget 2025 demonstrates a recognition of the challenges Canada faces. As Prime Minister Carney and his government move forward to implement their budget measures, CPAs will be critical to effectively executing on the investments announced.