Tax Season and Understand Tax Changes in 2025/2026
MEMO TO M.Y. UNWAVERING CLIENTS
I wish to use this opportunity to thank my continuing clients for their unwavering support of using my services and expertise. If there is one (of many) reminder of the passage of time, it is how often you see my Tax Circular and how I show up in your inbox this time of the year. To that, I, and the staff of M.Y. Accounting Firm, sincerely thank you.
My observation with the CRA in 2025 was a toned down version of 2024. They remain to be relentless but the quantity of letters definitly was not as much. Their tactics remain the same - send out letters, wait half a year and provide an unfair judgement hoping the either exhaust you or spend additional money to fend.
Their mechanical approach remains the same. Needless to say it is inhumane as a single box unchecked means denial of the claims. The result without a doubt was unfair judgement due to their own incompetence which costed my client extra dollars to fend off the case. Hence it is ever more critical to have a accountant representative that works with you and not having your taxes done at pop up booths.
Having said that, with this economy, it is their best interest to tone their punitive tactics even further.
2026 will be a interesting year to say the least. With so many variables ahead of us, I forsee that CRA will take a similar stance to enforce our self-reporting tax system or, as I think they ought to, to be less stringent and more humane.
Thank you for reading.
IMPORTANT DEADLINES
The deadline to file your 2025 tax return is April 30, 2026.
Self-employed (and spouse/common-law partner with self-employment income): file by June 15, 2026, but pay by April 30, 2026
TIPS FOR PREPARING FOR TAX FILING
When it comes to gathering tax information, I suggest starting now. This will avoid any last-minute scrambling (or surprises) as we approach the tax filing deadline.
Here are a few tips to get yourself organized:
Collect and sort all of your expense receipts, medical receipts, bills, etc. I'd suggest being proactive and keeping a scanned copy (or paper file) of all receipts
If you are a Sole Proprietor, ensure you have your bank statements for the past 12 months
Also, for Sole Proprietors, having your business expenses sorted by category on a spreadsheet is all I need to pull together your tax information. (*Note - your spreadsheet needs a robust summary of your expenses, including detailed information on business reason, date, amount, etc.)
COMPLETENESS IS KEY
Many of my clients don't understand how imperative it is for them to be as transparent as possible when updating me on major life events. Something as innocuous as your child starting a private school, having a child, or the passing of a family member, can impact your taxes.
Ensuring I have the full picture is key. Keeping me apprised of any major OR minor changes in your life will help maximize any refund you are eligible to receive while minimizing any money owed on your taxes.
TAX CHANGES FOR 2025
Tax and benefit amounts are indexed for inflation, but they update on different schedules. For the 2025 tax year (filed in 2026), the income tax brackets and many non-refundable credit amounts apply for the calendar year starting January 1, 2025.
In contrast, benefits such as the Canada Child Benefit (CCB) and the GST/HST credit are updated on a July-to-June benefit year, so the payment rates for the July 1, 2025 to June 30, 2026 benefit year take effect on July 1, 2025.
IMPORTANT TAX RELATED INFORMATION
Top-up tax credit
To offset the reduced value of certain non-refundable credits, the government introduced a targeted top-up mechanism. This preserves an effective 15% credit rate for specific claims above the first federal tax bracket threshold.
This primarily affects individuals with unusually large credit claims, such as significant medical or tuition expenses.
Registered Retirement Savings Plan (RRSP)
Higher Contribution Limit - You can contribute up to 18% of your prior-year earned income, to a maximum of $32,490 for the 2025 tax year (up from $31,560 in 2024). Any unused contribution room carries forward indefinitely. Investments inside an RRSP grow tax-deferred, but withdrawals are taxable.
Canada Pension Plan (CPP)
CPP maximum contributions have increased as part of the CPP enhancement—a multi-year plan designed to raise retirement benefits for working Canadians. When fully implemented, the enhancement is expected to increase the maximum CPP retirement pension by about 50%, improving retirement security. To fund this, CPP contribution requirements have risen gradually from 2019 through 2025. If you’re self-employed, you pay both the employee and employer portions, so it’s wise to set aside extra for tax time.
CPP also has two earnings ceilings:
First ceiling (YMPE – Year’s Maximum Pensionable Earnings): the maximum amount of earnings on which regular CPP contributions are calculated. For 2025, YMPE is $71,300.
Second ceiling (YAMPE – Year’s Additional Maximum Pensionable Earnings): introduced January 1, 2024, this applies to higher-income earners and determines additional CPP contributions, often called CPP2. If your earnings exceed the YMPE, you contribute CPP2 on earnings from $71,300 up to $81,200 in 2025 (the YAMPE).
Old Age Security (OAS)
Old Age Security is an income-tested benefit designed to provide retirees with a source of income to support their retirement. Put another way, the higher your income, the less OAS you may qualify for. However, the income threshold changes from year to year.
For the 2025 tax year, if your taxable income was over $93,454, you would need to repay some of your OAS in the recovery period from July 2026 to June 2027. If you're 65 to 74 and your taxable income was over $152,062, or you're 75 or over and your taxable income was $157,923 or more, you will not receive any OAS payments.
Canada Disability Benefit (CDB)
Opened in June 2025. This new federal benefit is for working-age Canadians (aged 18 to 64) with disabilities, who will receive up to $2,400 per year (maximum $200 per month), based on their adjusted family net income. (The benefit amount will rise with inflation.)
To qualify, you must be a Canadian resident who is certified to receive the Disability Tax Credit (DTC), and you must have filed your previous year's tax return. (Payments are retroactively available back to July 2025.) Receiving the CDB won't affect your eligibility for other federal benefits, and the federal government has said it plans to table legislation to make the CDB tax-exempt.
Canada Carbon Rebate
In March 2025, the federal government ended the pollution price on gasoline, and it also stopped the tax-free Canada Carbon Rebate payments that were intended to help eligible individuals and families in certain provinces offset those costs. The final rebate was issued in April 2025 to people who filed a 2024 tax return.
If you’re behind on filing, note that the 2025 federal budget proposes that no Canada Carbon Rebate payments will be issued for returns or adjustment requests filed after October 30, 2026.
Capital gains
Capital gains reporting is straightforward: taxpayers report capital gains and losses normally on Schedule 3, using the 50% inclusion rate, with no requirement to split transactions into different periods.
In addition, the CRA’s relief for the new trust reporting rules continues for bare trusts—a T3 return (including Schedule 15) is generally not required for taxation years ending in 2025 unless the CRA specifically requests it, and mandatory filing for certain bare trusts is expected to begin for years ending on or after December 31, 2026.
Capital gains- ESBC shares
You can defer capital gains on the sale of eligible small business corporation (ESBC) shares if you reinvest the proceeds in replacement ESBC shares within the required period (currently, the year of sale or within 120 days after year-end). ESBC shares are generally shares of a CCPC whose value is mainly from active business assets in Canada (or related ESBC shares/debt), and the ESBC and related corporations must have $50M or less in asset carrying value before/after issuance.
Unpaid tax penalty
If you file late for 2025, the penalty is 5% of your 2025 balance owing, plus an additional 1% for each full month that you file after the tax filing due date—to a maximum of 12 months.
Disability Tax Credit
Applying for the Disability Tax Credit has been notoriously a lengthy process. In 2023, the CRA made this process easier by going digital! Now, via My CRA Account, individuals wanting to apply can complete Part A of the application and once issued a reference number, provide this to your qualified medical practitioner who can then complete Part B digitally for you.
There’s no need to print and bring the forms to your medical practitioner anymore.
IMPORTANT CREDITS
Top-Up Tax Credit: Is a temporary measure for 2025–2030 to ensure that federal non-refundable tax credits (such as the basic personal amount and other common credits) continue to provide relief at an effective rate of 15%, even though the middle-class tax cut lowers the lowest federal tax rate.
The Basic Personal Amount (BPA): This is a non-refundable tax credit that all individual taxpayers can claim—it's essentially how much income you can earn tax-free. For 2025, the federal government has increased the maximum BPA to $16,129. Each province and territory also has a BPA.
Personal Support Workers Tax Credit: Temporary refundable tax credit of 5 per cent of eligible earnings, providing a credit value of up to $1,100 for eligible personal support workers working for eligible health care establishments.
An eligible personal support worker is a person who ordinarily provides one-on-one care and essential support to optimize and maintain another individual's health, well-being, safety, autonomy, and comfort, consistent with that individual's health care needs as directed by a regulated health care professional or a provincial community health organization. The person's main employment duties must include helping patients with activities of daily living and mobilization.
Eligible health care establishments would be hospitals, nursing care facilities, residential care facilities, community care facilities for the elderly, home health care establishments, and other similar regulated health care establishments.
Eligible earnings would include all taxable employment income, including wages and salaries, and employment benefits (as well as similar tax-exempt income and benefits earned on a reserve) that is earned as an eligible personal support worker performing employment duties for eligible health care establishments.
Multigenerational Home Renovation Tax Credit (MHRTC): Refundable credit for eligible renovations to create a secondary unit for a senior or an adult eligible for the DTC; up to $50,000 of qualifying expenses per renovation, credit calculated at 14.5% (max $7,250 per renovation).
Further Reading = 9 Biggest Tax Changes for Tax Year 2026 -
https://turbotax.intuit.ca/tips/9-biggest-tax-changes-canadians-need-to-know?srsltid=AfmBOor2ClZ9xBs-g1x1ORFcjFMDNaonvMq28c-lYQDsQVgiCqhumVZa
Some Highlights:
Child Disability Benefit (CDB)
The Child Disability Benefit (CDB) is a tax-free monthly payment made to families who care for a child under age 18 with a severe and prolonged impairment in physical or mental functions.
To get the Child Disability Benefit:
you must be eligible for the Canada Child Benefit (CCB)
your child must be eligible for the Disability Tax Credit
Note: If you are already getting the Canada Child Benefit (CCB) for your child who is eligible for the Disability Tax Credit (DTC), you do not need to apply for the CDB, because you will get it automatically.
Medical expenses can add up quickly in the run of a year. Everything from routine dental visits to prescriptions to doctors’ fees could earn you a credit at tax time.
To get the most out of your claim, it’s usually best to have one spouse claim all the medical expenses for the immediate family (you, your spouse, and kids under 18) and any dependants you support.
Some often-overlooked medical expenses can include:
private medical insurance premiums
tutoring for children with disabilities
home renovations that improve mobility or access
travel expenses to seek medical treatment (over 40 km one-way)
prescription contact lenses or glasses
dentures and dental implants
fertility expenses
TAX BRACKET CHANGES
Below are the new federal tax brackets for 2025. (Note: The federal government cut the tax rate for the lowest bracket from 15% to 14%. The cut took effect mid-year, on July 1, so the effective tax rate for the lowest bracket is 14.5%.) Starting in 2026, the rate for the year will be 14%.
14.5% up to $57,375, plus
20.5% over $57,375 up to $114,750, plus
26% over $114,750 up to $177,882, plus
29% over $177,882 up to $253,414, plus
33% over $253,414
FIRST HOME SAVINGS ACCOUNT (FHSA)
First-time homebuyers can save $40,000 to purchase their first home in Canada on a tax-free basis.
Similar to RRSPs, contributions are tax-deductible, but withdrawals for the purchase of a first home will be non-taxable.
HOME FLIPPING TAX
Effective on January 1, 2023, properties sold that are owned less than 12 months (specifically, 365 consecutive days) will be considered to have “flipped”. Any profits from the deal will be taxed as business income. This holds true, even if it is by definition a principal residence, in accordance to the Income Tax Act.
Regular business income is taxed at personal marginal rates and not considered a capital property (whereby 50% of the capital gains are taxable at the marginal rate). In other words, 100% of the appreciated value is taxed.
Exceptions include a certain number of life events including the death of the individual or a related party, an addition to a household, breakdown of a relationship, a threat to personal safety, serious illness or disability, work relocation or termination, insolvency or destruction or expropriation of the home.
ONTARIO CREDITS
The Ontario Seniors Care at Home Tax Credit: This tax credit is to help seniors with eligible medical expenses and those with attendant care. The credit is equal to 25% of your eligible medical expenses up to $6,000. In other words, a maximum refundable credit of $1,500.
The Seniors’ Home Safety Tax Credit: Like the HATC, this credit allows 25% up to a maximum of $10,000 in eligible expenses. The maximum credit is equal to $2,500 per year.
FOREIGN TAXES
If you worked abroad while remaining a Canadian resident, the CRA may not accept paystubs alone as proof for claiming foreign tax credits. The CRA typically expects official documentation showing the foreign tax was actually paid, such as a foreign tax return/assessment/transcript and/or official proof of payment to the foreign tax authority. If you can’t provide adequate proof, the CRA may deny the foreign tax credit initially, which can increase your Canadian tax owing—until you submit acceptable documentation and request an adjustment.
TAX PREPARATION CHECKLIST
The following list is comprehensive so not all may be applicable to you:
T-Slips (T5, T4, T3, T4(OAS), T4A(CPP), T4E, T4A)
Employment expenses (if eligible, you should be given a form T2200 filled by employer). Common expenses include, telephone, auto costs, insurance, supplies etc.
RRSP Contribution slips
Investment summary of transactions (For capital gains/loss calculation. This can be downloaded from your trading platform like Questrade, TD Waterhouse)
Did you sell a principle residence during the year? If so, please provide the sale documents
Did you sell a property during the year? If so, please provide the sale documents
Interest expenses for investment purposes (Loans incurred to invest into a small business, or incurred for trading)
Business/Commission income and expenses (Auto expenses, auto mileage - personal vs business and travel log to/from, purchases, advertising, supplies, licenses and permits, telephone, utilities, home office, repairs and maintenance, insurance, interests expenses etc.)
Is your personal business a GST registrant? If so, there is also a filing requirement.
Rental Income and expenses (repairs and maintenance, property taxes, utilities, janitorial, common fees, mortgage interest etc.)
Did you move during the year where your new home is 40KM closer to your new place of employment than before. These moving expenses can be claimed
University/tuition tax slips (T2202A)
Property taxes/rental expenses paid for your principal residence
Child care costs/nanny costs paid in the year. If your children attended private school, there is a child care expense portion in the tuition fees. Did your lower income spouse enroll in school during the year?
Child support and/or spousal support payments/received
Summer camps and other camps paid in the year for children
Medical receipts or a print off from your insurance provider of medical expenses paid out of pocket
Donation tax receipts
Private health Insurance premiums paid
Professional/Union dues
Any significant changes to you and your family for 2024 that I should be aware of and may be utilized in filing for your taxes? Like a newborn, tying the knots, purchase a new home, or sold a old home!
Other related issues for 2024 that I should be aware of and may be used for taxes
For more information on how M.Y. Accounting Services can help you or your business, feel free to contact me at marioyu2@gmail.com or 416-566-8806.
