
<div class="figcap-grid"><div class="figcap-cc"><p class="figcap-text"><span class="caption text-gmr-4">New contribution room in registered plans and a further decrease in the prescribed rate create opportunities for clients.</span><span class="credit text-gmr-5">baona/iStockPhoto / Getty Images</span></p></div></div>
New contribution room in registered plans and a further decrease in the prescribed rate create opportunities for clients.baona/iStockPhoto / Getty Images
Many of the federal government’s proposed tax changes this year haven’t been enacted as Canadians begin the 2025 tax season, the most notable being the increase to the capital gains inclusion rate to 66.7 per cent from 50 per cent.
Financial advisors sitting down with clients early in the new year will be hard-pressed to give advice about these uncertain changes, says Wilmot George, vice-president, head of tax, retirement and estate planning at CI Global Asset Management in Toronto.
Instead, Mr. George says it may be wiser to steer clients toward 2025 changes that have been implemented.
Here are a few notable developments:
Registered plans
Clients meeting with their advisors will want guidance on taking advantage of new contribution room available in their registered plans, Mr. George says.
“Bonuses are quite often paid the first two months of the year,” he says. “[Clients] want to know where [they] should be directing these dollars.”
A client who could benefit from a tax deduction may consider prioritizing registered retirement savings plan (RRSP) contributions. Someone looking for long-term tax-free growth might choose to contribute to their tax-free savings account (TFSA) first, while clients looking to buy a home soon will want to contribute to their tax-free first home savings account (FHSA), Mr. George says.
RRSPs:
- Contribution limit for 2025: $32,490
- Contribution limit for 2024: $31,560
- Contribution deadline for the 2024 taxation year: March 3, 2025
TFSAs:
- Contribution limit for 2025: $7,000
- Lifetime limit in 2025 for Canadians who were 18 or older when the TFSA was introduced in 2009: $102,000
FHSAs:
- Contribution limit for 2025: $8,000
- Lifetime contribution limit: $40,000
Prescribed rate drops
The Canada Revenue Agency’s prescribed rate for the first quarter of 2025 is 4 per cent, down from 5 per cent in the last two quarters of 2024. The prescribed rate is recalculated every quarter based on the average yield of three-month government of Canada treasury bills for the first month of the preceding quarter.
Individuals can loan money to family members at the prescribed rate as part of an income-splitting strategy. As the borrower seeks to earn an investment return higher than the prescribed rate on the loan, the strategy works best when the loan is established at a time when the prescribed rate is relatively low.
If interest rates continue to fall this year, so too will the prescribed rate, Mr. George says, meaning couples looking to establish a prescribed rate loan might consider waiting until later in the year.
The rate on a prescribed rate loan can remain the same as long as the annual interest on the loan is paid by the deadline. Interest on prescribed rate loans that were outstanding in 2024 is due by Jan. 30.
Canada Pension Plan
The maximum pensionable earnings amount for 2025 is $71,300, up from $68,500 last year. Employees contribute 5.95 per cent (self-employed contribute 11.9 per cent) on earnings up to $71,300 to the CPP.
In 2025, they also contribute 4 per cent (self-employed contribute 8 per cent) on earnings between the first earnings ceiling of $71,300 and the second earnings ceiling of $81,200. This is the last year of the CPP enhancement rollout, which began in 2019.
Extension of HBP repayment grace period
The federal government temporarily extended the grace period during which homeowners are not required to begin repaying their home buyers’ plan (HBP) withdrawals to their RRSPs.
The grace period, which was extended from two years to five years, applies to homebuyers who make a first withdrawal from the plan between Jan. 1, 2022, and Dec. 31, 2025. Under the rules, amounts withdrawn under the HBP must be repaid over a maximum of 15 years beginning at the end of the grace period.
The government also increased the HBP withdrawal limit permanently to $60,000 from $35,000.
2025 indexation rate
The federal indexation rate for tax brackets in 2025 is 2.7 per cent, down from 4.7 per cent in 2024 and 6.3 per cent in 2023. Increases to tax bracket thresholds take effect Jan. 1 of each year.
In 2025, the top federal tax threshold, above which income is taxed at 33 per cent, is $253,414, up from $246,752.
OAS clawback
The old age security (OAS) repayment threshold for 2025 begins at $93,454, up from $90,997 for 2024.
Retirees whose income was $90,997 or more in 2024 must pay an OAS recovery tax calculated at 15 per cent of the difference between their 2024 income and the OAS repayment threshold, to a maximum amount of the total OAS received.
The repayment amount is divided monthly and deducted from OAS pension payments as a recovery tax between July 2025 and June 2026.
For 2024, the OAS is clawed back entirely at $148,451 for retirees between ages 65 and 74, and $154,196 for retirees 75 and older.