Financial

As we usher in 2025, several important changes to Canada’s financial landscape are set to impact taxpayers, employees, and retirees. Staying informed about these updates is crucial for effective financial planning. Here’s a concise overview: 1. Adjustments to Federal Tax Brackets To account for a 2.7% inflation rate, the federal income tax brackets for 2025 have been revised as follows: • 15%: Income up to $57,375 • 20.5%: $57,375 to $114,750 • 26%: $114,750 to $177,882 • 29%: $177,882 to $253,414 • 33%: Over $253,414 These adjustments ensure that inflation does not push individuals into higher tax brackets, potentially reducing overall tax liability for many Canadians. 2. Increase in Basic Personal Amount (BPA) The BPA—the income threshold exempt from federal tax—has risen to $16,129 for 2025, up from $15,000 in 2023. This increase allows individuals to earn more before incurring federal income tax, providing additional relief, especially for lower-income earners. 3. Changes in Canada Pension Plan (CPP) Contributions While the CPP contribution rate remains at 5.95% for both employees and employers, the Year’s Maximum Pensionable Earnings (YMPE) has increased to $71,300. Consequently, the maximum contribution for employees and employers is now $4,034.10 each, with self-employed individuals contributing up to $8,068.20. 4. Employment Insurance (EI) Premium Adjustments EI premiums have been slightly adjusted. The employee contribution rate is now 1.64%, with a maximum contribution of $1,077.48 on earnings up to $65,700. In Quebec, the rate is 1.31%, with a maximum contribution of $860.67. 5. Updates to Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) Limits The TFSA contribution limit for 2025 remains at $7,000, while the RRSP contribution limit has increased to $32,490, up from $31,560 in 2024. These adjustments provide Canadians with enhanced opportunities for tax-advantaged savings. 6. Old Age Security (OAS) Clawback Threshold For 2025, the OAS repayment threshold is set at $93,454. Seniors with taxable income exceeding this amount will experience a reduction in OAS benefits. Conclusion These updates reflect the government’s efforts to adjust financial parameters in line with economic changes. Canadians are encouraged to review their financial plans and consult with financial advisors to optimize benefits and ensure compliance with the applicable tax laws.

Introduction In the Canadian Tax landscape, the “Lifetime Capital Gains Exemption (LCGE)” stands out as a powerful tool for entrepreneurs and investors who put a great deal of effort into investing, growing and sustaining their businesses. This provision offers an Eligible individual an opportunity to shield a significant portion of capital gains from taxation when selling an Eligible property. Let’s explore the specifics of the LCGE and examine its impact through a practical example. What is the Lifetime Capital Gains Exemption (LCGE)? The LCGE is a tax benefit provided by the Canadian Tax Authority (CRA) to encourage investment in qualified small businesses (QSBCS) and qualified farming or fishing properties (QFFP). This exemption allows eligible individuals to shield a predetermined amount of capital gains realized from the sale of eligible property, ultimately fostering economic growth and entrepreneurial ventures. Eligible Individual To be eligible to claim LCGE, you need to be a resident of Canada for that tax year in which you sell an eligible property. CRA also considers factual or deemed residents of Canada to be eligible for this exemption. Eligible Property Disposition of shares in a qualified small business (QSBCS), disposition of qualified farm or fishing property (QFFP) and any reserves brought into income on account of these, are eligible properties for LCGE. LCGE limit There is a lifetime limit of LCGE defined by CRA. For example, for 2022 if you disposed of qualified small business corporation shares (QSBCS), the LCGE limit was $ 913,630. Similarly, for qualified farm or fishing property (QFPP) from 2016 to 2022, the LCGE limit was $1,000,000. Since this is a lifetime cumulative limit, you may use it more than once until you have exhausted it completely during your lifetime. CRA has gradually increased these limits in the past few years, considering inflationary and other factors. LCGE Example Let’s consider Michael selling his qualified small business corporation shares (QSBCS) with a gross capital gain of $1,500,000 in 2022. Assuming Michael never used LCGE previously in his lifetime, the after-tax proceeds with LCGE and without LCGE look as below; Description LCGE $ Without LCGE $ Gross Capital Gain                    [A] 1,500,000 1,500,000 2022 LCGE limit for QSCBC 913,630 – Taxable Capital Gain 586,370 1,500,000 Inclusion rate 50% 50% Taxable Income 293,185 750,000 Marginal Tax rate 53.53% 53.53% Taxes Payable                             [B] 156,942 410,475 Net after-tax proceeds         [A-B] 1,343,058 1,089,525 **Please note above calculation is prepared for illustration purposes only, actual tax % and amount may vary depending on your tax scenario As you can see in the above example, the benefit of claiming Lifetime Capital Gains Exemption (LCGE) helped Michael save $253,533 ($1,343,058  – $1,089,525) in terms of net after-tax proceeds in hand.   Conclusion The Lifetime Capital Gains Exemption is a valuable tool that empowers Canadians to invest, grow businesses, and contribute to the nation’s economic prosperity. Entrepreneurs and investors alike should carefully assess their eligibility and leverage the LCGE to optimize their tax outcomes. We at ASA Professional Corporation can help you with personalized advice tailored to your unique circumstances. Unlock the potential of the Lifetime Capital Gains Exemption and pave the way for a more tax-efficient and prosperous financial future.