— February 11, 2025 —
It would be easy to assume that the latest round of federal tax announcements can wait until after tax season. In fact, they can’t — at least not entirely.
On November 4, 2025, the Department of Finance Canada released a substantial package of draft legislative proposals and explanatory notes. While some of the measures are forward-looking, extending into 2026 and 2027, others are already effective or apply to transactions and taxation years that have begun. In other words, this was not simply advance notice of future policy direction; it included changes that practitioners need to be aware of now.
What follows is a short briefing, ordered by effective date, designed to help busy practitioners quickly identify what has already come into force, what affects 2025 planning, and what can be parked for later.
The most immediate measures are those effective in 2025, several of which apply to transactions occurring on or after November 4, 2025. One of the most significant is the introduction of a 100% first-year Capital Cost Allowance for qualifying manufacturing and processing buildings. Where at least 90% of a building’s floor space is used for manufacturing or processing activities in Canada, the full cost of the building may be deducted in the year of acquisition. While this provides a powerful incentive for capital investment, it is not without complexity. The accelerated rate begins to phase down after 2030, and a newly introduced “manufacturing building recapture event” may apply if the 90% usage threshold is not maintained for a ten-year period. Practitioners advising clients on facility expansions or reorganizations should ensure they understand both the immediate benefit and the long-term exposure.
Also effective for taxation years beginning on or after November 4, 2025, are new rules aimed at limiting dividend refund deferral within affiliated corporate groups. Under the proposals, a corporation’s dividend refund may be suspended where dividends are paid to an affiliated corporation with a later balance-due day. This directly affects structures that rely on staggered year-ends to accelerate refunds and will require a reassessment of dividend timing and group planning strategies for affected clients.
Trust planning is also impacted immediately. For transfers occurring on or after November 4, 2025, amendments to subsection 104(5.8) restrict the ability to defer the 21-year deemed disposition rule through certain trust-to-trust transfers. While technical, the policy intent is straightforward: to prevent the effective extension of a trust’s life beyond the 21-year cycle through internal restructuring.
In addition, refinements to the Foreign Accrual Property Income rules apply for taxation years of a foreign affiliate beginning after November 4, 2025, where the affiliate insures or reinsures “specified Canadian risks.” These changes are particularly relevant for groups using offshore insurance or reinsurance arrangements and may affect income characterization sooner than anticipated.
For practitioners looking to go deeper on any of these 2025-effective measures, the primary source remains the Department of Finance Canada’s draft legislative proposals and explanatory notes dated November 4, 2025. In addition, AJAG has incorporated these developments into its technical programming, including focused courses and updates designed to walk through both the policy intent and practical application for practitioners working with owner-managed businesses, trusts, and corporate groups.
Turning briefly to 2026, the most consequential change on the horizon is the expansion of Canada’s hybrid mismatch rules, generally applying to payments arising on or after July 1, 2026. These amendments significantly broaden the reach of section 18.4 to include reverse hybrids, disregarded payments, and hybrid payer arrangements. While not yet effective, the scope and complexity of these rules mean that any client with cross-border structures involving partnerships or dual-resident entities should be identified well in advance for review.
Further out, but still worth noting, are changes scheduled for 2027. These include expanded information reporting requirements for certain non-profit organizations, effective for fiscal periods beginning on or after January 1, 2027, and a comprehensive consolidation of the qualified investment rules for registered plans, also effective January 1, 2027. While neither demands immediate action, both are large enough in scale to warrant early awareness, particularly for clients with complex registered plan holdings or for practitioners advising smaller NPOs with limited administrative capacity.
Finally, the November 2025 proposals continue to refine several green investment tax credits, including the Clean Hydrogen ITC and the CCUS ITC. Although many of these amendments technically apply to earlier years, they are highly relevant to projects currently underway or in the planning stages and introduce additional compliance and documentation requirements that should be addressed from the outset.
The key takeaway is this: not all of these changes are future concerns. Several are already effective and will influence planning and compliance in 2025. Keeping this broader context in mind now — and knowing where to go for deeper technical guidance when needed — will help ensure that nothing important is missed once the current tax season pressures ease.
For more insights like this, register for our new course Tax Update for Practitioners: Recent Changes and What’s Ahead led by Ryan Minor, Director of Tax at CPA Canada – or check out our full course schedule here.
Disclaimer: This article is provided for general information only and does not constitute tax or legal advice. Organizations should consult their professional advisors regarding their specific circumstances.
