As of February 2025, several significant tax updates have been introduced in Canada, affecting vehicle-related deductions, property taxation, and small business operations. These changes aim to stimulate economic growth, support small businesses, and address international trade dynamics.
Vehicle-Related Tax Updates
The Canadian government has announced adjustments to automobile tax deduction limits for businesses. Effective January 1, 2025, the ceiling for capital cost allowance (CCA) deductions for passenger vehicles has increased to $35,000, up from the previous limit of $30,000. This change allows businesses to claim higher depreciation expenses on eligible vehicles, thereby reducing taxable income. However, the maximum allowable interest deduction for automobile loans remains unchanged at $350 per month for new loans initiated on or after January 1, 2025.
In response to global trade dynamics, Canada has imposed a 100% tariff on electric vehicles (EVs) manufactured in China, effective October 2024. This measure aims to protect the domestic automotive industry from an influx of low-cost Chinese EVs. Consequently, businesses importing EVs from China will face increased costs, which may influence procurement decisions and fleet management strategies.
Property Tax Updates
For property owners engaged in short-term rentals through platforms like Airbnb or Vrbo, new regulations have been implemented. Starting in 2025, to claim tax deductions related to rental income—such as mortgage interest, maintenance, and property taxes—owners must ensure their rentals comply with local provincial and municipal regulations. This includes obtaining necessary permits, registrations, or licenses as mandated by local authorities. Non-compliance will result in the disallowance of these deductions, potentially increasing taxable income for property owners.
Small Business Tax Updates
The Canadian government has introduced several reforms to support small businesses:
- Lifetime Capital Gains Exemption (LCGE): The LCGE has been increased to $1.25 million for dispositions of qualified small business corporation shares, as well as eligible farming and fishing properties. This enhancement allows business owners to shelter a greater portion of capital gains from taxation upon the sale of their businesses.
- Canada Entrepreneurs’ Incentive (CEI): A new CEI has been established to reduce capital gains taxes on the next $2 million upon the sale of qualifying small business shares. This incentive starts at $200,000 in 2025 and will incrementally increase by $200,000 each year over the next decade, reaching $2 million by 2034. Qualifying entrepreneurs will benefit from a reduced inclusion rate of 33.3% on their capital gains, compared to the standard rate.
- Simplified Reporting Requirements: To reduce administrative burdens, businesses with annual revenues under $1 million now benefit from simplified tax reporting requirements. This initiative aims to encourage compliance and support the growth of small enterprises by streamlining the filing process.
These tax updates reflect the Canadian government’s commitment to fostering a conducive environment for economic development, supporting small businesses, and ensuring fair competition in the marketplace.
If you have any questions regarding Tax Updates, feel free to contact finnection via email at info@finnection.ca or call us at (647) 795-5462
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