SMLLP Tax Season Update
Welcome to 2025 tax season. Fortunately, so far there has been, more or less, stability in most tax rules, at least Federally, since the whole capital gains fiasco last year (now cancelled), the Underused Housing Tax (UHT) is now in the process of being repealed and the Bare Trust reporting having been deferred yet again.
However, we have definitely seen an uptick in enforcement and CRA reviews as they use more automated tools. For CRA reviews, the most common areas for individuals have been data matching with investment slips, moving expenses, large donation or medical amounts, foreign tax credits and flow-through tax planning.
A note about accounting and bookkeeping fee changes in BC, effective October 1, 2026
In the recent BC Budget, in a search for money, BC will be requiring accounting and bookkeeping firms to start charging 7% PST on its services provided to BC clients. The term "accounting" is not defined at this time, but we expect it will encompass all of our services — including tax. The BC government will release more details closer to the implementation date. We oppose this change as it singles out a small sector of the service industry and the term "accounting" is also unclear at this point; in addition, there is an irony to increasing the cost for a service that is used to try to comply with the complexities that the government puts on their constituents.
What's New in Personal Tax?
If you had a short-term rental and did not comply with the municipal/provincial rules, you will no longer be able to claim deductions. Hosts were required to comply with these applicable provincial and municipal registration, permit, license, and operating requirements by December 31, 2024. If you have not complied, ensure you comply now as deductions only qualify from the date of the business license.
Perhaps the most significant back-door tax increase has been a change to the Alternative Minimum Tax (AMT) rules starting in 2024 (and continuing), which became evident in last year's filings. The minimum tax rate has increased from 15% to 20.5%; however, the basic exemption from AMT has now moved up to the fourth income tax bracket ($177,882 in 2025). The inclusion rate for taxable capital gains, allowable capital losses, and gains from listed personal property has risen to 100%, up from 80%. This also applies to trusts, while allowable business investment losses remain at a 50% inclusion rate. Donations of publicly listed securities to qualified donees now have a 30% inclusion rate for AMT purposes. At the same time, deductions for AMT income are limited, with some increased by a factor of 7/5, and others, like stock options, no longer available. Loss carry-forwards are restricted: non-capital and limited partnership losses can only be used at 50% of their amounts, and capital loss carry-forwards are reduced to a 50% inclusion rate (which creates an asymmetry as capital gains are included at 100%). Additionally, only 50% of interest and financing expenses for borrowed amounts to earn income from property can be deducted for AMT purposes — this has been a real issue in prescribed-rate loan planning. These changes aim to increase AMT liability for high-income individuals and limit excessive tax benefit reductions.
If you make money on a digital platform, make sure you are reporting it. Starting with the 2024 calendar year, reporting platform operators are now required to collect and report information on sellers using their platform to sell goods or provide certain services, such as the rental of real or immovable property. If you are a reportable seller, your reporting platform operator will provide you with an annual copy of the information that is collected and reported to the CRA under these rules to help you file your taxes.
If you have a family member who qualifies for the Disability Tax Credit, there is a new Canada Disability Benefit (CDB) that was launched which will provide up to $2,400 per year ($200 per month), indexed to inflation — tax exempt (age 18 to 64). See here for more details.
Other tax changes include:
- The lowest federal tax rate is decreasing to 14.5% in 2025 and 14% in 2026. If you are in BC, this benefit is short-lived as the BC government is increasing its lowest rate for 2026 to 5.6% from 5.06%.
- In Alberta the tax rate for income below $60,000 is dropping to 8% from 10%.
- For those provinces with a Canada Carbon Rebate, this rebate is now set to zero.
- The Digital News Subscription Tax Credit is no longer available for 2025 and later years.
- The BC Small Business Venture Capital Tax Credit has increased to $300,000 from $120,000.
- The BC Speculation and Vacancy Tax is increasing for 2026 to 3% (from 2%) for foreign owners / untaxed worldwide earners effective January 1, 2026, and 1% (from 0.5%) for other Canadian citizens or permanent residents. The Vancouver Empty Home Tax Rate is 3% for 2025.
NEW! Trump Accounts for US citizens with minor children! The new Trump Accounts program allows every U.S. citizen child born between January 1, 2025, and December 31, 2028 — including those born abroad, such as in Canada — to receive a $1,000 contribution from the U.S. Treasury, invested in an index fund, by claiming it on Form 4547 with their U.S. tax return or through an online portal at trumpaccounts.gov. Any U.S. citizen under age 18 can have a Trump Account opened for them, but only those born in the specified period receive the Treasury seed funding. Starting July 4, 2026, family, friends, employers, philanthropists, and state governments can contribute up to $5,000 per year to each account, regardless of the child's country of residence. The account is designed to grow through investment and becomes accessible to the child at age 18 for retirement, education, or home purchase. While the account is described as tax-advantaged under U.S. law, specific U.S. tax details are pending, and Canadian residents may face Canadian tax reporting and potential taxation on the account's growth. It remains unclear whether Trump Accounts will actually be opened or administered outside the United States.
As we enter another demanding tax season, our commitment to navigating these changes together remains unwavering. Here's to a successful season ahead. See you soon.
Additional Items
Canada
- Annual TFSA contribution room allocation increased to $7,000 for 2026.
- 2025 Average FX rate with US was $1.3978 CAD : 1 USD (0.715 USD : 1 CAD).
- 2025 December 31 FX rate with US was $1.3706 : 1 USD (0.73 USD to 1 CAD).
- For 2025, top tax rates are 53.5% for BC at $259,829 of income ($265,545 for 2026), 48% for Alberta at $362,961, 50.4% ($370,220) for Manitoba at $400,000 (but in 2025 the highest rate is 51.26% between $253,414 and $400,000), and 53.53% for Ontario at $253,414 ($258,482 for 2026).
- FHSA Annual Contribution Limit is $8,000.
- RRSP Maximum Room is $33,810 (requires earned income of $187,834).
US
- Standard deduction for 2025 increases to $15,750, or $31,500 for a joint filing.
- Estate tax exemption for 2025 is $15,000,000.
- Foreign Earned Income Exclusion amount is $126,500 for 2025.
- For purposes of the FBAR and 8938 conversions, the rate is 1 CAD = 0.73 USD.
Important Reminders for Canada
- You can elect to stop CPP contributions if you are between 65 and 70 years old. The form CPT30 needs to be filed with your employer and the CRA. You may also wish to defer your CPP or OAS until you are 70 to gain larger future payments. OAS clawback begins when income exceeds $95,323 in 2026.
- The sale of a principal residence must be reported, along with any principal residence designation. If you sold a house within 2 years of purchase you may be subject to new Federal or BC house-flipping rules.
- BC taxpayers — do not forget to file your BC Speculation Tax and Vancouver Empty Home Tax if applicable.
- Capital gains (losses) on foreign currency changes in excess of $200 need to be reported on your tax return. The gain is reportable once it is triggered by either converting to another currency or purchasing goods in the foreign currency.
- Since 2018, dividends and distributions from privately held related corporations, trusts and partnerships in which you are not actively involved may be considered split income (TOSI) and be subject to top marginal rates.
- Cryptocurrency (Bitcoin) gains may occur when you sell or use the currency in transactions; these are treated as taxable income and need to be reported. The CRA puts the onus on the taxpayer to track their transactions during the year.
- Form T1135 – Foreign Income Verification Statement is required with your tax filing if at any time in the year the total cumulative cost amount of all "specified foreign property" you owned was more than $100,000 CAD.
- The Home Buyer's Plan withdrawal limit is now $60,000. Temporary repayment relief defers the start of the 15-year repayment period by an additional three years for participants making a first withdrawal between January 1, 2022, and December 31, 2025.
- If you have an excess TFSA or RRSP amount at any time in a year, you are liable to a penalty. Monitor your contributions to avoid penalties.
- Make sure you file on time, as the CRA has been strictly assessing penalties. It is your responsibility to sign the documents and get them back to us — we cannot file your returns without the signed documents.
- Good news for family business owners interested in an inter-generational business transfer — the rules intended to make it easier to transfer a business to the next generation are now in effect.
- The Canadian Dental Care Plan (CDCP) is being rolled out to provide dental coverage for uninsured Canadians with an adjusted family net income below $90,000. Benefits under this plan are non-taxable.
- Be aware that the government has overhauled the General Anti-Avoidance Rule (GAAR), giving the CRA more power to challenge tax planning strategies it deems aggressive.
- Are you at risk because of the amount of time you spend in the US? Spending too much time in the US could result in adverse tax consequences such as US taxation on worldwide income, US information return filing requirements, and potentially a Canadian exit tax.
- Dying with US assets — such as US real estate, tangible personal property located in the US, or stock of US corporations — may result in filing a US estate tax return.
- US personal income tax return — are you a US citizen, resident, green card holder or other US person? If yes, let us know and we can assist in determining your US filing obligations.
Important Filing Reminders for US Taxpayers
- Statement of Specified Foreign Financial Assets — Form 8938 is required if you have certain foreign financial assets. Non-resident individuals must file if their aggregate foreign investments are over $200,000 at December 31 or $300,000 at any time in the year ($400,000 / $600,000 if filing jointly). US residents file at lower thresholds.
- Report of Foreign Bank and Financial Accounts (FBAR) — Form FinCEN 114 is required if a US person has a financial interest in or signature authority over at least one foreign financial account and the aggregate value exceeded $10,000 at any time during the year. Due April 15 with an automatic extension available to October 15.
- Information Return of US Persons with Respect to Certain Foreign Corporations — Form 5471 is required by a US person who is an officer, director or greater-than-10% shareholder in certain non-US corporations.
- Extensions are available for US taxes; for individuals living outside the US at December 31 the filing deadline is June 15, but taxes are owed April 15. You can file an extension to get until October 15, but there is no extension on the payment date.
Key Differences Between Canadian and US Taxes
- Private corporations — owning a non-US private corporation can have significant tax implications; consult with us before contemplating ownership.
- Gift tax — US filers must file a gift tax return (and potentially pay tax) on gifts above their exemption limits. The annual exclusion is $19,000 per donee and $194,000 for a non-US-citizen spouse.
- Capital dividends — under US tax law the concept of capital dividends does not exist; these are taxable like any other dividend.
- Principal residence exemption — US tax rules limit the exemption on proceeds from the sale of your home.
- TFSA — considered a foreign trust by some and subject to extensive reporting; income earned in a TFSA, RESP and RDSP must be reported for US purposes, and a Form 3520 may be required.
- Mutual funds and ETFs — due to onerous PFIC reporting and punitive tax rates, we recommend US clients avoid non-US-based mutual fund or ETF investments.
- Mortgage interest deductibility — US filers may be able to deduct interest on a qualified home mortgage.
- Estate tax — US filers who passed away in 2025 with estates greater than $15,000,000 are liable for estate taxes.
- Lifetime capital gains deduction — the US does not recognize the lifetime capital gains exemption available to Canadians.
- Lottery and gambling winnings — fully taxable as ordinary income in the US; gambling losses may offset winnings.
- Child Tax Credits in the US require the child to have a US Social Security Number.
Contacts
Mailing addresses:
602 - 570 Granville Street, Vancouver, BC V6C 3P1 (to drop off documents, please contact Arnie Sadovnick at 604.688.7898 / arnie@smllp.ca to arrange a time)
209 - 10471 178th Street, Edmonton, AB T5S 1R5 (office is open 10am – 4pm during tax season)
Book a meeting:
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