The 2025 federal budget — the first under Prime Minister Mark Carney — promises to reshape how working Canadians experience both their paycheques and their prospects.
Branded as a “generational” plan by the government, the budget balances sweeping economic ambition with targeted relief for households facing persistent cost-of-living pressures.
At its core is a middle-class tax cut that lowers the first federal income tax bracket to 14% (from 15%), putting hundreds of dollars back into the pockets of roughly 22 million Canadians. For families, new measures such as automatic benefit filing, a permanent national school food program and a GST rebate for first-time home buyers aim to ease everyday financial strain.
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Beyond immediate affordability, the budget also doubles down on long-term growth — offering major tax incentives for clean technology, critical minerals, manufacturing and research and development. Together, these policies signal a shift toward an economy built on innovation and sustainability while attempting to restore confidence that work will once again pay off.
For working Canadians, the message is clear: relief today, opportunity tomorrow.
Summary of tax incentives in the Canada Federal Budget 2025
Here’s a summary of the key tax incentives, rebates and deductions announced in the 2025 Federal Budget — and why they matter.
Middle-class tax cut
Starting July 1, 2025, the first personal income tax bracket (for the marginal tax rate) will be reduced from 15% to 14%. That means any Canadian earning up to $57,375 will now pay less income tax. For instance, if a person earned $57,000 per year, they would owe the Canada Revenue Agency (CRA) about $8,550 in income tax (assuming no deductions, etc.); however, with this tax cut, that same person would owe $7,980 — for an annual savings of $570.
According to the Budget document (1), this tax cut benefits roughly 22 million Canadians, although total savings depends on household earnings and deductions.
Why it matters: Provides broad, visible tax relief during a period of high living costs. It’s the centrepiece of the government’s ‘affordability’ pitch.
Top-up tax credit
The Top-Up Tax Credit is a new measure introduced in the 2025 Federal Budget to ensure that no taxpayer ends up worse off as a result of the government’s proposed middle-class tax cut — which lowers the first federal income tax rate from 15% to 14% beginning July 1, 2025.
While the income tax rate cut will save most Canadians up to $420 per person (or $840 per couple) per year, it also has a side effect, since the lowest federal rate is used to calculate dozens of non-refundable tax credits (for example, the basic personal amount, tuition, medical expenses, and charitable donations) and lowering that rate would slightly reduce the value of those credits.
The Top-Up Tax Credit effectively corrects for this shortfall by “topping up” the amount of federal credits taxpayers can claim, so that no one loses any value on existing credits or deductions.
- The CRA will automatically calculate the top-up amount when a taxpayer files their annual return
- It will apply to tax years 2025 through 2030 — the same period the government estimates it will take to fully evaluate the effects of the broader tax reform
- The credit will be non-refundable, meaning it reduces the taxes you owe but won’t generate a refund if your balance reaches zero
- The amount of the top-up will vary by taxpayer, depending on which credits and deductions they claim that are affected by the rate reduction
For example, if a taxpayer claimed $10,000 in eligible non-refundable credits they’d normally save $1,500 (15% × $10,000). With the new 14% rate, that same $10,000 would only yield $1,400 in savings — a loss of $100. The Top-Up Tax Credit would be added back topping up the taxpayers credit by $100, and maintaining the same total tax reduction as before.
Who benefits from this top up credit?
- Middle-income earners claiming non-refundable credits (such as for tuition, medical expenses, or dependants)
- Low-income earners who don’t have enough taxable income to fully benefit from the rate cut, but still rely on non-refundable credits to reduce taxes payable
- Seniors and caregivers using credits like the Age Credit, Caregiver Credit or Disability Amount, which are also calculated at the lowest tax rate
Why it matters: Ensures the tax cut doesn’t accidentally penalize those with large deductible expenses, such as middle-income earners claiming non-refundable credits (such as for tuition, medical expenses or dependants); low-income earners who don’t have enough taxable income to fully benefit from the rate cut, but still rely on non-refundable credits to reduce taxes payable; seniors and caregivers using credits like the Age Credit, Caregiver Credit or Disability Amount, which are also calculated at the lowest tax rate.
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Removal of GST for first-time home buyers
Budget 2025 will eliminate GST on newly built homes priced up to $1 million and reduce GST owed on newly built homes priced between $1 million and $1.5 million.
Why it matters: Immediate cost reduction for first-time home buyers — aligns with Mark Carney’s heavy housing focus.
Automatic federal benefits for low-income Canadians
Starting in 2026, the CRA will automatically file taxes for low-income Canadians, ensuring access to benefits like the GST/HST Credit, Canada Workers Benefit and Canada Child Benefit.
Why it matters: Addresses “non-filers” — where an estimated 5.5 million Canadians do not file a tax return — who miss key benefits offered by the federal government. The aim is to increases equity and efficiency.
Permanent national school food program
Building on the temporary funding launched in 2024, Budget 2025 makes the National School Food Program a permanent federal initiative, with stable funding of $216.6 million per year starting in 2029/2030.
Funds will flow to provinces, territories, and Indigenous organizations, who will administer the programs directly through schools and community partners. Each region can tailor delivery — whether through universal meal programs or targeted supports — but must meet national standards for nutrition and accessibility. All public elementary and secondary schools are eligible to participate, with priority going to low-income communities, Indigenous schools and remote regions with high food insecurity.
Why it matters: While not a direct tax cut, this in-kind tax relief will help to offset grocery costs. The estimated savings in grocery costs for a family with two children is up to $800 per year.
Home accessibility and medical expense tax credits
The Home Accessibility Tax Credit (HATC) and the Medical Expense Tax Credit (METC) already exist with the HATC offering a non-refundable credit of 15% on up to $20,000 in eligible home renovations (maximum benefit: $3,000), while the METC offers a non-refundable credit for eligible medical expenses exceeding the lesser of 3% of income or a set annual threshold (around $2,700 for 2025).
Changes proposed in the Federal Budget 2025 aim to clarify and simplify how both credits interact. Currently, some expenses — such as installing wheelchair ramps, stair lifts or bathroom modifications — qualify for both credits, which led to confusion and occasional double-claims.
Under Budget 2025 new rules, an expense can be claimed under either HATC or METC, but not both. In the following months, the CRA will publish a standardized list of eligible accessibility renovations to reduce audit disputes.
Why it matters: The aim of this is to improve compliance while maintaining support for seniors and Canadians with disabilities.
Bottom line
For most Canadians, the 2025 Federal Budget offers new and revised tax credits that reflect a shift from one-time relief to systemic, built-in support. The middle-class tax cut delivers direct savings on every paycheque, while the Top-Up Tax Credit ensures that no one loses ground on existing deductions.
Programs like the automatic federal benefits, permanent national school food plan and enhanced accessibility credits extend that relief beyond the tax form — helping families, seniors and low-income workers manage everyday costs with less red tape. At the same time, these measures modernize the tax system by linking benefits more closely to need. Canadians won’t have to fight to access the supports they qualify for — they’ll arrive automatically, predictably and fairly.
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Canada Strong Budget 2025 (1
This article originally appeared on Money.ca under the title: Budget 2025 brings hope and relief: Tax cuts and new credits aim to ease the squeeze on working Canadians
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.