Canadian Tax Changes for 2025 Summarized

As of December 9, 2024, several key tax changes are set to take effect in Canada for the 2025 tax year. Here's an overview:

Federal Income Tax Brackets:
The Canada Revenue Agency (CRA) has adjusted federal income tax brackets to account for a 2.7% inflation increase. The updated brackets for 2025 are:
15% on income up to $57,375
20.5% on income between $57,375.01 and $114,750
26% on income between $114,750.01 and $177,882
29% on income between $177,882.01 and $253,414
33% on income above $253,414

Basic Personal Amount (BPA):
The BPA, which is the amount of income not subject to federal tax, will increase to $16,129 for 2025. This amount gradually reduces for individuals with net incomes exceeding $177,882, reaching zero at $253,414.

Canada Pension Plan (CPP) Contributions:
Contribution Rate: Remains at 5.95% for employees and employers.
Year’s Maximum Pensionable Earnings (YMPE): Increases to $71,300, making the maximum annual contribution $4,034.10 for both employees and employers. Self-employed individuals will contribute a total of $8,068.20.

Second CPP Contribution Tier: Earnings between $71,300 and $81,200 will be subject to an additional 4% contribution rate, with a maximum contribution of $396 for employees and $792 for self-employed individuals.

Employment Insurance (EI) Premiums:
Employee Contribution Rate: Increases to 1.64% on insurable earnings up to $65,700, resulting in a maximum contribution of $1,077.48.

Tax-Free Savings Account (TFSA) Contribution Limit:
The TFSA contribution limit for 2025 will remain at $7,000, reflecting inflation adjustments since its introduction.

Registered Retirement Savings Plan (RRSP) Contribution Limit:
The RRSP contribution limit will rise to $32,490 for 2025, up from $31,560 in 2024.

Old Age Security (OAS) Clawback Threshold:
The OAS repayment threshold will increase to $93,454 for 2025.
Prescribed Interest Rates:
The CRA’s prescribed interest rate will decrease to 4% in the first quarter of 2025.

These adjustments are part of the federal government's annual process of indexing personal income tax and benefit amounts to inflation, ensuring that tax brackets and benefits remain aligned with economic conditions.

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