Potential Tax Implications From The New Liberal Government

Canadians recently elected a new Liberal government.

Here's what the Liberal Party has proposed — and how it could impact you.

The federal election results are in and the Liberal Party of Canada have formed a minority government.  While a lot can change (these are proposals, not legislation that has been passed and received royal assent), let’s review several tax proposals and the potential implications on your finances.

1. Lowest Tax Bracket

The Liberal Party has proposed reducing the tax rate, effective 1 July 2025, for the lowest tax bracket by one percentage point from 15% to 14%. For 2025, that federal bracket includes income below $57,375.

Based on the party’s findings, this would save two-income families $825 per year. However, it’s worth noting that savings may be limited because of the way federal non-refundable credits are calculated. This is because while lowering the lowest tax rate would reduce tax, it may also reduce the value of most non-refundable credits.

2. Annual Tax Filings

The Liberal Party has also proposed facilitating automatic tax filing for low-income households and seniors, possibly expanding in time to other households. This is a huge plus, since there are a variety of tax credits and benefits only available if you are up to date with your annual tax filings.

3. Disability Tax Credit ñ Line 31600 of your T1 return

The Liberals also discussed expanding the criteria for the Disability Tax Credit, opening the door to many other disability support programs.  The stated goal of this proposal is to reduce poverty among Canadians with disabilities.

On average, this tax credit equates to federal and provincial tax savings of about $2,000 per year for adults over the age of 18.  Not insignificant!

Some disabilities that may qualify include, but are not limited to Type 1 diabetes, clinical depression, hearing loss, autism spectrum disorder, Crohn’s disease, cognitive impairment, chronic pain, COPD, arthritis, and mobility impairment.

If the credit was not claimed in the past, in some cases you could go back up to 10 years. Not taking full advantage of this credit is one of the most common tax mistakes we see, so it’s worth reviewing and great to see further expansion for the criteria/eligibility for the credit.

4. Seniors And Retirement — For One Year

First, the Liberals propose to temporarily increase the Guaranteed Income Supplement by 5 per cent. For low-income seniors, this could mean up to a tax-free $652 in their pockets.

Second, the newly elected government have proposed to reduce the minimum amount that must be withdrawn from a Registered Retirement Income Fund (RRIF) by 25%.

As it stands right now, Canadians must convert their registered retirement savings plans (RRSPs) into a RRIF or buy an annuity by 31 December of the calendar year they turn 71. At age 72, (the first year of mandated withdrawals), the withdrawal rate is currently based on 5.40% of the value of the RRIF at the start of the year. Therefore, a 25% reduction would mean a withdrawal rate of only 4.05%. The income is included on an individual’s T1 as fully taxable income.

The reduction in minimum withdrawal for the year would allow for greater flexibility when it comes to tax planning. For example, reduced taxable RRIF withdrawals allow for greater taxable investment income, be it dividend and interest or capital gains income without triggering OAS clawback. In 2025, OAS clawback begins at $93,454 per individual based on line 23400 of your tax return. For those aged 65 to 74, OAS benefits are fully clawed back when their taxable income reaches $148,451. For individuals aged 75 and over, OAS benefits are fully clawed back at an income level of $154,196.

5. Cost of Living/First-Time Buyer Relief

The Liberal Party proposed to:

• Allocate additional funds towards greenhouses and other specified environmental agriculture. The goal would be to facilitate greater local produce.
• Eliminate GST on purchases of homes priced at, or less, than $1 million, and lower GST on homes between $1 million and $1.5 million, providing a measure of relief for first-time homebuyers. It may be worth considering pressing pause on a new home purchase for now, to wait and see how things unfold here.
• Provide additional funding for home retrofits, as well as incentives for lowering utility bills. For example, this means that Canadians could receive help paying for heat pump installation and window replacements.

Also on the table is the expansion of dental coverage for Canadians aged 18-64, allowing for savings of about $800 in dental care costs.

6. Job Skills And Training

The Liberal Party has proposed providing workers in certain sectors such as construction, health care, technology, and manufacturing with up to $15,000 in job training support.

For workers in the skilled trades, the proposal is to cover apprenticeship training costs up to $8,000 and to create more training opportunities. The end goal is for more Canadian workers to join these types of professions and secure higher-paying careers, reducing the skilled-worker gap in the process.

In addition, there’s a support measure targeted towards workers at risk of being affected by tariff-related layoffs.  The party has proposed to expedite EI benefits, having already reduced the waiting period to one week from two. They are now looking at removing the waiting period altogether, although only temporarily.

7. Child Care

The Liberals proposed support for the $10-a-day early learning and childcare (ELCC) program and protection of the Canada Child Benefit.  This is a monthly, non-taxable amount provided by the Canadian government to eligible families to help with the cost of raising children under the age of 18. This benefit is based on family income, as well as the number and ages of children and is intended to support low- to middle-income families.

The Liberals have also proposed expanding childcare in publicly owned facilities such as schools and community centres, as well as community buildings that receive federal financing. This proposed measure may help some Canadian parents secure childcare sooner and locally as it opens more childcare options.

While these proposed measures are not enough to fully address cost-of-living issues, the Liberals are working toward delivering some financial relief to targeted demographics.

As always, it is more important than ever to ensure your financial life plan is up to date, reflecting not only your ongoing goals and objectives but also current tax legislation, while keeping an eye out for proposed legislative measures.

Nancy Grouni, CFP, PFP, Financial Planner, Objective Financial Partners Inc. Nancy had a 20-year career as an investment and insurance advisor with two large wealth management firms, building and presenting client financial plans and investment portfolio reviews, before becoming a fee-only financial planner. She specializes in financial, tax, and estate planning for incorporated business owners and professionals, sole proprietors who are considering incorporation, and retirees with investment holding companies.  https://objectivefinancialpartners.com