Prime Minister Mark Carney’s first budget passed a make-or-break vote by a razor-thin margin in November, with MPs set to start enacting the legislative policies it lays out when the House returns later this month.
While the 406-page budget document — unveiled Nov. 4 — focused more on catalyzing investment in Canada, and was framed as insulating the economy from the ongoing Canada-U.S. trade war by diversifying trading partners, it also includes some new measures that could affect Canadians come tax time.
“This budget really was a pivot budget from the prior Liberal budgets, where there was much more focus on new social programs and more spending ,” said Fred O’Riordan, the national leader for tax policy at EY, in an interview with CTV News.
“This one, the emphasis was clearly intended to be a shift away from that and more to incentives for capital investment, trying to improve our productivity record, more competition, and so on,” he added.
Here are some of the changes laid out in the budget that will affect Canadians’ taxes.
A middle-class tax cut
Carney’s budget confirms and takes into account the prime minister’s election promise of delivering a middle-class tax cut, a measure that went into effect last July.
The federal government estimates the change — a one percentage point reduction in the lowest tax rate as of 2026 — will save a two-income family up to $840 a year.
O’Riordan said the extent of the impact of that tax cut on the average Canadian will depend on their income-tax bracket.
Automatic benefits for low-income Canadians
The 2026 tax year will see automatic federal benefits for low-income Canadians, which the government estimates will affect about 5.5 million people.
The change will allow the federal government to automatically allocate certain benefits — such as the Canada Child Benefit and the GST/HST Credit — to some individuals.
While O’Riordan cautioned the budget more broadly includes “very little in terms of specific targeted tax credits like (what) the previous government did,” the automatic allocation of those credits will make a big difference to the people who qualify for them.
The government has earmarked $71 million over five years, with $10.4 million in remaining amortization and $8.3 million ongoing, for the Canada Revenue Agency to implement the measure.
On the affordability front, the budget also confirms the federal government is eliminating the highly controversial consumer carbon tax.
While that means people will save money at the pumps, it also means they’ll no longer receive the regular rebate cheques.
Changes to Home Accessibility Tax Credit
Carney’s budget makes a change in eligibility to the Home Accessibility Tax Credit — which allows seniors and people with disabilities to cover the cost of making their home more accessible — by no longer allowing people to claim the credit if it has been claimed under the Medical Expense Tax Credit.
The budget also proposes to eliminate the Underused Housing Tax (UHT), a measure that will require legislative changes.
The UHT was implemented in 2022 under the previous Liberal government, and charges a one per cent annual tax on the ownership of vacant or underused housing. It generally applies to foreign national homeowners and was originally pitched as a way of addressing the housing affordability crisis.
O’Riordan, however, labelled it a “boutique tax” that was “political in nature,” calling it “a bit of a solution in search of a problem.” He added the reporting requirements involved affected many Canadians.
Also on the housing and home ownership fronts, Carney’s budget followed through on his election promise to eliminate the GST for first-time home buyers, on new homes up to $1 million.
No more Luxury Tax on aircraft and vessels
Another “boutique tax” the Carney government has scrapped, according to O’Riordan, is the Luxury Tax on certain aircraft and vessels.
The tax has been in effect since 2022, and applied to the sales, leases, importations and certain improvements to aircraft worth more than $100,000 and vessels worth more than $250,000, according to the federal government.
O’Riordan said that while the change won’t affect the majority of Canadians because of the relatively high cost threshold, Carney getting rid of the Luxury Tax signals a shift in political priorities from his predecessor.
The budget refers to both the UHT and Luxury Tax on aircraft and vessels as “inefficient, costly to administer, and challenging for Canadian industries at a time of ongoing global economic uncertainty.”
CRA no longer sending income tax packages to those who file on paper
The federal government also announced in December the Canada Revenue Agency (CRA) will no longer proactively mail income tax packages, chalking the decision up to the significantly higher number of people who already file online.
For individuals who do file on paper, the CRA has also removed nearly a dozen federal schedules with “low usage rates” from the 2025 income tax package, including capital gains or losses, the Canada Workers Benefit, and donations and gifts.
Changes to qualified investment regime for TFSA, RRSP
The budget proposes to make changes to the qualified investment regime for registered plans, which would alter what those accounts can invest in, though the proposal won’t go into effect until 2027.
The changes would impact seven plans: Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), Tax-Free Savings Accounts (TFSAs), Registered Education Savings Plans (RESPs), Registered Disability Savings Plans (RDSPs), First Home Savings Accounts (FHSAs), and Deferred Profit Sharing Plans (DPSPs).
The move would “simplify, streamline, and harmonise the qualified investment rules,” according to the budget.
Budget scraps Canadian Entrepreneurs’ Incentive
Another measure of the previous Liberal government’s that Carney is doing away with is the Canadian Entrepreneurs’ Incentive.
The measure reduced the capital gains inclusion rate, so entrepreneurs who sold their business would keep more profit in their pocket, with the aim of encouraging startups to scale up.
The initiative was announced in the 2024 budget, but the new government is not moving ahead with it.
