TaxMatters@EY – June 2025

Caitlin Morin, Toronto

The 2025-26 provincial budgets were all tabled between February 18 and May 15, 2025.¹ On May 18, 2025, Prime Minister Mark Carney announced that the federal budget will be tabled in the fall.  

Aside from the acceleration of the implementation of a new low-rate personal income tax bracket in Alberta, none of the other provinces announced changes to personal income tax rates for 2025.² However, some provinces proposed changes to existing personal income tax brackets beginning in 2025 or 2026, and several provinces announced changes to personal tax credits and amounts.

Several measures were also introduced to support social programs, including for families and seniors, and to address affordability issues.

In this article, we summarize the key personal income tax measures tabled in the provincial budgets to help you assess their impact on your income tax liability for 2025 and subsequent years.

For details on other proposed tax measures, visit our budget information page at ey.com/ca/budget.

Alberta

In Alberta’s budget, tabled on February 27, 2025, the Finance Minister proposed to accelerate the implementation of a new 8% personal income tax bracket on the first $60,000 of taxable income, effective January 1, 2025. This new bracket will be indexed annually beginning in 2026. Nonrefundable tax credits will also be computed using the new rate of 8% beginning in the 2025 taxation year.

This measure was initially announced in Alberta’s 2024-25 budget and was scheduled to be implemented over two years beginning in 2026.³

Alberta’s budget also announced a new nonrefundable supplemental tax credit, effective January 1, 2025. Further details on this measure were provided in  legislation that became law on May 15, 2025.

The supplemental tax credit is equal to 25% of the excess over $4,800 of the total amount of certain nonrefundable tax credits claimed (or 2% of the total credit amounts over $60,000), including the personal credits, age credit, pension credit and medical expense credit, among others. The credit threshold will be indexed annually beginning in 2026.

This new credit is intended to ensure that individuals who claim more than $60,000 in nonrefundable tax credits do not pay more tax due to the implementation of the new 8% income tax bracket.⁴ While rare, this could occur if, for example, an individual who earns over $60,000 claims the basic personal, spousal and infirm dependent amounts, and also claims some medical expenses.

British Columbia

In BC’s budget, tabled on March 4, 2025, the Finance Minister proposed changes to the following personal credits and amounts. On the same day, further details were provided in proposed legislation that was introduced to implement these measures. This legislation was subsequently enacted on May 29, 2025.

• BC family benefit — The BC family benefit is amended to allow payments to continue for six months following a child’s death, applicable for deaths that occur on or after January 1, 2025. This amendment is intended to harmonize with the application of the equivalent federal income tax provision.
  
  
• Clean buildings tax credit — Various deadlines in connection with this credit are extended by one year, meaning that qualifying expenditures must now be incurred by March 31, 2026, and qualifying retrofits must be completed by March 31, 2027.
  
  
• Training tax credit for individuals — This credit, which was set to expire at the end of 2025, is extended to the end of 2028. The credit is also amended to ensure it will continue to be available for First Nations individuals and individuals with disabilities after the federal Apprenticeship Incentive Grant expires on March 31, 2025.

BC’s budget also announced that the annual limit for the small business venture capital tax credit will be increased from $120,000 to $300,000, applicable for 2025 and later taxation years. The government will also temporarily increase the total annual amount of tax credits that may be claimed under the program to $53.5 million for the 2025 to 2027 calendar years.

Manitoba

Manitoba’s budget, tabled on March 20, 2025, proposed the following personal income tax measures:

• Personal income tax rates — Beginning in the 2025 taxation year, indexation to inflation of the basic personal amount and the income tax bracket thresholds will be frozen. As such, the basic personal amount for 2025 will be $15,780, which is the same as the basic personal amount that applied for 2024.⁵ The proposed tax bracket thresholds for 2025 are outlined in the table below:

• Renters’ affordability tax credit — For the 2026 taxation year, the renters’ affordability tax credit will be increased to a maximum of $625, and the seniors’ top-up will be increased to a maximum of $357. The budget indicates that these amounts will be increased annually until the renters’ affordability tax credit and seniors’ top-up reach $700 and $400, respectively. For the 2025 taxation year, the tax credit amounts are a maximum of $575 and $328, respectively.
  
  
• Volunteer firefighter and search and rescue amount — This amount will be doubled from $3,000 to $6,000, resulting in a maximum nonrefundable tax credit of $648 for the 2025 taxation year.

New Brunswick

New Brunswick’s budget, tabled on March 18, 2025, did not include any personal income tax measures.

Newfoundland and Labrador

Newfoundland and Labrador’s budget, tabled on April 9, 2025, did not include any changes to personal income tax rates, credits or amounts. However, it announced that the seniors’ benefit and its eligibility threshold will be indexed to the consumer price index. A Newfoundland and Labrador regulation that was filed on May 1, 2025 enacts this measure, effective July 1, 2025.

Nova Scotia

In Nova Scotia’s budget, tabled on February 18, 2025, the Finance Minister proposed changes to the following personal credits, effective for the 2025 taxation year. On March 5, 2025, further details were provided in legislation that was introduced to implement these measures. This legislation was subsequently enacted on March 26, 2025.

• Maximum basic personal, spouse or common law partner and eligible dependent amounts — The budget increased these amounts to $11,744 for all eligible individuals. Prior to this change, the basic personal amount for 2025 comprised two elements: the base amount of $8,744 and an additional amount of $3,000 for individuals with taxable income of $25,000 or less. The additional amount was clawed back for individuals with taxable income between $25,001 and $75,000.
  
  The spouse or common law partner amount and eligible dependent amount are reduced when the income of the spouse or common-law partner or the dependent, as applicable, exceeds $874, up from $848.
  
  
• Age amount — The age amount was increased to $5,734 for all eligible individuals. Prior to this change, the age amount for 2025 comprised two elements: the base amount of $4,269 and an additional amount of $1,465 for individuals with taxable income of $25,000 or less. The additional amount was clawed back for individuals with taxable income between $25,001 and $75,000.
  
  
• Amount for infirm dependents aged 18 or older — This amount was increased from $2,798 to $2,885. The amount is reduced when the dependent’s income for the year is between $5,859 and $8,744.⁶

For the credits that were previously made up of two elements, the increase in the base amount replaces the separate additional amount that was subject to an income clawback. Therefore, all eligible individuals, regardless of income level, will now be able to benefit from the higher credit amounts.

In addition, the legislation that was introduced to implement the budget proposals includes an adjustment to the dividend tax credit calculation for noneligible dividends. This measure, which is consequential to the proposal in the budget to reduce the province’s small business corporate income tax rate from 2.5% to 1.5%, effective April 1, 2025, reduces the dividend tax credit rate to 1.5% of the taxable amount of noneligible dividends.⁷

Ontario

Ontario’s budget, tabled on May 15, 2025, did not include any changes to personal income tax rates. However, the Finance Minister confirmed the introduction of a 25% refundable tax credit for eligible fertility treatment expenses, effective for 2025 and later taxation years. On the same day, further details were provided in proposed legislation that was introduced to implement this measure.

The tax credit was previously announced and included in the 2024 Ontario Economic Outlook and Fiscal Review delivered on October 30, 2024.

This credit, which builds on Ontario’s existing medical expense tax credit, will cover up to $20,000 in annual eligible expenses, resulting in a maximum annual credit of $5,000. Eligible individuals may claim this credit in addition to the nonrefundable federal and Ontario medical expense tax credits for the same eligible expenses.

Eligible expenses must be paid by the individual or the individual’s spouse or common law partner in respect of goods and services provided in Canada for the purpose of conceiving a child, or for certain medical expenses paid to or on behalf of a surrogate mother. Eligible expenses include certain amounts paid to a medical practitioner or a public or private hospital, fertility clinic or donor bank in Canada, costs relating to reproductive technology processes, including costs for egg and embryo freezing and storage, fertility medications, and travel for treatment, subject to certain conditions.

Prince Edward Island

In Prince Edward Island’s budget, tabled on April 10, 2025, the Finance Minister proposed to increase the five tax brackets by 1.8% for 2026, as outlined in the table below.
 

The budget also proposed changes to the following personal credits and amounts:

• The basic personal amount will be increased from $14,250 to $14,650 and to $15,000 for 2025 and 2026, respectively.
  
  
• The income threshold for the low-income tax reduction will be increased by $400 and $350 to $22,650 and $23,000 for 2025 and 2026, respectively.
  
  
• The spouse or common-law partner amount, as well as the amount for an eligible dependent, will be increased from $12,103 to $12,443 for 2025 and to $12,740 for 2026. The related income threshold will be increased from $1,210 to $1,244 for 2025 and to $1,274 for 2026.

Legislation that was introduced to implement these measures became law on May 16, 2025.

Québec

In Québec’s budget, tabled on March 25, 2025, the Finance Minister proposed the following personal income tax measures. On May 8, 2025, further details were provided in proposed legislation that was introduced to implement some of these measures.

• Family allowance for bereaved parents — The budget proposed that family allowance payments and the Supplement for Handicapped Children or Supplement for Handicapped Children Requiring Exceptional Care payments, where applicable, be extended for one year from the month following the month of an eligible dependent child’s death. This measure will apply in respect of deaths occurring after June 30, 2025.
  
  
• Refundable tax credit for child care expenses — As of the 2026 taxation year, the maximum age of a child for the purposes of eligibility for the refundable tax credit for child care expenses will be reduced from 16 to 14.
  
  
• Amendment to the term “practitioner” — As of January 1, 2026, the Québec Taxation Act will be amended so that the term “practitioner” no longer includes homeopaths, naturopaths, osteopaths and phytotherapists. Notably, this amendment may impact the eligibility of certain medical expenses for the purpose of calculating the tax credit for medical expenses. It is intended to harmonize with the eligibility criteria for the federal medical expense tax credit.
  
  
• Tax credit for tuition and examination fees — As of January 1, 2026, for the purposes of the tax credit for tuition and examination fees, Revenu Québec may recognize an educational institution that offers courses designed to provide or improve occupational skills only if it meets at least one of the following four criteria:
  
  • It is an educational institution that receives government funding.
    
    
  • It is a private educational institution that provides training equivalent to that provided in a public sector educational institution.
    
    
  • It is a private educational institution that provides training for a profession or trade requiring certification or a licence issued by a government authority.
    
    
  • It is an educational institution that provides training leading to a professional status recognized by the Québec Professional Code.

In addition, Revenu Québec will exclude an educational institution from recognition if the institution does not meet certain requirements related to the health sector.

As of the 2026 taxation year, students who claim the tax credit will be required to certify, in their income tax return for the year, that they took the training in question to acquire or improve the skills required to practice a profession. In addition, as of the 2027 taxation year, educational institutions recognized by Revenu Québec will be required to issue an RL-8 slip indicating the amount of tuition fees the individual paid.

• Deduction in respect of the cooperative investment plan — The adjusted cost of a qualifying security for an individual will be the cost of the security, determined without taking into account borrowing costs and other costs related to the acquisition, instead of 125% of such cost. This measure will apply in respect of a qualifying security acquired after March 25, 2025.
  
  
• Converting certain deductions into nonrefundable tax credits — For taxation years after 2025, the deduction for adult basic educational tuition assistance and the residence deduction for a member of the clergy or a religious order will both be replaced by nonrefundable tax credits. The unused portion of the new tax credits will not be transferable to a spouse.⁹
  
  
• Securities option deduction — The eligibility criteria for the 50% security option deduction for individuals will be amended.¹⁰ These changes are consequential to the introduction of a new tax credit for research and experimental development, innovation and pre-commercialization. This amendment will apply as of the 2026 calendar year. In addition, for the 2025 calendar year, a corporation that carries on a business in Québec and meets certain conditions will qualify as a qualified corporation for the purposes of the higher 50% deduction rate.
  
  
• Abolition of various measures — The budget proposed to abolish various personal tax measures. In addition to various tax holidays that are abolished as of March 26, 2025, the nonrefundable tax credit for political contributions will be abolished for all contributions made as of the 2026 taxation year.¹¹

Saskatchewan

In the Saskatchewan budget, tabled on March 19, 2025, the Finance Minister proposed to introduce a new refundable fertility tax credit for 2025 and later years. Further details on this measure were provided in legislation that became law on May 13, 2025.¹²

The credit is equal to 50% of fertility or surrogacy expenses up to a maximum of $10,000. Fertility expenses include the amount paid to a fertility clinic or donor bank in Saskatchewan for sperm, ova or embryos to enable conception of a child. The expenses must be incurred in any 12-month period ending in the taxation year in which the credit is being claimed. An individual and their cohabitating spouse may not claim the credit in the same year and each individual may only claim the credit once in their lifetime.

Taxpayers will be allowed to claim all eligible medical expenses under the federal medical expense tax credit without a clawback to the new fertility tax credit.

Conclusion

With the 2025 taxation year nearly half complete, you should review the measures announced in the various provincial budgets to assess their potential impact and determine whether any planning may be available.

For some taxpayers, additional savings may be available, while others may see an increase in their 2025 tax bill.

Taxpayers are also encouraged to keep an eye out for information on the federal budget, which will be tabled this fall. Several personal income tax measures were included in the Liberal party’s election platform, as detailed in EY Tax Alert 2025 Issue No. 27, Liberal Party’s 2025 election platform tax measures.

To date, proposed legislation has been tabled to reduce the personal marginal income tax rate on the lowest income bracket (i.e., taxable income up to $57,375 for 2025) from 15% to 14.5% for the 2025 taxation year, followed by a further reduction to 14% for the 2026 and subsequent taxation years. Notably, the rate used to calculate most nonrefundable tax credits, which is generally the same rate as the lowest personal income tax rate, will decrease accordingly.

Malamute Contracting Inc. v His Majesty the King, 2025 TCC 47
Kelsey Horning, Toronto, Gael Melville and Jeanne Posey, Vancouver

In Malamute Contracting Inc. v The King, the Tax Court of Canada considered whether cheques a corporation issued were either employee salary payments subject to withholding tax or payments to shareholders and therefore not subject to withholding tax.

The court determined that on the facts of the case, the cheques were intended to be payments to shareholders and the corporation was not required to withhold and remit income tax and CPP source deductions.

Background and facts

A corporation may pay its shareholder-employees in salary or dividends, or a combination of both. The corporation may also make payments to a shareholder-employee that are treated as shareholder loans. Only salary payments require the corporation to withhold and remit income tax and CPP source deductions, underscoring the importance of identifying payments correctly.¹

Prior case law has established that the nature of a payment for tax purposes is determined at the time the payment is made, meaning that if a salary payment is made it cannot later be recharacterized as a dividend.²

Malamute Contracting Inc. was a small contracting company that specialized in kitchen and bathroom renovations. The principal shareholder, Mr. L, performed most of the work, while his spouse, Mrs. L, handled the bookkeeping at the relevant time and was also a shareholder.

The company had a taxation year end of October 31. The CRA reassessed the taxation years ending October 31, 2018 and 2019 on the grounds that the company had failed to withhold and remit income tax and CPP deductions. In addition, the CRA imposed various penalties for noncompliance under the Income Tax Act.

The basis for the reassessments was that certain cheques MC Inc. issued to Mr. and Mrs. L between January 2018 and February 2019 were payments of salary and were therefore subject to income tax and CPP withholding and remittance requirements. MC Inc. had generally not remitted withholdings to the CRA, except in respect of the January 2018 and February 2018 cheques.

A number of features of the cheques were similar to those that would be expected for salary payments. For example, the cheques contained notes indicating they were “payroll.” The amounts of the cheques were also what was described as “uneven amounts,” meaning they appeared to be obtained by deducting withholdings from an even gross salary number. The cheques were also generally consistent amounts that were paid on a biweekly basis.

MC Inc. appealed the reassessments for the 2018 and 2019 taxation years to the Tax Court of Canada.

Arguments and decision

The CRA argued that MC Inc. had paid a salary to its shareholder-employees and that the corporation was trying to change the treatment of the payments after the fact. On the other hand, MC Inc. argued that the amounts were always intended to be payments to shareholders.

At trial, Mrs. L and MC Inc.’s accountant testified that the cheques were intended as shareholder payments rather than salary payments. Errors in using the “payroll” notation and in the January and February 2018 remittances were due to Mrs. L’s lack of bookkeeping knowledge and experience.

Mrs. L explained that the “payroll” notation was to distinguish the cheques from other amounts paid to her and to Mr. L that were intended to be loans that they would have to repay to MC Inc. She was also concerned about a large end-of-year tax bill and so she used an online calculator to estimate the amount of tax, apparently leading to the uneven amounts. This also led to her mistakenly making the January and February 2018 remittances.

Other factors were also consistent with a shareholder payment characterization. MC Inc.’s financial statements recorded the cheques as draws on the shareholder loan account and not as employment income. MC Inc.’s corporate income tax return and Mr. and Mrs. L’s personal income tax returns, which were all filed before the CRA’s examination began, were consistent with the amounts not being payments of salary.

The court’s decision ultimately turned on the facts. The court found the testimony of Mrs. L and MC Inc.’s accountant to be credible and consistent with the financial statements and income tax returns. Although MC Inc. mistakenly made remittances for January and February 2018, those represented only two of the 14 months where MC Inc. issued the disputed cheques – the CRA’s assumption that those two months should set the treatment for the whole period did not properly account for the whole factual context. The court ruled that the cheques were shareholder payments not subject to withholdings.

Lessons learned

This case highlights the importance of ensuring that payments to shareholder-employees of a corporation are carefully recorded to reflect their intended character and are described accordingly. It also highlights the potential dangers of taxpayers trying to address tax and accounting matters on their own.

This case acts as a good reminder to consult professional tax and accounting advisors when undertaking corporate remuneration planning.