The Canada Revenue Agency (CRA) has plenty of changes coming in 2025. These include a new annual allotment of Tax-Free Savings Account (TFSA) contribution room, new tax brackets, and a Canada Pension Plan benefit inflation increase. All in all, there are plenty of tax savings coming up in the New Year. In this article, I will explore three of the new goodies the CRA has coming up for 2025, starting with the most generous.
Source: Getty Images
$7,000 in new TFSA room
Parliament recently approved $7,000 in new TFSA contribution room for 2025. That means that the CRA will allow you to contribute $7,000 more to your account in 2025 compared to 2024. If your TFSA was maxed out in 2024, you’ll have $7,000 in available room next year. If your TFSA had “x” amount of room in 2024, next year, it would have “x + $7,000.”
So, one way or another, if you’re at least 18 next year, you’ll be able to make some TFSA contributions. That presents a great opportunity to invest in index funds tax-free.
Consider iShares S&P/TSX 60 Index Fund (TSX: XIU). It’s a Canadian index exchange-traded fund (ETF) built on the TSX 60 index, the 60 biggest publicly traded Canadian companies by market cap. With 60 stocks, it has plenty of diversification. It has a 0.16% management expense ratio — a pretty low fee. Finally, it has high trading volume/liquidity — another form of “low fee” (because market makers make money off the bid-ask spread, which is higher for illiquid stocks). All of these features combine to make XIU a very attractive RRSP or TFSA holding.
A 2.7% CPP inflation adjustment
Another goodie the Federal Government has in store for 2025 is a 2.7% inflation adjustment. Canada’s consumer price index increased 2.7% in the 12 months ended October 2024. In other words, the inflation rate was 2.7%. As a result, if you receive CPP, your payments will go up 2.7% in 2025. For example, if you’re receiving $1,000 per month now, you’ll receive $1,027 per month next year. That adds up to $324 in additional annual benefits (though not more purchasing power).
Higher tax brackets
Last but not least, the tax brackets will increase next year in response to inflation. When prices rise, wages usually rise as well. As a result of this phenomenon, the CRA increases the amount of money you need to make to be in a certain tax bracket each year. So, for example, last year, you had to make $246,752 to be in the top 33% tax bracket. This year, you need to make $253,414. So, if you didn’t get a raise this year and are feeling bummed about that, at least you’ll get the consolation prize of a slightly lower tax rate.
Foolish takeaway
Well, there you have it: $7,000 in new TFSA room, an inflation adjustment to your CPP cheques, and a slightly higher tax bracket — these are the goodies the Federal Government and CRA have in store for you in 2025. It might not seem like a whole lot, but it’s better than nothing. The extra TFSA room, in particular, could be worth something if you put it to good use. So, remember to save and invest!
