Prime Minister Mark Carney’s first budget provided clarity around many previously announced spending plans and laid out the economic priorities of the government.  

To unpack what the new measures mean for businesses, investors and households, and how the more than 400-page document will affect key themes like corporate tax competitiveness and affordability, BMO hosted a digital event titled “First Look at the 2025 Federal Budget.”   

The conversation was moderated by Camilla Sutton, Managing Director and Head of Equity Research, Canada & UK, BMO Capital Markets and featured: 

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  Doug Porter, Chief Economist and Managing Director at BMO 

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  Dante Rossi, Director of Tax Planning at BMO Private Wealth 

Below are the key takeaways. 

Doug Porter said the budget was a step in the right direction, as it shifted the focus away from operational spending towards long-term investment.  

“Let’s face it, they were constrained by a weak underlying economy and still relatively heavy interest costs, and they could not let the deficit go up a lot more than they did,” he said. “Working within those tight constraints, they managed to achieve a lot.” 

Overall, the budget added about $5 billion in net new spending over the next year, which is the equivalent of about 0.1% of Canada’s GDP. That wasn’t enough for BMO to alter its forecast for just over 1% in GDP growth after inflation, said Porter. That already accounts for much of the increase in defence spending and measures to boost housing and incentivize capital spending.  

Porter doesn’t expect the country to dip into a recession. “It has been a close call this year,” he said. “We actually saw an outright decline in GDP in the second quarter this year, but it now looks like the economy managed some really modest growth in the third quarter and we're expecting some mild improvement in the coming quarters helped by lower interest rates.” 

One notable measure in the budget is the way the government is tackling employment, which Porter said has deteriorated over the past year. To accomplish this goal, Ottawa is adjusting immigration targets to slow the growth of the labour force to a little bit above zero for the next few years. 

Porter noted the significance of the fact the budget included immigration targets for the next couple of years and how that’s become an important factor in the overall economic outlook in recent years. At the same time, there’s a large wave of Canadians retiring out of the labour force.  

“This is quite an important economic story,” said Porter. “They’ve doubled down on the view that they're trying to slow the population growth for a couple years to help the job market better adjust to that prior surge in population, and also to help the housing market get into better balance.” 

Apart from trying to relieve pressure on the labour force, the government is also looking to address concerns around affordability. “Their overall goal is to continue to really support, especially affordable housing,” explained Porter. “What they're looking at on that front to keep housing starts growing at roughly 250,000 or more per year.” 

Previous rate cuts by the Bank of Canada (BoC) have also helped make housing more affordable. While the BoC suggests they may be done with cuts for a while, Porter isn’t convinced. “Our official view is we happen to believe that, after a bit of a delay here, that the bank may well be trimming interest rates a little bit further in 2026,” he said. 

Dante Rossi added that the budget also confirmed Ottawa’s intention to eliminate the GST for first-time home buyers on the purchase of new homes up to $1 million and reduce the GST for those same buyers on new homes between $1 million and $1.5 million. 

While corporate and personal tax changes were limited, the biggest headline was the introduction of a super deduction to spur new private capital investments. The enhanced tax incentives will enable businesses to write off or expense a larger share of these investments for tax purposes, Rossi explained.  

“The super deduction will make it easier for businesses to recover investment costs faster through the tax system,” he said. “These super deductions are achieved through Canada's capital cost allowance or CCA system, which allows for tax depreciation deduction claims at different percentage rates, reflecting the depreciation of various capital assets.” 

Ottawa is also proceeding with previously announced measures like the reinstatement of the accelerated investment incentive, which provides for an enhanced first-year write-off for most capital assets. The flagship proposal allows the immediate expense of manufacturing and processing buildings, although the measure will slowly phase out between 2030 and 2033, explained Dante.   

The goal of the $1.2 billion initiative over the next five years is to strengthen Canada's competitiveness with the U.S. by reducing the overall marginal effective tax rate, which could be reduced by more than two percentage points, he said.  

The budget also reaffirmed previous announcements around Scientific Research and Experimental Development (SR&ED) incentives. The SR&ED program offers tax deductions and investment tax credits for eligible R&D expenditures to encourage businesses to conduct research and development in Canada. 

Under the incentive program, qualifying expenditures are fully deductible in the year they’re incurred. But on top of that, the expenditures may be eligible for an investment tax credit at an enhanced rate of 35% for Canadian-controlled private corporations (CCPCs), or a non-refundable tax credit at a rate of 15% for all other corporations.  

At the same time, the government is looking to increase the annual expenditure limit from $3 million up to $6 million and increase the phase-out level, to allow larger companies to qualify for the enhanced tax credit.  

From a personal tax perspective, the most important announcements actually came before budget day, including the middle-class tax cut, which dropped the lowest personal marginal tax rate to 14% from 15%, started July 1, 2025. One new initiative was tabled targeting personal support workers. The new temporary personal support workers refundable tax credit is equal to 5% of eligible earnings, up to a maximum credit of $1,100 per year, explained Rossi.   

Because Ottawa is lowering the personal marginal tax rate reductions means some of the non-refundable tax credits tied to that lowest tax rate are no longer as valuable. To offset this change, the budget introduces a new non-refundable, top-up credit that would effectively maintain the current 15% rate for non-refundable tax credits claimed on amounts in excess of the first income tax bracket. 

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  Beginning in 2026, the budget will amend existing credits to ensure that an expense claimed under the medical expense tax credit cannot also be claimed under a home accessibility tax credit.  

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  An underused housing tax filing requirement on underused homes has been eliminated, although it still applies to the years 2022 to 2024. 

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  To address inefficiencies and save on administration costs, the government is also ending the luxury tax on aircraft with a value above $100,000 and boats valued above $250,000.  

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  As previously announced, Ottawa will grant CRA discretionary authority to provide prefilled income tax returns on behalf of certain eligible low-income individuals for automatic filings where certain conditions are met. The measure will help ensure that low-income Canadians, specifically seniors, their eligible benefits and credit payments that are ultimately delivered to the tax system and are income tested.  

While the budget may be tabled, Rossi said the business community would still like to see Ottawa lay out a timeline to conduct a general comprehensive review of the tax system as a whole to address some of the complexity in tax policy.  

“It's something that continually comes up in the community, and we'll surely keep an eye out to see if that does pop up sometime in the future,” he said.