By the time Ottawa tables the federal budget on November 4, 564 days will have passed since Canadians last received a comprehensive breakdown of the government’s spending plans. Much has changed since then. Canadians elected a new Prime Minister, Americans returned Donald Trump to the White House, interest rates retreated and rising U.S. tariffs have upended decades of established trade relationships.
Ottawa has already made several fiscal moves this year: They’ve proposed to fully eliminate the GST on the purchase of new homes up to $1million for first-time homebuyers, axed the carbon tax, upped defence spending and lowered personal income tax rates. Given the flurry of new measures, Doug Porter, BMO’s Chief Economist, wonders how much more they can announce. “A lot has happened in a very short period of time,” he says. “There’s a lot to sort out around what this all means to the bottom line.”
Yet, Finance Minister François-Philippe Champagne is telegraphing the importance of this budget. In a recent TV interview, Champagne said that Canada needs to “make generational investments in order to be less dependent, more resilient and bring prosperity across our nation.”
How will the Federal Government’s budget approach this evolving environment? Here are some of the key themes to watch:
Business taxes
Whether Canadians get a bold policy statement or a rehashing of existing initiatives, Porter says Ottawa’s top priority should be to lower the tax burden on businesses. “In a world where we’re under assault in our biggest market, we have to stay competitive,” he says. “We have to make this place as compelling to invest in as possible when we’re dealing with so much trade uncertainty.”
One approach would be to beef up allowances for the expensing of various capital costs. While there are already provisions to enhance allowances for these costs, Porter notes that the provisions are not as favourable as those included in America’s recently passed One Big Beautiful Bill Act.
The government could reset the narrative for Canadian businesses immediately by reducing the base corporate tax rate by one percentage point, says Porter. “It would signal that Canada is open for business and that this is a different administration,” he notes. “Prime Minister Mark Carney is much more pro-business than the former prime minister.”
Another move that could have an immediate impact would be to extend the rule that allows companies to immediately expense up to $1.5 million of certain capital property, which is set to expire, says Dante Rossi, BMO Private Wealth’s Director of Tax Planning. Manufacturing, processing equipment and clean energy technology would benefit most from an extension, he explains.
Investing in intellectual property
Studying the Liberal Party platform for clues, Rossi wonders if Ottawa will use the budget to shed light on its plan to introduce a “patent box” regime to encourage the development and retention of intellectual property from R&D conducted in Canada. Effectively, this would involve offering a preferential tax rate on income derived from intellectual property.
The government has been studying the idea for several years. A consultation paper released by the government in early 2024, notes that “patent-owning businesses grow faster and pay higher wages. However, in terms of the number of patents held, Canada lags behind other countries we are competing with to attract investment and grow our economy”.
Housing
On the housing file, there has been some discussion about reintroducing an idea from the 1970s to offer tax incentives for multi-unit residential buildings to stimulate construction growth around purpose-built rentals, says Rossi. The thinking is that the government could offer incentives to investors and owners of these properties in the form of enhanced or accelerated tax expense claims.
The government could also introduce a capital gains deferral on the sale of real estate properties to nonprofit housing organizations or land trusts, provided they reinvest their proceeds in purpose-built rental properties.
Bare trusts
Almost a year after the Canada Revenue Agency announced that bare trusts would not be required to file a 2024 tax return, these trusts are back on the radar. As a form of property ownership, a bare trust is a legal arrangement where a trustee holds legal title to property for the benefit of a beneficiary, who is the beneficial owner and has full control and direction over the property. While bare trusts have generally been disregarded for tax purposes, information reporting rules have been proposed to require bare trusts to file an annual return.
In August, the government released revised draft legislation with updated criteria that would require bare trusts to file tax returns, he explains. “They’re trying to find the right balance between who should file and who is exempted from filing,” he says.
Delaying RRIF withdrawals
As Canadians enjoy more vibrant and healthier lives, Ottawa may be open to adjusting some of the rules governing retirement savings and senior support programs. One possible change could be adjusting Registered Retirement Income Fund (RRIF) withdrawal rates, says Rossi. That could mean reducing the rate that determines how much Canadians must withdraw every year or extending the timing/age in which you must convert an RRSP to a RRIF.
Growing deficit
No matter what happens, one thing is clear: the deficit will be higher. Earlier this year, the deficit was estimated to be about $60 billion, and that doesn’t account for the extra defence spending, says Porter. While there is no consensus estimate on what the deficit might be, the Canadian Parliamentary Budget Officer, which provides independent economic and financial analysis to Canada’s parliament, recently warned that the deficit could reach $68.5 billion, up from $57.1 billion last year. This could put pressure on the government to delay some of the plans it ran on in the election.
Looking ahead
While there is no shortage of measures the government could introduce on November 4, Porter notes that Prime Minister Mark Carney promised restraint on spending, which could involve cutting back on existing programs to help pay for any new spending plans.
One thing Porter hopes to hear from the Finance Minister when he stands in the House of Commons is a commitment to conduct a thorough review of tax policy. It’s been nearly 60 years since the last review, so we’re due, he says, especially considering the increasing complexity of the tax code.
“Everyone knows that would take years,” Porter notes. “But there’s no time like the present to plant a tree.”
