The Canadian government has released its 2025 federal budget, outlining key investments and policy changes that will shape the country’s economic future. For businesses involved in international trade, the budget introduces significant measures affecting border security, infrastructure, taxation, and compliance. These initiatives aim to strengthen Canada’s supply chains, enhance global competitiveness, and simplify regulatory processes.
Increased funding for the Canada Border Services Agency (CBSA), a new strategy for trade infrastructure, the elimination of the luxury tax on certain items, and important updates to international tax rules are among the most important trade-related announcements from the 2025 budget. Understanding these changes can help you prepare your business for what lies ahead.
Enhancing the Canada Border Services Agency
The 2025 budget makes a substantial investment in the Canada Border Services Agency to strengthen its operational capacity. A secure and efficient border is crucial for facilitating legitimate trade while preventing illicit activities. The new funding is designed to enhance the CBSA’s ability to protect Canadian industries and communities.
Budget 2025 allocates $617.7 million over five years, along with ongoing funding, to the CBSA. This investment will improve the agency’s ability to detect and intercept illegal goods, enforce import measures, and support Canadian businesses through a strong trade remedy system. By bolstering its enforcement capabilities, the CBSA can better protect domestic industries from unfair trade practices.
This new funding is part of a larger government commitment. It complements the $1.3 billion Border Plan announced in December 2024. Together, these investments will enable the hiring of up to 1,000 new CBSA officers. To attract new talent, the budget also proposes increasing the weekly stipend for CBSA recruits from $125 to $525. These measures will ensure the agency has the personnel and resources needed to manage the secure flow of goods and people across Canada’s borders.
A new trade infrastructure strategy
A central theme of the 2025 budget is the government’s ambition to diversify Canada’s trade relationships. The budget sets a goal to double Canada’s non-U.S. exports over the next decade, which would boost trade by an estimated $300 billion. To achieve this, the government is launching a new trade infrastructure strategy supported by significant financial commitments.
A key part of this strategy is the new Trade Diversification Corridors Fund. Transport Canada will receive $5 billion over seven years to establish this fund. Its main objectives are to strengthen supply chains, improve export capacity, and build a more resilient economy. The fund will support a wide range of projects, including ports, rail lines, and digital infrastructure. Key regions set to benefit include the Great Lakes St. Lawrence region, Québec’s Port of Saguenay, rail lines in Alberta, and infrastructure on the West Coast.
The CBSA will also play a role in this strategy. Working with other federal departments, the agency will identify additional ports for container import and export designation. Locations like Québec City and Hamilton are being considered. This initiative aims to encourage private investment in port infrastructure and create more diverse trade routes, reducing reliance on a few key corridors.
Luxury tax on aircraft and vessels
The 2025 budget proposes a notable change to the luxury tax that was introduced in recent years. Currently, a tax applies to new vehicles and aircraft valued over $100,000 and vessels over $250,000. The tax is calculated as the lesser of 10% of the item’s total value or 20% of the value exceeding the threshold.
To support the aviation and boating industries, Budget 2025 plans to eliminate the luxury tax on aircraft and vessels. This change would take effect after Budget Day. Once implemented, the tax would no longer be payable on the sale, importation, or improvement of these items. This move is expected to relieve a financial burden on these sectors and may stimulate sales and employment. The luxury tax on applicable vehicles will remain in place.
For businesses affected by this change, there are specific administrative requirements. Registered vendors will need to file a final return for the reporting period that includes Budget Day. However, their registrations will remain active until February 1, 2028. This temporary extension allows vendors to claim any eligible rebates, such as those for exported goods. After this date, all registrations related to aircraft and vessels will be automatically cancelled.
International tax measures: transfer pricing
The budget also introduces important updates to Canada’s transfer pricing rules. These rules are designed to ensure that transactions between related entities in a multinational enterprise (MNE) are priced fairly, as if they were dealing with an independent third party. This is known as the arm’s length principle. Modernizing these rules helps protect Canada’s tax base and prevents companies from shifting profits to lower-tax jurisdictions.
The proposed changes in Budget 2025 aim to align Canada’s framework more closely with international standards, particularly the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines. The goal is to ensure that the profits allocated to a Canadian entity accurately reflect its economic contributions.
The updated framework includes two key components. First, it introduces an interpretation rule that requires Canada’s transfer pricing rules to be applied consistently with the OECD guidelines. Second, it establishes a new adjustment rule. This rule applies when a transaction occurs between a Canadian taxpayer and a non-arm’s-length non-resident, and the conditions of that transaction differ from what arm’s-length parties would have agreed to. These changes are intended to strengthen compliance and provide greater clarity for both taxpayers and tax authorities.
What this means for your business
The 2025 federal budget brings a mix of investments, tax changes, and regulatory updates that will influence Canada’s trade landscape. The increased funding for the CBSA and the new infrastructure strategy signal a strong government focus on making trade more secure and efficient. For businesses, this could mean smoother border processes and better access to global markets.
The elimination of the luxury tax on aircraft and vessels will be welcome news for those industries, potentially leading to increased sales and economic activity. Meanwhile, the modernization of transfer pricing rules underscores the importance of robust compliance for multinational enterprises.
Navigating these changes requires a clear understanding of how they apply to your specific operations. As these proposals move through the legislative process, we will continue to provide updates on their development and implementation. Staying informed will help you adapt to the evolving trade environment and take advantage of new opportunities.