The 2025 federal budget includes several major tax changes; this article focuses exclusively on the tax measures announced.
Important announcements include the abolition of the tax on underutilized dwellings and the luxury tax on aircraft and ships, the introduction of a reverse remittance mechanism to counter carousel fraud, and clarification of the application of GST/HST to manual osteopathy services. These adjustments by the federal government are designed to simplify the tax system, enhance fairness and reduce the risk of fraud.
Elimination of the tax on underutilized dwellings
The Underutilized Dwelling Tax (UDT), in effect since January1, 2022, imposes an annual federal tax of 1% on the value of vacant or underutilized residential real estate held in Canada by non-residents or non-citizens. The 2025 federal budget provides for the abolition of this tax as of calendar year 2025. As a result, no tax will be payable, and no returns will be required, for 2025 and subsequent years. However, all obligations, and where applicable, penalties and interest, remain in effect for the years 2022 to 2024.
Elimination of the luxury tax on aircraft and ships
The 2025 federal budget provides for the abolition of the luxury tax on aircraft and ships. This tax, currently imposed on the sale, import, lease and certain improvements of these goods, will cease to be payable after budget day, i.e. as of November 5, 2025.
Registered vendors will be required to file a final return covering the reporting period that includes Budget Day. Their registration with the Act respecting the tax on certain luxury goods will remain temporarily active to enable them to claim the refunds to which they are entitled, particularly for exports. No refunds will be eligible when all registrations for taxable aircraft and ships are automatically cancelled on February1, 2028.
It is important to note that this change in the law in no way affects taxable vehicles, for which the tax remains in force. Sellers of these vehicles must therefore continue to collect and remit the applicable luxury tax.
Carousel fraud: introduction of a new reverse payment mechanism (MVI)
The federal government wishes to counter fraudulent carousel schemes, where participants collect GST/HST on goods or services without remitting it to the government, thus causing significant tax losses.
Budget 2025 proposes amendments to the Excise Tax Act (“ETA”) to prevent this type of fraud and strengthen the fairness of the tax system. The main measure is to introduce a reverse charge mechanism (RCM) applicable initially to certain supplies of telecommunications services.
According to this mechanism :
- The supplier would no longer collect the GST/HST;
- The registered purchaser would be responsible for self-assessing and self-assessing the tax, while being able to claim an input tax credit (ITC) if eligible.
The MVI would target specific telecommunication services, such as Voice over IP (VoIP), and would only apply to registered purchasers using these services to provide other services of the same type.
The new rules also provide for :
- Restrictions on ITCs for persons not registered at the time the tax became payable;
- A limitation on refunds of tax paid in error, unless the amount has been remitted to the Receiver General. Thus, by default, a tax paid in error will have to be recovered from the supplier of the underlying service;
- A requirement for suppliers to indicate on their invoices that a supply is subject to MVI.
The government reserves the right to extend the reverse payment mechanism to other sectors by regulation in the future.
Application of GST/HST to manual osteopathy services
The 2025 federal budget aims to clarify the application of GST/HST to manual osteopathic services.
In the current version of the ETA, the list of GST/HST-exempt health care services includes an outdated reference to osteopathic services. This reference “accidentally” exempted certain manual osteopathic services rendered by individuals who are not doctors of osteopathy, notably because New Brunswick regulated the profession on June 6, 2025. For GST/HST purposes, Parliament’s intention was that the exemption for manual osteopathic services should apply only to osteopathic physicians.
The 2025 budget corrects this situation by specifying that manual osteopathic services rendered by practitioners who are not osteopathic physicians remain taxable.
This measure will apply to supplies made after June 5, 2025, with the exception of services provided after June 5, 2025, but no later than budget day, if no amount on account of tax has been charged, collected or remitted by the supplier of the services.
An article from our Consumption Taxes team
