Charity Law Perspectives – Budget 2025

The 2025 Federal Budget, released on November 4, 2025, sets out the Government of Canada’s fiscal direction for the year ahead. The majority of this year’s measures have limited effect on the charitable and non-profit sector. This is not surprising since the central theme of the budget is about securing Canada’s economic resilience through infrastructure spending and other investments. That being said, several proposals warrant careful consideration by some organizations operating in the charitable and non-profit space.

In this article, we identify and summarize the budget measures most relevant to Canadian charities and non-profits. We provide brief analysis of select key measures, examine notable omissions—whether they were anticipated improvements or welcome exclusions—and discuss the implications for the charitable sector.

Finally, we outline the next steps following the tabling of the budget and highlight what charities and non-profits should look for in the months ahead as the legislative and regulatory landscape continues to evolve. It is important to note, however, that as with any federal budget, there remains the possibility that the budget fails to pass in Parliament, which could potentially trigger a federal election.

List of Relevant Budget Measures

• New proposal to broaden the 21-year anti-avoidance rule that applies to trusts could potentially impact registered charities that operate businesses through trusts (although we suggest that the new rules should not apply here);
• New proposal to amend the Customs Tarrif to allow for duty drawback for certain goods when they are donated to a registered charity, provided they are to be used in the charity’s charitable programs and not re-sold in Canada;
• The government re-iterated its commitment to proceed with previously announced legislative measures, including:
  • Proposals released on January 23, 2025, to extend the 2024 charitable donations deadline;
  • Proposals released on August 12, 2024 introducing small technical changes affecting charities and qualified donees;
  • Proposals currently in Bill C-2 to restrict the acceptance of cash deposits of $10,000 or more into bank accounts as part of the government’s widespread anti-money laundering and anti-terrorism financing initiatives;
• Announcement that the proposals released on August 15, 2025 to expand non-profits’ tax return requirements will be subject to a deferred application date of January 1, 2027 or later. The government has indicated that it is reviewing feedback it received from consultations with stakeholders and will release final proposals in due course.
• New funding commitments that may be relevant to the charitable and non-profit sector.

We will discuss these measures in more detail below to provide further clarity for charities and non-profits navigating these changes.

Detailed Comments on Certain Budget Measures

New Measure: Broadening of Anti-Avoidance Rule for Trusts

Potentially relevant for Canadian charities utilizing trusts for investment purposes, the budget has introduced a change to the 21-year deemed disposition rule in the Income Tax Act (Canada) (the “Act”), which requires most trusts to realize accrued capital gains every 21 years to prevent the indefinite deferral of tax. In the past, sophisticated tax planning—specifically, the use of trust-to-trust transfers—was employed by some wealthy Canadians to ‘reset’ this 21-year clock, allowing trusts to distribute assets on a tax-deferred basis to a new trust, thereby avoiding the deemed disposition that would have otherwise applied.

The existing anti-avoidance rule in subsection 104(5.8) of the Act was designed to stop these rollovers but was only effective against property transferred directly between trusts. Taxpayers found a way around this by utilizing an indirect transfer, such as distributing property from the original trust to an intermediary corporation, which was controlled by the new transferee trust. Although the Canada Revenue Agency (the “CRA”) warned it would use the General Anti-Avoidance Rule (GAAR) to challenge these transactions, a legislative fix was widely anticipated to provide certainty.

Budget 2025 now proposes to close this loophole definitively through a legislative amendment to subsection 104(5.8). The amendment will cause the anti-avoidance rule to apply where property is transferred “directly or indirectly in any manner whatever” from one trust to another using a tax-deferred rollover. This comprehensive wording is designed to explicitly capture all circumvention strategies, including the indirect corporate intermediary structure. The new rule will deem the transferee trust to have the original transferor trust’s deemed disposition date, effectively nullifying the tax benefit of the ‘reset’.

Charities and their professional advisors must treat this proposed measure with care. While we are confident that the new anti-avoidance rule is not designed to catch registered charities holding business investments through trusts and we also do not believe that the new rule actually catches this situation, organizations that rely on investment trusts approaching their 21st anniversary should consult expert charity tax lawyers.

Other New and Existing Legislative Proposals

The budget makes only a brief reference to the proposed amendment of the Customs Tariff, but the measure may be good for a few charities. According to the budget, the proposal would seemingly allow charities that import donated goods to qualify for refunds or waivers of customs tariffs, provided those goods are used directly in charitable programs and are not re-sold. This change has the potential to reduce costs for charities. Further details will be essential for organizations relying on imported donations. This change is surprising given the role that imported goods played in some abusive donation tax shelters.

On January 23, 2025, the government announced that it would introduce draft legislation to extend the deadline for issuing official donation receipts in respect of eligible donations, limited to cash donations, made in the 2024 tax-year to February 28, 2025. Budget 2025 has reaffirmed that the government intends to introduce draft legislation implementing the proposed extension. It remains to be seen whether the previous condition that eligible donations be made in cash will be reintroduced, or whether donations of other property, including shares, will be eligible for the extension.

Proposals released on August 12, 2024 dealt with a number of small technical changes to the Act affecting charities. The proposals included, among other things, legislative confirmation of the CRA’s existing position (with which we disagreed) that expenditures on fundraising will not be considered to be amounts expended on charitable activities for purposes of the provisions of the Act that give the Minister of National Revenue the authority to revoke the registration of charitable organizations and foundations for failure to expend on charitable activities. These proposals also contained minor changes to the calculation of the revocation tax in the Act.

The proposed changes in Bill C-2 are designed to strengthen Canada’s anti-money laundering and anti-terrorist financing regime significantly. While the bill is broad, the measure most relevant to charities is the introduction of a new prohibition on accepting cash amounts over $10,000 in a single transaction or prescribed series of transactions. Charities that receive large cash gifts from a single donor would have to refuse them and advise the donor to use alternative, traceable transaction methods such as cheques, credit cards, or wire transfers. The bill also proposes that deposit-taking institutions would be prohibited from accepting cash deposits into a charity’s account from a third-party who is not the account holder or authorized to give instructions on the account. Our view, which is not shared by all, is that the new rules should be relatively easy to comply with.

On August 15, 2025, the government released legislative proposals that would substantially broaden annual reporting obligations for nearly all Canadian non-profit organizations, beginning with the 2026 taxation year. Key elements of these changes include an expanded T1044 filing requirement, a universal annual filing mandate for non-profits currently exempt from T1044 thresholds, and more comprehensive disclosure measures. Stakeholders were invited to provide comments on the draft proposals by September 12, 2025. According to budget 2025, the government is currently reviewing this consultation feedback and has announced its intention to defer the implementation of any new measures until at least January 1, 2027. It is hard to argue against an obligation to file a tax return generally, but it is also true that many unincorporated, small and informal non-profit organizations will be caught unintentionally by the new requirements unless amended.

What Did We Expect to See?

In addition to the minor and marginal changes relevant to the charitable and non-profit sector described above, there are some other items that had been discussed but were not included in budget 2025

Most important of these is that, as we have been reassuring religious charities, the government of Canada does not wish to remove the advancement of religion from the definition of charity. This change, which had been suggested by the Commons Finance Committee in 2024 as a result of political maneuvering, was never a serious policy proposal and it is not in the budget. Indeed, the government has been quietly suggesting to the charitable sector for months that it had no intention of removing the advancement of religion from the definition of charity.

More interestingly though, the budget also does not include any provisions removing charitable status from registered charities that advocate against abortion. This possible change, which had actually been suggested as a Liberal government policy in 2021, has not been enacted and should be considered dead unless announced again. This change, which might well have fallen afoul of the Canadian Charter of Rights and Freedoms in any event, was viewed by many as a dangerous precedent for viewpoint discrimination on the part of the CRA.

Other measures that have been discussed but are not in the budget would include a new regulatory regime for donor advised funds (“DAFs”) designed to apply the disbursement quota at a fund by fund level to address the perceived use of DAFs to avoid charitable expenditure. We had never understood this concern, as our DAF clients already see lots of charitable spend on an ongoing basis.

We had also suggested earlier to the Department of Finance that it should consider creating a new category of qualified donee for U.S. charities looking to move to Canada to avoid U.S. regulatory uncertainty – this has not made its way into the budget. We still believe that this proposal has the potential to increase Canadian GDP and tax revenues and would be consistent with Canadian values.

The budget proposes a number of spending initiatives in the areas of housing and infrastructure, research and development, and gender equality and 2SLGBTQI+ initiatives.

New Funding Commitments Relevant to the Sector

Infrastructure and housing spending are significant features of this budget, with $51.0 billion dollars to be allocated to a new “Build Communities Strong Fund”. This fund will be administered by the federal housing ministry, Housing, Infrastructure and Communities Canada, with funding to begin in fiscal year 2026-2027 and paid over 10 years. The Budget has identified a number of supported infrastructure projects, including specific community centers in Ontario and Manitoba, a cultural centre in Vancouver, and a theatre in Alberta.

The budget also proposes new investments and funding initiatives for research and development that may be of particular interest to non-profits and charities operating in the following spaces:

• Natural sciences and engineering;
• Social sciences and the humanities; and
• Human health.

Specifically, the budget will allocate $133.6 million over 3 years to the Natural Sciences and Engineering Research Council, the Social Sciences and Humanities Research Council, and the Canadian Institute of Health Research.

The budget provides new funding for equality initiatives and support for 2SLGBTQI+ people. The following amounts have been allocated, to be paid over a period of 5 years:

• $382.5 million has been allocated to support the federal government’s Women’s Program. Under the program, specific projects will be funded that advance full economic and social participation of women in Canada.
• $54.6 million has been allocated to fund the 2SLGBTQI+ Community Capacity Fund, which will assist 2SLGBTQI+ community organizations with operations and capacity, including helping such organizations become legally constituted, for example by incorporating.
• A further $223.4 million has been allocated to the Gender-Based Violence Program. The program will assist organizations supporting victims of gender-based violence.

Additional ongoing funding has been allocated to support these programs beyond the first five years of implementation.

Next Steps

A vote on the budget is anticipated in the House of Commons in the coming weeks. Within Canada’s parliamentary system, the federal budget constitutes a confidence vote—an essential principle of responsible government. This means the government must retain the support of the majority of Members of Parliament (“MPs”) in the House of Commons to remain in office. If the budget fails to secure majority approval, it signals that the House of Commons no longer has confidence in the government’s ability to govern or manage the country’s finances. In such an event, the Prime Minister must resign or request the Governor General to dissolve Parliament, leading to a general election. This process is particularly pivotal for minority governments, like our current government, which must secure support from opposition MPs or rely on abstentions to ensure the budget’s passage and avert an early election.

If the budget passes, its measures will advance through the usual legislative process. We will continue to keep our blog readers informed about all relevant proposals, providing updates as new measures are unveiled and progress through Parliament.

If you have questions about the new budget measures or how they may affect your organization, please reach out to a member of our Charity and Non-Profits group for guidance and support.

For an analysis of the budget’s tax measures, please see McCarthy Tétrault’s 2025 Canadian Federal Budget Commentary – Tax Initiatives.