Entity Setup
Preparing Your Business for Budget 2025 Changes: Entity Setup & Reporting Impacts
With new rules under Budget 2025 and Bill C-15, certain entities must adjust how they operate. Learn what those changes mean for corporations, trusts, and investors.
By NomadicTax Research Team • 5-8 min read • March 31, 2026
## Key Policy Changes Affecting Entities
- **Eliminating the Digital Services Tax**: This tax will be phased out under Budget 2025, following legislative changes. Entities in the digital space should prepare for refunds and adjust pricing/consulting models accordingly. ([canada.ca](https://www.canada.ca/en/revenue-agency/corporate/about-canada-revenue-agency-cra/departmental-plan/2026-27-cra-departmental-plan.html?utm_source=openai))
- **Capital Gains Inclusion Rate Remains at 50%**: Although there was a proposal to increase the capital gains inclusion rate to **two-thirds**, the government **deferred and later cancelled** this change. The inclusion rate remains **½** for most individuals and many trusts until at least January 1, 2026. ([canada.ca](https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2025/update-cra-administration-proposed-capital-gains-taxation-changes.html?utm_source=openai))
- **Lifted Lifetime Capital Gains Exemption (LCGE)** Maintenance**: Despite changes, the proposed increase in LCGE to **$1.25 million** for eligible gains still applies for dispositions occurring after June 25, 2024. Corporations and entrepreneurs should review this opportunity. ([canada.ca](https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2025/update-cra-administration-proposed-capital-gains-taxation-changes.html?utm_source=openai))
## Entity-Setup Strategies in Light of These Changes
- **Trusts & Private Corporations**: With capital gains inclusion unchanged for now, evaluate whether corporate reorganizations or beneficiary distributions remain tax-efficient under current structure.
- **Start-ups & Entrepreneurs**: The higher LCGE limit is valuable if you’re disposing of eligible shares. Make sure that your **holding period**, status, and trust structure align with LCGE eligibility rules.
- **Digital Businesses**: With the Digital Services Tax being eliminated, audit contracts, fees, international digital sales, and pricing to avoid unexpected refunds or liabilities.
## Reporting & Compliance Implications
- Maintain **recordkeeping** to qualify for LCGE: evidencing “eligible capital gains” status, amount of exempt gain, and supporting documents.
- Monitor CRA updates on **Forms T2, T5, T3, etc.**, especially if you had started using tools reflecting the proposed inclusion rate changes—since many forms reverted to old rates. ([taxnews.ey.com](https://taxnews.ey.com/news/2025-0407-canadian-government-announces-deferred-implementation-date-for-capital-gains-inclusion-rate-change?utm_source=openai))
- For sake of certainty, consult with legal or tax professionals if your trust or corporation is impacted by these proposed changes. Even if laws were changed, interpretations and transitional rules matter.
## Case Example
Imagine a closely held private corporation where the owner plans to sell shares that qualify for LCGE. If the shares meet “eligible capital property” criteria, they may shelter up to **$1.25 million in gains**. But if the gain exceeds that or falls outside eligibility, the inclusion rate and taxable portion become critical. Under the retained 50% inclusion rate, only half the gain is taxed—not two thirds. That shift matters for timing of sale or restructuring ownership before sale.
## Actionable Steps for Businesses and Trusts
- Review entity structure now: check for eligibility under LCGE, status of trusts, holding periods, and tax residency implications.
- Keep good documentation of capital costs, acquisition dates, shareholder agreements, and whether shares qualify as “eligible small business corporation shares.”
- If using digital services or selling to consumers, plan around the removal of the Digital Services Tax; update pricing, contracts, and accounting practices accordingly.
- Stay alert: major changes like the Budget Implementation Act (Bill C-15) passed on **March 27, 2026**, cement these in law. Entities must ensure compliance from those dates forward. ([canada.ca](https://www.canada.ca/en/department-finance/news/2026/03/legislation-passes-to-implement-budget-2025-canada-strong.html?utm_source=openai))
With the budget's changes now becoming law, businesses and entities that act proactively can save tax, streamline operations, and position themselves more advantageously in Canada's evolving tax regime.