May 09, 2025
Tax Highlights from the 2025 PEI Budget
HIGHLIGHTS FROM THE PRINCE EDWARD ISLAND BUDGET
Minister of Finance Jill Burridge tabled the 2025/26 Prince Edward Island provincial budget on April 10, 2025.
The budget projects deficits of $183.9 million for the upcoming 2025/26 fiscal year, $168 million for 2026/27, and $120 million for 2027/28. The forecast deficit for the 2024/25 fiscal year now stands at $166.3 million, compared to the previously projected deficit of $85 million. The budget establishes a $32 million contingency fund to provide direct support to businesses and workers affected by U.S. tariffs, reinforce trade relationships, and help Island businesses diversify into new markets.
On the income tax front, the budget lowers the corporate tax rate by 1% and raises the small business threshold to $600,000. Other initiatives include increases to certain personal tax credits, the indexing of tax brackets in 2026, and an increase in the real property transfer tax.
The following pages summarize the changes announced in the budget. Please note that these changes remain proposals until they are passed into law by the provincial government.
PERSONAL TAX MATTERS
Personal Income Tax Rates and Tax Brackets
There are no proposed changes to personal income tax rates. Prince Edward Island does not index its tax brackets to account for inflation. The table below outlines the Prince Edward Island tax rates and tax brackets for 2025.
| TAXABLE INCOME RANGE | 2025 TAX RATES |
|---|---|
| First $33,328 | 9.50% |
| Over $33,328 to $64,656 | 13.47% |
| Over $64,656 to $105,000 | 16.60% |
| Over $105,000 to $140,000 | 17.62% |
| Over $140,000 | 19.00% |
The table below outlines the 2025 combined federal and provincial highest marginal tax rates for various types of income.
| INCOME TYPE | 2025 COMBINED TAX RATES |
|---|---|
| Regular income | 52.00% |
| Capital gains | 26.00% |
| Eligible dividends | 36.54% |
| Non-eligible dividends | 47.92% |
Personal Income Tax Credits
Effective January 1, 2025, the budget proposes to increase the following personal income tax credits and their corresponding income thresholds:
| PERSONAL INCOME TAX CREDIT | 2025 | 2026 |
|---|---|---|
| Basic Personal Exemption | $14,650 | $15,000 |
| Spouse or Equivalent Amount Maximum | $12,443 | $12,740 |
| Income Threshold | $1,244 | $1,274 |
| Low Income Tax Reduction Threshold | $22,650 | $23,000 |
Indexing of Personal Tax Brackets
Effective January 1, 2026, the five provincial tax brackets will be indexed by 1.8%.
CORPORATE TAX MATTERS
Corporate Income Tax Rates
Effective July 1, 2025, the budget lowers the corporate income tax rate by 1% and raises the small business threshold to $600,000. The table below outlines Prince Edward Island tax rates and the small business limit for 2025.
| CATEGORY | BEFORE JULY 1st | JULY 1st ONWARDS |
|---|---|---|
| General rate | 16% | 15% |
| Manufacturing and processing rate | 16% | 15% |
| Investment income rate | 16% | 15% |
| Small business rate | 1% | 1% |
| Small business limit | $500,000 | $600,000 |
The table below outlines the 2025 combined federal and provincial corporate income tax rates for various types of income earned by a Canadian Controlled Private Corporation (CCPC).
| CATEGORY | BEFORE JULY 1st | JULY 1st ONWARDS |
|---|---|---|
| Small business income | 10% | 10% |
| Active income over $500,000/$600,000 | 31% | 16%/30% |
| Manufacturing and processing income | 31% | 30% |
| Investment income | 54.67% | 53.67% |
Tariff Working Capital Program
The budget proposes a new financing program to provide working capital financing to assist Prince Edward Island businesses impacted by the new U.S. export tariffs, ensuring they can maintain operations, preserve jobs, and invest in alternative supply chain strategies.
Eligible applicants can apply to receive a working capital loan of up to $500,000, with a fixed interest rate of 4% per annum, to be used to assist with fixed operating costs. Principal payments will be deferred for 12 months.
OTHER INITIATIVES
Health Tax on Tobacco
The budget increases the health tax on tobacco to $0.30 per cigarette (up from $0.2952), effective April 28, 2025.
Real Property Transfer Tax
Effective April 28,2025, the budget proposes to increase the real property transfer tax to 2% (up from 1%) on property values over $1 million. This change will apply to all buyers, including first-time homebuyers who are residents of PEI. Previously exempt, first-time homebuyers will now be subject to the 2% tax on the portion of the property’s value exceeding $1 million.
George Coles Bursary and Marion L. Reid Bursary
The budget proposes to increase the annual George Coles Bursary and Marion L. Reid bursary amounts to $3,500 (from $3,200).
WE CAN HELP
Your financial advisor can help you assess the impact of these proposals on your personal finances or business affairs and show you ways to take advantage of their benefits or ease their impact.
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