The Minister of Finance (Canada), the Honourable François-Philippe Champagne, presented the Government of Canada’s (the “Federal Government”) 2026 Federal Budget (“Budget 2026”) on November 5, 2026 (“Budget Day”). Budget 2026 contains significant proposals to amend the Income Tax Act (Canada) (the “ITA”) and the Excise Tax Act (the “ETA”) while also providing updates on previously announced tax measures and policies.
Significant Budget 2026 proposals and updates include:
- advancing the Productivity Mega Deduction, first announced in September 2026, which allows businesses to immediately deduct the cost of a broader range of capital assets on a permanent basis;
- introducing the Canada Growth Incentive that includes a new tax exemption for individuals on up to $15 million in capital gains realized on the disposition of the shares of qualifying Canadian companies and enhances the small business rollover when proceeds are reinvested in another Canadian small business;
- changing the T1 tax return filing deadline for all individuals to May 15 and increasing the instalment payment thresholds for individuals and corporations;
- announcing consultation on a potential corporate loss transfer rule along with an invitation for stakeholders to comment on the proposed rules; and
- reducing withholding and remittance tax rates applicable to corporate vendors disposing of taxable Canadian property (“TCP”) from 25% and 50% to 15% and 30%, respectively.
Selected proposals and tax measures are detailed below:
- Personal Income Tax Measures
- Business Income Tax Measures
- International Tax Measures
- Sales and Excise Tax Measures
- Investments in the Canada Revenue Agency
- Previously Announced Tax Measures
Personal Income Tax Measures
Mineral Exploration
The Mineral Exploration Tax Credit (“METC”) is equal to 15% of the specified mineral exploration expenses incurred in Canada and renounced to flow-through share investors. The Critical Mineral Exploration Tax Credit (“CMETC”) is equal to 30% of specified critical mineral exploration expenses incurred in Canada and renounced to flow-through share investors. Both expire on March 31, 2027.
Budget 2026 proposes to extend eligibility for the METC and CMETC to flow-through share agreements entered into on or before March 31, 2032. Budget 2026 also proposes expanding the CMETC to include antimony (a metalloid commonly used in flame retardants, lead-acid batteries, and semiconductors) as an eligible critical mineral applicable to flow-through share agreements entered into after Budget Day and on or before March 31, 2032.
Canada Growth Incentive
Capital Gains Exemption
Under current rules, a lifetime capital gains exemption (“LCGE”) of $1,275,000 (indexed for inflation) is available on the sale of shares of a qualified small business corporation. A proposed new capital gains exemption of up to $15 million will be available for qualifying individuals selling shares in a qualifying business. Unlike the existing LCGE, the $15 million limit would apply separately to each qualifying individual in respect of each business. However, Budget 2026 also indicates that integrity rules will be introduced to prevent the multiplication of the exemption through multiple corporations carrying on the same underlying business.
A qualifying individual must be an individual (and not a trust), at least 18 years old when the qualifying shares are acquired, and resident in Canada throughout the year when the exemption is claimed. The shares must be issued for cash consideration or in exchange for employment services provided by the qualifying individual to the qualifying corporation and must be held by the individual (or the partnership of which the qualifying individual was a member) for at least 36 months prior to the disposition. At the time immediately before and after the issuance of the shares, the combined carrying value of the issuing corporation’s and all related corporations’ assets must not exceed $100 million. The corporation must also meet certain asset tests at the time the shares are issued, during the period the shares are held by the qualifying individual, and at the time the shares are sold. These tests are similar, but not identical, to the asset tests under the existing LCGE and generally require the corporation that issued the shares to carry on a qualifying active business in Canada.
The proposed exemption will not be available to businesses that operate consulting services, professional practices (such as accounting, law, medicine, engineering, and architecture) or businesses whose principal asset is the reputation or skill of employees, businesses in agriculture, fishing, forestry, mining, finance, insurance, utilities, real estate, food and accommodation, arts, recreation or entertainment, or businesses operating under licensing or franchising agreements.
Capital gains exempted through this measure would still be subject to an inclusion rate of 30% for the purposes of the Alternative Minimum Tax and would limit a qualifying individual’s ability to claim the LCGE for a sale of shares of the same corporation. The new measures will apply to qualifying shares issued on or after Budget Day and before 2037.
As described in Budget 2026, the new capital gains exemption represents a potentially significant tax incentive for small- and medium-sized Canadian enterprises. Once draft legislation implementing the proposed exemption is released, consideration should be given to whether existing corporate structures could be reorganized in a manner that would permit qualifying shares to be issued to existing shareholders, thereby potentially allowing those shareholders to access the new exemption.
Rollover for Investments in Small Businesses
Under the current rules, individuals can defer taxation on capital gains realized on qualifying dispositions of eligible small business corporation (“ESBC”) shares to the extent that proceeds are used to acquire replacement ESBC shares in the year of disposition or the following calendar year. Budget 2026 proposes to extend the period to acquire replacement ESBC shares after the sale of shares to include the year of disposition and the three following calendar years. If the individual enters into an agreement with an ESBC to provide upfront capital in exchange for shares to be issued later, such as a simple agreement for future equity, before the end of the three-year replacement period, the capital gain could be deferred for an additional two years. While the “all or substantially all” threshold remains applicable at the time of issuance and disposition of shares, during the holding period, the asset test for an ESBC would be lowered to “primarily.” This change, along with the expanded period to claim the rollover, may mean that taxpayers will be better positioned to use the small business rollover. The new measures would apply to qualifying dispositions that occur on or after January 1, 2027.
Draft legislation has not yet been released for either Canada Growth Incentive measure.
Instalment Payments for Individuals and Corporations
Currently, individuals who have combined federal and provincial net tax owing on income that is not subject to withholding (e.g., pension income, business income, or capital gains) in a current year and either of the prior two years may be required to remit income tax in quarterly instalments to the Canada Revenue Agency (the “CRA”). Budget 2026 proposes increasing these annual instalment thresholds and reducing the frequency of required instalment payments for individuals with business income from quarterly to annually. Specifically, Budget 2026 proposes increasing the instalment threshold from $3,000 to $7,500 for corporations and individuals resident outside Québec, and from $1,800 to $4,500 for individuals resident in Québec. This reduction in payment frequency for individuals with business income would align their treatment with the treatment currently available to individuals with farming and fishing income. Budget 2026 further proposes to index these thresholds to inflation, to the nearest $500. These amendments would apply beginning in 2028.
Income Tax Return Filing and Balance-Due Dates for Individuals
Budget 2026 announces a consolidation of T1 tax filing and balance-due dates for individuals, including self-employed individuals and their spouses or common-law partners, to May 15. For individuals, this would extend the tax filing deadline by 15 days from the previous April 30 deadline. For self-employed individuals and their spouses or common-law partners, the tax filing deadline would be shortened by a month, from the prior June 15 deadline to May 15. These amendments would apply starting in 2027.
Increased Foreign Property Reporting Thresholds – Form T1135
The ITA requires taxpayers who, during a taxation year or fiscal period, own “specified foreign property” above a certain threshold to file a Foreign Income Verification Statement on Form T1135. The present threshold is a total cost of $100,000, with “specified foreign property” generally including investments and income-earning property situated outside of Canada, except for personal use property and property used in carrying on an active business.
There is a simplified reporting method if the total cost of a taxpayer’s specified foreign property is less than $250,000 throughout a taxation year or fiscal period. Budget 2026 proposes to increase the base threshold for reporting specified foreign property from $100,000 to $200,000, as well as the threshold for simplified reporting from $250,000 to $500,000.
The new T1135 measures would apply to taxation years or fiscal periods ending after 2026.
Modernization of RRSP and RRIF Rules
Budget 2026 announces the Federal Government’s intention to modernize the Registered Retirement Savings Plan (“RRSP”) rules, including by creating a single “RRSP for life.” This would merge the core features of the RRSP and Registered Retirement Income Fund (“RRIF”) under the ITA into a single vehicle, such that RRSPs would no longer need to be converted to RRIFs at age 71. Nevertheless, individuals over the age of 71 would continue to be required to make minimum withdrawals from the RRSP (the minimum withdrawal amount being, in part, based on the fair market value of all properties held in connection with the plan).
In addition, the Federal Government is considering adding a “successor holder” feature to RRSPs for spouses or common-law partners. This could allow an RRSP to remain open until the death of the successor holder and avoid the value of the RRSP property being included in the income of the deceased holder. The Federal Government is also considering replacing the current indirect “rollover” provisions that apply on the death of an RRSP holder with rules permitting direct tax-free transfers to qualifying registered vehicles of qualifying survivors.
Merging the RRSP and RRIF rules could also require consequential changes to the federal Pension Benefits Standards Regulations, 1985 (and similar provincial legislation), as funds transferred from pension plans are generally subject to locking-in restrictions until retirement and may be required to be held in prescribed vehicles.
The Federal Government is launching a consultation process on these proposed changes. Feedback can be provided to the Department of Finance Canada (the “Department of Finance”) until January 8, 2027.
Excess Corporate Holdings Regime for Private Foundations
The ITA currently includes “excess corporate holdings rules” to address the concern of self-dealing associated with private foundations registered as charities. These rules limit the shareholdings that such private foundations can hold and oblige private foundations to track their shareholdings, as well as those of relevant persons (usually non-arm’s length individuals), to ensure that the private foundation does not hold or acquire more than 20% of a class of shares of a corporation, together with relevant persons. Shareholdings, as well as material transactions involving those holdings, need to be reported to the CRA. If total holdings are greater than 20%, and if more than 2% of a class of shares is owned by the private foundation, the present rules impose divestiture obligations within a certain period.
Budget 2026 proposes to eliminate the excess corporate holdings regime. In its place, the current rules prohibiting public foundations from acquiring control of a corporation would be extended to private foundations.
The new measures would apply to taxation years that begin on or after January 1, 2027.
Changes to Objection Deadlines
Generally, the provisions of section 165 of the ITA allow a taxpayer to file a Notice of Objection (an “Objection”) against an assessment within 90 days of the date of the Notice of Assessment or Reassessment. If this deadline is missed, section 166.1 currently allows a taxpayer a further one year to request an extension to file an Objection. In most cases, the 90-day deadline is manageable, but despite a taxpayer’s best efforts and for myriad routine reasons, a taxpayer may fail to file an Objection before the deadline. The CRA routinely grants extensions for nearly all extension requests, but if the one-year extension deadline is missed, the taxpayer generally has no further options for challenging an Assessment or Reassessment.
Budget 2026 proposes to extend the 90-day deadline, but would remove the possibility of an extension. Proposed subsection 165(1) creates a new one-year filing deadline for an Objection. Correspondingly, the proposed amendment to subsection 166.1(1) removes any extension available for taxpayers who miss the filing deadline. This change does not apply in respect of (i) an Objection against a notice of intention to revoke under section 168 of the ITA (for which both the 90-day deadline and the extension period remain), and (ii) requests for extensions of time made pursuant to subsection 245(6) of the ITA regarding consequential assessments under the general anti-avoidance rule.
The proposed revisions to the Objection deadline rules would apply to assessments or determinations sent on or after the day that is three months after royal assent.
Expanded Restrictions on Trust Distributions to Non-Residents
Trusts continue to play a prominent role in most Canadian estate freezes, often as holders of common or growth shares following the freezing of a shareholder’s interest in a corporation. Budget 2026 notes that a personal trust for the purposes of the ITA (often colloquially and in the industry referred to as a “family trust”), as well as certain other prescribed trusts, may distribute property on a tax-deferred basis to a beneficiary resident in Canada, in satisfaction of all or part of the beneficiary’s capital interest in the trust.
Budget 2026 further notes that, except for a limited group of assets that will remain subject to Canadian tax, a trust cannot distribute property on a tax-deferred basis to a non-resident of Canada. Instead, the trust realizes a taxable capital gain on the distribution of assets with accrued gains (such as private corporation shares) to a non-resident of Canada. This presents challenges for a trust with a beneficiary who has become a non-resident of Canada since the trust’s establishment.
Transactions have historically been implemented by certain trustees with a view to avoiding a taxable capital gain, including by potentially distributing assets with accrued capital gains to Canadian-resident corporations whose shares are held (directly or indirectly) by a non-resident. Although the CRA has already provided views in respect of certain transactions, and despite certain transactions being potentially reportable to the CRA, Budget 2026 proposes to expand the existing denial rules for tax-deferred transfers to include indirect distributions of trust assets to non-resident beneficiaries. According to Budget 2026, these new rules would apply to property that is transferred to a corporation or partnership that has a direct or indirect non-resident shareholder or partner.
The new denial rules would apply in respect of distributions of property occurring on or after Budget Day.
Business Income Tax Measures
Clean Electricity ITC and Clean Technology ITC
Budget 2026 proposes to give businesses more time to bring qualifying clean energy investments into service and to extend tax support to certain high-voltage electricity transmission projects within a province or territory.
Longer Investment Window
The Clean Electricity Investment Tax Credit (“ITC”) provides a refundable credit of up to 15% of the capital cost of qualifying electricity generation, storage, and transmission investments. The Clean Technology ITC offers a refundable credit of up to 30% for qualifying clean electricity, storage, and low-carbon heating investments, as well as certain non-road zero-emission equipment and related charging and refuelling equipment. Both credits require claimants to meet prevailing wage and apprenticeship requirements to receive the full credit rates.
Budget 2026 proposes to extend both ITCs by six years, such that eligible property would generally need to become available for use before 2041 rather than before 2035. For the Clean Technology ITC, the 30% credit rate would continue through 2039 and would be reduced to 15% for property becoming available for use in 2040. Although the extension would give businesses a longer planning and construction window, investments would still need to satisfy the other eligibility conditions.
Tax Support for Transmission Within a Province or Territory
The Clean Electricity ITC currently covers qualifying transmission investments between provinces and territories. Budget 2026 proposes to broaden that coverage to certain high-voltage transmission infrastructure within a province or territory. In the provinces, eligible infrastructure would need to operate at or above the highest transmission voltage currently used in that province. A minimum of 69 kilovolts would apply in the territories. The proposal therefore targets major transmission infrastructure, rather than ordinary electricity distribution networks.
Qualifying assets would include certain transmission line and substation equipment, such as cables, towers, and transformers. Buildings, distribution equipment, and certain assets used for international transmission would remain outside the credit. The Federal Government will provide further eligibility details at a later date.
The expanded transmission eligibility would apply to property acquired on or after Budget Day.
Expansion of SR&ED Eligibility
Budget 2026 proposes to broaden the scope of Canada’s Scientific Research and Experimental Development (“SR&ED”) tax incentive program to cover certain expenditures incurred after the traditional experimental development stage, particularly costs associated with obtaining regulatory approval and protecting intellectual property (“IP”) arising from an eligible SR&ED project.
Currently, qualifying expenditures are generally deductible in the year incurred and may generate an ITC at a general 15% rate, or at an enhanced 35% rate for certain qualifying small- and medium-sized corporations. The SR&ED program has traditionally focused on systematic investigation or search involving basic research, applied research, or experimental development, with activities undertaken after experimental development generally falling outside the program.
Budget 2026 proposes to expand the SR&ED program in two respects.
Eligible activities would be extended to include tests, technological validations, and studies undertaken to satisfy regulatory requirements for the initial approval or certification required to commercialize a product or process, provided that those activities directly relate to a project that otherwise qualifies for SR&ED. The normal categories of SR&ED expenditure, including wages and salaries, materials, contract costs, overhead, and machinery and equipment, could potentially qualify in connection with these activities.
The SR&ED program would also allow certain expenditures incurred in obtaining and maintaining IP protection for IP developed through an otherwise eligible SR&ED project. Eligible IP would include patents, certificates of supplementary protection, plant breeders’ rights, and copyrighted software protected under Canadian or equivalent foreign legislation. Qualifying expenditures would generally include expenses associated with preparing and filing applications and periodic maintenance costs. Enforcement expenses, including IP infringement litigation expenses, and other costs not directly connected with obtaining or maintaining the protection would remain ineligible.
For foreign IP registrations, fees paid to a foreign IP office could qualify, but supporting activities such as preparing the application would qualify only where those activities are carried out in Canada.
The SR&ED proposal also includes an integrity measure providing that, where a taxpayer subsequently disposes of IP for which SR&ED assistance was received in respect of IP protection costs, recapture provisions would apply to claw back the associated SR&ED deductions and ITCs. Business owners who have previously qualified for SR&ED benefits will want to ensure they understand the financial implications of the application of these proposed recapture rules in the context of any anticipated IP sales.
These proposed changes would apply to taxation years beginning on or after Budget Day.
Expansion of EIFEL Exceptions
Budget 2026 proposes to broaden two previously announced exceptions to Canada’s Excessive Interest and Financing Expenses Limitation rules (the “EIFEL Rules”). The changes would make the proposed relief more accessible where financing is arranged within a corporate group, rather than borrowed directly by the entity carrying on the eligible activity.
The EIFEL Rules limit the net interest and financing expenses that certain taxpayers can deduct for tax purposes. Previously announced exceptions, which have not yet been enacted into law, were meant to provide relief for borrowings used to acquire, build, or convert property into purpose-built rental housing in Canada, and for borrowings used to carry on a regulated energy utility business in Canada.
Greater Flexibility for Group Financing
Under the existing proposals, the borrower must itself use the funds for the eligible activity. Budget 2026 would allow relief where the funds support eligible activities carried on by another corporation, trust, or partnership in the same affiliated group as the borrower. Relief would also be available where those activities are carried on by a partnership in which the borrower and its affiliated entities together hold an interest of at least 40%.
For businesses, the proposed changes would reduce the need to match the borrowing entity with the entity undertaking the housing or utility activity. They would not, however, create a general exemption for all interest expenses within a group: the borrowed funds would still need to support eligible activities.
Broader Coverage for Energy Utilities
Budget 2026 also proposes to expand and clarify the definition of a regulated energy utility business in Canada. In particular, the definition would cover businesses where the prices of all or substantially all of their products or services are either:
- established, approved, or guaranteed by a government, including sales to Crown corporations; or
- established through a government-operated market that facilitates delivery for consumption or use in Canada.
The changes would apply to taxation years beginning on or after October 1, 2023, matching the effective date of the EIFEL Rules. The proposed relief could therefore apply to earlier taxation years, not only to future financing arrangements.
Relief from the Taxable Preferred Share Regime
In the 1980s, the ITA was amended to add a set of rules to address planning opportunities that the Federal Government considered to be inappropriate relating to the substitution of preferred share subscriptions in place of debt financing by corporate taxpayers. The Federal Government’s “after-tax financing” concern was that corporations seeking funding could issue preferred shares with debt-like characteristics in place of borrowing money where the corporation was not in a tax-paying position due to non-capital loss carryforwards or other deductions available to it and, accordingly, did not have an immediate need for interest deductions on borrowed money. With proper planning, lenders may prefer to receive dividends on preferred shares rather than interest on indebtedness due to the intercorporate dividend deduction.
Recently, the Joint Committee on Taxation of the Canadian Bar Association and Chartered Professional Accountants of Canada recommended that these taxable preferred share rules be repealed due to their complexity, their potential to discourage investment in Canada, the presence of other provisions of the ITA that serve to protect the tax base, and the Federal Government’s ability to introduce, to the extent necessary, simpler provisions to address after-tax financing in a manner consistent with legislation in other jurisdictions, such as the United Kingdom, the United States, and Australia.
Budget 2026 proposes two significant changes to the taxable preferred share regime. First, the special Part VI.1 tax under the taxable preferred share regime will not apply to dividends or deemed dividends paid by Canadian-controlled private corporations on or after Budget Day. Second, the dividend allowance will increase from $500,000 to $1.5 million, and the threshold at which the dividend allowance begins to be reduced will increase from $1 million to $3 million, for taxation years ending after 2026. In addition, the Federal Government is seeking submissions from interested stakeholders by January 8, 2027 on other potential improvements to the taxable preferred share regime.
Expanded Tax Treatment for Helium Expenses
Under the ITA, certain expenses related to petroleum and natural gas exploration, development, and property acquisition are classified as Canadian exploration expense (“CEE”), Canadian development expense (“CDE”), or Canadian oil and gas property expense (“COGPE”). These expenses are generally deductible at rates of 100%, 30%, and 10%, respectively. The previously announced Productivity Mega Deduction would increase the deduction rate for CDE from 30% to 100%.
Helium exploration and development expenses do not currently qualify as CEE or CDE, and expenses to acquire helium resource properties do not currently qualify as COGPE.
Budget 2026 proposes to align the tax treatment of helium exploration, development, and resource property acquisition expenses with the treatment of comparable expenses in the petroleum and oil and gas sectors. Helium exploration and development expenses would qualify as CEE and CDE, respectively, while expenses incurred to acquire helium resource properties would qualify as COGPE. As a result, qualifying helium development expenses could also benefit from the proposed Productivity Mega Deduction, allowing those expenses to be fully deducted.
These amendments would apply to expenses incurred on or after Budget Day and are expected to provide $54 million of tax relief over four years, beginning in 2027-28.
Simplification of Corporate Tax Election Documentation Requirements
Under various provisions of the ITA and the Income Tax Regulations, corporations may file elections or agreements with the CRA that determine the tax consequences of particular transactions or events. Certain elections and agreements currently require a corporation to provide a certified copy of a directors’ resolution authorizing the election or agreement or, in certain cases, a certified copy of the authorization of the person entitled to administer the corporation’s affairs. These requirements apply, for example, to capital dividend elections, transfers of tax liability on certain taxable dividends, transfers of qualifying SR&ED expenditures, and allocations of wages and salaries of SR&ED employees.
Budget 2026 proposes to eliminate the requirement for corporations to provide a certified copy of the applicable resolution or authorization when making certain elections or agreements. The proposal would simplify the filing process without changing the substantive requirements or tax consequences of the underlying elections or agreements. The measure would apply to elections and agreements made on or after the date the implementing legislation receives royal assent.
Consultation on Potential Corporate Loss Transfer Regime
Business operations are often carried on in multiple corporations within a corporate group for a variety of commercial and regulatory reasons. However, Canada taxes the income of each corporation on a standalone basis, including in circumstances where the overall tax on the income of the business is higher because losses in one corporation within the group are not available to be applied against income of other corporations within the group. Other countries address this concern through tax consolidation or loss deduction transfer rules. Canadian businesses may therefore be at a competitive disadvantage compared to businesses located in such countries. Enacting provisions to permit the transfer of losses within a corporate group was the subject of two previous Department of Finance consultation processes. However, a loss deduction transfer regime has not previously been proposed due to tax integrity concerns and potential adverse implications for provincial and territorial corporate tax bases.
Budget 2026 invites submissions on a loss deduction transfer regime by January 8, 2027, and suggests certain design parameters for the purpose of the consultation. These parameters include a requirement that loss transfers would only be available between a parent corporation and a subsidiary that is wholly owned, directly or indirectly, by the parent corporation, or between two subsidiary corporations wholly owned, directly or indirectly, by the same parent corporation. Further, loss transfers within a corporate group would only be available where the transferor and transferee corporations are resident in Canada and each has only one permanent establishment, with those permanent establishments located in the same province or territory. This latter restriction is meant to address provincial and territorial corporate tax base concerns. The losses transferred would be current-year non-capital losses (i.e., operating losses) and the transferee corporation would not be permitted to carry the transferred loss back or forward to another taxation year. Restrictions are also contemplated to prevent the multiplication of tax attributes within a corporate group and other unintended tax benefits, using approaches similar to those adopted in other countries with tax consolidation or loss deduction transfer systems.
Increased and Expanded Administrative Penalties
The ITA imposes penalties in respect of various types of non-compliance. Some penalties are fixed-dollar amounts (e.g., $25 per day) and others are percentages (e.g., 10% of unpaid tax). Some of these penalty amounts have not been updated in many years, nor do they have mechanisms to continually adjust the fixed-dollar amounts for inflation. Budget 2026 proposes to increase many fixed-dollar penalties to account for inflation (e.g., older penalties would increase by a factor of two or three, while more recent penalties would remain unchanged). Budget 2026 also proposes to index the fixed-dollar amounts to inflation once every five years. Similar amendments are proposed for the penalties under the GST/HST provisions of the ETA, Excise Act, 2001, Air Travellers Security Charge Act, and Select Luxury Items Tax Act.
Budget 2026 also proposes to adjust certain penalty amounts based on the type and size of the taxpayer subject to the particular penalty. Individuals and smaller corporations and partnerships would be subject to the base penalty amount. Medium-sized corporations (between $10 million and $50 million of taxable capital employed in Canada) and partnerships (between $2 million and $10 million in gross revenue) would be subject to three times the base penalty amount. Large corporations (more than $50 million of taxable capital employed in Canada) and partnerships ($10 million or more in gross revenue) would be subject to eight times the base penalty amount.
Budget 2026 further proposes new penalties for repeated failures to comply with filing or other obligations. The proposed penalties would apply if the person or partnership was subject to a penalty for the same compliance failure in any of the three preceding tax years. Generally, these penalties would double the base penalty amount that applies for the first failure, and the penalty amount would increase under the rules for medium and large corporations and partnerships.
Additionally, the Common Reporting Standard, the Reporting Rules for Digital Platform Operators, and the Crypto-Asset Reporting Framework require certain persons to collect and file certain taxpayer information relating to financial accounts, online sales activities, or digital assets. Budget 2026 proposes to add a penalty under the ITA for failing to comply with a duty or obligation imposed under these information reporting regimes.
The penalty proposals for the ITA and other statutes would apply to taxation years or fiscal periods ending after 2027. The reporting regime penalties would apply for 2028 and subsequent years.
International Tax Measures
Consultation on the Common Reporting Standard
The Common Reporting Standard (“CRS”) model rules are a global set of rules that provide for the automatic exchange of financial account information for tax purposes.
Budget 2026 indicates that the legislation implementing the CRS in Canada (the “Canadian CRS Rules”) differs from the global standard in two areas, based on peer review. First, under the Canadian CRS Rules, if an entity established to invest or trade in financial assets is not reported or promoted to the public as an investment vehicle, it is excluded from CRS due diligence and reporting requirements under circumstances in which it would not be excluded under the model rules. Second, because of certain residency conditions, the definition of “financial institution” under the Canadian CRS Rules includes a narrower range of partnerships than the definition under the model rules.
Budget 2026 announces the Federal Government’s intention to initiate a consultation on potential measures to strengthen the implementation of the Canadian CRS Rules. The Federal Government has asked for comments on certain questions regarding potential amendments to the Canadian CRS Rules.
Changes to Taxable Canadian Property Withholding and Rollovers
Existing Regime
Canada generally taxes non-residents on income and gains from dispositions of TCP, which generally includes Canadian real estate, resource properties, and certain shares or interests whose value is derived primarily from Canadian real property or resource assets.
To facilitate collection of this tax, section 116 of the ITA generally requires a purchaser acquiring TCP from a non-resident vendor to withhold and remit 25% of the purchase price, unless the vendor obtains a clearance certificate from the CRA. A 50% withholding rate generally applies to specified TCP, the disposition of which may give rise to fully taxable income, including depreciable property, a Canadian life insurance policy, Canadian resource property, and real property held as inventory.
A non-resident vendor may obtain a clearance certificate by remitting an estimate of the Canadian tax owing on the disposition, posting acceptable security for that amount, or demonstrating to the CRA that no tax will be owing. If a certificate is obtained, the purchaser is relieved from the section 116 withholding obligation to the extent provided by the certificate.
These requirements generally apply even where TCP is transferred on a fully tax-deferred basis under section 85 of the ITA. Although the CRA may administratively issue a clearance certificate without requiring a tax remittance where sufficient documentation is provided to establish that no tax is payable as a result of the rollover, a purchaser may nevertheless withhold until the certificate is issued to limit its potential liability. As a result, a fully tax-deferred section 85 rollover can still give rise to an administrative burden and delays in the availability of funds to the non-resident vendor.
Corporate Vendors: Reduced Withholding and Remittance Rates
For corporate vendors, the section 116 amounts withheld and remitted may exceed the income tax ultimately payable by the vendor. For example, a non-resident corporation carrying on business in Canada solely through a permanent establishment in Prince Edward Island would generally face a combined federal-provincial tax rate of 15% on any capital gain from the disposition of capital property other than specified TCP.
For corporate vendors, Budget 2026 proposes to reduce the withholding and remittance rates on dispositions of TCP. For capital property other than specified TCP, a purchaser’s withholding rate would be reduced from 25% of the purchase price to 15%, and a vendor’s remittance rate for issuance of a clearance certificate would be reduced from 25% of the capital gain to 15%. For specified TCP, a purchaser’s withholding rate would be reduced from 50% of the purchase price to 30%, and a vendor’s remittance amount for issuance of a clearance certificate would remain unchanged (i.e., such amount as is acceptable to the CRA).
Section 85 Rollovers: Withholding Relief and Anti-Avoidance
Budget 2026 proposes to exempt vendors and purchasers from the withholding and tax remittance requirements for fully tax-deferred section 85 rollovers of TCP, provided that, within 30 days of the disposition, the section 85 election form is filed, and the purchaser provides notice to the CRA setting out information regarding the transaction and the vendor.
The proposed legislation also provides for circumstances in which the section 85 election is subsequently amended such that an amount in respect of the disposition is included in the vendor’s taxable income. In that case, the exemption would no longer apply, and the section 116 rules would apply to the disposition from the date a notice of assessment is issued in respect of such tax.
Lastly, under current rules, a tax-deferred rollover may be denied where, within three years, the transferred property or substituted property is subsequently disposed of, and one of the main purposes of the series is to benefit from an exemption from Canadian tax, including under a tax treaty. Budget 2026 proposes to strengthen this rule for rollovers of TCP by non-residents by extending the three-year period to five years and ensuring that a subsequent disposition of property that principally derives its value from the transferred property or substituted property is also subject to the rule.
These amendments would apply to dispositions that occur on or after January 1, 2027.
Sales and Excise Tax Measures
GST/HST Treatment of Massage Therapy Services
Certain health care services provided by qualifying health professionals are already exempt from GST/HST, such as optometry, chiropractic, and physiotherapy services, but massage therapy services are presently taxable for GST/HST purposes. Budget 2026 proposes to exempt qualifying massage therapy services from GST/HST. The exemption would generally apply where the massage therapist:
- is licensed or certified in a province that regulates the profession; or
- in a province that does not require licensing or certification, has qualifications equivalent to those required for licensing or certification in another province.
This measure would apply to qualifying supplies made after Budget Day.
Pre-Approval Regime for GST/HST Input Tax Credit Allocation Methods of Financial Institutions
Certain large financial institutions are presently permitted to use their own GST/HST input tax credit allocation methods if they obtain advance approval from the Minister, but at present, approval must be obtained separately for each fiscal year.
Budget 2026 proposes to allow these institutions to apply for pre-approval covering up to three consecutive fiscal years. The Minister could approve the proposed methods for all three years or only for the first year, in which case the institution could submit subsequent applications for the remaining years using the same or different methods.
The measure would apply to fiscal years beginning after June 30, 2027.
Non-Taxable Importations
Budget 2026 proposes to modernize the GST/HST importation relief rules by updating outdated HS codes and customs references, while generally preserving existing relief. The changes would also expand or simplify relief for certain temporary imports, including cargo containers, display goods and commercial samples, railway equipment, goods imported by international bridge and tunnel authorities, and certain entertainment equipment. Temporary importation relief would also generally be extended from 12 to 18 months.
These measures would generally come into force on the first day of the second month following the month in which the enacting legislation receives royal assent.
Cannabis Excise Duty Stamp
Budget 2026 proposes a significant reform to the cannabis excise stamping regime. The current regime requires that an excise stamp specific to a province or territory be affixed before a product enters the duty-paid market, based on the province or territory in which the product is intended to be sold.
Budget 2026 proposes to introduce a new common cannabis excise stamp for products sold in the following jurisdictions: Québec, Nova Scotia, New Brunswick, British Columbia, Prince Edward Island, Newfoundland and Labrador, the Northwest Territories, and Yukon (each of which presently has the same duty rate). Alberta, Saskatchewan, Ontario, and Nunavut have been invited to opt in to this new regime.
The common stamp does not create a common duty rate. Producers would still have to calculate, report, and remit the duty applicable to the destination province or territory. As part of this new common stamping regime, Budget 2026 also proposes a new penalty, potentially up to $25,000, that would apply in circumstances where a licensed producer fails to report, or incorrectly reports, the destination of a common-stamped cannabis product.
Once released into the duty-paid market, common-stamped cannabis generally could not be transported across provincial or territorial borders, subject to exceptions such as individuals carrying cannabis for personal use within Cannabis Act possession limits. Improper interprovincial transportation could attract a penalty equal to 200% of the duty paid.
Budget 2026 also proposes: (i) a civil penalty equal to twice the applicable duty where a producer reported cannabis as being in its possession but cannot account for it; and (ii) revised penalties for unstamped cannabis edibles, topicals, and extracts.
These measures would apply as of the date of royal assent.
Federal Fuel Excise Tax
Expansion of the Wholesale Licensing Framework
Budget 2026 proposes to revamp the federal fuel excise tax licensing rules, which currently do not accommodate certain wholesaling structures and can result in double taxation of fuel.
Under the proposed new rules, wholesaler licensing would be expanded to include an entity that: (i) is in the business of selling or delivering fuel; and (ii) in the ordinary course of that business, delivers fuel to a licensed manufacturer, a licensed wholesaler, or another person who will resell the fuel in the ordinary course of business.
With this proposed change, federal fuel excise tax would generally arise only once when fuel moves from the licensed portion of the supply chain to an unlicensed person.
This measure would come into force on the first day of the month following royal assent.
Broader Relief for Licensed Fuel Manufacturers
At present, licensed manufacturers can generally acquire or import fuel without triggering excise tax only where the fuel will undergo further manufacturing, such as blending. Budget 2026 would extend this relief where the licensed manufacturer intends to resell the fuel. For purchased fuel, the relief could apply to purchases from either a licensed manufacturer or a licensed wholesaler.
This measure would come into force on the day after Budget Day.
Retroactive Time-Limited Relief for Duplicated Fuel Excise Tax
Budget 2026 proposes a time-limited payment to provide relief for certain historical cases in which federal fuel excise tax effectively applied twice to the same quantity of fuel. The application deadline would be two years after royal assent. This is transitional relief rather than a general refund mechanism for all historical instances of double taxation.
Investments in the Canada Revenue Agency
Budget 2026 proposes the following additional funding to the CRA:
- $182.4 million over four years to strengthen its capabilities to investigate tax evasion and work with law enforcement partners to combat money laundering and disrupt the flow of illicit income; and
- $116.5 million over four years to expand compliance activities related to individuals and businesses that do not file income tax returns, enhance the Trust Filers Verification Program to improve compliance among trust filers, and strengthen pre-assessment validation activities for corporate income tax returns. The Department of Finance predicts these measures will generate approximately $1.2 billion in additional revenue over four years.
Previously Announced Tax Measures
Budget 2026 confirms the Federal Government’s intention to proceed with certain previously announced tax and related measures as modified in response to consultations and deliberations, including:
- Legislative and regulatory proposals released on September 15, 2026, to implement the Productivity Mega Deduction.
- Legislative proposals released on July 23, 2026, to implement various previously announced tax measures and technical amendments, including in respect of transfer pricing and hybrid mismatch arrangements, and the GST/HST reverse charge mechanism applicable to the telecommunications sector.
- Legislative proposals released on January 29, 2026, to implement reporting requirements for non-profit organizations.
- Tax measures relating to non-compliance with information requests, announced in Budget 2024, to be implemented through amendments to the ETA, Air Travellers Security Charge Act, Excise Act, 2001, and Select Luxury Items Tax Act.
- Legislative proposals released on August 12, 2024, with respect to technical amendments to the ITA.
- Legislative proposals released on August 4, 2023, with respect to tax-exempt sales of motive fuels for export.
- Legislative and regulatory proposals released on August 9, 2022.
Budget 2026 also reaffirms the Federal Government’s commitment to move forward as required with other technical amendments to improve the certainty and integrity of the tax system.
