Article

Budget 2026: Masters of Our Destiny

November 06, 2026

INTRODUCTION

On November 5, 2026 (“Budget Day”), Canada’s Minister of Finance tabled Budget 2026: Masters of Our Destiny (“Budget 2026”).

Budget 2026 continues the government’s “spending less to invest more” approach, with an emphasis on productivity, competitiveness and private-sector investment, while maintaining a focus on affordability and fiscal discipline. However, it appears that Canada’s “Investment Supercycle” will be financed largely by debt: Budget 2026 projects a deficit of $62.3 billion for 2026-2027, followed by a further $226.4 billion of deficit spending (or investment) by 2030-2031.

Business tax measures proposed in Budget 2026 are centred on encouraging investment and improving productivity. The centrepiece of these measures is the previously announced Productivity Mega Deduction, which would permit immediate expensing of a broad range of capital assets. Other business tax measures include the new Canada Growth Incentive (“CGI”), which provides a capital gains exemption of up to $15 million on qualifying shares of qualifying corporations and an enhanced rollover for reinvestments in eligible small business corporations. Budget 2026 also expands the Scientific Research and Experimental Development (“SR&ED”) program to cover certain commercialization expenses, exempts dividends paid by Canadian-controlled private corporations (“CCPCs”) from the taxable preferred share regime and renews consultations on the development of a corporate loss-transfer regime for wholly owned corporate groups.

International tax measures include reduced withholding and remittance rates on dispositions of taxable Canadian property (“TCP”) by non-resident corporations and an exemption from the section 116 withholding and remittance requirements for certain fully tax-deferred section 85 rollovers. Budget 2026 also announces the government’s intention to consult on aligning Canada’s Common Reporting Standard (“CRS”) rules more closely with the international standard and raises the Form T1135 foreign-property reporting threshold from $100,000 to $200,000.

Budget 2026’s key personal tax measures focus primarily on affordability, caregiving and support for lower-income workers. It proposes to make the Canada Caregiver Credit refundable and to enhance support for lower-income workers, together with other measures aimed at easing household cost pressures. It also includes personal tax administration changes, such as moving the T1 filing and balance-due deadlines for all individuals to May 15 and increasing the tax instalment thresholds.

BUSINESS INCOME TAX MEASURES

Clean Electricity and Clean Technology Investment Tax Credits

The Clean Electricity investment tax credit (“Clean Electricity ITC”) is a refundable tax credit of up to 15% of the capital cost of eligible clean electricity generation, transmission and storage property. The Clean Technology investment tax credit (“Clean Technology ITC”) is a refundable tax credit of up to 30% of the capital cost of eligible property intended to lower carbon emissions.

Budget 2026 proposes to extend the Clean Electricity ITC and Clean Technology ITC to eligible property that becomes available for use before 2041 (instead of 2035, under the current rules). The Clean Technology ITC rate would continue to be reduced to 15% for the last year of availability, now for property that becomes available for use in 2040 (instead of 2034).

Eligibility for the Clean Electricity ITC is to be expanded to include intra-provincial electricity transmission property built to operate at or above the highest voltage currently used for transmission lines in each province and at or above 69 kilovolts in the territories.

The expansion for intra-provincial transmission property would apply to property acquired on or after Budget Day.

Scientific Research and Experimental Development Tax Incentive Program

Building on the reform momentum initiated in 2024, Budget 2026 proposes a further expansion of the SR&ED program to help bridge the gap between technological innovation and commercialization. The proposals would extend eligible SR&ED activities to testing, technological validation and studies required for initial regulatory approvals or certifications, where the underlying project otherwise qualifies for SR&ED. Eligible expenditures would also include reasonable costs of securing and maintaining intellectual property (“IP”) protection for qualifying IP developed through the project, including patents, plant breeders’ rights, supplementary protection certificates and copyrighted software.

Enforcement costs, including infringement litigation, would remain excluded, and recapture rules would apply where protected IP is later disposed of. The measures are projected to cost $930 million over five years and would apply to taxation years beginning on or after Budget Day.

Interest Deductibility Limits

The Excessive Interest and Financing Expenses Limitation (“EIFEL”) rules restrict the net interest and financing expenses that may be deducted by certain taxpayers. A number of enacted and previously announced exceptions preclude the EIFEL rules from applying in certain cases.

Budget 2024 announced an exception to the EIFEL rules in respect of interest incurred before 2036 on borrowings used by a taxpayer to acquire or build purpose-built rental housing in Canada or to convert a property into such housing. In August 2024, another exception was announced in respect of interest incurred by a taxpayer on borrowings used to carry on a regulated energy utility business in Canada. These previously announced exceptions would apply only where the borrowed funds were used directly by the taxpayer for eligible purposes.

Budget 2026 proposes to expand these previously announced exceptions to apply to the indirect use of a taxpayer’s borrowings. As such, the exceptions would also apply where borrowed funds are used for eligible purposes by a corporation, trust or partnership within the taxpayer’s affiliated group. The exceptions would also be available where eligible activities are carried on by a partnership in which the taxpayer, together with affiliated entities, owns at least a 40% interest.

Budget 2026 also proposes to expand the definition of a regulated energy utility business to include a business where the prices of all or substantially all of its products or services are: (i) established, approved or guaranteed by the government (including in respect of sales to Crown corporations); or (ii) established through a government-operated market that facilitates delivery for consumption or use in Canada.

These amendments are intended to apply retroactively to taxation years that begin on or after October 1, 2023.

Canadian Journalism Labour Tax Credit

Budget 2026 proposes to extend eligibility for the Canadian Journalism Labour Tax Credit (the “CJLTC”) to qualified Canadian journalism organizations (“QCJOs”) that produce audio and audiovisual news content, provided that all other conditions for the credit are satisfied.

The CJLTC provides QCJOs with a refundable tax credit equal to 35% of salary or wages paid to eligible newsroom employees, subject to a maximum qualifying labour expenditure of $85,000 per eligible employee. Budget 2026 proposes to extend the temporary 35% credit rate through December 31, 2028. The enhanced rate, which was increased from 25% in 2023, was previously scheduled to expire after December 31, 2026.

To qualify as an eligible newsroom employee, an employee would be required to spend at least 75% of their time producing, or engaging in the post-production of, original news content. Qualifying activities would include researching, collecting information, verifying facts, photography, recording or editing video or sound, writing, editing, designing, presenting news bulletins or segments and other activities related to the preparation or presentation of original news content. All other existing requirements for the CJLTC would continue to apply to audio and audiovisual news content.

The proposed measures would apply to eligible labour expenditures incurred on or after Budget Day.

Taxable Preferred Shares

The Income Tax Act (Canada) (the “ITA”) imposes a special tax under Part VI.1 on dividends paid on “taxable preferred shares” (generally, shares with debt-like characteristics) to prevent the erosion of corporate tax revenues through after-tax financing using such shares in lieu of debt. Part VI.1 tax permits a deduction in computing taxable income and applies only to dividends in excess of a $500,000 dividend allowance, which is reduced to the extent dividends paid in the prior calendar year exceeded $1,000,000.

Budget 2026 proposes to exempt CCPCs from the regime by treating dividends they pay as excluded dividends for Part VI.1 purposes. Budget 2026 also proposes to increase the dividend allowance from $500,000 to $1,500,000 and the threshold for the reduction of the allowance from $1,000,000 to $3,000,000.

The CCPC exemption would apply to dividends paid on or after Budget Day, and the increased allowance would apply to taxation years that end after 2026. The government is also reviewing the broader preferred share regime and invites written submissions by January 8, 2027.

Corporate Tax Elections

Budget 2026 proposes to eliminate the requirement to file certified corporate resolutions for certain elections, including capital dividend elections (T2054) and certain SR&ED-related elections. The measure would apply to elections made on or after royal assent of the enacting legislation.

Corporate Loss Transfers

Under the Canadian income tax system, corporations are taxed on a stand-alone basis. Subject to the rules in the ITA, a corporation may apply its non-capital losses against its own income, but it cannot directly deduct a loss incurred by another corporation.

Corporate groups may undertake transactions that effectively allow losses in one group member to offset income in another, such as amalgamations, wind-ups or intra-group financing transactions. However, these transactions can be complex, costly or unsuitable where separate corporate entities must be maintained for commercial or other non-tax reasons.

Budget 2026 announces the government’s intention to introduce a “corporate loss transfer rule,” which would permit corporations to transfer current-year non-capital losses to other corporations that fall within the same “qualifying corporate group” as the transferring corporation.

According to the announcement, the following corporations would be considered to belong to the same “qualifying corporate group”:

  • a parent corporation and a subsidiary corporation that is wholly owned, directly or indirectly, by the parent; and
  • subsidiary corporations wholly owned, directly or indirectly, by the same parent corporation.

Only corporations that are resident in Canada and subject to tax under Part I of the ITA would be eligible to transfer non-capital losses under the proposed corporate loss transfer rule. Certain types of corporations that are considered conduits for their shareholders or members (such as mutual fund corporations) would not be able to transfer or receive losses.

A corporation could transfer all or part of its current-year non-capital loss to an eligible transferee by filing a joint election with the transferee. The transferor’s non-capital loss would be reduced by the elected amount, and the transferee would be permitted to deduct that amount in computing its income for the relevant taxation year. Any portion not deducted by the transferee in that year would not be available for carryback or carryforward.

The proposed rule would apply only where the transferor and transferee each have a permanent establishment in only one province or territory, and both permanent establishments are located in the same province or territory. The government invites views on whether, and how, the rule could be broadened while protecting provincial and territorial tax bases.

Budget 2026 also identifies potential tax integrity concerns, including where a parent corporation benefits from losses transferred by a subsidiary while retaining tax cost in its shares of the subsidiary. The Department of Finance invites views on measures to address these concerns, such as adjustments to the tax cost of a group member’s shares or underlying assets.

The Department of Finance invites written submissions on the proposed corporate loss transfer rule by January 8, 2027.

Administrative Penalties

Several fixed-dollar penalties in the ITA, Excise Tax Act, Excise Act, 2001, Air Travellers Security Charge Act and Select Luxury Items Tax Act have not been adjusted since they were enacted. Budget 2026 proposes to increase most of them to broadly account for inflation since their enactment and to index them to inflation once every five years.

Budget 2026 also proposes to calibrate certain penalties based on the size of the taxpayer:

  • Individuals and small corporations and partnerships: base penalty amount.
  • Medium corporations (i.e., those that, together with related corporations, have more than $10 million and up to $50 million of taxable capital employed in Canada, with a CCPC treated as related only to corporations with which it is also associated) and medium partnerships (i.e., those with gross revenue of $2 million to under $10 million): three times the base penalty amount.
  • Large corporations (i.e., those that, together with related corporations, have more than $50 million of taxable capital employed in Canada, with a CCPC treated as related only to corporations with which it is also associated) and large partnerships (i.e., those with $10 million or more in gross revenue): eight times the base penalty amount.

Budget 2026 also proposes increased penalty levels for repeated failures to file tax forms and meet certain compliance obligations where the failure is not subject to a specific penalty. A penalty equal to twice the base amount would apply where a taxpayer has been liable for the base penalty for the same type of failure in any of the three preceding taxation years and has failed to remedy the current failure after being sent a notice, requirement or demand by the Canada Revenue Agency (the “CRA”). The penalty would be further increased in line with the penalty calibration rules for medium and large corporations and partnerships described above.

The foregoing measures would apply to taxation years, fiscal periods or reporting periods (as applicable) ending after 2027.

Budget 2026 proposes to amend the ITA to add penalties for failing to comply with certain duties or obligations imposed under the CRS, the Reporting Rules for Digital Platform Operators and the Crypto-Asset Reporting Framework, such as failing to obtain or validate self-certifications, failing to apply due diligence or review procedures, or failing to keep, maintain or retain records as required. These measures would apply to the 2028 and subsequent calendar years.

INTERNATIONAL TAX MEASURES

Common Reporting Standard

Canada’s rules implementing the CRS have been identified on peer review as departing from the global standard, which may create gaps that individuals could exploit to avoid financial account information reporting. For instance, certain investment and trading entities that are not represented or promoted to the public as investment vehicles are excluded from CRS due diligence and reporting requirements, and the manner in which the residency of a partnership is determined under domestic law results in fewer in-scope partnerships than would be the case under the model rules. Budget 2026 announces the government’s intention to consult on measures to strengthen Canada’s implementation of the CRS and invites views on how Canada’s CRS rules should be amended to bring them into line with the international standard provided in the model rules without imposing unnecessary compliance burdens. Written representations can be made to the Department of Finance by December 31, 2026.

Taxable Canadian Property

Reduction of Section 116 Remittance Rates for Corporate Vendors From 50% and 25% to 30% and 15%

Canada facilitates the collection of taxes payable by a non-resident vendor in connection with the disposition of TCP by imposing remittance obligations on the purchaser under section 116 of the ITA if the TCP is not “excluded property” and the non-resident vendor does not deliver a certificate of compliance issued by the CRA. A purchaser’s remittance obligation is fixed at 25% of the gross purchase price for TCP that is capital property other than certain specified property, and 50% of the gross purchase price for TCP that is specified property. To obtain a certificate of compliance, a non-resident vendor must generally remit an amount equal to 25% of its capital gain in respect of TCP that is capital property other than certain specified property, and otherwise an amount acceptable to the CRA (generally determined by reference to the income arising from the disposition and applicable income tax rates) for TCP that is specified property. The withholding and remittance rules generally do not account for the different income tax rates applicable to different types of taxpayers. As a result, the required remittances typically exceed the income tax payable by many non-resident corporate vendors. Budget 2026 proposes, where the non-resident vendor is a corporation, to reduce the purchaser and vendor remittance rates from 25% to 15% for capital property other than TCP that is specified property, and the purchaser’s remittance rate from 50% to 30% for TCP that is specified property. The reduced purchaser remittance rates would also apply where the purchaser, after reasonable inquiry, has no reason to believe that the non-resident vendor is not a corporation.

Exemption From Section 116 Remittance Regime for Section 85 Rollover Transactions

Budget 2026 proposes to exempt non-resident vendors and purchasers from the section 116 remittance regime for fully tax-deferred transfers of TCP completed under section 85 of the ITA, provided that the election form is filed and the purchaser provides a notice to the CRA setting out pertinent information within 30 days of the disposition.

Budget 2026 also proposes to strengthen an existing anti-avoidance rule that denies the tax-deferred rollover for TCP if, within three years after the rollover, there is a subsequent disposition of the transferred property or substituted property and one of the main purposes of the series was to benefit from an exemption from Canadian tax on that subsequent sale. The proposal would extend the three-year period to five years and ensure that a subsequent disposition of property that principally derives its value from the transferred property or substituted property is also subject to the rule.

The foregoing measures related to TCP would apply to dispositions that occur on or after January 1, 2027.

PERSONAL INCOME TAX MEASURES

2027 Canada Groceries and Essentials Benefit Supplement

Budget 2026 proposes a one-time supplement to the Canada Groceries and Essentials Benefit payable in early 2027, of up to $223 per adult and $117 per child.

Mineral Exploration Tax Credit and Critical Mineral Exploration Tax Credit

Flow-through shares allow corporations to renounce, or “flow through,” Canadian exploration expenses (“CEE”) and Canadian development expenses (“CDE”) to investors, who may deduct 100% of CEE and 30% of CDE on a declining-balance basis. The previously announced Productivity Mega Deduction would increase the CDE deduction rate to 100%.

Budget 2026 proposes to extend the 15% Mineral Exploration Tax Credit, in respect of specified mineral exploration expenses, and the 30% Critical Mineral Exploration Tax Credit (“CMETC”), in respect of specified critical mineral exploration expenses, by five years, to flow-through share agreements entered into on or before March 31, 2032 (from the current expiry date of March 31, 2027). In addition, Budget 2026 proposes to expand the CMETC to include antimony as an eligible critical mineral for flow-through share agreements entered into after Budget Day and on or before March 31, 2032.

Support for Canadians With Disabilities and Their Families

Budget 2026 proposes several benefits for Canadians with disabilities and their families.

Canada Caregiver Credit

The Canada Caregiver Credit (“CCC”) is a tax credit designed to assist people who support family members with a mental or physical disability. The spouse, child, parent or grandparent, sibling, aunt, uncle, niece or nephew who provides ongoing support to a person with disabilities may be able to claim the credit where they provide basic necessities, such as living expenses, housing, food, transportation and daily costs, to the disabled family member. The CCC is currently a non-refundable credit. Budget 2026 proposes to make the CCC refundable, such that a caregiver who qualifies for the CCC and has little or no tax payable (for example, because family responsibilities limit their ability to work) may be entitled to the full amount of the CCC as a refund. This measure would apply to the 2027 and subsequent taxation years.

Registered Disability Savings Plan

The ITA permits parents of a disabled minor child or adult child who is mentally incapable to open a Registered Disability Savings Plan (“RDSP”) for the child. In addition, if an RDSP was opened while the child was a minor, the parent can continue to be a joint holder of the RDSP for an adult child who has capacity. Temporary measures have been in place to permit “qualifying family members” (a parent, spouse or common-law partner, or sibling) to be the holder of an RDSP where the disabled person is mentally incapable, thereby bypassing the requirement to become a “legal guardian.” Budget 2026 proposes to permanently allow qualifying family members to open and hold an RDSP for an adult whose capacity to enter into an RDSP contract is in doubt and who does not have a legal representative.

Medical Expense Tax Credit and Disability Supports Deduction

Budget 2026 proposes simplified documentation requirements and optional flat amounts for certain medical expenses, including $1,000 for gluten-free foods (applicable to 2026 and subsequent taxation years), $500 for incontinence products and $2,000 for annual service dog expenses (applicable to the 2027 and subsequent taxation years).

Canada Growth Incentive – Capital Gains Exemption

Budget 2026 proposes the new CGI, providing a $15-million capital gains exemption for Canadian-resident qualifying individuals on dispositions of qualifying shares of a qualifying corporation. The CGI would apply to shares issued on or after Budget Day and before 2037 and would be available separately to each qualifying individual in respect of each business.

A qualifying individual must be at least 18 years old when the shares are acquired, be resident in Canada throughout the year the exemption is claimed and not be a trust. Qualifying shares must be issued by the qualifying corporation to, and owned directly by, the individual (or a partnership of which the individual is a member at the time the partnership acquires the shares). A qualifying business generally means an active business, excluding consulting businesses, professional practices of accountants, lawyers, notaries, physicians, other health-care practitioners, engineers and architects, businesses whose principal asset is the reputation or skill of one or more employees, businesses operating under a licensing or franchising agreement and businesses operating in the agricultural, fishing, forestry, mining, financial, insurance, utilities, real estate, food and accommodation, arts, recreation or entertainment sectors.

Among other requirements, qualifying shares must be shares issued by a CCPC solely for cash or in exchange for employment services provided by the individual to the corporation and must have been held for at least 36 consecutive months immediately before the disposition. At the time of issuance, all or substantially all of the fair market value of the corporation’s assets must be attributable to assets used, or reasonably intended to be used within 36 months, principally in a qualifying business carried on primarily in Canada. Throughout the holding period, 50% or more of the fair market value of the corporation’s assets must be attributable to assets used, or reasonably intended to be used, principally in a qualifying business, and the qualifying business must be carried on primarily in Canada for at least 24 consecutive months immediately following issuance. At the time of disposition, the corporation must be a Canadian-resident private corporation or a public corporation listed on a designated Canadian stock exchange, and all or substantially all of the fair market value of its assets must be attributable to assets used principally in a qualifying business. Immediately before and after the share issuance, the combined carrying value of the assets of the corporation and related corporations must not exceed $100 million.

Gains sheltered by the CGI exemption would be subject to a 30% inclusion rate for Alternative Minimum Tax purposes. Claiming the CGI would also restrict an individual’s ability to claim the Lifetime Capital Gains Exemption on shares of the same corporation, and vice versa.

Canada Growth Incentive – Rollover for Investments in Small Businesses

The ITA currently permits individuals to defer capital gains realized on a qualifying disposition of eligible small business corporation (“ESBC”) shares to the extent that the proceeds are reinvested in replacement ESBC shares within the prescribed period. Budget 2026 proposes to relax several of the existing requirements with changes taking effect January 1, 2027.

Budget 2026 proposes to extend the replacement-share acquisition period to include the year of disposition and the following three calendar years, with deferred gains recognized as the replacement period expires. Where an investor enters into a qualifying future equity arrangement, such as a Simple Agreement for Future Equity (SAFE), the period could extend by an additional two years.

The proposals also reduce the active business asset threshold from “all or substantially all” to “primarily,” although the “all or substantially all” threshold would continue to apply at the time of issuance and disposition of the shares.

Instalment Payments for Individuals and Corporations

Budget 2026 proposes to increase the tax instalment threshold from $3,000 to $7,500 for corporations and individuals resident outside Quebec, and from $1,800 to $4,500 for individuals resident in Quebec. The thresholds would be indexed to inflation and rounded to the nearest $500. Any remaining tax payable would be due on the applicable balance-due date. Individuals whose primary source of income is from a business (including professional or commission income) would also be permitted to make a single annual instalment equal to two-thirds of their net tax owing by December 31.

These measures would apply to taxation years that begin on or after January 1, 2028.

Income Tax Return Filing and Balance-Due Dates for Individuals

Budget 2026 proposes to move the T1 filing and balance-due dates for the 2027 and subsequent taxation years to May 15 for all individuals, including self-employed individuals and their spouses or common-law partners. For self-employed individuals, this would accelerate the current June 15 filing deadline.

Northern Residents Deductions

Budget 2026 proposes to expand the residency and travel deductions for northern residents by removing certain existing income and employer-benefit limitations. The changes would apply beginning in the 2027 taxation year.

Expansion of the Intergenerational Farm and Fishing Property Rollover

Budget 2026 proposes to expand the tax-deferred rollover available for certain intergenerational transfers of farm and fishing property to include qualifying transfers to a niece, nephew, grandniece or grandnephew of the taxpayer or the taxpayer’s spouse or common-law partner. This measure would apply to transfers that occur on or after January 1, 2027.

Optional Flat Amounts for Personal Income Tax Deductions and Credits

Budget 2026 proposes to introduce optional flat-amount calculation methods for the following deductions and credits. These measures would apply to the 2027 and subsequent taxation years:

  • Moving Expense: Optional $1,000 flat moving expense deduction for eligible relocations, eliminating the need to track and claim actual moving expenses;
  • Clergy Residence Deduction: Optional $1,000 monthly flat deduction, up to $12,000 annually, for individuals eligible for the Clergy Residence Deduction;
  • Labour Mobility Deduction for Tradespeople: Optional $1,500 annual flat deduction for eligible construction tradespeople and apprentices who temporarily relocate for work;
  • Home Accessibility Tax Credit: Optional one-time $1,000 flat-expense amount for eligible Home Accessibility Tax Credit claims, instead of claiming actual expenses incurred, subject to conditions; and
  • Adoption Expense Tax Credit: Optional $1,200 flat expense amount per adopted child in the year an adoption is completed.

Foreign Income Verification Statement – Form T1135

Budget 2026 proposes to increase the specified foreign property threshold for filing Form T1135 from $100,000 to $200,000. The simplified reporting threshold would also increase from less than $250,000 to less than $500,000. These measures would apply to taxation years or fiscal periods that end after 2026.

Apprentice Vehicle Mechanics’ Tools Deduction

Budget 2026 proposes to simplify and expand the tool expense deduction for apprentice vehicle mechanics, effective for 2027 and subsequent taxation years.

Deductibility of Expenses Against Commission Income

Budget 2026 proposes to allow commission employees to claim travel and motor vehicle expenses under the general employee rules while also claiming other expenses under the commission-employee rules, effective for 2027 and subsequent taxation years.

Lump-Sum Thresholds for Periodic Payment of Benefits

Budget 2026 proposes to increase the threshold for lump-sum payments of the Canada Child Benefit and the Canada Groceries and Essentials Benefit to $50 (from $20) per month and $70 (from $50) per quarter, respectively, for benefits paid after June 2027.

Scholarship, Fellowship and Bursary Income

Budget 2026 proposes to allow students receiving employer or other arm’s-length financial assistance to remain eligible for the scholarship, fellowship and bursary exemption, effective for 2027 and subsequent taxation years.

Deductibility of Expenses by Employed Artists

Budget 2026 proposes to replace the existing caps and increase the deduction limit for employed artists to their employment income from specified artistic activities, effective for 2027 and subsequent taxation years.

Volunteer Firefighters and Search and Rescue Volunteers Tax Credit

Budget 2026 proposes to combine the existing Volunteer Firefighters and Search and Rescue Volunteers tax credits into a single 14% non-refundable credit calculated on the amount of $6,000, allowing eligible volunteer hours to be combined toward the 200-hour requirement, effective for 2027 and subsequent taxation years.

Excess Corporate Holdings Regime for Private Foundations

Budget 2026 proposes to simplify the rules governing corporate shareholdings by private foundations by eliminating the existing percentage-based limits, together with the associated calculation, tracking, reporting and divestiture requirements, and replacing them with a simpler rule that would prohibit private foundations from acquiring control of a corporation, consistent with the rule currently applicable to public foundations. This measure would apply to taxation years that begin on or after January 1, 2027.

Objections to Assessments

Budget 2026 proposes to extend the objection deadline for most taxpayers from 90 days to one year after a notice of (re)assessment is sent. Individuals and graduated rate estates would have until the later of that date and two years after their filing due date. The existing ability to apply for a discretionary extension of time to object would be eliminated for most (re)assessments. The new rules would apply to assessments sent on or after the day that is three months after royal assent.

Disclosure of Tax Debt to Credit Bureaus

Budget 2026 proposes to permit the CRA to disclose certain tax debts to credit bureaus to support the collection of outstanding tax debts and improve assessments of credit risk. The proposed measure would apply where a taxpayer owes more than $50,000, the debt is not under objection or appeal and the applicable appeal periods have expired, and the CRA has provided the required notice, taken reasonable collection steps and given the taxpayer an opportunity to make reasonable repayment arrangements. Similar changes are proposed for GST/HST debts under the Excise Tax Act.

Trust Distributions to Non-Residents

The ITA currently restricts the ability of personal trusts to distribute property (other than certain properties that remain subject to Canadian tax) to non-resident beneficiaries on a tax-deferred basis. Budget 2026 proposes to broaden this restriction. A tax-deferred rollout would also be denied where a personal trust distributes any property to a corporation resident in Canada or a partnership, in which any share or interest is held, directly or indirectly in any manner whatsoever, by a non-resident person. No de minimis exception is proposed. This measure would apply to distributions of property that occur on or after Budget Day.

Information Sharing – Pension Administrators

The ITA currently does not permit the CRA to confirm a plan member’s death to a pension plan administrator, even where the CRA has information indicating that the member is deceased. Budget 2026 proposes to permit the CRA to provide this confirmation, helping pension administrators identify and pay survivor benefits to eligible spouses and other beneficiaries on a timely basis.

Registered Retirement Savings Plan (“RRSP”) Modernization and Registered Pension Plans

Budget 2026 announces the government’s intention to update the RRSP rules to allow an RRSP to continue as an “RRSP for life,” without conversion to a registered retirement income fund (“RRIF”) at age 71. Contributions would still cease after that year, with minimum annual withdrawals beginning at age 72.

The accompanying draft legislation would also introduce greater flexibility on death. A surviving spouse or common-law partner designated under the plan could become the successor holder. Alternatively, qualifying amounts could be transferred tax-deferred to a surviving spouse or partner, or certain financially dependent children or grandchildren, through a registered plan or qualifying annuity, provided the applicable conditions are met.

The government invites written submissions on the proposal by January 8, 2027. No effective date has yet been specified.

Individual Pension Plans

Individual pension plans (“IPPs”) are subject to additional tax rules because they generally provide pension benefits to owner-managers and other individuals who do not deal at arm’s length with the sponsoring employer. Budget 2026 proposes three measures to strengthen these rules:

  • Expanded definition of an IPP: The definition would be broadened to prevent plans from avoiding IPP status simply by adding related or non-arm’s-length members. A defined benefit registered pension plan would generally qualify as an IPP where all members are either related to a participating employer or do not deal at arm’s length with a member who is related to a participating employer. This change would apply beginning January 1, 2027.
  • Non-qualified investments: IPPs would become subject to the advantage, prohibited investment and non-qualified investment rules that currently apply to individually held registered plans such as RRSPs, RRIFs and TFSAs. A controlling individual could therefore be subject to tax equal to 50% of the fair market value of a prohibited or non-qualified investment acquired by the IPP or 100% of the value of an advantage in relation to the IPP. This change would apply beginning January 1, 2028, with transitional rules for existing investments.
  • Excessive pension surplus: A new registration condition would address IPPs accumulating substantially more assets than are required to fund their pension obligations. Where an IPP’s assets exceed 200% of its pension liabilities, the IPP would become a revocable plan. The CRA would be required to give at least 30 days’ notice before revocation, providing an opportunity to reduce the surplus, such as by withdrawing excess amounts and restoring compliance. This change would apply beginning January 1, 2028.

Registered Pension Plans – Consequences of Revocation

A registered pension plan that fails to comply with applicable registration conditions may become a revocable plan and ultimately have its registration revoked. Budget 2026 proposes to expressly specify the tax consequences of revocation, applicable to revocations after 2026.

Under the proposed rules:

  • the revoked plan would generally be subject to a special tax equal to 10% of the fair market value of its property immediately before revocation, subject to the CRA’s ability to waive or cancel the tax;
  • the plan would be deemed to be a retirement compensation arrangement (“RCA”); and
  • an amount equal to the fair market value of the plan’s property, less any revocation tax assessed, would be deemed to have been contributed to the RCA, triggering the applicable 50% refundable tax.

Build Canada Workers Benefit

Budget 2026 proposes to enhance and rename the Canada Workers Benefit, while phasing out advance payments, effective for 2027 and subsequent taxation years.

SALES AND EXCISE TAX MEASURES

Health-Care Measures

Budget 2026 proposes the following health-care changes, which would apply to supplies made after Budget Day:

  • Qualifying massage therapy services would be exempt: Qualifying massage therapists would be added to the list of health-care practitioners whose professional services are exempt from the GST/HST. Qualifying massage therapy services would generally be exempt if they are supplied by a person who practises the profession of massage therapy and either of the following conditions is met:
    • where the person is required to be licensed or certified to practise the profession in the province in which the service is supplied, the person is so licensed; or
    • where the person is not required to be licensed or certified to practise the profession in that province, the person has qualifications equivalent to those in “licensed” provinces.
  • Alternating electric field therapy devices would be zero-rated: Devices that are designed for alternating electric field therapy for use by an individual with cancer would be added to the list of medical devices eligible for zero-rating under the GST/HST. An alternating electric field therapy device to treat glioblastoma multiforme, an aggressive form of brain cancer, is approved by Health Canada for use in Canada.

New Pre-Approval Regime for ITC Allocation Methodology for Financial Institutions

Certain large financial institutions are permitted to use their own GST/HST input tax credit (“ITC”) allocation methods for a given fiscal year if they obtain approval in advance from the Minister of Finance. Currently, this pre-approval must be requested every fiscal year. Budget 2026 proposes to amend the Excise Tax Act to allow these financial institutions to apply for pre-approval of their ITC allocation methods for three consecutive fiscal years, rather than for only one fiscal year. In the case of a three-year application, the Minister of Finance could approve the method for all three years or for the first fiscal year only (e.g., where the proposed method is novel). This measure would apply in respect of fiscal years of a financial institution beginning after June 30, 2027.

Other Sales Tax and Technical Measures

Budget 2026 also includes a set of sales and excise tax measures that are largely technical but will be relevant to importers, cannabis and spirits licensees, and fuel businesses. The broadest change modernizes the Excise Tax Act references to customs commodity codes and Customs Tariff regulations, which have not been updated since Canada overhauled its customs framework in 1998. For most goods, the existing GST/HST and excise relief would remain unchanged. In several areas, however, relief would expand to match current customs rules and commercial practice.

OTHER TAX MEASURES

Indigenous Tax Jurisdiction Arrangements

Budget 2026 proposes enhancements to First Nations Personal Income Tax and First Nations Goods and Services Tax arrangements, pursuant to which participating Indigenous governments levy their own personal income and sales taxes within their lands.

Budget 2026 proposes to increase First Nations Personal Income Tax revenue-sharing from 95% to 99% of the tax revenues attributable to the participating government. Budget 2026 further proposes to revise the revenue-sharing mechanism applicable to these arrangements, although it does not describe how the mechanism would operate.

In addition, with regard to First Nations Goods and Services Tax arrangements, Budget 2026 proposes an annual ceiling on participating Indigenous governments’ share of the cost of the Canada Groceries and Essentials Benefit. This ceiling is intended to provide greater revenue stability.

The draft legislation released with Budget 2026 does not directly implement either of these proposed enhancements. Instead, the proposed enhancements would be implemented through negotiations between the Government of Canada and interested Indigenous governments.

Ministerial Delegations

Budget 2026 proposes to give ministers new authority over a number of technical and administrative matters that require routine updating. Some matters would be designated by a minister rather than prescribed in regulations, and others would no longer require Governor in Council approval.

Income Tax Matters

Budget 2026 proposes to amend the ITA so that the following matters are designated to ministerial authority:

  • Automobile limits and rates: Beginning in the 2026 calendar year, the Minister of Finance would have the authority to designate the limits and rates applicable to certain deductions and benefits associated with the business use of an automobile, including a new “designated automobile amount” to several ITA provisions that currently use fixed amounts. Such amounts would be published annually.
  • Foreign spin-off distributions: The Minister of National Revenue, with the concurrence of the Minister of Finance, would have the authority to designate and publish eligible distributions for the purposes of the foreign spin-off rules, applicable to distributions on or after Budget Day.
  • Charities and qualified donees: The Minister of National Revenue would have the authority to designate certain administrative requirements for charities and other qualified donees, including the content of donation receipts and which organizations will be considered “prescribed donees.” These changes would become effective 90 days after royal assent. Additionally, Budget 2026 proposes to streamline the approval process for foreign charities by removing the requirement for the Minister of National Revenue to consult with the Minister of Finance before registering a foreign charity as a qualified donee.
  • Livestock tax deferral regions: The Minister of Finance, in consultation with the Minister of Agriculture and Agri-Food, would have the authority to publish annual lists of drought, flood and excessive moisture regions that would each be eligible for the livestock tax deferral. If enacted, this authority would apply as of 2025.

Sales Tax & Excise Duty Agreements With Provinces and Territories

Budget 2026 proposes to give the Minister of Finance the authority to approve amendments to sales tax harmonization agreements, coordinated cannabis taxation agreements and coordinated vaping product taxation agreements entered into under the Federal-Provincial Fiscal Arrangements Act (the “FPFAA”). The proposed amendments would also give the Minister of Finance the authority to approve related amendments to regulations that implement provincial or territorial policy decisions permitted under such agreements.

Tax Administration Agreements With Provinces, Territories and Indigenous Governments

The government has agreements in place with provinces and territories related to the collection and administration of income tax. It also has tax administration agreements with Indigenous governments that allow them to levy their own personal income taxes or value-added sales taxes within their lands.

Budget 2026 includes proposed changes to the FPFAA and the First Nations Goods and Services Tax Act that would remove the requirement for the Governor in Council to approve such agreements before the Minister of Finance or the Minister of National Revenue can amend them or enter into new agreements with Indigenous governments.

PREVIOUSLY ANNOUNCED MEASURES

Budget 2026 reaffirms the government’s commitment to proceed with a number of previously announced tax measures, including:

  • Legislative and regulatory proposals released on September 15, 2026, to implement the Productivity Mega Deduction.
  • Legislative and regulatory proposals including measures related to, among other things:
    • Investment tax credit for carbon capture, utilization and storage;
    • Investment income derived from assets supporting Canadian insurance risks;
    • Transfer pricing;
    • Hybrid mismatch arrangements;
    • GST/HST reverse charge mechanisms;
    • Technical amendments to the ITA and the Regulations, the Global Minimum Tax Act, the Excise Tax Act and others; and
  • Legislative proposals to implement reporting requirements for non-profit organizations.

The Tax Group at Aird & Berlis LLP will continue to monitor developments related to Budget 2026. Please contact a member of the group if you have questions or require assistance.