Canada has proposed technical changes to the Global Minimum Tax Act to refine the definition of "deduction/non-inclusion arrangements", with the consultation remaining open until 4 September 2026.
The Department of Finance Canada has launched a consultation on draft amendments to the Global Minimum Tax Act that would update the definition of a “deduction/non-inclusion arrangement” under subsection 47(1).
The Department of Finance Canada has published draft legislative proposals to amend the definition of a “deduction/non-inclusion arrangement” under subsection 47(1) of the Global Minimum Tax Act as part of a wider consultation on tax legislation.
The proposals, published on 23 July 2026, would introduce technical changes to the definition used in the Act and are intended to apply to the fiscal years of qualifying Multinational Enterprise (MNE) groups beginning on or after 31 December 2023.
Updated definition proposed
Under the draft legislation, a “deduction/non-inclusion arrangement” would mean an arrangement entered into after 15 December 2022 in which one constituent entity of an MNE group provides credit to, or makes an investment in, another constituent entity within the same group.
The arrangement would fall within the definition where it results in an expense or loss in the financial statements of a constituent entity and meets specified conditions relating to revenue recognition and taxable income.
Conditions for qualification
The proposed definition provides that an arrangement would qualify where the expense or loss does not give rise to a commensurate increase in revenue or gain in the financial statements of the constituent entity providing the credit or investment.
In addition, the entity providing the credit or investment must not be reasonably expected to have a commensurate increase in its taxable income over the entire life of the arrangement.
Banking sector exclusion
The draft amendment would continue to exclude expenses or losses that are solely related to qualifying tier one capital issued to satisfy regulatory requirements in the banking sector.
Part of wider legislative package
According to the legislative proposals, the amendment is intended to replace the existing definition in subsection 47(1) of the Global Minimum Tax Act. The package has also been drafted to take into account the potential royal assent of Bill C-31, A second Act to implement certain provisions of the budget tabled in Parliament on 4 November 2025.
If enacted, the revised definition would apply to fiscal years of qualifying MNE groups beginning on or after 31 December 2023.
Stakeholders may submit comments on the consultation until 4 September 2026.
