Canada's Budget 2026 introduces key business tax measures, including expanded investment tax credits, a CAD 15 million capital gains exemption, revised interest deductibility rules, and lower withholding rates on taxable Canadian property. The budget also advances transfer pricing and global minimum tax reforms, updates GST/HST and excise rules, and introduces changes to tax compliance and reporting requirements.

RF Report

Following the release of the 2026 Budget on 5 November 2026, Canada’s Department of Finance has outlined a wide-ranging package of tax measures affecting businesses, investors and individuals.

Building on our earlier coverage of the Budget, this article takes a closer look at the proposed corporate and international tax changes, including extensions to clean energy investment tax credits, reforms to the excessive interest and financing expenses limitation (EIFEL) rules, changes to Part VI.1 tax, and developments in transfer pricing and global minimum tax legislation.

It also examines measures affecting capital gains, cross-border transactions, GST/HST, customs and excise duties, and tax compliance requirements.

The key business income tax measures are summarised below:

Corporate and business tax measures

  • Clean electricity and clean technology investment tax credits: The federal government is extending the eligibility period for both the Clean Electricity investment tax credit (up to 15%) and the Clean Technology investment tax credit (up to 30%) to qualifying property that becomes available for use before 1 January 2041. The Clean Technology credit rate will step down to 15% for property becoming available for use during calendar year 2040 instead of the previously scheduled 2034 sunset.
  • Scientific research and experimental development (SR&ED): Under the SR&ED regime, qualifying expenditures are 100% deductible in the year incurred and earn investment tax credits at a general rate of 15% or an enhanced rate of 35% for eligible SMEs.
  • Relief for affiliated groups: The government proposes to expand the exceptions to the EIFEL rules, which limit net interest deductions in line with OECD/G20 standards, to include purpose-built rental housing and regulated energy utilities.
  • Indirect borrowing coverage: The exceptions will now cover interest on borrowings deployed across corporate groups, including partnerships where the borrower holds at least a 40% interest. These revisions apply retroactively to taxation years beginning on or after 1 October 2023.
  • Relief from Part VI.1 tax: Canadian-controlled private corporations (CCPCs) are fully exempted from Part VI.1 tax on dividends paid on taxable preferred shares on or after Budget Day. For other corporations, the annual dividend allowance rises from CAD 500,000 to CAD 1,500,000, with the phase-out threshold increasing from CAD 1,000,000 to CAD 3,000,000 for taxation years ending after 31 December 2026.
  • Intra-group loss transfer consultation: The Department of Finance is consulting on allowing wholly owned corporate groups to transfer current-year non-capital losses between parent and subsidiary entities within the same province or territory, with submissions due by 8 January 2027.
  • Tiered liability by firm size: Starting in taxation years and fiscal periods ending after 31 December 2027, fixed-dollar administrative penalties will be multiplied by three times for medium corporations (taxable capital between CAD 10 million and CAD 50 million) and eight times for large corporations (taxable capital exceeding CAD 50 million). Similar multipliers apply to partnerships with gross revenues above CAD 2 million and CAD 10 million, respectively.

International tax and transfer pricing

  • Transfer pricing and global minimum tax: The Department of Finance reaffirmed its commitment to enact legislative proposals initially released on 23 July 2026, which overhaul domestic transfer pricing rules and advance technical amendments to the Global Minimum Tax Act and anti-hybrid mismatch arrangements.
  • Taxable Canadian property (TCP) withholding: Reduces the tax withholding required from purchasers when non-residents sell Canadian property. For corporate vendors, the rates fall from 25% to 15% for general capital property and from 50% to 30% for specified TCP, including depreciable real estate and resource property, effective 1 January 2027.
  • Tax-deferred section 85 rollovers: Exempts qualifying non-resident section 85 transfers of TCP from clearance certificate withholding, subject to CRA notification within 30 days, and extends the anti-avoidance look-back period from three to five years.
  • Trust distributions to non-residents: Prohibits tax-deferred trust property transfers to corporations or partnerships with direct or indirect foreign owners from Budget Day.
  • Common reporting standard (CRS) review: Launches consultations until 31 December 2026 to align Canadian rules on non-public investment entities and partnership residency with OECD standards.

The Canada growth incentive

  • CAD 15-million capital gains exemption: The authorities are creating a cumulative CAD 15-million tax exemption on capital gains realised by Canadian-resident individuals from the sale of qualifying shares in eligible private corporations carrying on active businesses in Canada. Corporations must hold combined asset carrying values of no more than CAD 100 million at issuance, and shares must be held for a minimum of 36 consecutive months.
  • Alternative minimum tax (AMT) treatment: Exempted gains will face an AMT inclusion rate of 30%. The incentive applies to shares issued between Budget Day and 31 December 2036.
  • Reinvestment rollover extension: For small business share rollovers, the window to acquire replacement shares is extended from the year of disposition plus one calendar year to the year of disposition plus three calendar years (and up to five calendar years when using simple agreements for future equity, or SAFEs) for dispositions occurring on or after 1 January 2027.

Value-added tax (GST/HST) measures

  • Massage therapy tax exemption: Professional services rendered by qualifying licensed or certified massage therapists are exempt from the Goods and Services Tax/Harmonized Sales Tax (GST/HST) for supplies delivered after Budget Day.
  • Zero-rating cancer therapy medical equipment: Alternating electric field therapy devices designed for cancer treatment (including glioblastoma therapy) will be zero-rated (0% tax rate) under GST/HST schedules for supplies made after Budget Day.
  • Multi-year allocation for financial institutions: Large financial institutions balancing taxable and exempt financial supplies may apply for ministerial pre-approval of their Input Tax Credit (ITC) allocation methods for up to three consecutive fiscal years (rather than applying annually), effective for fiscal years beginning after 30 June 2027.
  • Standardised commercial container relief: Outdated pre-1998 customs references are being overhauled, allowing GST/HST relief on imported cargo containers with a minimum internal capacity of 1 cubic metre (down from 14 cubic metres) exported within 365 days (up from 30 days), effective the first day of the second month following royal assent.

Property taxes and real estate provisions

  • Purpose-built rental debt exceptions: Provides full EIFEL interest deduction exemptions for group-level borrowings used to build or acquire purpose-built rental housing in Canada, effective retroactively from 1 October 2023.
  • Intergenerational agricultural and fishing land rollovers: Expands tax-deferred transfers of family farm and fishing property to include nieces, nephews, grandnieces and grandnephews from 1 January 2027.
  • Cross-border real estate dispositions: Reduces withholding rates on Canadian real property sold by non-resident corporations from 25% to 15% and from 50% to 30% for specified properties, effective 1 January 2027.

Excise duties, customs duties, and specialty levies

  • Cannabis excise duty stamping: The government introduces a universal cannabis excise stamp from 1 January 2028 for jurisdictions with identical duty rates, allowing licensed producers to use a common stamp across participating provinces and territories.
  • Dual stamping will be permitted until 30 June 2029, with existing retail inventory allowed to sell through until 31 December 2029. Unauthorised interprovincial shipments will attract a penalty equal to 200% of the duty, while unaccounted inventory will face a penalty of twice the payable duty.
  • Spirits and fuel excise licensing: The government requires excise warehouse licensees holding non-duty-paid packaged spirits to provide financial security to the CRA ranging from CAD 5,000 to CAD 2 million, based on monthly liability. It also expands wholesale fuel licensing to ordinary commercial resellers and provides licensed manufacturers with relief from double taxation on fuel resales. Manufacturers that experienced double taxation between 1 January 2017 and Budget Day may claim refunds within two years of royal assent.
  • Harmonised customs tariff modernisations: The government updates outdated HS codes and customs regulations referenced in the Excise Tax Act, while maintaining duty relief for international bridge and tunnel authorities, extending temporary importation relief from 12 to 18 months, clarifying motor vehicle definitions to exclude electric cycles and wheelchairs, and introducing a simplified duty assessment for foreign railway equipment based on 1/120th of its duty value. These changes take effect on the first day of the second month after royal assent.

Support for workers, families, and caregivers

  • Build Canada Workers Benefit: Lowers the minimum earnings threshold to CAD 500 for 2027, increases maximum benefits to CAD 1,859 for single workers and CAD 3,143 for families, and reduces advance payments to 25% in 2027 before eliminating them in 2028.
  • Refundable caregiver credit: Makes the Canada Caregiver Credit fully refundable from 2027, providing up to CAD 1,260 for adult relatives and CAD 394 for spouses or minor dependants.
  • One-time essentials supplement: Provides a one-time payment in early 2027 of up to CAD 223 per adult and CAD 117 per child under the Canada Groceries and Essentials Benefit.

Filing dates, instalments, and foreign reporting

  • Harmonised 15 May tax deadline: Beginning in the 2027 taxation year, annual T1 personal tax return filing deadlines and balance-due payment dates will be standardised to 15 May for all taxpayers.
  • Instalment threshold increases: Effective for taxation years beginning on or after 1 January 2028, the threshold requiring quarterly tax instalments rises from CAD 3,000 to CAD 7,500 for individuals and corporations nationwide (and from CAD 1,800 to CAD 4,500 for Quebec residents). Individuals with business income can make a single annual instalment of two-thirds of their net tax by 31 December.
  • Foreign property verification (form T1135): For reporting periods ending after 31 December 2026, the reporting threshold for specified foreign property doubles from CAD 100,000 to CAD 200,000, while the ceiling for simplified reporting rises from CAD 250,000 to CAD 500,000.