Canada tables bill introducing budget measures, includes amendments to Global Minimum Tax Act

Canada has introduced its Budget 2025 Implementation Act, No. 2, setting out wide-ranging tax and fiscal reforms, including key amendments to the Global Minimum Tax Act to align with the OECD’s Pillar Two framework. The bill also advances clean economy incentives, strengthens compliance and anti-avoidance rules, and updates regimes for digital assets, indirect taxes, and personal taxation.

Canada’s Department of Finance has tabled the Notice of Ways and Means Motion to introduce a bill entitled A second Act to implement certain provisions of the budget in Parliament on 4 November 2025.

The bill introduces a range of measures, including significant amendments to the Global Minimum Tax Act. Additionally, this comprehensive bill introduces sweeping changes to Canada’s fiscal landscape, ranging from green energy incentives and corporate restructuring to updated rules for digital assets and personal tax compliance.

The Budget 2025 Implementation Act, No. 2, introduces significant amendments to the Global Minimum Tax Act (GMTA), primarily to further align Canadian law with the OECD’s Pillar Two global minimum tax framework and ensure a minimum effective tax rate of 15% for large multinational enterprises (MNEs).

Corporate tax and green economy initiatives

The legislation places a significant focus on driving investment into the “clean economy” through various tax credit frameworks. A primary update involves the Clean Hydrogen Investment Tax Credit, which now includes specific provisions for hydrogen produced through pyrolysis. To remain eligible, projects using pyrolysis must meet an “actual hydrogen use percentage” of at least 90%; if the project consumes 50% or more of its own hydrogen, its carbon intensity is deemed too high to qualify for the full credit.

For traditional sectors, the bill introduces a manufacturing building recapture event. If a taxpayer deducts costs for a manufacturing building but begins using more than 10% of its floor space for non-manufacturing purposes within 10 calendar years, they are deemed to have disposed of and reacquired the property, triggering a tax adjustment. This measure is deemed to have come into force on 4 November 2025.

Additionally, it addresses staggered year ends and inter-corporate dividend refunds to prevent tax avoidance. In certain scenarios where a dividend is “suspended,” a multiplier of 2.6 is applied to determine the portion of the refund that must be paid out to avoid the suspension.

These rules apply to dividends paid in taxation years beginning on or after 4 November 2025.

Introduction of the undertaxed profits rule (UTPR)

The most notable amendment is the addition of Part 2.1, which establishes the legislative framework for the Undertaxed Profits Rule (UTPR).

A person must pay a tax in respect of a constituent entity of an MNE group located in Canada equal to the Canadian UTPR top-up amount for the fiscal year. The Canadian UTPR top-up amount is determined by a specific formula: 50% of the ratio of Canadian employees to total employees in UTPR jurisdictions, plus 50% of the ratio of the net book value of Canadian tangible assets to total tangible assets in those jurisdictions.

The total UTPR top-up amount is deemed to be nil for MNE groups in their initial phase of international activity, provided the fiscal year begins on or before five years after the first day a constituent entity was subject to a qualified UTPR.

Expanded definitions and new entity classes

The amendments introduce and refine several key definitions essential for calculating top-up tax:

• Private investment entities: A new definition is added for entities located in Canada that are not listed on securities markets but hold controlling interests in Canadian subsidiary public companies. The Act introduces de-consolidation rules for these entities to prevent material competitive distortions.
• Securitisation entities: Defined as participants in arrangements designed to pool and repackage asset portfolios for investors outside the MNE group while limiting insolvency risk through contractual segregations.
• Unclaimed accruals: This definition is updated to include increases in deferred tax liabilities that a filing constituent entity elects not to include in its total deferred tax adjustment amount.

Safe harbour provisions

The legislation introduces several new “safe harbour” regimes to simplify compliance:

• Side-by-Side safe harbour: Deems the top-up amount to be nil for constituent entities if the ultimate parent entity is in a jurisdiction with a qualified side-by-side regime.
• Ultimate parent entity (UPE) safe harbour: Applies to constituent entities located in the same jurisdiction as the UPE, provided that jurisdiction has a qualified UPE regime.
• Transitional UTPR safe harbour: If elected, the top-up amount for entities in the UPE jurisdiction is deemed nil for UTPR purposes if that jurisdiction has a corporate income tax rate of at least 20%. This applies to fiscal years beginning before 1 January 2026.

Deferred tax and transition rules

Specific rules govern how deferred tax assets and liabilities are handled during the transition to the global minimum tax:

• Pre-GloBE arrangements: A “pre-GloBE arrangement deferred tax asset” is defined for assets attributable to tax credits or elections made on or before 18 November 2024.
• Grace period: A five-year grace period allows certain deferred tax expenses to be taken into account for calculating adjusted covered taxes, subject to a specific formula that limits the impact to 20% increments.
• Anti-acceleration: Amendments prevent the acceleration of tax benefits by excluding deferred tax expenses arising from changes in law or accounting methodology after 18 November 2024.

Personal tax, trusts, and automated filing

For individual taxpayers, the Act introduces measures designed to simplify compliance and update benefit eligibility. A notable shift is the introduction of automated filing. The Minister of National Revenue may now file a return on behalf of a resident individual if they have not filed in the previous three years and their income is fully reported on existing information slips. This new authority applies to the 2025 and subsequent taxation years.

Updates to Registered Education Savings Plans (RESPs) allow for “designated subscribers”—specifically, government ministers—to enter into plans under the Canada Education Savings Act. Furthermore, Real Estate Investment Trusts (REITs) face updated qualification rules. To qualify, at least 75% of a trust’s equity value must be attributable to specific “qualified REIT property,” such as real or immovable property and certain government-backed debt. These trust updates generally come into force on 1 January 2027.

Excise duties, VAT, and indirect tax adjustments

The Act modifies several indirect tax regimes, particularly for the cannabis, vaping, and tobacco industries.

• Cannabis and vaping: New duties are imposed on cannabis or vaping products that are “taken for use” by a licensee or go “unaccounted for”. These measures were effective as of 12 August 2024.
• Tobacco: The definition of prescribed packaging for raw leaf tobacco is now limited to packages containing no more than 500 grams. This change takes effect on the first day of the month after the Act receives Royal Assent.
• GST/HST: The bill clarifies that “financial services” include clearing and settlement services provided by the Canadian Payments Association. It also introduces a CAD 100,000,000 threshold for determining if an investment plan qualifies as a “qualifying private investment plan” based on the value of its assets or liabilities.

Digital assets and compliance enforcement

A new Crypto-Asset Reporting Framework (CARF) is established under Part XXI of the Income Tax Act. Reporting service providers must now collect information on “relevant transactions,” including exchanges between crypto-assets and fiat currency. This framework requires providers to report the aggregate gross amount paid and received for acquisitions and dispositions starting in the 2027 calendar year.

Finally, the bill significantly strengthens anti-avoidance measures related to joint and several liability. New rules target “section 160 avoidance transactions,” where property is transferred to avoid paying tax debts. If the Minister determines a transfer was intended to circumvent liability, the consideration given by the transferee is deemed to be nil for the purpose of calculating the debt. These enforcement rules are effective for transactions occurring on or after 16 April 2024.

Most amendments to the Global Minimum Tax Act (GMTA) and related regulations are deemed to have come into force on 31 December 2023, aligning with the initial implementation of the global minimum tax. Measures specifically related to the UTPR safe harbour and the side-by-side safe harbour generally apply to fiscal years beginning on or after 1 January 2026.

Earlier, Canada’s Bill C-15, or the Budget 2025 Implementation Act, No. 1, which received Royal Assent on 26 March 2026, introduces a major overhaul of Canada’s transfer pricing regime, repeals the Digital Services Tax, and enacts a wide array of business tax incentives.