{"id":7401,"date":"2026-11-06T09:37:38","date_gmt":"2026-11-06T17:37:38","guid":{"rendered":"https:\/\/www.thor.ca\/blog\/?p=7401"},"modified":"2026-11-06T10:27:06","modified_gmt":"2026-11-06T18:27:06","slug":"2026-federal-budget-key-tax-measures","status":"publish","type":"post","link":"https:\/\/www.thor.ca\/blog\/2026\/11\/2026-federal-budget-key-tax-measures\/","title":{"rendered":"2026 Federal Budget: Key Tax Measures"},"content":{"rendered":"<p>On November 5, 2026 (\u201c<strong>Budget Day<\/strong>\u201d), the federal government tabled its 2026 budget, <a href=\"https:\/\/budget.canada.ca\/2026\/home-accueil-en.html\"><em>Masters of our destiny<\/em><\/a> (\u201c<strong>Budget 2026<\/strong>\u201d). The government presented the budget as advancing its plan to build a stronger, more competitive Canadian economy, with a stated focus on making Canada \u201cthe best place in the world to invest\u201d. Budget 2026 contained many tax proposals that are wide-ranging and affect all types of taxpayers (and non-residents).<\/p>\n<p>In this post, we summarize the principal tax measures, which are described in the budget\u2019s <a href=\"https:\/\/budget.canada.ca\/2026\/report-rapport\/tm-mf-en.html\">Tax measures: Supplementary information<\/a> annex. Draft legislation for many, but not all, of those measures are included in two notices of ways and means motions: <a href=\"https:\/\/budget.canada.ca\/2026\/report-rapport\/pdf\/10-nwmm-amvm-eng.pdf\"><em>one to amend the Income Tax Act<\/em><\/a> (the \u201c<strong>Act<\/strong>\u201d) and the <em>Income Tax Regulations<\/em>, and <a href=\"https:\/\/budget.canada.ca\/2026\/report-rapport\/pdf\/10-nwmm-amvm-2-eng.pdf\"><em>one to amend the Excise Tax Act and other statutes<\/em><\/a>.<\/p>\n<p><span style=\"text-decoration: underline;\"><strong>Personal Income Tax Measures<\/strong><\/span><\/p>\n<ol>\n<li><strong>Canada Growth Incentive (CGI) \u2013 Capital Gains Exemption<\/strong><\/li>\n<\/ol>\n<p>Budget 2026 proposed to introduce a new <a href=\"https:\/\/budget.canada.ca\/2026\/report-rapport\/tm-mf-en.html#a6\">capital gains exemption<\/a> \u2013 termed the \u201cCanada Growth Incentive\u201d (CGI) exemption (the \u201c<strong>CGI exemption<\/strong>\u201d) \u2013 to allow qualifying individuals to realize up to $15 million of tax-free capital gains per qualifying business on the disposition of qualifying shares.<\/p>\n<p>Draft legislation relating to the CGI was not included within Budget 2026. The budget narrative provides that the key features include, but are not limited to:<\/p>\n<ul>\n<li>the vending taxpayer must be a Canadian-resident individual (not a trust) who was at least 18 years old when the shares were acquired;<\/li>\n<li>the shares must be issued directly by the corporation to the taxpayer (or to a partnership of which the taxpayer was a member) solely for cash consideration or in exchange for employment services;<\/li>\n<li>at issuance, the corporation must be a \u201cCanadian-controlled private corporation\u201d all or substantially all of the assets of which are used, or reasonably intended to be used within 36 months, principally in a qualifying business carried on primarily in Canada;<\/li>\n<li>the combined carrying value of the corporation and related corporations cannot exceed $100 million immediately before and after the issuance of the share;<\/li>\n<li>throughout the entire period in which the individual owned the share, 50% or more of the fair market value of the corporation\u2019s assets must be attributable to assets used, or reasonably intended to be used, principally in a qualifying business (and which, for 24 consecutive months immediately following the share issuance, was carried on primarily in Canada); and<\/li>\n<li>at the time of sale, the corporation is a CCPC or public corporation (listed on a designated Canadian stock exchange) all or substantially all of the assets of which are used principally in a qualifying business.<\/li>\n<\/ul>\n<p>An individual claiming the CGI exemption would be limited in also accessing the \u201cLifetime Capital Gains Exemption\u201d. Further, capital gains exempted through this measure would be subject to an inclusion rate of 30 percent for the purposes of calculating the individual\u2019s \u201calternative minimum tax\u201d liability.<\/p>\n<p>Notably, the budget materials indicate that many types of businesses, including professional, agricultural, financial, real estate, entertainment, and investment businesses, will <u>not<\/u> constitute qualifying businesses. Budget 2026 also said that \u201cintegrity rules\u201d will be proposed to prevent individuals from accessing the CGI exemption in circumstances that do not align with the intent of the measure, including the multiplication of the exemption limit through the use of multiple corporations that carry on the same underlying business.<\/p>\n<p>This measure would apply in respect of qualifying shares of a qualifying corporation issued on or after Budget Day and before 2037.<\/p>\n<p style=\"padding-left: 40px;\"><strong>2.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Canada Growth Incentive \u2013 Rollover for Investments in Small Businesses<\/strong><\/p>\n<p>Taxpayers who dispose of shares of an eligible small business corporation (\u201c<strong>ESBC<\/strong>\u201d) and reinvest the proceeds into shares of another ESBC are generally permitted to defer recognition of the resulting capital gain.<\/p>\n<p>For a disposition of shares of an ESBC to qualify under the current rules, Budget 2026 states that the following conditions must be met:<\/p>\n<ul>\n<li>the shares must have been held by the individual for at least 185 days immediately before the disposition;<\/li>\n<li>throughout the period during which the individual owned the shares, the corporation must have been a taxable Canadian corporation all or substantially all of the assets of which (measured by fair market value) were:\n<ul>\n<li>used principally in an active business carried on by the corporation or by a related active business corporation; or<\/li>\n<li>shares or debts of a related active business corporation; and<\/li>\n<\/ul>\n<\/li>\n<li>the active business of the corporation must have been carried on primarily in Canada for the lesser of two years and the period during which the individual held the shares.<\/li>\n<\/ul>\n<p>Budget 2026 proposes <a href=\"https:\/\/budget.canada.ca\/2026\/report-rapport\/tm-mf-en.html#a14\">the following changes<\/a> to access the foregoing tax-deferred \u201crollover\u201d treatment:<\/p>\n<ul>\n<li>The period to acquire replacement shares would be extended to the year of disposition and the three following calendar years, with a reserve allowing the gain to be deferred during that period.<\/li>\n<li>An individual would be permitted to defer the capital gain for an additional two years where the individual, before the end of the proposed three-year replacement period, enters into an agreement with an ESBC under which the individual provides upfront capital in return for shares to be issued at a future date (e.g., under a simple agreement for future equity or SAFE). The deferred gain would be taxed if no shares are issued by the end of the fifth year following the year of the disposition.<\/li>\n<li>The threshold would be lowered from \u201call or substantially all\u201d to \u201cprimarily\u201d for the active business requirement\u2019s asset test that must be met throughout the period the individual owned the shares. The \u201call or substantially all\u201d test would still have to be met when the shares are issued and when they are disposed of.<\/li>\n<li>The active business would be required to be carried on primarily in Canada at the time of the share issuance and for a continuous period immediately following it, equal to the lesser of two years and the period during which the individual held the shares.<\/li>\n<\/ul>\n<p>Interest at a prescribed rate would apply in respect of any proceeds that are not ultimately reinvested, from the balance-due day for the year of the disposition to the end of the taxation year in which the gain is taxed.<\/p>\n<p>This measure would apply in respect of qualifying dispositions that occur on or after January 1, 2027.<\/p>\n<p style=\"padding-left: 40px;\"><strong>3.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Income Tax Return Filing and Balance-Due Dates for Individuals<\/strong><\/p>\n<p>Most individuals are required to file their T1 income tax return and pay any balance-due by April 30 of the following taxation year. Self-employed individuals and their spouses or common-law partners can file their returns by June 15, though any balance owing remains due by April 30.<\/p>\n<p>Budget 2026 proposes to <a href=\"https:\/\/budget.canada.ca\/2026\/report-rapport\/tm-mf-en.html#a21\">change the T1 income tax return filing and balance-due dates<\/a> to May 15 for all individuals, including self-employed individuals and their spouses or common-law partners.<\/p>\n<p>This measure would apply to the 2027 and subsequent taxation years.<\/p>\n<p style=\"padding-left: 40px;\"><strong>4.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Increasing Instalment Thresholds for Individuals and Corporations<\/strong><\/p>\n<p>Individuals are generally required to pay income tax in quarterly instalments if their combined federal and provincial net tax owing from certain sources that are not subject to withholding for the current year and either of the two previous years is more than $3,000 (or $1,800 of federal net tax owing for individuals resident in Quebec). Corporations in turn must generally make monthly or quarterly income tax instalments unless their total federal tax payable is $3,000 or less for either the current or previous year.<\/p>\n<p>Budget 2026 proposes <a href=\"https:\/\/budget.canada.ca\/2026\/report-rapport\/tm-mf-en.html#a18\">changes to the instalment payment regime<\/a> applicable to both individuals and corporations by increasing the threshold from $3,000 to $7,500 (for individuals resident in Quebec, from $1,800 to $4,500). The thresholds would be indexed to inflation and rounded to the nearest $500.<\/p>\n<p>This measure would apply to taxation years beginning on or after January 1, 2028.<\/p>\n<p>Budget 2026 also proposes that individuals whose primary source of income is from a business (including professional or commission income) be allowed to make a single annual instalment, equal to two-thirds of their combined federal and provincial net tax owing for the year, by December 31 instead of quarterly instalments, as farmers and fishers can now. This measure would apply to the 2028 and subsequent taxation years.<\/p>\n<p style=\"padding-left: 40px;\"><strong>5.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Trust Distributions to Non-Residents<\/strong><\/p>\n<p>Where a personal trust (and certain prescribed trusts) distributes property to a Canadian-resident beneficiary in satisfaction of all or part of the beneficiary\u2019s capital interest in the trust, the distribution may qualify for tax-deferred treatment. The rollover treatment is not available where the trust distributes property to a non-resident beneficiary (except for specific types of property that remain subject to Canadian tax).<\/p>\n<p>Budget 2026 alleges that certain planning techniques have been used to indirectly distribute trust property on a rollover basis to a non-resident beneficiary. Budget 2026 provides the example of a personal trust distributing property to a beneficiary that is a corporation resident in Canada whose shares are owned by a non-resident. According to the budget materials, this planning may result in an indefinite deferral or permanent avoidance of Canadian tax. The transaction described in Budget 2026 is substantially similar to that described in the second \u201cnotifiable transaction\u201d designated by the Minister of National Revenue under heading <a href=\"https:\/\/www.canada.ca\/en\/revenue-agency\/programs\/about-canada-revenue-agency-cra\/compliance\/mandatory-disclosure-rules-overview\/notifiable-transactions-designated-by-minister-national-revenue.html\">NT-2023-02 \u201cAvoidance of deemed disposal of trust property\u201d<\/a>.<\/p>\n<p>Budget 2026 proposes to <a href=\"https:\/\/budget.canada.ca\/2026\/report-rapport\/tm-mf-en.html#a51\">deny the rollover treatment<\/a> where trust property is distributed to a non-resident beneficiary indirectly. Specifically, the rollover would be denied where any property is distributed to a corporation resident in Canada (or partnership) that has a direct or indirect non-resident shareholder (or partner).<\/p>\n<p>This measure would apply in respect of distributions of property that occur on or after Budget Day.<\/p>\n<p><a href=\"https:\/\/budget.canada.ca\/2026\/report-rapport\/pdf\/10-nwmm-amvm-eng.pdf#page=22\">As drafted<\/a>, the rule has no minimum ownership threshold and no purpose test; it would apply where any share of the corporation, or any interest in the partnership, is held \u201cdirectly or indirectly in any manner whatever\u201d by a non-resident person. The exception for assets that remain subject to Canadian tax is found only in the paragraph dealing with distributions made directly to non-residents. As such, that exception does not appear available for \u201cindirect\u201d distributions. Trustees effecting distributions to a corporation or partnership (for example, ahead of a trust\u2019s 21-year deemed disposition date) should therefore confirm which individuals hold <u>any<\/u> interest the recipient\u2019s shares or interests, directly and indirectly.<\/p>\n<p style=\"padding-left: 40px;\"><strong>6.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Foreign Income Verification Statement \u2013 Form T1135<\/strong><\/p>\n<p>Canadian-resident individuals, corporations and trusts, as well as certain partnerships, are required to file a Foreign Income Verification Statement (Form T1135) with the Canada Revenue Agency (the \u201c<strong>CRA<\/strong>\u201d) if they own specified foreign property with a total cost of more than $100,000 at any time in a taxation year or fiscal period. Specified foreign property generally includes most types of income-earning property held outside of Canada, other than personal property and property used in carrying on an active business. A simplified reporting method is permitted if the total cost of a taxpayer\u2019s specified foreign property is less than $250,000 throughout the year.<\/p>\n<p>Budget 2026 proposes to increase: (i) <a href=\"https:\/\/budget.canada.ca\/2026\/report-rapport\/tm-mf-en.html#a33\">the threshold above which Form T1135 must be filed<\/a> from $100,000 of aggregate cost at any time in a taxation year to $200,000; and (ii) the threshold for simplified reporting from less than $250,000 of aggregate cost to less than $500,000.<\/p>\n<p>These measures would apply to taxation years or fiscal periods that end after 2026.<\/p>\n<p style=\"padding-left: 40px;\"><strong>7.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Registered Retirement Savings Plan<\/strong><\/p>\n<p>At age 71, most Canadian individuals convert their Registered Retirement Savings Plan (\u201c<strong>RRSP<\/strong>\u201d) to a Registered Retirement Income Fund (\u201c<strong>RRIF<\/strong>\u201d). An RRSP is a tax-assisted vehicle for retirement savings accumulation, whereas a RRIF is a vehicle for decumulation of retirement savings through mandatory minimum annual withdrawals.<\/p>\n<p>Budget 2026 announced the government\u2019s intention to merge the features of an RRSP and a RRIF into a single \u201c<a href=\"https:\/\/budget.canada.ca\/2026\/report-rapport\/tm-mf-en.html#a46\">RRSP for life<\/a>\u201d and make other changes to \u201cimprove and modernize the RRSP tax rules\u201d. These changes would eliminate the need for individuals to convert their RRSP to a RRIF at age 71; however, individuals above that age would still be required to make minimum withdrawals.<\/p>\n<p>Certain other issues under consideration include:<\/p>\n<ul>\n<li>whether and how the revised RRSP rules could include a \u201csuccessor holder\u201d feature similar to other registered vehicles; and<\/li>\n<li>whether and how the current RRSP indirect rollover provisions that apply on death can be replaced with rules to permit direct tax-free transfers to qualified registered vehicles of qualified survivors.<\/li>\n<\/ul>\n<p>The Department of Finance is seeking Canadians\u2019 views on these proposals and will accept feedback (via email to <a href=\"mailto:RRSP-consultation-REER@fin.gc.ca\">RRSP-consultation-REER@fin.gc.ca<\/a>) up to January 8, 2027.<\/p>\n<p>The income tax notices of ways and means motion includes draft provisions for the merger and for both features, but proposes no effective date.<\/p>\n<p style=\"padding-left: 40px;\"><strong>8.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Expansion of Intergenerational Farm and Fishing Property Rollover<\/strong><\/p>\n<p>Individuals are generally permitted to facilitate intergenerational transfers of certain farming property and fishing property on a tax-deferred basis. This \u201crollover\u201d treatment is generally allowed where the transfer is from the individual to their child (including a grandchild or great-grandchild) or the child\u2019s spouse or common-law partner.<\/p>\n<p>Budget 2026 proposes to <a href=\"https:\/\/budget.canada.ca\/2026\/report-rapport\/tm-mf-en.html#a25\">expand this specific rollover rule<\/a> so that it is available for transfers of farming or fishing properties to a niece, nephew, grandniece or grandnephew of the individual or the individual\u2019s spouse or common-law partner.<\/p>\n<p>This measure would apply to transfers that occur on or after January 1, 2027.<\/p>\n<p style=\"padding-left: 40px;\"><strong>9.\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Registered Pension Plans<\/strong><\/p>\n<p><em>Revocation of a Registered Pension Plan<\/em><\/p>\n<p>A <a href=\"https:\/\/budget.canada.ca\/2026\/report-rapport\/tm-mf-en.html#a53\">registered pension plan<\/a> (\u201c<strong>RPP<\/strong>\u201d) is an arrangement under which an employer contributes to a fund that provides periodic payments to retired employees. An RPP must be registered with the CRA and, at all times, comply with certain registration conditions. Where registration conditions are not met, the RPP becomes a \u201crevocable plan\u201d and the CRA may notify the RPP administrator that the registration of the RPP is revoked as of the date specified in the notice. The tax consequences of a revocation are not fully specified under the current rules.<\/p>\n<p>Budget 2026 proposes that where the registration of an RPP is revoked, the RPP would be subject to the following tax consequences:<\/p>\n<ul>\n<li>the RPP would be liable to a special tax equal to 10% of the fair market value of its property immediately prior to the revocation, subject to waiver or cancellation by the CRA;<\/li>\n<li>the RPP would be deemed to become a \u201cretirement compensation arrangement\u201d (\u201c<strong>RCA<\/strong>\u201d) \u2013 another type of retirement savings vehicle; and<\/li>\n<li>an amount equal to the fair market value of the RPP\u2019s property on the revocation date, less any revocation tax payable, would be deemed to be contributed to the RCA, such that the RCA would be required to remit a 50% refundable tax on the deemed contribution.<\/li>\n<\/ul>\n<p>These measures would apply to revocations of RPPs after 2026.<\/p>\n<p><em>Individual Pension Plans<\/em><\/p>\n<p>An individual pension plan (\u201c<strong>IPP<\/strong>\u201d) is a defined benefit RPP with fewer than four members, at least one of whom is related to an employer who participates in the plan (generally a controlling shareholder). IPPs are subject to additional conditions that do not apply to other RPPs due to the non-arm\u2019s length relationship between a controlling individual and an employer sponsoring the IPP. According to Budget 2026, certain plans have sought to avoid these additional conditions by adding related members so that the plan exceeds the three-member threshold to constitute an IPP.<\/p>\n<p>Budget 2026 proposes to expand the IPP definition to include defined benefit RPPs where all members are either related to a participating employer or do not deal at arm\u2019s length with any member related to a participating employer.<\/p>\n<p>This measure would apply as of January 1, 2027.<\/p>\n<p><em>Non-Qualified Investments<\/em><\/p>\n<p>Certain anti-avoidance rules apply to registered plans held by one individual (i.e., RRSPs, TFSAs, etc.) that are intended to ensure the plans do not provide excessive advantages unrelated to their basic objectives. These rules include:<\/p>\n<ul>\n<li>the \u201cadvantage\u201d rules, which Budget 2026 described as preventing the exploitation of the tax attributes of a registered plan (for example, by shifting returns from a taxable investment to a registered plan);<\/li>\n<li>the prohibited investment rules, which Budget 2026 described as generally ensuring investments held by a registered plan are arm\u2019s length \u201cportfolio\u201d investments; and<\/li>\n<li>the non-qualified investment rules, which restrict the types of investments that may be held by a registered plan.<\/li>\n<\/ul>\n<p>Budget 2026 proposes to subject IPPs to these anti-avoidance rules. The controlling individual of an IPP would consequently become liable to pay a tax equal to:<\/p>\n<ul>\n<li>50% of the fair market value of a non-qualified investment or prohibited investment acquired by the IPP, and<\/li>\n<li>100% of the value of an advantage in relation to the IPP.<\/li>\n<\/ul>\n<p>These measures would apply as of January 1, 2028, and transitional rules would apply to investments acquired before 2028 that become non-qualified or prohibited on January 1, 2028.<\/p>\n<p><em>Excessive Surplus<\/em><\/p>\n<p>Under current rules, employers must pause contributions to an RPP once the plan\u2019s assets exceed 125% of its pension liabilities. According to Budget 2026, certain IPPs have modest or no ongoing contributions and relatively stable liabilities. Consequently, asset growth can result in excessive surplus that is not needed to satisfy pension benefits, and the current rules do not require this excess to be withdrawn. The income from this excess is earned tax-free while being held in the IPP.<\/p>\n<p>Budget 2026 proposes a new rule under which an IPP would become a \u201crevocable plan\u201d for RPP registration purposes if the value of its assets exceeds 200% of its pension liabilities. The CRA would be required to issue a notice of intent to revoke at least 30 days prior to issuing a revocation letter in order to allow the plan administrator to remedy the situation (for example, by withdrawing excess amounts). If the IPP\u2019s registration is ultimately revoked, the same tax consequences described under \u201cRevocation of a Registered Pension Plan\u201d would apply.<\/p>\n<p>This measure would apply as of January 1, 2028.<\/p>\n<p style=\"padding-left: 40px;\"><strong>10.\u00a0 Private Foundations \u2013 Excess Corporate Holdings Regime to Be Eliminated<\/strong><\/p>\n<p>Private foundations are subject to limits on their shareholdings, known as the excess corporate holdings regime. A foundation that holds more than 2% of a class of shares of a corporation must track and report its holdings and those of relevant persons (generally, non-arm\u2019s length individuals). Where the combined holdings exceed 20% of the class and the foundation itself holds more than 2%, it must, subject to certain exceptions, divest the excess within a set period.<\/p>\n<p>Budget 2026 proposes to <a href=\"https:\/\/budget.canada.ca\/2026\/report-rapport\/tm-mf-en.html#a48\">eliminate the excess corporate holdings regime<\/a>. In its place, the rules that prohibit public foundations from acquiring control of a corporation would be extended to private foundations.<\/p>\n<p>This measure would apply to taxation years that begin on or after January 1, 2027.<\/p>\n<p style=\"padding-left: 40px;\"><strong>11.\u00a0 Personal Credits and Benefits<\/strong><\/p>\n<p>Budget 2026 proposes to:<\/p>\n<ul>\n<li>make the Canada Caregiver Credit refundable from the 2027 taxation year;<\/li>\n<li>enhance the Canada Workers Benefit and rename it the Build Canada Workers Benefit, starting with the 2027 taxation year. The benefit would begin to phase in at $500 of working income rather than $3,000. For 2027, the maximum benefit would increase from $1,709 to $1,859 for single individuals without children and from $2,943 to $3,143 for families. Advance payments would be reduced from 50% to 25% of the previous year\u2019s entitlement for 2027 and eliminated from 2028;<\/li>\n<li>pay a one-time supplement to the Canada Groceries and Essentials Benefit (formerly the GST credit) in early 2027, equal to half of the maximum annual amounts for the 2026-27 benefit year;<\/li>\n<li>allow optional flat amounts to be claimed in place of actual expenses for several deductions and credits, including the moving expense deduction, the clergy residence deduction and the home accessibility tax credit, for the 2027 and subsequent taxation years; and<\/li>\n<li>make permanent the temporary measure that allows a qualifying family member to open a registered disability savings plan for an adult whose capacity to enter into a contract is in doubt.<\/li>\n<\/ul>\n<p style=\"padding-left: 40px;\"><strong>12.\u00a0 Mineral Exploration Tax Credits<\/strong><\/p>\n<p>Budget 2026 proposes to <a href=\"https:\/\/budget.canada.ca\/2026\/report-rapport\/tm-mf-en.html#a4\">extend the mineral exploration tax credit and the critical mineral exploration tax credit<\/a> to flow-through share agreements entered into on or before March 31, 2032, and add antimony as a critical mineral for agreements entered into after Budget Day.<\/p>\n<p><span style=\"text-decoration: underline;\"><strong>Business Income Tax Measures<\/strong><\/span><\/p>\n<p style=\"padding-left: 40px;\"><strong>13.\u00a0 Taxable Preferred Shares \u2013 Exemption for CCPCs<\/strong><\/p>\n<p>The Act currently imposes a special tax (Part VI.1 tax) on dividends paid on <a href=\"https:\/\/budget.canada.ca\/2026\/report-rapport\/tm-mf-en.html#a78\">taxable preferred shares<\/a>. The original intention behind that regime is to make the tax system more \u201cneutral\u201d between debt and preferred share financing. However, as raised in recent submissions by the tax community, Part VI.1 applies to a large number of dividends that were arguably not intended to be caught by those rules.<\/p>\n<p>As such, Budget 2026 proposes to:<\/p>\n<ul>\n<li>exclude dividends paid by CCPCs on or after Budget Day from Part VI.1 tax; and<\/li>\n<li>increase the \u201cdividend allowance\u201d for Part VI.1 purposes from $500,000 to $1.5 million, and raise from $1 million to $3 million the threshold above which that allowance is reduced, for taxation years that end after 2026.<\/li>\n<\/ul>\n<p>The government is also reviewing the broader preferred share regime and has invited comments by January 8, 2027.<\/p>\n<p style=\"padding-left: 40px;\"><strong>14.\u00a0 Corporate Loss Transfers \u2013 Consultation<\/strong><\/p>\n<p>Corporations are currently taxed on a stand-alone basis. As such, a loss sustained by one member of a corporate group can offset the income of another member only through transactions such as amalgamations, wind-ups, or intra-group financing arrangements.<\/p>\n<p>Budget 2026 invites comments on the introduction and design of a <a href=\"https:\/\/budget.canada.ca\/2026\/report-rapport\/tm-mf-en.html#a81\">corporate loss transfer rule<\/a>. The budget paper describes the rule as follows:<\/p>\n<ul>\n<li>a corporation could elect, jointly with the transferee, to transfer all or part of its current-year non-capital loss, and any amount the transferee does not deduct in the year could not be carried back or forward;<\/li>\n<li>transfers would be permitted between a parent corporation and a wholly-owned subsidiary, and between two wholly-owned subsidiaries of the same parent (whether owned directly or indirectly);<\/li>\n<li>both corporations would have to be resident in Canada and subject to tax under Part I of the Act, and conduit corporations (such as mutual fund corporations) would be excluded; and<\/li>\n<li>the transferor and the transferee would each need a permanent establishment in the same province or territory, and in no other (to avoid inter-provincial shifts in income tax).<\/li>\n<\/ul>\n<p>The government has asked whether the last condition could be relaxed while protecting provincial and territorial tax bases, and how the rule should address integrity concerns (such as a parent obtaining both the transferred loss and a full tax cost in the shares of the subsidiary that incurred it). Comments are due by January 8, 2027.<\/p>\n<p style=\"padding-left: 40px;\"><strong>15.\u00a0 SR&amp;ED \u2013 Regulatory Approval and Intellectual Property Costs<\/strong><\/p>\n<p>Budget 2026 proposes to <a href=\"https:\/\/budget.canada.ca\/2026\/report-rapport\/tm-mf-en.html#a67\">expand the activities and expenditures that are eligible<\/a> under the scientific research and experimental development (\u201c<strong>SR&amp;ED<\/strong>\u201d) program:<\/p>\n<ul>\n<li><strong>Regulatory approval and certification:<\/strong> tests, technological validations and studies conducted to meet regulatory requirements for the initial approval or certification needed to commercialize a product or process would become eligible activities, provided that they relate directly to a project that is eligible under the existing rules. The same types of expenditures could be claimed as under the existing program.<\/li>\n<li><strong>Intellectual property protection:<\/strong> costs reasonably incurred to obtain and maintain protection for intellectual property developed in an eligible project would become eligible expenditures. Qualifying protection would include patents, certificates of supplementary protection, plant breeders\u2019 rights and copyright in software, whether in Canada or elsewhere. The costs of enforcing intellectual property rights, such as litigation, would not qualify. Fees payable to an intellectual property office outside Canada would qualify, but the costs of supporting activities, such as preparing an application, would qualify only if those activities are carried out in Canada. Recapture rules would apply if the intellectual property is disposed of.<\/li>\n<\/ul>\n<p>This measure would apply to taxation years that begin on or after Budget Day, rather than to expenditures incurred on or after that day.<\/p>\n<p style=\"padding-left: 40px;\"><strong>16.\u00a0 Interest Deductibility \u2013 Wider Exceptions for Rental Housing and Energy Utilities<\/strong><\/p>\n<p>In 2024, exceptions to the \u201cexcessive interest and financing expenses limitation\u201d (\u201c<strong>EIFEL<\/strong>\u201d) rules were proposed for purpose-built rental housing (for expenses incurred before 2036) and regulated energy utilities. As proposed, they would apply only if the borrower itself uses the borrowed funds for the eligible activity. Neither has been enacted to date.<\/p>\n<p>Budget 2026 proposes to <a href=\"https:\/\/budget.canada.ca\/2026\/report-rapport\/tm-mf-en.html#a71\">extend both exceptions<\/a> to borrowed funds used for eligible activities carried on by another corporation, trust or partnership in the same group of affiliated entities, or by a partnership in which the borrower (together with affiliated entities) has at least a 40% interest.<\/p>\n<p>The definition of a regulated energy utility business would also be expanded to cover electricity, natural gas, steam and similar energy businesses where the prices of all or substantially all of their products or services are:<\/p>\n<ul>\n<li>established, approved or guaranteed by a provincial government (or an authorized body it wholly owns or controls); or<\/li>\n<li>established through a market or system that is operated by a provincial government (or a person or body it wholly owns or controls) and that facilitates delivery for consumption or use in Canada.<\/li>\n<\/ul>\n<p>These changes would apply to taxation years that begin on or after October 1, 2023, the date from which the EIFEL rules first applied. Under the draft legislation, each exception would apply only if the taxpayer elects by its filing-due date for the year or, if later, 90 days after royal assent (the utility election would also apply to each later year).<\/p>\n<p style=\"padding-left: 40px;\"><strong>17.\u00a0 Other Business Measures<\/strong><\/p>\n<p>Budget 2026 also proposes to:<\/p>\n<ul>\n<li>Extend the clean electricity and clean technology investment tax credits to property that becomes available for use before 2041 (extended from 2035 currently). The budget states that the government will consult over the next 60 days on a domestic content bonus under both credits.<\/li>\n<li>Expand the clean electricity credit to transmission property within a province or territory. The property would have to be built to operate at or above the highest voltage currently used for transmission lines in that province (69 kilovolts in the territories). The annex applies this expansion to property acquired on or after Budget Day, while <a href=\"https:\/\/budget.canada.ca\/2026\/report-rapport\/chap1-en.html\">Chapter 1<\/a> of the budget refers to property acquired and available for use on or after that day.<\/li>\n<li>Treat helium exploration and development expenses as Canadian exploration expense and Canadian development expense, and the cost of acquiring helium resource properties as Canadian oil and gas property expense, for expenses incurred on or after Budget Day.<\/li>\n<li>Eliminate the requirement for a corporation to file a certified copy of a directors\u2019 resolution or authorization with certain elections and agreements, including capital dividend elections, for elections and agreements made on or after royal assent.<\/li>\n<\/ul>\n<p><span style=\"text-decoration: underline;\"><strong>International Tax Measures<\/strong><\/span><\/p>\n<p style=\"padding-left: 40px;\"><strong>18.\u00a0 Taxable Canadian Property<\/strong><\/p>\n<p>Canada generally taxes non-residents on their income and gains from the disposition of taxable Canadian property (TCP). TCP primarily includes Canadian real estate, resource properties, and certain shares or interests whose value is derived primarily from Canadian real property or resource assets.<\/p>\n<p>To facilitate the collection of that tax, purchasers acquiring TCP from a non-resident vendor are generally required to withhold a portion of the gross sale price and remit that amount to the CRA on account of the vendor\u2019s potential tax liability. A key exception is where the vendor obtains a clearance certificate certifying that any required tax has already been paid.<\/p>\n<p>The amount which a purchaser is required to withhold depends on the type of TCP. A lower withholding rate of 25% applies to purchases of TCP that is capital property to the vendor, and a higher withholding rate of 50% applies to TCP the disposition of which may give rise to a full income inclusion or \u201c<strong>specified TCP<\/strong>\u201d (e.g., depreciable property and real estate inventory).<\/p>\n<p>For non-resident vendors that are corporations, the amount withheld often greatly exceeds the Canadian income tax they are liable to pay. Accordingly, Budget 2026 proposes to <a href=\"https:\/\/budget.canada.ca\/2026\/report-rapport\/tm-mf-en.html#a98\">reduce the amount required to be withheld and remitted by purchasers of TCP<\/a> from non-residents corporations to:<\/p>\n<ul>\n<li>15% (down from 25% currently) for dispositions of TCP that is capital property; and<\/li>\n<li>30% (down from 50% currently) for dispositions of specified TCP.<\/li>\n<\/ul>\n<p>Under the draft legislation, the purchaser could withhold at the lower rates where the vendor is a corporation or if, after reasonable inquiry, the purchaser had no reason to believe that the vendor was not a corporation.<\/p>\n<p>Budget 2026 further proposes to exempt vendors and purchasers from the withholding and remittance requirements for transfers of TCP that are fully tax-deferred pursuant to section 85 of the Act. A key condition, however, is that the election required under section 85 must be filed within <u>30 days<\/u> of the disposition (rather than the standard filing deadline under subsection 85(6)). The purchaser would also have to conclude, after reasonable inquiry, that because of the rollover no amount is included in the vendor\u2019s taxable income earned in Canada, and must also provide notice to the CRA in accordance with subsection 116(5.02) setting out information regarding the transaction and the vendor.<\/p>\n<p>Additionally, Budget 2026 proposes to extend the existing anti-avoidance rule in subsection 69(11), which can deny the aforementioned tax-deferred rollover if, within three years, a subsequent disposition of the transferred property or substituted property occurs or is arranged, and one of the main purposes of the series was to benefit from an exemption from Canadian tax. For rollovers of TCP by non-residents, the proposed amendments would extend the three-year period to five years and also apply the rule to a disposition of any property that, at any time in those five years, derives more than 50% of its fair market value, directly or indirectly, from the transferred or substituted property.<\/p>\n<p>These measures would apply to dispositions that occur on or after January 1, 2027.<\/p>\n<p><span style=\"text-decoration: underline;\"><strong>Tax Administration and Enforcement<\/strong><\/span><\/p>\n<p style=\"padding-left: 40px;\"><strong>19.\u00a0 Objections to Assessments<\/strong><\/p>\n<p>When the CRA issues a notice of assessment or reassessment, taxpayers generally have 90 days to file a notice of objection if they disagree with the (re)assessment. Individuals and graduated rate estates also have the later of that 90-day period and one year from the tax return filing due date for the taxation year being (re)assessed to object. Where the objection deadline is missed, taxpayers have one year from the original deadline to apply for an extension of time to file the notice of objection.<\/p>\n<p>Budget 2026 proposes, for most taxpayers, to <a href=\"https:\/\/budget.canada.ca\/2026\/report-rapport\/tm-mf-en.html#a49\">extend the deadline<\/a> to file a notice of objection to one year after the notice of (re)assessment is sent. For individuals and graduated rate estates, the deadline would be the later of one year after the notice of assessment is sent and two years from the tax return filing due date for the taxation year being (re)assessed. The ability to apply for an extension of time would be eliminated on the stated basis that taxpayers would no longer need to do so.<\/p>\n<p>This measure would apply to (re)assessments sent on or after the day that is three months after royal assent.<\/p>\n<p>Budget 2026 does not include a corresponding change for objections to GST\/HST assessments.<\/p>\n<p style=\"padding-left: 40px;\"><strong>20.\u00a0 Administrative Penalties Scaled to the Size of the Taxpayer<\/strong><\/p>\n<p>Following a review announced in Budget 2025, Budget 2026 proposes to:<\/p>\n<ul>\n<li><a href=\"https:\/\/budget.canada.ca\/2026\/report-rapport\/tm-mf-en.html#a88\">increase most fixed-dollar penalties<\/a> under the Act, generally by a factor of two or three for older penalties, and index them to inflation once every five years;<\/li>\n<li>set certain penalties (including those for failing to provide required information on a form and failing to file certain forms) at three times the base amount for medium corporations and partnerships and eight times for large corporations or partnerships; and<\/li>\n<li>introduce penalties for repeated failures to file tax forms or to comply with obligations that have no specific penalty \u2013 which would generally be double the base penalty and apply where the person was liable to a penalty for the same type of failure in any of the three preceding taxation years and has not remedied the current failure after a notice, requirement or demand from the CRA.<\/li>\n<\/ul>\n<p>For the size-based penalties, a corporation would be \u201cmedium-sized\u201d if it has, together with related corporations (see below), between $10 million and $50 million of taxable capital employed in Canada. Corporate groups above that $50 million threshold would be considered \u201clarge\u201d. For this purpose, a CCPC would be treated as related to another corporation only if the two are also associated.<\/p>\n<p>A partnership would be \u201cmedium-sized\u201d if it has gross revenue of at least $2 million but less than $10 million, and \u201clarge\u201d at $10 million of gross revenue or more. Size would be measured in the taxation year or fiscal period before the one in which the failure occurs.<\/p>\n<p>Budget 2026 states that these changes would apply to taxation years or fiscal periods ending after 2027; however, many of the relevant rules in the draft legislation refer instead to failures, elections or conduct after 2027.<\/p>\n<p style=\"padding-left: 40px;\"><strong>21.\u00a0 Disclosure of Tax Debt to Credit Bureaus<\/strong><\/p>\n<p>Where a taxpayer does not pay their tax debt, the CRA generally relies on various collection tools &#8211; such as garnishing wages and other income, set-off of other amounts payable by the Crown, and the seizure or sale of assets \u2013 to collect the unpaid debt. The CRA has extensive powers in that area but apparently cannot report taxpayer debts to credit bureaus.<\/p>\n<p>Budget 2026 proposes to allow the CRA to <a href=\"https:\/\/budget.canada.ca\/2026\/report-rapport\/tm-mf-en.html#a50\">disclose information about a taxpayer\u2019s tax debts to credit bureaus<\/a>. As stated, however, the CRA would only be permitted to disclose a taxpayer\u2019s debt where:<\/p>\n<ul>\n<li>the taxpayer\u2019s outstanding debt exceeds $50,000;<\/li>\n<li>the assessments or reassessments giving rise to the tax debt are not under objection or appeal, and all rights of objection and appeal in respect of them have expired or been exhausted;<\/li>\n<li>the CRA has notified the taxpayer in writing of its intention to disclose the tax debt at least 30 days prior to disclosure; and<\/li>\n<li>before the disclosure, the CRA has taken reasonable steps to collect the tax debt and has given the taxpayer an opportunity to make reasonable repayment arrangements.<\/li>\n<\/ul>\n<p>Similar arrangements would be made with respect to Goods and Services Tax\/Harmonized Sales Tax debts.<\/p>\n<p>This measure would apply on royal assent of the enacting legislation.<\/p>\n<p><span style=\"text-decoration: underline;\"><strong>Commodity Tax Measures<\/strong><\/span><\/p>\n<p style=\"padding-left: 40px;\"><strong>22.\u00a0 GST\/HST Health Measures<\/strong><\/p>\n<p>Budget 2026 proposes to <a href=\"https:\/\/budget.canada.ca\/2026\/report-rapport\/tm-mf-en.html#a103\">expand GST\/HST relief<\/a> to the following health care services and products:<\/p>\n<ul>\n<li>qualifying massage therapy services; and<\/li>\n<li>devices specifically designed for alternating electric field therapy for use by an individual with cancer.<\/li>\n<\/ul>\n<p>Specifically, qualifying massage therapy services would generally be exempt from the GST\/HST when supplied by a person who practices the profession of massage therapy and is either licensed or certified as required in the province in which the service is supplied. If the province in which the service is supplied does not require licensing or certification, the practitioner must have equivalent qualifications for the services to be exempt.<\/p>\n<p>Since these services would be exempt supplies rather than zero-rated, therapists would not charge GST\/HST but could also not claim input tax credits for the GST\/HST paid.<\/p>\n<p>In addition to the above, devices specifically 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.<\/p>\n<p>These measures would apply to qualifying services and supplies made after Budget Day.<\/p>\n<p style=\"padding-left: 40px;\"><strong>23.\u00a0 Administration, Regulatory, and Penalty Proposals<\/strong><\/p>\n<p>Budget 2026 proposes various changes to administrative, regulatory, and penalty regimes relevant to commodity taxes, including:<\/p>\n<ul>\n<li><strong>Administrative Penalties: <\/strong>increasing most fixed-dollar administrative penalties applicable under the Goods and Services Tax\/Harmonized Sales Tax (GST\/HST) provisions of the <em>Excise Tax Act<\/em>, the <em>Excise Act, 2001<\/em>, the <em>Air Travellers Security Charge Act<\/em>, and the <em>Select Luxury Items Tax Act<\/em> and index these penalty amounts to inflation going forward.<\/li>\n<li><strong>Pre-Approval Regime for GST\/HST Input Tax Credit Allocation Methods of Financial Institutions:<\/strong> allowing large financial institutions to apply for pre-approval of their input tax credit (ITC) allocation method for three consecutive fiscal years, rather than requiring a new approval for each fiscal year. This change would apply to fiscal years beginning after June 30, 2027.<\/li>\n<li><strong>Product Descriptions and Regulatory Cross-References in Sales and Excise Tax Rules<\/strong>: amending legislation governing sales and excise taxes applicable to goods imported into Canada to preserve the existing tax treatment of affected goods while making the rules easier for importers and administrators to interpret and apply. Budget 2026 provides that certain of the proposed amendments would also broaden or simplify relief to align with current customs rules, commercial practices, or the treatment of comparable goods. These changes would generally apply from the first day of the second month after royal assent.<\/li>\n<li><strong>Cannabis Excise Duty Stamp:<\/strong> creating a new common stamp regime to denote a cannabis product as duty-paid for products sold into all provinces and territories with the same duty rate (Quebec, Nova Scotia, New Brunswick, British Columbia, Prince Edward Island, Newfoundland and Labrador, the Northwest Territories and Yukon) and in other participating jurisdictions that choose to adopt the common stamp in their jurisdictions.<\/li>\n<li><strong>Federal Fuel Excise Tax Licensing Framework<\/strong>: expanding the eligibility for wholesaler licenses under the Federal Fuel Excise Tax licensing framework. Budget 2026 also proposed to broaden relieving rules to eliminate incidents of the tax effectively applying more than once to the same quantity of fuel (i.e. double taxation) arising where businesses engaged in fuel wholesaling cannot obtain a licence due to dated eligibility requirements which no longer reflect modern fuel wholesaling practices. The relieving rules for licensed manufacturers would also be broadened.<\/li>\n<li><strong>Time-limited Payment under the Federal Fuel Excise Tax<\/strong>: a time-limited payment to provide relief in certain past cases where the Federal Fuel Excise Tax effectively applied more than once to the same quantity of fuel. The payment would cover certain cases where tax became payable more than once on the same fuel on or after January 1, 2017 and before Budget Day.<\/li>\n<\/ul>\n<p>No draft legislation was released for the indexation of the GST\/HST and other sales and excise penalties described above.<\/p>\n<p><span style=\"text-decoration: underline;\"><strong>Conclusion<\/strong><\/span><\/p>\n<p>Budget 2026 proposed to introduce a wide range of tax amendments. Several of those amendments would apply from Budget Day. Draft legislation, however, has not yet been released for a number of measures, and several others are subject to consultation. Budget 2026 also confirms the government\u2019s intention to proceed with <a href=\"https:\/\/budget.canada.ca\/2026\/report-rapport\/tm-mf-en.html#a131\">previously announced measures<\/a>, including the Productivity Mega Deduction (see <a href=\"https:\/\/www.thor.ca\/blog\/2026\/10\/productivity-mega-deduction-announced-immediate-expensing-as-the-new-default-for-capital-investment\/\">our earlier post<\/a>).<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>On November 5, 2026 (\u201c<strong>Budget Day<\/strong>\u201d), the federal government tabled its 2026 budget, <a href=\"https:\/\/budget.canada.ca\/2026\/home-accueil-en.html\"><em>Masters of our destiny<\/em><\/a> (\u201c<strong>Budget 2026<\/strong>\u201d). The government presented the budget as advancing its plan to build a stronger, more competitive Canadian economy, with a stated&hellip;<\/p>\n","protected":false},"author":20,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[9,20,41,13,53,31],"tags":[],"class_list":["post-7401","post","type-post","status-publish","format-standard","hentry","category-corporate-tax","category-gsthst","category-income-tax-act-ita","category-personal-tax","category-tax-alerts","category-tax-legislation-updates"],"_links":{"self":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/7401","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/users\/20"}],"replies":[{"embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/comments?post=7401"}],"version-history":[{"count":3,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/7401\/revisions"}],"predecessor-version":[{"id":7406,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/posts\/7401\/revisions\/7406"}],"wp:attachment":[{"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/media?parent=7401"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/categories?post=7401"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.thor.ca\/blog\/wp-json\/wp\/v2\/tags?post=7401"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}