Canada’s 2025 federal budget introduced long-anticipated amendments to Canada’s transfer pricing rules following a consultation process initiated in June 2023. These measures represent the most significant modernization of section 247 of the Income Tax Act since its introduction in 1998. While many changes were anticipated, a new condensed deadline for providing contemporaneous documentation comes as a surprise.

This administrative measure reduces the documentation response period from three months (approximately 90 days) to 30 days, and carries significant implications for Canadian taxpayers. Below, we examine the impact of this proposed shift.

Current transfer pricing documentation regime in Canada

Subsection 247(4) requires taxpayers to maintain contemporaneous documentation supporting their transfer pricing methodologies, functional and risk analyses, and economic studies, including choice of comparables. Significant penalties can apply where CRA audit adjustments exceed certain thresholds unless the taxpayer made “reasonable efforts” to determine arm’s length transfer prices in their contemporaneous documentation. Taxpayers must also file Form T106 as part of their tax returns and confirm that this contemporaneous documentation exists.

Impact of the proposed 30-day time period

The proposed change effectively calls the bluff on companies that “check the box” in Form T106 but fail to maintain documentation. Conceptually, as taxpayers are not required to file their contemporaneous documentation at the time that they submit their tax returns, some taxpayers could have avoided preparing formal documentation and relied on the three-month window to prepare their reports. As a result, some have chosen to take their chances, including checking the T106 box, until (or if) they receive a CRA request. Others have prepared preliminary internal documentation before their filing-due-date but avoided formalizing it into a comprehensive TP report until absolutely necessary. These taxpayers will now face increased pressure.

The shift from a three-month to a 30-day deadline will put more pressure on taxpayers to maintain documentation on a real-time basis. While the penalty threshold increase from $5 million to $10 million is favorable, the shortened timeline may force taxpayers into costly and expedited transfer pricing reports. By the time a 30-day letter is received and reviewed internally, taxpayers may have only a couple of weeks to respond if they do not receive a heads up from their CRA auditor. Ultimately, this compressed timeline may increase the risk of penalties for taxpayers who prepare documentation internally without sufficient time to formalize it or generate higher service provider costs for comprehensive TP reports to avoid audit risk.

We note that advances in AI tools may help taxpayers in preparing basic contemporaneous documentation faster, and therefore reduce some compliance pressure. However, CRA expectations for quality and depth remain unchanged, requiring a tailored and robust analysis. Indeed, the Transfer Pricing Review Committee (“TPRC”) has imposed penalties on taxpayers where the documentation did not provide the CRA audit team with complete information to analyze the covered transactions and concluding the company did not make reasonable efforts.

International comparison

Even with 30 days, Canada’s rule is less stringent than regimes in Brazil, Italy, and Mexico, where documentation must be filed with the tax return. This context is important for taxpayers benchmarking compliance requirements globally.

Closing comments

The CRA’s extended reassessment period and active audit program make proactive planning essential and taxpayers should consider engaging advisors before their documentation due-date to ensure compliance. Ultimately, this change will likely accelerate the trend toward real-time documentation and increase demand for advisory services. Taxpayers should explore options for streamlined documentation processes and technology-enabled solutions to mitigate risk.