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On November 5, 2026, the Government of Canada tabled Federal Budget 2026 (Budget 2026), titled "Masters of our destiny." It arrives against a backdrop of considerable economic and geopolitical uncertainty, with a renewed emphasis on productivity, investment and international competitiveness. The government must balance these longer-term ambitions against significant fiscal commitments and continuing pressure to support businesses and individuals facing affordability challenges.

The fiscal picture is better than forecast in the Spring Economic Update 2026, and the projected deficit is expected to fall to 1.3 per cent of Canada’s gross domestic product by 2030-31. Notably, there are no proposed increases to corporate or personal tax rates. Instead, the focus is on what the government describes as "the most ambitious tax simplification effort in decades," with a long list of smaller measures that streamline compliance, adjust thresholds or address specific integrity concerns.

 

 
 

Key measures for businesses and investors

For the business community, the headline measure is not new. Budget 2026 confirms the Productivity Mega Deduction announced on September 15, 2026, which permanently allows immediate expensing of roughly two thirds of capital assets. The government projects that this will reduce Canada's marginal effective tax rate on new investment to 6.4 per cent.

The genuinely new measures for entrepreneurs and investors are the proposed Canada Growth Incentive, which offers a capital gains exemption of up to $15 million on qualifying shares of a Canadian-controlled private corporation (CCPC), and a much more flexible small business investment rollover. However, the exemption comes with demanding eligibility tests, and the integrity rules have not yet been released, so its practical reach remains to be seen. Budget 2026 also expands the scientific research and experimental development (SR&ED) rules to cover certain commercialization costs and extends the clean economy investment tax credits to 2040.

Tax administration and compliance changes

Budget 2026 follows through on last year's review of fines and penalties, with many penalties increasing. However, other measures are more taxpayer-friendly, including a single May 15 filing and payment date for individuals commencing with the 2027 taxation year, a one-year deadline to file notices of objection, and lower section 116 withholding rates for non-resident vendors of “taxable Canadian property.”

Several measures are released for consultation rather than as definitive proposals, notably a corporate loss transfer regime and an "RRSP for life." Taken together, these suggest more tax legislation to come during 2027.

Read our full analysis of how Budget 2026 will impact you and your business.

 

Table of contents

  1. Canada Growth Incentive: Capital gains exemption
  2. Canada Growth Incentive: Rollover for investments in small businesses
  3. Helium exploration, development and resource expenses
  4. Clean electricity and clean technology investment tax credits
  5. Mineral exploration tax credit and critical mineral exploration tax credit
  6. Scientific research and experimental development tax incentive program
  7. Interest deductibility limit
  8. Consultation on corporate loss transfers
  9. Taxable preferred shares
  10. Corporate tax elections
  11. Instalment payments for individuals and corporations
  12. Income tax return filing and balance-due dates for individuals
  13. Foreign income verification statement: Form T1135
  14. Trust distributions to non-residents
  15. Section 116 withholding reduction
  16. Pensions, retirement savings and employee benefits
  17. Charitable and non-profit sector
  18. Notice of objection timelines
  19. Disclosure of tax debt to credit bureaus
  20. Administrative penalties
  21. GST/HST measures
  22. Excise tax and duty measures

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1. Canada Growth Incentive: Capital gains exemption

What’s proposed

Budget 2026 proposes a new Canada Growth Incentive (CGI) capital gains exemption. It would allow a Canadian-resident individual to claim a tax exemption of up to $15 million on capital gains from selling qualifying shares of a qualifying corporation. The $15 million limit would apply separately to each qualifying individual for each business. The measure would apply in respect of qualifying shares of a qualifying corporation issued on or after Budget Day and before 2037.

The measure is expected to cost $565 million over the five-year projection period.

How to qualify

To qualify for the new CGI capital gains exemption, there must be a qualifying individual, a qualifying share, and a qualifying business. Specifically:

  • Qualifying individual: For an individual to qualify, he or she must be an individual (other than a trust) and be at least 18 years old at the time of acquiring a qualifying share. Such individual must also be resident in Canada throughout the year in which they claim the exemption.

    Further, a qualifying share (described below) needs to have been issued by a qualifying corporation (also described below) to the individual (or to a partnership in which the qualifying individual is a member) and owned directly by the qualifying individual or by the partnership. If a partnership acquired the qualifying share, then the qualifying individual would have to have been a member of the partnership and at least 18 years old.

  • Qualifying share: A share in the capital stock of a corporation would be a qualifying share of a qualifying corporation where the following conditions are met:
    • At the time the share is issued, the corporation was a CCPC and at least 90 per cent of the fair market value of the CCPC’s assets were used (or reasonably intended to be used within 36 months of the share’s issuance) principally in a qualifying business carried on in Canada.
    • Immediately before and after the time the share is issued, the combined carrying value of the assets of the corporation and all related corporations does not exceed $100 million.
    • The share must have been issued solely for cash consideration or in exchange for employment services provided by the qualifying individual to the qualifying corporation. It is expected that continuity rules will extend to cover shares issued on a share exchange or in the course of a reorganization.
    • Throughout the time the qualifying individual owned the share, 50 per cent or more of the fair market value (FMV) of the corporation’s assets are attributable to assets used (or reasonably intended to be used) principally in a qualifying business. Further, for at least 24 consecutive months immediately following the share’s issuance, the qualifying business must be carried on primarily in Canada.
    • For at least 36 consecutive months immediately before the disposition, the share must have been held by the qualifying individual (or qualifying partnership).
    • At the time of disposition, (i) the corporation must be a Canadian resident and either a private corporation or a public corporation listed on a designated stock exchange in Canada and (ii) all or substantially all of the FMV of the corporation’s assets must be attributable to assets used principally in a qualifying business.
  • Qualifying business: A qualifying business would be an active business other than:
    • Businesses providing consulting services, a professional practice (e.g., accountant, lawyer, notary, physician, etc.) or any business whose principal asset is the reputation or skill of one or more employees.
    • A business in the agricultural, fishing, forestry, mining, financial, insurance, utilities, real estate, food and accommodation, arts, recreation, or entertainment sectors.
    • A business operating under a licensing or franchising agreement.

Additional rules

In addition to the above-noted qualifications and rules, it is proposed that additional rules will be introduced to prevent access to the CGI exemption in a manner that is not aligned with the intent of the measure. Moreover, if a CGI exemption is claimed, this would limit the taxpayer’s ability to claim the lifetime capital gains exemption on the same disposition (and vice versa).

Similar to the existing lifetime capital gains exemption, a capital gain exempted through the CGI exemption would be subject to an inclusion rate of 30 per cent under the alternative minimum tax.

Takeaway

Founders, early employees and angel investors in Canadian CCPCs in eligible sectors should consider structuring new share issuances to meet these conditions from day one, thereby maximizing the availability of the new CGI exemption.

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2. Canada Growth Incentive: Rollover for investments in small businesses

The current rule

Under the Income Tax Act (Canada) (ITA), individuals can defer tax on capital gains from selling eligible small business corporation (ESBC) shares. The deferral applies to the extent the proceeds of disposition are reinvested in replacement ESBC shares in the year of sale or the following calendar year. There are three main conditions that apply:

  • The shares were held for at least 185 days before the sale.
  • Throughout the holding period, the corporation was a taxable Canadian corporation with at least 90 per cent of its assets used in an active business or held as shares or debt of a related active business corporation.
  • The active business was carried on primarily in Canada for the lesser of two years and the holding period.

The proposal

Budget 2026 proposes the following changes to the existing regime:

  • A longer reinvestment window: the replacement period would cover the year of sale plus the following three calendar years. An individual who does not reinvest in the year of sale could either pay tax on the gain or claim a reserve that defers it to the next year. This deferral would be available until the replacement period ends.
  • Special treatment for a simple agreement for future equity (SAFE) and similar agreements: an investor might sign an agreement with an ESBC before the three-year period ends, providing immediate capital in exchange for shares to be issued later. That investor could defer the gain for two additional years (i.e., up to five years in total). If no ESBC shares are issued by the end of the fifth year after the year of sale, the deferred gain would be taxed.
  • Interest on proceeds that are never reinvested: interest at the prescribed rate would apply to any proceeds not ultimately reinvested. It would run from the balance-due day for the year of sale to the end of the year in which the gain is taxed.
  • A relaxed active business test: while the shares are held, the asset test would drop from "all or substantially all" (i.e., 90 per cent or more) to "primarily." The stricter "all or substantially all" threshold would still have to be met when the shares are issued and when they are sold. The business would also need to be carried on primarily in Canada at issuance and for the lesser of two years and the holding period after that.

These changes would apply to qualifying dispositions on or after January 1, 2027. The government estimates the cost at $150 million over the projection period.

Takeaway

Canadian investors and exiting founders looking to recycle gains into new Canadian small businesses will have far more time to find suitable reinvestment opportunities. Further, SAFE-style financing, if the proposal is enacted, will become a more workable reinvestment option.

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3. Helium exploration, development and resource expenses

Under the ITA, certain expenses related to petroleum and natural gas exploration, development and property acquisition are classified as Canadian exploration expense (CEE), Canadian development expense (CDE) or Canadian oil and gas property expense (COGPE), which are deductible at rates of 100 per cent, 30 per cent and 10 per cent, respectively. The proposed Productivity Mega Deduction would increase the CDE rate to 100 per cent.

Budget 2026 proposes to align the treatment of helium with that of the conventional oil and gas sector, so that helium exploration and development expenses would qualify as CEE and CDE, and expenses incurred to acquire helium resource properties would qualify as COGPE. The measure would apply to expenses incurred on or after Budget Day and is expected to provide $54 million in tax relief over four years.

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4. Clean electricity and clean technology investment tax credits

Budget 2026 proposes to extend two previously introduced investment tax credits focused on green energy and technology. The clean electricity investment tax credit (Clean Electricity ITC) is a refundable credit worth up to 15 per cent of the capital cost of qualifying low-emission generation, storage and interprovincial transmission assets. The clean technology investment tax credit (Clean Tech ITC) is a refundable credit worth up to 30 per cent of the capital cost of qualifying clean technology property.

Extension to 2040

Currently, both credits are only available for property that becomes available for use before 2034. Budget 2026 proposes to extend that limit by six years to the end of 2040. Property becoming available for use before 2041 would therefore qualify. The rate of the Clean Tech ITC in its final year will fall to 15 per cent. This was the case under the previous legislation, but the final year would now be 2040 instead of 2034.

High-voltage intra-provincial transmission

Budget 2026 proposes to expand the Clean Electricity ITC to intra-provincial transmission property built to operate at or above each province's highest transmission voltage, or at least 69 kilovolts in the territories. Currently, the credit is only available for interprovincial transmission property. Buildings and distribution equipment would remain excluded from eligibility for this credit. The measure would apply to property acquired on or after Budget Day, and further eligibility details will be released later.

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5. Mineral exploration tax credit and critical mineral exploration tax credit

The mineral exploration tax credit (METC) and the critical mineral exploration tax credit (CMETC) are set to expire on March 31, 2027. Budget 2026 proposes to extend eligibility for both credits for five years, to flow-through share agreements entered into on or before March 31, 2032.

The METC and CMETC are non-refundable tax credits equal to 15 per cent of specified mineral exploration expenses and 30 per cent of specified critical mineral exploration expenses, respectively, incurred in Canada that resource companies renounce or “flow through” to investors owning flow-through shares. The credits are intended to support junior mining companies engaged in grassroots exploration.

Budget 2026 also proposes to add antimony to the list of “critical minerals” eligible for the CMETC, building on the 12 minerals added to the list in Budget 2025. This expansion would apply to expenditures renounced under flow-through share agreements entered into after November 5, 2026 and on or before March 31, 2032.

The Government of Canada expects these measures to provide $956 million in support of mineral exploration investment over five years. Following a one-year extension in Budget 2024 and a two-year extension in Budget 2025, the longer five-year extension should give issuers and investors greater certainty when planning multi-year exploration programs.

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6. Scientific research and experimental development tax incentive program

Budget 2026 proposes expanding the SR&ED program to two categories of commercialization activities. SR&ED is a widely used program that provides a full deduction for qualifying expenditures in the year in which they are incurred as well as an investment tax credit of 35 per cent for eligible small- and medium-sized corporations and 15 per cent in other cases.

Regulatory and certification requirements

First, the testing, technological validation and study work a business must undertake to secure the initial regulatory approval or certification required to bring a product or process to market would become an eligible activity for purposes of SR&ED. The usual categories of SR&ED expenditures (e.g., wages, materials, contracts, overhead and machinery and equipment) could be claimed for this work.

Intellectual property protection

Second, the cost of obtaining and keeping intellectual property (IP) protection would become an eligible expenditure for purposes of SR&ED. To be eligible, the IP must arise from a project that already qualifies for the SR&ED program under existing criteria. Covered forms of protection would include patents, certificates of supplementary protection, plant breeders' rights and copyrighted software, whether obtained in Canada or under comparable regimes in foreign jurisdictions.

Both changes would be available for taxation years beginning on or after Budget Day.

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7. Interest deductibility limit

Excessive interest and financing expenses limitation (EIFEL) rules were previously introduced to implement the OECD/G20 BEPS Action 4 recommendations. These rules cap the net interest and financing expenses that certain taxpayers can deduct to a percentage of tax EBITDA (calculated on a group basis).

Budget 2026 would expand and enact two previously proposed (but not enacted) exceptions to the EIFEL rules. The first, from Budget 2024, would shelter interest and financing expenses from the EIFEL rules if they were incurred before 2036 on borrowings used to build, acquire or convert property into purpose-built rental housing in Canada. The second, announced on August 12, 2024, does the same for borrowings used to carry on a regulated energy utility business in Canada.

Indirect borrowings

As currently drafted, each carve-out is available only if the borrower itself deploys the funds in the qualifying activity, so this excludes indirect borrowings. Budget 2026 proposes to address this gap by allowing the borrower to rely on the exception where an affiliated corporation, trust or partnership carries on the qualifying activity. Relief would also extend to activities carried on by a partnership in which the borrower and its affiliates together hold an interest of 40 per cent or more. Related consequential amendments are also contemplated.

Regulated energy utility business

Budget 2026 also proposes to expand and clarify the definition of a regulated energy utility business for purposes of the previously proposed EIFEL exception. The definition would cover a business where the prices of all or substantially all of its products or services are:

  • Set, approved or guaranteed by a government, which would include sales to Crown corporations; or
  • Determined through a government-run market that facilitates delivery for consumption or use in Canada.

Consistent with the original proposals, these changes would apply retroactively to taxation years beginning on or after October 1, 2023. Impacted businesses should review their existing financing structures to confirm whether the expanded exceptions are available.

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8. Consultation on corporate loss transfers

Under the Canadian corporate tax system, a corporation calculates its income and tax payable and files its corporate income tax returns on a stand-alone, separate entity basis. There is no consolidation. Neither is there an ability for one corporation to transfer losses to a related corporation by way of an election filed with the Canada Revenue Agency (CRA).

Because of the absence of consolidation or any simple loss transfer mechanism, a Canadian corporate group where some members have income and other members have losses will sometimes undertake intra-group transactions to allow the group member with income to benefit from the losses of the other group member. These transactions include intra-group asset transfers, amalgamations, wind-ups and intra-group financing arrangements. The Department of Finance and the CRA have frequently acknowledged that these types of transactions are often permissible for related Canadian corporations, i.e., not considered a misuse or abuse per se, although the transactions must be legally effective.

These intra-group loss utilization transactions can be cumbersome and impractical from a business perspective and are always subject to audit review by the CRA. A mechanism to transfer losses within a related Canadian corporate group by way of an election filed with the CRA would be a welcome alternative.

The Department of Finance put forward corporate loss transfer consultation papers in 1985 and again in 2010; however, neither proposal evolved into legislation.

Budget 2026 makes a new proposal for a corporate loss transfer mechanism. At this time the proposal is only put forward for comment and consultation. Interested parties are invited to make submissions to the Department of Finance by January 8, 2027. The effective date for any new system is an open question.

The scope of possible loss transfers under the Budget 2026 proposal is quite limited.

Qualifying Corporate Group and Eligible Corporations

Loss transfers would only be permitted between corporations that are members of a Qualifying Corporate Group, being:

  • A parent corporation and a subsidiary corporation that is wholly owned, directly or indirectly, by the parent corporation.
  • Two subsidiary corporations that are wholly owned, directly or indirectly, by the same parent corporation.

Also, each corporation must be an Eligible Corporation, being a corporation resident in Canada that is subject to tax under Part I of the ITA.

Joint election

The corporate loss transfer would be effected by two corporations making a joint election that would be filed with the CRA. The filing deadline is not specified.

Current year non-capital losses only

Only current year non-capital losses can be transferred under the proposed election. Non-capital losses from prior years cannot be transferred. Current year or past year capital losses cannot be transferred. Furthermore, any portion of the transferred loss that is not used by the transferee in the current year cannot be carried back or carried forward.

Where the transferor and the transferee have different year ends, it is not clear in which transferee taxation year the transferred losses could be used. Presumably, this is one of many details to be worked out as the consultation progresses.

Provincial and territorial allocation

Budget 2026 identifies the concern that an intra-group loss transfer could reduce taxable income in a different province or territory from where the loss arose, thus adversely affecting the provincial or territorial tax base in the transferee’s jurisdiction. Accordingly, the Budget 2026 proposal would only allow a loss transfer where:

  • The transferor has a permanent establishment in only one province or territory.
  • The transferee has a permanent establishment in only one province or territory.
  • The permanent establishments of the transferor and transferee are in the same province or territory.

The Budget 2026 proposal does leave open the possibility of loosening these restrictions as long as provincial and territorial tax bases are protected.

Finally, Budget 2026 notes that tax integrity will have to be addressed in the details of any final loss transfer system. By this, it appears that the Department of Finance is concerned about double counting of tax benefits or attributes or other unintended and inappropriate results.

Although Budget 2026’s corporate loss transfer proposal is quite limited in scope, it is welcome. Any ability to transfer losses within a wholly owned Canadian corporate group without potentially complicated and cumbersome intra-group transactions would make life a little easier for Canadian businesses.

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9. Taxable preferred shares

Budget 2026 proposes modest but overdue amendments to the Part VI.1 tax regime, which is a complex set of rules intended to discourage certain financing structures with tax benefits.

Part VI.1 tax is a tax payable by an issuing corporation on dividends paid by it on “taxable preferred shares” and “short-term preferred shares.” The tax was introduced as part of the 1987 White Paper on tax reform to combat after-tax financing structures that use preferred share financing as a substitute for debt financing and, as a consequence, the payment of tax-deductible intercorporate dividends in lieu of taxable interest to corporate shareholders. In circumstances where the issuing corporation does not pay income tax, for example because it has unused deductions or loss carry forwards, a preferred share financing structure arguably subverts the ITA’s policy of integration (which is based on the assumption that intercorporate dividends are deductible because they are paid from the after-tax income of the payor).

Budget 2026 amends the rather complex Part VI.1 tax regime in two ways. First, it will no longer apply to dividends paid by a CCPC. Second, the dividend allowance, the amount of a dividend that can be paid in a year that is not subject to Part VI.1 tax, is increased from $500,000 to $1,500,000 and the threshold for the reduction of the dividend allowance is increased from $1,000,000 to $3,000,000.

These changes respond in a modest way to severe criticisms of the Part VI.1 tax regime that have been circulating for years. The criticisms were most recently expressed in extensive and detailed submissions made to the Department of Finance by the Joint Committee on Taxation in October 2026, and by STEP Canada in August 2026, both suggesting that the regime is no longer required, is overly complex and economically distortive, itself subverts the integration policy, and is overly broad in its application while overly narrow in its exemptions. Perhaps in response to these criticisms, Budget 2026 announces a broader review of the Part VI.1 regime and requests written submissions by January 8, 2027.

On a positive note, the exclusion of dividends paid by CCPCs from Part VI.1 is a welcome step forward as it alleviates some of the more distressing consequences of the regime in the context of business succession planning and post-mortem tax planning.

These measures apply to taxation years ending after 2026 (although the exemption for dividends paid by CCPCs is to apply to dividends paid on or after Budget Day).

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10. Corporate tax elections

A number of provisions of the ITA and the Income Tax Regulations (Regulations) require that certain corporate tax elections or agreements be filed with the CRA together with a certified copy of the directors or administrators authorizing resolution. For example, certified resolutions are required with capital dividend elections and transfers of tax liability on certain taxable dividends, among about a dozen other such provisions. Budget 2026 proposes to eliminate these requirements.

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11. Instalment payments for individuals and corporations

Individuals who earn income that is not subject to withholding at source (such as business, investment, rental and certain pension income) must generally pay quarterly tax instalments if their net tax owing exceeds $3,000 ($1,800 for Québec residents) in the current year and either of the two preceding years. Corporations must generally pay monthly or quarterly instalments unless their federal tax payable is $3,000 or less in the current or preceding year.

Budget 2026 proposes to increase these thresholds, which have not changed since 2008, to $7,500 for corporations and for individuals resident outside Québec, and to $4,500 for individuals resident in Québec. The thresholds would be indexed to inflation and rounded to the nearest $500. This measure would apply to taxation years that begin on or after January 1, 2028. The Government of Canada estimates that nearly 1.1 million individuals and 185,000 incorporated businesses would no longer be required to pay instalments.

Budget 2026 also proposes to allow individuals whose primary source of income is from a business (including professional or commission income) to make a single annual instalment equal to two thirds of their net tax owing for the year by December 31, with the balance due on the balance-due date.

This would extend the treatment currently available to farmers and fishers to other self-employed individuals, and would particularly benefit those with seasonal income, who can currently be required to pay instalments on income they have not yet earned. This measure would apply to the 2028 and subsequent taxation years.

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12. Income tax return filing and balance-due dates for individuals

Most individuals must currently file their T1 income tax return for a particular year and pay any balance owing by April 30 of the following year. Self-employed individuals and their spouses or common-law partners have until June 15 to file but must still pay any balance owing by April 30.

Budget 2026 proposes a single May 15 filing and balance-due date for all individuals, including self-employed individuals and their spouses or common-law partners, for the 2027 and subsequent taxation years. The Government of Canada expects the additional time to receive and process information slips to reduce reassessments and save Canadians approximately $230 million in interest and penalties over five years.

While most individuals would gain an additional 15 days to file and pay, self-employed individuals would have one less month to file their returns.

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13. Foreign income verification statement: Form T1135

Canadian-resident individuals, corporations and trusts, as well as certain partnerships, must file a foreign income verification statement (Form T1135) with the CRA if the total cost of their specified foreign property exceeds $100,000 at any time in the year. Specified foreign property generally includes most income-earning property held outside Canada, other than personal-use property and property used in an active business. A simplified reporting method is available where the total cost is less than $250,000 throughout the year.

Budget 2026 proposes to increase the filing threshold to $200,000, which is expected to exempt approximately one third of current filers. The CRA would also increase the simplified reporting threshold to less than $500,000.

These measures would apply to taxation years or fiscal periods that end after 2026. For individuals, the new thresholds would therefore first apply for the 2027 taxation year.

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14. Trust distributions to non-residents

A personal trust, such as a family trust, may transfer property to a Canadian resident beneficiary on a tax-deferred basis (i.e., a “rollout”) in satisfaction of the beneficiary’s capital interest in the trust.

However, all trusts, including personal trusts, cannot roll out property to a non-resident beneficiary (except a limited group of assets that remain subject to Canadian tax). This ensures that Canada can tax any gain that accrued on property while held in the trust.

Budget 2026 introduces a new measure to curtail certain tax avoidance planning techniques involving the indirect rollout of trust property to a non-resident beneficiary. This measure will broaden the current rollout denial rule to include indirect distributions of trust property to non-resident beneficiaries that occur on or after November 5, 2026.

The rollout would be denied for any property that is transferred to a corporation resident in Canada (or partnership) that has a direct or indirect non-resident shareholder (or partner).

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15. Section 116 withholding reduction

Budget 2026 reduces the existing withholding tax rates on taxable Canadian property from 25 per cent to 15 per cent for capital property other than specified taxable Canadian property (Specified TCP), and from 50 per cent to 30 per cent for Specified TCP.

Canada taxes non-residents on dispositions of taxable Canadian property, which principally includes Canadian real property and certain resource properties, as well as shares and other equity interests that derive more than 50 per cent of their value from such properties. To ensure enforcement, section 116 of the ITA contains a withholding and compliance regime which generally requires a purchaser to withhold on the gross purchase price, unless the vendor provides a certificate of compliance to the purchaser.

To obtain a certificate of compliance, the vendor is required to remit an estimate of actual taxes based on the income or gain realized. While the tax rate applied for remittances in respect of Specified TCP has been, and will continue to be, the vendor’s actual tax rate, the tax rate for capital gains has been fixed at 25 per cent. This fixed rate will now be reduced to 15 per cent. That lower rate is essentially a compromise between the effective capital gains tax rate for corporations, which can be as low as 12.5 per cent, and the effective capital gains tax rate for individuals and trusts, which is closer to 25 per cent in most cases.

These are welcome changes particularly for investors in commercial, industrial and multi-residential real estate, where high withholding rates, coupled with leveraged investments and slow CRA processing of applications for compliance certificates, present liquidity challenges.

A further change under section 116 will be made where the vendor and purchaser jointly elect under section 85 to fully tax defer any gains. Vendors and purchasers will be exempted from withholding and remittance obligations provided that the requisite section 85 election is filed within 30 days and the purchaser provides notice of the transaction to the CRA. An existing anti-avoidance rule that denies the rollover if, within three years, there is a subsequent disposition of the transferred or substituted property, with one of the main purposes being to benefit from the exemption will be extended from three to five years.

The changes to section 116 also appear to indirectly address some of the concerns raised in a January 2025 submission to the CRA by The Joint Committee on Taxation of The Canadian Bar Association and Chartered Professional Accountants of Canada, though many of the administrative concerns raised in that submission relating to CRA’s administration are not addressed in Budget 2026.

The changes to section 116 will apply to dispositions that occur on or after January 1, 2027.

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16. Pensions, retirement savings and employee benefits

Although Budget 2026 contains no major pension reform package, it introduces several targeted measures that will be important for pension plan sponsors, administrators and owner-managers.

Budget 2026 does not propose changes to registered retirement savings plan (RRSP), tax-free savings account (TFSA) or first home savings account (FHSA) contribution limits, new domestic investment mandates for pension funds or pension funding reforms. Instead, the pension measures focus on plan integrity, compliance and administration, with the most significant changes affecting registered pension plans (RPPs) and individual pension plans (IPPs).

Revocation of registered pension plans

The most consequential pension tax measure in Budget 2026 is the introduction of a comprehensive regime governing the revocation of RPP registration.

Under existing rules, a plan that ceases to satisfy the registration requirements of the ITA may become a “revocable plan,” but the tax consequences of an actual revocation are not fully articulated. Budget 2026 proposes to address that gap by imposing a series of significant tax consequences where registration is revoked after 2026.

The proposals would:

  • Impose a special tax equal to 10 per cent of the FMV of plan assets immediately before revocation, subject to a discretionary CRA waiver where just and equitable.
  • Deem the revoked plan to be a retirement compensation arrangement (RCA).
  • Deem the plan to have contributed its assets (net of the revocation tax) to the RCA, triggering the refundable RCA tax regime.
  • Require the administrator to file a return and remit the revocation tax within 90 days of revocation.

These changes substantially increase the consequences of losing registered status. The combination of a 10 per cent revocation tax and the RCA refundable tax regime could leave a significant portion of plan assets tied up in refundable tax following revocation. Registration compliance is therefore no longer merely an administrative concern; it has become a potentially significant financial risk. Plan sponsors and administrators should treat registration compliance issues as a priority and address any CRA concerns promptly.

Individual pension plans

Budget 2026 also proposes a series of integrity measures aimed at IPPs, which are defined benefit pension plans commonly used by owner-managers and other closely held businesses.

First, effective January 1, 2027, the definition of an IPP would be expanded. A defined benefit plan would be treated as an IPP where all members are either related to a participating employer or do not deal at arm’s length with such a member. This measure appears intended to prevent plans from avoiding IPP status by admitting additional related members.

Second, beginning January 1, 2028, IPPs would become subject to the advantage, non-qualified investment and prohibited investment rules that currently apply to RRSPs, registered retirement income funds (RRIFs) and TFSAs. The controlling individual would generally be subject to a 50 per cent tax on non-qualified or prohibited investments and a 100 per cent tax on the value of an advantage. Transitional relief would be available for certain existing investments.

Third, beginning January 1, 2028, an IPP with assets exceeding 200 per cent of its pension liabilities would become a revocable plan unless corrective action is taken following CRA notice. If revocation ultimately occurs, the new revocation regime would apply.

Viewed collectively, these measures suggest a policy concern that some IPPs may be functioning more as tax-assisted wealth accumulation vehicles than traditional pension arrangements. In many respects, the proposals align IPPs more closely with the integrity rules that have long applied to RRSPs, RRIFs and TFSAs. Owner-managers should review their plan membership, investment holdings and funded status well before the 2027 and 2028 implementation dates. Particular attention should be paid to investments involving the sponsoring corporation or related parties and to mature plans with substantial surpluses.

Information sharing with pension administrators

A practical but welcome change would permit the CRA to confirm to an RPP administrator that a plan member is deceased.

Administrators frequently encounter difficulties locating deferred vested members or verifying deaths, and existing tax confidentiality rules can impede benefit administration. Allowing the CRA to confirm deceased status should help administrators address unclaimed benefits more efficiently and facilitate timely payment of survivor benefits. This measure would take effect upon royal assent.

“RRSP for Life”

Budget 2026 also launches consultation on a more fundamental concept: an “RRSP for Life.”

The proposal would eliminate the existing requirement to convert an RRSP to a RRIF at age 71, while continuing to require minimum withdrawals after that age. The government is also considering a successor-holder regime for spouses and common-law partners that would allow the arrangement to continue until the death of the survivor and permit direct tax-free transfers on death. Draft legislative proposals are included in the budget materials.

If implemented, this would represent one of the most significant structural changes to Canada’s registered retirement savings framework in decades. It is important to note, however, that the proposal would not extend tax deferral: minimum withdrawals would still begin in the year after the holder turns 71. The proposal is particularly notable for pension practitioners because assets transferred from RPPs are generally required to be held in locked-in vehicles.

The Department of Finance acknowledges that amendments to federal and provincial pension standards legislation may be required if the initiative proceeds, and the need for coordinated provincial changes may lengthen the implementation timeline for locked-in accounts. Submissions are invited through January 8, 2027.

We see real benefits in the proposal. Removing the age 71 conversion would simplify retirement decumulation and spare financial institutions the administrative burden of converting accounts, and a successor-holder regime would provide a much smoother transition on death, similar to the approach already available for TFSAs.

However, the proposal does not respond to calls to raise the age at which withdrawals must begin, and implementation will also require financial institutions to update their systems. Removing the age 71 conversion event may also reduce the extent to which retirees consider purchasing life annuities at that stage.

Registered disability savings plans

Budget 2026 would make permanent the temporary rule allowing a qualifying family member to establish and administer a registered disability savings plan (RDSP) on behalf of an adult whose contractual capacity is uncertain. The measure was previously scheduled to expire at the end of 2026.

This change eliminates uncertainty for affected families and preserves an administratively simple mechanism for accessing the RDSP regime.

Pension fund investment policy

Notably, Budget 2026 does not propose Canadian-content requirements, domestic investment quotas or other mandatory investment rules for pension funds.

Instead, the government’s approach is to encourage investment through opportunities and incentives, including the new Canada Strong Fund and other nation-building investment initiatives. According to the government, pension funds, insurers and other institutional investors have already made nearly $100 billion in investment commitments. Budget 2026 also confirms continued work on environmental, social and governance disclosure requirements, including climate-related risk disclosure for federally regulated pension plans.

Our perspective

In our view, Budget 2026 is not a retirement savings reform budget, but rather a pension tax administration budget. We see the new consequences of RPP revocation and the expanded anti-avoidance regime for IPPs as the most significant technical measures, and we expect the “RRSP for Life” consultation to attract the most attention from financial institutions and individual savers. We also welcome the CRA death-confirmation measure as a modest change with considerable practical value for administrators.

Conclusion

Budget 2026 is notable as much for what it does not do as for what it does. It does not propose headline changes to retirement savings limits, pension funding rules or pension investment restrictions. Instead, Budget 2026 focuses on integrity, compliance and administration.

The RPP revocation regime may ultimately have the greatest practical impact, “RRSP for Life” will likely generate the most public interest, and the IPP package is the measure most likely to concern owner-managed businesses and their advisors. Sponsors of IPPs and other closely held plans should begin assessing potential exposure well before the 2027 and 2028 effective dates, while all pension administrators should note that maintaining registered status is set to become considerably more important under the proposed rules.

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17. Charitable and non-profit sector

Budget 2026 contains a handful of targeted measures for those operating in the charitable and non-profit sector. These amendments focus on simplifying administration rather than imposing new obligations.

Proposed changes to the excess corporate holdings regime for private foundations

The excess corporate holdings regime (Regime) prevents foundations from holding more than 20 per cent of a class of shares of any corporation, counting the holdings of "relevant persons" (generally individuals acting at non-arm's length with the foundation). As a result, private foundations must track and report these holdings, and any material transactions in them, to the CRA by filing Form T2081, Excess Corporate Holdings Worksheet for Private Foundations, alongside the Form T3010 Registered Charity Annual Information Return.

Further, if combined holdings exceed 20 per cent and the private foundation itself holds more than 2 per cent of the class (considered an insignificant interest with no reporting obligation), it may have to sell off the excess within a set period.

Budget 2026 proposes eliminating the Regime and instead extending to private foundations the rule currently barring public foundations from acquiring control of a corporation. Eliminating the Regime could serve to benefit private foundations that hold significant shares in corporations to which they are connected (relevant persons). Private foundations would therefore no longer need to track and report shareholdings or divest excess shares; instead, they would face a new, simpler limit: a ban on acquiring control of a corporation.

Such proposed measures would apply to private foundations in taxation years beginning on or after January 1, 2027.

Proposed penalties for failure to file information returns

Under the proposed administrative changes, the penalty for failing to file a required information return (subsection 188.1(6) of the ITA) has been increased from $500 to $1,000. This amendment is to apply to 2028 and subsequent taxation years for registered charities, registered foreign charities, registered Canadian amateur athletic associations and registered journalism organizations that fail to file their tax returns (as required under subsection 149.1(14), (14.1) or (14.2) of the ITA). Interestingly, registered charities are explicitly excluded from the new general penalty for failing to comply with a duty or obligation under subsection 162(7.0003) of the ITA. 

Confirmation of non-profit organization reporting obligations

Budget 2026 confirms the previously announced measure of January 29, 2026 regarding the implementation of reporting requirements for non-profit organizations.

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18. Notice of objection timelines

Budget 2026 proposes to extend the deadline for filing a notice of objection to an income tax assessment from 90 days to one year from the date the notice of assessment is sent.

Under the current rules, most taxpayers have 90 days from the date the notice of assessment is sent to file a notice of objection. Individuals and graduated rate estates have until the later of that 90-day deadline and one year after the filing-due date for the taxation year being assessed. If a taxpayer misses the deadline, they may apply to the CRA for an extension of time within one year of the original deadline. The CRA grants this extension in almost every case.

Under the proposed amendments to subsection 165(1) of the ITA, the new deadlines would be as follows:

  • Individuals (other than trusts) and graduated rate estates would have until the later of two years after their filing-due date for the year and one year after the date the notice of assessment is sent.
  • All other taxpayers, including corporations and trusts, would have one year after the day the notice of assessment is sent.

The new deadlines would replace the existing extension period, and taxpayers would no longer be able to apply to the CRA for an extension of time to object to an assessment. Amended subsection 166.1(1) of the ITA would keep the extension application only for objections under subsection 168(4) of the ITA (which deals with proposals to revoke the registration of charities and other qualified donees, and related designations) and for requests under subsection 245(6) of the ITA (which relates to the general anti-avoidance rule). The 90-day objection period under subsection 168(4) would remain unchanged.

The new rules would apply to notices of assessment (and determinations) sent on or after the day that is three months after the enacting legislation receives royal assent. Notices of assessment sent before that day would remain subject to the current rules.

The Government of Canada expects the change to simplify the objection process and to eliminate the need for the CRA to review and approve extension requests. Taxpayers should nonetheless be aware of what is being given up. Under the current rules, a taxpayer that misses the 90-day deadline can almost always obtain an extension of time from the CRA.

Under the proposal, the one-year deadline would be a hard limit for income tax assessments, with no extension available. Taxpayers and their advisors should therefore continue to diary objection deadlines carefully.

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19. Disclosure of tax debt to credit bureaus

Budget 2026 proposes to allow the CRA to disclose certain unpaid tax debts to credit bureaus. The proposal responds to a practical collection issue: the CRA can use collection tools such as set-off, garnishment and seizure and sale of assets, but the ITA currently limits the disclosure of taxpayer information and does not generally permit the CRA to report tax debts to credit bureaus.

The measure would apply only where the taxpayer’s outstanding tax debt exceeds $50,000 and the underlying assessments or reassessments are no longer under objection or appeal, with all rights of objection and appeal having expired or been exhausted. The CRA would also have to give the taxpayer written notice at least 30 days before disclosure, take reasonable steps to collect the debt, and give the taxpayer an opportunity to make reasonable repayment arrangements.

The measure is aimed at collection and does not provide for general publication of tax debts. In practice, it is likely to be most relevant to taxpayers with significant, final and unpaid debts who have not entered into reasonable payment arrangements.

Budget 2026 also proposes parallel amendments to the Excise Tax Act on the same conditions. The measure would apply on royal assent of the enacting legislation.

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20. Administrative penalties

Budget 2026 proposes a broad update to administrative penalties under federal tax statutes following the Government of Canada’s review of fines and penalties announced in Budget 2025. The stated objective is to ensure that non-compliance is not treated as merely a cost of doing business and that fixed-dollar penalties remain meaningful over time.

The principal income tax changes would increase most fixed-dollar administrative penalties to broadly account for inflation since they were enacted. The draft legislation would also add new section 162.1 of the ITA to index specified penalty amounts on January 1, 2033, and every five years after that.

Budget 2026 also proposes to calibrate certain penalties by taxpayer size. Individuals and smaller corporations and partnerships would remain subject to base fixed amounts. Medium corporations and partnerships would generally face penalties equal to three times the base amounts, while large corporations and partnerships would generally face penalties equal to eight times the base amounts.

The proposals would also introduce new repeated-failure penalties for certain failures to file information returns and certain failures to comply with duties or obligations where no more specific penalty applies.

Although much of the package is framed as an inflation adjustment, the size-based calibration could materially increase penalties for routine information-reporting failures by larger corporations and partnerships.

The income tax measures would generally apply to taxation years or fiscal periods ending after 2027.

Budget 2026 also proposes to increase most fixed-dollar administrative penalties under other federal tax statutes and to index them to inflation once every five years, generally in line with the proposed income tax penalty changes.

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21. GST/HST measures

Expansion of pre-approval period for ITC allocation methods of financial institutions

Budget 2026 proposes to amend the Excise Tax Act (Canada) (ETA) to permit a financial institution that is a “qualifying institution” for purposes of the input tax credit allocation rules to apply for pre-approval of its Goods and Services Tax/Harmonized Sales Tax (GST/HST) allocation method for three consecutive years. The current pre-approval is required annually.

The Minister may approve such a three-year application for the whole period, or just for one year. In the latter case, the financial institution is permitted to make subsequent pre-approval applications for the second and following years for the same, or for a different, allocation method.

The expansion of the pre-approval period is to apply to a financial institution from its first fiscal period beginning after June 30, 2027.

Updates to descriptions and references for HS codes

There is existing relief from the general rule that GST/HST applies on the import of goods into Canada. The ETA and the regulations delineate this relief by way of a host of references to products in the Customs Tariff (Canada), including many references to the so-called ‘HS codes’ assigned to each kind of good according to the internationally applied Harmonized Commodity Description and Coding System. However, the ETA and its regulations continue to reference HS codes as they existed before certain significant changes were made to the HS codes in 1998.

Budget 2026 proposes to update HS codes and product references in the ETA. The expressed intention is to generally maintain existing tax relief and to broaden or simplify relief so as to better align with current customs rules and commercial practices.

These changes will come into force on the first day of the second month after royal assent.

Tax relief for qualifying massage therapy services and alternative electric field therapy devices

From the Budget date, the exemption from GST/HST for certain health care services will extend to qualifying massage therapy services. In addition, the zero-rating for certain medical devices will extend to an alternating electric fields therapy device that is specially designed to treat cancer by disrupting the division of cancer cells and slowing or stopping tumour growth.

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22. Excise tax and duty measures

Update to federal excise tax regime for fuel sellers

A federal excise tax applies to gasoline, diesel and aviation fuel when imported into Canada or when manufactured in Canada and delivered to a purchaser. Licensed entities may qualify for relief when importing or purchasing fuel to ensure the excise tax is only applied one time to the same fuel, usually on the sale and delivery to an unlicensed purchaser.

For many years it has been known that the relief for licensed entities was flawed insofar as some wholesalers do not qualify for a licence, and some purchases by licensed manufacturers do not qualify for relief, in both cases resulting in double taxation.

Budget 2026 proposes to amend the ETA to expand the eligibility for a wholesaler licence and to broaden the relieving rules for fuel purchased or imported by licensed manufacturers. In addition, Budget 2026 proposes to extend a time-limited payment for certain past instances of double tax having been payable.

These federal excise tax measures are to come into force on the day following royal assent.

Changes to provincial cannabis excise duty stamps

Cannabis products are subject to an excise duty stamp regime under the Excise Act, 2001 (Canada). In order to permit the Government of Canada to share excise duty revenues with provinces, the existing stamp regime requires a province- or territory-specific excise stamp to be affixed to the cannabis product before it enters the duty-paid market.

Budget 2026 proposes to amend the regime to provide for a common stamp for cannabis products for use in all provinces and territories with the same provincial duty rate, which are currently British Columbia, Quebec, New Brunswick, Nova Scotia, Newfoundland and Labrador, Prince Edward Island, the Northwest Territories and Yukon. Provinces and territories will have until January 31, 2027 to confirm their participation in the common stamp regime.

Cannabis licensees will be able to affix the common stamp from January 1, 2028. Existing province- or territory-specific stamps may continue to be affixed until June 30, 2029, and their wholesale and retail sale will be permitted until December 31, 2029.

Notwithstanding the common stamp, the movement of cannabis products among provinces and territories will be generally prohibited. However, licensed producers will be able to accept returned product with a common stamp and re-enter the stamped product into another province or territory that participates in the common stamp regime by reporting the return and resale.

In addition, Budget 2026 proposes a new penalty at twice the duty payable for possession of cannabis that cannot be accounted for, and changes to the existing fines and penalties for contraventions in respect of the sale or distribution of unstamped cannabis edibles, topicals and extracts with certain THC concentrations.

These measures will come into force on royal assent.

Spirits license security requirements for excise warehouse licensees

Budget 2026 proposes to require excise warehouse licensees that are authorized to possess non-duty-paid packaged spirits to provide security as a condition of licensing. The amount of the security will be based on monthly excise duty liabilities, subject to a minimum of $5,000 and a maximum of $2 million.

This measure will apply to spirits and excise warehouse licenses issued on or after royal assent.

If you have any questions about the contents of Budget 2026, please contact a member of Gowling WLG’s Tax Group.

 

This analysis was prepared by the following members of the Gowling WLG Tax Group:

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