2026 Federal Budget: Key tax changes for Canadian businesses and investors

1. Introduction

On November 5, 2026, Minister of Finance and National Revenue François-Philippe Champagne tabled the 2026 Federal Budget, Masters of our destiny (“Budget 2026”), the second budget under the government’s new fall budget cycle. While acknowledging continued trade and geopolitical uncertainty, Budget 2026 points to a stronger economic starting point than a year ago, citing G7-leading growth in the second quarter and declining unemployment. It is framed as a plan to change Canada’s growth model by mobilizing private capital, raising productivity and diversifying trade, while balancing operating spending by 2027–28 and keeping the deficit-to-GDP ratio on a declining path. The deficit for 2026–27 is projected at $62.3 billion.

Budget 2026 does not raise personal or corporate income tax rates. Instead, it pairs major new investment incentives with what it describes as an effort to simplify Canada’s tax system.

A main component is the new Canada Growth Incentive, which provides a capital gains exemption of up to $15 million on qualifying shares of Canadian-controlled private corporations and enhances the small business investment rollover. The previously announced Productivity Mega Deduction is also confirmed. 

For private businesses and their owners, other notable proposed amendments to the Income Tax Act (Canada) (“ITA”) include:

• expanded rules preventing trusts from rolling out property indirectly to non-residents through a corporation or partnership;
• extension of the intergenerational farm and fishing property rollover to nieces, nephews, grandnieces and grandnephews;
• reduced section 116 withholding rates and relief from withholding for section 85 rollovers by non-residents, coupled with a stronger anti-avoidance rule;
• a one-year period to file a notice of objection, up from 90 days; and
• a higher T1135 foreign reporting threshold of $200,000, up from $100,000.

Budget 2026 also changes the filing and balance-due date for individuals to May 15 (starting with the 2027 tax year), extends the clean economy investment tax credits to 2040, broadens the SR&ED program, and adjusts administrative penalties for inflation and taxpayer size.

Finally, Budget 2026 is proposing two consultation measures: first, to consider a corporate loss transfer regime for wholly-owned corporate groups, and second to combine the RRSP and RRIF into a single “RRSP for life”.

The Miller Thomson Tax Group has reviewed the Budget 2026 proposals. Below, we summarize the measures we expect to be of most interest to our clients across Canada.

2. Personal income tax measures

Canada Growth Incentive – capital gains exemption

Budget 2026 proposes a new capital gains exemption, the Canada Growth Incentive capital gains exemption (“CGI-CGE”) which will allow a Canadian resident individual to claim a tax exemption on capital gains realized on the disposition of “qualifying shares” of a “qualifying corporation”, of up to $15 million.  The $15 million limit  is not a lifetime limit.  As proposed, the limit will apply separately to each “qualifying individual” in respect of each business.  The CGI-CGE is proposed to apply based on a 10 year share issuance period and specifically to dispositions of “qualifying shares” of “qualifying corporations” issued on or after Budget Day and before 2037.

Who qualifies

A “qualifying individual” is an individual other than a trust who was at least 18 years old at the time they acquired the “qualifying share”.  Where the “qualifying share” is owned by a partnership, the individual must have been a member of the partnership at the time the share was acquired and at least 18 years old at that time.  The individual must own the share directly or through a partnership.   The individual must be resident in Canada throughout the year in which they claim the exemption.

What qualifies

There must be a capital gain on a disposition of a “qualifying share” in the year or a preceding taxation year.  The reference to a preceding taxation year is curious and may suggest that gains realized pursuant to a reserve may qualify.

A “qualifying share” is a share of a corporation where the following conditions are met:

Conditions at the time of share issuance

1. At the time of issuance: (a) the corporation must be a CCPC; and (b) all or substantially all of the fair market value of the corporation’s assets must be attributable to assets used, or “reasonably intended to be used within 36 months”, principally in a “qualifying business” carried on primarily in Canada.
2. Immediately before and after share issuance, the combined carrying value of the assets of the corporation and related corporations must not exceed $100 million.
3. The share must have been issued either: (a) solely for cash consideration; or (b) in exchange for employment services provided by the qualifying individual to the qualifying corporation.  Continuity rules would be proposed to deal with certain corporate reorganizations and share for share exchanges after the date of share issuance.

Conditions following share issuance

4. For a period of 24 months following share issuance, the qualifying business is required to be carried primarily in Canada.
5. Throughout the period of ownership, 50% or more of the FMV of the corporation’s assets must be attributable to the assets used, or “reasonably intended to be used”, principally in a qualifying business.  
6. The shares must be held by the individual (or partnership) for at least 36 months prior to disposition.

Conditions at time of disposition

7. At time of disposition: (a) the corporation must be a Canadian resident corporation that is a private corporation or a public corporation listed on a designated stock exchange in Canada; and (b) all or substantially all of the fair market value of the corporation’s assets must be attributable to assets used principally in the qualifying business. 

 A “qualifying business” is an active business that does not include consulting services, professional services, licensing or franchising business, or businesses under certain sectors such as agriculture, fishing, forestry, mining, financial insurance, utilities, real estate, food and accommodation, arts, recreation, or entertainment sectors. 

For AMT purposes, 30% of the capital gain exempted by the CGI-CGE will be included in adjusted taxable income. This is the same as the inclusion rate for capital gains to where the lifetime capital gains deduction is claimed.

A claim under the CGI-CGE would limit the individual’s ability to claim the lifetime capital gains exemption on shares of the same corporation, and vice versa.  However, an individual can claim both for a sale to an Employee Ownership Trust or worker cooperative.

Observations

A “qualifying share” must be issued for cash consideration (or in exchange for employment services) and although there is reference to continuity rules (no details yet provided), there is no reference to incorporating a sole proprietorship with shares issued in consideration therefor.  The test for the fair market value of the corporation’s assets used principally in a qualifying business is broadened by referring to assets “reasonably intend to be used within 36 months”.  Perhaps this may address concerns regarding surplus cash or capital which are projected to be invested in business assets.

Canada Growth Incentive – Rollover for investments in small businesses

The ITA presently contains a replacement property rule which permits the deferral of a capital gain realized on the disposition of an “‘eligible small business corporation share”. An “eligible small business corporation share” is not the same as a “qualifying share” as proposed for the CGI-CGE nor a share which is eligible for the lifetime capital gains exemption.  The deferral is generally based on reinvestment (within a specified period) of the  proceeds in replacement shares meeting certain criteria. While Budget 2026 uses the caption “Canada Growth Incentive – Rollover for Investments in Small Businesses”, the proposed amendments do not seem to relate to the new CGI-CGE.

Budget 2026 proposes to increase the period to acquire replacement shares by an additional two calendar years.   The replacement shares must be acquired in the year of disposition of the “eligible small business corporation shares” or in the three following calendar years.  Provision is also made for a simple agreement for future equity. Where the individual enters into an agreement within the three-year replacement period for upfront capital in return for future shares, the deferral will apply for an additional two years. 

The existing rules contain a maze of definitions which effectively require (among other things) that the shares disposed of and the replacement shares be shares of CCPC all or substantially all of the fair market value of the assets of which are attributable to assets used principally in an active business carried on primarily in Canada.  Further, the existing rules effectively require this “all or substantially all” test to be met throughout the period of the individual’s share ownership.  Budget 2026 proposes to lower this threshold.  While the “all or substantially all’ threshold will continue to apply at the time of disposition and the time of acquisition of the replacement share, the lower “primarily” test is proposed to apply as the asset value test during the period during which the individual owned the shares.

Expansion of the intergenerational farm and fishing property rollovers

Farmers and fishers are able to transfer certain farming and fishing properties, including shares of qualified farming and fishing corporations, on a tax-deferred (“rollover”) basis to a child, grandchild or great grandchild of themselves or their spouse or common-law partner, or to the spouse or common-law partner of such an individual.  The restriction to lineal descendants has historically made transferring farms and fishing property to other family members more costly.

Budget 2026 proposes to expand the classes of recipients who are eligible for these rollovers, for transfers beginning January 1, 2027 to a niece, nephew, grandniece, or grandnephew of the taxpayer or the taxpayer’s spouse or common-law partner. This will be a welcome change for those who wish to pass on their farming or fishing operations to extended family members.  Notably, the proposal does not include transfers to siblings.

The expanded definition does not appear to apply for the purposes of the lifetime capital gains deduction, or provisions for a 10-year capital gains reserve on the transfer of property to a child.  This will need to be confirmed once the legislative amendments have been finalized.

Trust distributions to non-residents

A trust generally cannot transfer, or “rollout”, property to a non-resident beneficiary on a tax-deferred basis.  Budget 2026 proposes to broaden the rollout denial rules to include indirect distributions to non-residents, by way of a transfer of property to a corporation or partnership that has a direct or indirect non-resident shareholder or partner.  This change will be effective for trust distributions that occur on or after Budget Day.

Income tax return filing and balance due dates for individuals

Budget 2026 proposes to change the T1 personal income tax filing deadline and balance-due date to May 15 for all individuals, including self-employed individuals and their spouses, for 2027 and subsequent taxation years. Although these measures extend the deadlines for most individuals, they do shorten the filing deadline for self-employed individuals.

Registered Retirement Savings Plan (“RRSP”)

Budget 2026 proposes the merger of the RRSP and Registered Retirement Income Fund (“RRIF”) into a single “RRSP for life”, the intention being to eliminate the need to convert the RRSP to a RRIF at age 71. Individuals over the age of  71 will continue to be required to make minimum withdrawals.

The government is seeking consultation on whether and how to include a “successor holder”, such as a spouse or common-law partner feature, similar to other registered vehicles, and whether rules should permit direct tax-free transfers to qualifying survivors.  This could permit a RRSP to remain open until the death of the successor holder (i.e., the original holder’s surviving spouse or partner) and avoid the value of RRSP property being included in the income of the deceased. Additionally, consideration must be given to whether and how the current RRSP indirect “rollover” provisions that apply on death (involving an income inclusion and offsetting deduction for a qualifying survivor) could be replaced with rules to permit direct tax-free transfers to qualified registered vehicles of qualifying survivors.

Consequential changes to the federal Pension Benefits Standards Regulations, 1985 and similar provincial legislation may also be required should the merger occur.

This proposal is open to consultation and written submissions are due by January 8, 2027.

Deduction of expenses against commission income

Budget 2026 proposes, for 2027 and subsequent years, to eliminate rules that restrict commission employees from deducting travel or motor vehicle expenses under the general tax provisions available to all employees when they also claim expenses as commissioned employees. This would allow a commission employee claiming travel or motor vehicle expenses under the general provisions to additionally claim other employment expenses as a commission employee up to the amount of their commission income.

3. Business income tax measures

Clean energy incentives

Budget 2026 proposes to extend the Clean Electricity and the Clean Technology investment tax credits to eligible property available for use before 2041, an extension of availability of these tax credits for six additional years. These credits generally apply to investments in electricity projects.

The Clean Electricity investment tax credit is a refundable credit of up to 15% on the capital cost of eligible investments and the credit generally applies to investments in low-emitting electricity generation, electricity storage and the transmission of electricity.  Budget 2026 proposes to extend this credit to investments in property acquired and available for use on or after April 16, 2024 and before 2041. 

The Clean Technology investment tax credit is a second refundable credit. It applies at a rate up to 30% on the capital cost of eligible investments and the credit generally applies to investments in low-emitting electricity generation, electricity storage and low-carbon heating. Budget 2026 proposes to extend this credit to investments in property acquired and available for use on or after March 28, 2023 and before 2041. This credit would apply at a reduced rate of 15% for the last year of availability, which would be 2040.

Budget 2026 also proposes to expand eligibility for the Clean Electricity investment tax credit.  As proposed, eligibility would be expanded to include intra-provincial electricity transmission property.  To be eligible, the property would be required to operate at or above the highest voltage currently used for transmission lines in each province and at or above 69 kilovolts in the territories.  Each province has a distinct voltage. For example the Ontario threshold is 500 kilovolts.  As proposed, eligible property for the credit would include certain equipment and structures related to transmission lines, but would exclude buildings and property used for international transmission.

The proposal to expand eligibility for the Clean Electricity investment tax credit applies to property that is acquired on or after Budget Day.

Scientific Research and Experimental Development tax incentive Program

Budget 2026 proposes to expand Scientific Research and Experimental Development (“SR&ED”) eligible activities and expenditures that are eligible for the SR&ED tax credit.  This tax credit applies at a general rate of 15% and an enhanced rate of 35% for certain small-and medium sized corporations.  As proposed, the eligible activities would be expanded to include tests, technological validations, and studies conducted to meet regulatory requirements for obtaining the initial approval or certification required to commercialize a process or product. Eligible expenses would also be expanded to include costs relating to the registration and maintenance of intellectual property protection. This would apply to IP developed in the context of a project that is otherwise SR&ED eligible, and would include IP registered or protected as patents, certificates of supplementary protection, plant breeder’s rights or copyrighted software under the relevant Canadian legislation or equivalent legislation in another jurisdiction.

These proposed measures apply to taxation years that begin on or after Budget Day.

Interest deductibility limits

The Excessive Interest and Financing Expenses Limitation rules (“EIFEL Rules”) restrict the amount of net interest and financing expenses that may be deducted in computing taxable income. The EIFEL Rules apply to taxation years beginning on or after October 1, 2023.

In 2024, two exceptions to the EIFEL Rules were announced: (i) an exception for interest and financing expenses incurred before 2036 on borrowings used to acquire or build purpose-built rental housing in Canada, or to convert a property into such housing; and (ii) an exception for interest and financing expenses incurred on borrowings used to carry on a regulated energy utility business in Canada. Neither exception has been enacted.

Budget 2026 proposes to expand these exceptions to include a borrower’s interest and financing expenses where the borrowed funds are used for eligible activities carried on by another corporation, trust or partnership within the same group of affiliated entities. The exceptions would also be available where the eligible activities are carried on by a partnership in which the borrower, together with affiliated entities, has at least a 40% interest.

The proposed amendments would apply to taxation years beginning on or after October 1, 2023.

Budget 2026 also proposes to expand and clarify the definition of a “regulated energy utility business in Canada.” The revised definition would include businesses where the prices of all or substantially all of their products or services are established, approved or guaranteed by a government, including sales to Crown corporations, or are established through a government-operated market that facilitates delivery for consumption or use in Canada.

Corporate loss transfers

Budget 2026 invites stakeholders to comment on the introduction of a corporate loss transfer mechanism. This type of mechanism could potentially be a significant positive change to the Canadian corporate tax system. Currently, under the ITA, corporations generally are taxed on a corporation-by-corporation basis, and a corporation cannot directly deduct a loss incurred by another corporation. Corporate groups can undertake transactions, including amalgamations, wind-ups and intra-group financing transactions, that effectively allow losses of one group member to offset income of another. However, these transactions can be complex, costly or unsuitable where separate corporate entities need to be maintained for non-tax purposes.

The basic parameters of a loss transfer mechanism that was included in Budget 2026 is to permit the transfer of current-year non-capital losses between corporations within a qualifying corporate group. Loss transfers would be permitted between:

• a parent corporation and a subsidiary corporation wholly owned, directly or indirectly, by the parent; and
• two subsidiary corporations wholly owned, directly or indirectly, by the same parent corporation.

The mechanism would apply only to corporations resident in Canada that are subject to tax under Part I of the ITA. Certain corporations that are considered conduits for their shareholders or members, such as mutual fund corporations, would not be eligible to transfer or receive losses.

A corporation could elect to transfer all or part of its current-year non-capital loss to another eligible corporation. The transferor and transferee would be required to make a joint election. The transferee would be entitled to deduct the elected amount in computing its income for the relevant taxation year, while the transferor’s non-capital loss for that year would be reduced by the same amount. Importantly, any portion of the transferred amount not deducted by the transferee in that year would not be available for carryback or carryforward.

The proposed mechanism would be restricted to losses and income arising in the same province or territory, in order to protect provincial and territorial corporate tax bases. Accordingly, a transfer would be permitted only where the transferor and transferee each have a permanent establishment in only one province or territory and those permanent establishments are located in the same province or territory. The government is seeking input on whether this restriction could be broadened while continuing to protect provincial and territorial tax bases. As proposed, the loss transfer mechanism would not be available to corporations that have permanent establishments in more than one province or territory.  

Budget 2026 also identifies tax-integrity concerns arising from corporate loss transfers. In particular, a loss transfer could result in a corporate group obtaining duplicate tax attributes, such as where a parent corporation retains the tax cost of shares of a subsidiary while also obtaining the benefit of losses generated by the subsidiary. The government is seeking input on measures to address these concerns, including potential adjustments to the tax cost of shares or underlying assets and adjustments to tax attributes when a corporation enters or leaves a wholly owned corporate group.

The stated objective of the proposed mechanism is to provide a more efficient means of allowing income within a corporate group to be offset by non-capital losses within the group. Written submissions are due by January 8, 2027.

Taxable preferred shares

Part VI.1 tax is imposed on dividends paid on taxable preferred shares, subject to a dividend allowance. The taxable preferred share regime is intended to prevent the erosion of corporate tax revenues that can result from after-tax financing involving the issuance of shares with debt-like characteristics in lieu of debt instruments.

Budget 2026 proposes to restrict the scope of Part VI.1 tax by exempting Canadian-controlled private corporations from the taxable preferred share regime, increasing the dividend allowance from $500,000 to $1,500,000 and increasing the threshold for the reduction of the dividend allowance from $1,000,000 to $3,000,000. The Canadian-controlled private corporation exemption would apply to dividends paid on or after Budget Day. The increases to the dividend allowance and the threshold for its reduction would apply to taxation years ending after 2026.

Budget 2026 also indicates that the government is reviewing the broader preferred share regime and is seeking stakeholder input on the impact of the existing rules and potential improvements. Written submissions are requested by January 8, 2027.

Corporate tax elections

Under various provisions of the ITA and Income Tax Regulations, corporations may make elections or agreements that determine the tax consequences of specific transactions or events. Certain elections and agreements currently require a corporation to provide the Canada Revenue Agency (“CRA”) with a certified copy of a directors’ resolution or other authorization.

Budget 2026 proposes to eliminate the requirement to file a certified copy of a resolution or authorization when making certain elections or agreements. These requirements currently apply, for example, to capital dividend elections. The change would apply to elections and agreements made on or after the date of royal assent of the implementing legislation.

Administrative penalties

Administrative penalties are imposed under federal tax statutes when taxpayers fail to comply with their tax obligations. The ITA generally provides for two types of administrative penalties: penalties based on fixed-dollar amounts and penalties determined as a percentage of an amount.

Budget 2026 proposes to increase most fixed-dollar penalties to broadly account for inflation since their enactment and to thereafter index these amounts to inflation once every five years. Generally, older penalties would increase by a factor of two or three, depending on when they were enacted, while more recent penalties would remain unchanged, subject to limited exceptions.

Budget 2026 also proposes to calibrate certain penalty amounts based on the size of a taxpayer, recognizing that a fixed-amount penalty that is significant for an individual or small business may not be an effective deterrent for a larger corporation or partnership. Medium corporations and partnerships would generally be subject to three times the base penalty, while large corporations and partnerships would generally be subject to eight times the base penalty. These rules would apply to penalties for failing to provide required information on a form, failing to file certain tax forms and failing to comply with certain other obligations under the ITA.

Medium corporations would generally be corporations that, together with any related corporations, have more than $10 million and up to $50 million of taxable capital employed in Canada. Large corporations would generally be corporations that, together with any related corporations, have more than $50 million of taxable capital employed in Canada. For these purposes, a Canadian-controlled private corporation would only be treated as related to another corporation if the corporations are also associated.

Budget 2026 also proposes increased penalties for certain repeated failures to file tax forms or comply with other obligations. These penalties would generally double the base penalty where the taxpayer or partnership was liable for a penalty for the same type of failure in any of the three preceding taxation years and fails to remedy the current failure after receiving a notice, requirement or demand from the CRA. The ITA measures would generally apply to taxation years or fiscal periods ending after 2027.

4. Mineral exploration and flow-through share measures

Flow-through shares, Mineral Exploration Tax Credit and Critical Mineral Exploration Tax Credit

Flow-through shares permit corporations to renounce eligible Canadian resource expenses to investors. Investors may then deduct those expenses when calculating their own taxable income. 

Deduction rates

Furthermore, individuals investing in eligible flow-through shares may also benefit from two non-refundable exploration tax credits that support junior mining companies undertaking qualifying grassroots exploration activities:

• Mineral Exploration Tax Credit (METC): A 15% credit on specified mineral exploration expenses incurred in Canada and renounced to flow-through share investors. 
• Critical Mineral Exploration Tax Credit (CMETC): A 30% credit on specified critical mineral exploration expenses incurred in Canada and renounced to flow-through share investors. 

Related proposed changes in Budget 2026 

• Five-year extension: Eligibility for both the METC and CMETC are extended to flow-through share agreements entered into on or before March 31, 2032. These credits were currently scheduled to expire on March 31, 2027. 
• Addition of antimony: Antimony will become an eligible critical mineral for the CMETC. This change will apply to qualifying expenditures renounced under eligible agreements entered into after Budget Day and on or before March 31, 2032. 
• Helium Exploration, Development and Resource Expenses:  Budget 2026 proposes to allow helium exploration and development expenses to qualify as CEE and CDE and to allow expenses incurred to acquire helium resource property to qualify as Canadian oil and gas property expenses (“COGPE”).  The ITA classifies certain expenses incurred in relation to petroleum and natural gas exploration, development and property acquisition as CEE, CDE or COGPE. These expenses are deductible at rates of 100 per cent, 30 per cent and 10 percent, respectively.  The proposed changes will allow helium exploration and development expense and expenses to acquire helium resource property to benefit from the type of tax deductions available in respect of petroleum and natural gas expenditures.  This proposed measure applies to expenses incurred on or after Budget Day.

5. International tax measures

Common Reporting Standard

Budget 2026 announces an intention to consult on ways to strengthen Canada’s implementation of the Common Reporting Standard ( “CRS”). The Organisation for Economic Cooperation and Development has developed and endorsed CRS model rules, which provide a global standard for the automatic exchange of financial account information for tax purposes. Canada’s implementation of the CRS departs from the global standard in two main areas: by excluding certain entities that invest or trade in financial assets and the residency conditions for partnerships that result in a narrower range of them being included within the definition of a financial institution for CRS purposes.

Budget 2026 expresses the concern that Canada’s departures from the CRS model rules may give rise to gaps that could be exploited by individuals in order to avoid the reporting of financial account information. In response to this concern, Budget 2026 announced the government’s invitation to comment on how Canada’s CRS rules should be amended to more closely align with the models and on how such amendments should be designed without imposing undue compliance burdens.

Taxable Canadian property

Budget 2026 proposes to reduce the withholding rates applicable to non-residents that dispose of taxable Canadian property from 25% (capital gains) and 50% (e.g. recaptured depreciation) to 15% and 30%, respectively.

Canada generally imposes tax on non-residents in respect of their income and gains from the disposition of taxable Canadian property, which generally includes property with a significant connection to Canada such as branch assets, Canadian real estate and resource properties, and shares or interests in other types of entities whose value is derived primarily from Canadian real estate and resource properties. 

Canada ensures the collection of the tax by imposing an obligation under section 116 on the purchaser of taxable Canadian property from a non-resident vendor to withhold and remit an amount to the CRA on account of the vendor’s potential tax liability.  The rules governing a purchaser’s withholding obligation and the amount required to be remitted depend on the type of taxable Canadian property disposed of – generally a lower rate (25%) applies to property subject to the one-half inclusion rate for capital gains and a higher rate (50%) for property whose disposition gives rise to fully taxable ordinary income.

The withholding and remittance rates do not recognize that different types of taxpayer are subject to different income tax rates. This can result in over-withholding. For example, Budget 2026 sets out the example of a non-resident corporation carrying on business in Canada solely through a permanent establishment in Prince Edward Island.  In that example,  the non-resident corporation would generally be subject to a combined federal and provincial rate of 15% on any capital gain from the disposition of capital property.

Budget 2026 also proposes to exempt vendors and purchasers from the section 116 withholding and remittance regime for dispositions of taxable Canadian property that occur on a fully tax-deferred basis under section 85, where the section 85 election form is filed within 30 days of the disposition and the purchaser provides notice to the CRA setting out certain information regarding the transaction.

Where taxable Canadian property is transferred by a non-resident under section 85 on a fully-tax deferred basis, the section 116 regime currently applies as if no tax deferral was available. While the CRA may administratively allow a vendor to not pay tax as a result of the rollover, the purchaser may prefer to withhold tax, until the CRA has provided a clearance certificate. This can result in an administrative burden and tie up vendor funds. The proposed measure would address these concerns.

Anti-stuffing rule

A non-resident person subject to the benefits of a tax treaty and who owns taxable Canadian property (e.g. branch assets) could avoid Canadian income tax on any inherent capital gains or recapture in those assets by first transferring them to a Canadian corporation for shares (a substituted property) and making a section 85 election.  The shares received by the non-resident are deemed to be taxable Canadian property for 60 months after the acquisition; nevertheless, the non-resident person could still sell those shares within the 60 month period and avoid, in most cases, the Canadian income tax on the sale of those shares because of the narrower class of assets that Canada reserves its right to tax under its treaties with other countries. 

Budget 2026 restricts this, and similar types of planning, by denying the initial rollover (and therefore triggering the income tax liability at the beginning of the series of transaction) if:

• the property initially transferred on the section 85 rollover is taxable Canadian property;
• one of the main purposes of the series of transactions is to obtain the benefit of an exemption (e.g., a treaty-protected disposition) from tax on the disposition of the substituted property (in this example, shares) or another property that is acquired at any time during the 60 months after the “stuffing” and its value is more than 50% derived from the original taxable Canadian property or the substituted property (shares) (in any of those cases, a tainted property); and
• The tainted property is sold, or arrangements for its disposition are made, at any time within 5 years after the start of the series

Foreign Income Verification statement – Form T1135

Budget 2026 proposes that the filing threshold for a Canadian resident individual, corporation or for the T1135 for specified foreign property owned by them is increased from $100,000 to $200,000.  The availability of the simplified reporting method for reporting those investments has also been expanded in Budget 2026 by permitting that method if the total cost of those investments does not exceed $500,000 (previously $250,000).  These measures would be available for taxation years or fiscal periods of holders ending after 2026.

6. Tax disputes and administration

Under subsection 165 of the ITA, a taxpayer may challenge an assessment by serving a written Notice of Objection setting out the reasons and relevant facts.

Currently, an individual other than a trust or a graduated rate estate (“GRE”) must serve their Notice of Objection on the Minister of National Revenue (“Minister”) by the later of:

1. one year after the taxpayer’s filing due date for the year; and
2. 90 days after the notice of assessment was sent.

All other taxpayers must serve it within 90 days after the notice of assessment was sent.

Budget 2026 proposes to substantially lengthen these periods. For individuals and GREs, the deadline would be the later of:

1. two years after the taxpayer’s filing due date for the year; and
2. one year after the notice of assessment was sent.

For all other taxpayers, the deadline would be one year after the notice of assessment was sent.

Currently, a taxpayer that misses the deadline may apply to the Minister, within one year after that deadline, for an extension under subsection 166.1 of the ITA, provided that the taxpayer was unable to act or had a bona fide intention to object, that an extension would be just and equitable, and that the extension application was made as soon as circumstances permitted. Relief is discretionary, not automatic.

The longer periods would reduce the risk of lost objection rights and the need for discretionary relief. Accordingly, the extension under subsection 166.1 of the ITA would be repealed for objections under subsection 165 of the ITA, but would remain available for requests under subsection 245(6) of the ITA and would extend to objections served under subsection 168(4) of the ITA.

However, assessments would stay open to objection longer, delaying certainty about final liability and prolonging record-keeping obligations. A valid objection would still be required: the taxpayer would have to meet the deadline, serve the objection in accordance with the ITA, and state the reasons and relevant facts.

These changes would apply to assessments sent on or after the day that is three months after Royal Assent.

7. GST/HST measures

Massage therapy proposed to be GST/HST exempt

The supply of many non-medical regulated health care services is exempt from GST/HST. Examples include chiropractic, physiotherapy, occupational therapy, and acupuncture services when rendered to an individual by a practitioner of the service.

Budget 2026 proposes to add massage therapy services to the list of exempt health care services.

Qualifying massage therapists would no longer be required to charge GST/HST on their massage therapy services. They would no longer be entitled to claim input tax credits to recover GST/HST paid on related expenses such as rent and supplies. Effected massage therapists should review their fee schedules in light of these proposed measures.

This measure is proposed to apply to massage therapy services made after Budget Day.

GST/HST zero-rating proposed for cancer-treating alternating electric field devices

The supply of certain medical and assistive devices is zero-rated, meaning the supply is taxed at 0% but suppliers are still entitled to claim input tax credits to recover the GST/HST paid on related expenses.

Budget 2026 proposes that an alternating electric field therapy device that is specially designed to treat cancer by disrupting the division of cancer cells and slowing or stopping tumour growth be added to the list of zero-rated supplies.

This measure applies to supplies of such devices made after Budget Day.

Financial institutions can obtain pre-approval of their input tax credit allocation method for three years

Currently, qualifying financial institutions may apply to the Minister for authorization to use particular GST/HST allocation methods for their business inputs for a fiscal year. This annual process can be administratively burdensome.

Budget 2026 proposes to allow these financial institutions to apply for pre-approval for a three-year period. However, the Minister may approve the application for all three years or for the first year only (for example, where the proposed methods are novel). This is a positive development for qualifying financial institutions. It should provide greater certainty and reduce the time and cost associated with annual pre-approval applications.

This measure applies for fiscal years of a financial institution beginning after June 30, 2027.

Update to product descriptions and regulatory cross-references for non-taxable imports

Budget 2026 proposes to update references to the Harmonized Commodity Description and Coding System (“HS codes”) in Schedule VII of the Excise Tax Act (Canada) (“ETA”) and related provisions for non-taxable imports. These rules currently refer to the HS codes as they existed before 1998.

Most of the changes are intended to preserve the existing tax treatment on the importation of goods under Division III of Part IX of the ETA, although some amendments would also broaden or simplify the existing relief. The proposed updates would affect several categories of goods, including specified motor vehicles, cargo containers engaged in international commercial transportation, goods that are fully or partially relieved from GST/HST on importation, and goods brought into participating provinces.

Businesses that are involved in the importation of goods should review the proposed amendments and consider whether the tax treatment would change under the proposed amendments.

These changes are proposed to come into force on the first day of the second month after the enacting legislation receives royal assent.

8. Excise tax measures

Cannabis taxation

Budget 2026 proposes to amend the current cannabis excise duty stamping regime and to strengthen the associated penalty framework. The amendments would introduce a new common excise duty stamp, which would be used for products sold in all provinces and territories with the same duty rate.  This would apply in 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 by January 31, 2027.

Beginning January 1, 2028, licensed producers would be permitted to affix the new common stamp to products destined for participating jurisdictions, with certain transition rules governing the adoption of the common stamp and the ability to enter products for sale into the duty-paid market.

Licensed producers would remain obligated to remit and report the duty that applies based on the province or territory for which the cannabis product is destined.

Budget 2026 also proposes two measures to strengthen the penalty framework.  It proposes a new civil penalty where a licensed producer reports cannabis as being in its possession but is unable to account for it. This penalty would be equal to twice the duty that would have been payable on the cannabis. The second measure would change the calculation of fines and penalties for certain cannabis products. Contraventions relating to the sale or distribution of certain unstamped products would be subject to fines and penalties calculated as two to three times the duty that would have been payable.

Spirits licence security requirements

Budget 2026 proposes to require excise warehouse licensees authorized to possess non-duty paid packaged spirits to provide security in order to be licensed and proposes to base security amounts on monthly excise duty liabilities, subject to a $5,000 minimum and a $2,000,000 maximum for each licence.

Currently under the Excise Act, 2001, certain persons operating in the spirits market are required to hold a spirits licence or an excise warehouse licence.  Spirits licensees are generally required to provide a security but currently excise warehouse licensees are generally not required to provide a security.

Federal fuel excise tax licensing framework

Budget 2026 proposes to amend the ETA to expand the federal fuel tax licensing framework. Under the ETA, fuel excise tax is imposed on gasoline, diesel and aviation fuel imported into or manufactured in Canada. The tax generally becomes payable by an importer upon importation or by the manufacturer when fuel is delivered to a purchaser. Entities that manufacture fuel are generally required to obtain a manufacturer licence.  Entities that purchase fuel for resale may qualify for a wholesaler licence. Licensed entities may qualify for relief when purchasing or importing fuel. 

Under these proposals, entities in the business of selling or delivering fuel who in the normal course of their business deliver fuel to licensed manufacturers, licensed wholesalers or other entities that resell the fuel in the ordinary course of their business would be eligible for a wholesaler licence under certain conditions.

The amendments would also broaden relieving rules for fuel purchased or imported by licensed manufacturers and licenced wholesalers. Under the proposed rules, tax would not be payable on fuel purchased or imported by a licensed manufacturer or licensed wholesaler for resale.

Budget 2026 further proposes to introduce a time-limited payment for certain past instances where tax became payable more than once on the same quantity of fuel. The Minister would be authorized to make a payment to a licensed manufacturer where certain conditions are met. 

9. Charities and non-profits

Budget 2026 proposes several measures that will affect, and be of interest to, Canada’s charities and non-profit organizations (NPOs). These proposals include: 

• Eliminating the excess corporate holdings regime for private foundations; 
• Increasing the penalties for failing to file annual information returns; 
• Extending the deadline for filing Notices of Objection; 
• Delegating certain administrative decisions to the Minister; 
• Streamlining how the Government approves foreign charities; 
• Introducing a new way to calculate the Clergy Residence Deduction; and 
• Establishing a “Build Canada Exchange” to recruit experts temporarily to the Government. 

Budget 2026 also confirms that Ottawa will move forward with several previously announced measures and existing legislative proposals that are relevant to the sector. These include several technical amendments to the Act that were proposed in August 2024, as well as new proposed NPO reporting requirements that will take effect on January 1, 2026.

As with previous federal budgets, Budget 2026 contains both new and ongoing funding opportunities for charities and NPOs operating in almost every sector. Please see our Social Impact Group’s special Federal Budget issue, which shares more details about these funding opportunities and the above-noted Budget proposals.

10. Other tax measures

In addition to the measures discussed above, Budget 2026 includes a number of other changes affecting individuals, registered plans and tax administration, the most significant of which are summarized below.

Instalment payments for individuals and corporation

Budget 2026 proposes to increase the threshold for payment from $3,000 to $7,500 for corporations and individuals resident outside Quebec (and to $4,500 for individuals in Quebec) starting in taxation years beginning on or after January 1, 2028. Individuals with a primary source of income from a business may make a single instalment payment instead of quarterly, equal to two thirds of the combined net tax owing.

Registered disability savings plan

Budget 2026 makes the ability of a qualifying family member (parent, spouse or common-law partner, or sibling) to open a plan and be the plan holder a permanent measure.

Disclosure of tax debt to credit bureaus

Budget 2026 proposes to amend the Act to permit CRA to disclose a taxpayer’s tax debt to credit bureaus where certain thresholds are met, including the debt exceeding $50,000. This measure would apply on royal assent of the enacting legislation.

Information sharing – pension administrators

Budget 2026 proposes to amend the Act to permit the CRA to confirm to the administrator of a registered pension plan that a plan member is deceased, thereby facilitating the surviving spouse or beneficiary with obtaining benefits they may be entitled to under the registered pension plan.

Registered Pension Plans

Budget 2026 clarifies the tax consequences of a revocation if the RPP does not comply with the registration conditions, in particular: (a) revoked plan could be liable to pay tax equal to 10 per cent of the FMV of its property; (b) revoked plan would deemed to become a “retirement compensation arrangement”; (c) an amount equal to the fair market value of the RPP’s property would be deemed contributed to the RCA, and consequently required to remit 50 per cent refundable tax on the deemed contribution. These measures would apply to revocations of RPPs after 2026.

Budget 2026 proposes to expand the definition of an individual pension plan (IPP) to include defined benefit registered pension plans (RPPs) under which all members are either related to a participating employer or do not deal at arm’s length with any member related to a participating employer. These measures are meant to address the avoidance of IPP status by adding related members to avoid the three-member threshold. In addition, it is proposed that IPPs will be subject to the same anti-avoidance rules currently applicable to other registered plans of controlling individuals. Budget 2026 also proposes to impose new conditions on IPPs to address excessive surplus that is not needed to satisfy pension benefits. If the value of an IPP’s assets exceed 200 per cent of its pension liabilities, the plan would become a “revocable plan”. The CRA must give at least 30 days’ notice before issuing a revocation letter, which should give the plan administrator time to take steps to comply with the required conditions before becoming a revoked plan.

Budget 2026 also proposes a range of other measures, including the 2027 Canada Groceries and Essentials Benefit Supplement, a refundable Canada Caregiver Credit, the Build Canada Workers Benefit, changes to the Northern Residents Deductions, and optional flat amounts for certain deductions and credits, including the Medical Expense Tax Credit. Other changes affect the apprentice vehicle mechanics’ tools deduction, scholarship income, expenses of employed artists, the volunteer firefighters and search and rescue volunteers tax credits, lump-sum thresholds for benefit payments, Indigenous tax jurisdiction arrangements and certain ministerial delegations.

11. Previously announced measures

Budget 2026 confirms the government intends to proceed with previously announced tax and related measures, with any modifications following consultations and deliberations since their release, including the following:

• Legislative and regulatory proposals released September 15, 2026 to implement the Productivity Mega Deduction.
• Legislative and regulatory proposals released July 23, 2026, including:
  • Disability Tax Credit;
  • Red Seal Completion Bonus;
  • Investment Tax Credit for Carbon Capture, Utilization and Storage;
  • Investment Income Derived from Assets Supporting Canadian Insurance Risks;
  • Transfer Pricing;
  • Hybrid Mismatch Arrangements;
  • Goods and Services Tax/Harmonized Sales Tax (GST/HST) reverse charge mechanism; and
  • Technical amendments to the ETA, the Excise Act, 2001, the Air Travelers Security Charge Act, the Select Luxury Items Tax Act, and related regulations.
• Legislative proposals released August 12, 2024 for technical amendments to the ITA.
• Budget 2024 tax measures on non-compliance with information requests, to be implemented through amendments to the ETA, the Air Travelers Security Charge Act, the Excise Act, 2001 and the Select Luxury Items Tax Act.
• Legislative proposals released August 4, 2023 on tax-exempt sales of motive fuels for export.

Absent from Budget 2026 is commentary or technical amendments to the proposed legislation in subsection 129(1.2)-(1.3) regarding structuring arrangements in respect of dividend refunds.

Have questions about proposals announced in the 2026 Budget, or how they may affect you? Please reach out to one of Miller Thomson’s Corporate Tax lawyers. Our team would be happy to help.