2026 Federal Budget Summary

Flow-through shares allow corporations to renounce or "flow through" Canadian exploration expenses (CEE) and Canadian development expenses (CDE) to investors, who can deduct the expenses in calculating their own taxable income. CEE is deductible at a 100-per-cent rate, while CDE is deductible at a 30-per-cent rate on a declining-balance basis. The proposed Productivity Mega Deduction would increase the deduction rate for CDE from 30 per cent to 100 per cent. 

In addition to the tax benefits associated with the flow-through share regime, two tax credits provide a further benefit to individuals who invest in eligible flow-through shares. These tax credits support junior mining companies engaged in certain grassroots mineral exploration activities. 

• The Mineral Exploration Tax Credit (METC) is equal to 15 per cent of the specified mineral exploration expenses incurred in Canada and renounced to flow-through share investors. The METC is set to expire on March 31, 2027. 
• The Critical Mineral Exploration Tax Credit (CMETC) is equal to 30 per cent of specified critical mineral exploration expenses incurred in Canada and renounced to flow-through share investors. The CMETC is set to expire on March 31, 2027. 

Budget 2026 proposes to extend eligibility for the METC and CMETC for five years, to flow-through share agreements entered into on or before March 31, 2032. 

Budget 2026 also proposes to expand the CMETC to include antimony as an eligible critical mineral. This expansion would apply to expenditures renounced under eligible flow-through share agreements entered into after Budget Day and on or before March 31, 2032. 

The Canada Caregiver Credit (CCC) is a non-refundable tax credit that recognizes the impact of non-discretionary, out-of-pocket expenses on a caregiver's ability to pay tax. The amount of tax relief is determined by applying the lowest personal income tax rate to the credit amount. 

Budget 2026 proposes to make the CCC refundable to ensure that eligible caregivers can receive the full amount even if they have little or no tax liability. 

A refundable CCC would retain the same design parameters of the current non-refundable credit, including the annual indexation of the maximum amounts and income threshold.  

This measure would apply to the 2027 and subsequent taxation years.  

Budget 2026 proposes to introduce a new Canada Growth Incentive (CGI) capital gains exemption, which would allow Canadian-resident individuals to claim a tax exemption on capital gains realized on the disposition of qualifying shares of a qualifying corporation, up to a $15-million limit. This limit would apply separately to each qualifying individual in respect of each business. To qualify, an individual must be at least 18 years old at the time of acquiring the shares and resident in Canada throughout the taxation year in which the exemption is claimed. 

A qualifying share must generally be issued by a Canadian-controlled private corporation (CCPC) in exchange for cash consideration or employment services. At the time of issuance, 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. The combined carrying value of the assets of the corporation and related corporations must not exceed $100 million immediately before and after issuance. Throughout the ownership period, at least 50% of the fair market value of the corporation's assets must be attributable to assets used, or reasonably intended to be used, principally in a qualifying business. The qualifying business must be carried on primarily in Canada for at least 24 consecutive months immediately following issuance, and the shares must be held for at least 36 consecutive months immediately before disposition. At the time of disposition, the corporation must be a Canadian-resident corporation that is either a private corporation or a public corporation listed on a designated stock exchange located in Canada, and all or substantially all of the fair market value of the corporation's assets must be attributable to assets used principally in a qualifying business. 

A qualifying business would generally exclude professional practices, consulting services, certain specified sectors, and businesses operating under licensing or franchising agreements. 

Capital gains exempted under the CGI would be subject to a 30% inclusion rate for Alternative Minimum Tax (AMT) purposes. Claiming the CGI exemption would generally limit an individual's ability to claim the Lifetime Capital Gains Exemption (LCGE) on shares of the same corporation, and vice versa. However, the CGI exemption could generally be claimed in conjunction with the capital gains exemption applicable to sales to an Employee Ownership Trust or worker cooperative. Additional integrity rules would be introduced to prevent the multiplication of the exemption limit through multiple corporations carrying on the same underlying business. This measure would apply to qualifying shares issued on or after Budget Day and before 2037. 

Under the Income Tax Act, individuals are allowed to defer taxation on capital gains realized on a qualifying disposition of eligible small business corporation (ESBC) shares to the extent that proceeds from the disposition are used to acquire replacement ESBC shares in the year of disposition or the following calendar year. 

For a disposition of ESBC shares by an individual to qualify, the following conditions must be met: 

• Holding period: The shares were held by the individual for a minimum of 185 days immediately before the disposition. 
• Active business requirement: Throughout the period during which the individual owned the shares, the corporation was a taxable Canadian corporation all or substantially all (generally at least around 90 per cent) of the assets of which (measured by fair market value) were: used principally in an active business carried on by the corporation or by a related active business corporation; or shares or debts of a related active business corporation. 
• Canadian activity: The active business of the corporation was carried on primarily in Canada for the lesser of two years and the period during which the individual held the share. 

Period to acquire replacement shares 

Budget 2026 proposes to increase the period to acquire replacement shares and to introduce a special provision for individuals who have entered into agreements for future equity. 

First, the period to acquire replacement shares would be extended to encompass the year of disposition and the three following calendar years. In general terms, an individual who made a qualifying disposition in a taxation year and did not reinvest the proceeds in that year would be able to choose either to pay tax on the capital gain for the year of disposition or to claim a reserve that defers recognition of the gain to the following year. This deferral mechanism would be available until the end of the replacement period. 

Second, an individual who, before the end of the proposed three-year replacement period, enters into an agreement with an ESBC under which the investor provides upfront capital in return for shares to be issued at a future date (e.g., a simple agreement for future equity or SAFE), would be able to defer the capital gain for an additional two years, for a total replacement period of up to five years. If no ESBC shares are issued to the individual under the agreement by the end of the fifth year following the year of disposition, the deferred gain would be taxed. 

With respect to any proceeds of a qualifying disposition that are not ultimately invested in replacement shares, interest would apply at a prescribed rate from the balance-due day for the year of disposition to the last day of the taxation year in which the gain is taxed.

Active business requirement 

Budget 2026 proposes to lower the threshold from "all or substantially all" to "primarily" for the active business requirement's asset test that must be met throughout the period during which the individual owned the shares. However, the "all or substantially all" threshold would need to be met at the time of issuance and disposition of the shares. 

Finally, the active business would be required to be carried on primarily in Canada at the time of share issuance and for a continuous period immediately following issuance. That period would be the lesser of two years and the period during which the individual owned the shares. 

Coming into force

These measures would apply to qualifying dispositions that occur on or after January 1, 2027. 

Most individuals pay taxes through withholdings on their employment income that are remitted to the Canada Revenue Agency by their employers. However, where an individual receives income from sources that are not subject to withholding (e.g., certain sources of pension income, business income, dividends, interest, rental income, and capital gains), they may have to pay income tax in quarterly instalments. For most individuals, instalments are required if their combined federal-provincial net tax owing on income from such sources for the current year and either of the two previous years is more than $3,000 (or $1,800 federal net tax owing for Quebec residents). The income tax instalment thresholds are lower for Quebec residents because the federal government does not collect provincial income tax in Quebec. 

Corporations generally must make monthly or quarterly tax instalment payments in respect of their federal tax liability unless their total federal tax payable is $3,000 or less for either the current or previous year. 

Increasing the Instalment Thresholds 

Budget 2026 proposes to increase the threshold from $3,000 to $7,500 for corporations and individuals resident outside Quebec, and from $1,800 to $4,500 for individuals resident in Quebec. The thresholds would be indexed to inflation and rounded to the nearest $500. Any remaining tax payable for a taxation year would be due on the applicable balance-due date. 

This measure would apply to taxation years that begin on or after January 1, 2028. As with the current rules, in determining whether instalments would be required, the relevant threshold would need to be exceeded for the current year and either of the two previous years. For example, an individual resident in Manitoba would be required to make instalments for the 2028 taxation year if their 2028 net tax owing exceeds $7,500 and either their 2026 or 2027 net tax owing exceeds $7,500. 

Allowing an Annual Instalment for All Individuals with Business Income 

Budget 2026 proposes that individuals whose primary source of income is from a business (including professional or commission income) be allowed to make a single annual instalment payment, instead of quarterly instalments. The single instalment payment would equal two thirds of their combined federal-provincial net tax owing for the year and be due by December 31. The remainder would be due on the applicable balance-due date. This change would extend similar treatment to what is currently available for farming and fishing income to other business income. 

This measure would apply to the 2028 and subsequent taxation years.

The Income Tax Act requires most individuals to file their T1 income tax return and pay any balance owing by April 30 following the end of the taxation year. Self-employed individuals and their spouses or common-law partners have until June 15 to file their returns, although any balance owing remains due by April 30. 

Budget 2026 proposes to change the T1 filing and balance-due dates to May 15 for all individuals, including self-employed individuals and their spouses or common-law partners. 

These measures would apply to the 2027 and subsequent taxation years.

The Registered Disability Savings Plan (RDSP) is a tax-assisted savings plan designed to support the long-term financial security of a beneficiary who is eligible for the Disability Tax Credit. 

Generally, an adult beneficiary is the holder of their own RDSP. Where they do not have contractual capacity due to a mental impairment, the plan holder must be a legal representative who is authorized under provincial or territorial law to act on the individual's behalf. If the individual does not have a legal representative but after reasonable inquiry, it is the opinion of the RDSP issuer that the individual's contractual capacity to enter into a plan is in doubt, a temporary measure is in place up to the end of 2026 to allow a qualifying family member of the individual to open an RDSP and be the plan holder. A qualifying family member may be a parent, spouse or common-law partner, or sibling. 

Budget 2026 proposes to make the qualifying family member measure permanent. 

Individuals need to keep receipts and satisfy other requirements to claim certain deductions and tax credits. 

To reduce the need for individuals to keep receipts and itemize their expenses to support their amounts claimed, Budget 2026 proposes optional flat-amount calculation methods for certain deductions and credits. Individuals would still need to establish their eligibility. 

These measures, listed below, would apply to the 2027 and subsequent taxation years for the: 

• Moving Expense Deduction 
• Clergy Resident Deduction 
• Labour Mobility Deduction for Tradespeople  
• Home Accessibility Tax Credit 
• Adoption Expense Tax Credit 

For further information, please contact your Crowe BGK advisor.

Canadian-resident individuals, corporations and trusts, as well as certain partnerships, must file a Foreign Income Verification Statement (Form T1135) with the Canada Revenue Agency if they own specified foreign property with a total cost of more than $100,000 at any time in a taxation year or fiscal period. Specified foreign property generally includes most types of income-earning property held outside of Canada, other than personal property and property used in carrying on an active business. 

Form T1135 provides a simplified reporting method if the total cost of a taxpayer's specified foreign property is less than $250,000 throughout the year. 

Budget 2026 proposes to increase the threshold above which Form T1135 must be filed from $100,000 to $200,000. The Canada Revenue Agency would also increase the threshold for simplified reporting from less than $250,000 to less than $500,000. 

These measures would apply to taxation years or fiscal periods that end after 2026. 

Budget 2026 proposes to expand and modify the apprentice vehicle mechanics’ tool deduction for 2027 and subsequent taxation years. For further information, please contact your Crowe BGK advisor.  

The Medical Expense Tax Credit (METC) is a non-refundable tax credit that recognizes the effect of above-average medical expenses on an individual's ability to pay tax. For 2026, the METC is available for eligible medical expenses in excess of the lesser of $2,890 and three per cent of the individual's net income. Expenses eligible for the credit are described in the Income Tax Act and Income Tax Regulations and must be evidenced by receipts. Depending on the expense, additional documentation may be required, such as a prescription or written certification from an authorized medical practitioner. 

The Disability Supports Deduction (DSD) allows an individual with an impairment in physical or mental functions to deduct certain expenses that enable them to earn business or employment income, attend school, or carry on research. Eligible expenses are described in the Income Tax Act. In general, an authorized medical practitioner must either prescribe or otherwise certify in writing that the expense is required, and expenses must be evidenced by receipts. 

An expense that is eligible under both the METC and DSD may be claimed under either measure, but not both. 

Documentation Requirements for Certain Eligible Expenses

Budget 2026 proposes to simplify the METC while maintaining the integrity of the credit by reducing the documentation requirements for certain eligible expenses, as described below. 

For certain expenses that are incurred exclusively for medical purposes (described in Table 1), remove the requirement for a prescription; a certification of the individual's medical condition would continue to not be required. 

For certain expenses that may be incurred for non-medical purposes (described in Table 2), replace the prescription requirement with a requirement that an authorized medical practitioner certify the individual's medical condition. 

This measure would apply to the 2026 and subsequent taxation years.

Table 1 

Expenses for which no prescription or certification of the medical condition would be required

Eligible expense

Insulin

Device or equipment designed exclusively for individuals suffering from a severe chronic respiratory ailment or a severe chronic immune system disregulation (e.g., continuous positive airway pressure machine)

Infusion pump, including disposable peripherals, used in the treatment of diabetes

Blood coagulation monitor, including disposable peripherals, for anti-coagulation therapy

 

Table 2 

Expenses for which only certification of the medical condition by an authorized medical practitioner would be required

Eligible expense and medical condition to be certified by an authorized medical practitioner

Liver extract injectible or vitamin B12 for use by an individual who has pernicious anaemia

Device or equipment exclusively designed to pace or monitor the heart of an individual who suffers from heart disease

External breast prosthesis for use by an individual who has had a mastectomy

Teletypewriter or similar device, including a telephone ringing indicator, for use by a mute or deaf individual to make and receive phone calls

Optical scanner or similar device designed to be used by a blind individual to read print

Device or software designed to be used by an individual who is blind or has a severe learning disability to read print

Power-operated lift or transportation equipment designed exclusively for use by, or for, a disabled individual, to allow the individual to gain access to different areas of a building, to assist the individual to gain access to a vehicle, or to place the individual's wheelchair in or on a vehicle

Device designed exclusively to enable an individual with a mobility impairment to operate a vehicle

Braille printer designed exclusively to be used by a blind individual

Electronic speech synthesizer for use by a mute individual

Visual or vibratory signaling device, including a visual fire alarm indicator, for an individual with a hearing impairment

Device designed to be attached to infants diagnosed as being prone to sudden infant death syndrome in order to sound an alarm if the infant ceases to breathe

Talking textbook for use by an individual with a perceptual disability in connection with their enrolment at an educational institution in Canada or a designated educational institution

Braille note-taker designed to be used by a blind individual

Page turner designed to be used by an individual who has a severe and prolonged impairment that markedly restricts their ability to use their arms or hands

Altered auditory feedback device designed to be used by an individual who has a speech impairment

Standing device designed to be used by an individual who has a severe mobility impairment

 

Flat-Amount Method

Under the current rules, individuals need to track their expenses and keep receipts to claim the METC and DSD. 

Budget 2026 proposes to allow individuals to claim an optional flat amount in respect of the following categories of expenses. For a particular year, an individual who incurs expenses in an eligible category could choose to either claim the applicable flat amount or itemize and claim the expenses they actually incurred. An individual who chooses the flat amount would not be required to calculate the actual expenses incurred or retain receipts for those expenses. The existing eligibility conditions would continue to apply. 

If the flat-amount method is chosen for a category of expenses in respect of an eligible individual, only one individual would be able to claim that flat amount and itemized expenses could not be claimed. If multiple individuals wish to claim the same category of expenses in respect of the same eligible individual, the flat amount would not be available, and each would be required to itemize their expenses and keep receipts to claim them. 

Gluten-free Food Expenses  

Under the METC, the incremental cost of gluten-free food products may be claimed in respect of an individual certified by an authorized medical practitioner as requiring a gluten-free diet because of a diagnosis of celiac disease. Eligible expenses are limited to the amount by which the cost of a gluten-free product exceeds that of a comparable gluten-containing product. It is also necessary to retain receipts and other supporting documentation. 

Budget 2026 proposes to allow an METC claim in respect of an individual with celiac disease based on an optional flat amount of $1,000 for incremental gluten-free food expenses incurred over a particular year. Under this method, it would no longer be necessary to calculate the incremental cost of gluten-free food products. 

This measure would apply to the 2026 and subsequent taxation years.

Incontinence Product Expenses 

Expenses incurred for diapers, disposable briefs, catheters, catheter trays, tubing, or other products in respect of an individual certified by an authorized medical practitioner as requiring these products because of incontinence caused by illness, injury, or affliction may generally be claimed under the METC.

Budget 2026 proposes to allow an METC claim based on an optional flat amount of $500 in respect of these expenses incurred over a particular year.

This measure would apply to the 2027 and subsequent taxation years.

Service Dog Expenses 

The METC and the DSD recognize certain expenses related to service animals, including dogs, that are specially trained to assist an individual in coping with certain severe and prolonged physical or mental impairments.

Eligible expenses include the cost of acquiring the animal, the care and maintenance of the animal, and reasonable travel expenses for the individual to attend an institution that trains in the handling of such an animal.

Budget 2026 proposes to allow an METC or DSD claim based on an optional flat amount of $2,000 for expenses that are incurred in relation to a service dog over a particular year. The cost incurred to acquire a service dog could be itemized and claimed separately in addition to the flat amount in a particular year.

The flat-amount method would not be allowed for eligible expenses in respect of a service animal other than a dog. It would continue to be necessary, under the METC and the DSD, to itemize expenses incurred in respect of these other service animals and retain receipts.

This measure would apply to the 2027 and subsequent taxation years. 

Under a provision specific to commission employees, employees who earn commission income and meet certain conditions are permitted to deduct employment expenses up to their commission income for the year. A commission employee who claims any amount under this provision may not deduct any travel or motor vehicle expenses under general provisions that apply to all employees. As a result, in some cases it is advantageous for a taxpayer to forgo claiming any expenses under the commission-employee rules and instead claim a larger deduction under the general travel provisions available to all employees. 

Budget 2026 proposes to eliminate the rules that prevent commission employees from deducting travel and motor vehicle expenses under the general employee provisions when they also claim expenses under the commission-employee rules. 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. 

This measure would apply to the 2027 and subsequent taxation years.

The Canada Child Benefit (CCB) and Canada Groceries and Essentials Benefit (CGEB) (formerly the GST Credit) provide targeted, income-tested support to eligible individuals and families through regular payments. These are based on a July 1 to June 30 benefit year. The CCB is paid monthly and provides support for eligible families with children under the age of 18, while the CGEB is paid quarterly and helps offset the impact of the GST on low- and modest-income individuals and families. 

The Canada Workers Benefit (CWB) is a refundable tax credit that supplements the earnings of low- and modest-income workers. The Advance CWB provides part of an individual's CWB entitlement for the taxation year in three advance payments, prior to filing the tax return for the year. (The "Build Canada Workers Benefit" section outlines the Budget 2026 proposal to phase out the Advance CWB). 

For individuals and families entitled to small payment amounts under the CCB, CGEB and Advance CWB in a given benefit year, the Income Tax Act specifies that the annual entitlement be issued as a lump-sum, rather than regular payments throughout the year. This payment is equal to the eligible individual's total benefit entitlement for the benefit year and is issued with the first payment for that benefit year (usually in July). A lump-sum payment is made to an eligible individual for: 

• the CCB if the individual's monthly CCB entitlement is expected to be less than $20; 
• the CGEB if the individual's quarterly CGEB entitlement is expected to be less than $50; and 
• the Advance CWB if each of the individual's advance payments is expected to be less than $33. 

Budget 2026 proposes to increase the lump-sum payment threshold to $50 per month for the CCB, to $70 per quarter for the CGEB and, for the 2027 taxation year only, to $70 per payment for the Advance CWB. 

This measure would apply to benefits paid after June 2027. 

Budget 2026 also proposes to index the CCB and CGEB thresholds annually to inflation, rounded to the nearest $5, as of July 2028. 

An individual can claim a full or partial tax exemption for scholarship, fellowship, and bursary income connected with enrolment in an elementary or secondary school educational program or a program in respect of which the individual is a qualifying student. 

To be a qualifying student, an individual must be enrolled in a qualifying or specified educational program at a designated educational institution. Designated institutions generally include universities and colleges within Canada, educational institutions providing occupational skills that are certified by Employment and Social Development Canada, and certain institutions outside Canada. 

Under the current rules, a program generally does not qualify as a qualifying or specified educational program if the student receives financial assistance for it from an arm's-length person, such as an employer. 

Budget 2026 proposes to allow a program to qualify even where a student received financial assistance from an arm's-length person. As a result, receiving employer or other arm's-length assistance for a program would no longer prevent students from claiming the exemption for scholarships, fellowships or bursaries received for that program. 

This measure would apply to the 2027 and subsequent taxation years.

The Volunteer Firefighters Tax Credit and the Search and Rescue Volunteers Tax Credit are each 14-per-cent non-refundable tax credits calculated on an amount of $6,000. An individual who performs a combined total of at least 200 hours of eligible services as either a volunteer firefighter or as a search and rescue volunteer in the year may claim either credit, but not both. 

Budget 2026 proposes to combine the Volunteer Firefighters Tax Credit and the Search and Rescue Volunteers Tax Credit into a single 14-per-cent non-refundable Volunteer Firefighters and Search and Rescue Volunteers Tax Credit calculated on an amount of $6,000. Eligible volunteer firefighter and search and rescue services would both count towards the 200-hour requirement for the combined credit. 

This measure would apply to the 2027 and subsequent taxation years.

A Registered Retirement Savings Plan (RRSP) is a tax-assisted vehicle for retirement savings accumulation. Most Canadians convert their RRSP to a Registered Retirement Income Fund (RRIF) by age 71. A RRIF is a vehicle for decumulation of retirement savings via annual minimum withdrawals. 

Budget 2026 announces the government's intention to merge the core features of the RRSP and RRIF under the Income Tax Act into a single "RRSP for life" and to make other changes to improve and modernize the RRSP tax rules. This would eliminate the need for individuals to convert their RRSP to a RRIF at age 71. Individuals over the age of 71 would continue to be required to make minimum withdrawals. 

The specific issues under consideration include the following: 

• Whether and how the RRSP rules could include a "successor holder" (i.e. a spouse or common law partner) feature similar to other registered vehicles. 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. 
• 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. 

Under provincial and federal pension standards, funds transferred from a pension plan are generally subject to locking-in restrictions until retirement and may be required to be held in prescribed vehicles, such as a locked-in RRIF or RRSP. As a result, merging the RRSP and RRIF rules could require consequential changes to the federal Pension Benefits Standards Regulations, 1985 and similar provincial legislation. 

No date of application has been announced.

The excess corporate holdings regime prevents private foundations from acquiring more than 20 per cent of a class of shares of any corporation, in combination with all relevant persons (generally, non-arm's length individuals). 

Budget 2026 proposes to eliminate the excess corporate holdings regime. Instead, the rules that currently prohibit public foundations from acquiring control of a corporation would be extended to private foundations.

This measure would apply to taxation years that begin on or after January 1, 2027. 

To object to an income tax assessment, a taxpayer must file a notice of objection. Taxpayers generally have 90 days after a notice of assessment is sent to file a notice of objection. However, individuals and graduated rate estates have the later of 90 days after a notice of assessment is sent and one year from the tax return filing due date for the taxation year being assessed to file a notice of objection. If the objection deadline is missed, taxpayers have one year from the original deadline to apply to the Canada Revenue Agency for an extension of time to file a notice of objection. In almost every case, the Canada Revenue Agency grants an extension. 

Budget 2026 proposes, for most taxpayers, to amend the deadline to file a notice of objection to an income tax assessment to one year after the day the notice of assessment is sent. For individuals and graduated rate estates, Budget 2026 proposes to amend the deadline to the later of one year after the notice of assessment is sent and two years from the tax return filing due date for the taxation year being assessed. Consequently, taxpayers would no longer need to apply for an extension of time and the ability to do so would be eliminated. 

This amendment would apply to assessments sent on or after the day that is three months after royal assent.

Most taxpayers pay their tax debts in a timely manner or make arrangements with the Canada Revenue Agency (CRA) to satisfy their tax obligations. Where a taxpayer does not, the CRA generally relies on collection tools such as the set-off of other amounts payable by the Crown, the garnishment of wages and other income, and the seizure and sale of assets. However, unlike other creditors, the CRA is unable to report taxpayer debts to credit bureaus because the Income Tax Act limits the disclosure of taxpayer information to specific circumstances.  

To support the collection of outstanding tax debts and more accurate assessments of credit risk, Budget 2026 proposes to amend the Income Tax Act to allow the CRA to disclose information about a taxpayer's tax debts to credit bureaus. 

The CRA would be permitted to disclose a taxpayer's tax debt only where: 

• the taxpayer's outstanding tax debt exceeds $50,000; 
• the assessments or reassessments giving rise to the tax debt are not under objection or appeal, and all rights of objection and appeal in respect of them have expired or been exhausted; 
• the CRA has notified the taxpayer in writing of its intention to disclose the tax debt at least 30 days prior to disclosure; and 
• before the disclosure, the CRA has taken reasonable steps to collect the tax debt and has given the taxpayer an opportunity to make reasonable repayment arrangements. 

Similar amendments would be made to the Excise Tax Act on the same conditions to allow the CRA to disclose information about Goods and Services Tax/Harmonized Sales Tax (GST/HST) debts to credit bureaus. 

This measure would apply on royal assent of the enacting legislation.

A trust that distributes property to its beneficiaries is generally deemed to have disposed of the property at fair market value under the Income Tax Act. However, a personal trust (often referred to as a "family trust") and certain other prescribed trusts may transfer property to a Canadian resident beneficiary on a tax-deferred basis (i.e., a "rollout") in satisfaction of all or part of the beneficiary's capital interest in the trust. 

A trust 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, either when the property is distributed from the trust or at a later date when it is disposed of by the beneficiary. 

Certain tax avoidance planning techniques have been employed to roll out trust property to a non-resident beneficiary indirectly. For example, trust property may be rolled out to a beneficiary that is a corporation resident in Canada whose shares are held by a non-resident person. This planning may result in an indefinite deferral or the permanent avoidance of Canadian tax. 

Budget 2026 proposes to broaden the current rollout denial rule to include indirect distributions of trust property to non-resident beneficiaries. The rollout would be denied for any property that is transferred to a corporation (or partnership) that has a direct or indirect non-resident shareholder (or partner). 

This measure would apply in respect of distributions of property that occur on or after Budget Day (November 5, 2026).

The Canada Workers Benefit (CWB) is a refundable tax credit that supplements the earnings of low- and modest-income workers and improves incentives to work. Budget 2026 proposes to phase out the Advance Canada Workers Benefit, reinvest a portion of the resulting savings to enhance the Canada Workers Benefit and rename the enhanced benefit the Build Canada Workers Benefit.

Under the Scientific Research and Experimental Development (SR&ED) tax incentive program, qualifying expenditures are fully deductible in the year they are incurred. Qualifying expenditures are also eligible for an investment tax credit. 

The tax credit is provided at an enhanced rate of 35 per cent for certain small- and medium-sized corporations. A general rate of 15 per cent is available for qualified SR&ED expenditures that do not qualify for the enhanced rate. 

For the purposes of the tax incentive program, SR&ED generally means systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis, and that is basic research, applied research, or experimental development. Work undertaken beyond the experimental development stage is generally excluded from eligibility for SR&ED tax incentives. 

Budget 2026 proposes to expand the activities and expenditures eligible under the SR&ED program.

Regulatory and Certification Requirements 

 The expanded scope of eligible activities would include tests, technological validations, and studies conducted to meet regulatory requirements for obtaining the initial approval or certification necessary to commercialize a product or process. 

To be eligible, these activities would need to directly relate to a project that is eligible under the SR&ED program's existing rules. 

The types of expenditures that could be claimed in respect of these additional eligible activities would be the same as those eligible under the SR&ED program (e.g., wages and salaries, materials, contracting costs, overhead costs, and machinery and equipment). 

Intellectual Property Protection 

Eligible expenditures would be expanded to include costs related to the registration and maintenance of intellectual property (IP) protection in respect of IP developed in the course of conducting a project that is eligible under the existing scope of activities under the SR&ED program. 

Eligible IP would include IP registered or protected as patents, certificates of supplementary protection, plant breeders' rights, or copyrighted software, under the relevant Canadian legislation or equivalent legislation in another jurisdiction. 

Eligible expenditures would include costs reasonably incurred to obtain and, where applicable, maintain protection for eligible IP. In general, this would include expenses incurred to prepare and file an application for an eligible form of IP protection, as well as maintenance costs payable on a periodic basis to keep IP rights in force. Eligible expenditures would not include those incurred to enforce IP rights, such as litigation costs in respect of alleged IP infringement, or those not directly connected to securing and maintaining IP rights. 

While administrative fees payable to an IP office outside Canada would be eligible, costs of supporting activities, such as those in respect of preparing an application, would be eligible only if those activities are conducted in Canada. 

In the event that a taxpayer disposes of IP in respect of which SR&ED support was provided for IP protection costs, recapture rules would apply in respect of the related SR&ED deduction and investment tax credit amounts. 

Coming into Force 

This measure would apply to taxation years that begin on or after Budget Day (November 5, 2026).

 

The Excessive Interest and Financing Expenses Limitation (EIFEL) rules provide Canada's response to the recommendation under Action 4 of the OECD/G20 Base Erosion and Profit Shifting Project. The EIFEL rules restrict the amount of net interest and financing expenses that may be deducted by certain taxpayers in computing taxable income. These rules apply to taxation years that begin on or after October 1, 2023. 

Budget 2024 announced an exception to the EIFEL rules for interest and financing expenses incurred before 2036 by a taxpayer on borrowings used by the taxpayer to acquire or build purpose-built rental housing in Canada, or convert a property into such housing. On August 12, 2024, an EIFEL exception for energy utilities was announced for interest and financing expenses incurred by a taxpayer on borrowings used by the taxpayer to carry on a regulated energy utility business in Canada. Neither exception has been enacted into law.

Indirect Borrowings 

Under the existing proposals, the exceptions would apply only if the borrower uses the borrowed funds directly to acquire, build, or convert a property into purpose-built rental housing in Canada or to carry on a regulated energy utility business in Canada. 

Budget 2026 proposes to expand the two EIFEL exceptions to cover 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. Additional consequential changes would be made to the proposed exceptions. 

Regulated Energy Utility Business 

Budget 2026 also proposes to expand and clarify the definition of a regulated energy utility business in Canada to cover cases where the prices of all or substantially all of the products or services of the business are: 

• government-established, approved or guaranteed (including sales to Crown corporations); or 
• established through a government-operated market that facilitates delivery for consumption or use in Canada. 

Coming into Force 

These measures would apply to taxation years that begin on or after October 1, 2023. 

Budget 2026 proposes to introduce the following measures: 

• Exempt Canadian-controlled private corporations from the taxable preferred share regime by excluding dividends they pay from Part VI.1 tax. This measure would apply to dividends paid on or after Budget Day (November 5, 2026). 
• Increase the dividend allowance from $500,000 to $1,500,000 and the threshold for the reduction of the dividend allowance from $1,000,000 to $3,000,000. This measure would apply to taxation years that end after 2026. 

Under the Income Tax Act, 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). These expenses are deductible at rates of 100 per cent, 30 per cent and 10 per cent, respectively. The proposed Productivity Mega Deduction would increase the deduction rate for CDE from 30 per cent to 100 per cent. 

CEE includes expenses related to seismic and other geophysical exploration work and the drilling of exploratory wells that are later abandoned or found to be non-producing. CDE includes expenses related to the development of oil and gas wells, including certain expenses for drilling and completing wells and for injection, monitoring, and waste-disposal wells. COGPE includes the costs of acquiring certain Canadian resource properties related to petroleum or natural gas. 

Budget 2026 proposes to allow helium exploration and development expenses to qualify as CEE and CDE, consistent with the treatment of similar expenses in the petroleum and natural gas sector. Expenses incurred to acquire helium resource properties would qualify as COGPE. 

This measure would apply to expenses incurred on or after Budget Day (November 5, 2026). 

Under various provisions in the Income Tax Act and Income Tax Regulations, corporations may file elections or agreements with the Canada Revenue Agency that determine the tax consequences of specific transactions or events. 

Certain rules require corporations to provide a certified copy of a resolution of their directors authorizing the election or agreement or, in certain cases, a certified copy of the authorization of the person entitled to administer the affairs of the corporation. These certified-copy requirements apply, for example, to capital dividend elections; transfers of tax liability on certain taxable dividends; transfers of qualified scientific research and experimental development (SR&ED) expenditures; and allocations of wages and salary of SR&ED employees. 

Budget 2026 proposes to eliminate the existing requirements for corporations to file a certified copy of a resolution or authorization when making certain elections or agreements. This measure would apply to elections and agreements made on or after the date of royal assent of the enacting legislation.

Budget 2026 proposes several amendments to administrative penalties under federal tax statutes. 

Inflation Adjustment of Fixed-Dollar Administrative Penalties 

The Income Tax Act provides for two types of administrative penalties: those based on fixed-dollar amounts and those based on percentages, such as the late-filing penalty, which is calculated as a percentage of the unpaid tax at the filing deadline. 

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

Medium and Large Corporations and Partnerships 

The Income Tax Act provides for some fixed-amount penalties that apply equally to all taxpayers, regardless of their ability to pay. A fixed amount that is significant for an individual or small business may not act as an effective deterrent for a larger corporation or partnership. 

Budget 2026 proposes to calibrate certain penalty amounts by taxpayer size. These 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 Income Tax Act. 

Individuals and smaller corporations and partnerships would remain subject to a base level of fixed penalty amounts. Medium corporations and partnerships would be subject to penalties equal to three times the base amounts. Large corporations and partnerships would be subject to penalties equal to eight times the base amounts. 

Medium corporations would be those that, together with any related corporations, have a combined total of more than $10 million and up to $50 million of taxable capital employed in Canada. Large corporations would be those that, together with any related corporations, have a combined total of more than $50 million of taxable capital employed in Canada. For this purpose, a corporation that is a Canadian-controlled private corporation would only be treated as related to a corporation with which it is also associated. 

Medium partnerships would be those that have $2 million but less than $10 million in gross revenue and large partnerships would be those that have $10 million or more in gross revenue.

Repeated Failures 

The Income Tax Act imposes higher penalties in some cases of repeated non-compliance, including repeated failures to file an income tax return. 

Budget 2026 proposes new penalties that would apply to repeated failures to file tax forms and repeated failures to comply with obligations that do not have a more specific penalty. These penalties would generally double the base penalty that applies in respect of the first failure. The amount of the penalty would be further increased in accordance with the calibration rules for corporations and partnerships discussed above. 

These penalties would apply only to a failure in respect of a particular taxation year if the person or partnership has been liable for a penalty for the same type of failure in any of the three preceding taxation years. In addition, the person or partnership must have failed to remedy the current failure after being sent a notice, requirement or demand by the Canada Revenue Agency. 

Common Reporting Standard and Other Frameworks 

The Common Reporting Standard, the Reporting Rules for Digital Platform Operators and the Crypto-Asset Reporting Framework proposed in Budget 2024 support the collection and exchange of taxpayer information between tax administrations to help combat tax evasion and other forms of tax non-compliance. 

Budget 2026 proposes to strengthen the penalties applicable under these information reporting regimes by amending the Income Tax Act to ensure that a penalty would apply for failing to comply with a duty or obligation imposed under these regimes. In particular, this would ensure that penalties apply to reporting entities and individuals for failing to obtain or validate a self-certification, failing to apply due diligence or review procedures, or failing to keep, maintain or retain records as required under these regimes. 

Technical Income Tax Act Amendments 

Budget 2026 also proposes to make a number of technical amendments to maintain the integrity of the penalty regime in the Income Tax Act. 

Other Tax Statutes 

Changes are also proposed to certain penalties under the Goods and Services Tax/Harmonized Sales Tax (GST/HST) provisions of the Excise Tax Act, the Excise Act, 2001, the Air Travellers Security Charge Act, the Select Luxury Items Tax Act and to align them with inflation adjustments proposed under the Income Tax Act. Specifically, Budget 2026 proposes to increase most fixed-dollar administrative penalties under these statutes and index them to inflation once every five years in line with proposed income tax penalties. These amounts would be increased by a factor of two or three, or otherwise adjusted as necessary to ensure consistency across the federal tax statutes.

Under the Excise Act, 2001, the Minister may issue a demand for any person to file a return within a reasonable period of time. Budget 2026 proposes to increase the amount for the penalty for failing to file a return following a ministerial demand from $250 to $1,000.

Coming into Force

These Income Tax Act measures would apply to taxation years or fiscal periods ending after 2027. For the Common Reporting Standard and other frameworks, these measures would apply to the 2028 and subsequent calendar years.  Changes to penalties under the Excise Tax Act, Excise Act, 2001, Select Luxury Items Tax Act and Air Travellers Security Charge Act would generally apply to reporting periods that end after 2027.