Federal Budget 2026: Key Tax Takeaways

Budget 2026 proposes to introduce a new capital gains exemption, the Canada Growth Incentive (CGI). The CGI would exempt up to $15 million of capital gains realized on certain qualifying shares disposed of by Canadian-resident individuals, on or after November 5, 2026 and before 2037. This $15 million limit would apply separately to each qualifying individual in respect of the business.

Eligibility would be subject to the following conditions:

An exemption claimed under the CGI would have a 30 per cent inclusion rate for alternative minimum tax purposes, consistent with the treatment for the Lifetime Capital Gains Exemption. Claims would also affect the lifetime capital gains exemption available on shares of the same corporation.

Individuals can currently defer certain capital gains on eligible small business corporation shares by reinvesting sale proceeds in replacement shares within prescribed periods. Budget 2026 proposes to extend the replacement period to the year of disposition and the following three calendar years. 

An additional two years could be available where an investor enters into a qualifying agreement for future equity, such as a SAFE, within the initial replacement period. Certain ongoing asset-use requirements would also be relaxed. These changes would apply to qualifying dispositions on or after January 1, 2027. 

Most individuals are currently required to file their T1 personal income tax return and pay any balance owing by April 30th following the end of the taxation year. Self-employed individuals and their spouses have until June 15th to file their returns, although any balance owing remains due to be paid by April 30th to avoid interest charges.

Budget 2026 proposes to introduce a May 15th filing deadline for filing personal income tax returns and paying balances owing for all individuals, including self-employed individuals and their spouse or common-law partners.

The change would apply beginning with the 2027 taxation year, meaning the first affected annual filing deadline would be May 15, 2028.

For most individuals, instalments are required if their combined federal and provincial net tax owing on income 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). Corporations generally must make 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. Interest and penalties would generally apply on late or insufficient instalment payments.

Budget 2026 proposes to increase the income tax instalment requirement threshold from $3,000 to $7,500 for corporations and individuals outside Quebec. The federal threshold for individuals in Quebec would increase from $1,800 to $4,500. The thresholds would be indexed to inflation and rounded to the nearest $500.

Budget 2026 also proposes that individuals whose primary income source is a business, including professional or commission income, would also be permitted to make a single annual instalment equal to two thirds of their annual net tax owing by December 31st. The remaining balance would be payable by the applicable balance-due date.

These changes would apply for taxation years beginning on or after January 1, 2028.

Budget 2026 proposes to increase the reporting threshold for Form T1135, Foreign Income Verification Statement (“Form T1135”), from $100,000 to $200,000. As a result, taxpayers would only be required to file Form T1135 if the total cost of their specified foreign property exceeds $200,000 at any time during the taxation year.

Budget 2026 also proposes to increase the threshold for simplified reporting from $250,000 to $500,000. Under the proposed rules, taxpayers whose specified foreign property exceeds $200,000 but remains below $500,000 throughout the year would be eligible to use the simplified reporting method.

These changes would apply to taxation years or fiscal periods ending after 2026. Both thresholds are based on the cost of specified foreign property, rather than fair market value.

Budget 2026 proposes an optional flat-amount calculation method for the following deductions and credits, to reduce the need for individuals to keep receipts and itemize expenses to support amounts claimed:  

Budget 2026 proposes to allow commission employees to deduct travel and motor vehicle expenses under the general employee expense rules. This change would apply to the 2027 and subsequent taxation years. 

Budget 2026 confirms the government’s intention to proceed with the Productivity Mega Deduction announced in September 2026. The proposal would permanently allow immediate expensing for a broader range of depreciable property, generally acquired on or after September 15, 2026. Eligible costs could be deducted in the year the property becomes available for use. 

Additional information on the Productivity Mega Deduction can be found here.

The excessive interest and financing expenses limitation (EIFEL) rules restrict interest deductions for certain taxpayers. Amongst other proposals, Budget 2026 proposes to broaden the previously proposed exceptions for purpose-built rental housing and regulated energy utilities to accommodate certain indirect borrowings within affiliated groups.  

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

Budget 2026 introduces a potential corporate loss transfer rule, that would allow current-year non-capital losses to be transferred within qualifying wholly owned corporate groups through an annual joint election. Under the proposed parameters, both corporations would generally need to have permanent establishments solely in the same province or territory.

This measure, if enacted, would reduce the need for complex loss-utilization transactions that would otherwise have been required in a corporate group. No commencement date has been specified, as the government plans to first launch a consultation period. 

Budget 2026 proposes to exempt CCPCs from the taxable preferred share regime by excluding dividends they pay from Part VI.1 tax. This measure applies to dividends paid on or after November 5, 2026.

Budget 2026 also proposes to increase the dividend allowance from $500,000 to $1.5 million and the threshold for the reduction of the dividend allowance, where dividends paid in the prior year exceed $3 million (currently, the threshold is $1 million). This measure applies to taxation years that end after 2026.  

The government is reviewing the overall preferred share regime and is seeking written submissions from stakeholders to be sent by January 8, 2027. 

Budget 2026 proposes to eliminate the existing requirement for corporations to file a certified copy of a resolution or authorization when making certain tax elections or agreements, such as capital dividend elections, transfers of tax liability on certain taxable dividends, transfers of qualified SR&ED expenditures and allocations of wages and salary of SR&ED employees. This measure would apply to elections and agreements made on or after the date of royal assent of the enacting legislation. 

Budget 2026 proposes to adjust the Taxable Canadian Property rules as follows:

Budget 2026 proposes to expand the trust rollover denial rules to capture indirect distributions of trust property to non-resident beneficiaries. Under the proposed rules, tax-deferred rollovers would be denied where property is distributed to a corporation or partnership with direct or indirect non-resident shareholders or partners. These changes would apply to distributions occurring on or after November 5, 2026.