Summer 2026 draft tax legislation: what you should know

The Department of Finance released a broad package of draft legislative and regulatory proposals in July 2026, intended to implement measures announced in Budget 2025. It includes amendments across the Income Tax Act, Excise Tax Act, Global Minimum Tax Act, and several related statutes and regulations. 

The proposals remain draft and may change before becoming law. That said, several measures have proposed effective dates that are retroactive or imminent, so potentially affected taxpayers should not wait for enactment before considering whether they may be impacted. 

Measures for individuals 

Disability tax credit certification 

The proposed amendments would make the disability tax credit easier to access. They expand the types of practitioners who can certify impairments, allow certain public guardians, trustees, and government representatives to certify eligibility for incapable adults, and create a streamlined pathway for individuals with specified long-term medical conditions. 

Individuals who were previously denied the credit, or who faced difficulty obtaining certification, may want to revisit their eligibility once the rules are finalized. 

Red Seal Completion Bonus 

The new Red Seal Completion Bonus ($5,000) would be included in income when received and subject to withholding at source. It would count as earned income for child care expense purposes, and repayments would generally be deductible. Employers and apprentices in the trades should ensure the payment is properly reported and withheld once implemented. 

Measures for businesses 

Automobile benefits for partners 

Where a partnership makes an automobile available to a partner, or to a person who does not deal at arm’s length with the partner, the draft legislation clarifies that the partner may be required to include a standby charge benefit in income. This closes a gap in rules historically framed around employer-employee relationships, effective for 2026 and later taxation years. 

Businesses operating through partnerships should review any partnership-owned vehicles used by partners or related individuals and confirm whether the new rule affects 2026 income reporting. 

Shareholder and related-party loans 

Technical changes to the shareholder loan rules in section 15 and the employee-shareholder debt rules in section 80.4 may remove certain corporate and foreign affiliate loans from the shareholder benefit rules. This may help in some intercorporate and owner-manager situations, particularly where the analysis turned on subsection 15(2). The rules remain technical, and effective dates vary by the type of loan or indebtedness. 

Accelerated CCA for low-carbon LNG facilities 

Enhanced capital cost allowance treatment would apply to certain low-carbon LNG facilities that qualify as “certified liquefaction facilities.” A facility must meet a prescribed emissions-intensity threshold and obtain certification based on an engineering plan; where it does, eligible buildings and equipment could benefit from significantly accelerated write-offs. This is most relevant for LNG projects still in planning or design, where certification and engineering documentation will be central to eligibility. 

CCUS investment tax credit expanded to enhanced oil recovery 

The Carbon Capture, Utilization and Storage investment tax credit would be expanded to include certain carbon stored through enhanced oil recovery, though the draft rules recognize only 50% of certain EOR-related use and expenditures for credit purposes. Projects must also meet permanent storage requirements and be located in an approved jurisdiction. Oil and gas businesses with carbon capture projects should review whether existing or planned projects could qualify. 

GST/HST, excise and luxury tax amendments 

The proposals include a collection of GST/HST, excise, and luxury tax changes. The most commercially relevant include: 

• a new reverse-charge regime for certain wholesale VoIP telecom capacity; 

• expanded zero-rating for certain animal feed; 

• extension of the GST/HST construction holdback rule to marine vessels; 

• changes to closely related group rules for section 156 elections; 

• additional disclosure and self-assessment rules for prescribed property and services; and 

• administrative changes across several indirect tax statutes. 

Several changes have retroactive elements, so affected businesses should review both current processes and prior filings. 

Cross-border measures 

The cross-border proposals are particularly relevant for Canadian businesses with foreign affiliates, cross-border financing, related-party transactions, transfer pricing exposure or multinational group structures. The measures are technical, but the practical question is straightforward: whether existing structures, documentation, or calculations should be revisited before the rules are enacted. 

Foreign affiliate rules for Canadian insurance risks 

The proposed rules would apply to income a foreign affiliate earns from holding assets connected with Canadian insurance risks where it does not deal at arm’s length with a Canadian-resident insurer. Canadian insurance groups with related foreign affiliates should review their asset-holding and reinsurance structures. 

Simplified transfer pricing documentation  

Smaller cross-border transactions may qualify for simplified contemporaneous documentation where the taxpayer falls below specified thresholds (for example, group revenue of $25 million or less, or tangible property transactions of $5 million or less). It reduces paperwork but does not remove the obligation to price on arm’s length terms, and taxpayers must still elect in by the applicable deadline. 

Hybrid mismatch rules (second package)  

These target reverse hybrids, disregarded payments, hybrid payers and imported hybrid mismatch arrangements, generally applying to payments arising on or after July 1, 2026, including under existing arrangements. Businesses with cross-border financing or U.S.-Canada hybrid structures should review them now. 

Global minimum tax amendments  

The Global Minimum Tax Act would be amended to narrow the definition of a “deduction/non-inclusion arrangement,” retroactive to fiscal years beginning on or after December 31, 2023. Large groups subject to Pillar Two should consider whether prior calculations need revisiting. 

What should taxpayers do now? 

Although the proposals are still draft, businesses and individuals should consider whether they are affected before the rules are enacted. It may be worth reviewing: 

• Disability tax credit eligibility and prior denials; 

• Red Seal Completion Bonus reporting and withholding; 

• Partnership-owned vehicle arrangements; 

• Shareholder and related-party loan balances; 

• LNG, CCUS and other major capital project planning; 

• GST/HST treatment for telecom, agriculture, marine construction or closely related group transactions; and 

• Cross-border transfer pricing, hybrid financing and global minimum tax positions. 

What this means for you 

For many taxpayers, these proposals may not require immediate changes. For others, particularly those with cross-border structures, related-party financing, major capital projects, GST/HST-sensitive operations or disability tax credit claims, the draft rules may affect planning, documentation, reporting or compliance decisions before the legislation is finalized. 

If you think one of these measures may apply to you or your business, contact your Baker Tilly advisor to discuss how the proposed rules could affect your tax planning, compliance obligations or reporting position.