Masters of our destiny, tabled November 5, 2026. What the proposed changes could mean for you and your business.

Investment incentives and simplification dominate Budget 2026

Key takeaways

• Capital investment is the centrepiece. The Productivity Mega Deduction, announced September 15, 2026, would permanently allow immediate deductions for roughly two thirds of capital investment. The budget estimates this would reduce Canada’s marginal effective tax rate on new business investment from 13% to 6.4%, at a cost of $36.1 billion over five years. 

• A new incentive for founders and investors. The Canada Growth Incentive would exempt up to $15 million of capital gains per individual, per business, on newly issued shares of qualifying Canadian-controlled private corporations (CCPCs). A related proposal would extend the small business investment rollover replacement period to as much as five years. Detailed legislation has not yet been released, including rules to prevent unintended use. 

• Filing and payment deadlines to change. A single May 15 personal tax filing and payment deadline for 2027 and later tax years, higher tax instalment thresholds of $7,500 (indexed) from 2028, longer objection periods and a $200,000 foreign-property reporting threshold would affect many taxpayers. 

• Late filing and other compliance failures would cost more. Most fixed-dollar penalties would double or triple for failures after 2027. Certain penalties for medium and large corporations and partnerships would be three and eight times the base amounts. The monthly penalty for a late section 85 tax-deferred transfer election would triple to $300, with a $24,000 maximum. 

• Some proposed restrictions apply from Budget Day. Trust distributions to Canadian corporations or partnerships with any direct or indirect non-resident owner would lose tax-deferred treatment for distributions on or after November 5, 2026. Individual pension plans would also face new rules on surplus assets, investments and eligibility. 

• Relief for private businesses and cross-border transactions. Dividends paid by CCPCs on or after Budget Day would be excluded from the special tax on taxable preferred shares. Certain corporate elections would no longer require a directors’ resolution to be filed. Non-resident corporate sellers of taxable Canadian property would benefit from lower withholding rates, and fully tax-deferred section 85 transfers would receive a withholding exemption. 

• Four consultations are open: Common Reporting Standard (December 31, 2026), RRSP-for-life, taxable preferred shares and corporate loss transfers (all January 8, 2027). 

Some of the proposals came with draft legislation, some proposals are still being drafted, and some are only open for consultation. It is important to remember that anything proposed in the Budget is still a proposal and is not law until enacted.  

Business income tax measures

Productivity Mega Deduction 

Building on the Budget 2025 Productivity Super Deduction, the Productivity Mega Deduction would allow businesses of all sizes to deduct the full cost of a much broader range of capital assets in the year they become available for use. The budget states that coverage would rise from roughly 15% of capital assets to more than 65%. 

Examples include software, computer equipment, vehicles, patents, pipelines and mining property. Certain long-lived buildings and intangibles, some passenger vehicles and certain other assets are excluded. 

The deduction rate for Canadian development expense (CDE) would rise from 30% to 100%. 

Clean Electricity and Clean Technology investment tax credits

Extension to 2040. Both refundable credits would extend to eligible property that becomes available for use before 2041. The Clean Electricity ITC remains up to 15%. The Clean Technology ITC remains up to 30%, stepping down to 15% for its final year, which moves from 2034 to 2040. 

High-voltage intra-provincial transmission. The Clean Electricity ITC would expand to intra-provincial transmission property built to operate at or above these thresholds: 

Eligible property includes cables, towers, lattices and transformers related to transmission lines and substations. Buildings, distribution equipment and certain international transmission property are excluded. Further details on eligible property will follow. 

Prevailing wage and apprenticeship requirements continue to apply for the full credit rates. 

Scientific Research and Experimental Development (SR&ED)

Budget 2026 expands SR&ED to cover certain commercialization activities and costs, building on the Budget 2025 changes (including the $6 million enhanced-credit expenditure limit). 

• Regulatory approval and certification: tests, technological validations and studies needed for a product or process’s initial approval or certification could qualify if directly linked to an already eligible SR&ED project. Eligible costs would follow the existing categories: salaries, materials, contracts, overhead, machinery and equipment. 

• Protecting intellectual property: costs to obtain and maintain patents, certificates of supplementary protection, plant breeders’ rights and copyrighted software arising from an eligible project could qualify, in Canada or abroad. Enforcement and litigation costs would not qualify. Foreign IP office fees would be eligible, but supporting work, such as preparing an application, would qualify only if performed in Canada.

• Repayment of tax benefits: if protected IP is later disposed of, the related deduction and investment tax credit would be subject to recapture.

The CRA will issue sector-specific guidance on commercialization expenses. 

Interest deductibility limits (EIFEL exceptions)

The excessive interest and financing expenses limitation (EIFEL) rules restrict interest and financing expense deductions. Two exceptions have been announced but are not yet enacted: 

• Purpose-built rental housing (Budget 2024): interest and financing expenses incurred before 2036 on borrowings used to acquire, build or convert property into purpose-built rental housing in Canada. 

• Regulated energy utilities (announced August 12, 2024): interest and financing expenses on borrowings used to carry on a regulated energy utility business in Canada.

Budget 2026 would broaden both exceptions. Borrowed funds could support eligible activities carried on by another corporation, trust or partnership in the same affiliated group, or by a partnership in which the borrower and its affiliates hold at least a 40% interest. The energy utility exception would also cover businesses where all or substantially all prices are established, approved or guaranteed by government (including sales to Crown corporations), or set through a government-operated market.

Taxable preferred shares (Part VI.1)

Part VI.1 is a special tax on dividends paid on Taxable Preferred Shares (preferred shares with debt-like features). It is intended to prevent issuers from replacing debt with tax-advantaged preferred share financing. Corporations that pay income tax can generally offset this tax against their regular corporate income tax (Part I tax). A dividend allowance currently shelters the first $500,000 of dividends, with a reduction where prior-year dividends exceeded $1,000,000. 

• CCPC exemption: dividends paid by Canadian-controlled private corporations would be excluded from Part VI.1 tax entirely. 

• Higher allowance: the dividend allowance rises from $500,000 to $1,500,000, and the reduction threshold from $1,000,000 to $3,000,000. 

• Consultation: comments on the broader preferred share regime are due January 8, 2027. 

The budget documents differ slightly on the start date; this summary follows the draft legislation (on or after Budget Day). 

Helium exploration, development and resource expenses

Helium exploration and development expenses would qualify as Canadian exploration expense (100% deductible) and CDE, consistent with petroleum and natural gas. Helium resource property acquisition costs would qualify as Canadian oil and gas property expense (10%). The separate Productivity Mega Deduction proposal would raise the CDE rate from 30% to 100%. 

Canadian Journalism Labour Tax Credit

• Credit expanded to audio and audiovisual news: eligible Canadian news organizations could claim a 35% refundable credit on up to $85,000 of salary or wages per eligible newsroom employee, to a maximum of $29,750 per employee. Employees must spend at least 75% of their time producing original news content. 

• Enhanced rate extended: the temporary 35% rate, scheduled to revert to 25% on January 1, 2027, continues to December 31, 2028. 

Corporate tax elections

Certain corporate tax elections and agreements would no longer require a certified copy of a directors’ resolution or equivalent authorization to be filed. These include elections to pay tax-free capital dividends, agreements to transfer tax liability on certain taxable dividends, transfers of qualified SR&ED expenditures and allocations of SR&ED salary and wages. 

Corporate loss transfers

Purpose. Corporations are taxed separately, even when they belong to the same group. Groups now rely on amalgamations, wind-ups or internal financing to use losses across entities, which can be complex and costly. An elective loss transfer system would offer a simpler route. 

Proposed design: 

• Transfers between a parent and a wholly owned subsidiary (directly or indirectly), or between two subsidiaries wholly owned by the same parent. 

• Canadian-resident corporations subject to Part I tax only; conduit entities such as mutual fund corporations excluded. 

• Only current-year non-capital losses could be transferred, through an annual joint election. Any transferred amount not used by the receiving company in that year could not be used in an earlier or later year. 

• Provincial protection: transferor and transferee must each have a permanent establishment in only one province or territory, and it must be the same one. 

Safeguards against unintended tax benefits. The budget illustrates why a loss transfer system needs safeguards with this example, reproduced from the budget: 

Parentco invests $100 in shares of Subco. Subco spends the $100 in a failed venture, incurs a $100 non-capital loss and transfers that loss to Parentco. Parentco now holds $200 of tax attributes ($100 share cost plus a $100 loss) despite spending only $100. 

The government is seeking views on how Canada should address this risk, drawing on approaches used in other countries. 

Administrative penalties

Budget 2026 proposes four changes following the penalty review announced in Budget 2025. Appendix A provides selected current and proposed amounts for reference. 

The size test uses the year or fiscal period before the failure. For CCPCs, another corporation is included as related only if it is also associated under the tax rules. 

Other statutes: fixed-dollar penalties under the Excise Tax Act (GST/HST), Excise Act, 2001, Air Travellers Security Charge Act and Select Luxury Items Tax Act would also increase by two or three times and be indexed every five years. These apply to reporting periods ending after 2027. 

Personal income tax and owner-manager measures 

Canada Growth Incentive: capital gains exemption 

A Canadian-resident individual, but not a trust, could exempt up to $15 million of capital gains on qualifying shares. The individual must have been at least 18 when acquiring the shares and resident in Canada throughout the year of the claim. The limit would apply separately to each individual for each business. Shares could be held directly or through a partnership, provided the individual was a member when the shares were acquired. 

The budget estimates a founder with a $15 million gain in Ontario would keep nearly 96% of the value on exit, compared with about 71% before Budget 2026. 

Canada Growth Incentive: small business investment rollover

The existing small business investment rollover allows individuals to defer capital gains on eligible small business corporation (ESBC) shares by reinvesting the proceeds in replacement ESBC shares in the year of sale or the following year. Budget 2026 proposes the following changes: 

• Longer reinvestment period: the year of sale plus the following three calendar years, using a reserve claimed annually to defer the gain. 

• Agreements for future shares: if an individual funds an ESBC before the replacement period ends under an agreement to receive shares later, such as a simple agreement for future equity (SAFE), the deferral would extend for two more years, up to five years in total. If shares are not issued by the end of the fifth year, the deferred gain would become taxable. 

• Interest if proceeds are not reinvested: amounts not ultimately reinvested would attract interest at the prescribed rate, from the payment deadline for the year of sale to the end of the year in which the gain is taxed. 

• Relaxed active business test: during the holding period, assets would need to be used “primarily”, rather than “all or substantially all”, in an active business. The stricter test would still apply at issuance and sale. The business must be carried on primarily in Canada at issuance and for the shorter of two years and the holding period. 

Compliance and administration changes

These proposals primarily affect when you file, pay and respond to tax assessments, rather than the amount of tax you owe. 

Trust distributions to non-residents

Personal trusts can generally distribute property to Canadian-resident beneficiaries on a tax-deferred basis, but not to non-residents. Some arrangements have used a Canadian corporation owned by a non-resident to get around this. 

The proposal would deny tax-deferred treatment when a trust distributes property to a Canadian-resident corporation or partnership in which a non-resident person holds any share or interest, directly or indirectly. 

Registered pension plans and individual pension plans

• Revoked plans (revocations after 2026): a registered pension plan (RPP) that loses its registration would face a special tax of 10% of its property value, subject to a CRA waiver. It would then be treated as a retirement compensation arrangement (RCA), subject to 50% refundable tax on its remaining property. 

• Broader individual pension plan definition (January 1, 2027): an individual pension plan (IPP) would include any defined benefit RPP in which every member is related to a participating employer or does not deal at arm’s length with such a member. Adding related members to exceed the current three-member threshold would no longer avoid IPP status. 

• Investment restrictions (January 1, 2028): IPPs would become subject to the same investment and advantage rules that apply to TFSAs, RRSPs and RRIFs, including penalty taxes on the controlling individual. Transitional rules would cover investments acquired before 2028. 

• Excess surplus assets (January 1, 2028): an IPP with assets exceeding 200% of its liabilities could lose its registration. The CRA would have to give at least 30 days’ notice, allowing excess amounts to be withdrawn. 

• Information sharing (royal assent; proposal only): the CRA may confirm a member's death to an RPP administrator. 

RRSP-for-life

The government is consulting on combining the core registered retirement savings plan (RRSP) and registered retirement income fund (RRIF) rules into a single “RRSP-for-life”. This would remove the need to convert an RRSP at age 71, but minimum withdrawals after 71 would continue. Options include letting a spouse or common-law partner take over the plan and allowing direct tax-free transfers to survivors’ registered plans on death. 

Excess corporate holdings regime for private foundations 

Private foundations and related persons are currently subject to a 20% limit on holdings of any class of corporate shares, with associated tracking, reporting and disposal requirements. Those rules would be eliminated. Instead, private foundations would become subject to the prohibition on acquiring control of a corporation that already applies to public foundations. 

Credits, benefits and deductions 

Optional flat amounts 

You would still need to establish eligibility but could choose a flat amount instead of itemizing expenses and keeping receipts for that amount. If the flat amount is chosen for an expense category, only one claimant may claim that flat amount. 

International tax measures 

Taxable Canadian property: withholding and section 85 rollovers

Canada taxes non-residents on gains from taxable Canadian property (TCP), including Canadian real estate, resource property and shares that derive their value principally from those assets. Unless the seller obtains a tax clearance certificate, the buyer generally must withhold and remit part of the purchase price. Higher rates apply to “specified” TCP, which produces fully taxable income. 

Lower rates for corporate vendors. Because these rates ignore lower corporate tax rates, they would fall for non-resident corporations only: 

Under the draft rules, a buyer could use the reduced rates if, after making reasonable inquiries, it had no reason to believe the seller was not a corporation. 

Section 85 tax-deferred transfers. A non-resident transferring TCP on a fully tax-deferred section 85 transfer would no longer face withholding or remittance, provided the election is filed and the buyer notifies the CRA within 30 days of the transfer. This would replace the current practice of seeking an administrative clearance certificate while the buyer holds back funds. 

Stronger safeguards against tax avoidance. An existing rule denies deferral where the property is sold within three years as part of a plan to obtain a treaty or other tax exemption. For non-resident TCP transfers, this period would extend to five years and cover a wider range of later sales. 

Common Reporting Standard

The government is consulting on gaps between Canada’s Common Reporting Standard (CRS) rules and the OECD model for sharing financial account information internationally. Peer review found that Canada’s rules capture fewer investment entities and partnerships than the global standard. The stated aim is to align with the global standard without unnecessary compliance costs.

Related: penalties for failing to meet CRS, digital platform and crypto-asset reporting duties are covered under Administrative penalties above, and TIN penalties under those regimes double to $1,000 per failure after 2027. 

Sales and excise tax measures 

GST/HST health measures 

• Massage therapy services exempt. Services would be exempt where the practitioner is licensed or certified, or holds equivalent qualifications where the province does not regulate the profession. 

• Alternating electric field therapy devices zero-rated. Devices specially designed for alternating electric field therapy for individuals with cancer would join the list of zero-rated medical devices. One such device, used to treat glioblastoma, is approved by Health Canada. 

Pre-approval of input tax credit allocation methods for financial institutions

Certain large financial institutions currently need annual CRA approval of their GST/HST input tax credit allocation methods before the fiscal year begins. They could instead seek approval for three consecutive fiscal years. The Minister could approve only the first year, for example for a new method. The institution could then reapply for the second and third years using the same or different methods. 

Product descriptions and regulatory cross-references 

The sales and excise tax rules still refer to Harmonized System (HS) product codes from before 1998 and outdated customs regulations. Budget 2026 would update these references, generally preserving current treatment while expanding some relief: 

• Specified motor vehicle: HS codes updated; pedal-assisted e-bikes, wheelchairs and pedestrian-moved vehicles excluded. 

• Cargo containers: relief extends to containers with at least 1 m³ internal volume exported within 365 days (currently at least 6.1 metres or 14 m³, exported within 30 days). 

• Temporary importations: maximum period for relief rises from 12 to 18 months, aligning with current customs rules. 

• Other relief maintained or extended: including display goods, commercial samples, library books, railway rolling stock and international bridge and tunnel equipment. 

• HST participating provinces and excise taxes: parallel updates generally maintain existing relief. 

Cannabis taxation 

• Common excise stamp for jurisdictions with the same duty rate (British Columbia, Quebec, New Brunswick, Prince Edward Island, Nova Scotia, Newfoundland and Labrador, Yukon and Northwest Territories), with Ontario, Alberta, Saskatchewan and Nunavut invited to opt in by January 31, 2027. The budget estimates the number of distinct stamps falls from 13 to 6. 

• Transition: jurisdiction-specific stamps may be used until June 30, 2029; previously stamped product may be sold until December 31, 2029. 

• Controls: producers would still report and remit duty by destination, with new penalties for misreporting destination or moving common-stamped product across borders. 

• Penalties: a new civil penalty of twice the duty on unaccounted-for cannabis, and updated fines for unstamped edibles, topicals and extracts. 

Spirits licence security 

Excise warehouse licensees authorized to hold packaged spirits on which duty has not yet been paid would have to provide security, except for provincial Crown and liquor authority licences. Security for spirits and excise warehouse licences would be based on monthly excise duty liabilities, with a minimum of $5,000 and a maximum of $2 million per licence. 

Federal fuel excise tax licensing framework 

• Wholesaler licences open to businesses that sell or deliver fuel to licensed manufacturers, licensed wholesalers or other resellers in the ordinary course (first day of the month after royal assent). 

• Licensed manufacturers may import or buy fuel tax-relieved when they intend to resell it, whether bought from a licensed manufacturer or wholesaler (day after Budget Day). 

• Time-limited payment for licensed manufacturers where tax effectively applied twice on the same fuel between January 1, 2017 and Budget Day and related deductions were denied on assessment. Applications must be made within two years of royal assent. 

Context: the temporary suspension of federal fuel excise tax that began April 20, 2026 continues to January 31, 2027, with rates at 50% until March 31, 2027 and full rates from April 1, 2027 (previously announced September 2, 2026). 

Other tax measures 

Previously announced measures confirmed 

Budget 2026 confirms the government will proceed, with any modifications from consultation, with: 

• Legislative and regulatory proposals released September 15, 2026 implementing the Productivity Mega Deduction. 

• Legislative and regulatory proposals released July 23, 2026, covering the Disability Tax Credit; Red Seal Completion Bonus; Carbon Capture, Utilization and Storage ITC; investment income from assets supporting Canadian insurance risks; transfer pricing; hybrid mismatch arrangements; the GST/HST reverse charge mechanism; and technical amendments to the Income Tax Act and Regulations, the Global Minimum Tax Act and the excise statutes. 

• Legislative proposals released January 29, 2026 on reporting requirements for non-profit organizations. 

• Technical Income Tax Act amendments released August 12, 2024. 

• Budget 2024 measures on non-compliance with information requests under the excise statutes. 

• Proposals released August 4, 2023 on tax-exempt sales of motive fuels for export. 

• Proposals released August 9, 2022: technical Income Tax Act and Regulations amendments and remaining excise duty proposals. 

Key dates and consultation deadlines 

Steps to consider with your tax adviser 

1. Review planned trust distributions. If property is being transferred to a corporate or partnership beneficiary, check for any direct or indirect non-resident ownership before proceeding. The proposed restriction applies from Budget Day. 

2. Assess eligibility for the Canada Growth Incentive. Growth-stage CCPCs outside the excluded sectors should retain evidence supporting eligibility when issuing shares on or after November 5, 2026. Detailed legislation is still needed. 

3. Review individual pension plans. Check member composition, whether assets exceed 200% of liabilities, and any related-party or non-qualified investments ahead of the proposed 2027 and 2028 changes. 

4. Prepare for filing and payment changes. Review the proposed May 15 deadline for 2027 personal returns, instalment changes from 2028, revised objection periods and higher penalties after 2027, particularly for late section 85 elections. Confirm enactment before changing your compliance calendar. 

5. Plan non-resident property transactions carefully. Check the proposed reduced corporate withholding rates, 30-day section 85 notice and five-year anti-avoidance period with your adviser. 

6. Consider responding to consultations. Feedback is due December 31, 2026 for the Common Reporting Standard, and January 8, 2027 for corporate loss transfers, taxable preferred shares and RRSP-for-life. 

7. Monitor proposals that still lack detailed rules. Before making commitments, confirm the latest position on the Canada Growth Incentive, SR&ED commercialization expenses and clean investment tax credit extensions. 

Disclaimer

This publication provides a general overview of the budget proposals as announced on November 5, 2026. Proposals may change before becoming law. It is not advice for a specific situation. Consult your Baker Tilly adviser before acting, including to confirm the applicable legislation and how the measures affect you. 

Appendix A: Selected administrative penalty amounts

This reference appendix summarizes selected current penalties and proposed amounts in the draft Income Tax Act legislation released with the budget. Unless noted, the changes would apply to failures, elections or filings after 2027. Confirm the applicable rules and any value-based penalties with your tax adviser before relying on a particular amount. 

Size-calibrated penalties 

All per-day amounts are capped at 100 days. The repeated-duty penalty requires non-compliance within 90 days of a written notice, requirement or demand. 

Flat penalties increased