Winter 2026: Legislative proposals

On January 29th, the Minister of Finance released a relatively small package of draft legislation aimed at implementing measures announced as part of Budget 2025. 

The proposals do not introduce any new measures but seek to clarify and refine existing drafts already released. 

Practitioners and owner-managers of Canadian businesses were hopeful for changes to the proposed rules regarding two key items: suspended corporate dividend refunds and indirect transfers of property to trusts. Here’s what you need to know. 

Tax deferral through tiered corporate structures 

The suspended dividend rules (formally referred to as ‘Tax deferral through tiered corporate structures’), seek to prevent the ability of corporations to defer tax on investment income using strategic structuring. Previously, an opportunity to defer this tax existed by leveraging a tiered corporate structure where the entities had different year ends. We provide more details on this here.  

Greatly simplified, the rules seek to target this opportunity by ‘suspending’ the dividend refund until the recipient pays the related tax.  

The challenge? Tracking and managing these suspensions may prove difficult, becoming particularly burdensome when you're not seeking the deferral advantage in the first place. This this is likely to create unnecessary administrative complexity for many businesses.

Indirect transfers of property to trusts and the 21-year rule 

Budget 2025 included a proposal to expand the existing trust 21-year anti avoidance rule so that it also applied to indirect transfers of property to trusts. The intent is to limit planning that avoids the 21year deemed disposition rule by moving assets into a new trust. We discussed this in more detail here. 

The draft wording of this proposal remains largely unchanged from the version previously released. Some have expressed concern that the revised provision is drafted broadly and may capture transactions beyond the specific planning being targeted. 

What’s next 

While these drafts don't reflect the changes many hoped for, they remain open for consultation until February 27th, 2026. Changes may still arise once the consultation period ends, so the final form of these legislative proposals remains to be seen. 

We're monitoring these developments closely and will continue to keep you informed as the consultation process unfolds. If you have questions about how these proposed rules might affect your business, we're here to help you plan proactively.