2026 federal budget (Tax)

2026 federal budget highlights

November 6, 2026

The Minister of Finance and National Revenue, the Honourable François-Philippe Champagne, presented Budget 2026 entitled “Masters of our Destiny” in the House of Commons on November 5, 2026.

A summary of the tax highlights contained in the budget is provided below.

C-suite briefing notes

Not the tax reform we had hoped for: Tax simplification Part I

For those hoping to see more pro-growth-oriented tax reforms or an announcement of a broader tax reform process, Budget 2026 delivered a narrower focus on administrative simplification. In this regard, Deloitte and other organizations have been calling for a reduction in the reliance on income tax and an increase in consumption taxes, as outlined in our perspective on meaningful tax reform in December 2025. Aside from the Productivity Mega Deduction (PMD), this government has shown little interest in pursuing broad-based pro-growth tax reforms of this nature. In fact, the term “Productivity Mega Deduction” occurs over 70 times in the Budget, highlighting its importance as a centrepiece of the government’s tax policy. As a reminder, the PMD increased the type of depreciable assets eligible for immediate expensing from approximately 15% to more than 65% of assets—with buildings (other than manufacturing) and certain intangible assets being the notable exclusions.

The Liberals’ 2025 election platform had promised an expert led corporate tax review, which many in the tax community were waiting to see unfold. It appears that this platform commitment is underway, albeit in a different form than many had expected. The initial results can be seen as a theme throughout this Budget which the government is highlighting as a series of simplification measures.

The first package of tax simplification measures is described in the Budget as the “most ambitious tax simplification effort in decades,” which are generally intended to simplify the tax measures affecting individuals and businesses. The description may be accurate in a historical sense but reflects as much the limited simplification undertaken over previous decades by successive governments as the stated ambition of these reforms. These measures do not have a significant revenue impact but are intended to modernize tax administration. A second tranche of measures is promised for the Spring Economic Update.

In addition to administrative simplification, the government has launched several focused consultations on topics such as corporate loss transfers and the potential for broader modernization of the taxable preferred share regime. Consultations are scheduled to close in early January 2027, suggesting that the government intends to continue to move at a brisk pace to complete its promised tax review, albeit through an informal process. The corporate loss transfer regime could be particularly meaningful, although efforts have been attempted before in 1985 and 2010 without success. We are optimistic that this time will be different.

Encouraging private sector capital investment

The government continues to focus its productivity and growth agenda through scaling up existing businesses. To that end, a new capital gains exemption was announced for investments by individuals in certain Canadian businesses of up to $15 million per qualifying individual in respect of each business. This measure is as an alternative to (but not a replacement of) the existing lifetime capital gains exemption regime for qualifying small business corporations (QSBCs). The expansion is significant, at an estimated cost of $565 million over five years, and will provide significant tax relief to successful investors, employees, and founders of Canadian grown businesses.

Complementing this incentive is an expanded small business rollover regime, where individuals will have three years to reinvest capital in small businesses and be eligible for a tax deferral, along with fewer restrictions on the nature of the investments. These measures are welcome and are broadly aligned with what many had called for to encourage continued investment in growing Canadian businesses.

Scientific Research and Experimental Development (SR&ED) tax incentive program expansion continues with a further $930 million over five years which will allow companies to include commercialization costs as eligible for the investment tax credits (ITCs). At $235 million annually once fully implemented, the expansion is approximately 5% of the current annual fiscal cost of the SR&ED program.

In addition to encouraging capital investment for growing businesses and commercialization, the government is providing greater certainty on clean technology investments and expanding the refundable tax credit program first announced in the 2022 Fall Economic Statement. The Clean Technology and Clean Electricity ITCs, scheduled to phase out in 2033 and expire in 2034, are now extended for a further six years until the end of 2040 and are aligned with the Carbon Capture, Utilization, and Storage ITC. We were pleased to see this, which is consistent with a recommendation we had called for in our consultation submission earlier this year. A domestic content bonus was also proposed, subject to consultation, while there was no mention of labour requirements. No mention of extension for the other Clean Economy ITCs such as Clean Technology Manufacturing or Clean Hydrogen ITCs, which remain scheduled to expire in 2034. The Mineral Exploration Tax Credit and the Critical Mineral Exploration Tax Credit were also extended to March 31, 2032. 

Absence of broad-based pro-growth tax reforms

The PMD is the primary tax incentive favouring business investment. The government continues to focus almost exclusively on the marginal effective tax rate (METR) as the metric that best captures the competitiveness of Canada’s business tax environment. Although the METR is indeed an important measure of overall competitiveness and an incentive to invest in a broad range of productivity enabling capital properties, we do not consider it a sufficient response to the competitiveness pressures facing the country. We describe the METR metric in our Spring Economic Update 2026 tax alert.

While the METR places Canada as first in the G7 for overall tax competitiveness, as indicated in the government’s own analysis, the benefits of the PMD on the METR are not distributed evenly across all sectors of the economy. In addition, the METR ignores the impact of statutory rates on planning decisions by medium and large businesses with respect to the location of investment. In short, faced with higher tax rates in Canada than other competing jurisdictions, these organizations tend to earn higher economic returns, including those related to the development and commercialization of intellectual property (IP), outside of Canada.

The government appears to believe that the PMD is an adequate response to the competitiveness pressures arising from corporate tax reforms recently enacted in the US. Canada had a sustained corporate tax rate advantage compared to the US 10 years ago; however, that has since become a sustained disadvantage. For medium and large businesses, the situation is even more challenging because of favourable regimes introduced by the US with respect to the taxation of international income. In addition, large Canadian-headquartered businesses now must contend with increased tax costs under the new global minimum tax whereas the burden of this system on US firms is significantly less.

The impact of tax and trade pressures is having an adverse impact on business investment (and the tax base) in Canada. In many cases, the deleterious impacts of these pressures will only reveal themselves in time. While we commend the government’s ambitious efforts to create interest and confidence in business investment in Canada and we encourage measures enabling infrastructure investments that distribute benefits widely, we observe that these various support programs tend to benefit selected industries. That leaves many Canadian medium and large businesses—employing half of private sector workers—having to compete against businesses established elsewhere and operating in significantly more competitive tax environments.

Canada’s personal income tax (PIT) rates are also high and top marginal rates apply at far lower thresholds than in the US, making Canada’s PIT rates an impediment to attracting and retaining top talent. Canada has much to offer entrepreneurial risk-takers who will make the investments that will drive productivity growth. In addition, the Canada Growth Incentive (CGI) and other targeted measures will assist in the effort to attract and retain certain individuals. However, PIT policy must also be responsive to the realities of the competing options available to a broader profile of talented individuals.

We recognize that Canada’s fiscal room is limited. That is why, for example, we see the benefits of an increase in the Goods and Services Tax/Harmonized Services Tax (GST/HST) rate (with relief to fully protect low-income families) to help pay for broad-based income tax relief. Notwithstanding the political aversions to increasing consumption taxes—even in a progressive manner—we consider this a necessary part of an ambitious tax reform agenda. Given the significant budgetary pressures, we’d also, for example, consider limiting the use of the government’s balance sheet to finance or backstop new investments or business subsidies in favour of more reliance on the private sector capital formation. This too could help finance broad-based income tax relief.

Our perspective is that the current economic situation demands a more ambitious tax reform agenda. The risk of a quiet, ongoing migration of business investment out of Canada is significant. To avoid a situation in the future requiring costly remedial policy action, we urge the government to make tax reform a priority now. 

Measures for businesses and their shareholders

Canada Growth Incentive – Capital gains exemption

A new $15 million capital gains exemption has been proposed as part of a two-part Canada Growth Incentive (CGI). Applicable to Canadian-resident individuals, the new measure allows for an exemption of $15 million on capital gains realized on the disposition of qualifying shares of a qualifying corporation issued on or after November 5, 2026 and before 2037. The exemption is not a lifetime limit but may be multiplied over investments in qualifying shares in multiple businesses.

A three-prong test:

1. Qualifying individual
   A qualifying individual is an individual resident in Canada other than a trust who is at least 18 years old at the time they acquired a qualifying share. The individual needs to have been a resident in Canada throughout the year in which they claimed the exemption for a capital gain realized on the disposition of a qualifying share in the year or a preceding taxation year. The qualifying shares may be issued to the individual or a partnership subject to certain conditions.
   
   This differs from the current Lifetime Capital Gains Exemption for QSBC shares in that to qualify for the CGI, the shares cannot be held by a trust.
2. Qualifying shares
   A share of a corporation must meet the following conditions to be qualifying shares:
   
   
   • At the time of share issuance, the corporation must be a Canadian Controlled Private Corporation (CCPC) and 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. In addition to the “all or substantially all test,” there is a size requirement where the combined carrying value of the assets of the corporation and related group must not exceed $100 million, immediately before and after the share’s issuance.
   • The share must have been issued either solely for cash consideration or in exchange for employment services.
   • There are three holding period tests. The first test applies to the 24 months immediately following the share issuance in which the qualifying business must be carried on primarily in Canada. The second test relates to the entire ownership period in which 50% or more of the fair market value of the corporation’s assets are used principally in a qualifying business. The third and final test requires the individual to have held the share for at least 36 consecutive months immediately prior to the disposition.
   • At the time of disposition, the test is modified such that 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; with all or substantially all of the fair market value of the assets used principally in a qualifying business.
3. Qualifying business
   Unlike the QSBC test, which only requires an active business carried on primarily in Canada, the CGI has a further test such that to qualify, the corporation needs to carry on a qualifying business. The qualifying business is an active business other than a business providing consulting services, or a professional practice whose “principal asset is the reputation or skill of one or more employees.” A qualifying business also does not include a business operating in the agricultural, fishing, forestry, mining, financial, insurance, utilities, real estate, food and accommodation, arts, recreation, or entertainment sectors or one operating under a licensing or franchising agreement.
   
   Budget 2026 further contemplates specific anti-avoidance provisions to prevent taxpayers from accessing the CGI exemptions in unintended ways including multiplication of the exemption. No details have been provided at this time.
   
   Any exemption claimed under the CGI may be subject to Alternative Minimum Tax (AMT) at an inclusion rate of 30% similar to gains under the current QSBC regime.
   
   Interaction with other capital gains exemptions
   
   The proposed rules contemplate that a Lifetime Capital Gains Exemption and CGI may, generally, not be made on the disposition of the same shares. That said, there may be a possibility of claiming both on the sale to an Employee Ownership Trust or worker cooperative.

Canada Growth Incentive – Rollover for investments in small businesses

The current rules allow for deferral of taxation on the disposition of qualifying shares of an eligible small business corporation (ESBC) provided replacement ESBC shares are acquired in a prescribed time frame. Budget 2026 proposed to amend the rollover rule for shares disposed of on or after January 1, 2027, as follows:

• Extend the period of time to acquire a replacement share from one year to three years following the disposition. A further two years are provided if the individual enters into an agreement to provide further capital to an ESBC. This five-year deferral would be taxed in the fifth year if no shares were acquired. Where shares are acquired, the gain would be deferred until the replacement shares are disposed of. To the extent that any proceeds of the initial qualifying disposition are not invested in eligible replacement shares, interest at prescribed rates will apply.
• Lower the active business requirement, from an “all or substantially all” to a “primarily” test for active business assets through a 24-month holding period with no change to the “all or substantially all” test needing to be met at the time the shares are issued or disposed of.

Investment tax credits and other incentives

• The scope of eligible expenditures and activities in respect of projects that otherwise qualify as eligible for incentives under the SR&ED program is proposed to be expanded for taxation years beginning on or after November 5, 2026. Eligible activities and expenditures will include amounts incurred in respect of testing, validation, or studies for the purposes of obtaining regulatory approvals necessary for the commercialization of a product or process. Additionally, costs incurred for the purpose of maintaining or protecting certain IP developed in the course of a project that is otherwise eligible will also qualify.
• Budget 2026 proposes to extend eligibility for the Clean Electricity and Clean Technology ITCs to property that becomes available for use before 2041. Currently, property must become available for use prior to 2035. Additionally, certain high-voltage intra-provincial electricity transmission property acquired on or after November 5, 2026, is proposed to be eligible for the Clean Electricity ITC.
• It is proposed that expenditures incurred on or after November 5, 2026, in respect of the exploration and development of helium, or to acquire helium resource properties, will be treated in the same manner as similar expenses incurred in the petroleum and natural gas sector. In particular, it is proposed that such expenditures would qualify as Canadian Exploration Expenses, Canadian Development Expenses, or Canadian Oil and Gas Property Expenses, as the case may be.
• Eligibility for the Canadian Journalism Labour Tax Credit is proposed to be extended to organizations producing audio and/or audio-visual news content, with the credit proposed to be available for qualifying labour expenses in respect of eligible newsroom employees incurred on or after November 5, 2026. Additionally, the enhanced rate of 35% of qualifying expenditures is proposed to remain available until December 31, 2028.

Other measures for businesses

• The government is inviting stakeholders to provide input on a proposed corporate loss transfer mechanism that is intended to simplify the use of current year losses within corporate groups. As currently proposed, permissible transfers could only take place between a parent corporation and/or its wholly-owned subsidiaries. Furthermore, transfers would only be permitted between corporations that each had a permanent establishment in the same province.
• Previously announced exceptions to the Excessive Interest and Financing Expenses Limitation (EIFEL) rules in respect of purpose-built rental housing and regulated energy utility businesses are proposed to be expanded with retroactive effect. The exceptions are proposed to be applicable where the eligible activities are carried on by a separate entity within an affiliated group, and the definition of a regulated energy utility business is proposed to be expanded to include situations in which prices for all or substantially all of a business’s products or services are established, approved, or guaranteed by a government, or established through a government-operated market.
• The scope of the taxable preferred share regime is proposed to be narrowed in two important ways:
  
  
  • Dividends paid on or after November 5, 2026, by CCPCs are proposed to be exempt from Part VI.1 tax; and
  • The dividend allowance is proposed to be increased from $500,000 to $1,500,000, with the threshold for the phase out of the allowance being increased to $3,000,000, effective for taxation years ending after 2026.
• Amounts required to be withheld by purchasers of taxable Canadian property (in the absence of an exemption afforded under Section 116) are proposed to be reduced. Specifically, the withholdings will be reduced from 25% to 15% on capital property and from 50% to 30% for depreciable property in order to better align the withholding tax liability with the maximum potential ultimate liability that would be imposed on a corporate vendor. The reduction is proposed to be effective for dispositions by non-resident corporate vendors taking place on or after January 1, 2027.
• Amendments to the rules related to trust distributions to non-resident beneficiaries for property transferred after November 5, 2026, to include a denial of a tax-deferred rollout of any property that is transferred to a corporation (or partnership) that has a direct or indirect non-resident shareholder (or partner).
• The government has announced public consultations and is seeking stakeholder input in respect of a number of issues. The deadline for submissions in respect of most matters is January 8, 2027, except as otherwise noted below. The list of issues include:
  
  
  • The impact of, and improvements to, the preferred share regime;
  • The above-noted corporate loss transfer mechanism, including comments on the proposed conditions for application of the regime, practical implications, measures to safeguard provincial tax bases and other requisite integrity measures; and
  • Potential amendments to Canada’s legislation that implements the Common Reporting Standard, in order to address certain departures from the Organisation for Economic Co-operation and Development’s (OECD’s) Model Rules. The deadline for submissions is December 31, 2026.

Administrative measures

• Effective January 1, 2027, tax-deferred dispositions of taxable Canadian property that take place pursuant to a section 85 rollover are proposed to be exempt from the withholding and remittance requirements under section 116, provided that the section 85 election is filed within 30 days of the disposition, and the purchaser provides certain information pertaining to the transaction and the vendor to the Canada Revenue Agency (CRA).
• The deadline for most taxpayers to file a notice of objection to assessments is being extended from 90 days to one year after the date of the mailing of a notice of assessment. Individuals and graduated rate estates would be permitted to file objections up to a date that is the later of one year after the mailing of the notice of assessment and two years from the tax return filing due date. The proposed amendment eliminates the need for, and the ability to, file for an extension.
• Penalties computed based on fixed amounts under a variety of taxing statutes are proposed to be increased to enhance their deterrent effect. Periodic increases are proposed to reflect the impact of inflation, and a one-time, permanent increase is proposed for medium and large corporations/partnerships in order to better calibrate the impact of the penalties with the size of the relevant taxpayer. Such penalties are proposed to be effective for taxation years/fiscal periods ending after 2027. Additional penalties are also proposed to be imposed in respect of failures to comply with certain obligations under the Common Reporting Standard, the Reporting Rules for Digital Platform Operators, and the Crypto-Asset Reporting Framework. Such penalties are proposed to be effective for the 2028 and later calendar years.
• The income tax return filing deadline and balance-due date for all individuals, including self-employed individuals and their spouses or common-law partners, is being changed to May 15, effective for the 2027 and subsequent taxation years.
• Rules for instalment payments for individuals and corporations are being amended for taxation years beginning on or after January 1, 2028, to increase the instalment threshold and to allow for a single annual instalment for individuals with business income.
• Foreign Income Verification Statement (Form T1135) is being amended for taxation years that end after 2026 such that the reporting is only required where the cost amount of specified foreign property is in excess of $200,000 with thresholds for simplified reporting being increased to cover investments of less than $500,000. This is a doubling of the existing thresholds of $100,000 and $250,000, respectively.
• Certified copies of resolutions or authorizations are proposed to no longer be required for elections filed on or after the date on which the enacting legislation receives Royal Assent.

Miscellaneous personal measures

• The 2027 Canada Groceries and Essentials Benefit is being enhanced with a one-time incremental payment in early 2027.
• The Mineral Exploration Tax Credit and Critical Mineral Exploration Tax Credit are being extended for expenses incurred and renounced until March 31, 2032.
• The Canada Caregiver Credit is being amended to make it refundable in order to give eligible caregivers a benefit whether they have a tax liability or not.
• The Northern Residents Deduction is being amended to increase the deduction and remove some of the reductions for the non-taxable employer provided benefits and to eliminate the limit based on 20% of net income.
• Expansion of the Intergenerational Farm and Fishing Property Rollover to include transfers to a niece, nephew, grandniece, or grandnephew of the taxpayer or the taxpayer’s spouse or common-law partner.
• The Apprentice Vehicle Mechanics’ Tools Deduction is enhanced.
• The Medical Expense Tax Credit and Disability Supports Deduction documentation requirements and claim amounts are being amended. Certain expenses will no longer require a prescription, and other amounts may be claimed as a flat amount rather than requiring receipts to support an actual amount of expenses including gluten-free food, incontinence products, and service dog expenses.
• Optional flat amounts for personal income tax deductions and credits are being introduced to reduce the administrative burden for taxpayers. Applicable for 2027 and later years, the following optional flat amounts are being introduced:
  
  
  • Moving Expense Deduction – flat amount of $1,000 per relocation
  • Clergy Residence Deduction – flat amount of $1,000 per month
  • Labour Mobility Deduction for Tradespeople – flat amount of $1,500 per year
  • Home Accessibility Tax Credit – flat amount of $1,000 per year
  • Adoption Expense Tax Credit – flat amount of $1,200 per adopted child
• The Excess Corporate Holdings Regime for Private Foundations is being eliminated and replaced with a rule that prohibits private foundations from acquiring control of a corporation.
• Budget 2026 includes a proposal to merge Registered Retirement Savings Plan (RRSP) and Registered Retirement Income Funds (RRIF) accounts into a single retirement account referred to as the “RRSP for life.” The changes include a modernization of the rules. The consultation period on these changes ends on January 8, 2027.
• The Canada Creative Credit has been proposed subject to consultation that, when coupled with a personal exemption, could allow an individual to earn approximately $45,000 of business income from artistic endeavors tax free. Details to be announced in the Spring Economic Update.

Indirect and excise tax measures

Budget 2026 modernizes GST/HST import-relief provisions to align with current customs rules and classifications. While many changes preserve existing relief, substantive changes include extending relief for qualifying temporary imports from 12 to 18 months and expanding relief in certain other circumstances.

Budget 2026 proposes to allow qualifying financial institutions to obtain CRA pre-approval of their GST/HST input tax credit allocation methodologies for three fiscal years, rather than requiring annual approval. While the change should reduce the administrative burden associated with annual applications and provide greater certainty, the proposed rules do not expressly provide a mechanism to modify an approved methodology for the second or third year, which may limit flexibility where an institution’s business, activities or allocation methodology changes during the approval period. 

Previously announced measures

In Budget 2026, the government has confirmed its intent to proceed with a number of the proposed and previously introduced measures after having taken into account consultations and deliberations since their release. Of note, the following measures were included:

• PMD, as announced on September 15, 2026
• Transfer pricing, as released on July 23, 2026
• Hybrid Mismatch Arrangements rules, as released on July 23, 2026
• ITCs for Carbon Capture, Utilization and Storage, as released on July 23, 2026
• Investment income derived from assets supporting Canadian insurance risks, as released on July 23, 2026
• GST/HST reverse charge mechanism (“carousel fraud”), as released on July 23, 2026
• Other legislative and regulatory proposals and other technical amendments to improve certainty