Spring Economic Update 2026

The Economic Update contained no significant tax measures, with no changes in personal income tax rates, corporate income tax rates, or the goods and services tax. The government has effectively returned to a more traditional economic update with an emphasis on the country’s financial position and few new tax measures, which is a welcome step towards reducing the complexity of Canada’s tax system.

We had hoped for a path forward on tax reform, such as the terms of reference on an expert review of the corporate tax system which was promised in the Liberal Party’s 2025 election platform. Instead, the government highlighted that Canada has the “lowest overall tax burden in the G7 on new business investment” (using comparative marginal effective tax rates (METR)) while committing to some modest administrative enhancements for major projects through priority access in tax rulings. In our view, especially with a new majority government, this represents a missed opportunity to strengthen Canada’s tax system to encourage long-term growth and competitiveness, as described in our previous perspective on the need for meaningful tax reform. This may be a result of a near-term focus of executing nation-building projects, however, there is a need to improve business investment beyond nation-building projects too.

While the Economic Update projected an improvement to the deficit by $11.5 billion when compared to Budget 2025, it still remains at $66.9 billion for the fiscal year 2025-26, which represents 2.1% of GDP. For context, this is nearly 60% higher than the projection in the 2024 Fall Economic Update of $42.2 billion, and modestly higher than the $62.3 billion forecast in the Liberal Party’s 2025 election platform. While the Economic Update continues to project large deficits in excess of $55 billion through to 2030, the deficit as a share of GDP is forecast to stabilize at 1.5% of GDP.

In today’s dynamic macroeconomic environment, the government has focused on trade diversification, including through support for business and workers impacted by global trade uncertainty. The Economic Update makes it clear that the government no longer views tariffs as a short-term disruption. While no new tariff measures were announced, the government re-emphasized the support for key sectors in a shift away from emergency measures and towards broader mitigation, diversification and industrial resilience.

Prime Minister Mark Carney has focused on encouraging private sector investment through a series of announcements over the last year. Investments have included the recently announced Canada Strong Fund ($25 billion over three years), which will increase the estimated project financing through a variety of federal investment vehicles to approximately $8 billion annually. It remains to be seen if this strategy of encouraging private sector investment will be successful and in line with the ambitious pace that the government has proposed. The Economic Update points to $125 billion of investments in projects announced to date.

Budget 2025 focused on reaffirming previous tax measures and providing certainty for business investment, with some modest expansions, as outlined in our Alert on November 5, 2025. In the Economic Update, steps are taken to ensure that skilled labour will be available to support the expected forthcoming investment. Specifically, the Economic Update proposes nearly $6 billion over the next five years to recruit, train and hire skilled labour through a mix of apprenticeship subsidies for employers and completion bonuses for workers.

Budget 2025 had announced government savings estimated at $60 billion over five years, representing 4.9% of direct program expenses. The Economic Update reaffirmed the target, with an update promised in Budget 2026.

The Economic Update highlights Canada’s tax competitiveness in business investment. This point was highlighted by the Prime Minister’s Office in a press release on April 17, 2026, announcing the Canada Investment Summit, and more directly by Prime Minister Mark Carney in response to media questions on April 23, 2026. Specifically, the Prime Minister highlighted that Canada has “the lowest marginal effective tax rate on investment in the G7 […] Canada’s marginal effective tax rate on investment is 13% [...] we have the most competitive tax environment for corporate investment.”

What is the METR and how does it influence corporate investment?

The METR is an indicator of the tax burden on new business investment in a country. This includes numerous factors including the corporate statutory rate (approximately 27% in Canada, depending on the province, compared to approximately 25% in the United States, depending on the state), rules regarding tax depreciation on capital investment and interest deductibility, along with items such as investment tax credits and non-refundable sales taxes. In effect, the METR measures the additional investment return required on capital investment to cover the tax burden. For example, a pre-tax return of 6.0% and an after-tax return of 4.0% results in a METR of 33% (2.0% tax impact divided by 6.0% pre-tax return). These figures are what would be generated through capital budgeting exercises but are still theoretical in the sense of the cash flow characteristics of the investment and normal return assumptions.

In effect, the METR attempts to simplify the detail that would reveal itself in capital budgeting and investment hurdle rates. The challenge is that many businesses, particularly small and medium enterprises, may not routinely use these tools, and instead rely on an understanding of material tax incentives and headline statutory tax rates. In that regard, the theory of METR may not translate into broad based business investment in all sectors of the economy. However, for large-scale capital investments undertaken by sophisticated private sector investors (i.e., those that are the focus of the Major Projects Office), it may be a helpful measure. Given the Prime Minister’s background, combined with the audience the government is appealing to, we may expect to hear more about this measure in the coming months and years.

The METR is especially important in assessing tax competitiveness relative to other jurisdictions, specifically in relation to the United States. The Department of Finance estimates Canada’s METR at 13% when compared to 16.9% in the United States and 26% in the G7, suggesting a more competitive tax system, on average, across all sectors. To put this into illustrative returns, if an investment has a pre-tax return of 6.0%, it would deliver an after-tax return of 5.2% in Canada, and 5% in the United States. The fundamental question is whether the pre-tax return would be different in the two jurisdictions as a result of non-tax factors. Tax competitiveness, as measured by the METR, is not enough, which speaks to the need to reduce other investment barriers including statutory tax rates, speed of capital deployment and availability of human capital.

Fast tracking of tax rulings for certain projects

The Canada Revenue Agency (CRA) will issue advance income tax rulings to provide certainty to taxpayers. The CRA’s goal is to issue an advance income tax ruling within 90 business days of receipt, 80% of the time. The Economic Update commits to prioritizing advance income tax rulings for “large-scale, nation-building projects – such as housing and infrastructure – as well as projects of national importance”, including those which may benefit from the clean economy investment tax credits. No specifics were provided as to how the accelerated process will operate or what expected timelines could be.

While the government committed $146 million in Budget 2025 for the CRA to support the administration of the clean economy investment tax credits, it remains to be seen if this prioritization of resources at rulings for major projects will come at the expense of service standards for non-prioritized sectors.

Modest reductions in Canada Pension Plan premiums

The Economic Update contains a proposed reduction to the Canada Pension Plan premiums from a combined 9.9% to 9.5%, effective January 1, 2027. This reduction will provide annual savings of $133 for an employee earning $70,000 a year with equivalent savings for their employer, for total relief of more than $3 billion affecting individuals and businesses.

Employee Ownership Trusts are here to stay

The Economic Update proposes to make the Employee Ownership Trust regime permanent. This regime includes an exemption on up to $10 million in capital gains realized on the sale of a business to an Employee Ownership Trust, which was first introduced in the 2023 Fall Economic Statement. The exemption was originally introduced on a trial basis and was set to expire at the end of 2026.

Enhancements for the energy sector

The Carbon Capture, Utilization and Storage (CCUS) investment tax credit provides a refundable credit of up to 60% for eligible investments (depending on the nature of the equipment and if labour conditions are met), which currently exclude enhanced oil recovery. The Economic Update will permit enhanced oil recovery to be an eligible use for CCUS at one half of the existing rates, for equipment made available for use effective April 28, 2026. The availability of the credit will be subject to the designation of a jurisdiction by the Minister of the Environment.

In addition, accelerated capital cost allowance (CCA) rates will be reinstated for LNG facilities provided that the expected emissions intensity of the on-site liquefaction activities are below prescribed emission rates. The accelerated CCA rate would be 50% for the liquefaction equipment and 10% for facility non-residential buildings and is effective for property acquired on or after November 4, 2025, and before 2035.

The Economic Update contained no significant personal tax measures, although several minor adjustments were made including:

• Simplification of the certification process for the disability tax credit;
• Extension of a temporary grace period for the repayment of withdrawals from the home buyers’ plan from a Registered Retirement Savings Plan (RRSP), which permits a 15-year repayment period on withdrawals made up to the end of 2028; and
• Increasing the Labour Mobility Deduction for Tradespeople from $4,000 to $10,000 in 2026, and annual indexation thereafter.

There were no new indirect or excise tax measures. The government had previously announced the temporary suspension of the federal fuel excise tax on gasoline and diesel, effective April 20, 2026 through to September 7, 2026, which is expected to provide $2.4 billion of tax relief to individuals and businesses.

In the Economic Update, the government has confirmed its intent to move forward with a number of proposed and previously introduced measures after having taken into account consultations and deliberations since their release. The previously announced measures are consistent with the list provided in Budget 2025.

Of note, the following measures were included:

• 21-year rule, as outlined in the January 29, 2026, draft legislation;
• Tax deferral through tiered corporate structures, as outlined in the January 29, 2026, draft legislation;
• Hybrid mismatch arrangements, as outlined in the January 29, 2026, draft legislation;
• Targeted amendments to the Excessive Interest and Financing Expenses Limitation (EIFEL) Rules, as outlined in the August 15, 2025, draft legislation;
• Manipulation of bankrupt status;
• Amendments to the Global Minimum Tax Act and the Income Tax Conventions Interpretation Act; and
• Other legislative and regulatory proposals and other technical amendments to improve certainty.