CLIENT UPDATE | Federal Budget Commentary

On November 5, 2026 (Budget Day) Minister of Finance and National Revenue, François-Philippe Champagne, announced the budget, “Masters of our Destiny” (Budget 2026).  Budget 2026 has been presented as being ambitious and pragmatic with the goal of making Canadians “maîtres chez nous” (masters of their own house), while building sovereignty and giving Canadians the freedom to live their lives as they choose.

Budget 2026 is projecting spending of $142.1 billion over the next five years, and a projected deficit for the current fiscal year of $62.3 billion.  Deficits are expected to remain over $50 billion for the following five fiscal years.

Major spending initiatives are aimed at energy and infrastructure, housing and mental health.  Other initiatives, both tax and non-tax are supporting cultural initiatives, including benefits for artists, funding for Canadian content and free admission to national museums for youth under the age of 25. 

Budget 2026 highlighted measures for investing in Canadian businesses, including the Productivity Mega Deduction introduced in September 2026 which allows businesses to immediately write-off the full cost of a broad range of capital assets.

Budget 2026 includes some significant administrative changes to taxes including:

• Changes in tax filing deadline for all personal tax returns for the 2027 taxation year and beyond from April 30^th (or June 15^th for self employed individuals) to May 15^th;
• Merging of the RRSP and RRIF regulations, so that no conversion of an RRSP to a RRIF will be mandated at age 71.  New RRSP rules would provide for minimum withdrawal requirements that align with the RRIF;
• Penalties historically calculated at fixed amounts will be increased for inflation based on when they were originally enacted, resulting in the doubling or tripling of some older penalties; and
• The threshold for tax instalment payment requirements is proposed to increase for both individuals and corporations from $3,000 to $7,500.

In addition to these administrative measures, Budget 2026 proposes to introduce the Canada Growth Incentive (CGI) capital gains exemption, which similar to the existing Lifetime Capital Gains Exemption (LCGE), provides a deduction for the sale of qualifying shares of a qualifying corporation.  However, unlike the $1.275 million limit that is currently available for the LCGE, the CGI provides a deduction of up to $15 million to offset capital gains on eligible transactions.

PERSONAL INCOME TAX MEASURES

New Canada Growth Incentive Capital Gains Exemption

Currently individuals may claim the Lifetime Capital Gains Exemption (LCGE) on qualifying small business corporation shares, subject to the existing $1.275 million lifetime limit, and detailed holding-period and asset-use tests. 

Budget 2026 proposes that a new exemption of up to $15 million per qualifying individual, per qualifying business, would apply to gains on qualifying shares issued by an eligible Canadian Controlled Private Corporation (CCPC).

Important conditions include:

• Must be an individual other than a trust, at least 18 years old when they or a qualifying partnership acquired the share;
• At the time the shares are issued the company must be a CCPC and substantially all of the value of the corporation’s assets must be used, or reasonably intended to be used within 36 months, principally in a qualifying business carried on primarily in Canada;
• The shares must generally be newly issued for cash or qualifying employment services, although there will be provisions for share exchanges and similar arrangements;
• The corporation and related corporations must have no more than $100 million in combined asset carrying value immediately before and after the issue;
• The shares must generally be held for at least 36 months prior to the transaction;
• At issuance and disposition, all or substantially all of the corporation’s value must relate to qualifying active business assets;
• During the ownership period, at least 50% of corporate asset value must relate to qualifying active business assets;
• At the time of disposition, the corporation must be a Canadian resident private corporation or a public corporation listed on a stock exchange located in Canada, and all or substantially all of the fair market value of the corporation’s assets must be attributable to assets used principally in a qualifying business.

The Canada Growth Incentive does not apply to certain businesses:

• accounting, legal, medical, engineering and other professional practices;
• consulting businesses and businesses principally dependent on a person’s reputation or skill;
• financial, insurance and real estate businesses;
• agricultural, fishing, forestry and mining businesses;
• food, accommodation, arts, recreation and entertainment businesses; and
• franchises and licensing businesses.

Gains sheltered under this exemption would have a 30% inclusion rate for purposes of calculating Alternative Minimum Tax (AMT).  Claiming the new exemption would also restrict the individual’s ability to claim the existing Lifetime Capital Gains Exemption on shares of the same corporation.

These measures would apply to qualifying shares issued on or after Budget Day and before 2037. Additional anti-avoidance rules to restrict the application of this exemption are still to be released.

T1 Filing and Payment Deadlines

Currently, most individuals must file their income tax return and pay any tax owing by April 30.  Self-employed individuals and their spouses or partners may file by June 15 but must still pay balances due by April 30.

Budget 2026 proposes that the filing and balance-due date would become May 15 for all individuals, including self-employed taxpayers and their spouses or partners.

This measure would be effective for 2027 and subsequent taxation years.

Tax Instalments for Individuals and Corporations

Under current rules, individuals generally must pay personal tax instalments when tax owing exceeds $3,000 in the current year and either of the two preceding years ($1,800 for Quebec residents).  Corporations generally do not have to make federal instalments if tax payable is $3,000 or less.

Budget 2026 proposes that:

• The threshold would increase to $7,500 for corporations and individuals outside Quebec;
• The threshold for Quebec individuals would increase to $4,500;
• These amounts would be indexed and rounded to the nearest $500; and
• Individuals whose principal income is business, professional or commission income could make one annual instalment equal to two-thirds of the year’s estimated tax by December 31, rather than quarterly instalments.

These measures would apply to taxation years beginning on or after January 1, 2028.  The annual-instalment option would apply for 2028 and later years.

Intergenerational Farm and Fishing Rollover

Qualifying farm and fishing property may currently be transferred on a tax-deferred basis to children, grandchildren and great-grandchildren subject to certain conditions.

Budget 2026 proposes that the rollover rules would be expanded to include transfers to nieces, nephews, grandnieces and grandnephews of the taxpayer or the taxpayer’s spouse or partner.

This proposed measure would apply to transfers occurring on or after January 1, 2027.

Foreign Property Reporting, Form T1135

Form T1135 is generally required when the total cost of specified foreign property exceeds $100,000 at any time in the year.  Simplified reporting is available when the total cost remains below $250,000 throughout the year.

Budget 2026 proposes that the general filing threshold is increased from $100,000 to $200,000 and the simplified-reporting ceiling is increased from less than $250,000 to less than $500,000.

The measure would apply to taxation years or fiscal periods ending after 2026.

RRSP Modernization Consultation

An RRSP must generally be converted to a RRIF or used to purchase an annuity by the end of the year in which its holder turns 71.

The government is considering an “RRSP for life” combining core RRSP and RRIF features.  Conversion to a separate RRIF might no longer be required, although minimum withdrawals after age 71 would continue.  Direct transfers on death and a successor-holder mechanism are also being considered.

No legislation or effective date has been proposed. Consultation submissions are due January 8, 2027.

Tax Objections

Most taxpayers have 90 days to object to a tax assessment, followed by a further one-year period in which they may ask for an extension. Individuals and graduated rate estates have a longer alternative deadline tied to their filing due date.

Budget 2026 proposes that most taxpayers would have one year from the date the assessment is sent to object.  Individuals and graduated rate estates would have the later of one year from the assessment and two years from the applicable filing deadline.  The separate extension application would be eliminated.

This measure would apply to assessments sent at least three months after the legislation receives royal assent.

Optional Flat-Amounts for Deductions and Credits

Budget 2026 proposes that taxpayers could optionally claim a flat-amount for certain expenses, rather than itemized claims.  The flat-amounts would be optional alternatives intended to reduce receipt-keeping and detailed calculations.

Item	Current rules	Optional Flat-Amount (proposed)	Effective date
Moving Expense Deduction	Actual qualifying costs are deducted and supported by documents	$1,000 per eligible move, limited by qualifying income at the new location	2027
Clergy Residence Deduction	Detailed calculation based on housing cost, rental value and remuneration	$1,000 per eligible month, maximum $12,000	2027
Labour Mobility Deduction for Tradespeople	Actual qualifying temporary relocation expenses, generally up to $10,000	$1,500 annually	2027
Home Accessibility Tax Credit	Credit based on up to $20,000 of actual qualifying expenses	One-time $1,000 expense amount, subject to supporting eligibility	2027
Adoption Expense Tax Credit	Actual eligible adoption expenses, up to the annual limit	$1,200 per adopted child	2027
Gluten-free food for celiac disease	Incremental cost must be calculated and documented	$1,000 annually	2026
Incontinence products	Actual eligible expenses	$500 annually	2027
Service-dog expenses	Actual qualifying care and maintenance costs	$2,000 annually, with acquisition cost potentially claimed separately	2027

The flat-amounts may be simpler, but taxpayers with significant actual costs will generally benefit from retaining receipts and using the detailed method.

Rollover on Reinvestment in Small Business Shares

An individual may defer a gain on qualifying eligible small business corporation shares when the proceeds are reinvested in eligible replacement shares in the year of sale or the following year.  The original shares must generally have been held for at least 185 days, and the corporation must satisfy an “all or substantially all” active-business asset test throughout the ownership period.

Budget 2026 proposes that the ordinary reinvestment period would be extended to the year of sale plus the next three calendar years.  Certain investments could extend the period to as much as five years.

The ongoing active-business asset threshold would be reduced from “all or substantially all” to “primarily,” although the higher test would still apply when shares are issued and when they are sold.

This measure applies to qualifying dispositions on or after January 1, 2027.

One-time Canada Groceries and Essentials Benefit Supplement

The former GST Credit, now called the Canada Groceries and Essentials Benefit, is a non-taxable, income-tested benefit paid quarterly.  For the July 2026 to June 2027 benefit year, the maximum annual amounts are $445 per adult, $234 per child and a $234 supplement for an eligible single individual.

Budget 2026 proposes a one-time additional payment equal to approximately half of the maximum annual benefit.  The maximum supplement would be $223 per adult, $117 per child and an additional $117 for an eligible single individual.

The supplement is expected to be paid in early 2027.

Private Foundations

Private foundations are subject to an excess corporate holdings regime, which generally requires monitoring and possible divestment when combined holdings of non-arm’s length entities exceed prescribed levels.

Budget 2026 proposes to eliminate the excess corporate holdings regime and instead, extend the rules that prohibit public foundations from acquiring control of a corporation to private foundations.

This measure would apply to taxation years beginning on or after January 1, 2027.

Other Personal Tax Measures

• Mineral Exploration Tax Credit and Critical Mineral Exploration Tax Credit extended an additional five years to March 31, 2023.
• The Canada Caregiver Credit is proposed to change from a non-refundable credit to a refundable credit for the 2027 and subsequent taxation years.
• Reduce various limits for the Northern Residents Deduction.
• Permanently allow certain family members to administer an RDSP for an incapable beneficiary.
• Employer or other arm’s-length financial assistance would no longer, by itself, prevent the related educational program from qualifying for the scholarship exemption. 
• The current deduction cap, generally the lesser of $1,000 and 20% of qualifying artistic employment income, would be replaced with a limit equal to qualifying artistic employment income. 

Other Personal Tax Measures (Cont’d)

• Allow apprentice vehicle mechanics to deduct all eligible expenses under the apprentice vehicle mechanics’ tools deduction.
• Volunteer firefighter and search-and-rescue service hours would be combined for purposes of satisfying the 200-hour requirement. 
• Small Canada Child Benefit and Canada Groceries and Essentials Benefit entitlements would be paid as lump sums at higher thresholds. Applies to benefits paid after June 2027.
• Prescription and certification requirements would be simplified for certain medical devices and supplies, generally beginning in 2026.
• The Canada Workers Benefit will be renamed the Build Canada Workers Benefit and would have a lower phase-in threshold and higher maximum 2027 benefits.
• Canada Revenue Agency (CRA) will be allowed to report tax debts to credit bureaus for amounts over $50,000 where all appeals rights are exhausted and a reasonable effort has been made to collect the tax.
• Impose a special tax penalty when the CRA revokes a Registered Pension Plan’s (RPP) status.
• Introduce various restrictions for Individual Pension Plans (IPPs).
• Add an anti-avoidance rule that will deny tax deferred distributions from a Canadian trust to a corporation or partnership with a non-resident beneficiary owner.

BUSINESS INCOME TAX MEASURES

Corporate Tax Elections

Certain rules require corporations to provide a certified copy of a resolution of their directors authorizing the election or agreement when filing the election with the CRA.  For example, a director’s resolution is required when filing the prescribed form for a payment out of a corporation’s Capital Dividend Account.

Budget 2026 proposes to eliminate the requirement to include the resolution with the filing for elections or agreements made on or after the date of royal assent of the enacting legislation.

Corporate Loss Transfers

Under the Canadian income tax system, corporations are taxed on a stand-alone basis.  A corporation may offset its non-capital losses against its own income, subject to the rules in the Income Tax Act, but cannot directly deduct a loss incurred by another corporation.

Corporate groups may enter into transactions that effectively allow the losses of one corporation to be used by another, such as amalgamations, wind-ups, or intra-group financing transactions.  These transactions can be complex or costly, or subject to other restrictions or regulatory issues.  

Budget 2026 is proposing to introduce corporate loss transfer rules between parent and subsidiary corporations or between two corporations which are wholly-owned, whether directly or indirectly, by the same parent corporation.

These proposals are currently open for consultation.

Administrative Penalties

Budget 2026 proposes several amendments to administrative penalties under federal tax statutes:

• Most fixed-dollar administrative penalties will be subject to inflationary increases calculated based on when they were originally enacted.  Generally, older penalties would increase by a factor of two or three depending on when they were enacted;

• Fixed-dollar penalties applied to medium or large corporations and to medium or large partnerships would be subject to penalties that are calibrated based on their taxable capital (corporations) or gross revenue (partnerships); and

• Repeated failures to file tax forms or comply with obligations that do not have a more specific penalty will be subject to double the base penalty to the extent the person or partnership failed to remedy the current failure after being notified by the CRA.

These measures would apply to taxation years or fiscal periods ending after 2027.

Scientific Research and Experimental Development Tax Incentive Program

Under the Scientific Research and Experimental Development (SR&ED) tax incentive program, qualifying expenditures are fully deductible in the year they are incurred.  Additionally, a 35% refundable tax credit is available to CCPCs and non-refundable tax credits of 15% for other claimants. 

Budget 2026 proposes to expand eligible activities and expenditures to include:

• Tests, technological validations and studies conducted to meet regulatory requirements for obtaining initial approval or certification necessary to commercialize a product or process; and
• Costs related to the registration and maintenance of intellectual property (IP) protection such as patents, certificates of supplementary protection, plant breeders’ rights or copyrighted software.

This measure would apply to taxation years that begin on or after Budget Day.

Other Business Income Tax Measures

• Clean Electricity and Clean Technology Investment Tax Credits extended to 2040 and expanded to include high-voltage intra-provincial electricity transmission property.

• Excessive Interest and Financing Expenses Limitation (EIFEL) rules proposed to enact and expand previously introduced exceptions, where borrowed funds are used for eligible activities and in relation to regulated energy utility businesses, retroactive to October 2023.

• Canadian Journalism Labour Tax Credit proposed to expand to include audio and audiovisual news and enhanced credit previously introduced (35%) extended until December 31, 2028.

• Part VI.1 tax is a special tax that can apply on dividends paid on taxable preferred shares in certain situations, where dividends paid are in excess of a $500K annual dividend allowance.   Budget 2026 proposes to exempt CCPCs from this regime for dividends paid on or after Budget Day, and to increase the “dividend allowance” for other corporations from $500K to $1.5M for taxation years ending after 2026.

• Budget 2026 proposes to introduce helium exploration and development expenses to qualify as Canadian Exploration Expenses (CEE) and Canadian Development Expense (CDE)

INTERNATIONAL TAX MEASURES

Taxable Canadian Property

Canada generally taxes non-residents on their income and gains arising from the disposition of taxable Canadian property (TCP).  TCP generally includes property with a significant connection to Canada, such as real estate, resource properties or shares or interest whose value is derived primarily from these properties.

To facilitate the collection of this tax, the purchaser of this property is required to withhold taxes from the purchase price and remit the withheld tax to the CRA.  For specified TCP, the withholding tax rate is 50%, and for capital property other than specified TCP, the rate is 25%.

Where the non-resident vendor is a corporation, these rates are typically higher than applicable corporate tax rates.  As a result, Budget 2026 proposes to reduce these withholding rates to 30% and 15%, respectively.

In addition, where the property is subject to a tax-deferred roll-over under Section 85 of the Income Tax Act, Budget 2026 proposes to eliminate the withholding tax required under fully deferred transactions, provided the prescribed Section 85 election form is filed within 30 days of the disposition. 

These measures would apply to dispositions that occur on or after January 1, 2027.

SALES AND EXCISE TAX MEASURES

GST/HST on Massage Therapy

Massage therapy is currently not included in the federal list of GST/HST-exempt health professional services, resulting in the application of GST/HST on services.

Budget 2026 proposes that qualifying massage therapy services would become exempt when supplied by an appropriately licensed, certified or equivalently qualified practitioner.

Proposed implementation would apply to qualifying services supplied after Budget Day.

Other Excise Tax Measures

• Zero rate devices that are specifically specially designed for alternating electric field therapy for use by an individual with cancer.
• Allow financial institutions to apply for pre-approval of their GST/HST input allocation methods for three consecutive fiscal years.
• Update outdated “HS codes” and regulatory cross-references in the sales and excise tax rules. Most changes are intended to preserve existing treatment, although relief for qualifying internationally used cargo containers would be expanded.
• Introduce a common cannabis excise stamp for participating jurisdictions beginning in 2028, with transitional rules through 2029.

• A new civil penalty towards licensed producers for reporting cannabis as being in its possession but being unable to account for it.
• Require security of between $5,000 and $2 million for qualifying spirits and excise warehouse licenses.
• Expand the eligibility for fuel-wholesaler licensing and relief intended to prevent excise tax from applying twice in the supply chain.

OTHER TAX MEASURES

Indigenous Tax Jurisdiction Arrangements 

Budget 2026 proposes enhancements to First Nations Personal Income Tax and First Nations Goods and Services Tax arrangements. 

• Increasing the First Nations Personal Income Tax revenue-sharing rate from 95% to 99% of revenues attributable to a participating government, in conjunction with a revised revenue-sharing mechanism. 
• Establishing an annual ceiling on a participating Indigenous government’s share of the cost of the Canada Groceries and Essentials Benefit under First Nations Goods and Services Tax arrangements. 

Ministerial and Administrative Changes

Budget 2026 proposes to move certain routine regulatory updates to ministerial authority to streamline the approval process.  These include:

• Automobile deduction and benefit rates;
• Eligible drought and flood regions for livestock deferrals;
• Eligible distributions for the purpose of the foreign spin-off rules;
• Certain donation-receipt requirements and which organizations are considered as prescribed donees; and
• Amendments to federal-provincial and Indigenous tax administration agreements by removing certain Governor in Council approval requirements and allowing ministers to act directly.

Implementation varies, with several measures taking effect on royal assent or shortly afterward.  These changes are mainly administrative but may allow tax rates, limits and prescribed information to be updated more quickly.

PREVIOUSLY ANNOUNCED MEASURES

Budget 2026 confirms the government’s intention to proceed with previously announced tax and related measures, with any modifications resulting from consultations and deliberations since their release, including:

• Legislative and regulatory proposals released on September 15, 2026, to implement the Productivity Mega Deduction;
• Red Seal Completion Bonus;
• Investment Tax Credit for Carbon Capture, Utilization and Storage;
• Transfer Pricing and Hybrid Mismatch Arrangements;
• Goods and Services Tax/Harmonized Sales Tax (GST/HST) reverse charge mechanism; and
• Legislative proposals released on January 29, 2026, to implement reporting requirements for non-profit organizations.

This summary deals with proposed matters that are complex and may not apply to particular facts and circumstances. As well, the material and the references contained therein reflect laws and practices which are subject to change. For these reasons, this material should not be relied upon as a substitute for specialized professional advice in connection with any particular matter.

Although this communication has been carefully prepared, Wilkinson & Company LLP does not accept any legal responsibility for its contents or for any consequences arising from its use.  No part of this document may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means (photocopying, electronic, mechanical, recording or otherwise).