Tax Incentives and Relief Measures

Canada Growth Incentive Exemption

Budget 2026 proposes a new Canada Growth Incentive (CGI) capital gains exemption, which would allow a Canadian resident individual (other than a trust) to claim a tax exemption on up to $15 million of capital gains realized on the disposition of qualifying shares of a qualifying corporation. This exemption is similar to existing U.S. exemptions for “qualified small business corporation stock” (QSBS), but with additional conditions to require greater linkage to Canada. The $15-million limit applies separately to each individual for each business, and would not be subject to any lifetime cap. Compared with the existing lifetime capital gains exemption, the CGI exemption would provide a significantly greater tax benefit, though in a generally more restricted range of situations. The exemption would apply to qualifying shares issued on or after Budget Day and before 2037, which could affect the structuring of existing financing rounds of qualifying businesses.

The exemption would only be available where shares were issued directly to the individual (or a partnership of which the individual was a member), solely for cash or in exchange for employment services provided to the corporation, and where, at the time the shares were issued, (i) the individual was at least 18 years of age, (ii) the corporation was a CCPC, (iii) the combined carrying value of the assets of the corporation and related corporations did not exceed $100 million immediately before and after issuance, and (iv) all or substantially all of the fair market value of the corporation’s assets was attributable to assets used (or reasonably intended to be used within 36 months) principally in a “qualifying business” carried on primarily in Canada. The shares could only be issued for cash or in exchange for employment services provided by the individual to the corporation – it is not clear whether shares issued pursuant to SAFEs or in exchange for convertible debt (common financing methods for startup companies) would qualify. In addition, to qualify for the exemption, the business would need to be carried on primarily in Canada for at least 24 months after the shares were issued, at least 50% of the fair market value of the corporation’s assets would need to be used in the qualifying business throughout the holding period, and the individual (or partnership) would need to hold the shares for the 36 consecutive months before the disposition. At the time of disposition, the corporation would need to be a Canadian resident corporation that is either a private corporation or a public corporation listed on a designated stock exchange in Canada, and all or substantially all of its assets must be used principally in the qualifying business. Continuity rules are to be proposed for certain share-for-share exchanges and reorganizations.

A “qualifying business” would mean any active business other than certain specifically listed categories, including businesses of providing consulting services, professional practices (such as accounting, law, medicine, engineering and architecture), businesses whose principal asset is the reputation or skill of employees, businesses operating in the agricultural, fishing, forestry, mining, financial, insurance, utilities, real estate, food and accommodation, arts, recreation, and entertainment sectors, and businesses operating under a licensing or franchising agreement. Additional integrity rules, including rules to prevent multiplication of the limit through multiple corporations carrying on the same business, will be released at a later date.
Gains exempted by the CGI exemption would be 30% included in income for alternative minimum tax purposes, the same treatment as for the lifetime capital gains exemption. A CGI claim would limit the lifetime capital gains exemption available on shares of the same corporation (and vice versa), although the exemption for sales to an employee ownership trust or worker cooperative could generally be claimed in addition.

The CGI exemption is particularly relevant to Canadian private equity and venture funds. The exemption could incentivize sellers to undertake pre-closing restructuring to maximize the availability of the exemption. General partners of these funds may also consider structuring their future investments to maximize the benefit of the CGI exemption for their Canadian individual limited partners.

Canada Growth Incentive Rollover

The Act currently provides a rollover in certain cases where an individual disposes of a share of an eligible small business corporation (ESBC), where the proceeds are used to acquire replacement ESBC shares in the year of disposition or the following calendar year. Budget 2026 proposes to expand the availability of this rollover in certain respects.

The replacement period would be extended to the year of disposition and the three following calendar years, with a reserve mechanism deferring the gain until the end of the replacement period. In addition, where the individual had entered into an agreement to provide upfront capital in exchange for shares to be issued at a future date, the time period would be extended for an additional two years (up to five years in total). The Budget specifically contemplates this extension applying to what are known as “simple agreements for future equity,” or “SAFEs.” Interest at the prescribed rate would apply to any deferred gain that is not ultimately reinvested.

In addition, the current requirement that “all or substantially all” of the corporation’s assets be used principally in an active business while the individual held the shares would be relaxed to require only that the assets be primarily used in an active business while held. The “all or substantially all” threshold would still need to be met at the time that the shares are disposed of and acquired.

Finally, the active business would be required to be carried on primarily in Canada at the time of share issuance and for a continuous period immediately afterwards equal to the lesser of two years and the period during which the individual owned the shares.

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

Green Tech and Other Investment Tax Credits

Budget 2026 proposes to extend the existing Clean Electricity and Clean Technology investment tax credits (ITCs) to property that becomes available for use before 2041 (currently the credits would not apply after 2034), with the Clean Technology ITC phase-down to 15% occurring in 2040 rather than 2034. In addition, the Clean Electricity ITCs are proposed to be available for certain high-voltage intra-provincial electricity transmission property, with the exact voltage threshold varying by province, for property acquired on or after Budget Day.

The materials accompanying Budget 2026 also state the government’s intention to conduct targeted consultations over the next 60 days on a domestic content bonus where certain Canadian content requirements are met. It is proposed that the credit rate would be increased by up to 10 percentage points for the Clean Technology ITCs and up to five percentage points for the Clean Electricity ITCs in these circumstances.

Research and Development

Budget 2026 proposes to expand the scientific research and experimental development (SR&ED) program to include tests and studies needed to obtain initial regulatory approval or certification to commercialize a product or process, and the costs of registering and maintaining protection for intellectual property (IP) developed in an eligible project. Recapture rules would apply on a disposition of the IP. These measures would apply to taxation years that begin on or after Budget Day.

Minerals

Budget 2026 also proposes to extend the mineral exploration tax credit, and the critical mineral tax credits (currently scheduled to expire on March 31, 2027) for five years to March 31, 2032. The critical mineral exploration tax credit would also be extended to apply to antimony.
In addition, helium exploration and development expenses would qualify as Canadian exploration expense and Canadian development expense, and helium resource property acquisition costs as Canadian oil and gas property expense, for expenses incurred on or after Budget Day.

Other Tax Measures

Trusts

Budget 2026 includes a significant anti-avoidance rule applicable to trusts that would cause distributions from a trust to a corporation or partnership to be taxable where the corporation or partnership has any direct or indirect non-resident owners. Previously, the tax-deferred rollout was denied only for distributions directly to non-resident beneficiaries (though such transactions may have required special reporting as notifiable transactions). This measure would apply to distributions that occur on or after Budget Day, so any pending distributions to Canadian corporations or partnerships should be reviewed.

Private Foundations

Budget 2026 proposes to repeal the excess corporate holdings regime limiting the proportion of the shares of a corporation that may be held by a private foundation. Instead, private foundations would be subject to the same limitation as public foundations regarding not acquiring control of any corporation. This measure would apply to taxation years that begin on or after January 1, 2027.

Individual Pension Plans

Budget 2026 proposes several integrity measures for individual pension plans (IPPs). As of January 1, 2027, the IPP definition would be expanded to capture defined benefit plans where all members are related to a participating employer (or do not deal at arm’s length with such members). As of January 1, 2028, IPPs would be subject to the advantage, prohibited investment and non-qualified investment rules applicable to registered retirement savings plans (RRSPs) and similar plans, and an IPP whose assets exceed 200% of its pension liabilities would become revocable. Express tax consequences would also apply on revocation of a registered pension plan after 2026, including a 10% tax on plan assets.

RRSP for Life

The Budget announces the government’s intention to merge the RRSP and registered retirement income fund rules into a single “RRSP for life,” eliminating the need to convert at age 71 (minimum withdrawals would continue), and is considering a successor holder feature for a surviving spouse and direct tax-free transfers to qualifying survivors on death. Submissions are invited by January 8, 2027.

Intergenerational Farm and Fishing Property Rollover

The intergenerational rollover for farm and fishing property would be extended to transfers to a niece, nephew, grandniece or grandnephew of the taxpayer or the taxpayer’s spouse or common-law partner, for transfers on or after January 1, 2027.

Compliance/Enforcement

Budget 2026 proposes to increase most fixed-dollar administrative penalties to account for inflation and index them every five years, to introduce doubled penalties for repeated failures to file or comply, and to strengthen penalties under the Common Reporting Standard, digital platform and crypto-asset reporting regimes, generally for taxation years ending after 2027. The CRA would also receive additional funding to investigate tax evasion and to enhance compliance among trust filers, and would be permitted to disclose tax debts over $50,000 to credit bureaus in certain circumstances.

Form T1135

The threshold above which Form T1135 must be filed would increase from $100,000 to $200,000 of specified foreign property, and the simplified reporting threshold from less than $250,000 to less than $500,000, for taxation years ending after 2026.

Objections Deadline

To avoid the need to request extensions, which are almost always granted, the time period for filing objections would be extended to one year after the date the notice of assessment is sent. For individuals and graduated rate estates, the period may be further extended until two years after the return filing deadline, if later. This change would apply to assessments sent on or after the day that is three months after royal assent.

Corporate Election

The requirement to file certified copies of directors’ resolutions with certain elections and agreements (such as capital dividend elections) would be removed, for elections and agreements made on or after royal assent.

Common Reporting Standard

The government intends to consult on aligning Canada’s Common Reporting Standard rules with the Organisation for Economic Co-operation and Development model rules, including bringing investment entities that are not promoted to the public and a broader range of partnerships within the reporting regime. Private investment vehicles and family offices may become reporting financial institutions. Submissions are due by December 31, 2026.

Budget fédéral 2026

En cours de traduction.

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