On Nov. ⁠5, the federal government tabled Budget 2026, titled Masters of our Destiny. While Budget 2026 doesn’t change federal personal or corporate income tax rates, it does build on the Productivity Mega Deduction announced in September and adds new incentives for entrepreneurs.

It also launches what the government calls its most ambitious effort in decades to simplify the tax system. A second package of simplification measures will follow in the Spring Economic Update 2027. This summary focuses on the measures most likely to impact business owners, their corporations and their families, and covers the rest briefly at the end.

• Immediate write‑offs ⁠–⁠ Most new business depreciable capital assets acquired on or after Sept.⁠ 15,⁠ 2026 could be deducted in full in the year they’re put into use, on a permanent basis.
• New capital gains exemption ⁠–⁠ Founders, employees and investors could shelter up to $15 million of gains on qualifying newly issued shares of growing Canadian companies.
• Fewer instalments ⁠–⁠ The threshold for paying tax by instalments would rise from $3,000 to $7,500 starting in 2028, and self‑employed individuals could make a single payment by Dec.⁠ 31.
• One tax deadline ⁠–⁠ Starting with 2027 returns, individuals (including the self‑employed) would file and pay by May⁠ 15.
• More time to object ⁠–⁠ Most taxpayers would have one year to dispute an income tax assessment instead of 90 days.
• Preferred shares ⁠–⁠ Dividends paid by Canadian‑controlled private corporations would no longer be subject to the special tax on taxable preferred shares.
• Individual pension plans ⁠–⁠ New rules would limit surplus and restrict investments in pension plans set up for owner‑managers.
• Family trusts ⁠–⁠ Effective Nov.⁠ 5,⁠ 2026, trust property can no longer be distributed tax‑free to a corporation or partnership with non‑resident owners.
• Stronger CRA tools ⁠–⁠ Higher penalties and the CRA could report tax debts over $50,000 to credit bureaus.

U.S. tariffs and higher oil prices caused by conflict in the Middle East continue to weigh on Canada’s economy.

Private sector economists expect real GDP growth of 1% in 2026 and 1.7% in 2027, with unemployment averaging 6.6% in 2026 before gradually declining to 5.8% by 2030. Inflation is expected to average 2.8% in 2026 and 2.2% in 2027.

The deficit for 2025‑26 is now estimated at $39.3 billion, $27.5 billion lower than forecast in the Spring Economic Update 2026. Budget 2026 projects a deficit of $62.3 billion for 2026‑27 (1.8% of GDP), falling to $52.9 billion (1.3% of GDP) by 2030‑31, with federal debt holding at about 40% of GDP. The government says it’s on track to balance day‑to‑day operating spending with revenues in 2027‑28, a year ahead of schedule.

Productivity Mega Deduction

Announced on Sept.⁠ 15,⁠ 2026 and confirmed in Budget 2026, the Productivity Mega Deduction would let businesses deduct the full cost of most new capital assets in the year they become available for use, instead of writing them off over several years through capital cost allowance (CCA, or tax depreciation). The government estimates about two‑thirds of business assets would now qualify for this immediate write‑off, compared with about 15% before. Unlike earlier incentives, this measure is permanent.

Eligible assets include a wide range of everyday business equipment, such as kitchen and restaurant equipment, tools, computers and office technology, farm machinery and farm buildings, construction equipment, trucks, manufacturing equipment and software. Limited exclusions apply, mainly to certain long‑lived buildings and intangible assets, certain passenger vehicles and assets subject to regulated rates. The measure would apply to eligible assets acquired on or after Sept. ⁠15, ⁠2026. The government estimates this would cut the tax rate on new business investment from 13% to 6.4%, the lowest in the G7.

What this means for you: if you’re planning to buy equipment, vehicles or technology, most purchases could be written off right away. Keep in mind that when a fully written‑off asset is later sold, the proceeds (up to its original cost) are generally added back to income. Talk to us about which of your planned purchases qualify.

Canada Growth Incentive for founders and investors

Budget 2026 proposes a new, time‑limited capital gains exemption of up to $15 million per individual, per business, on the sale of qualifying shares of a growing Canadian company. The government estimates a founder in Ontario with a $15 million gain would keep nearly 96% of the value on exit, compared with 71% today. In general terms:

• The shares must be issued on or after Nov.⁠ 5,⁠ 2026 and before 2037 to an individual aged 18 or older (directly or through a partnership), either for cash or in exchange for employment services, and the individual must be resident in Canada throughout the year the exemption is claimed.
• At the time the shares are issued, the company must be a Canadian‑controlled private corporation, and the total assets of the company and related corporations can’t exceed $100 million.
• The shares must be held for at least 36 months before they’re sold, and by then the company can be either private or listed on a Canadian stock exchange.
• The company must carry on a qualifying active business primarily in Canada. Consulting and professional practices (such as accountants, lawyers, physicians and engineers) don’t qualify. Neither do businesses whose main asset is the reputation or skill of their employees, or businesses operating under a licence or franchise agreement. The agriculture, fishing, forestry, mining, financial, insurance, utilities, real estate, food and accommodation, arts, recreation and entertainment sectors are also excluded.
• All or substantially all of the company’s assets must be used in that business when the shares are issued and when they’re sold, and at least 50% throughout the holding period.

Exempt gains would be partly subject to the alternative minimum tax, as with the lifetime capital gains exemption. Claiming the new exemption would limit the lifetime capital gains exemption available on shares of the same company, but it could be combined with the exemption for sales to an employee ownership trust or worker cooperative. Additional rules to prevent abuse will be released later.

What this means for you: only newly issued shares qualify, so existing shareholdings won’t benefit. If you’re starting or investing in a new company, or offering shares to key employees, the way shares are issued after Budget Day could make a substantial difference to the tax on a future sale.

Budget 2026 also enhances the existing rollover that lets individuals defer tax on gains from selling small business shares when they reinvest in another small business. For sales on or after Jan.⁠ 1,⁠ 2027, investors would have until the end of the third year after the sale to reinvest (up to five years if they’ve signed an agreement for future equity), and the business asset test during the holding period would be relaxed. Interest would be charged on any deferred gain ultimately not reinvested.

Corporate paperwork

Corporations would no longer need to file certified copies of directors’ resolutions with certain tax elections, such as capital dividend account (CDA) elections.

Fewer tax instalments

Corporations and individuals currently must pay tax by instalments if their tax owing exceeds $3,000 (a threshold unchanged since 2008). Budget 2026 proposes to raise this threshold to $7,500, indexed to inflation, for taxation years beginning on or after Jan.⁠ 1,⁠ 2028. Individuals whose main source of income is a business (including professional and commission income) would also be allowed to make a single instalment of two thirds of their tax owing by Dec.⁠ 31, instead of quarterly payments, starting with the 2028 tax year.

SR&ED support for bringing products to market

Budget 2026 proposes to expand the Scientific Research and Experimental Development (SR&ED) program to cover certain costs of commercializing the results of eligible research. These include tests and studies needed to obtain the first regulatory approval or certification for a new product or process. They also include the cost of registering and maintaining patents and other intellectual property protection. If the intellectual property is later sold, the related tax support would be recovered. The measure applies to taxation years beginning on or after Nov.⁠ 5,⁠ 2026.

Taxable preferred shares

A special tax (Part VI.1 tax) can apply to dividends paid on preferred shares that have debt‑like features, which are common in estate freezes and other private company structures. Budget 2026 proposes to exempt dividends paid by Canadian‑controlled private corporations from this tax, for dividends paid on or after Nov.⁠ 5,⁠ 2026. For other corporations, the annual dividend allowance would triple from $500,000 to $1.5 million, and the level of prior‑year dividends at which the allowance starts to shrink would rise from $1 million to $3 million, for taxation years ending after 2026.

Individual pension plans for owner‑managers

An individual pension plan (IPP) is a defined benefit pension plan, often set up by a private company for its owner‑manager. Budget 2026 proposes several changes:

• Starting Jan.⁠ 1,⁠ 2027, defined benefit plans in which all members are related to a participating employer (or don’t deal at arm’s length with a member who is) would be treated as an IPP, even if they have four or more members.
• Starting Jan.⁠ 1,⁠ 2028, IPPs would be subject to the same anti‑avoidance rules as RRSPs and TFSAs, so the owner‑manager would personally owe a 50% tax on the value of any prohibited or non‑qualified investment the plan acquires and a 100% tax on any advantage, with transitional rules for investments acquired before 2028.
• Starting Jan.⁠ 1,⁠ 2028, an IPP whose assets exceed 200% of its pension liabilities could lose its registration unless the excess is withdrawn.
• Any registered pension plan revoked after 2026 (not just an IPP) would pay a special tax of 10% of the value of its assets, which the CRA could waive or cancel. The plan would then be treated as a retirement compensation arrangement. The remaining value would be deemed contributed to the arrangement and subject to that regime’s 50% refundable tax.

What this means for you: if your company sponsors an IPP, have its investments and funding level reviewed before these rules take effect.

Higher tax penalties

Budget 2026 proposes to increase most fixed‑dollar tax penalties to reflect inflation since they were introduced. Older penalties would generally double or triple, while most recent penalties would stay the same. These amounts would then be indexed to inflation every five years. The increases apply to fixed‑dollar penalties, not percentage‑based penalties such as the late‑filing penalty. Similar increases would apply to fixed‑dollar penalties under the GST/HST rules and certain other federal tax statutes.

Certain penalties would also be scaled to the size of the taxpayer. These include penalties for leaving required information off a form, failing to file certain tax forms and failing to meet certain other obligations. Individuals and smaller corporations and partnerships would pay the base amount. Medium‑sized corporations and partnerships would pay three times the base amount, and large ones eight times. Medium‑sized corporations are generally those that, together with related corporations, have more than $10 million and up to $50 million of taxable capital, and large ones have more. For a Canadian‑controlled private corporation, only associated corporations would count. Medium‑sized partnerships are those with $2 million to $10 million in gross revenue, and large ones have $10 million or more.

New penalties would also apply to repeated failures to file tax forms, and to repeated failures to meet obligations without a more specific penalty. These penalties would generally be double the base penalty, scaled up further for medium‑sized and large taxpayers. They would apply only if the taxpayer was liable for the same type of penalty in any of the three previous taxation years. The taxpayer must also have failed to fix the problem after the CRA sent a notice or demand.

Transferring losses within a corporate group

Canada taxes each corporation separately, so a loss in one company can’t be used against income in a related company without complex reorganizations. Budget 2026 is consulting on a new rule that would allow current‑year business losses to be transferred between a parent corporation and its wholly owned subsidiaries, or between subsidiaries wholly owned by the same parent.

The two corporations would make a joint election each year to transfer all or part of the loss, and any transferred amount the receiving corporation doesn’t use that year couldn’t be carried back or forward. The rule would apply only to Canadian‑resident corporations taxable under Part I of the Income Tax Act, excluding conduit corporations such as mutual fund corporations, and only where each corporation operates in just one province or territory and it’s the same one. Comments are due by Jan.⁠ 8,⁠ 2027.

Single May ⁠15 deadline

Starting with the 2027 tax year (i.e., personal tax returns filed in 2028), Budget 2026 proposes all individuals file their tax return and pay any balance owing by May⁠ 15. This gives most people two more weeks. However, self‑employed individuals and their spouses, who currently have until June⁠ 15 to file, would need to file a month earlier (while paying two weeks later).

Credits and benefits

Canada Caregiver Credit ⁠–⁠ Would become refundable starting in 2027, worth up to $1,260 a year.

Groceries benefit – A one‑time supplement equal to half of the maximum 2026‑27 Canada Groceries and Essentials Benefit (formerly the GST credit) would be paid in early 2027. It would provide up to $223 per adult, $117 per child and $117 for the single supplement. That’s up to $339 for a single person without children and $679 for a couple with two children. For this supplement only, the phase‑in and phase‑out rates would be 6% and 15% (instead of 2% and 5%). This means it phases in and out at the same income levels as the regular benefit.

Workers benefit – The Canada Workers Benefit would be enhanced and renamed the Build Canada Workers Benefit starting in 2027. The benefit would start building once working income exceeds $500 (down from $3,000), with higher maximum benefits of $1,859 for single individuals and $3,143 for families, while advance payments would be reduced to 25% of the prior year’s entitlement for 2027 and eliminated from 2028.

Small benefit payments – Small benefit entitlements are paid as a single lump sum. For benefits paid after June 2027, the thresholds would rise to $50 a month (from $20) for the Canada Child Benefit and $70 a quarter (from $50) for the groceries benefit, and to $70 per payment (from $33) for 2027 advance workers benefit payments. The child and groceries benefit thresholds would be indexed to inflation from July⁠ 2028.

Employees and volunteers – Rules would be eased for commission employees, employed artists and apprentice vehicle mechanics claiming expenses. Employer‑funded tuition would no longer prevent students from claiming the scholarship and bursary exemption. The volunteer firefighter and search and rescue credits would be combined.

Artists – The government will consult on a new Canada Creative Credit, with details to come in the Spring Economic Update 2027. Together with the basic personal amount, it would provide tax relief on up to $45,000 of annual net business income from original artistic works.

Disputes and tax debts

Budget 2026 proposes to give most taxpayers one year after a notice of assessment is sent to object to an income tax assessment, instead of 90 days. Individuals and graduated rate estates would have until the later of that date and two years after their filing due date. Because of the longer deadlines, requests for extensions of time would no longer be available. The change would apply to assessments sent starting three months after the legislation is passed.

Budget 2026 also proposes to let the CRA report income tax and GST/HST debts over $50,000 to credit bureaus. This could happen only once all objection and appeal rights have been used or have expired. The CRA would also need to have tried to collect the debt, offered a reasonable repayment arrangement and given the taxpayer at least 30 days’ written notice.

What this means for you: unresolved tax debts could soon impact your credit rating and borrowing costs. Talk to us early if you’re facing a large balance owing.

Family trusts with non‑resident beneficiaries

A family trust can generally distribute property to Canadian‑resident beneficiaries without triggering tax, but not to non‑residents. Some planning has avoided this by distributing property to a Canadian corporation owned by a non‑resident. Budget 2026 proposes to deny the tax‑free distribution where property goes to a corporation or partnership with any direct or indirect non‑resident shareholders or partners, for distributions on or after Nov.⁠ 5,⁠ 2026.

What this means for you: if your family trust has corporate beneficiaries owned by any non‑residents, directly or indirectly, have any planned distributions reviewed.

Foreign property reporting

Canadian residents, including corporations and trusts, that own foreign investment property costing more than $100,000 must file Form T1135 each year. Budget 2026 proposes to raise this threshold to $200,000, and the simplified reporting method would be available to those with foreign property under $500,000 (up from $250,000).

Farm and fishing transfers to nieces and nephews

Farm and fishing property can currently be transferred to a child or grandchild on a tax‑deferred basis. For transfers on or after Jan. 1, 2027, Budget 2026 proposes to extend this rollover to nieces, nephews, grandnieces and grandnephews of the owner or their spouse, making it easier to keep family farms and fishing businesses in the family. Budget 2026 also proposes changes to the Canadian Agricultural Loans Act to support intergenerational farm transfers.

Simpler claims without receipts

Budget 2026 proposes optional flat amounts individuals could claim instead of tracking and itemizing expenses, generally starting with the 2027 tax year (you still must meet the eligibility rules):

• $1,000 for an eligible move for work or school (moving expense deduction)
• $1,500 a year for eligible temporary relocations by construction tradespeople
• $1,000 per eligible month (up to $12,000 a year) for the clergy residence deduction
• One‑time $1,000 under the Home Accessibility Tax Credit
• $1,200 per adopted child under the Adoption Expense Tax Credit
• Under the Medical Expense Tax Credit (METC), $1,000 for gluten‑free food costs for individuals with celiac disease (starting in 2026), $500 for incontinence products and $2,000 for service dog expenses

Starting in 2026, certain medical expenses (such as insulin and CPAP machines) would also no longer need a prescription to qualify for the METC. For certain others, a practitioner’s certification of the medical condition would replace the prescription.

RRSP for life

Budget 2026 announces plans to merge the rules for RRSPs and RRIFs into a single “RRSP for life”, so savings would no longer need to be converted to a RRIF at age 71 (minimum withdrawals would still apply after 71).

The government is also considering allowing a surviving spouse or partner take over an RRSP as successor holder, so the plan could stay open until their death without its value being included in the deceased’s income. It’s also looking at replacing the current rules on death, under which RRSP funds are included in the deceased’s income with an offsetting deduction for a qualifying survivor, with direct tax‑free transfers to the survivor’s registered plan. Comments are due by Jan. 8, 2027.

Museums and parks

Admission to national museums would become permanently free year-round for children and youth under 25. The Canada Strong Pass, offering free or discounted access to national parks, museums, galleries and rail travel, would also be renewed for summer 2027.

Fuel excise tax relief extended

The federal excise tax on gasoline, diesel and aviation fuel has been suspended since April⁠ 20,⁠ 2026, saving up to 10 cents a litre on gasoline and four cents on diesel. In September, the government extended the suspension to the end of January⁠ 2027. The tax will then return at half its usual rate until the end of March⁠ 2027, before full rates resume April⁠ 1,⁠ 2027.

GST/HST exemption for massage therapy

Budget 2026 proposes to exempt qualifying massage therapy services from the GST/HST for supplies made after Nov.⁠ 5,⁠ 2026. To qualify, the therapist must be licensed or certified in provinces that require it (such as Ontario), or have equivalent qualifications elsewhere.

What this means for you: if you operate a massage therapy practice, you’ll stop charging GST/HST on qualifying services, but you’ll also no longer be able to claim input tax credits on related costs. Talk to us about the impact on your pricing and GST/HST registration.

Non‑residents selling Canadian property

When a non‑resident sells taxable Canadian property, such as Canadian real estate, the buyer must generally withhold 25% or 50% of the purchase price. The withholding tax can be reduced if the seller obtains a certificate from the CRA. For dispositions on or after Jan.⁠ 1,⁠ 2027, Budget 2026 proposes three changes:

• For non‑resident corporations, the buyer’s withholding would drop from 25% to 15% of the purchase price for most capital property. For specified property (such as depreciable property and real estate held as inventory), it would drop from 50% to 30%. The seller’s payment to obtain a clearance certificate on most capital property would also drop from 25% to 15% of the gain.
• The withholding requirement would be removed for fully tax‑deferred section 85 rollovers, provided the election is filed and the buyer notifies the CRA within 30 days.
• An existing anti‑avoidance rule can deny a rollover if the property is sold again within three years. It applies where one of the main purposes was to benefit from a tax exemption, such as under a tax treaty. For rollovers of taxable Canadian property by non‑residents, the period would be extended to five years. The rule would also apply to later sales of property that derives most of its value from the transferred property.

Budget 2026 also includes the following measures:

• Private foundations – The excess corporate holdings rules for private foundations would be eliminated for taxation years beginning on or after Jan.⁠ 1,⁠ 2027, and replaced by the rule that already prevents public foundations from acquiring control of a corporation.
• Housing – The ban on foreign purchases of existing homes would be extended to Jan.⁠ 1,⁠ 2029 (new homes exempt). The price limit for optional mortgage insurance would rise from $1 million to $1.5 million, with 30‑year amortizations. These changes would apply where at least one borrower is a first‑time buyer or the home is newly built. The CRA would also be able to offer an income verification service to mortgage lenders and insurers.
• Deposits – The government also intends to raise the deposit insurance limit to $250,000 and remove the limit for eligible deposits in registered and tax‑free accounts.
• Other – Budget 2026 also adds helium to the resource expense rules and zero‑rates certain cancer therapy devices. It extends the journalism tax credit to audio and video news and keeps its 35% rate until the end of 2028. It simplifies the northern residents deductions and makes permanent the rule allowing a family member to open an RDSP for an adult whose capacity is in doubt. It also enhances Indigenous tax jurisdiction arrangements and updates cannabis, spirits and fuel excise rules.

Next steps

This summary is general in nature and reflects announced proposals, which may change before they become law. It is not intended as tax advice for any particular situation. Please contact your Melo advisor to discuss how these measures may apply to your specific circumstances.

Guidance for the path ahead