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On November 5, 2026, the federal government released Budget 2026 (the “Budget“), introducing several proposed changes to Canada’s income tax system. The Budget focuses on encouraging business investment, supporting Canadian entrepreneurship and simplifying tax compliance.

Among the more significant proposals are a new $15 million capital gains exemption, expanded capital gains rollover rules, a potential corporate loss transfer regime and changes affecting transactions involving non-residents.

The Budget does not propose any changes to general federal personal or corporate income tax rates.

We summarize below certain key tax measures relevant to Canadian businesses, shareholders and individuals.

1.  New $15 Million Capital Gains Exemption.

The Budget proposes a new capital gains exemption, referred to as the Canada Growth Incentive, allowing eligible individuals to realize up to $15 million of capital gains tax-free on the disposition of qualifying shares of certain Canadian private corporations.

Unlike the existing Lifetime Capital Gains Exemption (“LCGE”), the new exemption would apply separately to each qualifying individual in respect of each qualifying business.

To qualify, the shares must generally be newly issued by a Canadian-controlled private corporation (“CCPC“), held for at least 36 months and satisfy certain active-business asset requirements. The combined carrying value of the assets of the corporation and all related corporations must not exceed $100 million immediately before and after the shares are issued. Unlike the existing LCGE, which may be multiplied among beneficiaries of a family trust, the new exemption would not be available in respect of shares held through a trust. However, the existing LCGE would remain available for qualifying small business corporation shares held through a family trust, subject to the applicable requirements.

Certain industries, including professional services, consulting, real estate and financial services, would be excluded.

The exemption would apply to qualifying shares issued on or after November 5, 2026, and before 2037.

Planning implications: The proposed exemption could create significant tax planning opportunities for entrepreneurs and investors in qualifying Canadian businesses, although the eligibility requirements and interaction with the existing LCGE will require careful consideration.

2.  Expanded Capital Gains Rollover for Small Business Investments

Section 44.1 of the Income Tax Act currently permits individuals to defer capital gains on the disposition of eligible small business corporation shares where the proceeds are reinvested in qualifying replacement shares.

The Budget proposes expanding this rollover by extending the reinvestment period to the end of the third calendar year following the year of disposition, relaxing certain active-business asset requirements and providing additional flexibility for investments made through qualifying future-equity agreements.

The Budget also proposes allowing a reserve to defer recognition of the capital gain during the replacement period.

These changes would apply to qualifying dispositions occurring on or after January 1, 2027.

Planning implications: The expanded rollover could provide entrepreneurs with considerably greater flexibility to reinvest proceeds from the sale of one private business into another without immediately triggering capital gains tax.

3.  Proposed Corporate Loss Transfer Regime

Under the current rules, corporations within the same corporate group generally cannot directly transfer tax losses between one another. Instead, corporate groups frequently implement more complex loss-utilization arrangements involving intercorporate loans, interest payments or reorganizations.

The Budget announces consultations on a proposed regime that would permit certain wholly owned corporate groups to transfer current-year non-capital losses through a joint election. The regime would generally apply to parent-subsidiary and sister corporation relationships, subject to restrictions, including provincial permanent establishment requirements.

If implemented, this measure could significantly simplify corporate loss planning and reduce the costs associated with existing loss-utilization arrangements.

The proposal remains subject to consultation, with submissions due January 8, 2027.

4.   Changes Affecting Non-Residents

The Budget proposes reducing the withholding rates applicable under section 116 of the Income Tax Act to dispositions of taxable Canadian property by non-resident corporations, as follows:

The proposed reductions would apply to dispositions occurring on or after January 1, 2027.

5.  Trust Distributions Involving Non-Residents

The Budget proposes expanding the restrictions on tax-deferred distributions of property by Canadian personal trusts where non-residents are involved.

Under the existing rules, certain distributions to non-resident beneficiaries are not eligible for the tax-deferred rollover otherwise available under subsection 107(2) of the Income Tax Act.

The proposed changes would extend these restrictions to certain indirect distributions involving corporations and partnerships with direct or indirect non-resident ownership.

The changes would apply to distributions occurring on or after November 5, 2026.

These proposals may be particularly relevant to family trusts with non-resident beneficiaries or corporate beneficiaries having non-resident shareholders.

6.  Simplified Tax Compliance and Administration

The Budget proposes several administrative changes intended to simplify tax compliance, including:

• Personal tax returns: Extending the filing and balance-due deadlines to May 15, beginning with the 2027 taxation year.
• Foreign property reporting: Increasing the Form T1135 filing threshold from $100,000 to $200,000 and the simplified reporting threshold from $250,000 to $500,000.
• Tax instalments: Increasing the annual tax instalment threshold from $3,000 to $7,500 for individuals outside Quebec.
• Notices of objection: Generally extending the objection deadline from 90 days to one year following an assessment, while eliminating the existing mechanism for requesting extensions of time.
• Corporate tax elections: Eliminating the requirement to submit certified copies of directors’ resolutions with certain elections, including capital dividend elections.

7.  Other Business Tax Measures

The Budget also proposes several additional business tax measures, including:

• Expanding immediate expensing for qualifying capital investments under the Productivity Mega Deduction initiative.
• Expanding eligible expenditures under the Scientific Research and Experimental Development (SR&ED) program.
• Exempting CCPCs from Part VI.1 tax on taxable preferred share dividends and increasing the general dividend allowance from $500,000 to $1.5 million.
• Expanding certain exceptions to the excessive interest and financing expenses limitation (EIFEL) rules.

Conclusion

Budget 2026 introduces several potentially significant tax planning opportunities for Canadian businesses, shareholders and investors, particularly through the proposed capital gains exemption, expanded small business rollover rules and potential corporate loss transfer regime.
At the same time, the proposed changes affecting non-residents and family trusts may require taxpayers to reconsider existing structures and contemplated transactions.

Many of these measures remain proposals and are subject to legislative approval or further consultation.

For further information regarding Budget 2026 and its potential implications, please contact a member of Fogler, Rubinoff LLP’s Tax Group.

_{This publication is intended for general information purposes only and should not be relied upon as legal advice.}