Federal Budget 2026 proposes new tax benefits for business without major tax reforms

“Events, dear boy, events.” The quote attributed to former British Prime Minister Harold Macmillan is often used to explain how unexpected circumstances can shape a government’s policy direction. Prime Minister Mark Carney’s rise to power was undoubtedly influenced by events such as U.S. trade aggression towards Canada. This prompted a focus on boosting productivity and diversifying the Canadian economy to minimize trade reliance on our American neighbours. It—and geopolitical uncertainty sparked by situations such as the conflict in the Middle East that has driven up oil and gas prices and inflation—also provided political cloud cover to continue running major deficits, as exemplified in Federal Budget 2026.

The document is titled ‘Masters of our Destiny.’ Apparently becoming masters of fiscal prudence will have to wait. The budgetary bad news is that Ottawa is still deep in red ink. The good news is that, at least for the 2025-26 fiscal year, the deficit is projected at $39.3 billion (down from an estimated $67 billion in the Spring Economic Statement). This is due to higher projected federal revenue (by an annual average of $23.9 billion between 2026-27 and 2030-31).

The deficit is now projected at $62.3 billion in 2026-27, $62.5 billion in 2027-28, $57.6 billion 2028-29, $53.4 billion in 2029-30 and $52.9 billion in 2030-31. The federal debt-to-GDP ratio is expected to remain at approximately 40 per cent throughout the forecast period, with deficits continuing despite the government’s stated objective of balancing operating expenditures with revenues. Real GDP growth is expected to reach 2 per cent in 2028 and 2029, before sliding back to 1.9 per cent in 2030. That’s far from a sunny fiscal picture, and one that highlights the government’s general disinterest in achieving budgetary balance.

Against that backdrop, the government was touting its Investment Supercycle and leaning heavily on pro-business and affordability messaging heading into yesterday’s announcement.

The budget—which includes approximately $142 billion in new spending—does include several business-friendly proposals. The marquee measure, the previously announced Productivity Mega Deduction, allows taxpayers to fully deduct the cost of a much broader range of eligible investments in the year they become available for use. Our recent blog on the deduction has the full details.

Another significant new measure proposed in Budget 2026 is the Canada Growth Incentive. It would introduce a new capital gains exemption of up to $15 million for Canadian-resident individuals who dispose of qualifying shares of eligible Canadian corporations. The exemption would be subject to several conditions, including requirements relating to the corporation’s business activities, the issuance of shares and minimum holding periods.

The budget would also expand the existing small business rollover provisions to allow greater deferral of capital gains when proceeds are reinvested in another qualifying Canadian small business. The government estimates the potential tax relief at $715 million over four years, beginning in 2027-28.

Other notable business-related measures in Budget 2026 include:

An expansion of SR&ED tax incentives to include certain commercialization-related expenditures, including regulatory testing and certification activities and costs associated with securing and maintaining intellectual property protection. The expansion would apply to taxation years beginning on or after November 5^th, 2026.
$1 billion in funding over six years, starting in 2028-29, for the Strategic Response Fund. The program supports large-scale research and development and innovation projects
$181.4 million over four years, starting in 2027-28, to expand the Invest in Canada initiative and bolster its presence in foreign markets
A proposal to increase the tax installment thresholds for individuals and corporations to $7,500 ($4,500 for individuals resident in Quebec) and index them to inflation. The budget also proposes allowing individuals whose primary source of income is business, professional or commission income to make a single annual installment payment equal to two-thirds of their net tax owing by December 31^st. The changes would take effect beginning in 2028. The government estimates that nearly 1.1 million individuals and 185,000 smaller incorporated businesses would no longer be required to make tax installments
A proposal to exempt Canadian-controlled private corporations from the taxable preferred share regime under Part VI.1 of the Income Tax Act. The exemption would apply to dividends paid on or after November 5^th, 2026. There is also a proposed increase in the dividend allowance under Part VI.1 from $500,000 to $1,500,000, and an increase in the threshold for reducing that allowance from $1 million to $3 million. These changes would apply to taxation years ending after 2026
An expansion of the eligibility for the Intergenerational Farm Transfer to nieces and nephews. The measure would apply to transfers that occur on or after January 1^st, 2027
An elimination of the requirement for a corporation to file a certified copy of a resolution of its directors authorizing the election or agreement
The elimination of the excess corporation holdings regime for private foundations. The measure would apply to the 2027 and subsequent taxation years. However, private foundations would become subject to restrictions prohibiting them from acquiring control of a corporation, similar to those currently applicable to public foundations
$176.9 million over three years, starting in 2027-28, to renew the Wine Sector Support Program
A proposal to explore allowing qualifying corporations within the same corporate group to transfer current-year non-capital losses between them, potentially eliminating the need for more complex loss consolidation transactions. The government has launched consultations on the proposal, which would be subject to restrictions, including common ownership and provincial allocation requirements
A proposal to increase various administrative tax penalties to reflect inflation and introduce higher penalties for medium-sized and large corporations and partnerships that fail to meet certain tax filing and information reporting obligations. Penalties for medium-sized entities could increase to three times the base amount, while large entities could face penalties of up to eight times the base amount. The changes would generally apply to taxation years or fiscal periods ending after 2027
Proposed amendments to the Excessive Interest and Financing Expenses Limitation (EIFEL) rules to expand previously announced exceptions for financing related to purpose-built rental housing and regulated energy utilities. The changes would extend relief to certain indirect financing arrangements within affiliated corporate groups and qualifying partnerships

Personal tax measures include:

A one-time, 50 per cent increase for the 2026-27 benefit year to the Canada Groceries and Essentials Benefit Supplement. Eligible taxpayers would receive the benefit in early 2027. The Supplement would provide up to $339 for a single person without children and up to $679 for a couple with two children
A proposed new “RRSP for life” regime that would eliminate the requirement to convert an RRSP into a RRIF at age 71, while retaining the existing minimum withdrawal requirements after that age. The government is also considering changes that would allow surviving spouses or common-law partners to become successor holders of RRSPs and simplify tax-free transfers of retirement savings following death. The government has announced consultations on the proposal, with submissions due by January 8^th, 2027
A new Build Canada Workers Benefit that would enhance the existing Canada Workers Benefit. The new benefit “… would lower the minimum earnings threshold from $3,000 to $500, and from $1,150 to $200 for the disability supplement. It would also increase the maximum benefit to $1,859 for single individuals without children and $3,143 for families, up from $1,709 and $2,943 respectively under the existing benefit.”
Making the Canada Caregiver Credit fully refundable, starting in 2027-28. Caregivers would receive up to $1,260 annually (for 2027, indexed thereafter)
A proposal to establish May 15^th as the uniform deadline for individuals to file their income tax returns and pay any outstanding taxes, including self-employed individuals and their spouses or common-law partners. The change would apply to the 2027 and subsequent taxation years.
An extension of the timeframe to file a notice of objection to an income tax assessment (and remove the need for taxpayers to request an extension of time) to one year after the receipt of a notice of assessment is sent. Individuals and graduated rate estates would have until the later of one year after the assessment is sent or two years after the applicable tax return filing deadline
An increase of the $100,000 foreign property threshold for filing a Foreign Income Verification Statement (T1135) to $200,000. The government estimates this measure would exempt approximately a third of all current filers from the obligation to file. The threshold for simplified reporting would be increased from less than $250,000 to less than $500,000. These measures would apply to taxation years that end after 2026
Permanently allowing a qualifying family member to open a Registered Disability Savings Plan on behalf of an adult who may be unable to open an RDSP on their own
A simplification of the Medical Expense Tax Credit claim process
A proposal to allow individuals who move for work or school to deduct a flat $1,000 under the Moving Expense Deduction rather than individually itemizing their expenses
A one-time, optional flat claim of $1,000 in a given year for taxpayers undertaking a qualifying renovation under the Home Accessibility Tax Credit
An optional flat claim of $2,000 under the Medical Expense Tax Credit for qualifying taxpayers for the care, maintenance, and other related expenses incurred for a service dog specially trained to assist them with their disability or medical condition
An extension of the ban on foreign purchases of existing residential properties for two years, to January 1, 2029. The measure would exempt new residential properties
A simplification “… of the withholding and remittances rules that apply when non-residents dispose of taxable Canadian property by exempting certain tax-deferred transactions from those rules and reducing the withholding and remittance rates applicable to corporations.”
$116.5 million over four years in funding for the Canada Revenue Agency to expand compliance activities, enhance the Trust Filers Verification Program and strengthen pre-assessment validation activities for corporate income tax returns
A proposal to restrict tax-deferred distributions of property from Canadian trusts to corporations or partnerships with direct or indirect non-resident shareholders or partners. The changes are intended to prevent indirect distributions to non-residents that could otherwise defer or avoid Canadian capital gains tax. The measure would apply to distributions made on or after November 5^th, 2026
$182.4 million over four years, starting in 2027-28, to bolster Canada Revenue Agency enforcement activities
A proposal to allow the CRA to report certain outstanding income tax and GST/HST debts exceeding $50,000 to credit bureaus. The measure would apply only where the taxpayer’s objection and appeal rights have expired or been exhausted, the CRA has provided at least 30 days’ written notice, and reasonable collection efforts and opportunities for repayment arrangements have been provided
The introduction of new mortgage insurance rules to improve mortgage insurance flexibility for three- and four-unit homes, while permitting private mortgage insurers to offer mortgage loan insurance on five- to 50-unit residential properties
A proposal to raise the home price limit for optional mortgage insurance from $1 million to $1.5 million and allow 30-year amortizations for these insured mortgages if at least one borrower is a first-time home buyer or the home is newly built
$100 million over two years, starting in 2027-28, to renew the Emergency Treatment Fund
A temporary increase to the minimum number of Employment Insurance regular benefit weeks from 14 to 18 weeks for apprentices who take full-time training. The government estimates the measure will cost $5 million over four years, starting in 2027-28, and $1.1 million in future years
$451.8 million over four years beginning in 2027-28, and $48 million ongoing, for a new Partnerships for Indigenous Workforce Readiness Fund that would support skills and employment training
$56.9 million over four years, starting in 2027-28, and $205.4 million in future years to implement a new immigration levels plan that would set targets of 370,000 new temporary resident arrivals and 380,000 permanent resident admissions in 2027, 2028, and 2029
$302.3 million over four years, starting in 2027-28, with $90.6 million in future years, to support the transition of temporary residents to permanent residency status
A commitment to begin consultations on a new Canada Creative Credit to support artists. The credit would be a non-refundable personal income tax credit
$76 million in 2027-28 for a renewal of the Canada Strong Pass for another summer
$46.3 million over five years, starting in 2026-27, and $11.5 million ongoing to made admission to Canada’s national museums free year-round for children and Canadians younger than 25
$1.2 billion in 2027-28 to extend federal funding agreements with the provinces and territories for mental health and addictions services and home and community care

Infrastructure, environment, defence and culture measures include:

An extension of the Clean Technology and Clean Electricity Investment tax credits to the end of 2040, with the phase-out to 15 per cent occurring in 2040 rather than 2034. The budget also proposes expanding eligibility for the Clean Electricity investment tax credit to the highest-voltage intra-provincial electricity transmission lines nationwide. The measures are expected to cost $2.4 billion from 2027-28 to 2030-31 and $36.1 billion from 2031-32 to 2041-42
Investments in the national electrical grid, including nearly $4 billion over 10 years, starting in 2027-28, to support electricity infrastructure expansion, renewable energy, and priority electricity sector projects across Canada
$26.4 million over 10 years to improve electrical system data and modelling capacity, along with $22.9 million over five years to update the Clean Electricity Regulations
$1.6 billion over 10 years, starting in 2027-28, to improve electrical reliability in the North
$6 billion over six years, starting in 2028-29, to support the deployment of emerging electricity generation technologies
$518.5 million over five years, starting in 2027-28, and $18.1 million ongoing to build out Canada’s nuclear research, supply chains, workforce, and regulatory capacity
More than $2 billion for the National Heat Pump Rebate
$587 million over five years, starting in 2027-28, to renew the Zero-Emission Vehicle Infrastructure Program with the aim of expanding Canada’s network of EV charging stations
$1.8 billion over four years, starting in 2027-28, and $3.2 billion in future years for a new Integrated Supports Fund that would “support projects that bring housing together with health, mental health, addictions, and social supports.”
An additional $3.6 billion over four years, starting in 2027-28, and $6.4 billion in future years, for the construction of new supportive and transitional housing across Canada
$2 billion over two years, starting in 2027-28, for the Health Infrastructure Fund
$2.1 billion over three years, beginning in 2028-29, and $4.4 billion in future years, to renew the Reaching Home initiative and the Veterans Homelessness Program for an additional 10 years
A renewal of the Canada Housing Benefit for 10 years
An additional $13 billion over 10 years, starting in 2028-29, to increase the capital of Build Canada Homes
$610.3 million over four years, starting in 2027-28, $118.1 million in 2031-32, and $117 million ongoing in funding to Nutrition North
$1.5 billion over four years, starting in 2027-28, and $387.4 million in future years to prepare federal lands for housing by funding water, wastewater, roads and other enabling infrastructure
$300 million over three years, starting in 2028-29, and $200 million in future years, for the Strategic Response Fund to accelerate the adoption of modern construction methods
$67.7 million over four years, starting in 2027-28, and $101.2 million in future years to modernize housing data and standardize construction methods
$424.4 million over four years, starting in 2027-28, to renew the Canadian Critical Minerals Strategy to support strategic investments in critical mineral mining and processing technology
An extension of the Mineral Exploration Tax Credit and Critical Mineral Exploration Tax Credit for an additional five years, until March 31, 2032
$500 million over six years, starting in 2027-28, to support forestry supply chains, technologies and practices
$2 billion over six years, starting in 2027-28, to help forestry businesses modernize facilities and equipment, improve productivity, and expand production of higher-value products
$4 billion over six years, starting in 2027-28, for a new Forestry Sector Accelerator that will make major investments in new and refurbished large-scale forestry facilities
$400 million over seven years, starting in 2027-28, for the renewal of the Strategic High-efficiency Industrial Facilities Transition (SHIFT), an initiative intended to accelerate adoption of energy-saving technologies at industrial and manufacturing facilities
$282.7 million over 11 years, starting in 2027-28, and $18 million ongoing, for two new National Marine Conservation Areas
$18.5 billion over 10 years, starting in 2027-28, for a new First Nations On-Reserve Infrastructure Program
$11 billion over 10 years to improve First Nations housing
An additional $1.7 billion over five years, starting in 2027-28, for housing in First Nations communities on reserve
$2.3 billion over five years, starting in 2027-28, for the Defence Drone Initiative
$7.6 billion over five years, starting in 2026-27, for the extension and expansion of Operation REASSURANCE
$6 billion over 10 years, starting in 2027-28, on a cash basis, and $579.5 million ongoing, to fund CSIS
$176.3 million over five years, starting in 2026-27, and $29.3 million ongoing, to establish the new Digital Safety and Data Protection Commission of Canada
Up to $2.5 billion in financing to De Havilland Canada to increase the production capacity for waterbombers
$300 million in 2027-28 for a new Canada 160 Fund to fund celebrations of Canada’s 160^th birthday
$10 million in 2027-28 for the Building Communities through Arts and Heritage program and $15 million for the Canada Arts Presentation Fund, to support local festivals and performing arts events across Canada
$1.5 billion over nine years through the Build Communities Strong Fund to support the construction, expansion, retrofit, and rehabilitation of community recreational facilities and ice rinks across Canada
$783.1 million over five years, starting in 2026-27, for the renewal and repair of national museums, the National Battlefields Commission, the National Arts Centre, and Library and Archives Canada
$60 million over four years, starting in 2027-28, for the National Gallery of Canada
$20 million over four years, starting in 2027-28, and $5 million ongoing to renew the Canada Book Fund
An additional $300 million over two years, starting in 2026-27, in funding for CBC/Radio-Canada
$134 million over four years, starting in 2027-28, and $41 million ongoing for the Local Journalism Initiative to support local news organizations across the country
An extension of the Canadian Journalism Labour Tax Credit “… to qualifying private audio and audiovisual news organizations, in line with support provided to news organizations that produce written news. They would be eligible for the same temporarily enhanced credit rate of 35 per cent and annual labour expenditure limit of $85,000 per employee. These changes would be effective for labour expenses incurred on or after Budget Day.”
A renewal of the enhanced 35 per cent credit rate for an additional two years for print journalism outlets. Combined, the journalism-related measures would cost approximately $501 million over five years, starting in 2026-27, and $85 million ongoing

While the budget does propose new measures to simplify tax compliance, it sidesteps the kind of wholesale tax review and reforms that would make a major difference for owners of small- to medium-sized businesses. These tiny steps forward fall short of delivering the kind of change needed to ignite rapid growth and productivity gains.

In all, Budget 2026 offers more of the same: boutique tax and spending incentives that will have a marginal impact on business investment and affordability for Canadians. And as circumstances remain uncertain, events could compromise the government’s fiscal projections, sending the country deeper into debt.

Armando Iannuzzi, Co-Managing Partner

For more information on Budget 2026, contact a member of our team.