Budget 2026 – Encouraging Canadian Growth: Key Tax Changes for Businesses and Investors

On November 5, 2026 (“Budget Day”), the federal government released Budget 2026, titled Masters of Our Destiny. While the highly anticipated Productivity Mega Deduction has garnered significant attention (and will be the subject of a separate discussion), Budget 2026 also introduces a number of important tax measures. Below, we outline some of the key tax changes and their practical implications for Canadian businesses.

Canada Growth Incentive & Small Business Corporation Share Rollovers

One of the most significant new tax measures in Budget 2026 is the introduction of the Canada Growth Incentive, a package of measures designed to encourage investment in Canadian private businesses and allow successful founders and investors to reinvest proceeds into the next generation of Canadian companies.

The centrepiece of the regime is a new capital gains exemption of up to $15 million for qualifying Canadian-resident individuals who dispose of “qualifying shares” of a “qualifying corporation”. The exemption applies on a per-business per-person basis and is intended to reward founders, employees and investors who build and grow Canadian businesses. It operates similarly to, but is distinct from, the existing lifetime capital gains exemption.

Budget 2026 also enhances the existing small business corporation share rollover rules by permitting additional deferrals of tax where capital gains are reinvested into another qualifying Canadian small business corporation. Taken together, these measures are intended to improve access to growth capital, support entrepreneurship and encourage successful investors to continue investing within Canada's innovation ecosystem.

The Canada Growth Incentive builds on the government’s recent efforts to encourage reinvestment in Canadian businesses. Earlier this year, Bill C-15 expanded the capital gains deferral available under section 44.1 of the Income Tax Act (Canada), including by removing the historical common-share restriction, increasing the asset threshold for eligible small business corporations from $50 million to $100 million, and extending the period for acquiring replacement shares. As we discussed in our previous Insight, Bill C-15 Receives Royal Assent: Expanded Capital Gains Deferral Under Section 44.1, these amendments significantly broadened the circumstances in which entrepreneurs and investors can defer capital gains when reinvesting in active Canadian businesses.

Scientific Research and Experimental Development Expansion

Budget 2026 proposes a $930 million expansion of the Scientific Research and Experimental Development (“SR&ED”) program focused on supporting commercialization of Canadian innovation. While Budget 2025 focused on expanding eligibility and improving administration of the SR&ED regime, Budget 2026 shifts attention toward helping innovative businesses bring products to market and retain commercialization activities in Canada.

Productivity Mega Deduction

The budget also introduces the Productivity Mega Deduction, a significant expansion of Canada’s immediate expensing regime for business investment. Budget 2026 also includes several enhancements to clean economy and resource-sector tax incentives, including changes to the Clean Electricity Investment Tax Credit, Clean Technology Investment Tax Credit, Mineral Exploration Tax Credit and Critical Mineral Exploration Tax Credit regimes, as well as new measures relating to helium exploration and development.

We will discuss these measures and their practical implications for Canadian businesses in a separate article.

Tax Simplification Measures

Budget 2026 contains a broad package of tax simplification measures intended to reduce compliance costs, simplify reporting requirements and modernize tax administration for both businesses and individuals.

Several notable measures include:

• Increasing the filing threshold for Form T1135 (Foreign Income Verification Statement) from $100,000 to $200,000, while increasing the threshold for simplified reporting from $250,000 to $500,000.
• Introducing optional flat-amount claims for various deductions and credits.
• Simplifying certain filing and payment deadlines for individuals.
• Modernizing registered pension plan administration and related reporting requirements. 

Corporate Reorganization and Other Corporate Tax Measures

Budget 2026 introduces several technical corporate tax measures designed to improve the operation of the tax system. These include proposed rules relating to corporate loss transfers, corporate tax elections, taxable preferred shares, and the removal of the excess corporate holdings regime for private foundations.

Corporate Loss Transfers

One of the more significant consultation proposals in Budget 2026 relates to the transfer of losses within corporate groups. Historically, taxpayers have relied on amalgamations, wind-ups and other planning techniques to effectively utilize losses within a corporate group.

The proposed corporate loss transfer framework seeks to facilitate the movement and use of losses within related corporate groups through a more structured legislative regime. Rather than immediately introducing a new regime, Budget 2026 launches a consultation on a framework that would permit the transfer of current-year non-capital losses within wholly-owned corporate groups. Under the proposal, transfers would generally be permitted within wholly-owned corporate groups, subject to a joint election by the transferor and transferee corporations.

Corporate Tax Elections

Budget 2026 also proposes to simplify a number of administrative requirements relating to corporate tax elections and agreements. Certain provisions of the Income Tax Act (Canada) currently require corporations to file certified copies of directors’ resolutions or authorizations when making elections or agreements, including capital dividend elections, transfers of tax liability on certain taxable dividends, transfers of SR&ED expenditures and SR&ED salary allocations.

Budget 2026 proposes to eliminate these certified-copy filing requirements for applicable elections and agreements made on or after Royal Assent of the enacting legislation. While primarily administrative in nature, the change should reduce compliance burdens and streamline the filing process for corporations and their advisors.

Taxable Preferred Shares

Budget 2026 proposes two significant changes to the taxable preferred share regime in Part VI.1 of the Income Tax Act (Canada), which is intended to prevent tax advantages arising from certain debt-like preferred share financing arrangements. Very generally, the taxable preferred share regime imposes taxes on the payor of dividends on taxable preferred shares, subject to certain exceptions.

First, Canadian-controlled private corporations (“CCPCs”) would generally be exempt from Part VI.1 tax, with dividends paid by CCPCs excluded from the taxable preferred share regime. Second, the annual dividend allowance would increase from $500,000 to $1.5 million, while the threshold at which the allowance begins to be reduced would increase from $1 million to $3 million on non-excluded dividends paid.

The government has also announced a broader review of the taxable preferred share regime.

Private Foundations and Excess Corporate Holdings

Budget 2026 proposes to eliminate the excess corporate holdings regime applicable to private foundations. The existing regime imposes detailed ownership, reporting and divestiture requirements where a private foundation and related persons hold significant interests in a corporation. In place of this regime, Budget 2026 would extend to private foundations the rules that currently apply to public foundations that prohibit a registered charity from acquiring control of a corporation. The proposed changes would apply for taxation years beginning on or after January 1, 2027.

Other Changes

Budget 2026 contains many other tax and tax-related changes, including welcome changes to the withholding tax regime that applies on sales by non-residents of taxable Canadian property. For further discussion of these changes, please see our latest real estate insight.

More Information

For any inquiries regarding this topic, please contact Max Walker, Katie Bois or any member of the Tax Group.