Our summary of the federal budget’s key tax highlights and measures, with insights most relevant to private wealth clients.

Denika Heaton, BBA, JD, TEP, CEA Senior Counsel, Private Wealth

Chris Hanley, CPA, CA, CFP, TEP Senior Tax Planner, Private Wealth 

Top Proposed Changes Affecting Private Clients:  

• A new exemption sheltering up to $15 million of capital gains on qualifying business shares (the Canada Growth Incentive);
• An expansion of eligible rollovers of farm and fishing operations;  
• An expansion of the rules to block tax-deferred trust distributions to non-residents; and  
• A new May 15 tax return filing date and higher instalment thresholds.

The Details 

The proposed Canada Growth Incentive (“CGI”) capital gains exemption could allow a Canadian-resident individual to exempt up to $15 million of capital gains on the sale of qualifying shares of a qualifying corporation. This is substantially greater than the current $1.275 million Lifetime Capital Gains Exemption (“LCGE”), which may be familiar to business owners selling qualifying small business corporation shares or qualifying farm or fishing property.  

Beyond the dollar limit, there are important distinctions between the two exemptions. First, the LCGE is a single, indexed lifetime limit that an individual can use over time. By contrast, the CGI's $15 million limit would apply separately to each qualifying individual for each qualifying business, potentially allowing them to claim the exemption on the sale of multiple businesses over their lifetime. The government plans to add rules to prevent individuals from claiming both exemptions for the same corporation, and from splitting up a single business among multiple corporations to multiply the CGI.  

The CGI's eligibility criteria are considerably more restrictive than the LCGE’s, with several tests that must be met at different stages as a shareholder:

• At issuance: The corporation must be a Canadian-controlled private corporation with all, or substantially all, of its assets attributable to a qualifying business carried on primarily in Canada. The combined carrying value of assets of the corporation and related corporations must not exceed $100 million.
• While the shares are held: At least 50% of the corporation's asset value must remain attributable to the qualifying business. The business must also be carried on primarily in Canada for at least 24 consecutive months following share issuance.
• At disposition: The shares must have been held for at least 36 consecutive months, and all, or substantially all, of the corporation's asset value must be attributable to the business.

This differs from the LCGE, which generally requires a 24-month share ownership period and applies its own asset-use tests during that period and at the time of sale.

The CGI would also be limited to shares issued on or after Budget Day and before 2037, issued directly to an individual aged 18 or older (or to a partnership of which they belong to), solely for cash or in exchange for employment services. This may preclude ownership by trusts, and it remains unclear whether an existing corporation could reorganize to issue new shares (after Budget Day) and qualify.

While the LCGE may apply across industries, CGI eligibility is very limited. It would exclude:

• Consulting businesses and professional practices, including accounting, legal, medical, engineering and architectural practices, as well as businesses whose principal asset is the reputation or skill of one or more employees;  
• Businesses operating in the agricultural, fishing, forestry, mining, financial, insurance, utilities, real estate, food and accommodation, arts, recreation or entertainment sectors; and
• Businesses operating under licensing or franchising agreements.

The CGI's excluded industries resemble those proposed under the Canadian Entrepreneurs' Incentive (“CEI”) in Budget 2024, with several additions (including agriculture, forestry, mining, utilities and franchised businesses) that make it even harder to qualify. The CEI, which proposed a phased-in capital gains tax benefit, was ultimately cancelled. At the time, we questioned how broadly the exclusions would apply in practice. For example, how much involvement in an excluded industry would disqualify an otherwise qualifying business? Those questions remain unanswered under the newly proposed CGI, pending further guidance.  

The Alternative Minimum Tax (“AMT”) can apply to both the CGI and the LCGE. Find more on AMT here: Federal Budget 2025 commentary, Trust Issues: New Alternative Minimum Tax Changes = Maximum Headaches.

For business owners and entrepreneurs, the potential benefit is substantial, but so are the conditions. Once further details are available, anyone starting a business or issuing shares in an existing one should review their business activities and corporate structure with their tax advisors. 

Under existing rules, an individual who sells shares of an eligible small business corporation (“ESBC”) can defer capital gains tax (a “rollover”) to the extent the proceeds are reinvested in replacement ESBC shares in the year of disposition or the following calendar year.

Three conditions apply:  

1. generally, the shares must have been held for at least 185 days;
2. the corporation must meet an “all or substantially all” (generally 90%) active-business asset test throughout the ownership period; and  
3. the active business must be carried on primarily in Canada for at least the lesser of two years and the individual's holding period.

For dispositions on or after January 1, 2027, the proposals would extend the reinvestment period to the year of disposition plus the following three calendar years, with up to two more years available, where the individual enters into an agreement to provide capital for shares to be issued in the future. The proposal would also relax the asset-use test during the ownership period from “all or substantially all” to “primarily” (generally 50%), while the higher threshold would still apply at the time of share issuance and disposition.

Serial entrepreneurs and investors in qualifying small businesses may find this additional flexibility particularly valuable, as it allows more time to move capital from one business venture to the next. However, this remains a tax deferral, not an exemption, and any proceeds not ultimately reinvested will become taxable, with interest applying to the deferred tax.

Currently, Qualified Farm and Fishing property can be transferred on a tax-deferred basis (rollover) to the direct lineage (i.e., a child, grandchild, great-grandchild, and, in certain circumstances, their spouse or common-law partner) of the farmer or fisher, or of their spouse or common-law partner.  

For transfers on or after January 1, 2027, Budget 2026 proposes to expand the list of eligible recipients of Qualified Farm and Fishing property to include a niece or nephew of either the taxpayer or their spouse / common-law partner; the niece or nephew’s spouse or common-law partner; or, their child (i.e., the grandniece or grandnephew of the taxpayer).

This would provide families with greater flexibility when the intended successor is part of the extended family rather than a direct descendant. The existing eligibility conditions for the rollover would continue to apply. 

Budget 2026 proposes changing the rules governing the transition from registered retirement savings plans (RRSPs) to registered retirement income funds (RRIFs), consolidating them into a “RRSP for life”. These changes would simplify administration and set-up and reduce paperwork currently required for the mandatory conversion at age 71. It would not, however, provide relief from the mandatory minimum withdrawals beginning at age 72.  

The Department of Finance is seeking consultation submissions on this proposal. It is also consulting on a more direct rollover option to a surviving spouse or common-law partner when the RRSP for life holder dies. Similar to the current successor holder provisions for TFSAs, this would automatically defer tax until the death of the last spouse or common-law partner.  

The draft legislation gave no coming into force date, and greater clarity is needed on whether these “RRSPs for life” would replace the current RRSPs and RRIFs, and what a transitional period would involve. 

Budget 2026 proposes several integrity measures for Individual Pension Plans (“IPPs”). An IPP is a defined-benefit registered pension plan that incorporated business owners sometimes use for retirement planning. The changes would expand the IPP definition to capture certain arrangements designed to circumvent existing membership rules (effective January 1, 2027). They would also apply the same advantage, prohibited investment and non-qualified investment rules that apply to RRSPs and TFSAs (effective January 1, 2028), and allow the Canada Revenue Agency (“CRA”) to revoke registration where plan assets exceed 200% of pension liabilities, subject to at least 30 days' notice to address the excess (effective January 1, 2028). IPP members and plan administrators should review their plan's structure, investment holdings and funding levels to assess whether any changes may be needed. 

Starting with the 2027 taxation year, Budget 2026 proposes that all individuals, including the self-employed and their spouses or common-law partners, would file and pay by May 15 of the following year. Most filers would gain two weeks at the expense of self-employed households. Returns for 2026 would follow the existing filing due dates (the April 30 and June 15 deadlines).  

Fewer taxpayers would also have to pay instalments. Starting with taxation years that begin in 2028, the instalment threshold for individuals and corporations would rise from $3,000 to $7,500. From 2028, people earning primarily self-employment income, including professionals and commission earners, could also pay a single tax instalment instead of quarterly instalments that are currently required. The single instalment would be two-thirds of their combined federal and provincial net tax, due by December 31 (similar to the rules for farmers and fishers), with the remainder due on the balance-due date.  

Taxpayers are currently required to file a T1135 Foreign Income Verification Statement annually if they own “specified foreign property” with a total cost amount exceeding CAD $100,000 at any time during the year. The reporting allows a “simplified” method if the cost is between $100,000 and $250,000.  

Budget 2026 proposes to double the reporting threshold to $200,000 and to extend simplified reporting to $500,000, for taxation years ending after 2026. The proposals simply increase these reporting thresholds. The definition or inclusions of “specified foreign property” stays the same and requires reporting on assets such as shares of non-resident corporations, funds held in foreign bank accounts, foreign mutual funds, interests in other foreign entities such as trusts or partnerships, and real estate located outside Canada. Foreign property used primarily for personal use or enjoyment, such as a vacation home, is generally excluded from the reporting requirement. Also, “specified foreign property” held inside a registered account, such as an RRSP, RRIF, or RESP, etc., also remains excluded from reporting.  

From 2027, Budget 2026 proposes that several credits and deductions could optionally be claimed as a flat amount, rather than itemized based on actual receipts, including:

• $1,000 for eligible moving expenses;
• $1,500 for the tradespeople’s labour mobility deduction for an eligible temporary relocation;
• $1,000 for the home accessibility credit for qualifying accessibility modifications; and  
• $1,200 per child for adoption expenses.  

Budget 2026 also proposes easing the receipt requirements for medical and disability support claims, and making the Canada Caregiver Credit refundable from 2027. This is a welcome simplification for some, though the flat amounts are generally far lower than the maximum amounts available by itemizing, so taxpayers should weigh both options before claiming. 

Trusts are typically created through formal legal documentation, such as a trust deed. Bare trust reporting requirements are broad and capture many informal arrangements, often without written documents, where ownership and legal title to property are separate. This requires providing the CRA with information about the bare trust.  

The existence of a bare trust depends on the facts of each situation. Indicators include an intention to hold assets as agent for another party (documented or not), a gratuitous transfer of property to joint ownership, or a difference between the beneficial ownership (i.e., the true rightful owners versus those holding legal title). Non-registered investments and real estate are often held in joint names, even when not all joint title holders contributed to the property or are beneficial owners. Scenarios that may create a bare trust arrangement include: an adult child added to the title of their aging parent’s vacation home or cottage (not the parent’s principal residence), or a parent transferring non-registered investments to a joint account with their adult child.  

The past few tax years have brought an evolving saga of reporting requirements and relief measures, with respite often provided on short notice. Unfortunately, the temporary reprieve from compliance burdens is over, and these trust reporting requirements now apply for the 2026 taxation year. Bare trusts will need to file a T3 Return and the supporting Schedule by March 31, 2027 (and each year thereafter), disclosing information about all parties involved. However, the true owner of the assets would still report income, losses, and gains as before. Certain exceptions exist, including for ‘small’ trusts holding only specified assets, but the rules are complex and can be impacted if there are taxes payable or a disposition of trust property. Tax advice should be sought annually to ensure compliance. 

In Canada, most trusts are deemed to dispose of their capital property for tax purposes every 21 years. This “21-year rule” can create a significant capital gains tax liability if the trust property has appreciated substantially, even though no actual sale occurs and no cash is generated to pay the tax. The rule ensures that capital gains tax cannot be indefinitely deferred across generations. While a trust may continue beyond 21 years, it faces a deemed realization of gains at fair market value and must have sufficient liquidity to pay the associated tax.

Budget 2026 proposes further measures to prevent non-resident taxpayers from sidestepping the 21-year rule. A personal trust can generally distribute capital property to a Canadian-resident beneficiary at its tax cost (or "roll out"), but not to a non-resident. For distributions on or after Budget Day, the deferral would also be denied where the property passes to a Canadian-resident corporation or partnership in which a non-resident owns any share or interest, directly or indirectly. Taxpayers should review this with their tax advisors well in advance of the 21-year deemed disposition. The ability to roll out assets with inherent capital gains to Canadian-resident capital beneficiaries before the trust’s 21st anniversary generally remains viable, with careful planning. 

As with recent Budgets, Budget 2026 emphasizes broader tax compliance, including additional CRA funding for audits and enforcement. It also proposes a substantial recalibration of penalties, both to reflect inflation (many fixed dollar penalties were established years, or decades ago) and to better account for the gravity of non-compliance and scale/size of the taxpayer.  

For taxation years and fiscal periods ending after 2027, most older fixed-dollar penalties would double or triple to reflect inflation, with amounts indexed every five years starting in 2033. Individuals, partnerships, and smaller corporations would generally be subject to the new fixed amount base penalties. Medium corporations ($10 million to $50 million of capital) and partnerships would be subject to three times the base penalty amount, which could capture some private clients' holding companies. For large corporations, the base penalty amount would be multiplied by eight. Because some penalties apply per occurrence, amounts could accumulate quickly, making non-compliance an increasingly expensive proposition.  

The taxable preferred share rules were designed to prevent corporations from using preferred shares as a tax-advantaged substitute for debt financing. However, the rules are broad and may also catch transactions where no financing is involved, including ordinary estate freezes and corporate reorganizations, post-mortem planning, and charitable gifts. When applicable, a tax of 25% to 40% is imposed on the dividend-paying corporation, creating an unwelcome tax trap in some circumstances.

Budget 2026 proposes to exempt Canadian-controlled private corporations from this tax on dividends paid on or after Budget Day. For other corporations, for taxation years ending after 2026, the annual dividend allowance would increase from $500,000 to $1.5 million, and the threshold at which the allowance begins to be reduced would increase from $1 million to $3 million. The government is also consulting on broader changes to the regime, which would be another welcome development

Under current rules, each corporation is taxed separately and can generally only use its own non-capital losses against its income, subject to the usual carryforward and carryback rules. Corporate groups with losses in one company and profits in another sometimes use transactions such as amalgamations, wind-ups or intercompany financing arrangements to effectively shift income or expenses, but these can be complex, costly, or commercially impractical.

Budget 2026 invites comments on a proposed loss transfer system that would allow current-year non-capital losses to be transferred between wholly owned parent and subsidiary corporations, or between subsidiaries of a common parent, through a joint election. Importantly, the proposal would be limited to Canadian-resident corporations, each operating in the same province or territory.