At a glance
- SR&ED eligibility could expand to certain regulatory testing, certification, and intellectual property protection costs.
- The Productivity Mega Deduction would extend to Canadian development expense, increasing the deduction rate to 100%.
- Proposed taxable preferred share changes would reduce the administrative and tax burden for smaller corporations.
- Canada is considering changes to strengthen CRS implementation and align with international reporting standards.
- Proposed EIFEL changes would expand exceptions for certain indirect group borrowings and regulated energy utility businesses.
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The 2026 federal budget introduces several business tax measures designed to spur investment, strengthen productivity, support innovation, and provide greater certainty for Canadian businesses and investors. Below is a high-level overview of the key measures announced.
What SR&ED changes does the 2026 federal budget propose?
The 2026 budget proposes to expand the activities and expenditures eligible under the scientific research and experimental development (SR&ED) program. The following could be eligible:
- Tests, technological validations, and studies required to meet regulatory requirements, or certification necessary to commercialize a product/process.
- Registration and maintenance costs of intellectual property (IP) protection in respect of IP developed in the course of conducting an eligible SR&ED project.
This measure would apply to taxation years that begin on or after Nov. 5, 2026.
Corporate loss transfers
The 2026 budget invites stakeholders to comment on the introduction of a corporate loss transfer rule. It will be the third consultation on this subject. The transfer of losses between corporations could have an impact on provincial and territorial tax bases which led to the abandon of the rule implementation in the past.
The current government is proposing to implement some rules to only allow the loss transfer within the same territory or provinces in hope it will help the process to move forward this time.
What mining tax measures does the 2026 federal budget propose?
In the 2026 budget, the Productivity Mega Deduction is extended to Canadian development expense. The deduction rate would increase from 30% to 100%.
The 15% Mineral Exploration Tax Credit (METC) and the 30% Critical Mineral Exploration Tax Credit (CMETC) were both planned to end on March 31, 2027. They are to be extended for a five-year period to eligible flow-through share agreements entered into on or before March 31, 2032. It will provide the mining community predictability that has been requested for a long time by the industry.
Extension of the Clean Electricity and Clean Technology Investment Tax credit
The 2026 budget proposes to extend both credits to investments made on property available for use in 2040 instead of 2034, which would provide predictability for investors.
Taxable preferred shares
The taxable preferred share regime is designed to prevent the erosion of corporate tax revenues through after-tax financing using taxable preferred shares (which have debt-like characteristics) instead of debt. The regime imposes Part VI.1 tax on dividends paid in excess of a set threshold on taxable preferred shares, which can be offset against Part I tax.
Budget 2026 proposes to reduce the administrative and tax burden associated with paying dividends on taxable preferred shares for smaller corporations. In particular, budget 2026 has proposed two key changes as outlined below and has requested a broader consultation on the taxable preferred share regime whereby written submissions may be sent by Jan. 8, 2027.
For smaller corporations, the following should be noted:
- Exempting Canadian-controlled private corporations (CCPCs) from the taxable preferred share regime and the punitive Part VI.1 tax by excluding dividends paid on or after Nov. 5, 2026.
- For other corporations, increasing the dividend allowance from $500,000 to $1,500,000 and the threshold for the reduction of the dividend allowance from $1,000,000 to $3,000,000. This measure would apply to taxation years that end after 2026.
Common Reporting Standards
Canada has adopted Common Reporting Standards (CRS) based rules and guidance put forth by the Organisation for Economic Cooperation and Development (OECD). The CRS rules are designed to encourage the exchange of information amongst tax authorities thereby promoting compliance and combating tax evasion. Based on a peer review conducted on Canada’s CRS, two main areas were identified where Canada was found to depart from the global standard:
- The scope of financial institutions subject to due diligence and reporting obligations.
- Certain residency conditions also bring a narrower range of partnerships within the definition of a financial institution for CRS purposes than the model rules.
The gaps identified under Canada’s CRS may impair Canada’s ability to effectively deal with international tax evasion.
Budget 2026 is seeking consultation on potential measures that could be done to strengthen Canada’s implementation of the CRS to bring them in line with international reporting standards without introducing unnecessary compliance burdens. Written submissions may be sent by Dec. 31, 2026.
Interest Deductibility Measures
Budget 2026 did not include significant tax reform to the Excessive Interest and Financing Expense Limitation (EIFEL) rules for large and medium Canadian businesses that are Canadian-controlled private corporations. No changes are proposed to the definition of excluded entity, which provides three main exceptions to the EIFEL rules. This means that many large and medium taxpayers will not get any relief from application of the EIFEL rules.
Two notable changes are proposed, which will apply to taxation years that begin on or after Oct. 1, 2023. Budget 2026 proposes to expand the EIFEL exception to cover certain indirect group borrowings where the borrowed funds are used for eligible activities carried on by another corporation, trust, or partnership within the same group of affiliated entities. The exception for indirect borrowings would also be available where the eligible activities are carried out by a partnership in which the borrower (together with affiliated entities) has at least a 40% interest. Budget 2026 also proposes to expand and clarify the definition of a regulated energy utility business, which exempts certain entities that carry on a regulated energy utility business.
The information in this publication is current as of November 5, 2026
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