At a glance
- Draft regulations introduce simplified transfer pricing documentation measures for certain taxpayers and transactions.
- Specific conditions and transaction thresholds apply, and taxpayers must elect to use the simplified measures.
- The proposed rules also address documentation requirements and transfer pricing penalties.
The 2025 budget introduced substantive changes to Canada’s transfer pricing rules. The changes originated from a consultation paper issued in 2023 by the Department of Finance.
Many of the proposed changes were included in the Nov. 4, 2025, federal budget and enacted in Bill C-15 on March 26, 2026, including:
- the introduction of new definitions in the Income Tax Act (ITA) and most notably, reference to the Organization for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines;
- a reduction of the time allowed to respond to a Canada Revenue Agency (CRA) audit request for documentation from three months to 30 days;
- an increase in the penalty threshold to adjustments exceeding the lesser of 10% of revenues or $10 million (previously $5 million); and
- significant changes to the section of the ITA requiring contemporaneous documentation, expanding Canada’s documentation requirements to be consistent with the OECD’s delineation-first framework.
These changes and their significance to Canadian multinational enterprises (MNE) are discussed in our article Canada’s proposed transfer pricing reforms: What businesses need to know.
Contemporaneous documentation simplification measures
The 2025 budget proposals also provided simplified documentation requirements for smaller taxpayers within certain dollar value and transaction type constraints. The government released draft income tax regulations in July detailing these proposals.
They are applicable to taxation years or fiscal periods commencing on or after Jan. 1, 2026. When passed, these regulations will describe the prescribed conditions under which a taxpayer or partnership can take advantage of these relieving rules.
Prior to the introduction of this new subsection, taxpayers relied on OECD guidelines which state that “taxpayers should not be expected to incur disproportionately high costs and burdens in producing documentation […and] tax administrations should balance requests for documentation against the expected cost and administrative burden to the taxpayer of creating it.” The CRA confirmed this approach in administrative guidance in previously published directives.
Under the newly introduced regulations, the simplified documentation measures must be elected, and the election must be filed in the prescribed form prior to the documentation-due date, (the tax return filing due date).
Elections can be made for one or more of the following four circumstances:
Note that for this article, a reference to a taxpayer should be read to also include a reference to a partnership.
Who qualifies for the simplified transfer pricing documentation, and what information is required?
For small taxpayers or partnerships, when all of the following conditions are met, all transactions or series between the taxpayer and a non-arm’s length non-resident will be deemed to satisfy the prescribed conditions for a particular taxation year or fiscal period:
- The gross revenue of the taxpayer or partnership, combined with the gross revenue of any other member of the MNE group that is resident in Canada, must not exceed $25 million during the immediately preceding taxation year.
- There must have been no disposition of intangible (or incorporeal) property during the year to a non-arm’s length non-resident.
- There must not have been a royalty payment during the year to a non-arm’s length non-resident.
Small taxpayers must provide the calculation of their gross revenue plus the gross revenue of any other member of the group resident in Canada during the year.
Other taxpayers can elect to have the simplified documentation rules apply when the following transaction volume thresholds are met:
- Where tangible property transactions do not exceed $5 million;
- Where intra-group services transactions do not exceed $2 million; and
- Loans, where the interest revenue or expense does not exceed $1 million.
The following information is required to satisfy the contemporaneous documentation requirement in all four circumstances where the elective provisions could apply:
- The terms and conditions of the transaction or series of transactions, including:
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- i. the identity of the participants;
- ii. the relevant property, services, or details of the loan (purpose of the loan, principal amount, term, issuance date, maturity, credit rating of the borrower, interest rate, currency and payment terms); and
- iii. the amount paid or payable, or received or receivable, as the case may be.
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- The analysis undertaken to determine that the amounts are based on arm’s length terms and conditions.
The new regulations also provide that where the transaction or series of transactions continues into subsequent taxation years, taxpayers and partnerships need to document only material changes to the information provided in previous years when making the election for the subsequent year.
How do simplified rules affect transfer pricing penalties?
Qualifying taxpayers receive penalty protection where these elected new rules apply. Currently, transfer pricing penalties associated with a failure to provide adequate documentation to the CRA within 30 days of a request are tied to the regular transfer pricing documentation rules. As currently drafted, there are no penalties tied to the new elected approach for simplified documentation requirements discussed in this article.
Other things for taxpayers to consider
The simplified rules make official what was otherwise an administrative practice followed by many taxpayers pertaining to lower volume transactions, where such transactions were described but not necessarily analyzed (i.e., benchmarked).
It remains to be seen whether the new rules will reduce the compliance burden. Nevertheless, the changes may provide relief to many Canadian taxpayers and partnerships.
Also note that these rules have been put forth in draft and may change prior to being finalized. In addition, the CRA may provide comments on these new rules to clarify their interpretation.
How BDO can help
Our transfer pricing professionals can help you assess how these proposed changes for reduced documentation requirements may affect your organization and support you in implementing practical next steps.
The information in this publication is current as of Sept. 11, 2026.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.