How new federal tax changes in Bill C-15 could affect Canadian businesses

A broad new set of federal tax changes could have wide-reaching implications for Canadian businesses.

Bill C-15, which became law on March 26, 2026, contains several material amendments to the Income Tax Act and federal Income Tax Regulations. These measures affect capital gains rollover planning, foreign affiliate income, trust reporting, investment tax credits, transfer pricing and capital cost allowance (CCA) incentives.

The new law, which implements several proposals from the 2025 federal budget and other previously announced measures, also repeals the Digital Services Tax Act (DSTA), the underused housing tax (UHT) and the federal luxury tax on aircraft and vessels.

For many businesses, these changes could affect how transactions are timed, how investments are structured, how cross-border income is repatriated and how documentation is prepared for CRA review.

Since these rules present potential benefits and risks, Canadian taxpayers should consult with appropriate advisors promptly to identify potential planning opportunities, prepare for new compliance requirements and assess whether existing structures will still produce the intended tax result.

Capital gains rollover on investments

New federal rules expand the capital gains rollover and make it easier for taxpayers to qualify for this deferral. These revised rules are effective for dispositions occurring on or after Jan. 1, 2025.

The capital gains rollover is available where an individual sells shares of a qualifying small business and reinvests the proceeds from the sale in another eligible small business investment within a specified timeframe.

The new eligible small business investment, referred to in the legislation as the replacement shares, now includes preferred shares. Larger businesses can also now qualify for the rollover because the asset size test has increased from $50 million to $100 million. This test looks at the total value of the corporation’s assets and those of related corporations.

Investors now have more time to reinvest. Previously, replacement shares had to be acquired in the year of disposition or within 120 days after year-end. The new legislation extends that reinvestment window to the year of disposition or the following calendar year.

Foreign accrual business income

Canadian corporations may be required to include certain foreign affiliate income in Canadian taxable income under current foreign accrual property income (FAPI) rules.

While these rules were meant to prevent deferral on passive income, they can also apply to business-like income such as certain foreign service income or income from real estate development or leasing.

Canadian corporations are allowed a foreign accrual tax deduction to reflect foreign taxes paid on FAPI; that deduction depends on a multiplier known as the relevant tax factor. The relevant tax factor was reduced from 4 to 1.9 for FAPI earned by Canadian-controlled private corporations (CCPCs). For CCPCs and substantive CCPCs (SCCPCs), reductions to that factor limited the ability to offset Canadian tax on certain foreign income.

The new foreign accrual business income (FABI) regime in section 93.4 of the Income Tax Act was introduced to better align the Canadian tax treatment of certain foreign affiliate income with the result that might have applied if similar income was earned through a Canadian corporation.

To support this objective, section 93.4 was introduce an elective relief that affects how foreign taxes paid by a controlled foreign affiliate are taken into account in Canada.

Section 93.4 allows eligible taxpayers to elect into a more favourable regime for qualifying FABI. The election permits a higher relevant tax factor of 4 to be used, rather than 1.9, when calculating the foreign accrual tax deduction on qualifying FABI. A related election can apply similar treatment to certain dividends paid out of a foreign affiliate’s FABI surplus.

New legislation also permits retroactive elections in certain cases. As passed, the FABI rules generally apply to taxation years beginning after 2024, with earlier years potentially covered where a retroactive election is available.

Trust-related measures

Amended trust-related measures that reduce compliance while clarifying how certain trust structures are taxed and reported are critical elements of the new federal legislation.

The law narrowed Canada’s trust reporting rules, which were recently expanded and created broad T3 and Schedule 15 filing obligations for many arrangements.

These measures expand the category of listed trusts that need to meet an additional criterion—such as having tax payable in the year—to be required to file a return.

Listed trusts are also exempt from filing Schedule 15, which discloses information on each trustee, beneficiary, settlor and person who has the ability to exert influence over the trustees’ decisions regarding the appointment of income or capital of the trust.

The reporting treatment of bare trust arrangements was revised; the previous definition was replaced with a new deemed trust rule and carve-outs for common situations such as certain principal-residence title arrangements, cases where all legal owners are also beneficiaries, and certain partnership title-holding structures.

For employee ownership trusts (EOTs), the new legislation preserves the $10 million capital gains exemption for qualifying sales to an EOT, effective Jan. 1, 2024, and clarifies the conditions for claiming it. These clarifications address how the 24-month holding period test applies where shares are issued for other shares and when the actively engaged requirement is met.

Additionally, the capital gain arising on the transfer is erased if no disqualifying events occur within 10 years—a change from the previous approach where the gain was deferred indefinitely.

Scientific research and experimental development

Canada’s scientific research and experimental development (SR&ED) program now features expanded eligibility, with the intention of driving economic growth for domestic businesses and promoting the continuous development of intellectual property.

These changes, first introduced in the 2024 fall economic statement, will apply to taxation years that begin on or after Dec. 16, 2024. 

Key areas of expanded eligibility include:

• The annual expenditure limit for the enhanced 35 per cent investment tax credit is now $6 million— up from $3 million. The taxable capital phase-out threshold for determining the expenditure limit also increased from $10 million – $50 million to $15 million – $75 million.

• Eligible Canadian public corporations (ECPCs) and their consolidated groups are also eligible for the enhanced 35 per cent credit for up to $6 million in qualifying annual expenditures. An ECPC is a Canadian resident corporation with class of shares listed on a designated stock change or has elected or been designated by the federal minister of national revenue to be a public corporation—and is not controlled by any non-resident shareholders. Any Canadian-resident subsidiaries that are all or substantially owned by these ECPCs would also be eligible. The taxable capital threshold for an ECPC’s expenditure limit is $15 million – $75 million based on average gross revenue over the three preceding years. 

• CCPCs can also elect to use this same phase-out structure for enhanced SR&ED credit.

Clean economy income tax credits

A new clean economy income tax credit (ITC)—the clean electricity ITC—was introduced as part of the recent legislation.

Amendments were also made to amendments to three previously implemented ITCs: clean technology (CT), clean technology manufacturing (CTM) and carbon capture, utilization and storage (CCUS).

Clean electricity ITC

This new ITC applies to qualifying trusts and qualifying corporations, including taxable Canadian corporations, provincial and territorial Crown corporations, and corporations owned by municipalities.

The credit is available, retroactive to April 16, 2024, for projects that did not begin construction before March 28, 2023. Otherwise, it applies to eligible property acquired and available for use on or after Nov. 4, 2025.

CT, CTM, and CCUS ITC

The CT ITC expanded to include property acquired on or after Nov. 21, 2023 that supports electricity and heat from waste biomass.

The CTM ITC expanded to include investments in polymetallic projects—which are engaged in the production of multiple metals. It also includes investments in qualifying materials such as antimony, indium, gallium, germanium and scandium.

This credit will apply in respect of property that is acquired and becomes available for use on or after Nov. 4, 2025.

The timeline for the CCUS ITC was also been extended; credit rates will be halved for eligible expenses made on or after 2035 instead of 2031, and will be cancelled completely in 2040. The review date for this ITC was postponed from 2030 to 2035.

Transfer pricing

Transfer pricing rules in section 247 of the Income Tax Act were modernized in keeping with measures first proposed in the 2025 federal budget. 

The amendments incorporate guidelines from the Organization for Economic Co-operation and Development (OECD) directly into the legislation. This reinforces Canada’s shift toward analyzing transactions based on economic substance and actual conduct rather than legal form alone. 

New concepts introduced into section 247 include actual conditions and economically relevant characteristics. As a result, when the CRA assesses whether arm’s length conditions exist, the legislation now looks beyond pricing to consider whether independent parties would have entered the same transaction in the first place. 

The framework for transfer pricing adjustments and penalties was also restructured, while contemporaneous documentation requirements were expanded. These measures underscore the importance of transfer pricing audit readiness. 

These amendments apply to taxation years and fiscal periods beginning after Nov. 4, 2025. 

CCA-related measures

New measures that offer productivity super-deductions to attract investment in Canada were included in the latest legislation.

These include reinstating the accelerated investment incentive and providing immediate expensing for certain assets and capital expenditure.

Accelerated investment incentive

The enhanced CCA rate is now available to most new depreciable property, manufacturing and processing equipment, clean energy equipment and productivity enhancing assets that are also eligible for immediate expensing. 

This rate applies to property that is acquired and available for use before 2030. Any eligible property acquired after 2024 and available for use before 2034 will not be subject to the half-year rule. Normal CCA rates are expected to resume for property that becomes available for use after 2033.

The accelerated CCA also applies to new eligible purpose-built rental projects where construction or renovation begins after April 15, 2024 and before 2031—and were available for use before 2036. 

Eligible projects are buildings or parts of a building in Canada with either four or more residential units that contain at least four private kitchens, bathrooms and living areas—or 10 or more residential units. At least 90 per cent of residential units must be held for long-term rental.

Immediate expensing

Manufacturing and processing machinery and equipment, clean energy equipment and zero emission vehicles acquired after 2024 and available for use before 2030 now qualify for immediate expensing.

This measure slowly phase out for these assets starting in 2030 and will switch to normal CCA rates for property available for use after 2033.

Productivity enhancing assets such as patents, data network infrastructure, and computers will also have access to immediate expensing. This CCA rate will apply to property acquired after April 15, 2024 and those that become available for use before 2027. Property available for use after 2026 will be subject to the reaccelerated rules mentioned above.