What new tax changes in Bill C-31 could mean for Canadian businesses

Bill C-31 expanded the CRA’s information gathering powers by allowing the agency to collect documents for the purpose of enforcing international agreements, introducing penalties related to compliance orders and notices of non-compliance (NNC) and amending the reassessment periods.

Several revisions were made in response to feedback from the tax community, including:

• Removing the requirement to provide answers under oath or affidavit. 
• Clarifying that a requirement to provide foreign-based information will not be considered unreasonable solely because it is controlled by a third-party non-resident.  
• Revising the language to strengthen the minister of national revenue’s (Minister) duty to vacate the penalty for a compliance order if it is disproportionate or unfair.  
• Restricting the Minister’s ability to issue a NNC to a third party unless certain conditions are met. 
• Providing that a NNC is deemed vacated if the Minister has not informed the taxpayer in writing of the Minister’s decision to confirm, vary or vacate the NNC within 180 days of receiving the request for review. 

These amendments would come into effect once Bill C-31 receives royal assent.

Bill C-31 introduced additional provisions to expand the tax debt anti-avoidance rules to target indirect and structured transfers designed to avoid tax liability.

Where property is indirectly transferred using third-party intermediaries as part of a transaction or series of transactions where one of the purposes is to avoid joint and several liability, the transfer may be deemed to occur at non-arm’s length—meaning directly between the transferor and the ultimate transferee.

Third-party intermediaries are those who facilitate in planning activity by organizing, creating, or promoting tax arrangements that result in tax avoidance.

For certain avoidance transactions, the fair market value of any consideration provided by the transferee is deemed to be nil. This increases the potential exposure to liability.

These measures apply to transactions or series of transactions occurring on or after April 16, 2024.

The 21-year deemed disposition rule requires personal trusts to recognize accrued capital gains every 21 years to prevent indefinite tax deferral across generations.

Bill C-31 expanded the related anti-avoidance rule to capture both direct and indirect transfers of property made between trusts to circumvent the 21-year deemed disposition rule. 

This amendment applies to transfers made on or after Nov. 4, 2025.

When a taxpayer emigrates from Canada, they are deemed to have disposed of all capital property at fair market value; this triggers potential capital gains tax obligations.

Bill C-31 introduced a new measure allowing non-resident taxpayers to elect to carry back certain losses to offset the deemed proceeds of dispositions on their departure.

The eligible losses are those realized when taxable Canadian property—which was originally deemed to be disposed of when the taxpayer emigrated from Canada—is later sold at a loss by the non-resident. However, this new measure permits the CRA to reassess at any time to give effect to the carry back.

These measures would come into effect once Bill C-31 receives royal assent.

Bill C-31 updated the immediate expensing rules for manufacturing and processing (M&P) buildings as initially proposed in the 2025 federal budget. It includes clarifying exclusions to M&P activities, phase-out rules and other technical adjustments. 

The bill also included new recapture rules, restricted the ability to claim additional CCA in the same year immediate expensing is available and outlined anti-avoidance treatment for transactions primarily undertaken to access accelerated CCA or immediate expensing. These measures are intended to prevent abuse of the incentive.

These amendments will be applied retroactively as of Nov. 4, 2025.

Bill C-31 expanded the definition of dual-use equipment to indicate when and how long fossil fuels can be used. Italso expanded the wording for a qualified concrete storage process to be “incorporated into concrete” instead of “injected” and added an exemption where carbon dioxide is released from dedicated geological storage for bona fide reasons outside the control of the taxpayer.

The definitions and technical changes will be deemed effective retroactive to Jan. 1, 2022.

Bill C-31 narrowed the eligibility rules for energy storage property by excluding equipment that forms part of a system using fossil fuels during operation. It also clarified the tax treatment and recapture deferral rules for certain non-arm’s length transfers.

These changes apply to property acquired and available for use on or after May 6, 2026.

Bill C-31 introduced major updates to the clean hydrogen investment tax credit to clarify eligibility requirements.

These amendments repealed terms such as “dual-use hydrogen and ammonia equipment” and “ineligible use,” and introduce new definitions of eligible equipment, such as oxygen and nitrogen equipment. A new “dual-use electricity and heat equipment” definition with similar restrictions on fossil fuel as carbon capture, utilization and storage was also introduced.

The bill also included amendments to address compliance timing, project revisions and the treatment of environmental attribute certificates.  The definitions and technical changes will be deemed effective March 28, 2023.

Additionally, Bill C-31 outlined a new detailed framework for hydrogen produced from the pyrolysis of eligible hydrocarbons, making such projects eligible for this credit.

The amendments expanded the minister of natural resources’ authority to request documentation and confirm or deny project plans related to the pyrolysis of eligible hydrocarbons. The pyrolysis specific rules will be deemed effective retroactive to Dec. 16, 2024.

Bill C-31 amended the wording around recapture deferral of certain non-arm’s length transfers to explicitly indicate how to determine any tax consequences or deferral.

The technical changes will apply for property that is acquired and becomes available for use on or after May 6, 2026.

Bill C-31 tightens the wording around fixed location energy storage property or pumped hydroelectric energy storage property to exclude “equipment that is part of a system that uses any fossil fuel in operation.”

It also added a definition of “province” to include offshore areas of Nova Scotia and Newfoundland and Labrador. The bill further amended the wording around recapture deferral of certain non-arm’s length transfers to explicitly indicate how to determine any tax consequences or deferral.

Changes such as the definition of province will be deemed effective April 16, 2024. The other technical changes will apply for property that is acquired and becomes available for use on or after May 6, 2026.

Bill C-31 included updates to flow-through mining expenditures to include eligible Canadian exploration expenses incurred after March 2025 and before 2028. 

These updates will be effective for flow-through share agreements entered into on or after Nov. 4, 2025.

The definition of qualified investments was expanded to include additional registered plans, such as registered retirement income funds (RRIFs), registered education savings plans (RESPs), registered disability savings plans (RDSPs) and registered retirement savings plans (RRSPs).

Bill C-31 also broadened the types of prescribed investments that are qualified investments, including:

• Certain debt instruments. 

• Units of trust subject to the requirements of National Instrument 81-02 or a registered investment fund as described in National Instrument 31-103. 

• Equity instruments such as shares of specified small business corporations, venture capital corporations and specified cooperative corporations  

These amendments would come into effect on Jan. 1, 2027.

Bill C-31 amended the dividend refund rules by suspending a payer corporation’s entitlement to a dividend refund when it pays a taxable dividend to an affiliated recipient corporation where the recipient’s taxation year end occurs after that of the payer corporation.

This differs from draft legislation introduced in August 2024, where the proposed rules captured mismatches in balance-due days rather than taxation year-ends.

Exceptions apply where payer corporations experience a loss restriction event within 30 days after the dividend is paid or the payee corporation pays taxable dividends in the amount of—or greater than—the amount of the dividend received by the payee corporation within the taxation year where the dividend was received.

These amendments apply to dividends paid in taxation years beginning on or after Nov. 4, 2025.

CARF, developed by the Organisation for Economic Co-operation and Development (OECD), aims to enhance information-sharing across jurisdictions and improve tax compliance for crypto-assets.

While draft legislation released in August 2025 proposed an effective date of Jan. 1, 2026 with first reporting due in 2027, Bill C-31 delayed the implementation of this measure by one year to the 2027 taxation year.

The federal government has identified arrangements involving corporations, trusts and partnerships in which entities are temporarily assigned into bankruptcy prior to settling or extinguishing a commercial obligation to circumvent the debt forgiveness and loss restriction rules. The bankruptcy is then later annulled, which results in no reduction in the taxpayer’s tax attributes or an income inclusion for a taxation year.

In response to this challenge, Bill C-31 amended the definition of “forgiven amount” to remove bankrupt corporations, trusts and partnerships from the exception to the debt forgiveness rules.

For corporations, the amendments apply to bankruptcy proceedings that commence on or after April 16, 2024. For partnerships and trusts, the amendments apply to bankruptcy proceedings that commence on or after August 12, 2024.

Bill C-31 added the definition of a “private investment entity” to the GMTA and included circumstances where private investment entities may de-consolidate their MNE group. It also provides an anti-avoidance rule to prevent tax planning that abuses this new measure.

In addition, a deeming rule provides that a private investment entity is deemed to not have a direct or indirect controlling interest in Canadian public corporations within the same MNE group. If two or more entities are separated under this rule, they may be deemed to form a separate qualifying MNE group.

The qualified domestic minimum top-up tax (QDMTT) is a top-up tax collected from entities in MNE groups that are located in low-tax jurisdictions with an effective tax rate below 15 per cent. Bill C-31 added related definitions to the Income Tax Regulations and updates foreign affiliate surplus rules to reflect the new regime.

Bill C-31 also implemented the UTPR, which applies where the QDMTT or the income inclusion rule does not increase the tax rate to 15 per cent. It requires the top-up tax to be allocated to countries based on the tangible assets and employees in those countries.

It also introduced amendments to the global minimum tax filing obligations to include estimated UTPR returns that are filed on or before the GloBE information returns (GIR).