Finance Canada's July 2026 draft tax legislation, read for owner-managers

Summary

On July 23, 2026, the Department of Finance released four packages of draft tax legislation for comment, with comments due by September 4, 2026.¹ Draft amendments to an Act change nothing until Parliament passes a bill containing them and the bill receives royal assent, the final step that makes it law. Draft regulations are, in Finance’s words, “submitted for approval” rather than introduced in Parliament. As at October 7, 2026, no bill before Parliament contains any of the four packages.²

Four groups of measures are read in detail below:

1. Company cars. Three car benefit provisions for employees and shareholders that now say “related to” would say “does not deal at arm’s length with”, a group the Act treats as including related people, from the 2026 taxation year.
2. Shareholder loans. Exclusions for corporate and partnership borrowers would move into a new subsection, and paragraphs (a) to (c) of subsection 15(2), which name the shareholder, the connected person and the partner or trust beneficiary, aren’t amended.
3. Transfer pricing. Simplified, elective documentation would be available below stated size limits for dealings with a non-resident that doesn’t deal at arm’s length with the taxpayer, for years beginning on or after January 1, 2026.
4. GST/HST. The construction holdback rule would say “becomes due” for “becomes payable”, objection decisions would go out “in writing” rather than by registered or certified mail, an official could say more about a GST/HST number, and registered buyers of VoIP data-transmission capacity would account for the tax themselves.

What Finance released

The July 23 news release links four packages, each published as draft proposals with a page of explanatory notes (Finance’s clause-by-clause description of the draft).¹ Two amend the Income Tax Act and its Regulations: technical amendments in 37 clauses,³ and Budget 2025 and other proposals in seven groups of measures.⁴ One clause amends the Global Minimum Tax Act,⁵ and 37 clauses amend the Excise Tax Act, three other statutes and four sets of GST/HST regulations.⁶ Every clause is accounted for below.

Where the packages stand

LEGISinfo, Parliament’s bill-tracking service, showed no bill carrying any of the four packages on October 7, 2026.² Bill C-38, the Canadian Fuel Affordability Act, was introduced on September 21, 2026 and reached report stage, the step after committee study, when the Standing Committee on Finance reported on October 6. It amends only the fuel excise rates in Schedule I to the Excise Tax Act, which come from Finance’s separate September 2026 proposals.⁷ Bill C-39, introduced the same day, doesn’t amend the Income Tax Act or the Excise Tax Act.⁸

Each of the four drafts opens by noting that various clauses “take into consideration the possibility that Bill C-31” may receive royal assent. Bill C-31, the Budget 2025 Implementation Act, No. 2, passed second reading on June 3, 2026 and is at consideration in committee in the House of Commons.⁹

Income Tax Act: the technical amendments

Automobile benefits

When an employer makes a car available to an employee who uses it personally, the Income Tax Act adds a standby charge (an amount for having the car available) to the employee’s income, plus an operating expense benefit if the employer pays personal running costs. Subsection 15(5) applies the same rules to a shareholder whose corporation provides the car.¹⁰

Paragraph 6(1)(e), the standby charge, already applies to a car made available to “a particular person who does not deal at arm’s length with the taxpayer”. Subsection 15(5), paragraph 6(1)(l) and the part of paragraph 6(1)(k) that counts running costs paid back to the employer say “related to” instead, and the draft would replace that with “does not deal at arm’s length with” for the 2026 and later taxation years. Finance’s notes call the change consistent with “the scope of paragraphs 6(1)(a) and (e)”.

Under section 251 of the Act, related persons include individuals connected by blood relationship, marriage, common-law partnership or adoption (e.g. a spouse or a child), and they’re deemed not to deal at arm’s length. For people who aren’t related, arm’s length is “a question of fact”.¹¹ The vehicle allowances guide explains the standby charge.

Loans to shareholders

Subsection 15(2) includes a loan from a corporation to a shareholder, or to a person connected with one, in the borrower’s income, subject to exceptions elsewhere in section 15. Its opening words exclude a corporation resident in Canada and a partnership whose members are all such corporations.¹² The draft would move those exclusions into a new subsection 15(2.01) and add partnerships held through such partnerships (for loans after October 31, 2011) and certain non-resident corporations known as foreign affiliates (for loans after August 12, 2024).

Paragraphs (a) to (c) of subsection 15(2), naming the shareholder, the connected person and the partner or trust beneficiary, aren’t amended.¹² A connected person is still one who doesn’t deal at arm’s length with, or is affiliated with, the shareholder. Subsection 80.4(2), which taxes a benefit on low-interest or interest-free shareholder loans, would get the same treatment for loans after an “Announcement Date” the draft doesn’t define. The shareholder loan guide covers subsection 15(2).

First-year capital cost allowance

Capital cost allowance (CCA) is the deduction for depreciable property (e.g. equipment or vehicles), pooled in classes. Two incentives that enlarge the first year’s deduction overlap: the accelerated one for property acquired after November 20, 2018 and before 2025, and the reaccelerated one for property acquired after 2024.¹³ Clause 31 rewrites element E.1 of Regulations subsection 1100(2), which deals with an amount that reduces a class’s balance (e.g. a disposition) in a year the class also takes on reaccelerated property. The new wording would be deemed in force January 1, 2025. Finance’s notes say a reduction would then apply to ordinary additions first, accelerated-incentive property second and reaccelerated property third, where both kinds become available for use in one class in the same year. Nothing else in the first-year rules is amended. The 2026 changes guide covers those rules.

The rest of the technical package

The other clauses cover interest-deductibility limits, a partner’s car provided by a partnership, farming (including livestock destroyed under statutory authority), resource expenses, foreign affiliates, payment service providers’ trusts, film tax credits, first home savings account transfers, pension plans and retirement compensation arrangements, the tax on share buybacks by listed entities, amateur athletic associations, non-residents, information sharing with Employment and Social Development Canada, a donation rule for life insurance policies acquired from a spouse, one foreign spin-off and Canada Infrastructure Bank partnerships.³ What’s left is wording, mostly in the French version, including in section 148 on life insurance policy dispositions.

Income Tax Act: Budget 2025 and other proposals

Transfer-pricing documentation

Transfer pricing is the pricing of dealings between a taxpayer and a non-resident it doesn’t deal at arm’s length with (e.g. a foreign parent corporation). Under subsection 247(4), a taxpayer without detailed records by its documentation-due date (for a corporation, its tax return’s filing-due date) is deemed not to have made reasonable efforts at arm’s-length prices, which the penalty in subsection 247(3) turns on. Subsection 247(4.1) already switches that off for a taxpayer that “meets prescribed conditions” and “makes, obtains and provides prescribed documentation in prescribed manner”. The consolidated Regulations, current to September 21, 2026, don’t contain Part XCVIII, the part the draft would add to set them.¹⁴ The draft’s four elective cases are:

• the taxpayer’s gross revenue, with that of the other Canadian-resident members of its multinational enterprise group (the parties and anyone not at arm’s length with one of them), was no more than $25,000,000 in the preceding year, with no disposition of intangible property to, and no royalty paid to or received from, such a non-resident in the year¹⁴
• a sale or purchase of tangible property came to no more than $5,000,000 in the year¹⁴
• intra-group services came to no more than $2,000,000 in the year¹⁴
• interest on a loan came to no more than $1,000,000 in the year¹⁴

Each case needs an election by the documentation-due date and records of the terms, participants, amounts and arm’s-length analysis, with an anti-avoidance rule attached. The cases would apply to taxation years and fiscal periods beginning on or after January 1, 2026, and the notes say reasonable efforts at arm’s-length pricing are still required.

The rest of the Budget 2025 package

The other six groups cover the disability tax credit, the Red Seal Completion Bonus, low-carbon liquefied natural gas facilities, carbon capture for enhanced oil recovery, foreign affiliates insuring Canadian risks, and cross-border hybrid mismatch arrangements.⁴ The disability tax credit changes would expand the list of practitioners who can certify eligibility. The release describes the Red Seal Completion Bonus as “a one-time $5,000 bonus” for apprentices obtaining certification in a Red Seal trade. It’s paid under an Employment and Social Development Canada program, and the draft would include it in the apprentice’s income with tax withheld at source.

The global minimum tax package

The one clause rewrites the definition “deduction/non-inclusion arrangement” in subsection 47(1) of the Global Minimum Tax Act, so that two conditions now required together would become alternatives.⁵ A qualifying MNE group (multinational enterprise group) is one whose consolidated revenue reached €750 million, adjusted for the length of the fiscal year, in at least two of the four preceding fiscal years. The clause would apply to such a group’s fiscal years beginning on or after December 31, 2023.

GST/HST and excise

Construction holdbacks

A holdback is the part of a construction price a customer keeps back, under a statute or a written contract, until the work is done. Subsection 168(7) of the Excise Tax Act makes the GST/HST on that part payable on “the earlier of the day that part is paid and the day it becomes payable”. The draft would replace the second date with “the day it becomes due”.¹⁵ Section 152 sets that day as the earliest of the day the supplier first issues an invoice (or the invoice’s date, if earlier), the day it would have issued one but for undue delay, and the day a written agreement requires payment. Finance’s notes say the amendment corrects “a technical error”, in force on royal assent. The holdbacks guide and the deposits and progress draws guide cover the current rule.

Looking up a GST/HST number

Subsection 295(6.1) lets an official, given information identifying a person and a number, “confirm or deny” that the person is registered and the number is theirs. A new subsection 295(6.2) would let an official, given only a number, say whether it’s a GST/HST business number. If it is, the official could give the holder’s name and trade names, whether the number was assigned under the electronic commerce registration or under registration other than electronic commerce (the notes’ terms), the date registration took effect and any cancellation date. The subsection would come into force on royal assent.¹⁶ The GST/HST reassessment guide describes the current registry check.

Decisions on objections

A notice of objection is the formal way to dispute an assessment. Subsections 301(5) and 303(5) require the Minister of National Revenue to send a decision on a GST/HST objection, or on a request for more time to object, “by registered or certified mail”. The draft would require notice “in writing” instead. In English, subsections 303(6) and 304(1) would count from the day a decision is “sent” rather than “mailed”, as the French version already does. All of it would come into force on royal assent.¹⁷ The CRA letter guide covers the objection deadline.

VoIP data-transmission capacity

The draft defines “reverse charge supplies” as capacity for transmitting data using Voice over Internet Protocol (VoIP) technology to enable a voice service that uses North American Numbering Plan numbers or reaches the public switched telephone network.¹⁸ The supplier wouldn’t be required to collect GST/HST from a buyer registered under Subdivision D of Division V (registration other than electronic commerce). It would state on the invoice, receipt or written agreement that the buyer pays the tax. The buyer would report and pay it in its own return, and could claim an input tax credit (the credit a registrant claims for GST/HST on business inputs) only if so registered at the time. The release says the purpose is “to help prevent carousel fraud”. These clauses would start on the first day of the second month after royal assent.

The rest of the GST/HST and excise package

The other clauses cover crypto-asset payment tokens, payment service providers’ trusts, livestock feed and leased agricultural quotas, insurance on property outside Canada, gaming authorities, one literacy charity’s book rebate, financial institutions’ attribution rules, and notice and wording changes in the Excise Act, 2001 and the Air Travellers Security Charge Act.⁶ The one Select Luxury Items Tax Act clause corrects French grammar in an offence provision, and several more correct the French version of the Excise Tax Act. Clause 3 reorders words in the qualifying-member tests for the section 156 election, which lets certain members of a group of corporations and Canadian partnerships treat supplies between them as made for nil consideration (a price of zero for GST/HST purposes). The notes say the change improves “drafting precision”.¹⁹ The building ownership guide discusses that election.

What isn’t known yet

• Which bill, if any. None carries the drafts as at October 7, 2026, and they don’t say which bill would.²
• Many start dates. Clauses that start on royal assent, or on the first day of the second month after it, don’t have a calendar date yet.⁶
• The “Announcement Date”. Clauses in three packages apply from an “Announcement Date” that none defines. The release date isn’t stated to be it.³
• The link to Bill C-31. The drafts allow for C-31’s possible royal assent, and C-31 is still in committee.⁹