Federal Budget 2026: Business tax measures

Corporate tax elections 

Budget 2026 eliminates the requirement to file certified copies of board resolutions or officer authorizations with the CRA for certain corporate tax elections. This measure targets elections and agreements that currently mandate such certification, including capital dividend elections, the transfer of forgiven amounts, and the allocation of qualified SR&ED expenditures and wages. 

This measure will apply to elections and agreements made on or after the date of royal assent of the legislation. While the filing requirement is removed, corporations should continue to maintain internal records of the authorizing resolutions to demonstrate proper corporate authority. 

Taxable preferred shares–Part VI.1 tax 

Budget 2026 eliminates Part VI.1 tax on dividends paid by Canadian-controlled private corporations (CCPCs), removing a tax trap that often arises in ordinary private company capital structuring, charitable giving, and post-mortem planning. Under current rules, corporations paying dividends on preferred shares could face a Part VI.1 tax of up to 40% where the dividend recipient doesn’t have a substantial interest in the dividend payer. The exemption for CCPCs applies to dividends paid on or after November 5, 2026. 

In addition, the government is increasing dividend allowance thresholds. The base allowance will rise to $1,500,000 (from $500,000), and the prior year dividend threshold that triggers a reduction in this allowance will increase to $3,000,000 (from $1,000,000). This increase applies to taxation years ending after 2026. 

The government is also conducting a broader review of the preferred share regime. Stakeholders are invited to submit views to the Department of Finance by January 8, 2027.  

Fines and penalties  

Adjustments to fixed-dollar penalties 

Budget 2026 changes certain fixed-dollar administrative penalties, including late-filing penalties. 

Adjustment based on taxpayer size

Medium corporations and partnerships would be subject to penalties equal to three times the base amounts, while large corporations and partnerships would be subject to eight times the base amounts. Individuals and other small corporations and partnerships would remain subject to the base level of fixed penalties.  

Medium entities include corporations with $10M–$50M of related-group taxable capital in Canada and partnerships with $2M–$10M of gross revenue, while large entities exceed these thresholds. 

Adjustment for inflation 

Most fixed-dollar penalties will be adjusted for inflation, with older penalties generally increasing two- to threefold and more recent penalties remaining unchanged, subject to certain exceptions. Going forward, the amounts will be indexed to inflation every five years. 

Repeated failures 

New penalties for repeated failures to file or comply when no other specific penalty applies. The penalty would generally be doubled if the same type of non-compliance was penalized in any of the three preceding tax years and isn’t corrected after notification by the CRA. Additional increases would apply to medium and large entities. These measures would apply to taxation years or fiscal periods ending after 2027. 

Scientific Research and Experimental Development Tax Incentive Program  

Budget 2026 extends the Scientific Research and Experimental Development (SR&ED) program to support businesses as they move from research to commercialization. The scope of eligible activities are broadened to include testing, technological validations, and studies required to obtain initial regulatory approval or certification to commercialize a product or process that relate to a project that is eligible under the SR&ED program's existing rules. Additionally, eligible expenditures now include costs reasonably incurred to register and maintain intellectual property (IP) developed during an eligible SR&ED project. Costs related to enforcing IP rights, such as litigation, are explicitly excluded. The proposal also introduces recapture measures if such IP is disposed of, necessitating careful tracking of benefits allocated to specific assets. These measures apply to taxation years beginning on or after November 5, 2026.  

Clean Electricity and Clean Technology Investment Tax Credits

The budget extends the availability of the refundable Clean Electricity (up to 15%) and Clean Technology (up to 30%) Investment Tax Credits to 2040. This extension provides a longer window to plan and complete eligible projects. While the current credit rates will generally be maintained throughout the extension period the Clean Technology credit rate reduces to 15% for eligible property that becomes available for use in 2040.  

The Clean Electricity credit also expands to include high-voltage intra-provincial transmission property. Eligibility is determined by specific voltage thresholds tailored to each province and territory, generally aligning with the highest voltage currently used for transmission in that jurisdiction.  

These measures apply to property acquired on or after November 5, 2026.   

Helium exploration, development, and resource expenses  

Budget 2026 aligns the tax treatment of helium exploration and development with the favourable incentives currently available to petroleum and natural gas producers. Helium exploration expenses will qualify as Canadian exploration expenses (CEE) and development costs as Canadian development expenses (CDE), deductible at rates of 100% and 30%, respectively. The proposed Productivity Mega Deduction will increase the CDE deduction rate to 100%. Costs to acquire helium resource properties will qualify as Canadian oil and gas property expenses (COGPE), deductible at a rate of 10%. This proposal applies to expenses incurred on or after November 5, 2026. 

Canadian Journalism Labour Tax Credit  

The Canadian Journalism Labour Tax Credit (CJLTC) expands to include organizations producing original audio and audiovisual news, such as podcasts and online videos. The proposed changes allow qualifying audio and audiovisual news providers to claim a refundable 35% tax credit on eligible salary or wages (capped at $85,000 per employee annually) for newsroom employees who spend at least 75% of their time on the production or post-production of original news content. The enhanced 35% credit rate (currently scheduled to expire on December 31, 2026) is extended until December 31, 2028, after which it will revert to 25%. This applies to qualifying labour expenses incurred on or after November 5, 2026. 

Corporate loss transfers: Consultation  

The government has announced its intention to explore a significant change to Canada’s corporate tax system: a potential mechanism that would allow wholly-owned corporate groups to transfer current-year non-capital losses between members. No specific mechanism or draft rules have been proposed. However, if such a regime is implemented, it could substantially reduce a major inefficiency of Canada’s current non-consolidated taxation system, which often require corporate groups to undertake commercially unnecessary transactions to utilize tax attributes within the group. The government is seeking stakeholder input on how the stated objective could be achieved while addressing tax integrity and other design issues. Submissions are due January 8, 2027.