Federal Budget 2026: Personal tax measures

Income tax return filing and balance-due dates for individuals 

The personal income tax filing and payment due date for all individuals, including self-employed individuals and their spouses or common-law partners, will change to May 15. 

These measures would apply to the 2027 and subsequent taxation years. 

Canada Growth Incentive – capital gains exemption 

Budget 2026 introduces a new Canada Growth Incentive (CGI), which provides a capital gains exemption of up to $15 million on a disposition of qualifying shares of an eligible corporation. The CGI capital gains exemption would apply to each qualifying individual in respect of each qualifying business. 

To claim the exemption, there are several criteria that must be satisfied for individuals, shares, and businesses.  

To qualify for the exemption, an individual must be: 

• At least 18 years old at the time they acquired the share. 
• A resident in Canada throughout the tax year in which they claimed the exemption. 
• Not a trust.  

If shares are held by a partnership, the individual must have been a member of the partnership and at least 18 years old at the time the partnership acquired the shares. 

To qualify, shares must meet conditions throughout the relevant ownership period that consider the residency of the corporation, value of corporate assets, percentage of assets used in active business, and where the business is carried out. The share must also have been issued either solely for cash consideration or in exchange for employment services provided by the qualifying individual to the eligible corporation and held by the qualifying individual for a minimum of 36 months immediately before the disposition. Notably, this includes shares in corporations that are either Canadian-resident private corporations or public corporations listed on a Canadian stock exchange at the time of disposition, provided certain criteria are met.  

To be a qualifying business, the business must be active and can’t be engaged in any of the following excluded activities: 

• A business providing consulting services, a professional practice of an accountant, lawyer, notary, physician, other health care practitioner, engineer, architect, and any business whose principal asset is the reputation or skill of one or more employees. 
• A business operating in the agricultural, fishing, forestry, mining, financial, insurance, utilities, real estate, food and accommodation, arts, recreation, or entertainment sectors. 
• A business operating under a licensing or franchising agreement.  

Proposed measures limit the ability to claim both the existing lifetime capital gains exemption (LCGE) and newly introduced CGI capital gains exemption on the sale of shares of the same corporation except in the case of a qualifying sale to an Employee Ownership Trust or a worker cooperative. 

The inclusion rate for gains exempt under the CGI capital gains exemption will be limited to 30% for the purposes of Alternative Minimum Tax, similar to gains exempt under an existing LCGE claim. 

The measure applies to shares issued on or after November 5, 2026 and before 2037. 

Canada Growth Incentive – rollover for investments in small businesses 

In this second component of the CGI, Budget 2026 amends the criteria to defer capital gains realized on the disposition of eligible small business corporation (ESBC) shares where the proceeds from the disposition are used to acquire replacement ESBC shares. 

This measure extends the period to acquire replacement ESBC shares to the year of disposition and the three following calendar years. The replacement period could be extended for up to five years where, within the initial three-year period, the investor enters into an agreement with an ESBC to provide upfront capital in return for shares to be issued at a future date. 

If the proceeds aren’t invested in replacement shares within the replacement period, the gain would become taxable and interest would apply at a prescribed rate from the balance-due day for the year of disposition to the last day of the taxation year in which the gain is taxed. 

The proposed amendments would reduce the active business asset test requirement throughout the period the individual owned the shares. The “all or substantially all” threshold would still need to be met at the time the shares were issued and time the shares were disposed of.  

These measures will apply to qualifying dispositions that occur on or after January 1, 2027.  

Expansion of the intergenerational farm and fishing property rollover  

Budget 2026 expands the intergenerational transfer rollover available for certain farming and fishing property by expanding eligibility to transfers made to a taxpayer’s niece, nephew, grandniece, or grandnephew, as well as the taxpayer’s spouse or common-law partner. 

Trust distributions to non-residents  

Budget 2026 expands the anti-avoidance rule governing the distribution of trust assets to non-resident beneficiaries. Under the proposed amendments, a trust will be denied tax deferred rollover benefits if it distributes property to a Canadian corporation or partnership where any share or interest is held, directly or indirectly, by a non-resident. The measure applies to distributions occurring on or after November 5, 2026. 

Currently, while personal trusts are generally prohibited from transferring property to non-resident beneficiaries on a tax-deferred basis, they can technically achieve a similar economic result by distributing assets to a Canadian resident corporation or partnership that is owned, directly or indirectly, by a non-resident.  

Although such arrangements are already subject to mandatory disclosure rules as designated notifiable transactions and the CRA has previously discussed the potential application of the General Anti-Avoidance Rule (GAAR) to these transactions, the proposed changes aim to eliminate this planning entirely. 

Foreign income verification statement–Form T1135  

The threshold for filing Form T1135, foreign income verification statement will increase. Under this measure, taxpayers will only be required to file if they own specified foreign property valued at $200,000 or more (from $100,000). The threshold for simplified reporting is also increased to under $500,000 (from $250,000). 

These measures apply to taxation years or fiscal periods ending after 2026.

Objection to assessments  

The general deadline for filing a notice of objection will be extended to one year (from 90 days) after the notice of assessment is sent. For individuals and graduated rate estates, the deadline would be the later of one year after the assessment is sent and two years after the filing due date for the taxation year. 

However, these new deadlines would be hard deadlines, as the existing ability to apply for an extension of time would be eliminated. Currently, a taxpayer that misses the 90-day deadline has another year to seek an extension, which is granted by the CRA in almost every case (as noted in the budget). As a result, most taxpayers effectively have 15 months to object. Under the proposed rules, that additional extension period would no longer be available.   

The new rules applies to assessments or determinations sent on or after the day that is three months after Royal Assent.

Deductibility of expenses against commission income  

Rules that prevent commission employees from deducting travel and motor vehicle expenses under the general employee provisions when they also claim expenses under the commission-employee rules will be eliminated. 

This would allow a commission employee to claim travel or motor vehicle expenses in addition to other employment expenses up to the amount of their commission income. 

This measure applies to the 2027 and subsequent taxation years.

Excess corporate holdings regime for private foundations  

Budget 2026 eliminates the excess corporate holdings regime for private foundations. This measure would give private foundations the ability to hold more shares of a corporation as long as they didn’t acquire control of a corporation similar to the restriction currently in place for public foundations. Under the current rules, a private foundation generally cannot, together with all relevant persons, hold more than 20% of a class of shares of a corporation. Where the combined holdings exceed 20% and the foundation itself holds more than 2% of the class, the foundation may be required to dispose of excess shares within a specified period.  This measure will apply for taxation years beginning on or after January 1, 2027 .

Mineral Exploration Tax Credit and Critical Mineral Exploration Tax Credit 

The budget extends eligibility for the Mineral Exploration Tax Credit (METC) and Critical Mineral Exploration Tax Credit (CMETC) for five years to flow-through share agreements entered into on or before March 31, 2032. These credits were previously set to expire on March 31, 2027.  
  
The METC is equal to 15% of the specified mineral exploration expenses incurred in Canada and renounced to flow-through share investors. The CMETC is equal to 30% of specified critical mineral exploration expenses incurred in Canada and renounced to flow-through share investors. 

Instalment payments for individuals and corporations 

The instalment threshold increases to tax balances of $7,500 (from $3,000) for corporations and individuals residing outside of Quebec, and to $4,500 (from $1,800) for individuals who reside in Quebec. These thresholds would be indexed to inflation and rounded to the nearest $500. The threshold would need to be exceeded for the current taxation year and any one of the preceding two taxation years for an instalment requirement to exist. 

The budget also allows individuals whose primary source of income is from a business to make a single annual instalment payment, instead of quarterly instalments. The single annual instalment amount would be two-thirds of their combined federal and provincial net tax owing for the year, and the payment would be due by December 31. 

This measure would apply to taxation years that begin on or after January 1, 2028. 

Build Canada Workers Benefit

Budget 2026 enhances the refundable Canada Workers Benefit and renames it the Build Canada Workers Benefit. Effective for 2027, the phase-in threshold will be reduced to $500 (from $3,000) and the maximum benefit amounts will be increased to $1,859 for single individuals (from $1,709) and $3,143 for families (from $2,943), while adjusting phase-out thresholds to maintain the same income level at which the benefit is fully phased out. The proposal also adjusts the phase-in threshold for the disability supplement to $200 (currently $1,150).  Additionally, advance payment of the current benefit will be reduced to 25% of the prior year’s entitlement (from 50%) and eliminated entirely for 2028 and later years. 

Canada Caregiver Credit 

The Canada Caregiver Credit (CCC) will become a refundable tax credit. This change is designed to ensure that eligible caregivers are entitled to the credit even if it exceeds their taxes that would otherwise be payable. The maximum amounts and income thresholds for the refundable credit will be indexed to inflation. 

This measure applies to the 2027 tax year and subsequent taxation years.

Medical Expense Tax Credit and Disability Supports Deduction

The Medical Expense Tax Credit (METC) and the Disability Supports Deduction (DSD) will be simplified. These changes aim to reduce the administrative burden on taxpayers by removing certain documentation requirements and introducing optional flat-rate amounts for specific expenses.  

The requirement for a prescription for certain expenses incurred exclusively for medical purposes and certain expenses incurred for non-medical purposes will be removed. Certification of the individual’s medical condition will still be required for certain expenses. 

Budget 2026 also introduces optional flat amounts for three categories of expenses, allowing taxpayers to choose between claiming the flat amount or itemizing actual costs. This eliminates the need to track incremental costs or retain receipts for the claimed amount. 

• Gluten-free food ($1,000): Individuals with celiac disease can claim a flat $1,000 for incremental gluten-free food costs. This measure applies to the 2026 and subsequent tax years. 
• Incontinence products ($500): A flat $500 is available for expenses related to incontinence products, where the need is certified by an authorized medical practitioner. This measure applies to the 2027 tax year and subsequent years. 
• Service dogs ($2,000): A flat $2,000 is available for the care and maintenance of a qualifying service dog. Notably, the cost of acquiring the dog can still be itemized and claimed separately in addition to the flat amount. This measure applies to the 2027 tax year and subsequent years. 

Optional flat amounts for personal income tax deductions and credits.

The budget introduces optional flat amounts for certain personal income tax deductions and credits to reduce the need for individuals to keep receipts and itemize expenses. 

The deductions and credits eligible for this treatment include: 

• Moving expense deduction: $1,000 flat amount 
• Clergy residence deduction: $1,000 per month to a maximum of $12,000 per year 
• Labour mobility deduction for tradespeople: $1,500 per year 
• Home accessibility tax credit: $1,000 per year 
• Adoption expense tax credit: $1,200 per adopted child in the year for which adoption is completed 

Certain criteria and limitations will apply to each of the amounts. 

These measures apply to the 2027 and subsequent taxation years. 

Volunteer Firefighters and Search and Rescue Volunteers Tax Credit  

The existing Volunteer Firefighters Tax Credit and the Search and Rescue Volunteers Tax Credit will be combined into a single 14% non-refundable Volunteer Firefighters and Search and Rescue Volunteers Tax Credit. Currently an individual qualifying for both credits may only claim one. The new credit is calculated on an amount of $6,000. Both eligible volunteer firefighter and search and rescue services would count towards the 200-hour requirement for the combined credit.  

This measure applies to the 2027 tax year and onwards.

Apprentice vehicle mechanics’ tools deduction 

Budget 2026 allows apprentice vehicle mechanics to deduct the cost of new eligible tools to the extent that the total cost of the tools exceeds the Canada Employment Credit amount. However, apprentice vehicle mechanics’ tools will no longer be eligible for the deduction for tradespeople’s tools expenses. Additionally, the amount of the deduction is no longer reduced by an amount based on the apprentice’s income or by the amount available for the deduction for tradespeople’s tools expenses. 

These measures apply to 2027 and subsequent taxation years.

Deductibility of expenses by employed artists   

Qualifying artists will be able to deduct expenses up to the amount of their employment income for the year from specified artistic activities. 

The deduction is currently limited to the lesser of $1,000 and 20% of the artist’s employment income for the year  from specified artistic activities. 

This measure applies to the 2027 and subsequent taxation years. 

Registered Disability Savings Plan  

The measure that allows a qualifying family member of an individual eligible for the Disability Tax Credit to open a Registered Disability Savings Plan and be the plan holder will become permanent.

Canada Groceries and Essentials Benefit Supplement  

Budget 2026 introduces a one-time, non-taxable supplement equal to 50% of the maximum Canada Groceries and Essentials Benefit (CGEB), to be paid in early 2027. The maximum supplement will be $223 per adult and $117 per child. The phase-in and phase-out rates will be adjusted to 6% and 15%, respectively, to help ensure eligibility phases in and out at the same income levels as the existing benefit. 

The CGEB is an inflation-indexed and income-tested benefit designed to provide support to lower- and modest-income Canadians.

Lump-sum thresholds for periodic payment of benefits  

Budget 2026 increases the lump-sum payment thresholds for the Canada Child Benefit (CCB) and Canada Groceries and Essentials Benefit (CGEB) to $50 per month and $70 per quarter, respectively for benefits paid after June 2027.  

It also increases the same threshold to $70 per payment for the Advance Canada Workers Benefit for the 2027 taxation year only. 

In addition, beginning in July 2028, the CCB and CGEB thresholds will be indexed annually to inflation.

Scholarship, fellowship, and bursary income  

Budget 2026 extends the eligibility for an individual to claim a full or partial tax exemption for scholarship, fellowship, and bursary income to allow a program to qualify even where a student received financial assistance from an arm’s-length person.  

This measure applies to the 2027 and subsequent taxation years. 

Northern residents deductions 

Restrictions on the residency deduction portion of the northern residents deduction will be eliminated. Currently,  the deduction is limited to 20% of the individual’s net income and is reduced by the employer-provided benefits for board and lodging. Budget 2026 also eliminates the limitation imposed on the travel portion of the deduction for employer-provided travel benefits or the portion of the $1,200 standard amount allocated to the trip. 

These measures would apply to the 2027 and subsequent taxation years. 

This measure will be effective for transfers that occur on or after January 1, 2027.

Registered Retirement Savings Plan 

Budget 2026 announces the government’s intention to merge the main features of the Registered Retirement Savings Plan (RRSP) and Registered Retirement Income Fund (RRIF) into a single “RRSP for life”. This measure eliminates the need to convert an RRSP to a RRIF at age 71 but would not change the requirement for individuals over the age of 71 to make minimum withdrawals. 

Issues under consideration include: 

• Inclusion of a “successor holder” (i.e. a spouse or common law partner) feature similar to other registered vehicles. 
• How the RRSP indirect “rollover” provisions that apply on death could be updated to permit direct tax-free transfers to qualified registered vehicles of qualifying survivors. 

Interested parties are invited to send their views to RRSP-consultation-REER@fin.gc.ca by January 8, 2027. 

Disclosure of tax debt to credit bureaus  

The CRA will be allowed to disclose tax debts to credit bureaus where the debt exceeds $50,000, all objection and appeal rights of the taxpayer have been exhausted, the taxpayer receives at least 30 days’ written notice, and the CRA has made reasonable collection efforts. 

This measure will take effect upon Royal Assent. 

Information sharing–pension administrators  

The CRA will be permitted to confirm to the administrator of a registered pension plan that a plan member is deceased. This measure will take effect upon Royal Assent. 

Registered Pension Plans  

Budget 2026 specifies express tax consequences where the CRA revokes the registration of a Registered Pension Plan (RPP), including: 

• 10% tax on the fair market value of the plan’s property immediately before revocation, subject to CRA waiver or cancellation. 
• Deemed to become a retirement compensation arrangement (RCA).  
• Net property (fair market value less any revocation tax assessed) deemed as a contribution to the RCA, subject to a 50% refundable tax. 

These measures apply to revocations of RPPs after 2026. 

The definition of an Individual Pension Plan (IPP) will be expanded to include defined benefit RPPs where all members are related to a participating employer or do not deal at arm’s length with a member who is related to a participating employer. This change would apply as of January 1, 2027. 

IPPs will also be subjected to the same anti-avoidance rules currently applicable for other registered plans held by one individual (which could result in a tax if the IPP is offside) and imposes new conditions requiring IPP administrators to take steps to reduce excessive surpluses if the value of an IPP’s assets exceeds 200% of its pension liabilities. These measures apply as of January 1, 2028.