Pillar Two: Canada’s Global Minimum Tax Act explained

Updated: July 15, 2026

Canadian entities and Canadian branches of certain large multinational enterprise (MNE) groups may have additional reporting requirements—and may be subject to a top-up tax—under Canada’s global minimum tax (GMT) rules.

The GMT rules are intended to ensure certain large MNE groups pay a minimum effective tax rate (ETR) of 15%, determined on a jurisdiction-by-jurisdiction basis, on profits earned by one or more group entities in each country. If the ETR for any country is below 15%, generally a top-up tax applies to make up the difference, subject to a substance-based income exclusion. This exclusion is based on a percentage of the group’s tangible assets and payroll costs in the country.  

Canada’s GMT rules include: 

• A top-up tax under the income inclusion rules (IIR) which may apply to Canadian-based parent entities with foreign subsidiaries.
• A qualified domestic minimum top-up tax (QDMTT) which may impose a tax on Canadian-sourced profits.
• A backstop tax under the undertaxed profits rule (UTPR), where neither the IIR nor QDMTT applies, (introduced in Bill C-31).  

It’s important to note that even if there’s no GMT liability in Canada, an in-scope MNE group will have filing or notification obligations with the CRA.  

The GMT rules are generally effective for fiscal years that begin on or after December 31, 2023, and the first returns, notifications and potential taxes are due as early as June 30, 2026. The UTPR applies to fiscal years that begin on or after December 31, 2025.

To help determine the impact of the new GMT rules on your business, and assist with filing returns under GMT Act, contact your local advisor.

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Is my business subject to the GMT rules?

Certain large MNE groups generally fall within the scope of Canada’s GMT rules for a particular fiscal year if the following conditions are met:  

• The MNE group has at least one entity or permanent establishment located in Canada (in addition to a foreign country). 
• The revenue reported in the group’s consolidated financial statements is €750 million or more in at least two of the four fiscal years immediately preceding the particular fiscal year.
• The group isn’t composed entirely of excluded entities (such as non-profit organizations, pension funds, ultimate parent entities that are real estate investment vehicles or investment funds, amongst others). 

The €750 million revenue threshold is prorated for short fiscal years.    

How does the tax work?  

How is the top-up tax calculated?

To determine if the top-up tax applies for a particular fiscal year, in-scope MNE groups must first calculate their ETR in each country in which they operate. 

To calculate its ETR for a particular jurisdiction, an MNE group would divide its “adjusted covered taxes” by its “net GloBE income” for that jurisdiction. These inputs are based on the relevant entities’ financial statements that are used in the ultimate parent entity’s consolidated financial statements. These are further subject to various adjustments outlined in the GMT rules. This means the top-up tax can apply in jurisdictions where the statutory tax rate exceeds 15% (e.g., due to permanent book-to-tax differences or tax incentives not permitted under the GMT rules).      

Which entities pay the top-up tax?

Under Canada’s GMT rules, the top-up tax is collected in one of the following ways:

• Qualified domestic minimum top-up tax (QDMTT): Entities and permanent establishments located in Canada are generally subject to a domestic minimum top-up tax, where the qualifying MNE group’s Canadian ETR is below 15%. The QDMTT is imposed in priority to the IIR to generally allow Canada primary taxing rights to collect a top-up tax on Canadian-sourced income.
• Income inclusion rule (IIR): The ultimate parent entity (or an intermediate parent in certain cases) is generally subject to the top-up tax in respect of income earned in a foreign country, where the qualifying MNE group’s ETR in respect of that country is below 15%. In cases where the ultimate parent entity (or intermediate parent entity) is resident in Canada, Canada should impose the IIR. However, if that foreign country has a QDMTT in place, tax under the IIR is generally deemed to be nil for this purpose. 
• Undertaxed profit rule (UTPR): The UTPR is a backstop rule that allows Canada to collect a top-up tax (based on a formulaic allocation) from in-scope MNE groups with operations in Canada, where an IIR or a QDMTT doesn’t apply.

Is any relief available under the GMT rules?  

Canada’s GMT rules include certain safe harbour provisions that provide temporary or permanent relief in certain circumstances. These safe harbours generally mirror those in the GloBE model rules. If a safe harbour applies, an election must be filed as part of the annual GloBE information returns. The following safe harbours are available under the GMT rules:

• Permanent QDMTT safe harbour: This rule generally deems the top-up tax to be nil for a particular entity in the MNE group if that entity is in a jurisdiction with an acceptable QDMTT in place and a valid election is filed. 
• Non-material constituent entity (NMCE) safe harbour: This rule generally deems the top-up tax to be nil for an MNE group’s NMCEs for a particular jurisdiction, provided certain conditions are met and a valid election is filed. An NMCE is generally an entity that isn’t consolidated in the ultimate parent entity’s consolidated financial statements solely based on size or materiality.  
• Transitional country-by-country reporting safe harbour: This rule generally deems the top-up amount to be nil for certain low-risk jurisdictions and simplifies calculations for that jurisdiction if certain requirements are met and a valid election is filed. This temporary relief is only available for fiscal years that begin before January 1, 2027 and end before July 1, 2028. Bill C-31 proposes to extend this relief for fiscal years commencing before January 1, 2028 and end before July 1, 2029. 

Note that, in January 2026, the OECD released administrative guidance that, proposed a new permanent simplified safe harbour, intended to replace the transitional country-by-country reporting safe harbour, among others. However, the Government of Canada hasn’t yet released draft legislation.

Additional safe harbours are available for fiscal years of a qualifying MNE group that begin on or after January 1, 2026 (introduced in Bill C-31):

• Side-by-side (SbS) safe harbour: This rule provides that entities under an MNE group are excluded from the top-up tax amount under the IIR or UTPR where the ultimate parent entity is located in a qualifying SbS jurisdiction that has been designated by the Inclusive Framework to have a qualified SbS regime. Specifically, the SbS safe harbour applies primarily to U.S.- parented MNE groups, with the result that Canada wouldn’t apply its IIR or UTPR to the group’s foreign income. However, Canada’s QDMTT may still apply to Canadian profits.
• Ultimate parent entity (UPE) safe harbour: This rule applies where the UPE is in a qualifying UPE jurisdiction and the MNE group elects to apply the safe harbour. Where applicable, Canada is precluded from applying the UTPR to income arising in the UPE jurisdiction.  

Additionally, eligible MNE groups in the “initial phase of international activity” may be relieved from Canada’s QDMTT for up to five years under Canada’s GMT rules, provided certain conditions are met and no foreign IIR applies.  

These safe harbour rules are complex. We can help you navigate these rules and determine whether they apply to your business. 

What are the filing obligations?

GMT returns, notifications, and any taxes owing are generally due June 30, 2026 or 15 months after the particular fiscal year end (whichever is later). For the first year of filing, an MNE group may have an extended filing deadline of 18 months after the fiscal year-end, where certain conditions are met. 

Where required, taxpayers must submit these returns and notifications to the CRA electronically as structured data files, either directly or through third-party tax software providers. 

GloBE information return

The GloBE information return (GIR) discloses certain information on the MNE group (e.g., identification of constituent entities, overall corporate structure, GloBE calculations, elections made or revoked, appointment of any designated filing entity, and safe harbours) in accordance with the OECD's standardized return.

Generally, if the MNE group has a designated filing entity located in Canada, that entity must file the GIR with the CRA. Otherwise, the ultimate parent entity of the MNE group (or the intermediate parent in certain cases) must file the GIR, if it’s located in Canada. If the ultimate parent entity or designated filing entity isn’t located in Canada and the GIR is not filed by a qualifying foreign filing entity, then generally each entity in the MNE group located in Canada must file the GIR. If there’s more than one such entity, the group can choose a designate to file the return.

A qualifying foreign filing entity of an MNE group is the ultimate parent entity or designated filing entity located outside of Canada that is obligated to file the GIR in their respective filing jurisdiction. That filing jurisdiction must have a qualifying competent authority agreement with Canada which provides for the automatic exchange of these returns.

GIR notification 

If a qualifying foreign filing entity files the GIR, each entity of the MNE group that’s located in Canada must notify the CRA of the identity and jurisdiction of the qualifying foreign filing entity. If more than one entity in Canada is required to make this notification, a designated notification entity may be appointed. 

GMT return 

The separate GMT returns for QDMTT, IIR or UTPR are only required to be filed in Canada if top-up taxes apply in Canada, under the respective rules.

Similar to the GIR, where more than one entity is required to file such a return, the group can designate one such entity to file the respective return, provided they’re resident in Canada.  

Pillar Two (PT) program account

The entity assigned to submit the GIR, GMT Return or GIR notification either on its own behalf or on behalf of other entities with filing obligations in Canada is required to register for a CRA GMT program account—referred to as a PT program account. In addition, every constituent entity that has GMT liability must also register for a PT program account.

What are the non-compliance penalties?

An MNE group that fails to comply with Canada’s GMT rules could be subject to significant penalties. Transitional penalty relief may be available in certain circumstances. 

Each failure to file a GIR or GIR notification by the due date may result in a penalty of $25,000 per month for each complete month the return is late, up to a maximum of 40 months (i.e., $1,000,000). This penalty can also be applied where the GIR is insufficiently completed. Each entity in the MNE group that’s located in Canada is jointly and severally liable for any penalties.

A late-filed GMT return may result in a penalty of 5% of the unpaid tax plus 1% of that unpaid tax multiplied by the number of complete months (up to 12) that the return remains outstanding (with a maximum penalty of 17% of the unpaid balance).

Additional penalties may apply for repeated failure to file, false omissions, or failing to comply after receiving a notice. While the range of penalties are broad, it should be noted that certain sections of the GMT Act may result in personal fines and possible imprisonment for various offences, including failure to file, keep records, pay and even comply with rules in the GMT Act. 

The CRA may also apply the general anti-avoidance rule (GAAR) and the new GAAR penalty to “abusive” transactions undertaken to avoid global minimum tax. 

Other compliance considerations

To comply with the GMT rules, an MNE group is required to make certain calculations for every country in which it operates. This means impacted MNE groups must familiarize themselves with the complex rules, as well as foreign tax rules (since many other jurisdictions have adopted Pillar Two), and coordinate across multiple countries to determine where top-up taxes are required. 

Of note, given that the QDMTT is imposed in the local jurisdiction, and takes precedence over the IIR that’ is otherwise applicable to a parent entity, the GMT rules may result in a Canadian tax liability of Canadian-based entities in MNE groups. Accordingly, foreign head-offices may delegate the task of gathering information and determining potential Canadian tax liabilities and filing obligations, under the GMT rules.  

The calculations necessary to comply with the GMT rules (and other similar rules imposed by other jurisdictions) have significant data requirements. As such, MNEs (including persons responsible for Canadian entities within foreign-based MNEs) will need to evaluate their current data, systems, and processes and address any gaps to ensure compliance with the rules. It’s also important to determine if your business is eligible for any safe harbour rules. 

MNE groups should also stay updated on the latest developments, as OECD guidance is expected to remain ongoing and may lead to further amendments to the GMT Act. 

For help determining the impact of these rules on your business, contact us.

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Disclaimer

^{The information contained herein is general in nature and is based on proposals that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice or an opinion provided by Doane Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, specific circumstances or needs and may require consideration of other factors not described herein.}