Bill C-31 implements a range of business tax changes, enhanced rules, and new reporting requirements—reflecting previously announced tax measures and refinements shaped by stakeholder feedback.
What are the key measures in the second budget implementation bill?
Immediate expensing for M&P buildings
Bill C-31 includes a temporary immediate expensing measure for eligible manufacturing and processing (M&P) buildings—including certain additions or alterations to existing buildings—acquired on or after November 4, 2025, and used in a manufacturing process before 2030. M&P buildings under construction on that date may also qualify under certain conditions. The deduction is subject to a gradual phase-out over the 2030 to 2033 period. See our tax alert for more details.
Dividend suspension rules
Bill C-31 amends the refundable dividend tax on hand (RDTOH) refund rules to restrict a private corporation’s ability to obtain an RDTOH refund when it pays a dividend to an affiliated corporation with a later taxation year-end. Exceptions include where sufficient same-character dividends are paid onward through the corporate chain by the payer’s balance-due day. A suspended refund may later be released once sufficient same-character dividends are ultimately paid outside the affiliated or connected corporate group. These rules apply to dividends paid in taxation years that begin on or after November 4, 2025. See our tax alert for more details.
Expansion of the anti-avoidance rules for the 21-year trust deemed disposition
Bill C-31 expands an anti-avoidance rule intended to prevent the deferral or avoidance of the 21-year deemed disposition. Under the existing rule, a trust that receives property from another trust on a rollover basis inherits the transferor trust’s earlier deemed disposition date. The amendment extends this rule to rollover transfers to a beneficiary in which another trust holds a direct or indirect interest at the particular time. This change is effective for property transfers on or after November 4, 2025.
Various amendments to the Global Minimum Tax Act
Canada’s global minimum tax (GMT) rules, are intended to ensure large multinational enterprise (MNE) groups pay a minimum effective tax rate of 15% in each jurisdiction.
Bill C-31 includes updated amendments to the previously proposed undertaxed profits rule (UTPR) and introduces a side-by-side (SbS) safe harbour and the ultimate parent entity (UPE) safe harbour rules, among other changes and new measures to the GMT rules.
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 income inclusion rule (IIR) or a qualified domestic minimum topup tax (QDMTT) does not apply. The updated UTPR applies to fiscal years of a qualifying MNE group that begins on or after December 31, 2025 (rather than December 31, 2024 as originally proposed).
The new SbS safe harbour provides that the top-up tax amount under the IIR or UTPR for each constituent entity and joint venture entity of an MNE group is deemed to be nil where the UPE is located in a jurisdiction that has been designated by the Inclusive Framework to have a a qualified SbS regime. In practical terms, the SbS safe harbour applies primarily to U.S.-parented MNE groups, with the result that Canada would not apply its IIR or UTPR to the group’s foreign income. However, Canada’s QDMTT may still apply to Canadian profits.
The new UPE safe harbour is a more limited measure. Unlike the SbS safe harbour, this rule doesn’t provide a full exemption from IIR or UTPR in respect of the group’s global operations but offers targeted protection for the parent jurisdiction. The UPE safe harbour applies where the UPE is in a jurisdiction that has been recognized by the Inclusive Framework as having a qualified UPE regime, and the group elects to apply the safe harbour. Where applicable, Canada is precluded from applying the UTPR to income arising in the UPE jurisdiction.
Foreign accrual tax and foreign tax credit rules
Bill C-31 also amends the rules governing the determination of foreign accrual tax (FAT) under Canada’s foreign accrual property income (FAPI) regime, as well as the foreign tax credit (FTC) rules. These amendments generally ensure that taxes paid under a foreign domestic minimum top-up tax regime are taken into account in computing FAT and FTCs. This is intended to mitigate potential double taxation in Canada. Notably, these relieving changes apply retroactively to taxation years beginning on or after December 31, 2023, rather than August 15, 2025 as previously proposed.
Crypto-asset reporting framework
This bill implements the Crypto-asset reporting framework which requires crypto-asset service providers resident in Canada or carrying on business in Canada to make detailed disclosure of their customers and their transactions. The reporting requirements apply to the 2027 and subsequent calendar years.
Other notable measures
Other notable measures include changes to:
- Implement automatic federal tax filings for certain low-income individuals so that they’ll receive credits and benefits that might otherwise be unavailable without filing a tax return, applicable to 2025 and subsequent taxation years.
- Allow the CRA to issue a notice of non-compliance where a taxpayer hasn't complied with a requirement or notice to provide information or assistance to the CRA. While the notice is outstanding, a penalty of $50 per day would apply, up to a maximum of $25,000, and the normal reassessment period would be suspended. This is effective upon Royal Assent.
- Expand the circumstances under which the CRA can obtain a compliance order from the courts for failure to provide requested information and impose a new penalty equal to 10% of the aggregate tax payable for each year to which the order relates. This is effective upon Royal Assent.
- Eliminate the exemption from the general debt forgiveness rules for bankrupt corporations, trusts and partnerships. This is effective for bankruptcy proceedings of corporations commenced on or after April 16, 2024, and bankruptcy proceedings of partnerships and trusts commenced on or after August 12, 2024.
- GST/HST measures mainly affecting financial institutions, as well as various other amendments to excise tax legislation.
Bill C-31 includes a variety of tax measures which may impact you, your trust or your business. If you need help navigating these changes or have any questions, our advisors are here to help you.
Contact your local advisor or reach out to us here.
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.
