2026 Federal Budget

Personal tax measures

Income tax return filing and balance-due dates for individuals

Budget 2026 proposes to change the T1 filing and balance-due dates to May 15 for all individuals (including self-employed individuals and their spouses or common-law partners). These measures would apply to the 2027 and subsequent taxation years.

Tax instalment changes

Budget 2026 proposes to increase the tax instalment thresholds from $3,000 to $7,500 for corporations and individuals resident outside Quebec. The threshold would increase from $1,800 to $4,500 for individuals resident within Quebec. These thresholds would be indexed to inflation to the nearest $500.

Individuals whose primary source of income is from a business (including professional or commission income) would also have the option of making a single instalment payment equal to two-thirds of their combined federal-provincial net tax owing by December 31.

These measures would apply to the 2028 and subsequent taxation years.

Optional flat-rate amounts for deductions and credits

To simplify tax filing, budget 2026 proposes allowing taxpayers to claim flat amounts instead of tracking and itemizing actual expenses for certain deductions and credits:

• Moving expenses: $1,000.
• Clergy residence deduction: $1,000 per month.
• Labour mobility deduction: $1,500.
• Home accessibility tax credit: $1,000.
• Adoption expense tax credit: $1,200 per adopted child.

These amounts would apply beginning 2027 and may be subject to certain conditions.

Medical and disability-related expenses

Budget 2026 eases the documentation requirements for certain expenses eligible for the medical expense tax credit (METC).

Additionally, a flat-amount option would be available for certain expenses qualifying for the METC or disability supports deduction:

• Gluten-free food for individuals with celiac disease: $1,000 annually, beginning in 2026.
• Incontinence products: $500 annually, beginning in 2027.
• Service dog expenses: $2,000 annually, excluding acquisition costs, beginning in 2027.  Note, the cost incurred to acquire a service dog could be itemized and claimed separately.

Registered Retirement Savings Plan (RRSP) and Registered Retirement Income Fund (RRIF) modernization

Budget 2026 announces the government's intention to modernize retirement savings by combining the core features of RRSPs and RRIFs into a single "RRSP-for-life framework”. This would eliminate the requirement to convert an RRSP to a RRIF by age 71, although mandatory minimum withdrawals would continue after age 71. 

Specific issues under consideration include:

• Successor holder: allowing a spouse or common-law partner to become the successor holder, potentially permitting the RRSP to remain open until the successor holder’s death.
• Direct tax-free transfers: replacing the current indirect RRSP rollover provisions that apply on death with rules to permit direct tax-free transfers to qualified registered vehicles of qualifying survivors.
• Locked-in accounts: consequential amendments may be required for prescribed locked-in RRSPs and RRIFs to align them with the new framework.

The proposal is primarily intended to simplify the administration and estate planning of registered retirement assets. It remains subject to consultation, and no implementation date has been announced.

Individual Pension Plans (IPPs)

IPPs are subject to additional conditions that do not apply to other RPPs. Some plans seek to avoid these conditions by adding related members so that the plan exceeds the three-member threshold for IPP status.

Budget 2026 proposes to expand the IPP definition to include such defined benefit RPPs, where all members are either related to the participating employer or do not deal at arm’s length with any member related to the participating employer. 

This measure would apply as of January 1, 2027.

Budget 2026 also proposes to subject IPPs to the same advantage rules, non-qualified investment rules and prohibited investment rules that currently apply to other registered plans of controlling individuals. This measure would apply as of January 1, 2028.

Qualifying family member rule for RDSPs made permanent

Every Registered Disability Savings Plan (RDSP) has a beneficiary (the person with disabilities) and a holder (the person who manages the plan). If establishing an RDSP for a mentally capable adult beneficiary, the beneficiary must be the holder. If the beneficiary’s capacity is in doubt, a qualifying family member (QFM), such as a spouse, common-law partner, parent or adult sibling, may act as holder. In all other cases, the only eligible holder is someone who is legally authorized to act for the beneficiary, something which may require formal financial guardianship.

The QFM rule was set to expire at the end of 2026. Budget 2026 proposes to make it permanent.

Business income tax measures

Canada Growth Incentive capital gains exemption

Budget 2026 proposes a new Canada Growth Incentive (CGI) capital gains exemption aimed at encouraging investment in Canadian businesses. 

A qualifying individual could claim an exemption on capital gains realized on the sale of qualifying shares up to a $15 million limit for each individual, in respect of each qualifying business. Trusts would not qualify.

Generally, the shares must be newly issued by a Canadian-controlled private corporation solely for cash or in exchange for employment services. The combined carrying value of the assets of the corporation and related corporations must not exceed $100 million immediately before and after issuance, and the shares must be held for at least 36 consecutive months immediately before disposition.

Various businesses and sectors, including professional and consulting services, agriculture, fishing, forestry, mining, financial services, insurance and real estate, would not qualify.

The exemption would apply to qualifying shares issued on or after budget day and before 2037.

Exempt gains would remain subject to a 30% inclusion rate for Alternative Minimum Tax purposes. Claiming the CGI could restrict use of the Lifetime Capital Gains Exemption on shares of the same corporation.

Canada Growth Incentive: rollover for investments in small businesses

Budget 2026 proposes significant enhancements to the capital gains rollover available when an individual disposes of qualifying small business corporation shares and reinvests the proceeds in shares of another eligible small business corporation. The rollover allows the individual to defer all or part of the capital gain that would otherwise arise on the disposition.

Budget 2026 proposes extending the reinvestment period to encompass the year of disposition and the three following calendar years. Individuals could receive an additional two years of tax deferral when capital is committed upfront within the initial three-year period, but shares are issued later. If the shares are not issued by the end of the fifth year, the deferred capital gain would become taxable.

The proposal also eases the active-business asset test during the holding period from “all or substantially all” to “primarily”. The changes would apply to qualifying dispositions occurring on or after January 1, 2027.

Expansion of the Intergenerational Farm and Fishing Property Rollover

Currently, certain farm and fishing property can be transferred to children, grandchildren or great-grandchildren on a tax-deferred basis. Budget 2026 proposes expanding these rules to include transfers to nieces, nephews, grandnieces and grandnephews, effective for qualifying transfers on or after January 1, 2027.

Tax elections

Budget 2026 proposes to simplify certain corporate tax elections and agreements by removing the requirement to file a certified copy of a directors’ resolution or authorization when making certain elections, such as a capital dividend election. The measure would apply to elections and agreements made on or after royal assent.

Corporate non-capital loss transfers

Budget 2026 announces a consultation on allowing current-year non-capital losses to be transferred between eligible Canadian-resident corporations within a qualifying wholly owned corporate group through a joint election. The proposed rules could provide greater flexibility to use losses within a corporate group.

Other measures

Increase to Foreign Income Verification Statement filing thresholds (T1135)

Budget 2026 proposes to reduce foreign-property reporting requirements under Form T1135. For taxation years and fiscal periods ending after 2026, the cost amount of specified foreign property that triggers T1135 reporting would increase from $100,000 to $200,000. In addition, the threshold for using the simplified T1135 reporting method would increase from less than $250,000 to less than $500,000. 

This measure is expected to eliminate the requirement for approximately one third of taxpayers to file Form T1135 with CRA.

Indirect trust distributions for non-residents of Canada

When a Canadian trust distributes capital property to certain beneficiaries, no gain is realized on the transfer, and the beneficiary will hold the asset at cost. This tax-deferred rollout is not allowed for non-resident beneficiaries.

Budget 2026 looks to close a current anti-deferral loophole where trust property is distributed to a corporation or partnership resident in Canada that has non-resident shareholders or partners, thus allowing for the rollout to occur at cost. The budget proposes to deny the tax-deferred rollout for the Canadian entity where there is any non-resident ownership (directly or indirectly). There is no de minimis for ownership percentage. These rules are to apply for any distributions on or after budget day. 

Previously proposed measures

The government confirmed its intention to proceed with the Productivity Mega Deduction announced on September 15, 2026.

The government has also indicated a second tranche of tax simplification measures will be announced in the Spring Economic Update 2027.