The fiscal landscape of 2026 represents a watershed moment for Canadian businesses, characterized by a definitive pivot toward productivity-led growth. For companies preparing to file their 2025 tax returns and adjust their strategies for the 2026 fiscal year, this guide provides an overview of the most important recent tax changes to be aware of.
Capital Gains Increase Reversed
In early 2025, the Minister of Finance announced a dramatic reversal of previously proposed measures that would have increased the capital gains inclusion rate from one-half to two-thirds.
As of the 2026 tax year, the capital gains inclusion rate remains fixed at 50% for all taxpayers, including individuals, corporations, and trusts. This decision has significant implications for corporate investment strategies, as it removes the anticipated 8.5% to 10% tax cost increase that would have applied to gains realized within a Canadian-controlled private corporation (CCPC).
For corporations that had previously adjusted their filing positions or accelerated dispositions in anticipation of the higher rate, the Canada Revenue Agency (CRA) has established a mechanism for corrective reassessments to reverse the application of the two-thirds rate and restore the 50% inclusion level.
Expanded Lifetime Capital Gains Exemption
While the general inclusion rate remains at its historical baseline, the government proceeded with a significant expansion of the Lifetime Capital Gains Exemption (LCGE). Effective for dispositions occurring on or after June 25, 2024, the LCGE was increased to $1,250,000, acknowledging the upward pressure of inflation on business valuations. From 2026 onwards, the government has confirmed that the exemption limit will once again be indexed to inflation.
Canadian Entrepreneurs Incentive Cancelled
The Canadian Entrepreneurs’ Incentive (CEI), which was originally proposed in Budget 2024 to provide a reduced 33.3% inclusion rate for eligible business owners, has been officially cancelled in the November 2025 Budget. As the primary capital gains tax hike it was meant to offset was never implemented, the government determined the incentive was no longer necessary.
SR&ED Program Enhancements
The 2026 tax year marks the most significant overhaul of the Scientific Research and Experimental Development (SR&ED) program in over a decade:
Increased Expenditure Limit for Enhanced Credits – The annual expenditure limit for the enhanced 35% refundable Investment Tax Credit (ITC) has been increased to $6M. For a qualifying CCPC, this expansion translates into a potential annual cash refund of up to $2.1M for qualifying SR&ED activities.
Adjusted Phase-out Thresholds and Expanded Eligibility – The enhanced credit now begins to phase out when a corporation’s taxable capital employed in Canada exceeds $15 million, and it is fully eliminated only when capital reaches $75 million.
Inclusion of Public Corporations – The 35% refundable SR&ED credit has been expanded to include eligible Canadian public corporations. This ensures that innovative companies can maintain access to refundable capital even after they scale beyond private status, provided they meet specific revenue and residency criteria.
Restoration of Capital Expenditure Eligibility – The government has restored the eligibility of capital expenditures for SR&ED ITCs. Since 2014, SR&ED claims have been restricted to current expenditures (labour and materials). Effective for property acquired after December 15, 2024, capital assets used 90% or more for R&D are once again eligible for tax credits and immediate deductions.
Manufacturing and Productivity Incentives
Manufacturers will benefit from powerful temporary measures designed to revitalize Canada’s manufacturing base through the “Productivity Super-Deduction” introduced in Budget 2025:
Immediate Expensing for M&P Buildings and Equipment – For manufacturers, the most impactful change is the introduction of a temporary 100% immediate expensing provision for the cost of eligible manufacturing and processing (M&P) buildings and equipment. This measure applies to property acquired on or after November 4, 2025, and first used before 2030.
Accelerated CCA for LNG and Zero-Emission Tech – The government has also reinstated accelerated Capital Cost Allowance (CCA) rates for liquefied natural gas (LNG) equipment and related buildings. Facilities in the top 25% for emissions performance qualify for a 30% rate, while those in the top 10% can access an enhanced 50% rate on equipment.
Clean Economy Investment Tax Credits (ITCs)
A central pillar of the 2026 fiscal strategy is the suite of refundable Clean Economy ITCs. Core ITCs to be aware of include:
- Clean Technology ITC: Offers a 30% refundable credit for renewable energy generation (solar, wind), stationary electricity storage, and high-efficiency heat pumps.
- Clean Technology Manufacturing ITC: Provides a 30% refundable credit on machinery used to manufacture zero-emission vehicles, batteries, or process critical minerals. The list of eligible critical minerals has been expanded to include bismuth, antimony, gallium, germanium, and others.
- CCUS ITC: Rates of 60% for direct air capture and 50% for other capture equipment have been extended through 2035 to provide long-term certainty for industrial projects.
Limitations on Tiered Corporate Structures
Effective for taxation years beginning on or after November 4, 2025, the government has limited the deferral of Part IV tax on investment income when it is earned through tiered affiliated corporations with mismatched year-ends. This prevents corporations from indefinitely postponing the tax on dividend income by flowing it through a chain of companies with staggered fiscal dates.
CRA Modernization and Compliance Shifts
The 2026 tax year marks the arrival of a “digital-first” CRA, characterized by the integration of AI and the discontinuation of traditional manual services.
SR&ED Approvals – Starting April 1, 2026, the CRA will launch an Elective Pre-Claim Approval process for SR&ED technical eligibility. This allows businesses to obtain validation before incurring major costs, reducing review times for pre-approved projects to 90 days. Additionally, the CRA is increasing its use of AI to triage claims, prioritizing “low-risk” files for faster refunds while demanding higher-quality documentation synchronized with financial ledgers.
Administrative Compliance and Security – Beginning in February 2026, all CRA account users must have a backup multi-factor authentication (MFA) option on file (e.g., passcode grid or authenticator app) or risk losing access to corporate portals.
Digital Slips – The CRA has discontinued the option to request paper copies of T4, T4A, and T5 slips by phone; these must now be accessed via the digital portals.
Voluntary Disclosures Program (VDP) Changes
Effective as of October 1, 2025, the CRA has implemented changes to the VDP that make it more accessible for businesses to correct previous filing errors and omissions. The rigid “General” and “Limited” relief categories have been replaced with two new application tracks based on the timing of the disclosure:
Unprompted Disclosures – If a business comes forward before any CRA communication regarding the issue, it qualifies for 100% penalty relief and 75% interest relief. This is a massive improvement for taxpayers who identify unintentional errors.
Prompted Disclosures – Even if the CRA has already sent an “education letter” or a notification about a specific compliance issue, a business can now still apply for relief. These “prompted” applications are eligible for up to 100% penalty relief and 25% interest relief.
Final Thoughts
The 2026 tax environment for Canadian businesses is one of unprecedented opportunity. The resolution of the capital gains controversy provides the stability needed for growth, while the massive expansion of the SR&ED and productivity incentives offers a roadmap for industrial modernization. By aligning capital planning with these new tax changes, SME owners can ensure their enterprises are not only compliant but strategically positioned for the next decade of Canadian economic evolution.
This article was written by NVS Professional Corporation, your knowledgeable Barrie, Markham and Burlington accountants. The content is intended as a general guide for informational purposes only. For specialist advice tailored to your specific situation, please reach out to our expert team.
About the Author: Vick Vij, CPA, CA, LPA, is a Founding Partner and Head of Tax at NVS Professional Corporation, with over 25 years of experience in Canadian tax and financial advisory. Before co-founding NVS, Vick built his career at a Big Four multinational accounting firm, developing the depth of expertise that now shapes his strategic approach to tax planning for businesses across Canada. As a Chartered Professional Accountant and Licensed Public Accountant, Vick advises entrepreneurs, corporations, and investors on corporate tax structuring, compliance, cross-border real estate, and capital asset strategy. His thought leadership cuts through the complexity of Canadian tax law, delivering practical, actionable insights that help business owners and finance professionals stay ahead of their obligations and make smarter financial decisions.
