The Canadian Department of Finance has published a comprehensive package of draft legislative proposals for public consultation, covering a broad range of direct and indirect tax measures.
The consultation includes previously announced Budget 2025 measures, international tax reforms, GST/HST amendments and numerous technical updates to Canada’s tax legislation. Interested stakeholders have until 4 September 2026 to submit comments.
According to the Department of Finance, the proposed measures are intended to improve the clarity and effectiveness of Canada’s tax system, reduce opportunities for tax avoidance, support investment and productivity, and simplify tax administration.
Key Proposed Tax Measures
The consultation package contains several significant proposals affecting both domestic and multinational businesses.
Simplified Transfer Pricing Documentation
Among the most significant proposals are simplified transfer pricing documentation requirements for certain low-risk transactions.
The simplification would apply in four specific circumstances:
- Small taxpayers and partnerships
- Small transfers of tangible property
- Low-value intragroup services
- Small intercompany loan transactions
The objective is to reduce compliance costs while maintaining appropriate transfer pricing documentation standards.
Further Hybrid Mismatch Rules
The Government has also released a second package of legislation addressing hybrid mismatch arrangements.
The proposals continue Canada’s implementation of Action 2 of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project, strengthening the country’s international anti-avoidance framework and further aligning domestic legislation with global standards.
Technical Changes to the Global Minimum Tax Act
The consultation includes additional technical amendments to the Global Minimum Tax Act, refining Canada’s implementation of the OECD Pillar Two global minimum tax framework.
These amendments are intended to improve the operation and administration of the legislation as multinational groups prepare for ongoing compliance.
GST/HST Reverse Charge for Telecommunications
To address carousel fraud, the Government proposes introducing a GST/HST reverse charge mechanism for certain telecommunications supplies.
The measure aims to reduce opportunities for missing trader fraud while enhancing the integrity of Canada’s indirect tax system.
Clean Investment Tax Incentives
Several proposals focus on Canada’s clean investment agenda, including:
- Expanding the Carbon Capture, Utilization and Storage (CCUS) Investment Tax Credit to include enhanced oil recovery at reduced credit rates.
- Reinstating accelerated capital cost allowance treatment for eligible low-carbon liquefied natural gas (LNG) facilities.
Foreign Affiliate Taxation
The draft legislation would ensure that investment income earned by foreign affiliates on assets supporting Canadian insurance risks is treated as foreign accrual property income (FAPI), making it subject to taxation in Canada.
Additional Proposed Amendments
The legislative package also includes measures affecting:
- Disability Tax Credit eligibility and certification requirements
- Tax treatment of the Red Seal apprenticeship completion bonus
- GST/HST treatment of agricultural quotas
- Federal printed book rebate rules
- Technical amendments to the Income Tax Act, Excise Tax Act, Income Tax Regulations and related legislation
Consultation Timeline
The Department of Finance is accepting comments on the draft legislation until 4 September 2026.
Following the consultation period, the Government will review stakeholder submissions before finalising and introducing the legislative amendments.
Why It Matters
The consultation reflects Canada’s continued efforts to modernise its tax framework while keeping pace with evolving international tax standards.
For multinational enterprises, the proposed simplification of transfer pricing documentation, continued implementation of hybrid mismatch rules, and refinements to the Global Minimum Tax Act are likely to be among the most closely monitored developments. At the same time, the proposed GST/HST reverse charge mechanism demonstrates Canada’s ongoing focus on strengthening indirect tax compliance and combating VAT fraud.