Budget 2025 Implementation Act, No. 1 (S.C. 2026, c. 3)
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Assented to 2026-03-26
PART 1Amendments to the Income Tax Act and Other Legislation (continued)
R.S., c. 1 (5th Supp.)Income Tax Act (continued)
19 (1) Subsection 74.5(12) of the Act is amended by adding “or” at the end of paragraph (b) and by replacing paragraphs (c) and (d) with the following:
(c) to the individual’s spouse or common-law partner, while the property (or property substituted for it) is held under a TFSA or FHSA of which the spouse or common-law partner is the holder and to the extent that the spouse or common-law partner does not have
(i) an excess TFSA amount (as defined in subsection 207.01(1)), at the time of the contribution of the property under the TFSA, or
(ii) an excess FHSA amount (as defined in subsection 207.01(1)), at the time of the contribution of the property under the FHSA.
(2) Subsection (1) is deemed to have come into force on April 1, 2023.
20 (1) Subsection 81(1) of the Act is amended by adding the following after paragraph (c.1):
Marginal note:Ship of resident corporations — gains
(c.2) the portion of a taxable capital gain of the taxpayer for the year from the disposition of a vessel (as defined in subsection (13(21)), including the furniture, fittings, radiocommunication equipment and other equipment attached to the vessel, that can reasonably be considered to have accrued while the vessel
(i) was property of a corporation resident in Canada (if this Act were read without reference to subsection 250(4)) that satisfied the conditions set out in paragraphs 250(6)(a) and (b), and
(ii) was used by the corporation solely to earn income from international shipping;
Marginal note:Property pertaining to ships
(c.3) taxable capital gains of the taxpayer for the year from the disposition of personal or movable property that pertained solely to the operation of vessels while the vessels met the conditions in subparagraphs (c.2)(i) and (ii);
(2) Subsection 81(1) of the Act is amended by adding the following after paragraph (c.3):
Marginal note:Ship of resident corporations — excess recapture
(c.4) the amount, if any, determined by the formula
A × [B ÷ (B + C)]
where
- A
- is an amount included under subsection 13(1), in respect of a prescribed class, in computing the taxpayer’s income for the year,
- B
- is the amount determined for E.2 in the definition undepreciated capital cost in subsection 13(21) in respect of the prescribed class at the end of the year, and
- C
- is the amount determined for E in the definition undepreciated capital cost in subsection 13(21) in respect of the prescribed class at the end of the year;
(3) Subsection 81(1) of the Act is amended by striking out “or” at the end of paragraph (s), by adding “or” at the end of paragraph (t) and by adding the following after paragraph (t):
Marginal note:Disability benefits
(u) an amount received under the Canada Disability Benefit Act.
(4) Section 81 of the Act is amended by adding the following after subsection (5):
Marginal note:Ship of resident corporations — undepreciated capital cost
(6) If, at the end of a taxation year of a taxpayer, the taxpayer owns a vessel (as defined in subsection 13(21)) it used in the year to earn income that would not be included in computing its income because of paragraph (1)(c.1), the undepreciated capital cost to the taxpayer of the prescribed class that includes the vessel is reduced, at the time that is immediately before the end of the year, by the greatest amount that the taxpayer could have deducted under paragraph 20(1)(a) in respect of property of that class in computing its income for the year, but for paragraph 18(1)(c).
(5) Subsection (1) applies to the portion of a taxable capital gain that accrues on or after December 31, 2023.
(6) Subsections (2) and (4) are deemed to have come into force on December 31, 2023.
(7) Subsection (3) applies to taxation years that begin after 2024.
21 (1) Subparagraph 84.1(2.31)(f)(ii) of the Act is replaced by the following:
(ii) the child, or at least one member of the group of children, as the case may be, is actively engaged on a regular, continuous and substantial basis (including within the meaning of paragraph 120.4(1.1)(a)) in the activities of a relevant business of the subject corporation or a relevant group entity, and
(2) The portion of paragraph 84.1(2.31)(g) of the Act before subparagraph (i) is replaced by the following:
(g) subject to subsection (2.3), no later than 36 months after the disposition time or such greater period as is reasonable in the circumstances, the taxpayer and a spouse or common-law partner of the taxpayer have taken reasonable steps to
(3) Subparagraph 84.1(2.32)(g)(ii) of the Act is replaced by the following:
(ii) the child, or at least one member of the group of children, as the case may be, is actively engaged on a regular, continuous and substantial basis (including within the meaning of paragraph 120.4(1.1)(a)) in the activities of a relevant business of the subject corporation or a relevant group entity, and
(4) The portion of paragraph 84.1(2.32)(h) of the Act before subparagraph (i) is replaced by the following:
(h) subject to subsection (2.3), no later than 60 months after the disposition time or such greater period as is reasonable in the circumstances, the taxpayer and a spouse or common-law partner of the taxpayer have taken reasonable steps to
(5) Subsections (1) to (4) are deemed to have come into force on January 1, 2024.
22 (1) Paragraph 85.1(4)(a) of the Act is replaced by the following:
(a) it is the case that
(i) the disposition is part of a transaction or event or a series of transactions or events that includes a disposition (referred to in this paragraph as the “relevant disposition”) of a property that is
(A) the share,
(B) property (other than any property that is received by the taxpayer as consideration for the disposition and to which paragraph (3)(a) would apply in the absence of this subsection) substituted for the share, or
(C) property any of the fair market value of which is derived, directly or indirectly, from property referred to in clause (A) or (B), and
(ii) the relevant disposition is to a person or partnership (in this subsection and subsection (4.1) referred to as the “acquirer”) that
(A) immediately after the transaction, event or series, deals at arm’s length with the taxpayer or a person that is, at any time during the period that begins at the time of the disposition and ends immediately after the transaction, event or series, a particular person in respect of the taxpayer, unless
(I) the acquirer is a foreign affiliate of the taxpayer or of a successor corporation of the taxpayer in respect of which the taxpayer or the successor corporation, as the case may be, has a qualifying interest (within the meaning of paragraph 95(2)(m)) at the time of the transaction or event or throughout the series, or
(II) at the time of the relevant disposition, the property that is disposed of is not excluded property (as defined in subsection 95(1)) of a foreign affiliate of the taxpayer, of a person that is, at any time during the period, a particular person in respect of the taxpayer or of a partnership, any member of which is, at any time during the period, the taxpayer or a particular person in respect of the taxpayer, or
(B) immediately after the relevant disposition, is a non-resident person or partnership that does not deal at arm’s length with the taxpayer or with a person that is, at any time during the period that begins at the time of the disposition and ends immediately after the relevant disposition, a particular person in respect of the taxpayer, unless
(I) at the time of the transaction or event or throughout the series, the acquirer is a non-resident corporation that is, for the purposes of section 17, a controlled foreign affiliate of the taxpayer or of a successor corporation of the taxpayer, or
(II) the relevant disposition is of a share of the capital stock of a corporation resident in Canada; or
(2) Section 85.1 of the Act is amended by adding the following after subsection (4):
Marginal note:Interpretation — partnerships
(4.1) In applying paragraph (4)(a),
(a) a taxpayer or a particular person in respect of the taxpayer (each of which is referred to in this subsection as a “relevant taxpayer”) and an acquirer are deemed to be dealing with each other at arm’s length, at any time, for the purposes of clause (4)(a)(ii)(A) if,
(i) where either the relevant taxpayer or the acquirer is a partnership and the other party is not, any member of the partnership deals at arm’s length, at that time, with the other party, or
(ii) where both the relevant taxpayer and the acquirer are partnerships, the relevant taxpayer or any member of the relevant taxpayer deals at arm’s length, at that time, with the acquirer or any member of the acquirer; and
(b) an acquirer is deemed to be a non-resident person with whom the relevant taxpayer does not deal at arm’s length, at any time, for the purposes of clause (4)(a)(ii)(B) if,
(i) where either the relevant taxpayer or the acquirer is a partnership and the other party is not,
(A) any member of the partnership does not deal at arm’s length, at that time, with the other party, and
(B) the acquirer — or, where the acquirer is a partnership, any member of the acquirer — is a non-resident person at that time, or
(ii) where both the relevant taxpayer and the acquirer are partnerships,
(A) the relevant taxpayer or any member of the relevant taxpayer does not deal at arm’s length, at that time, with the acquirer or any member of the acquirer, and
(B) any member of the acquirer is a non-resident person at that time.
Marginal note:Definitions
(4.2) The following definitions apply in this subsection and subsections (4) and (4.1).
- particular person
particular person, in respect of a taxpayer at any time, means a person that is at that time
(a) resident in Canada and not dealing at arm’s length with the taxpayer;
(b) a successor corporation of the taxpayer; or
(c) resident in Canada and not dealing at arm’s length with a person described in paragraph (a) or (b). (personne déterminée)
- successor corporation
successor corporation of a particular corporation means
(a) a corporation of which the particular corporation is a predecessor corporation (within the meaning of subsection 87(1));
(b) a corporation into which the particular corporation was wound-up in a winding-up to which subsection 88(1) applied; or
(c) a successor corporation of a successor corporation of the particular corporation. (société remplaçante)
(3) Subsections (1) and (2) apply in respect of dispositions that occur on or after August 15, 2025.
23 (1) Paragraph 87(2)(j.6) of the Act is replaced by the following:
Marginal note:Continuing corporation
(j.6) for the purposes of paragraphs 12(1)(t) and (x), subsections 12(2.2) and 13(7.1), (7.4) and (24), paragraphs 13(27)(b) and (28)(c), subsections 13(29) and 18(9.1), paragraphs 20(1)(e), (e.1), (v) and (hh), sections 20.1 and 32, paragraph 37(1)(c), subsection 39(13), subparagraphs 53(2)(c)(vi) and (h)(ii), paragraph 53(2)(s), subsections 53(2.1), 66(11.4), 66.7(11) and 84.1(2.31) and (2.32), sections 110.61 and 110.62, subsection 127(10.2), section 139.1, subsection 152(4.3), the determination of D in the definition undepreciated capital cost in subsection 13(21), the determination of L in the definition cumulative Canadian exploration expense in subsection 66.1(6) and the definitions qualifying business transfer and qualifying cooperative conversion in subsection 248(1), the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation;
(2) Paragraph 87(2)(j.6) of the Act, as enacted by subsection (1), is replaced by the following:
Marginal note:Continuing corporation
(j.6) for the purposes of paragraphs 12(1)(t) and (x), subsections 12(2.2) and 13(7.1), (7.4) and (24), paragraphs 13(27)(b) and (28)(c), subsections 13(29) and 18(9.1), paragraphs 20(1)(e), (e.1), (v) and (hh), sections 20.1 and 32, paragraph 37(1)(c), subsection 39(13), subparagraphs 53(2)(c)(vi) and (h)(ii), paragraph 53(2)(s), subsections 53(2.1), 66(11.4), 66.7(11) and 84.1(2.31) and (2.32), sections 110.61 and 110.62, subsections 127(10.2), (10.31) and (10.32), section 139.1, subsection 152(4.3), the determination of D in the definition undepreciated capital cost in subsection 13(21), the determination of L in the definition cumulative Canadian exploration expense in subsection 66.1(6) and the definitions qualifying business transfer and qualifying cooperative conversion in subsection 248(1), the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation;
(3) Paragraph 87(2)(qq.1) of the Act is replaced by the following:
Marginal note:Certain investment tax credits
(qq.1) for the purposes of sections 127.44, 127.45, 127.48, 127.49 and 127.491 and Part XII.7, the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation;
(4) Paragraphs 87(8.3)(b) and (c) of the Act are replaced by the following:
(b) the foreign merger is part of a transaction or event or a series of transactions or events that includes a disposition (referred to in paragraph (c) as the “relevant disposition”) of a property that is
(i) a share of the capital stock of the new foreign corporation,
(ii) property substituted for a share of the capital stock of the new foreign corporation, or
(iii) property any of the fair market value of which is derived, directly or indirectly, from property referred to in subparagraph (i) or (ii); and
(c) the relevant disposition is to a person or partnership (referred to in this subsection and subsection (8.31) as the “acquirer”) that
(i) immediately after the transaction, event or series, deals at arm’s length with the taxpayer or a person that is, at any time during the period that begins at the time of the foreign merger and ends immediately after the transaction, event or series, a particular person in respect of the taxpayer, unless
(A) the acquirer is a foreign affiliate of the taxpayer or of a successor corporation of the taxpayer in respect of which the taxpayer or the successor corporation, as the case may be, has a qualifying interest (within the meaning of paragraph 95(2)(m)) at the time of the transaction or event or throughout the series, or
(B) at the time of the relevant disposition, the property that is disposed of is not excluded property (as defined in subsection 95(1)) of a foreign affiliate of the taxpayer, of a person that is, at any time during the period, a particular person in respect of the taxpayer or of a partnership, any member of which is, at any time during the period, the taxpayer or a particular person in respect of the taxpayer, or
(ii) immediately after the relevant disposition, is a non-resident person or partnership that does not deal at arm’s length with the taxpayer or with a person that is, at any time during the period that begins at the time of the foreign merger and ends immediately after the relevant disposition, a particular person in respect of the taxpayer, unless
(A) at the time of the transaction or event or throughout the series, the acquirer is a non-resident corporation that is, for the purposes of section 17, a controlled foreign affiliate of the taxpayer or of a successor corporation of the taxpayer, or
(B) the relevant disposition is of a share of the capital stock of a corporation resident in Canada.
(5) Section 87 of the Act is amended by adding the following after subsection (8.3):
Marginal note:Interpretation — partnerships
(8.31) In applying paragraph (8.3)(c),
(a) a taxpayer or a particular person in respect of the taxpayer (each of which is referred to in this subsection as the “relevant taxpayer”) and an acquirer are deemed to be dealing with each other at arm’s length, at any time, for the purposes of subparagraph (8.3)(c)(i) if,
(i) where either the relevant taxpayer or the acquirer is a partnership and the other party is not, any member of the partnership deals at arm’s length, at that time, with the other party, or
(ii) where both the relevant taxpayer and the acquirer are partnerships, the relevant taxpayer or any member of the relevant taxpayer deals at arm’s length, at that time, with the acquirer or any member of the acquirer;
(b) an acquirer is deemed to be a non-resident person with whom the relevant taxpayer does not deal at arm’s length, at any time, for the purposes of subparagraph (8.3)(c)(ii) if,
(i) where either the relevant taxpayer or the acquirer is a partnership and the other party is not,
(A) any member of the partnership does not deal at arm’s length, at that time, with the other party, and
(B) the acquirer — or, where the acquirer is a partnership, any member of the acquirer — is a non-resident person at that time, or
(ii) where both the relevant taxpayer and the acquirer are partnerships,
(A) the relevant taxpayer or any member of the relevant taxpayer does not deal at arm’s length, at that time, with the acquirer or any member of the acquirer, and
(B) any member of the acquirer is a non-resident person at that time; and
(c) particular person and successor corporation have the same meanings as in subsection 85.1(4.2).
(6) Subsection (1) is deemed to have come into force on January 1, 2024.
(7) Subsection (2) applies to taxation years that begin on or after December 16, 2024.
(8) Subsection (3) is deemed to have come into force on April 16, 2024.
(9) Subsections (4) and (5) apply in respect of dispositions that occur on or after August 15, 2025.
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