Budget 2025 Implementation Act, No. 1 (S.C. 2026, c. 3)

• 28 (1) Subparagraph 94.2(2)(a)(i) of the Act is replaced by the following:

  • (i) that is controlled by each of the beneficiary and the particular person, unless the condition in paragraph (1)(b) is met only because the condition in subparagraph (1)(b)(i) is met in respect of one or more classes of fixed interests that are tracking interests (within the meaning assigned by subsection 95(8)) in respect of the trust, and

• (2) Section 94.2 of the Act is amended by adding the following after subsection (4):

  • Marginal note:Tracking interests

    (5) If the condition in subparagraph (1)(b)(i) is met at any time in a taxation year in respect of a particular class of fixed interests of a trust that are tracking interests (within the meaning assigned by subsection 95(8)) in respect of the trust, and subsection 95(11) would apply in the absence of subsection 95(13) in respect of the trust for the taxation year,

    • (a) despite subsection 95(13), subsection 95(11) applies in respect of the trust for the year;

    • (b) the separate corporation described in subsection 95(11) in respect of those tracking interests is deemed to be controlled by each of the beneficiary and the particular person referred to in subsection (1) in respect of the trust at that time; and

    • (c) subsection (3) applies to that separate corporation, with such modifications as the context requires, as if that separate corporation were a trust referred to in paragraph (2)(a), for the purpose of determining the amount to be included under subsection 91(1) by the beneficiary or particular person in respect of shares of the capital stock of the separate corporation for the year.

• (3) Subsections (1) and (2) apply to taxation years of trusts that begin after February 26, 2018.

• 29 (1) Paragraph (b) of the description of A in the definition foreign accrual property income in subsection 95(1) of the Act is replaced by the following:

  • (b) a dividend from another foreign affiliate of the taxpayer,

    • (i) if that other affiliate is resident in the same country as the affiliate, or

    • (ii) to the extent that the amount of the dividend exceeds the amount that would be the deduction/non-inclusion mismatch arising from the dividend under paragraph 18.4(7)(c) if

      • (A) subsection 18.4(6) were read without reference to its paragraph (a) and subparagraph (i) of the description of D in its paragraph (b), and

      • (B) the amount determined for C in the definition foreign ordinary income in subsection 18.4(1) were deemed to be nil,

• (2) Paragraph (a) of the description of H in the definition foreign accrual property income in subsection 95(1) of the Act is replaced by the following:

  • (a) if the affiliate was a member of a partnership at the end of the fiscal period of the partnership that ended in the year and the partnership received a dividend at a particular time in that fiscal period from a corporation (in this paragraph referred to as the “payer affiliate”) that would be, if the reference in subsection 93.1(1) to “corporation resident in Canada” were a reference to “taxpayer resident in Canada”, a foreign affiliate of the taxpayer for the purposes of sections 93 and 113 at that particular time, the amount by which the portion of the dividend that is included in the value determined for A in respect of the affiliate for the year and that would be, if the reference in subsection 93.1(2) to “corporation resident in Canada” were a reference to “taxpayer resident in Canada”, deemed by paragraph 93.1(2)(a) to have been received by the affiliate for the purposes of sections 93 and 113 exceeds

    • (i) if the affiliate and the payer affiliate are resident in the same country, nil, and

    • (ii) in any other case, the amount that would be the deduction/non-inclusion mismatch arising from that portion of the dividend under paragraph 18.4(7)(c), if

      • (A) subsection 18.4(6) were read without reference to its paragraph (a) and subparagraph (i) of the description of D in its paragraph (b), and

      • (B) the amount determined for C in the definition foreign ordinary income in subsection 18.4(1) were deemed to be nil, and

• (3) The portion of paragraph (a) of the definition relevant tax factor in subsection 95(1) of the Act before the formula is replaced by the following:

  • (a) in the case of a corporation (other than a Canadian-controlled private corporation or a corporation that is a substantive CCPC at any time in the year), or of a partnership all the members of which, other than non-resident persons, are corporations (other than Canadian-controlled private corporations or corporations that are substantive CCPCs at any time in the year), the quotient obtained by the formula

• (4) Subparagraph 95(2)(d.1)(ii) of the Act is amended by striking out “and” at the end of clause (B) and by adding the following after clause (C):

  • (D) subsections 85.1(4) and 87(8.3) in respect of a disposition of property to the new foreign corporation, and

• (5) Clause 95(2)(e)(v)(A) of the Act is amended by striking out “and” at the end of subclause (II) and by adding the following after subclause (III):

  • (IV) subsections 85.1(4) and 87(8.3) in respect of a disposition of property to the shareholder affiliate, and

• (6) The portion of subsection 95(11) of the Act before paragraph (a) is replaced by the following:

  • Marginal note:Tracking class — separate corporation

    (11) If this subsection applies in respect of a foreign affiliate (referred to in this subsection as the “actual affiliate”), other than a controlled foreign affiliate, of a taxpayer for a taxation year of the actual affiliate, the following rules apply for the purpose of determining the amounts, if any, to be included under subsection 91(1), and to be deducted under subsection 91(4), by the taxpayer in respect of the year and for the purpose of applying section 233.4 in respect of the year:

• (7) Section 95 of the Act is amended by adding the following after subsection (12):

  • Marginal note:Exception — no avoidance purpose

    (13) Subsections (11) and (12) apply in respect of a foreign affiliate of a taxpayer for a taxation year only if it can reasonably be considered that one of the purposes for the creation or issuance, or for the acquisition or holding, of a tracking interest in respect of the affiliate that is acquired or held by the taxpayer or another foreign affiliate of the taxpayer is to avoid, prevent or defer the inclusion of any amount in the income of the taxpayer under subsection 91(1).

• (8) Subsections (1) and (2) apply in respect of any dividend received on or after July 1, 2024.

• (9) Subsection (3) applies to taxation years that begin on or after April 7, 2022.

• (10) Subsections (4) and (5) apply in respect of dispositions that occur on or after August 15, 2025.

• (11) Subsections (6) and (7) apply to taxation years of a foreign affiliate of a taxpayer that begin after February 26, 2018.

• 30 (1) Subparagraph 96(2.1)(b)(ii) of the Act is replaced by the following:

  • (ii) the amount required by subsection 127(8), 127.44(11), 127.45(8), 127.48(12), 127.49(8) or 127.491(12) in respect of the partnership to be added in computing the investment tax credit, the CCUS tax credit (as defined in subsection 127.44(1)), the clean technology investment tax credit (as defined in subsection 127.45(1)), the clean hydrogen tax credit (as defined in subsection 127.48(1)), the CTM investment tax credit (as defined in subsection 127.49(1)) or the clean electricity investment tax credit (as defined in subsection 127.491(1)) of the taxpayer for the taxation year,

• (2) The portion of subsection 96(2.2) of the Act before paragraph (a) is replaced by the following:

  • Marginal note:At-risk amount

    (2.2) For the purposes of this section and sections 111, 127, 127.44, 127.45, 127.47, 127.48, 127.49 and 127.491, the at-risk amount of a taxpayer, in respect of a partnership of which the taxpayer is a limited partner, at any particular time is the amount, if any, by which the total of

• (3) The portion of subsection 96(2.4) of the Act before paragraph (a) is replaced by the following:

  • Marginal note:Limited partner

    (2.4) For the purposes of this section and sections 111, 127, 127.44, 127.45, 127.47, 127.48, 127.49 and 127.491, a taxpayer who is a member of a partnership at a particular time is a limited partner of the partnership at that time if the member’s partnership interest is not an exempt interest (within the meaning assigned by subsection (2.5)) at that time and if, at that time or within three years after that time,

• (4) Subsections (1) to (3) are deemed to have come into force on April 16, 2024.

• 31 (1) Subsection 104(1) of the Act is replaced by the following:

  Marginal note:Reference to trust or estate

  • 104 (1) In this Act, a reference to a trust or estate (in this Subdivision referred to as a “trust”) shall, unless the context otherwise requires, be read to include a reference to the trustee, executor, administrator, liquidator of a succession, heir or other legal representative having ownership or control of the trust property, but, except for the purposes of this subsection, subsection (1.1), subparagraph (b)(v) of the definition disposition in subsection 248(1) and paragraph (k) of that definition, a trust is deemed not to include an arrangement under which the trust can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust’s property unless the trust is described in any of paragraphs (a) to (e.1) of the definition trust in subsection 108(1).

• (2) The portion of subsection 104(21.21) of the Act before the formula is replaced by the following:

  • Marginal note:Beneficiaries QFFP taxable capital gain — 2024

    (21.21) If clause (21.2)(b)(ii)(A) applies to deem, for the purposes of section 110.6, the beneficiary under a trust to have a taxable capital gain (referred to in this subsection as the “QFFP taxable capital gain”) from a disposition of capital property that is qualified farm or fishing property of the beneficiary, for the beneficiary’s taxation year that ends on or after June 25, 2024 and before 2025, and in which the designation year of the trust ends, for the purposes of subsection 110.6(2.2), the beneficiary is, if the trust complies with the requirements of subsection (21.22), deemed to have a taxable capital gain from the disposition of qualified farm or fishing property of the beneficiary on or after June 25, 2024, equal to the amount determined by the formula

• (3) The descriptions of B and C in subsection 104(21.21) of the Act are replaced by the following:

  B

  is, if the designation year of the trust ends on or after June 25, 2024 and before 2025, the amount that would be determined in respect of the trust for the designation year under paragraph 3(b) in respect of capital gains and capital losses if the only properties referred to in that paragraph were qualified farm or fishing properties of the trust that were disposed of by the trust on or after June 25, 2024 and before 2025; and

  C

  is, if the designation year of the trust ends on or after June 25, 2024 and before 2025, the amount that would be determined in respect of the trust for the designation year under paragraph 3(b) in respect of capital gains and capital losses if the only properties referred to in that paragraph were qualified farm or fishing properties.

• (4) Subsection 104(21.22) of the Act is replaced by the following:

  • Marginal note:Trusts to designate amounts — 2024

    (21.22) A trust shall determine and designate, in its return of income under this Part for a designation year of the trust, the amount that is determined under subsection (21.21) to be the beneficiary’s taxable capital gain from the disposition on or after June 25, 2024 and before 2025 of qualified farm or fishing property of the beneficiary.

  • Marginal note:Beneficiaries QSBC taxable capital gain — 2024

    (21.23) If clause (21.2)(b)(ii)(B) applies to deem, for the purposes of section 110.6, the beneficiary under a trust to have a taxable capital gain (referred to in this subsection as the “QSBC taxable capital gain”) from a disposition of capital property that is a qualified small business corporation share of the beneficiary, for the beneficiary’s taxation year that ends on or after June 25, 2024 and before 2025, and in which the designation year of the trust ends, for the purposes of subsection 110.6(2.2), the beneficiary is, if the trust complies with the requirements of subsection (21.24), deemed to have a taxable capital gain from the disposition of a qualified small business corporation share of the beneficiary on or after June 25, 2024 and before 2025, equal to the amount determined by the formula

    A × B/C

    where

    A

    is the amount of the QSBC taxable capital gain;

    B

    is, if the designation year of the trust ends on or after June 25, 2024 and before 2025, the amount that would be determined in respect of the trust for the designation year under paragraph 3(b) in respect of capital gains and capital losses if the only properties referred to in that paragraph were qualified small business corporation shares of the trust (to the extent that the amount is not included in computing the amount designated under subsection (21.21)) that were disposed of by the trust on or after June 25, 2024 and before 2025; and

    C

    is, if the designation year of the trust ends on or after June 25, 2024 and before 2025, the amount that would be determined in respect of the trust for the designation year under paragraph 3(b) in respect of capital gains and capital losses if the only properties referred to in that paragraph were qualified small business corporation shares (to the extent that the amount is not included in computing the amount designated under subsection (21.21)).

  • Marginal note:Trusts to designate amounts — 2024

    (21.24) A trust shall determine and designate, in its return of income under this Part for a designation year of the trust, the amount that is determined under subsection (21.23) to be the beneficiary’s taxable capital gain from the disposition on or after June 25, 2024 and before 2025 of a qualified small business corporation share (to the extent that the amount is not included in computing the amount designated under subsection (21.21)) of the beneficiary.

• (5) Subsection (1) applies to taxation years that end after December 30, 2024.

• (6) Subsections (2) to (4) apply to taxation years that begin after 2023.

• 32 (1) Paragraph 107.4(2)(b) of the Act is replaced by the following:

  • (b) where a trust (in this paragraph referred to as the “transferor”) governed by an arrangement that is a FHSA, a registered retirement savings plan or a registered retirement income fund transfers a property to a trust (in this paragraph referred to as the “transferee”) governed by such an arrangement, the transfer is deemed not to result in a change in the beneficial ownership of the property if the annuitant or holder of the arrangement that governs the transferor is also the annuitant or holder of the arrangement that governs the transferee.

• (2) Subsection (1) is deemed to have come into force on April 1, 2023.

• 33 (1) The portion of clause 110(1)(d)(i)(B) of the Act before subclause (I) is replaced by the following:

  • (B) in the case of a benefit deemed by paragraph 7(1)(e) to have been received by the taxpayer, within the first three taxation years of the graduated rate estate of the taxpayer, by

• (2) Subsection (1) applies to taxation years of individuals who died on or after August 12, 2024.

34 Section 110.1 of the Act is amended by adding the following after subsection (17):

• 35 (1) Paragraph (a) of the description of A in the definition annual gains limit in subsection 110.6(1) of the Act is replaced by the following:

  • (a) the amount determined in respect of the individual for the year under paragraph 3(b) in respect of capital gains and capital losses (except any portion related to a deduction claimed by the individual in the year under subsection 110.61(2) or 110.62(2)), and

• (2) Subparagraph (a)(ii) of the description of B in the definition annual gains limit in subsection 110.6(1) of the Act is replaced by the following:

  • (ii) the amount, if any, by which the amount determined in respect of the individual for the year under paragraph 3(b) in respect of capital gains and capital losses (except any portion related to a deduction claimed by the individual in the year under subsection 110.61(2) or 110.62(2)) exceeds the amount determined for A in respect of the individual for the year, and

• (3) Paragraph (b) of the description of B in the definition annual gains limit in subsection 110.6(1) of the Act is replaced by the following:

  • (b) all of the individual’s allowable business investment losses for the year (except any portion that reduced the amount otherwise deductible by the individual in the year under subsection 110.61(2) or 110.62(2)); (plafond annuel des gains)

• (4) Paragraph (a) of the definition cumulative net investment loss in subsection 110.6(1) of the Act is replaced by the following:

  • (a) the total of all amounts each of which is the investment expense of the individual for the year or a preceding taxation year ending after 1987 (except any portions included in subparagraph (ii) of the description of H in paragraph 110.61(2)(b) and subparagraph (ii) of the description of H in paragraph 110.62(2)(b) to the extent they reduced the amount otherwise deductible by the individual under each of subsections 110.61(2) and 110.62(2))

• (5) The first formula in paragraph 110.6(2)(a) of the Act is replaced by the following:

  [$625,000 − (A + B + C + D)] × E

• (6) Subsection 110.6(2.2) of the Act is replaced by the following:

  • Marginal note:Additional deduction — 2024

    (2.2) In computing the taxable income of an individual (other than a trust) for the individual’s taxation year that includes June 25, 2024 (referred to in this subsection as the “transition year”), there may be deducted, where that individual was resident in Canada throughout the transition year and that individual disposed of in the transition year, and on or after June 25, 2024, a qualified small business corporation share of the individual or a qualified farm or fishing property of the individual, such amount as the individual may claim not exceeding the least of

    • (a) $116,582,

    • (b) the amount, if any, by which the individual’s cumulative gains limit at the end of the transition year exceeds the total of all amounts each of which is an amount deducted by the individual under subsection (2) or (2.1) in computing the individual’s taxable income for the transition year,

    • (c) the amount, if any, by which the individual’s annual gains limit for the transition year exceeds the total of all amounts each of which is an amount deducted by the individual under subsection (2) or (2.1) in computing the individual’s taxable income for the transition year, and

    • (d) the amount that would be determined in respect of the individual for the transition year under paragraph 3(b) in respect of capital gains and capital losses if the only properties referred to in that paragraph were qualified small business corporation shares of the individual and qualified farm or fishing properties of the individual, disposed of by the individual on or after June 25, 2024.

• (7) Section 110.6 of the Act is amended by adding the following after subsection (31):

  • Marginal note:Application of subsection (33) — 2025

    (32) Subsection (33) applies to an individual for the 2025 taxation year, if

    • (a) in the taxation year the individual has a taxable capital gain from the disposition, before June 25, 2024, by a partnership with a fiscal period that begins before June 25, 2024 and ends after 2024 or a trust with a taxation year that begins before June 25, 2024 and ends after 2024, of a qualified small business corporation share of the individual or a qualified farm or fishing property of the individual; and

    • (b) the total of all amounts each of which is an amount of a taxable capital gain of the individual described in paragraph (a) exceeds the amount that would be determined under paragraph (2)(a) in respect of the individual for the taxation year if the reference to “$625,000” in that paragraph read as “$522,145” (the amount of which excess is referred to in subsection (33) as the “denied excess”).

  • Marginal note:Deduction denied — 2025

    (33) Despite subsections (2) to (2.2), if this subsection applies to an individual for a taxation year, no amount may be deducted under this section for the taxation year by the individual in respect of the individual’s taxable capital gains for the year described in paragraph (32)(a) to the extent of the denied excess.

• (8) Subsections (1) to (4) apply in respect of dispositions that occur on or after August 12, 2024.

• (9) Subsection (5) applies to taxation years that begin after 2024.

• (10) Subsections (6) and (7) apply to taxation years that begin after 2023.