2026 Canadian Tax Changes Every Business Owner Must Know

By Bader A. Chowdry, CPA, CA, LPA – AI Inventor & AI Specialist | Insight Accounting CPA Professional Corporation

The Canadian tax landscape continues to evolve, and 2026 brings significant changes that will impact how business owners structure their affairs, plan for growth, and manage their tax obligations. At Insight Accounting CPA in Mississauga, we believe staying ahead of these changes is essential for protecting your bottom line and ensuring compliance.

This comprehensive guide covers the most important 2026 Canadian tax changes affecting business owners across Mississauga, the GTA, and throughout Canada.

Capital Gains Inclusion Rate Changes

One of the most significant tax changes in 2026 involves the capital gains inclusion rate. Understanding how this affects your business dispositions and investment strategies is critical for Ontario business owners.

New Two-Tier Structure

The government has implemented a two-tier inclusion rate system:

First $250,000 of capital gains: 50% inclusion rate (unchanged)
Capital gains above $250,000: 66.67% inclusion rate (increased from 50%)

What This Means for Business Owners

If you’re planning to sell business assets, shares, or investment properties in Mississauga or the GTA, the tax impact on gains exceeding $250,000 will be substantially higher. For example:

A $400,000 capital gain previously resulted in $200,000 of taxable income
Under the new rules, that same gain now produces approximately $233,333 of taxable income
Additional tax cost: Roughly $16,667 at the top marginal rate

For business owners with multiple shareholders or family members, strategic planning around the $250,000 threshold becomes essential. Consider whether crystallizing gains across multiple taxpayers could optimize your family’s overall tax position. Our tax planning services can help you navigate these changes.

First Home Savings Account (FHSA) Updates

While primarily designed for individual homebuyers, the FHSA has important implications for business owners who provide benefits or compensation packages to employees.

2026 Contribution Limits

Annual contribution limit: $8,000 per year
Lifetime contribution limit: $40,000 total
Carry-forward provision: Unused annual room can be carried forward up to one year

Business Owner Considerations

For employers looking to enhance their compensation offerings, FHSA contributions represent a tax-efficient benefit. Contributions are deductible to the business, and employees receive tax-free growth and withdrawals for qualifying home purchases. This creates a powerful retention tool particularly valuable for younger employees entering the housing market.

Alternative Minimum Tax (AMT) Reforms

The 2026 AMT reforms represent one of the most consequential changes for high-income business owners who have historically relied on tax preferences and deductions.

Broadened AMT Base

The government has significantly broadened the AMT base by:

Inclusion of additional income sources previously exempt from AMT calculations
Reduction in the AMT exemption amount from $40,000 to approximately $30,000
New limitations on tax shelters and flow-through investment deductions
Inclusion of 30% of capital gains in the adjusted taxable income calculation, deviating from the regular tax treatment

Impact on Business Owners

If you utilize significant tax deductions-such as interest expenses, partnership losses, or charitable donations-these reforms may trigger AMT liability where none existed previously. Business owners with complex structures, significant charitable giving programs, or those who have accelerated deductions should review their situations carefully.

Planning Tip: Consider the timing of deductions and the interaction between regular tax and AMT. Sometimes deferring deductions to a future year may produce better after-tax results.

Digital Services Tax (DST)

Canada’s Digital Services Tax officially comes into full effect for calendar year 2026, with important implications for businesses operating in the digital economy.

DST Applicability

The 3% Digital Services Tax applies to:

Businesses with global revenues exceeding ?750 million
Canadian in-scope revenues exceeding $20 million
Revenue from digital services including online marketplace services, social media platforms, online advertising, and user data monetization

Business Considerations

Canadian businesses that operate digital platforms or monetize user data must evaluate whether they meet these thresholds. Even traditional businesses expanding into digital marketplaces may inadvertently trigger DST obligations.

For business owners with international operations, the DST adds complexity to transfer pricing and revenue allocation decisions. Documenting the methodology for calculating Canadian in-scope revenue becomes essential for compliance and audit defense.

Clean Economy Investment Tax Credits (ITCs)

The 2026 federal budget substantially expanded investment tax credits supporting Canada’s transition to a clean economy. These credits present significant opportunities for businesses making qualifying investments.

CCUS (Carbon Capture, Utilization, and Storage) Tax Credit

Credit rate: Up to 60% for capture equipment in direct air capture projects
Credit rate: 50% for other CCUS projects
Eligible expenses: Capture equipment, transportation equipment, storage equipment, and eligible refurbishment costs

Clean Technology ITC

Credit rate: 30% for qualifying clean technology property
Eligible property: Solar, wind, hydro, geothermal, wave, and tidal energy equipment; industrial zero-emission vehicles; stationary electricity storage equipment
Qualifying conditions: Must meet specific labour requirements and environmental standards

Clean Hydrogen ITC

Credit rate: 15% to 40% depending on carbon intensity of hydrogen produced
Tiered structure: Higher credits for lower-carbon intensity projects
Eligible expenses: Equipment for hydrogen production through electrolysis and natural gas reforming with CCUS

Clean Electricity ITC

Credit rate: 15% for qualifying clean electricity generation and inter-provincial transmission
Eligible investments: Non-emitting electricity generation (nuclear, solar, wind, hydro), abated natural gas-fired generation, and electricity storage

Strategic Opportunities

Business owners in manufacturing, energy, transportation, and heavy industry should evaluate whether planned capital expenditures qualify for these credits. The interaction between federal ITCs and provincial incentives (particularly in Alberta, Ontario, and Quebec) can produce substantial total support for clean economy investments.

Important: Labour requirements mandate prevailing wages and apprenticeship participation. Failing these requirements reduces credit rates by 10 percentage points.

Bare Trust Reporting Enforcement

The Canada Revenue Agency significantly stepped up enforcement of bare trust reporting requirements in 2026, creating compliance obligations that many business owners may not realize affect them.

Expanded Reporting Requirements

Bare trusts must now file T3 returns including:

Schedule 15 (Beneficial Ownership Information) identifying all trustees, beneficiaries, and settlors
Transfer disclosure of assets moved into or out of trust arrangements
Annual valuation of trust assets

Common Business Scenarios Triggering Bare Trust Status

Many ordinary business arrangements create bare trusts inadvertently:

Corporate asset holding: Property registered in a director’s name but owned by the corporation
Joint accounts: Bank accounts held by parents for children
Shareholder arrangements: Shares held by nominees for beneficial owners
Property management companies: Legal title separated from beneficial ownership

Penalties

Failure to file can result in penalties of up to $2,500 per missing return, plus potential gross negligence penalties for more serious non-compliance. Given the broad definition of “trust” in these rules, business owners should conduct a comprehensive review of their arrangements.

Underused Housing Tax (UHT) Changes

The Underused Housing Tax continues to evolve, with 2026 bringing important clarifications and new requirements for affected owners.

2026 UHT Updates

Expanded filing exemptions for certain types of residential property owners
New reporting requirements for partnerships and trusts holding residential property
Modified vacancy definitions affecting which properties qualify as underused
Enhanced enforcement including data matching with provincial land registries

Business Owner Implications

Corporations, partnerships, and trusts that hold residential real estate must evaluate whether UHT obligations apply. Even commercial property owners with residential components may have filing requirements.

Key considerations include:

Exemption for new construction (available for first year after substantial completion)
Exemption for primary residence of specified Canadian corporations’ employees
Vacancy tax interactions with municipal bylaws in Toronto, Vancouver, and other cities

Failure to file T3 UHT returns by April 30 triggers penalties beginning at $5,000 for individuals and $10,000 for corporations, even if no tax is ultimately owing.

Corporate Passive Income $50,000 Threshold

The 2026 budget reaffirmed and clarified rules around the $50,000 passive income threshold for Canadian private corporations, affecting access to the small business deduction.

Mechanism Review

When a Canadian private corporation earns more than $50,000 in aggregate passive investment income:

Small business deduction limit is reduced on a straight-line basis
Full elimination occurs at $150,000 of passive income
Active business income above the reduced limit faces higher tax rates

2026 Clarifications

New guidance addresses:

Calculation timing: Whether to use calendar year or fiscal year for the threshold test
Inter-corporate dividends: Clarification that dividends received from connected corporations generally do not count toward the threshold
Capital gains treatment: Confirmation that only the taxable portion (inclusion amount) of capital gains counts toward the limit

Strategic Planning

Business owners approaching the $50,000 threshold should consider:

Timing of investment sales to manage which fiscal year gains are recognized
Corporate structure optimization to isolate passive investments
Individual versus corporate investing comparisons at different income levels

OECD Pillar Two Implementation

Canada’s implementation of the OECD’s Pillar Two framework for international tax reform represents the most far-reaching change to global tax architecture in decades-and 2026 marks the beginning of meaningful compliance obligations.

What Is Pillar Two?

The OECD’s Pillar Two establishes a global minimum tax of 15% for multinational enterprises with consolidated revenues exceeding ?750 million. Canada has adopted this framework through the Global Minimum Tax Act.

2026 Implementation Status

For fiscal years beginning on or after December 31, 2024:

Income Inclusion Rule (IIR): Canadian parent companies must apply top-up taxes ensuring foreign subsidiaries pay at least 15% effective tax
Undertaxed Profits Rule (UTPR): Denies deductions for payments to low-taxed group members
Qualified Domestic Minimum Top-Up Tax (QDMTT): Canada’s domestic implementation ensuring foreign jurisdictions don’t collect tax on Canadian low-taxed profits

Business Owner Impact

While primarily affecting large multinationals, Pillar Two has cascading effects:

M&A due diligence: Acquiring smaller companies now requires Pillar Two exposure assessment
Transfer pricing adjustments: May trigger additional top-up tax obligations
Investment holding structures: Traditional tax-efficient structures face new scrutiny
Provincial tax coordination: Ontario, Quebec, and other provinces adjust their rates to preserve tax base

Business owners with international operations, even if below the ?750 million threshold, should understand how Pillar Two affects their competitiveness, supply chains, and acquisition targets.

Plan Your 2026 Tax Strategy with Insight Accounting CPA

The 2026 Canadian tax changes create both challenges and opportunities for business owners. From capital gains planning to clean economy incentives, from trust reporting to international tax reform, navigating this landscape requires experienced professional guidance.

At Insight Accounting CPA in Mississauga, we work closely with business owners throughout the GTA and Ontario to:

Develop tax-efficient succession and exit strategies
Optimize corporate structures for changing inclusion rates and passive income rules
Ensure compliance with new reporting requirements for trusts, UHT, and Pillar Two
Maximize available clean economy investment tax credits
Navigate AMT complexities and international tax obligations

Don’t let 2026 tax changes catch you off guard. Every day of delayed planning potentially costs thousands in preventable tax.

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Our team of Chartered Professional Accountants specializes in helping Ontario business owners navigate complex tax changes while focusing on what matters most: growing your business.

Frequently Asked Questions About 2026 Canadian Tax Changes

What are the new capital gains inclusion rates for 2026?

For 2026, individuals pay tax on 50% of capital gains up to $250,000 annually. Gains exceeding $250,000 are subject to a 66.67% inclusion rate. Corporations and trusts face the 66.67% rate on all capital gains with no preferential threshold.

How do the 2026 tax changes affect small businesses in Mississauga?

Small businesses in Mississauga and across Ontario should review their corporate structures, passive investment strategies, and potential equipment purchases to take advantage of the Clean Economy Investment Tax Credits while managing any AMT exposure.

When do I need to file bare trust reports?

Bare trusts must file T3 returns with Schedule 15 by the trust’s filing deadline. For most calendar year trusts, this is March 31. The expanded reporting requirements apply to all bare trusts holding property in Ontario and across Canada.

What is the Digital Services Tax threshold?

The 3% Digital Services Tax applies to businesses with global revenues exceeding ?750 million and Canadian in-scope revenues exceeding $20 million. If you meet both thresholds, consult with a CPA to assess your DST obligations.

How can I claim Clean Economy Investment Tax Credits?

To claim ITCs, your qualifying property must meet specific labour requirements including prevailing wages and apprenticeship participation. Proper documentation and timely filing are essential. Contact our Mississauga tax team for assistance with your ITC claims.

Disclaimer: This article provides general information only and does not constitute professional tax advice. Tax laws are complex and subject to change. Consult with a qualified CPA to discuss how these changes affect your specific situation.

About the Author: Bader A. Chowdry, CPA, CA, LPA provides comprehensive tax, accounting, and advisory services to businesses throughout Mississauga and the Greater Toronto Area. Our CPAs combine technical expertise with practical business insight to help clients thrive in an ever-changing tax environment.

Keywords: 2026 tax changes Canada, Canadian tax updates, business tax 2026, CPA Mississauga, tax planning GTA, capital gains inclusion rate, AMT reforms, Digital Services Tax