Canada Budget 2026: Tax Changes for Small Businesses and Self-Employed Canadians

Some measures are proposals that still require legislation. Others, including the Productivity Mega Deduction, were announced before Budget Day and are confirmed in the budget documents. Their effective dates are different, so the timing matters.

The biggest Budget 2026 tax changes at a glance

• Eligible new capital assets may qualify for a permanent 100% immediate deduction under the Productivity Mega Deduction.

• A proposed Canada Growth Incentive could exempt up to $15 million of capital gains on qualifying shares, but many businesses and professional practices are excluded.

• SR&ED eligibility may expand to certain regulatory testing, certification and intellectual property protection costs.

• Proposed tax instalment thresholds rise for 2028, with an annual instalment option for certain individuals whose primary income is from business.

• The proposed T1 filing and balance-due date becomes May 15 for 2027 and later tax years.

• The proposed T1135 filing threshold rises to $200,000 for tax years or fiscal periods ending after 2026.

Productivity Mega Deduction: immediate expensing for more business investments

The Productivity Mega Deduction allows businesses to deduct the full cost of most eligible depreciable capital property in the year the property becomes available for use, rather than claiming capital cost allowance (CCA) over several years. The measure is intended to be permanent and applies to eligible property acquired on or after September 15, 2026.

The government estimates that assets representing about two-thirds of capital investment could qualify, compared with about 15% under the earlier Productivity Super-Deduction. This is a share of capital investment—not a statement that two-thirds of every business’s purchases automatically qualify.

Examples highlighted by the government include tools, kitchen equipment, office technology, farm machinery, construction equipment and other productive assets. The exact CCA class and the asset’s use still matter.

Some property is excluded, including certain buildings, franchises, licences and goodwill, regulated natural gas pipelines, some passenger vehicles and property subject to special resource rules. Restrictions also apply to certain previously used or rollover-transferred assets. Property that does not qualify may still be eligible for other CCA incentives.

A deduction reduces taxable income; it is not a dollar-for-dollar tax credit or a reimbursement of the purchase price. Before committing to a major purchase, confirm the asset’s tax classification, acquisition date, business use and available-for-use date. The measure was announced on September 15, 2026, and Budget 2026 confirms the government’s intention to proceed.

Official Productivity Mega Deduction backgrounder

Proposed $15 million Canada Growth Incentive capital gains exemption

Budget 2026 proposes a new capital gains exemption of up to $15 million for each qualifying individual in respect of each qualifying business. It is intended for qualifying founders, employees and investors who hold eligible shares in Canadian businesses. It is not a general $15 million exemption available to every business owner.

The proposed conditions are detailed. Among other requirements, the corporation would generally have to be a Canadian-controlled private corporation when the shares are issued; the carrying value of assets of the corporation and related corporations could not exceed $100 million immediately before and after issuance; and the required proportion of corporate assets would have to be used in a qualifying business. The qualifying business must be carried on primarily in Canada for the required period.

The individual must generally be at least 18 when acquiring the shares and resident in Canada throughout the year the exemption is claimed. The shares must generally be held for at least 36 consecutive months immediately before sale. Additional asset-use tests apply at issuance, throughout ownership and at disposition.

There are important exclusions. The proposed definition excludes consulting services and professional practices such as accounting, law, medicine, engineering and architecture, as well as businesses in several specified sectors, including real estate, financial services, agriculture, food and accommodation, and licensing or franchising businesses.

This exclusion is particularly important for professional service firms: shares in an accounting practice would not qualify simply because the practice is incorporated. A client’s business is not automatically eligible either; its actual activities, assets, share issuance and ownership history must be reviewed.

The proposed exemption would apply to qualifying shares issued on or after November 5, 2026, and before 2037. It also interacts with the Lifetime Capital Gains Exemption: using one exemption on shares of a corporation can limit the ability to use the other on a sale of shares of that same corporation.

The proposal is complex. Owners considering an investor raise, employee share issue, reorganization or eventual sale should obtain tailored tax advice before acting.

Longer reinvestment period for certain small-business share sales

The budget also proposes to expand the capital gains rollover for qualifying investments in eligible small-business corporation shares. In general, an individual who sells qualifying shares and reinvests the proceeds in replacement eligible small-business shares may defer the capital gain.

The replacement-share period would be extended from the year of sale and the following calendar year to the year of sale and the next three calendar years. A further extension—up to a total of five years—may be available in a specific situation where the investor enters into an agreement, such as a simple agreement for future equity (SAFE), before the end of the three-year period and shares are to be issued later.

The active-business asset test would also be eased during the ownership period, while the stricter “all or substantially all” test would continue to apply at share issuance and disposition. The proposed changes would apply to qualifying dispositions on or after January 1, 2027. This is a deferral mechanism, not a tax-free capital gain.

Expanded SR&ED tax incentives for eligible innovation costs

The Scientific Research and Experimental Development (SR&ED) program provides deductions and investment tax credits for eligible research and development work in Canada. The existing credit rate is 35% for certain qualifying small and medium-sized corporations and 15% for other qualifying expenditures, subject to the program’s detailed rules.

Budget 2026 proposes to add certain costs that support eligible SR&ED projects. These include regulatory tests, technological validations and studies needed to obtain initial approval or certification before a product or process can be commercialized, provided the work directly relates to an otherwise eligible SR&ED project.

The proposal would also include certain costs to register and maintain intellectual property developed through an eligible SR&ED project, such as patents, plant breeders’ rights and qualifying copyrighted software. Enforcement and litigation costs are excluded. The changes would apply to taxation years beginning on or after November 5, 2026.

A business does not qualify just because it develops a product, writes software or performs testing. The underlying work must meet the existing SR&ED criteria, and supporting project, technical and expenditure records remain essential.

Higher tax instalment thresholds from 2028

The budget proposes to raise the income tax instalment threshold from $3,000 to $7,500 for individuals resident outside Quebec and for corporations. For individuals resident in Quebec, the federal threshold would rise from $1,800 to $4,500 because Quebec administers provincial personal income tax separately. The proposed thresholds would be indexed to inflation and rounded to the nearest $500.

For most individuals outside Quebec, instalments are generally required when combined federal and provincial net tax owing exceeds the threshold in the current year and either of the two previous years. For corporations, federal instalments are generally required unless federal tax payable is at or below the threshold in the current or previous year. The detailed tests differ, so do not apply the individual test to a corporation.

The proposed changes apply to taxation years beginning on or after January 1, 2028. A higher threshold may reduce the need to make instalments; it does not cancel the underlying income tax liability or change the balance-due date.

Annual instalment option for certain self-employed individuals

Individuals whose primary source of income is business income—including professional or commission income—would be allowed to make one annual instalment instead of quarterly instalments. The proposed payment equals two-thirds of the individual’s combined federal and provincial net tax owing for the year and is due by December 31. The remaining amount is payable by the applicable balance-due date. This option would apply for 2028 and later taxation years.

For example, if a qualifying individual’s estimated combined net tax owing is $12,000, the annual instalment would be $8,000 by December 31, with the remaining $4,000 due by the balance-due date. This is a payment-timing option, not a tax reduction.

Proposed May 15 personal tax filing and payment deadline

Budget 2026 proposes to move the T1 filing and balance-due dates to May 15 for all individuals, including self-employed individuals and their spouses or common-law partners.

Under the current rules, most individuals file and pay by April 30. Self-employed individuals and their spouses or common-law partners generally have until June 15 to file, but any balance owing is still due April 30. Under the proposal, both filing and payment would be due May 15.

The change would apply to the 2027 and subsequent taxation years. That means the first affected returns would be for the 2027 tax year and would be filed in 2028. It does not change corporate T2 filing deadlines, GST/HST return deadlines or payroll remittance deadlines.

Higher Form T1135 foreign property reporting thresholds

Canadian-resident individuals, corporations and trusts, as well as certain partnerships, may have to file Form T1135 when the total cost amount of their specified foreign property is more than $100,000 at any time in a taxation year or fiscal period. The form generally covers income-earning foreign property, subject to exclusions such as personal-use property and property used in an active business.

Budget 2026 proposes to increase the filing threshold from more than $100,000 to more than $200,000. The simplified reporting method would also rise from total cost below $250,000 throughout the year to below $500,000.

The proposed changes would apply to taxation years or fiscal periods ending after 2026. The test is based on cost amount, not simply the current market value of foreign investments. Review the relevant ownership, account and property details before concluding that a filing is no longer required.

CRA tax debt disclosure to credit bureaus

Budget 2026 proposes to allow the CRA to report certain unpaid income tax and GST/HST debts to credit bureaus. This is not an automatic report for every late payment.

The proposed measure would apply only when the outstanding tax debt exceeds $50,000, the assessments are no longer under objection or appeal and appeal rights have expired or been exhausted, the CRA gives at least 30 days’ written notice, and reasonable collection steps and an opportunity to arrange repayment have been provided.

The proposal would take effect when the enacting legislation receives Royal Assent. Businesses with arrears should not assume that a disputed assessment or a debt below the threshold will be treated in the same way. Respond promptly to CRA notices and obtain advice about objection, appeal and payment options.

Clean technology and electricity tax credits

For businesses undertaking larger qualifying clean-energy or electricity projects, Budget 2026 proposes to extend the Clean Technology and Clean Electricity investment tax credits to eligible property that becomes available for use before 2041. It also proposes to expand the Clean Electricity credit to certain high-voltage intra-provincial transmission property. These credits are subject to specific project, property and taxpayer eligibility rules and are not general deductions available to every small business.

What should business owners do now?

• Before buying equipment, identify the CCA class, acquisition date, business-use percentage and date the asset will be available for use.

• Keep invoices, contracts, project plans and technical records for capital purchases and any SR&ED work.

• Before issuing shares or planning a business sale, review the CGI and small-business rollover conditions with a tax professional.

• Revisit personal and corporate instalment forecasts for 2028, rather than assuming the changes apply to 2026 or 2027.

• Review foreign asset cost amounts and fiscal year-ends before applying the proposed T1135 thresholds.

• Keep GST/HST, payroll and corporate filing calendars separate from the proposed T1 deadline change.

How Presyz can support your business

Budget announcements are easier to assess when your bookkeeping, tax records and cash-flow information are up to date. Presyz provides Ontario-focused accounting and tax support for individuals and small businesses. Depending on your needs, support can include

monthly bookkeeping, GST/HST filing and support, payroll support, corporate tax preparation, and personal tax preparation. Management reporting and fractional CFO support can also help owners understand cash flow, planned investments and business performance.

Explore Presyz services or contact Presyz to discuss the accounting or tax support relevant to your circumstances.

Official sources and further reading

Government of Canada – Budget 2026 tax measures: Supplementary Information

Department of Finance Canada – Productivity Mega Deduction backgrounder (September 15, 2026)

This article is for general information and reflects Budget 2026 proposals and announcements available on November 6, 2026. A budget proposal is not necessarily enacted law. Eligibility, effective dates and filing obligations depend on the final legislation and the taxpayer’s facts. This article is not individualized tax, legal or investment advice.