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)
92 (1) Subparagraph 241(4)(d)(vi.1) of the Act is amended by striking “and” at the end of clause (C), by adding “and” at the end of clause (D) and by adding the following after clause (D):
(E) a property is a clean electricity property (as defined in subsection 127.491(1)) or a qualified natural gas energy equipment (as defined in subsection 127.491(1)), or whether a system is a qualified natural gas energy system (as defined in subsection 127.491(1)),
(2) Subparagraph 241(4)(d)(vi.2) of the Act is replaced by the following:
(vi.2) to a person employed or engaged in the service of an office or agency of the Government of Canada solely for the purposes of administering or enforcing sections 127.44 to 127.491 and 211.92 to 211.95 or the evaluation or formulation of related policies or guidelines,
(3) Paragraph 241(4)(d) of the Act is amended by adding the following after subparagraph (x.1):
(x.2) to an official of the Department of Employment and Social Development solely for the purpose of the administration or enforcement of the Canada Labour Code as it relates to the misclassification of employees,
(4) Subsections (1) and (2) are deemed to have come into force on April 16, 2024.
93 (1) The definitions arm’s length allocation, arm’s length transfer price, tax benefit and transfer price in subsection 247(1) of the Act are repealed.
(2) The definitions transfer pricing income adjustment and transfer pricing income setoff adjustment in subsection 247(1) of the Act are replaced by the following:
- transfer pricing income adjustment
transfer pricing income adjustment of a taxpayer for a taxation year means the total of all amounts each of which is the amount, if any, by which an adjustment made under subsection (2.02) (other than an adjustment included in determining a transfer pricing capital adjustment of the taxpayer for a taxation year) would result in an increase in the taxpayer’s income for the year or a decrease in a loss of the taxpayer for the year from a source if that adjustment were the only adjustment made under subsection (2.02). (redressement de revenu)
- transfer pricing income setoff adjustment
transfer pricing income setoff adjustment of a taxpayer for a taxation year means the total of all amounts each of which is the amount, if any, by which an adjustment made under subsection (2.02) (other than an adjustment included in determining a transfer pricing capital setoff adjustment of the taxpayer for a taxation year) would result in a decrease in the taxpayer’s income for the year or an increase in a loss of the taxpayer for the year from a source if that adjustment were the only adjustment made under subsection (2.02). (redressement compensatoire de revenu)
(3) Subparagraph (a)(i) of the definition transfer pricing capital adjustment in subsection 247(1) of the Act is replaced by the following:
(i) 1/2 of the amount, if any, by which the adjusted cost base to the taxpayer of a capital property (other than a depreciable property) is reduced in the year because of an adjustment made under subsection (2.02), or
(4) Subparagraph (a)(iii) of the definition transfer pricing capital adjustment in subsection 247(1) of the Act is replaced by the following:
(iii) the amount, if any, by which the capital cost to the taxpayer of a depreciable property is reduced in the year because of an adjustment made under subsection (2.02); and
(5) Subparagraph (b)(i) of the definition transfer pricing capital adjustment in subsection 247(1) of the Act is replaced by the following:
(i) 1/2 of the amount, if any, by which the adjusted cost base to a partnership of a capital property (other than a depreciable property) is reduced in a fiscal period that ends in the year because of an adjustment made under subsection (2.02), and
(6) Subparagraph (b)(iii) of the definition transfer pricing capital adjustment in subsection 247(1) of the Act is replaced by the following:
(iii) the amount, if any, by which the capital cost to a partnership of a depreciable property is reduced in the period because of an adjustment made under subsection (2.02),
(7) Subsection 247(1) of the Act is amended by adding the following in alphabetical order:
- actual conditions
actual conditions, in respect of a transaction or series of transactions, means the conditions that actually apply between any of the participants in the transaction or series. (conditions réelles)
- arm’s length conditions
arm’s length conditions, in respect of a transaction or series of transactions, means the conditions that would have applied had the participants been dealing at arm’s length in comparable circumstances, including the possibility that no transaction or series, or a different transaction or series, would have been concluded had the participants been dealing at arm’s length in comparable circumstances. (conditions de pleine concurrence)
- economically relevant characteristics
economically relevant characteristics, in respect of a transaction or series of transactions, includes
(a) to the extent that the following contractual terms are not inconsistent with the actual conduct of the participants in the transaction or series,
(i) the contractual terms of the transaction or series, and
(ii) the contractual terms of each other transaction or series that is relevant to the transaction or series and that involves at least one of the participants or any other member of the multinational enterprise group;
(b) the actual conduct of the participants in the transaction or series, and in particular the functions performed by those participants, taking into account
(i) assets used and risks assumed,
(ii) how those functions relate to the wider generation of value by the multinational enterprise group to which the participants belong,
(iii) circumstances surrounding the transaction or series, and
(iv) industry practices;
(c) the characteristics of any property transferred or service provided;
(d) the economic circumstances of the participants and of the market in which the participants operate; and
(e) the business strategies pursued by the participants. (caractéristiques économiquement pertinentes)
- multinational enterprise group
multinational enterprise group means the group made up of the taxpayer or the partnership, or member of the partnership, and the non-resident person (or a partnership of which the non-resident person is a member) who are participants in a transaction or series of transactions referred to in subsection (2), as well as any other person that does not deal at arm’s length with at least one of the participants. (groupe d’entreprises multinationales)
- Transfer Pricing Guidelines
Transfer Pricing Guidelines means
(a) if no text is prescribed under paragraph (b), the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, as adopted by the Committee on Fiscal Affairs on January 7, 2022; or
(b) any text prescribed by regulation. (Principes applicables en matière de prix de transfert)
(8) Subsection 247(2) of the Act is replaced by the following:
Marginal note:Delineation of transaction or series
(1.1) For the purposes of this section, a transaction or series of transactions is to be analyzed and determined with reference to the economically relevant characteristics of the transaction or series.
Marginal note:Interpretation of conditions
(1.2) For the purposes of the definitions actual conditions and arm’s length conditions in subsection (1), the word “conditions” is to be interpreted broadly, and includes, but is not limited to, price, rate, gross margin, net margin, the division of profit, contributions to costs and any commercial or financial information relevant to the determination of the quantum or nature of initial amounts or adjusted amounts, as the case may be.
Marginal note:Transfer pricing adjustment — application
(2) Subsection (2.02) applies to a taxpayer or a partnership in respect of a transaction or series of transactions if
(a) the taxpayer or the partnership and a non-resident person with whom the taxpayer or the partnership, or a member of the partnership, does not deal at arm’s length (or a partnership of which the non-resident person is a member) are participants in the transaction or series; and
(b) the transaction or series includes actual conditions different from arm’s length conditions.
Marginal note:Transfer pricing adjustment — deeming rule
(2.01) For the purposes of paragraph (2)(b), a transaction or series of transactions is deemed to include actual conditions different from arm’s length conditions if a condition does not exist in respect of the transaction or series, but would have existed had the participants in the transaction or series been dealing at arm’s length in comparable circumstances.
Marginal note:Transfer pricing adjustment
(2.02) If this subsection applies to a taxpayer or a partnership in respect of a transaction or series of transactions, any amounts (in this section referred to as the “initial amounts”) that would be determined for the purposes of applying the provisions of this Act (if this Act were read without reference to this section and section 245) in respect of the taxpayer or the partnership for a taxation year or fiscal period are to be adjusted (in this section referred to as an “adjustment”) to the quantum or nature of the amounts (in this section referred to as the “adjusted amounts”) that would have been determined if arm’s length conditions in respect of the transaction or series had applied.
Marginal note:Transfer Pricing Guidelines
(2.03) For the purposes of determining the effect of this Part in relation to a taxpayer or a partnership, each of the analysis and determination of a transaction or series of transactions under subsection (1.1), the identification of arm’s length conditions under paragraph (2)(b) and the determination of amounts under subsection (2.02) are to be made so as to best achieve consistency with the Transfer Pricing Guidelines.
Marginal note:Most appropriate method
(2.04) For the purposes of this Part, whether a transaction or series of transactions includes actual conditions that differ from arm’s length conditions is to be determined through an analysis where the most appropriate method is selected and applied in accordance with the Transfer Pricing Guidelines.
(9) The portion of subsection 247(2.1) of the Act before paragraph (a) is replaced by the following:
Marginal note:Ordering
(2.1) For the purpose of applying subsection (2.02) in the context of the other provisions of this Act, the following order is to be applied:
(10) Paragraph 247(2.1)(c) of the Act is replaced by the following:
(c) then apply each of the provisions of this Act (other than subsection (2.02) and, for greater certainty, including section 245) using the adjusted amounts.
(11) Subparagraphs 247(3)(a)(ii) and (iii) of the Act are replaced by the following:
(ii) the total of all amounts each of which is the portion of the taxpayer’s transfer pricing capital adjustment or transfer pricing income adjustment for the year that can reasonably be considered to relate to a particular transaction or series of transactions, where
(A) the transaction or series is a qualifying cost contribution arrangement in which the taxpayer or a partnership of which the taxpayer is a member is a participant, or
(B) in any other case, the taxpayer or a partnership of which the taxpayer is a member made reasonable efforts to determine amounts that are based on arm’s length conditions in respect of the transaction or series, and to use those amounts for the purposes of this Act, and
(iii) the total of all amounts, each of which is the portion of the taxpayer’s transfer pricing capital setoff adjustment or transfer pricing income setoff adjustment for the year that can reasonably be considered to relate to a particular transaction or series, where
(A) the transaction or series is a qualifying cost contribution arrangement in which the taxpayer or a partnership of which the taxpayer is a member is a participant, or
(B) in any other case, the taxpayer or a partnership of which the taxpayer is a member made reasonable efforts to determine amounts that are based on arm’s length conditions in respect of the transaction or series, and to use those amounts for the purposes of this Act,
(12) Subparagraphs 247(3)(b)(i) and (ii) of the Act are replaced by the following:
(i) 10% of the amount that would be the taxpayer’s gross revenue for the year if this Act were read without reference to subsection (2.02), subsections 69(1) and (1.2) and section 245, and
(ii) $10,000,000.
(13) Subsection 247(4) of the Act is replaced by the following:
Marginal note:Contemporaneous documentation
(4) For the purposes of subsection (3) and the definition qualifying cost contribution arrangement in subsection (1), a taxpayer or a partnership is deemed not to have made reasonable efforts to determine and use amounts that are based on arm’s length conditions in respect of a transaction or series of transactions or not to have participated in a transaction or series that is a qualifying cost contribution arrangement, unless the taxpayer or the partnership, as the case may be,
(a) makes or obtains, on or before the taxpayer’s or partnership’s documentation-due date for the taxation year or fiscal period, as the case may be, in which the transaction or series is entered into, records or documents that provide a description that is complete and accurate in all material respects of
(i) the property or services to which the transaction or series relates,
(ii) the contractual terms of the transaction or series and their relationship, if any, to the contractual terms of each other transaction or series that is relevant to the transaction or series and that involves at least one of the participants or any other member of the multinational enterprise group,
(iii) the identity of the participants and their relationship to each other at the time the transaction or series was entered into,
(iv) the functions performed by each of the participants in the transaction or series, based on their actual conduct, taking into account
(A) assets used and risks assumed,
(B) how those functions relate to the wider generation of value by the multinational enterprise group to which the participants belong,
(C) circumstances surrounding the transaction or series, and
(D) industry practices,
(v) the data and methods considered and the analysis performed to determine amounts that are based on arm’s length conditions and to select and apply the most appropriate method in accordance with the Transfer Pricing Guidelines in respect of the transaction or series, and
(vi) the economic circumstances, assumptions, policies and business strategies, if any, that influenced the determination of the amounts that are based on arm’s length conditions in respect of the transaction or series;
(b) for each subsequent taxation year or fiscal period, if any, in which the transaction or series continues, makes or obtains, on or before the taxpayer’s or partnership’s documentation-due date for that year or period, as the case may be, records or documents that completely and accurately describe each material change in the year or period to the matters referred to in any of subparagraphs (a)(i) to (vi) in respect of the transaction or series; and
(c) provides the records or documents described in paragraphs (a) and (b) to the Minister within 30 days after service, made personally or by registered or certified mail, of a written request therefor.
Marginal note:Contemporaneous documentation simplification measures
(4.1) Subsection (4) does not apply to a taxpayer or partnership for a particular taxation year or fiscal period in respect of a transaction or series if the taxpayer or partnership
(a) meets prescribed conditions; and
(b) makes, obtains and provides prescribed documentation in prescribed manner.
(14) Subsection 247(7) of the Act is replaced by the following:
Marginal note:Exclusion — loans to certain controlled foreign affiliates
(7) Where, in a taxation year of a corporation resident in Canada, a non-resident person owes an amount to the corporation, the non-resident person is a controlled foreign affiliate of the corporation for the purpose of section 17 throughout the period in the year during which the amount is owing and it is established that the amount owing is an amount owing described in paragraph 17(8)(a) or (b), subsection (2.02) does not apply to adjust the amount of interest paid, payable or accruing in the year on the amount owing.
(15) The portion of subsection 247(7.1) of the Act before paragraph (a) is replaced by the following:
Marginal note:Exclusion — certain guarantees
(7.1) Subsection (2.02) does not apply to adjust an amount of consideration paid, payable or accruing to a corporation resident in Canada (in this subsection referred to as the “parent”) in a taxation year of the parent for the provision of a guarantee to a person or partnership (in this subsection referred to as the “lender”) for the repayment, in whole or in part, of a particular amount owing to the lender by a non-resident person, if
(16) Subsection 247(10) of the Act is replaced by the following:
Marginal note:No adjustment unless appropriate
(10) An adjustment (other than an adjustment that results in or increases a transfer pricing capital adjustment or a transfer pricing income adjustment of a taxpayer for a taxation year) shall not be made under subsection (2.02) unless, in the opinion of the Minister, the circumstances are such that it would be appropriate that the adjustment be made.
(17) Subparagraph 247(12)(b)(i) of the Act is amended by striking out “and” at the end of clause (A) and by replacing clause (B) with the following:
(B) the definition transfer pricing capital adjustment in subsection (1) were read without reference to the references therein to “1/2 of”, and
(C) the definition transfer pricing income adjustment in subsection (1) were read as follows: “of a taxpayer for a taxation year means the total of all amounts each of which is the amount, if any, that would result, from an adjustment made under subsection (2.02) (other than an adjustment included in determining a transfer pricing capital adjustment of the taxpayer for a taxation year), in an increase in the taxpayer’s income for the year or a decrease in a loss of the taxpayer for the year from a source if that adjustment were the only adjustment made under subsection (2.02)”
(18) Subparagraph 247(12)(b)(ii) of the Act is amended by striking out “and” at the end of clause (A) and by replacing clause (B) with the following:
(B) the definition transfer pricing capital adjustment in subsection (1) were read without reference to the references therein to “1/2 of”,
(C) the definition transfer pricing income adjustment in subsection (1) were read as follows: “of a taxpayer for a taxation year means the total of all amounts each of which is the amount, if any, that would result, from an adjustment made under subsection (2.02) (other than an adjustment included in determining a transfer pricing capital adjustment of the taxpayer for a taxation year), in an increase in the taxpayer’s income for the year or a decrease in a loss of the taxpayer for the year from a source if that adjustment were the only adjustment made under subsection (2.02)”, and
(D) the definition transfer pricing income setoff adjustment in subsection (1) were read as follows: “of a taxpayer for a taxation year means the total of all amounts each of which is the amount, if any, that would result, from an adjustment made under subsection (2.02) (other than an adjustment included in determining a transfer pricing capital set-off adjustment of the taxpayer for the taxation year), in a decrease in the taxpayer’s income for the year or in an increase in a loss of the taxpayer for the year from a source if that adjustment were the only adjustment made under subsection (2.02)”.
(19) Subsections (1) to (18) apply to taxation years and fiscal periods that begin after November 4, 2025.
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