Federal Budget 2025 sets up a year of transition. Businesses will move from reacting to new measures to actively planning their timing, phase-ins, and administrative requirements.
Many of the most meaningful tax and funding changes take effect in 2026, creating a window for Canadian organizations to update processes, structure capital investments, and prepare compliance systems before the new rules arrive.
This third tax development in Ryan’s Federal Budget series looks ahead to 2026 and outlines what Canadian businesses should focus on as they prepare for the next fiscal cycle.
Capital Planning
Immediate Expensing for Manufacturing and Processing Buildings
Budget 2025 introduced a temporary 100% first-year deduction for eligible manufacturing and processing buildings. The measure applies to property acquired on or after November 4, 2025, and first used before 2030, with a gradual phase-down beginning in 2030.
Planning Considerations
- Review capital project timelines now to determine what might qualify for the full 100% deduction or one of the enhanced capital cost allowance rates available during the phase-out period.
- Ensure building-use thresholds (minimum 90% of floor space used for manufacturing or processing) for eligible properties are documented from the outset.
- Track any additions or alterations to eligible properties and assess potential recapture risk where there will be change in use.
- For projects yet to begin construction, consider confirming eligibility in advance to support cash-flow modelling.
Clean Investment Strategy
Canada’s investment tax credits (ITCs) for clean technologies, including clean technology manufacturing and clean electricity, are intended to be long-term drivers of project planning. Budget 2025 extended and expanded many of these credits, with several key takeaways:
- Full rates for the Carbon Capture, Utilization, and Storage ITC have been extended to 2035.
- Five new critical minerals were added to the eligibility list for the Clean Technology Manufacturing ITC.
- The Clean Electricity ITC eligibility criteria have been updated to allow Canada Growth Fund participation.
Planning Considerations
- Reassess energy transition project timelines using updated ITC availability periods.
- Model how the newly eligible critical minerals may affect ITC eligibility for manufacturing investments.
- For utilities and developers, determine the impact of any Canada Growth Fund financing on cost-base calculations.
- Consider whether clean-tech projects that are eligible for ITCs can be aligned with other funding programs, including the Industrial Research Assistance Program (IRAP) and the new Strategic Response Fund.
Compliance Updates: New Rules Coming into Effect
Transfer Pricing Reform
Budget 2025 aims to modernize Canada’s transfer pricing framework with tighter documentation requirements and timelines, a higher penalty threshold, and revised rules and definitions that align with Organisation for Economic Co-operation and Development (OECD) guidance.
Effective for taxation years beginning after November 4, 2025, many corporations will experience their first full-year compliance cycle under the new rules in 2026.
Planning Considerations
- Evaluate current transfer pricing documentation processes in light of a potential 30-day response requirement.
- Update functional analyses and evaluate intercompany agreements in the context of new definitions for “arm’s length conditions” and “economically relevant characteristics.”
- Review global file-sharing workflows to avoid potential data gaps.
- Reassess potential penalty exposure given the increased $10 million threshold.
Preparing for SR&ED Changes Effective April 1, 2026
Budget 2025 confirmed several significant enhancements to the Scientific Research and Experimental Development (SR&ED) tax credit program, including:
- An increase to the enhanced 35% credit expenditure limit (from $3 million to $6 million)
- Restored capital expenditure eligibility
- Eligibility extended to certain Canadian public corporations
- A new elective pre-claim approval process
- Plans to streamline the Canada Revenue Agency’s administrative approach using artificial intelligence to triage claims and reduce audit frequency
Planning Considerations
- Review all research and development projects and identify those that may benefit from the new rules.
- Identify capital assets that may be eligible expenditures starting in 2026.
- Consider potential use of the optional pre-claim approval program to take advantage of reduced review times.
Indirect Tax Awareness
For the calendar year 2025 and beyond, taxpayers no longer have obligations under the Underused Housing Tax (UHT).
Other key commodity tax announcements in Budget 2025 included:
- A proposed reverse-charge mechanism for certain telecommunications services (consultations open until January 12, 2026)
- Clarification that osteopathic services are taxable unless provided by osteopathic physicians
- Elimination of the Luxury Tax on aircraft and vessels (effective November 5, 2025)
Planning Considerations
- Update internal taxability matrices for Goods and Service Tax/Harmonized Sales Tax (GST/HST) on osteopathic services, if applicable.
- Confirm that any UHT compliance obligations for 2022 to 2024 are complete.
- Luxury Tax registrants should track any outstanding rebates in respect of subject aircraft and vessel sales to ensure claims are submitted in advance of the final deadline of February 1, 2028.
Government Funding Programs to Watch
Budget 2025 included structural changes to several federal funding and export programs, including:
- Consolidation of multiple innovation and investment programs under the Strategic Response Fund
- Additional support for the CanExport SMEs program
- Introduction of an SME Export Readiness Initiative
- Expansion of IRAP funding for international demonstration projects
- Introduction of workforce programs to support retraining, labour market development, and Employment Insurance flexibility
Planning Considerations
- Align growth and capital plans with the Strategic Response Fund’s broader funding envelope.
- Evaluate export-market strategies using updated CanExport support options.
- Identify technology, commercialization, and pilot projects that may be eligible for IRAP’s expanded scope.
- Reinforce workforce planning using Budget 2025’s retraining and work-sharing supports.
Our Ryan Team Can Help
Our Ryan tax and funding specialists can help you evaluate how Budget 2025 measures will affect your 2026 planning cycle. Connect with your Ryan representative or contact us at taxdirect@ryan.com or 1.800.667.1600.
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