Bill C-15 Canadian Tax Changes: What Firms Need to Know Now

Bill C-15 received royal assent on 26 March 2026 and immediately reshaped several core areas of Canadian business taxation. The amendments to the Income Tax Act and federal Income Tax Regulations touch capital gains rollover planning, foreign affiliate income, trust reporting, investment tax credits, transfer pricing, and capital cost allowance incentives. For accounting firms and CFOs advising Canadian businesses, the window for proactive planning is already open.

Capital Gains Rollover: Expanded Eligibility and a Longer Reinvestment Window

The revisions to the capital gains rollover rules are effective for dispositions on or after 1 January 2025, meaning clients who completed qualifying transactions last year may already be affected.

What Has Changed

The rollover applies when an individual sells shares of a qualifying small business and reinvests the proceeds into another eligible small business investment within a specified period. Three amendments expand the scope significantly. First, preferred shares now qualify as replacement shares, broadening the reinvestment options available to founders and investors. Second, the asset size test has doubled: a corporation whose total assets, combined with those of related corporations, do not exceed $100 million (up from $50 million) can now qualify. Third, the reinvestment window has been extended. Replacement shares previously had to be acquired in the year of disposition or within 120 days after year-end; the new rule allows acquisition in the year of disposition or the full following calendar year.

These changes are particularly relevant for founders and investors in technology, life sciences, and manufacturing, where capital is routinely redeployed into new ventures. The expanded rollover can improve after-tax cash flow and reduce friction when moving capital between Canadian operating businesses. For clients reviewing Canadian crypto tax reporting obligations for accounting firms, this is a timely reminder that the timing of dispositions now carries greater strategic weight.

Foreign Accrual Business Income: A New Election Regime

Canadian corporations with controlled foreign affiliates earning certain types of income have long navigated the foreign accrual property income (FAPI) rules. Bill C-15 introduces a new foreign accrual business income (FABI) regime under section 93.4 of the Income Tax Act, designed to better align Canadian tax treatment with what would have applied had similar income been earned through a Canadian corporation.

The Section 93.4 Election

The relevant tax factor, which is used to calculate the foreign accrual tax deduction, had been reduced to 1.9 for Canadian-controlled private corporations (CCPCs) and substantive CCPCs (SCCPCs). Section 93.4 allows eligible taxpayers to elect into a more favourable calculation that restores the factor to 4 for qualifying FABI. A related election can apply similar treatment to certain dividends paid from a foreign affiliate's FABI surplus. Retroactive elections are also permitted in certain circumstances. The rules generally apply to taxation years beginning after 2024.

The practical effect for CCPCs and SCCPCs with foreign affiliates earning income through real estate development, leasing structures, or cross-border service arrangements is a potential reduction in double taxation and improved cash flow. Groups in this position should model the election scenarios before their first affected filing.

Trust Reporting: Targeted Relief for Common Structures

Bill C-15 amends the trust reporting rules that had been significantly expanded in recent years, which created broad T3 and Schedule 15 filing obligations for a wide range of arrangements.

New Exemptions and the Revised Bare Trust Definition

Listed trusts now need to meet an additional criterion, such as having tax payable in the year, before a return is required. Listed trusts are also exempt from filing Schedule 15, which requires disclosure of each trustee, beneficiary, settlor, and any person able to influence distributions.

Several categories are now exempt from the Schedule 15 requirement. These include certain family trusts where all trustees and beneficiaries are individuals related to each trustee and whose assets consist only of cash, guaranteed investment certificates, publicly traded shares, or personal use property not exceeding $250,000 in total. Certain regulated trust accounts holding money valued at $250,000 or less are also exempt, as are trusts that would qualify as graduated rate estates.

The definition of a bare trust arrangement has been replaced with a new deemed trust rule that includes specific carve-outs for common situations: certain principal-residence title arrangements, cases where all legal owners are also beneficiaries, and certain partnership title-holding structures. Advisers working with family trusts, bare trusts, and professional trust accounts should review existing structures against the new criteria promptly. For context on how CPA Canada is approaching crypto accounting standards, the direction of travel is toward clearer, more targeted compliance obligations rather than blanket disclosure.

Employee Ownership Trusts and the $10 Million Exemption

The new legislation preserves the $10 million capital gains exemption for qualifying sales to an employee ownership trust (EOT), effective 1 January 2024. Clarifications address how the 24-month holding period test applies where shares are issued in exchange for other shares, and when the actively engaged requirement is considered satisfied. Notably, the capital gain arising on the transfer is now erased entirely if no disqualifying events occur within 10 years, replacing the previous approach under which the gain was deferred indefinitely. This is a material change for business owners considering an EOT transaction.

SR&ED Investment Tax Credits: Higher Limits and New Eligibility

Canada's Scientific Research and Experimental Development (SR&ED) program has been expanded under Bill C-15, with two sets of changes that affect both private and public corporations.

Increased Expenditure Limits and Phase-Out Thresholds

The annual expenditure limit for the enhanced 35% investment tax credit increases from $3 million to $6 million. The taxable capital phase-out range, which determines eligibility for the full limit, shifts from $10 million to $50 million up to $15 million to $75 million. Eligible Canadian public corporations (ECPCs) and their consolidated groups can now also access the enhanced 35% credit for up to $6 million in qualifying annual expenditures, a significant extension of the program's reach beyond the private corporation sector.

For firms advising clients with active R&D programs, revisiting SR&ED claim strategies under the new thresholds is a priority action for the current taxation year.

Other Measures: Repeals and CCA Changes

Bill C-15 also repeals the Digital Services Tax Act, the underused housing tax, and the federal luxury tax on aircraft and vessels. Capital cost allowance incentives have been updated as well, though the specific rate changes are detailed in the federal Income Tax Regulations. Affected clients should confirm whether any CCA claims in progress need to be recalculated under the revised rules.

What should accounting firms do first under Bill C-15?

Identify clients with qualifying small business share dispositions dating back to 1 January 2025, review foreign affiliate structures for FABI election eligibility, and audit existing trust arrangements against the new Schedule 15 exemption criteria.

Which clients are most affected by the FABI election?

CCPCs and SCCPCs with controlled foreign affiliates earning income through real estate development, leasing, or cross-border service arrangements stand to benefit most. The election can restore the relevant tax factor from 1.9 to 4, reducing the Canadian tax cost on qualifying income.

Do all trusts still need to file Schedule 15?

No. Listed trusts are now exempt from Schedule 15 entirely. Additional exemptions apply to certain family trusts, regulated trust accounts, and trusts that would qualify as graduated rate estates, subject to the asset and relationship conditions described in the legislation.

How does the EOT capital gains exemption work after Bill C-15?

The $10 million capital gains exemption for qualifying sales to an EOT is preserved and effective from 1 January 2024. The gain is now erased rather than deferred, provided no disqualifying events occur within 10 years of the transfer.

What SR&ED changes apply to public corporations?

Eligible Canadian public corporations and their consolidated groups can now access the enhanced 35% SR&ED investment tax credit on up to $6 million in qualifying annual expenditures, a category that was previously limited to private corporations.

Source: RSM Global