Draft Legislation Released July 23, 2026

While Canadians were enjoying the height of summer 2026, Finance Canada released draft legislation for a number of previously announced tax measures including new rules for the disabled, apprentices in the trades, those with automobile benefits, farmers on the prairies and business owners buying assets or remitting GST/HST. A consultation has been issued on the proposed new rules, which must be emailed to the department by September 4.  There are some important changes, some summarized below, which will also be covered in the September 23 CE Summit.

• The Disability Tax Credit (DTC).  Changes are proposed to streamline the application process for individuals with certain long-lasting medical conditions and expand the list of medical practitioners who can certify eligibility for the DTC.

• Taxable status of the Red Seal Completion Bonus.  The government intends to increase apprenticeship completion rates by providing a one-time $5,000 bonus to apprentices obtaining certification in a Red Seal trade.

• Changes to Automobile Expense Benefits.   Paragraph 6(1)(k)(l) and subsection 6 (2) are being amended with regard to automobile operating expense benefits, effective the 2026 tax year.  The standby charge will now apply if the employer-provided vehicle is used by someone who does not deal at arm’s length to the employee, including a spouse for example.

• Investment Tax Credit Eligibility for Carbon Capture, Utilization, and Storage (CCUS).  The storage of CO2 through enhanced oil recovery will be eligible for the CCUS investment tax credit, at half the credit rates available for dedicated geological storage.

• Reinstatement Of Accelerated Capital Cost Allowances.  This is specifically for eligible liquefied natural gas (LNG) equipment and related buildings for low-carbon LNG facilities.

• Farmers in Manitoba, Saskatchewan, Alberta.  Other technical amendments include important new  rules for these farmers.  Under Section 80.3 of the ITA, a tax deferral is allowed for the proceeds of unusually high sales of breeding herds due to drought, flooding  or excessive moisture conditions.  The amount deducted in one year must be included in the next or following years. 

Effective 2025 and subsequent years, income related to the forced destruction of livestock due to bovine tuberculosis will be included income as follows:

• by the end of the 2027 taxation year, at least 83% of the amount deducted in 2025 or 2026;
• by the end of the 2028 taxation year, at least 92% of the amount deducted in 2025 or 2026;
• by the end of the 2029 taxation year, at least 96% of the amount deducted in 2025 or 2026; and
• by the end of the 2030 taxation year, 100% of the amount deducted in 2025 or 2026.

An election must be made under new subsection 80.3 (3.2).  It is also important to note that the amounts in question must be added to farmer’s income at the earliest of:

• the relevant year, in respect of each designated minimum portion specified as above.
• the year in which the taxpayer dies; and
• the first year after the year in which the taxpayer is a non-resident and is not carrying on business through a fixed place of business in Canada.

• Zero Rated Goods.  The draft legislation also includes amendments to the Agriculture and Fishing Property (GST/HST) Regulations.  This will add a new zero-rated class of prescribed property: agricultural quotas supplied by lease, licence or similar arrangement.

• Goods And Services Tax/Harmonized Sales Tax (GST/HST) Reverse Charge Mechanism.  This will be implemented for certain supplies in the telecommunications sector to help prevent “carousel fraud”.  The government explains this includes situations where transactions flow through a fabricated supply chain, in which a group of entities, who work together, sell or appear to sell goods to each other. At least one GS/HST registrant, known as the “missing trader”, will charge GST/HST but will not remit it to the government.  There may also be a “zero-rater” whose business activities appear to change the taxable status of the supply to zero, while still claiming input tax credits.  The result is significant tax leakage.  

• Book Rebate Allowed.  The Federal Book Rebate (GST/HST) Regulations will be amended to permit Wonderful World of Books, a registered charity in B.C., to claim the federal printed book rebate for GST paid on printed books and certain audio recordings in the course of promoting literacy.  To do this, complete Form GST189 (General Application for Rebate of GST/HST).  The applicant must be a prescribed literacy organization, public service body, or qualifying non-profit.

• Hybrid Mismatch Arrangements.  New rules have been provided, implementing the recommendations of the report under Action 2 of the OECD/G20 Base Erosion and Profit Shifting project, titled Neutralising the Effects of Hybrid Mismatch Arrangements.

• Taxation Of Investment Income of A Foreign Affiliate on Assets Backing Canadian Insurance Risk.  This income will be considered foreign accrual property income and therefore subject to taxation in Canada.

• Simplified Transfer Pricing Documentation.  This will be allowed in four scenarios: small taxpayers and partnerships, small transfers of tangible property, small intragroup services transactions, and small loans.

Bottom Line:   Don’t forget to register now for the September 23 CE Summit where the focus will be on these amendments and other tax news for 2026 tax filings and, importantly,  issues in audit defence management. Check out the dynamic agenda and outstanding Faculty who will bring this content to life for you.

Also, remember to weigh in with your thoughts on this mid summer release on this important draft legislation.  Email them by September 4, 2026 to consultation-legislation@fin.gc.ca.

For the detailed agenda and registration, visit: learn.knowledgebureau.com/ces-26audit