Budget 2026 (tabled November 5, 2026) sets out changes to several tax rules for owners of small businesses. Some of the changes start in 2027 or 2028. Others start on royal assent or on a date tied to it. This guide goes through each measure in plain language.
Most sections end with an example. Dave is a Langley contractor with a corporation. He pays himself dividends. Sam is a separate person. He is an Abbotsford sole proprietor who reports his business income on his own return. The dollar amounts in the examples are round figures chosen to show the arithmetic. They are not tax advice for anyone.
The measures at a glance
| Measure | What Budget 2026 sets | Timing in the annex |
|---|---|---|
| Capital gains exemption | $15 million limit per qualifying individual, per business | Shares issued on or after Budget Day and before 2037 |
| Instalment threshold | $3,000 becomes $7,500 (outside Quebec) | Tax years beginning on or after January 1, 2028 |
| Single annual instalment | Two thirds of net tax owing by December 31 | 2028 and later tax years |
| Filing and balance-due date | May 15 for all individuals | 2027 and later tax years |
| Form T1135 | Filing threshold $100,000 becomes $200,000 | Tax years or fiscal periods ending after 2026 |
| Preferred shares | Dividend allowance $500,000 becomes $1,500,000 | Tax years ending after 2026 |
| Credit bureau reporting | Tax debts over $50,000 | On royal assent |
| Objection deadline | One year after the notice of assessment | Assessments sent on or after the day three months after royal assent |
| Fixed penalties | Older penalties go up by a factor of two or three | Tax years or fiscal periods ending after 2027 |
| Productivity Mega Deduction | Listed among previously announced measures | Covered in our guide |
The $15 million Canada Growth Incentive exemption
Budget 2026 sets out a tax exemption for a Canadian-resident individual on capital gains from selling qualifying shares of a qualifying corporation. The limit is $15 million. It applies separately to each qualifying individual for each business. Budget 2026 applies it to qualifying shares issued on or after Budget Day and before 2037.
A qualifying individual is not a trust and is at least 18 years old when the shares are acquired. The shares must be held for at least 36 consecutive months before the sale. The business must be carried on primarily in Canada.
Budget 2026 excludes some businesses. The excluded list covers consulting businesses and the professional practices of accountants, lawyers, notaries, physicians, other health care practitioners, engineers and architects. It also covers any business whose principal asset is the reputation or skill of its employees. Businesses in agriculture, fishing, forestry, mining, finance, insurance, utilities, real estate, food and accommodation, arts, recreation and entertainment are excluded. So is a business operating under a licensing or franchising agreement.
Budget 2026 also links the new exemption to the existing lifetime capital gains exemption. A claim of one on the shares of a corporation limits the other on the same corporation. Our lifetime capital gains exemption guide explains the existing exemption.
Dave’s example
Suppose Dave sells shares of his corporation and has a gain of $4,000,000. That gain is inside the $15,000,000 limit. The excluded list does not name contractors. That does not mean Dave qualifies. The issue date, age, residency, holding period and other tests still apply.
Instalment threshold: $3,000 becomes $7,500
Budget 2026 raises the instalment threshold from $3,000 to $7,500. This covers corporations and individuals who live outside Quebec. The threshold is indexed to inflation. It applies to tax years that begin on or after January 1, 2028.
Under current rules, the test looks at three years. The threshold must be exceeded in the current year and in either of the two previous years. For individuals outside Quebec, the amount tested is combined federal-provincial net tax owing on income that has no tax withheld. That income includes business income and dividends. The amount includes BC tax.
Dave’s example
Suppose Dave owes $6,000 of net tax on dividends in each of 2026, 2027 and 2028. Under current rules, that is above the $3,000 threshold. Under Budget 2026, the threshold for 2028 is $7,500. His $6,000 is not above it, so he makes no instalments for 2028. Any remaining tax is due on the balance-due date.
A single annual instalment for business income
Budget 2026 lets an individual whose primary source of income is a business make one annual instalment instead of quarterly instalments. Professional and commission income count as business income. The single payment equals two thirds of combined federal-provincial net tax owing for the year. It is due by December 31. The remainder is due on the balance-due date.
Farming and fishing income already get similar treatment. Budget 2026 extends it to other business income for 2028 and later years.
Sam’s example
Suppose Sam’s combined net tax owing for 2028 is $12,000. Two thirds is $8,000, due by December 31. The remaining $4,000 is due on the balance-due date.
May 15 filing and balance-due date
Under current rules, most individuals file their T1 return and pay any balance owing by April 30. Self-employed individuals and their spouses or common-law partners have until June 15 to file, but any balance owing is still due April 30.
Budget 2026 changes the T1 filing date and the balance-due date to May 15 for all individuals, self-employed people included. It applies to the 2027 and later tax years.
Dave’s and Sam’s examples
For the 2027 year, Dave’s balance-due date moves from April 30 to May 15. That is 15 days later. Sam is self-employed, so his filing date moves from June 15 to May 15. That is 31 days earlier. His balance-due date also moves 15 days later. Our BC small business tax deadlines calendar lists the deadlines for 2026 and 2027.
Form T1135: $100,000 becomes $200,000
Canadian-resident individuals, corporations and trusts, and certain partnerships, file Form T1135 if they own specified foreign property with a total cost of more than $100,000 at any time in the year. Budget 2026 raises that threshold to $200,000. It also raises the simplified reporting threshold from less than $250,000 to less than $500,000. Both changes apply to tax years or fiscal periods that end after 2026.
Specified foreign property generally includes most types of income-earning property held outside Canada. Personal property and property used in an active business are generally not included.
Dave’s example
Suppose Dave holds foreign investments with a total cost of $150,000. That is above the $100,000 threshold under current rules. It is below the $200,000 threshold in Budget 2026.
Preferred shares: the dividend allowance
The taxable preferred share regime charges a special tax on dividends paid on taxable preferred shares. Under current rules, the tax is payable only on dividends above an allowance of $500,000. The allowance is reduced to the extent dividends paid in the prior calendar year exceeded $1,000,000. Budget 2026 raises the allowance to $1,500,000. It also raises the reduction threshold from $1,000,000 to $3,000,000. These changes apply to tax years that end after 2026. Budget 2026 also exempts Canadian-controlled private corporations from the special tax on dividends they pay on or after Budget Day.
Credit bureau reporting of tax debts over $50,000
Budget 2026 allows the CRA to disclose a taxpayer’s tax debt to credit bureaus. Four conditions apply. The debt must exceed $50,000. The assessments behind it must not be under objection or appeal, and all rights of objection and appeal must be expired or used up. The CRA must give written notice at least 30 days before it discloses. It must also have taken reasonable steps to collect and offered a chance to make repayment arrangements.
The same conditions apply to GST/HST debts. The measure applies on royal assent.
Dave’s example
Suppose Dave carries a tax debt of $60,000 with no objection or appeal open. That passes the $50,000 test. The other conditions must also be met. A debt of $40,000 does not pass the $50,000 test.
The objection deadline becomes one year
Under current rules, taxpayers generally have 90 days after a notice of assessment is sent to file a notice of objection. Individuals and graduated rate estates have the later of 90 days after the notice and one year from the return filing due date.
Budget 2026 sets the deadline for most taxpayers at one year after the notice of assessment is sent. For individuals and graduated rate estates, it is the later of one year after the notice and two years from the return filing due date. Budget 2026 ends the application for an extension of time, so taxpayers no longer need it. The measure applies to assessments sent on or after the day that is three months after royal assent.
Dave’s example
Dave is an individual, so the later of the two dates applies to his personal assessment. His corporation is not an individual, so it gets one year after its notice of assessment instead of the current 90 days.
Fixed penalties double or triple
Several fixed-dollar penalties in the Income Tax Act have not been adjusted since they were enacted in the 1980s or 1990s. One was enacted in 1927. Budget 2026 increases most fixed-dollar penalties to account for inflation since they were enacted. Older penalties go up by a factor of two or three, depending on when they were enacted. Most recent penalties stay the same, with limited exceptions. Budget 2026 also indexes these amounts to inflation once every five years. The Income Tax Act changes apply to tax years or fiscal periods ending after 2027.
Dave’s example
Suppose an older fixed penalty that could apply to Dave is $100 today. Doubled, it is $200. Tripled, it is $300. Which factor applies depends on when that penalty was enacted.
The Productivity Mega Deduction
Budget 2026 confirms the government’s intention to proceed with the legislative and regulatory measures released on September 15, 2026, to implement the Productivity Mega Deduction. The annex adds that this is subject to any modifications from consultations since their release. We explain how that deduction works in The Productivity Mega Deduction, Explained.
A note for BC
This guide covers federal measures only. For individuals outside Quebec, the instalment test uses combined federal-provincial net tax owing, so it includes BC tax. Each measure has its own start date, shown in the table above.
Next step
If one of these measures touches your business, contact our Langley and Abbotsford team.
Figures are from the Budget 2026 tax annex at budget.canada.ca.
General information only. Talk to us about your situation.