Federal budget unveils new tax measures aimed at growing businesses in Canada

OTTAWA — The federal budget has zeroed in on business growth with a suite of tax measures and incentives designed to spur private-sector investment.

The central business pitch of the 2026 budget tabled Thursday aims to encourage Canadian companies to invest more, expand and become more competitive internationally.

The budget, entitled Masters of our Destiny, includes capital gains tax breaks, incentives for companies investing in equipment and expanded tax support for research and innovation.

But some business leaders and groups said the budget falls short in addressing the needs of small businesses.

“While there’s a mega deduction and there’s a focus on mega projects, my takeaway is that this is a mega disappointing budget for small business owners,” said Dan Kelly, president and chief executive of the Canadian Federation of Independent Business.

His comments were echoed by Hash Aboulhosn, chief growth officer at Merchant Growth, who said that while measures like the productivity mega deduction are a step in the right direction, they do “little for those who can’t afford the upfront costs.”

“There is a disconnect between the growth Ottawa wants to see and the reality for Canada’s small businesses,” he said. “Many can’t afford to make those investments in the first place.”

A centrepiece business measure in the budget is a new tax exemption on up to $15 million in capital gains from eligible investments in Canadian companies.

The tax break would apply to qualifying shares issued between budget day and the end of 2036 and held for at least 36 months. Eligible companies must have combined assets with a value of no more than $100 million when the shares are issued.

The measure is expected to cost Ottawa $80 million in 2029-30 and $485 million in 2030-31.

“It reduces the cost of investing,” said Jean-François Ruel, senior economist at the Canadian Tax Observatory.

“Ultimately when you look at a package of investment, you look at everything — including tax — in terms of your costs,” he said. “This reduces your exit cost.”

The budget also enhances the small business rollover of taxes when capital gains are reinvested in another Canadian small business.

The government said the measures help “level the playing field with the United States, encourage more capital to flow to Canadian businesses, and enable successful entrepreneurs to reinvest their proceeds into Canada.”

Kelly with the CFIB said the budget does deliver some good news for small businesses through measures like the enhanced rollover provision.

“If you sell your business, but then you invest that money back into a new one, you’re not going to get hit with capital gains right away,” he said. “It already exists but they’re making it a little bit more flexible.”

The budget also includes what the government calls “the most ambitious effort in decades” to simplify the tax system.

It said the new package of reforms will simplify tax rules, streamline reporting requirements and modernize tax administration.

Randall Bartlett, deputy chief economist with Desjardins Group, said the new measures will have a positive but modest impact on business investment.

“The tax consideration is almost like the icing on the cake,” he said. “It contributes positively to inducing investment in Canada … It’s not something that’s necessarily going to lead to tens of billions of dollars in investment overnight.”

The budget lays out a three-pronged approach to creating what the government calls an “investment supercycle” with measures aimed at spurring investment, entrepreneurship and innovation.

On investment, the government highlighted its productivity mega deduction, unveiled in September, which it said will lower the effective tax rate on new business investment to 6.4 per cent — less than half the rate in the United States.

On entrepreneurship, Ottawa said the Canada Growth Incentive will encourage investors and business owners to reinvest capital gains in Canadian companies.

And on innovation, the budget introduced a $930-million expansion of the Scientific Research and Experimental Development tax incentive program to help businesses develop new products and technologies and bring them to market.

Business leaders welcomed the budget’s focus on encouraging investment, but stressed that delivering results will be key, according to Goldy Hyder, president and CEO of the Business Council of Canada, which represents more than 170 of the country’s largest companies.

“We agree that Canada could be on the cusp of an investment supercycle,” he said. “The ambition is there. Now we all need to focus on execution.”

Among the measures to simplify business tax rules in the budget is a proposal to exempt dividends paid by Canadian-controlled private corporations from a special tax on taxable preferred shares, reducing administrative and compliance costs.

The budget also proposes allowing companies within wholly owned corporate groups to transfer certain losses between them, subject to conditions and further consultation.

For self-employed business owners, Ottawa plans to simplify tax instalments by allowing a single annual payment instead of quarterly payments.

“All of these pieces put together are supportive of growth and investment in Canada over the longer term,” Bartlett said.

“The productivity mega deduction is the big one and all of these add up to provide a more investment-friendly environment in Canada.”

This report by The Canadian Press was first published Nov. 5, 2026.

Brett Bundale, The Canadian Press