Tax Insights: 2026 Federal Spring Economic Update ─ Tax highlights

Issue 2026-18

In brief

On April 28, 2026, the Minister of Finance and National Revenue, François‑Philippe Champagne, presented the 2026 federal Spring Economic Update (economic update). The economic update does not change corporate or personal income tax rates, but it does:

• state that the Canada Revenue Agency intends to prioritize requests for advance income tax rulings relating to certain projects of national importance or that enhance productivity and strengthen critical sectors of Canada’s economy
• provide implementation details for reinstating accelerated capital cost allowance for eligible liquefied natural gas (LNG) equipment and related buildings for low‑carbon LNG facilities
• expand the list of eligible uses for purposes of the carbon capture, utilization and storage investment tax credit (ITC) to include enhanced oil recovery (at reduced rates)
• make the employee ownership trust exemption permanent
• streamline the disability tax credit certification requirements related to certain long-lasting medical conditions
• extend the five‑year repayment grace period for the home buyers’ plan, for withdrawals from a registered retirement savings plan (RRSP) up to the end of 2028
• increase the limit on eligible temporary relocation expenses that can be deducted by tradespeople

This Tax Insights discusses these and other tax initiatives proposed in the economic update.

In detail

Business tax measures

Prioritizing nation-building projects in tax processes

The economic update states that the Canada Revenue Agency will prioritize requests for advance income tax rulings relating to:

• large‑scale, nation-building projects — such as housing and infrastructure — as well as projects of national importance
• investments that enhance productivity and strengthen critical sectors of Canada’s economy, including clean economy initiatives and projects that may benefit from Canada’s suite of clean economy ITCs

Accelerated capital cost allowance (CCA)

The economic update provides the implementation details for the 2025 federal budget’s proposal to reinstate accelerated CCA for eligible LNG equipment and related buildings for low‑carbon LNG facilities. To claim the accelerated CCA rate of:

• 50% for class 47 liquefaction equipment
• 10% for class 1 non-residential buildings

used in LNG facilities, the facility must:

• be certified by the Minister of Energy and Natural Resources, following submission of a one-time report prepared by a qualified third‑party Canadian engineering firm, and
• have an expected emissions intensity level of no more than 0.20 tonnes of carbon dioxide equivalent per tonne of LNG produced annually by on-site liquefaction activities

Eligible assets acquired after November 3, 2025 and before 2035 include:

• equipment that was part of a facility that liquefies natural gas, including controls, cooling equipment, compressors, pumps, storage tanks, and ancillary equipment, pipelines used exclusively to transport liquefied natural gas from the facility, and related structures
• non-residential buildings that are part of a facility that liquefies natural gas

The accelerated CCA can only be claimed against income attributable to liquefaction of natural gas at the certified facility.

Carbon capture, utilization and storage (CCUS) ITC

The economic update proposes to expand the list of eligible uses for purposes of the CCUS ITC to include enhanced oil recovery (EOR), effective for eligible equipment acquired after April 27, 2026. This includes capture and transportation equipment of a qualified CCUS project that stores carbon dioxide (CO₂) through EOR, as well as equipment required to inject and store CO₂ through EOR, unless all or substantially all of the use of the equipment is to produce oil. Additional details on equipment eligibility will be made available through technical guidance published by Natural Resources Canada.

The ITC rates available in respect of eligible expenditures incurred by a taxpayer would be half of those available for existing CCUS eligible uses, so for equipment acquired:

• from April 28, 2026 to December 31, 2035:
  • 30% for eligible capture equipment used in a direct air capture project
  • 25% for all other eligible capture equipment
  • 18.75% for eligible transportation, storage and use equipment
• from January 1, 2036 to December 31, 2040:
  • 15% for eligible capture equipment used in a direct air capture project
  • 12.5% for all other eligible capture equipment
  • 9.375% for eligible transportation, storage and use equipment

Related adjustments will be made to recognize EOR as a form of CO₂ storage for purposes of the clean hydrogen ITC and the clean electricity ITC.

Personal tax measures

Disability tax credit (DTC)

The economic update proposes to make the following changes to streamline the process for accessing the DTC:

• for the 2026 and subsequent taxation years:
  • streamline the DTC application process related to certain long‑lasting medical conditions
  • allow provincial or territorial public guardians, trustees and curators to certify, on the DTC application, for an adult under their care for property matters, that the individual has a valid healthcare professional issued certificate of incapacity
• for the 2027 and subsequent taxation years, add podiatrists to the list of medical practitioners who may certify eligibility for the DTC, and broaden the list of impairments that can be certified by certain medical professionals

Employee ownership trust (EOT) exemption

For qualifying dispositions of shares that occur after 2023 and before 2027, the first $10 million of capital gains realized on the sale of a business to an EOT is exempt from income tax, subject to certain conditions. The economic update proposes to make this $10 million exemption permanent.

Home buyers’ plan (HBP)

The 2024 federal budget had temporarily increased the HBP’s repayment grace period (during which home buyers are not required to start repaying their HBP withdrawals from an RRSP) by three years, to five years for home buyers who withdrew from their RRSP between January 1, 2022 and December 31, 2025.

The economic update proposes to extend this five‑year repayment grace period to home buyers who withdraw from their RRSP up to December 31, 2028.

Labour mobility deduction for tradespeople

Effective for 2026 and subsequent taxation years, the economic update proposes to:

• increase, from $4,000 to $10,000, the limit on eligible temporary relocation expenses that can be deducted in a year by eligible tradespeople and apprentices working in the construction industry; to be indexed thereafter
• modify the distance rule so that the temporary lodging must be at least 120 kilometres (down from 150 kilometres) closer to each temporary work location than the taxpayer’s ordinary residence

Other measures

Canada Pension Plan (CPP)

The economic update proposes to, effective January 1, 2027, reduce the basic CPP contribution rate for:

• employer/employee, from 4.95% to 4.75%
• self-employed, from 9.9% to 9.5%

Previously announced measures

The economic update confirms that the government intends to proceed with the following previously announced tax and related measures, as modified to take into account consultations and deliberations since their release:

• legislative proposals released on April 14, 2026 to temporarily set the excise tax rates on gasoline, unleaded aviation gasoline, diesel fuel and aviation fuel to $0.00 for the period beginning on April 20 and ending on September 7, 2026 (inclusive)
• legislative and regulatory proposals released on January 29, 2026, including those relating to:
  • reporting by non-profit organizations¹
  • qualified investments for registered plans and the 21‑year rule relating to trusts
  • Canada Carbon Rebate
  • immediate expensing for manufacturing and processing buildings
  • expanding eligibility under the clean hydrogen ITC to methane pyrolysis
  • tax deferral through tiered corporate structures
  • eligible activities under the Canadian exploration expense
  • hybrid mismatch arrangements²
  • investment income derived from assets supporting Canadian insurance risks
  • technical amendments to the Global Minimum Tax Act³
• immediate expensing for greenhouse buildings announced on January 26, 2026
• legislative and regulatory proposals released on August 15, 2025, including those relating to:
  • Crypto-Asset Reporting Framework and the Common Reporting Standard (subject to a deferred application date of January 1, 2027)⁴
  • non-compliance with information requests⁵
  • excessive interest and financing expenses limitation rules⁶
  • technical tax amendments to the Global Minimum Tax Act³
• legislative and regulatory proposals released on August 12, 2024, including those relating to:
  • charities and qualified donees and registered education savings plans
  • avoidance of tax debts and manipulation of bankrupt status
  • amendments to the Global Minimum Tax Act⁷