Tax Insights: Bill C-15 – Significant changes proposed to Canada’s transfer pricing rules

Issue 2025-41

In brief

What happened? 

On November 18, 2025, the federal government tabled Bill C-15, An Act to implement certain provisions of the budget tabled in Parliament on November 4, 2025. Bill C-15 includes legislation to modernize Canada’s transfer pricing (TP) regime, in section 247 of the Canadian Income Tax Act (the Act). This legislation¹ was initially released as part of the federal government’s November 4, 2025 budget and is proposed to apply to taxation years that begin after November 4, 2025. The legislation:

• embeds a delineation-first analytic framework in which the actual conditions of a transaction, commencing with the contractual arrangement, will be determined by considering the conduct of the parties involved
• eliminates the conditions for recharacterizing a transaction and allows, in circumstances in which the actual conditions differ from the arm’s length conditions of a transaction, the Canada Revenue Agency (CRA) to conclude that the transaction would not have occurred, or an alternate transaction would have occurred 
• defines key concepts such as “economically relevant characteristics,” “actual conditions” and “arm’s length conditions” to facilitate the analysis framed in the new adjustment rule and to support the contemporaneous documentation requirements 
• adds a statutory interpretation rule that is intended to explicitly align Canadian law with the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (the OECD Guidelines) and anchors the application of the most appropriate method framework as articulated in the OECD Guidelines
• revises administrative requirements by broadening contemporaneous documentation requirements, shortening the deadline to provide this documentation and increasing the dollar threshold for penalties 

Why is it relevant?

If enacted, the measures will materially reshape TP analysis and documentation in Canada. Practically, taxpayers should expect greater emphasis by the CRA on delineation, options realistically available and how actual participants to a transaction would have behaved if dealing at arm’s length in comparable circumstances. The administrative changes will also accelerate audit timelines and raise the bar with broader contemporaneous documentation requirements. 

Actions to consider

Taxpayers should consider whether the updated legislation affects their TP analysis, documentation and policies and procedures in the context of the legislative changes, and the extent to which any remediation measures are required. For more details, see “Practical implications and next steps” below.

In detail

Core legislative changes to section 247 of the Act

Requiring a delineation-first framework and “actual conditions”

The legislation in Bill C-15 reorganizes subsection 247(2) of the Act and requires that any in-scope transaction or series be analyzed and determined “with reference to the economically relevant characteristics.” These characteristics expressly include:

• contractual terms to the extent consistent with actual conduct
• functional analysis (i.e. functions, assets, risks, link to group value creation, surrounding circumstances, industry practice)
• the characteristics of property or services
• economic circumstances and business strategies

The legislation then pivots the application rule to whether the transaction includes “actual conditions” that differ from “arm’s length conditions.”

This shift is significant and addresses concerns raised in the past regarding over‑reliance on intra‑group contracts; the legislation codifies factual substance and actual conduct in the analysis, which clearly breaks from Canadian TP jurisprudence. An interpretive rule clarifies that “conditions” is to be read broadly, encompassing price and financial indicators and any commercial or financial information relevant to the quantum or nature of the amounts at issue.

Considering options that are realistically available

Although not expressly itemized in the legislation, Bill C-15 imports the concept found in Chapter I of the OECD Guidelines that the analysis must consider the options that are realistically available to the actual participants at the time of entering into the transaction, including not entering into the transaction.

Introducing a static OECD Guidelines reference

A new interpretation rule in the legislation requires section 247 to be applied so that it best achieves consistency with the OECD Guidelines, with a definition of “Transfer Pricing Guidelines” keyed to the version approved on January 7, 2022 (which may change as prescribed). This static reference offers certainty, while leaving room for future updates, through legislative or regulatory action.

Abandoning the conditions for “recharacterization”

Consistent with the consultation paper, the Canadian government has abandoned its legacy “recharacterization” approach, which had only allowed for non‑recognition of a transaction when the transaction:

• would not have been entered into between persons dealing at arm’s length, and
• can reasonably be considered not to have been entered into primarily for bona fide purposes other than to obtain a tax benefit

Instead, Canada’s adjustment mechanism will operate by:

• aligning initial amounts to the “arm’s length conditions” of the accurately delineated transaction, and
• allowing for pricing based on an alternative transaction or series, or no transaction or series

While the description of the legislation in the 2025 federal budget states that non-recognition (of a transaction as implemented by the taxpayer) should only take place in exceptional circumstances, which is consistent with the OECD Guidelines, the legislation in Bill C-15 does not address this latter point.

Documentation, timing and penalties

Clarifying documentation content and revising deadlines to provide documentation

The legislation in Bill C-15 clarifies the contemporaneous documentation rule and aligns it to the delineation framework. Taxpayers will be required to make or obtain records by the documentation due date that completely and accurately describe, among other elements:

• the property/services and the contractual terms and their interrelationships
• the identities and relationships of participants
• the functional analysis based on actual conduct
• the method selection and analysis in accordance with the OECD Guidelines
• the economic circumstances and strategies that inform the arm’s length outcomes

Additionally, the revised requirements will further broaden documentation efforts to include:

• transactions or series of transactions involving other members of the multinational enterprise group
• a consideration of the manner in which the functions performed by the taxpayer contribute to the wider value created by the multinational group
• industry practices

Importantly, the deadline to provide documentation to the CRA under an audit is shortened from three months to 30 days, and taxpayers must continue to prepare contemporaneous documentation by their documentation due date.

The 2025 federal budget documents also state that a mechanism for simplified documentation will be available when prescribed conditions are met; specifics will likely be in the regulations, which are expected to be available at a later date.

It is interesting to note that the Department of Finance did not implement a stand‑alone Master File requirement.

Increasing the penalty threshold

The legislation in Bill C-15 increases the TP penalty dollar threshold, from a $5 million net adjustment to $10 million, while retaining the 10% of gross revenue alternative threshold.

Practical implications and next steps

Taxpayers should: 

• consider whether the new adjustment rule is relevant for their related party transactions; this is particularly important for related party transactions that:
  • are in industry sectors that the CRA has historically identified as higher risk
  • are considered to be complex transactions
  • involve related parties in tax jurisdictions with favorable statutory tax rates
• assess what changes are necessary to the content of their TP documentation to align with the revised obligations related to economically relevant characteristics and arm’s length conditions
• revisit intercompany agreements to assess whether they are sufficiently comprehensive to appropriately delineate the allocation of key risks and responsibilities between the parties
• review their TP policies, procedures and governance to ensure they align with the earlier deadline to submit contemporaneous documentation

The takeaway

The legislation in Bill C-15 will explicitly incorporate the documentation requirements described in the OECD Guidelines. It provides a delineation-first TP regime that evaluates the conduct of the parties and what actual participants would have agreed at arm’s length in comparable circumstances; this allows for greater flexibility in the non-recognition of a transaction or series. The legislation also incorporates a static reference to the 2022 OECD Guidelines, expands and accelerates documentation obligations and raises the penalty threshold. 

Taxpayers should stay apprised of other changes that may be incorporated by regulation, such as simplifying the contemporaneous documentation requirements that may apply in certain cases.  

^{1. The legislation to amend the TP regime is generally consistent with the consultation document released by the Department of Finance in June 2023. The consultation paper was issued by the Department of Finance following an adverse decision in the federal government’s case against Cameco Corporation (The Queen v. Cameco Corporation, 2020 FCA 112). For more information on the consultation paper, see our Tax Insights “Finance launches consultation on reforming and modernizing Canada’s transfer pricing rules”.}