The latest federal budget includes several measures that will help simplify Canada’s tax code, but business groups say more sweeping reforms are needed to reduce complexity and encourage economic growth.
The Nov. 5 budget proposes changes to personal tax filing, retirement savings rules, and corporate taxation, acknowledging that complicated administrative requirements can make it hard for Canadians and businesses to claim deductions and credits.
Ryan Minor, director of tax at CPA Canada, welcomed the simplification efforts but said that his organization continues to call for “a comprehensive, strategic review of Canada’s tax system.” Dan Kelly, the Canadian Federation of Independent Business’s president and CEO, described the tax simplification and regulatory reduction measures as “helpful” but said “small businesses appear to remain in the government’s blind spot.”
Many tax experts are also calling for a more comprehensive overhaul that would make tax compliance easier, reduce the burden on individuals and businesses, and spur investment and economic growth.
“There are definitely quite a few tax measures in here, but they are at best incremental, relatively small, discrete changes to the tax system,” said Geoffrey S. Turner, an adjunct professor and tax counsel-in-residence at the University of Toronto’s Faculty of Law. “It does not amount to the meaningful tax reform that the country needs.”
The addition of tax breaks and penalties over decades “has resulted in our income tax act being overwhelmingly complex and very, very difficult, especially for ordinary people, to cope with,” Turner said.
Budget 2026
The latest budget includes $1.39 billion in measures to simplify Canada’s tax system over five fiscal years, from the current year through to 2030–31. The budget document acknowledges that “confusing administrative requirements make it harder for Canadians and businesses to claim the deductions and credits they are entitled to when meeting their tax obligations.”
Proposed changes to personal tax filing include establishing May 15 as a single deadline both for filing returns and for paying taxes, replacing the current April 30 and June 15 dates; extending the period for filing tax objections; and allowing self-employed individuals to pay a single annual instalment payment equal to two-thirds of their net tax owing by Dec. 31.
The foreign asset reporting limits were also raised, from $100,000 to $200,000 before being required to file a Form T1135, and with the threshold for simplified reporting expanded to to $500,000.
For businesses, the budget proposes exempting certain dividends paid by Canadian-controlled private corporations and increasing the dividend allowance from $500,000 to $1.5 million. It would also remove the requirement for corporations to file certified copies of directors’ resolutions authorizing certain tax elections or agreements, and simplify withholding and remittance rules when non-residents sell taxable Canadian property.
In addition, the budget proposes eliminating the requirement to convert registered retirement savings plans (RRSPs) into registered retirement income funds (RRIFs) at age 71, while also simplifying tax-free transfers of RRSPs to survivors after the account holder passes away.
Law professor Turner said the budget contains some “very helpful measures,” such as the Canada Growth Incentive that provides entrepreneurs a tax exemption of up to $15 million in capital gains earned from a startup and also allows greater deferral of taxes on capital gains when the proceeds are reinvested in another Canadian small business. He also welcomed a proposal to simplify the transfer of current-year non-capital losses between companies in wholly owned corporate groups.
Turner also pointed out that the budget includes a set of guiding principles for simplifying the tax system, such as making rules easier to understand, keeping the system responsive to change, and reducing unnecessary interactions with the Canada Revenue Agency.
Increasing Tax Complexity
Alexandre Laurin, vice-president and director of research at the C.D. Howe Institute, said in an interview that overly complicated tax rules can create uncertainty and disputes, particularly for businesses, self-employed Canadians, and those with multiple sources of income.
Laurin also said Canada relies too heavily on income taxes and could encourage economic growth by shifting some of that burden elsewhere.
Turner said the federal government should aim for a tax system that distributes the burden fairly among taxpayers, interferes as little as possible with economic decisions, and is easy for individuals and businesses to understand and comply with.
He said governments have spent decades adding measures that depart from the principle of neutrality, by favouring certain types of income and economic activity while placing heavier tax burdens on others.
“Every single time, there’s a need to have pages of legislation to define the parameters of those measures that depart from neutrality. It just adds to this cumulative burden of complexity,” he said.
While the Income War Tax Act of 1917 was only about
11 pageslong, Canada’s tax code ballooned to over 3,300 pages long by 2019. Canada’s federal Income Tax Act is now some 3,800 pages long.
Turner said Canada’s tax system has placed an excessive burden on high-income earners, which could discourage people from earning more money and could cause some to avoid taxes altogether. He said that for Ontarians, when federal and provincial tax rates are combined, the top personal income tax rate is above 50 percent.
Additional Measures
To further simplify Canada’s tax system, Turner suggests Ottawa adopt measures from the
C.D. HoweInstitute’s “Big Bang” tax reform report. The research report, published in March, says Canada’s tax system has “contributed to weak economic performance over the past decade” and that lowering personal and corporate income tax rates would “improve growth, reduce distortions, and simplify compliance and administration.”
It recommends reducing marginal personal income tax rates and widening income brackets, by setting federal income tax rates at 14 percent for incomes up to $60,000, 20.5 percent for incomes between $60,000 and $180,000, and 26 percent on incomes above $180,000.
Combined with provincial taxes, the top rate on average would be 45 percent, similar to its level 15 years ago.
The report also recommends an optional $10,000 tax credit that Canadians could claim instead of numerous existing deductions and credits, potentially simplifying filing especially for low- and middle-income earners.
For corporate taxes, the report suggests two options—either reducing the federal corporate income tax rate from 15 percent to 10 percent while eliminating incentives such as accelerated depreciation and the small business deduction, or exempting retained earnings reinvested in business activities and taxing only distributed book profits at 13 percent.
Kim Moody, founder of Moodys Private Client, said he agrees with C.D. Howe’s proposed reforms but would also recommend getting rid of the Alternative Minimum Tax, which ensures high-income earners who use certain tax-preferential deductions, exemptions, or credits continue to pay a baseline amount of income tax.
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