On May 28, 2026, the Department of Finance Canada released several explanatory notes (the Technical Notes) to accompany proposed amendments to the Income Tax Act (Canada) (ITA), the Excise Tax Act (Canada) (ETA), the Global Minimum Tax Act (Canada) (GMTA), and certain ancillary legislation included in Bill C-31, Budget 2025 Implementation Act, No. 2 (Bill C-31).

Bill C-31 received Second Reading on June 3, 2026, and is expected to be enacted into law with few, if any, changes as it proceeds through the parliamentary process. As an implementation bill, it consolidates measures from several earlier announcements (principally the 2025 Federal Budget (Budget 2025), but also draft legislation released across 2024, 2025, and early 2026) and combines them into an omnibus bill.

The following is a summary of certain measures included in Bill C-31 that are applicable to Canadian businesses.

1. Immediate Expensing of “Eligible Manufacturing Buildings” (and Related Recapture Rules)

• A broadly favourable measure is immediate expensing for certain manufacturing buildings. Under the ordinary capital cost allowance (CCA) system, building costs are deducted gradually over many years through annual depreciation.
• Bill C-31 implements a measure first proposed in Budget 2025 and detailed in draft legislation released on January 29, 2026. It allows immediate expensing of the cost of certain buildings in Canada (including qualifying additions and alterations) acquired after November 3, 2025, that meet an at least 90% manufacturing floor space requirement before 2030 (each, an ‘eligible manufacturing building’). If the floor space requirement is first met between 2030 and the end of 2033, the deduction is reduced under a gradual phase-out.
• Bill C-31 also includes recapture rules, initially proposed on January 29, 2026, that apply on a change in use of an eligible manufacturing building (a ‘manufacturing building recapture event’) of which an immediate expensing deduction was claimed.
• Bill C-31 largely carries forward the January 29 draft legislative proposals, subject to certain minor technical wording changes.

2. Canadian Exploration Expenses

• Bill C-31 contains a measure announced in Budget 2025, overriding a recent Supreme Court of British Columbia decision holding that the reference to ‘quality’ under the provincial equivalent of the federal ‘Canadian exploration expense’ (CEE) definition in subsection 66.1(6) of the ITA could be interpreted to include the economic viability or engineering characteristics, and not just the physical characteristics, of a mineral resource. The measure in Bill C-31 would amend paragraphs (a) and (f) of the CEE definition to clarify that expenses incurred to determine the quality of a mineral resource in Canada must relate to the resource's underlying or inherent physical characteristics, and do not include expenses incurred to determine the economic viability of, or the engineering feasibility of extracting, the resource. A corresponding amendment would also revise the definition of ‘flow-through mining expenditure’ in subsection 127(9) accordingly.
• The version of these amendments included in Bill C-31 is substantively unchanged from the version included in the draft legislation released on January 29, 2026.

3. Manipulation of Bankruptcy Status for the Debt Forgiveness Rules

• The debt forgiveness rules in section 80 apply when a commercial debt is settled for less than its principal amount (very generally, the ‘forgiven amount’). The impact of the rule may be mitigated when the debtor is bankrupt at the time of settlement.
• Bill C-31 includes a change to the definition of ‘forgiven amount’ in subsection 80(1) to prevent corporations, partnerships, and trusts from temporarily entering and then annulling bankruptcy to avoid the debt forgiveness rules.
• A coordinated amendment also repeals paragraph 128(1)(g). That provision denies the deductibility under section 111 of losses a corporation incurred before or during a period in which it was bankrupt, but it required the corporation to have been granted an absolute order of discharge. When read together with the changes in subsection 80(1), and if Bill C-31 is enacted as proposed, bankrupt corporations will be subject to reductions of their non-capital loss and net capital loss carryforward balances (as well as other tax attributes) upon the settlement or forgiveness of their debts in the course of a bankruptcy.
• The Bill C-31 proposal contains only minor technical modifications to the drafts of these measures last released in August 2024.

4. Public Corporation Status Resulting From Vertical Amalgamations

• This is a relieving measure of practical value in M&A. It prevents a corporation formed under a subsection 87(1) vertical amalgamation from being deemed a public corporation at the start of its first taxation year because one of its predecessors was a public corporation immediately before the amalgamation.
• The problem the amending provision solves is a timing trap. When a public corporation is taken private and applies to de-list its shares, confirmation of the de-listing can take several days. Without this measure, the parties would have to wait for that confirmation before amalgamating, a delay that can create valuation and commercial complications mid-transaction.
• These continuity rules also apply in a wind-up to which subsection 88(1) of the ITA applies under paragraph 88(1)(e.2).
• Bill C-31 contains only minor modifications to the version of this relieving measure last released in draft in August 2024.

5. Trust-To-Trust Transfers

• This anti-avoidance measure targets a planning technique used to sidestep the 21-year deemed disposition rule, under which most trusts are treated as disposing of their capital property every 21 years. The technique involves a trust transferring property on a tax-deferred basis to an entity connected with another trust, effectively resetting the 21-year clock.
• The measure was initially announced in Budget 2025 and included in draft legislation released on November 4, 2025, and January 29, 2026.
• Earlier drafts of this provision would have applied where a trust transferred property to another trust ‘directly or indirectly, in any manner whatever’ if a tax-deferred rollout of the property was available. However, in response to criticism over the breadth of the phrase ‘directly or indirectly, in any manner whatever’ as possibly tainting common, accepted trust planning, Bill C-31 removes the above-noted phrase and substitutes a more targeted provision that applies only where a transferee trust holds an interest in a taxpayer who is a beneficiary of the transferring trust and who has benefited from a tax-deferred trust property rollout under subsection 107(2) of the ITA.

6. Suspended Dividend Rules

• This measure targets a deferral strategy available to private corporations earning investment income. Investment income generates refundable tax (tracked through the non-eligible and eligible refundable dividend tax on hand accounts, NERDTOH and ERDTOH), which is refunded when taxable dividends are paid. By arranging staggered taxation year-ends along a chain of corporations, a group can defer the point at which refundable tax effectively crystallizes.
• Bill C-31 includes an anti-avoidance measure to limit the deferral of refundable taxes on investment income earned by private corporations through staggered taxation year-ends in a corporate chain. The measure deems ‘suspended dividends’ not to be taxable dividends for purposes of subsection 129(1), thereby denying a dividend refund to the payer corporation until a relevant payee corporation in the chain pays sufficient taxable dividends of the correct character (i.e. from NERDTOH or ERDTOH) to eliminate the tax deferral advantage (for example, when dividends are paid out of the group to an individual or a non-connected corporation). Exceptions to the ‘suspended dividend’ definition apply to dividends paid in staggered year-end scenarios where no deferral should arise and where timing falls within specified exceptions for loss restriction events (intended to relieve the application of the rules in change of control scenarios).
• The measure was initially included in Budget 2025 with an effective date of November 4, 2025, applicable to taxation years beginning on or after that date, and it was reflected in draft legislation subsequently released on January 29, 2026.
• In response to concerns about technical complexity and administrative burden arising from the initial draft legislation, Bill C-31 modifies the suspended dividend rules in three key respects: (i) it changes the triggering test from a comparison of balance-due days to a comparison of taxation year-ends; (ii) it introduces the concept of a ‘suspended portion’ to limit the suspension to the portion of a dividend necessary to generate a dividend refund, rather than the entire dividend; and (iii) it adjusts the exclusions under subsection 129(1.31) of the ITA, including extending the loss restriction event window to 12 months when a dividend is paid in contemplation of such an event.

7. Foreign Affiliate Surplus Account Recognition and FAT and Foreign Tax Credit Deductions for DMTT

• This measure further aligns Canada's foreign affiliate system with the global minimum tax landscape. As other countries adopt domestic minimum top-up taxes (DMTT) under Pillar Two, the question arises whether Canadian taxpayers can recognize those taxes in computing their Canadian liability for a foreign affiliate's foreign accrual property income (FAPI).
• Bill C-31 proposes to allow taxpayers to claim credit for certain DMTTs imposed on their foreign affiliates when computing the deduction under subsection 91(4) for foreign accrual tax (FAT) on FAPI under subsection 91(1). Similarly, the foreign tax credit rules in section 126 and the foreign affiliate surplus account rules in section 5907 of the Regulations are proposed to be amended to account for DMTT.
• Bill C-31 contains only minor technical modifications to the drafts of these measures last released in August 2025.
• Notably, this measure is now proposed to come into force on December 31, 2023, rather than August 15, 2025, as initially proposed. The earlier, retroactive effective date closes a legislative gap that would otherwise have caused DMTTs paid in early-adopting countries to receive no credit or relief under Canadian rules.

8. Global Minimum Tax Act – UTPR and Other Changes

• Bill C-31 continues the build-out of Canada's Pillar Two regime. It proposes to implement the undertaxed profits rule, the backstop charging mechanism under the global minimum tax, generally as released in August 2024, with modifications, including a deferred effective date for fiscal years commencing on or after December 31, 2025 (rather than December 31, 2024).
• Bill C-31 also introduces side-by-side and ultimate parent entity safe harbour rules, reflecting the OECD's January 5, 2026, Side-by-Side Package, together with earlier proposals from August 2024, August 2025, and January 2026, subject to various technical and substantive amendments. Given the volume and complexity of these changes, they merit separate treatment and are not analyzed in detail here.

9. Clean Economy Investment Tax Credits

• To promote capital investment in the Canadian clean economy and the adoption of technologies that reduce or capture carbon emissions, the ITA provides several clean economy investment tax credits (ITCs). These ITCs allow eligible claimants to claim specified percentage of qualifying expenditures on a refundable basis. At present, there are five major refundable ITC programs:
  • The Carbon Capture, Utilization and Storage (CCUS) ITC;
  • The Clean Electricity ITC;
  • The Clean Hydrogen ITC;
  • The Clean Technology ITC; and
  • The Clean Technology Manufacturing ITC.
• Bill C-31 includes a series of proposals last released in draft legislation on January 29, 2026. It also incorporates new technical and conforming amendments announced in the Notice of Ways and Means Motion tabled on May 4, 2026. Among the January 2026 draft proposals included in Bill C-31 are the following clean economy ITC amendments:
  • CCUS ITC - Dual-use equipment (electricity/heat) definition updated: equipment qualifies where more than 50% of the relevant electrical or heat energy expected over the review period directly supports one or a combination of qualified CCUS project or a qualified clean hydrogen project, with fossil-fuel limits clarified; the qualified concrete storage process is refined to allow any process by which carbon dioxide is incorporated in concrete (as opposed to simply by injection); and a new deemed eligible use rule is added if captured CO₂ is released for bona fide reasons outside the taxpayer’s control after geological storage.
  • Clean Hydrogen ITC - Pyrolysis is added as an eligible hydrogen production pathway, with supporting definitional additions to ‘eligible clean hydrogen property’ (equipment lists updated) and ‘eligible pathway’; and the definition of ‘eligible power purchase agreement’ is amended to permit electricity to be provided to a clean hydrogen project by direct connection to the project in certain circumstances rather than only through a connection with the electricity grid of the province in which the project is located. Further clarification allows environmental attribute certificates issued by provincially designated authorities to satisfy the requirement that the environmental attributes associated with the purchased electricity are assigned to the taxpayer.
  • Clean Technology ITC – The definition of ‘clean technology property’ is amended to exclude fossil fuel energy systems otherwise qualifying under Class 43.1; and recapture of the ITC on qualifying non-arm's length, intragroup dispositions is deferred rather than immediately triggered.
• Bill C-31 further introduces new changes to:
  • Broaden the start-up and other use exceptions for fossil fuel use in dual-use equipment under the CCUS ITC and Clean Hydrogen ITC to allow a set number of hours per year.
  • Prevent SR&ED expenditures from being claimed as qualified expenditures for clean economy ITCs, as a consequence of restoring the eligibility of capital expenditures under the SR&ED program.
• Bill C-31 does not include the Electric Vehicle Supply Chain ITC initially announced in Budget 2024 with accompanying draft legislation published in February 2025. Notably, the Spring Economic Update released on April 28, 2026 did not mention this ITC in the list of “Previously announced measures” suggesting its enactment is, at best, on hold for the time being.

10. Avoidance of Tax Debts

• Section 160 of the ITA makes a non-arm's-length transferee jointly liable for a transferor's tax debts when property is transferred for inadequate consideration.
• Bill C-31 includes an anti-avoidance measure that prevents indirect and structured transfers designed to avoid a non-arm's length transferee becoming liable for a transferor’s tax debts under section 160 of the ITA. It also provides for enhanced joint and several (or solidary) liability and penalty provisions under section 160.01 for participants in such transactions.
• This anti-avoidance measure applies to transactions, or series of transactions, that occur on or after April 16, 2024.
• The Bill C-31 proposal contains only technical modifications to drafts of this measure last released in August 2024.

11. Employee Stock Options

• Subsection 110(1.31) deems a proportion of securities under an option plan to be ineligible for the deduction under paragraph 110(1)(d) once the $200,000 annual vesting limit is exceeded.
• Bill C-31 contains a proposed amendment to subsection 110(1.31) of the ITA to clarify the annual vesting limit formula, which deems a proportion of securities under a stock option plan to be non-qualified and therefore, ineligible for the employee stock option deduction under paragraph 110(1)(d). This technical correction ensures that equity-based compensation that does not give rise to a paragraph 110(1)(d) deduction is not inadvertently counted against the $200,000 annual vesting limit. It applies to agreements entered into after June 2021 (excluding agreements in respect of which an option originally issued before July 2021 was exchanged under subsection 7(1.4)).
• Bill C-31 contains no significant technical modifications to drafts of this measure last released in August 2024.

12. Simplifying Qualified Investment Regime

• Bill C-31 consolidates the rules governing what may be held in registered plans.
• Specifically, Bill C-31 contains measures to implement changes to the ‘qualified investment’ regime proposed in Budget 2025, as revised in draft legislative proposals released on January 29, 2026.
• The amendments consolidate the qualified investment framework for registered plans by centralizing the definition of ‘qualified investment,’ which governs what assets or investments may be held in registered plans such as RRSPs, RRIFs, RESPs, RDSPs, TFSAs, FHSAs, and DPSPs, into a single unified definition in subsection 207.01(1) of the ITA and by adding a new Part L to the Regulations.
• Bill C-31 also replaces the ‘registered investment’ regime in section 204.4 with two new categories of qualified investments that do not involve registration: units of a trust that is subject to the requirements of National Instrument 81-102, and units of a trust that is an ‘investment fund’ managed by a registered investment fund manager, as described in National Instrument 31-103.
• These measures were initially announced in Budget 2025 and included in draft legislation released on January 29, 2026.
• This package of amendments is scheduled to come into force on January 1, 2027.

13. Common Reporting Standard and Crypto-Asset Reporting Framework

• The common reporting standard (CRS) is an international standard, developed by the OECD, that requires financial institutions to report financial account information on non-resident account holders to tax authorities for automatic exchange between jurisdictions. The amendments to Part XIX of the ITA update the CRS rules to extend their application to electronic money products, central bank digital currencies, and crypto-assets, consistent with the OECD's June 2023 amendments to the CRS.
• The crypto-asset reporting framework (CARF), implemented through new Part XXI of the ITA, is a complementary OECD framework that requires crypto-asset service providers to report information on crypto-asset transactions carried out by their customers to the CRA, and to follow prescribed due diligence procedures to identify reportable users.
• As announced in Budget 2025, Bill C-31 defers application of the revised CRS and CARF by one year, so the changes apply to 2027 and subsequent calendar years.

14. Non-Compliance With Information Requests

• Sections 231.1 to 231.8 of the ITA set out the CRA's powers to audit and examine taxpayers' books and records, and to require the production of information and documents.
• Bill C-31 includes significant amendments to these rules and introduces new section 231.9, which permits the Minister to issue a notice of non-compliance to any person if the Minister determines that the person has not complied with their obligations under sections 231.1, 231.2, and 231.6.
• These changes were announced in Budget 2024 and previously included in draft legislation released in August 2024 and August 2025.
• Bill C-31 introduces most of the August 2025 draft changes, with technical updates and new proposals. New subsection 231.9(2) limits the Minister's ability to issue a notice of non-compliance to a third party for unrelated persons unless a judicial compliance order has first been obtained under subsection 231.7(1). Amended subsection 231.9(11) further clarifies that, even where a notice of non-compliance is vacated by a judge, the period during which the judicial review application was pending does not count toward the statutory limitation period for tax assessments.

15. Numerous French “Conforming” Technical Language Changes

• In addition to changes more relevant to individuals, charities, and other entities that are beyond the scope of this post, Bill C-31 includes several technical amendments to the French version of the ITA and the Regulations to better align with the English version, remove outdated references and provisions, and address minor corrections and clarifications.

Conclusion

A&M will continue to monitor the progress of Bill C-31 on its path to enactment, as well as interpretive guidance expected to accompany several measures, including the ITC changes, CEE amendments, and application of the GMTA rules.