Arm’s-length standard in transfer pricing – 2025 proposed budget
The “arm’s-length” standard is reinforced: In the 2025 federal budget, the government has proposed a major overhaul of Canada’s transfer-pricing regime, improving the alignment with the Organisation for Economic Co‑operation and Development (OECD) guidelines and reinforcing the “arm’s-length” standard. The reforms introduce a new adjustment rule that applies when related-party cross-border transactions involve actual conditions that differ from what independent parties would have agreed, and they formalise five key “economically relevant characteristics” (including functions performed, assets used, risks assumed, market context, and business strategy) to guide comparability analysis. On the administrative side, the proposals raise the penalty threshold for transfer-pricing adjustments from CAD $5 million to CAD $10 million, clarify documentation requirements (with optional simplified procedures under prescribed conditions), and shorten the deadline for responding to Canada Revenue Agency audits — from three months to just 30 days. These changes are set to apply for taxation years beginning on or after November 4 2025. Businesses with multinational or affiliate-related transactions should review their intercompany pricing policies, documentation systems and audit readiness to ensure compliance under this modernised framework.
Relief Measures for Businesses Affected by U.S. Tariffs
Relief Measures: The Government of Canada has announced extensions and new relief measures to support Canadian businesses impacted by U.S. surtaxes: Exemption extension: U.S. goods used in manufacturing, processing, or food & beverage packaging are exempt for two additional months. The exemption now includes agricultural inputs. Temporary waiver: Imports related to public health, safety, or national security remain temporarily exempt. Additional relief: Companies facing supply shortages or contractual obligations may qualify for further relief from Canadian tariffs on U.S. and Chinese imports. Implication: Businesses with cross-border sourcing or supply chains should assess whether they meet the eligibility criteria to benefit from these tariff relief measures. Refer to this link for more information
CRA 100-Day Service Improvement Plan (Sept 2 – Dec 11, 2025)
The Canada Revenue Agency (CRA) has launched a 100-day plan to address recent service challenges and improve how Canadians access support. The initiative focuses on reducing delays, expanding digital tools, and ensuring faster, more reliable service. Key Focus Areas: Answering More Calls Added more call centre agents (as of Sept 8) to cut down wait times. Call response rates have already improved from 37% in late June to 57% in early September, with a goal of 70% by mid-October. Expanding Digital Self-Service Extended online chat hours (8 a.m. – 8 p.m. EST) starting Sept 29. Improved web content and promoted the “Skip the line” digital campaign. From Oct 20, locked-out users can reset credentials online without calling. By early Nov, the GenAI chatbot will cover more topics. Fixing Root Causes of Delays Targeted teams are addressing backlogs, including T1 tax adjustments. Using generative AI and automation to speed up processing. Modernizing Services Testing new tools, including a call-scheduling system recommended by the Taxpayers’ Ombudsperson. Reporting progress on a dedicated webpage, with links to “Skip the line” and processing time updates. Overall Goal:To improve access, reduce wait times, and modernize services so Canadians get quicker and more reliable support from the
Major infrastructure & resource projects being fast-tracked
The federal government under PM Mark Carney has selected several large projects (mines, ports, a small modular nuclear reactor, expanding LNG Canada, etc.) to be sped up through a new “major projects office” to reduce regulatory delays. ReutersThis signals a push toward boosting domestic economic capacity and reducing dependency on external supply chains.
Provincial Tax Credit / Rate Changes
Several provinces have announced their own changes: British Columbia – The Interactive Digital Media Tax Credit is being increased from 17.5% to 25%, effective September 2025, and will be made permanent. (Source: Canada.ca) British Columbia – The Clean Buildings Tax Credit has been extended by one year. (Source: Canada.ca) Nova Scotia – The lower corporate tax rate and the small business limit threshold are being enhanced. (Source: Canada.ca) Prince Edward Island – Changes are being made to the higher corporate tax rate and the small business limit. (Source: Canada.ca)
Middle-Class Personal Tax Cut Effective July 1, 2025
The federal lowest income tax rate is cut from 15% to 14%, affecting taxable income up to C$57,375 . For 2025, mid-year implementation brings an effective rate of 14.5%, dropping fully to 14% in 2026. This benefits nearly 22 million Canadians, with savings averaging up to $420/person or $840/couple, totaling over $27 billion over five years