Report on Federal Tax Expenditures - Concepts, Estimates and Evaluations 2026: part 2

Tax Expenditure Estimates and Projections

Introduction

Part 2 presents the estimates of the fiscal cost of federal tax expenditures for the years 2020 to 2027. It presents estimates for a wide range of tax expenditures, measures that are not considered tax expenditures (i.e., measures that are considered part of the benchmark tax system), and refundable tax credits that are classified as transfer payments. To increase transparency in government reporting on support to the fossil fuel sector, a second table grouping tax expenditures that provide such support is also presented. These estimates are followed by a third set of tables that present background statistics on total tax revenues by tax base, as well as some other useful statistics, such as the number of filers and tax paid by income tax bracket. Finally, key changes that have been made to tax expenditures since the last edition are described.

Tax Expenditures Supporting the Fossil Fuel Sector

The table below presents information about the revenue forgone for fossil fuel production or exploration in respect of tax expenditures that support the fossil fuel sector. For example, “Flow-through share deductions” are an authorized tax shelter arrangement that are available to corporations in the mining and renewable energy sectors and were previously available to companies in the oil and gas sector. The revenue forgone presented in the table below for “Flow-through share deductions for oil and gas and coal mining” represents a subset of the amounts listed in the main table, and represents only the portion that can be attributed to fossil fuel exploration and development. In contrast, “Reclassification of expenses under flow-through shares”, which is a measure that has been phased out, was only available to corporations in the oil and gas sector. The amounts presented below in this case are the same as those presented in the main table. By construction, it would therefore not be accurate to sum the amounts presented below with those presented in the main table, as these are duplicative.

Note that some of the nine measures supporting the fossil fuel sector that have been phased out or rationalized are combined^{Footnote 1} in the table below. Furthermore, the table does not include the Budget 2011 reduction in the deduction rates for intangible capital expenses in oil sands projects, to align with rates in the conventional oil and gas sector, which is part of the benchmark tax system (and therefore not a tax expenditure). In addition, the table includes the earned depletion for oil and gas and coal mining which was phased out in 1990.

Changes to Tax Expenditures Since the 2025 Edition

New tax measures were introduced and others modified since the last edition of this report. Changes affecting tax expenditures in this report are described below. As this report considers tax expenditures as of December 31, 2025, changes announced in Budget 2025 are included below even if the enacting legislation has not received Royal Assent by the time of production of this edition of the report.

Personal Income Tax

Reduction in the First Marginal Personal Income Tax Rate

On May 27, 2025, the government proposed a reduction in the first personal income tax rate from 15% to 14.5% for 2025 and to 14% starting in 2026. Legislative amendments were included in Bill C-4, Making Life More Affordable for Canadians Act. The rate applied to most non-refundable tax credits is based on the first marginal personal income tax rate and would decrease in parallel. This would affect the value of all non-refundable tax credits where the first personal income tax rate applies.

Top-Up Tax Credit

Budget 2025 proposed a non-refundable Top-Up Tax Credit of 0.5% in 2025 and 1% from 2026 to 2030, applicable to an individual’s non-refundable tax credit amounts that exceed the first income tax bracket threshold. This measure would apply for the 2025 to 2030 taxation years if Bill C-4, Making Life More Affordable for Canadians Act, receives royal assent.

Critical Mineral Exploration Tax Credit for Flow-Through Share Investors

Budget 2025 proposed to expand the eligibility of the Critical Mineral Exploration Tax Credit to include the following additional critical minerals: bismuth, cesium, chromium, fluorspar, germanium, indium, manganese, molybdenum, niobium, tantalum, tin, and tungsten. This measure would apply to expenditures renounced under eligible flow-through share agreements entered into after November 4, 2025 and on or before March 31, 2027.

Home Accessibility Tax Credit

Budget 2025 proposed to amend the Income Tax Act such that an expense claimed under the Medical Expense Tax Credit cannot also be claimed under the Home Accessibility Tax Credit. This measure would be effective for the 2026 and subsequent taxation years.

Lifetime Capital Gains Exemption

Budget 2025 confirmed that the government intends to maintain the increase in the Lifetime Capital Gains Exemption (LCGE) limit for the disposition of qualified small business corporation shares and qualified farm or fishing property to $1.25 million of eligible capital gains. This measure would apply to dispositions that occurred after June 24, 2024, and before January 1, 2026. Indexation of the limit would resume in 2026.

Mineral Exploration Tax Credit for Flow-Through Share Investors

Budget 2025 confirmed that the government intends to proceed with the extension of the 15% Mineral Exploration Tax Credit for investors in flow-through shares for an additional two years, until March 31, 2027. This extension was announced by the previous government on March 3, 2025.

Partial Inclusion of Capital Gains

The 2025 edition of the Report on Federal Tax Expenditures reflected several proposed changes to the tax treatment of capital gains that were proposed in Budget 2024. This included an increase in the capital gains inclusion rate; consequential changes to the stock options deduction and the deduction of allowable business investment losses; and the introduction of the Canadian Entrepreneurs’ Incentive. The government confirmed in Budget 2025 that it would not proceed with these changes.

Personal Support Workers Tax Credit

Budget 2025 proposed to amend the Income Tax Act to introduce a temporary Personal Support Workers Tax Credit, under which eligible personal support workers employed in provinces and territories who did not sign a bilateral agreement with the federal government to support wage increases for personal support workers could claim a refundable tax credit equal to 5 per cent of their eligible earnings, providing support of up to $1,100 per year. This measure would be effective for the 2026 to 2030 taxation years.

Corporate Income Tax

Accelerated Capital Cost Allowance for Manufacturing or Processing Buildings

Budget 2025 proposed temporary immediate expensing for the cost of eligible manufacturing or processing buildings, including the cost of certain additions or alterations made to such buildings, which are acquired on or after November 4, 2025, and that are first used for manufacturing or processing before 2030. This measure would be phased out over a four-year period between 2030 and 2033.

Accelerated Capital Cost Allowances for Low-Carbon Liquefied Natural Gas Facilities

Budget 2025 proposed reinstating accelerated capital cost allowances for liquefied natural gas (LNG) equipment and related buildings, but only for low-carbon LNG facilities. To be eligible for an accelerated capital cost allowance, a facility would need to meet new high standards of emissions performance. Two levels of support would be available, which will depend on the emissions performance of a facility. These measures would apply to property acquired on or after Budget Day and before 2035.

Carbon Capture, Utilization, and Storage Investment Tax Credit

Budget 2025 proposed to extend, by five years, the availability of full credit rates for eligible expenditures incurred in the period from 2031 through 2035. Credit rates for eligible expenditures incurred after 2035 through 2040 would be reduced by half, as originally scheduled.

Clean Technology Manufacturing Investment Tax Credit

Budget 2025 proposed to expand the list of critical minerals eligible for the Clean Technology Manufacturing investment tax credit to include antimony, indium, gallium, germanium and scandium.

Partial Inclusion of Capital Gains

The government decided not to proceed with the increase in the inclusion rate on the capital gains of corporations announced in Budget 2024 and described in the 2025 Report on Federal Tax Expenditures. This decision was confirmed in Budget 2025.

Scientific Research and Experimental Development Investment Tax Credit

Budget 2025 proposed to modify the Scientific Research and Experimental Development tax incentive program by increasing the expenditure limit on which the program’s enhanced 35-per-cent tax credit can be earned, from $4.5 million, as previously proposed in the 2024 Fall Economic Statement, to $6 million. This would apply for taxation years that begin on or after December 16, 2024.

Goods and Services Tax

First-Time Home Buyers’ GST Rebate

The Government announced on May 27, 2025, that the GST would be eliminated for first-time home buyers on new homes up to $1 million and reduced for first-time home buyers on new homes between $1 million and $1.5 million. The measure would apply to new homes purchased from a builder if the agreement of purchase and sale for the home is entered into with the builder on or after March 20, 2025, and to owner-built homes if construction of the home begins on or after March 20, 2025. Legislative amendments were included in Bill C-4, Making Life More Affordable for Canadians Act. This measure was also reconfirmed in Budget 2025.