Entity Setup | Compliance
Navigating the Draft Legislative Proposals: What Businesses Need to Know
The government’s recent draft proposals could reshape corporate tax, investment incentives, and trust rules—here’s a breakdown of key changes for 2026.
By NomadicTax Research Team • 5-8 min read • February 18, 2026
## Overview of Proposals
Announced January 29, 2026, the Canadian government released draft proposals aimed at implementing or clarifying tax measures from **Budget 2025** and previous commitments. These include major changes affecting:
- Registered plans and qualified investments;
- Trust transfer rules;
- Expensing rules for manufacturing/processing buildings;
- Anti-avoidance measures; and
- Tax treatment of foreign affiliates and corporate structures. ([canada.ca](https://www.canada.ca/en/department-finance/news/2026/01/government-launches-consultation-on-draft-legislation-for-previously-announced-and-technical-tax-measures.html?utm_source=openai))
## Key Elements Affecting Entities and Compliance
### Qualified Investments for Registered Plans
Registered plans like RRSPs, TFSAs, RESPs, etc., may face **clarified rules**—what counts as a qualified investment might be adjusted. Ensure that any investment product you use within those plans meets the new criteria. ([canada.ca](https://www.canada.ca/en/department-finance/news/2026/01/government-launches-consultation-on-draft-legislation-for-previously-announced-and-technical-tax-measures.html?utm_source=openai))
### Anti-avoidance & Trust-to-Trust Transfers
Currently, an anti-avoidance rule applies to direct trust-to-trust transfers. Draft legislation seeks to **expand** this to indirect transfers, reducing the risk that trust-based entities are used to avoid tax obligations. Review your trust arrangements. ([canada.ca](https://www.canada.ca/en/department-finance/news/2026/01/government-launches-consultation-on-draft-legislation-for-previously-announced-and-technical-tax-measures.html?utm_source=openai))
### Immediate Expensing for Manufacturing/Processing Buildings
The Productivity Super-Deduction includes **100% immediate expensing** for buildings used for manufacturing or processing acquired after Budget Day and used before 2030, with a phased reduction after. This offers significant upfront deduction potential. ([canada.ca](https://www.canada.ca/en/department-finance/news/2026/01/government-launches-consultation-on-draft-legislation-for-previously-announced-and-technical-tax-measures.html?utm_source=openai))
### Foreign Affiliates Supporting Canadian Insurance Risks
Some new rules propose that investment income earned by foreign affiliates that support insurance risks in Canada will be taxable in Canada. If you have foreign affiliate involvement in insurance exposure, this is highly relevant. ([canada.ca](https://www.canada.ca/en/department-finance/news/2026/01/government-launches-consultation-on-draft-legislation-for-previously-announced-and-technical-tax-measures.html?utm_source=openai))
## Case Example: Corporate Entity Planning
A manufacturer sets up a processing plant in Ontario in 2027. Under the draft law, if 90% of the building’s floor space is used for manufacturing/processing, then acquiring the building in 2025 can give immediate expensing. But post-2030, the benefit phases out. Thus, timing the acquisition to occur sooner matters. Similarly, trust arrangements used in supply chain or family ownership situations should be reviewed to avoid falling foul of indirect transfers being reclassified for tax. Maintain clean documentation and consider restructuring before new rules take effect.
## Compliance Strategy
- **Conduct a tax impact review now**: Engage professionals to analyze how your current and planned structures will fare.
- **Monitor legislative progress**: Proposed rules aren’t law yet—stakeholders feedback until **February 27, 2026** will inform changes. ([canada.ca](https://www.canada.ca/en/department-finance/news/2026/01/government-launches-consultation-on-draft-legislation-for-previously-announced-and-technical-tax-measures.html?utm_source=openai))
- **Update internal controls**: For trust transfers, registered plans, and foreign affiliate tracking, ensure you have the ability to document and report under possible new rules.
## Conclusion
These draft proposals could reshape tax planning, compliance, entity structuring, and international tax exposure. While not yet law, the proposals are specific enough that businesses should begin preparing now—timing, documentation, and strategic decisions made in early 2026 may yield big differences in tax exposure and benefit harvesting.