Budget 2026 Proposes Relief from Canada’s TCP Withholding Rules

November 9, 2026 | By: Steven Hurowitz, Partner –  Canadian M&A Tax

On November 5, 2026, the federal government presented Budget 2026, which introduced important relief measures for non-residents investing in taxable Canadian property (“TCP”). If enacted, these measures will apply to dispositions of TCP beginning January 1, 2027.

What is TCP: In general terms, TCP includes Canadian real property, resource and timber property, and shares of Canadian corporations that have derived more than 50% of their value from Canadian real property at any time during the preceding 60 months. Many investors in Canadian infrastructure, renewables, real estate and certain other Canadian investments have often waited months to access a large share of their sale proceeds investments can therefore fall within the TCP rules

What wasn’t working: When a non-resident sells TCP, the purchaser can be required to withhold 25% of the gross sale proceeds, unless a CRA clearance certificate authorizes a lower amount. The rate can increase to 50% for certain property, including depreciable property. CRA clearance certificates sometimes taking months to obtain. This can leave a significant portion of the sale proceeds tied up in escrow and, in many cases, result in tax being remitted well in excess of the seller’s ultimate Canadian tax liability.

What’s changing: For dispositions beginning January 1, 2027, Budget 2026 proposes to reduce these withholding rates for non-resident corporate sellers from 25% to 15% for most TCP and from 50% to 30% for certain specified property.
Budget 2026 also proposes relief for TCP transferred on a fully tax-deferred basis under section 85. Where the applicable conditions are met, these transfers would generally no longer be subject to the section 116 withholding and clearance certificate requirements. The conditions include filing the applicable section 85 election within 30 days of the transfer and providing the required notice to CRA.

A reminder: The reduced withholding rates can still exceed a non-resident corporation’s ultimate Canadian tax liability. For example, the effective federal tax rate on a capital gain realized by a non-resident corporation can be approximately 12.5%, compared with the proposed 15% withholding rate.

The reduced withholding rates are also limited to corporate sellers, making entity classification particularly important for investments held through partnerships or other structures. Consideration will need to be given to whether introducing a US LLC “blocker” could be an effective solution in appropriate circumstances.

Bottom line: The proposed changes should reduce the amount of capital tied up on exit for many non-resident investors. The new section 85 relief could also significantly facilitate internal reorganizations and acquisition structures by removing the need to fund potentially significant withholding tax on qualifying tax-deferred transfers.

Connect with a member of the Leo Berwick Canadian M&A Tax team to discuss how these changes may affect your business: Steven Hurowitz, Maxine St-Arnaud, Rebecca Lee or Yash Sharma.