What Business Owners, Investors, and High-Income Individuals Need to Know

The second quarter of 2026 brings several important tax developments involving corporate accounting, shareholder transactions, real estate, GST/HST, family property ownership, child benefits and employment-related deductions.

The Q2 2026 edition of Tax Tips & Traps (Issue 154) highlights recent court decisions and CRA guidance that demonstrate how documentation, proper accounting and the way transactions are structured can significantly affect tax outcomes.

Below is a practical breakdown of the major issues covered this quarter and why they matter.

Tax Tidbits: CPP, Vehicle Allowances and Other Updates

Several shorter tax developments this quarter may be relevant to employers, employees, business owners and individuals with cross-border obligations.

Proposed CPP Contribution Reduction

The federal government has proposed reducing the base Canada Pension Plan contribution rate from 9.9% to 9.5%, effective January 1, 2027.

For an employee earning approximately $70,000, the change would reduce annual CPP contributions by about $133 for both the employee and employer.

2026 Automobile Allowance Rates

For 2026, the maximum deductible allowance an employer can pay an employee for using a personal vehicle for business purposes has increased by one cent per kilometre.

• 73 cents per kilometre for the first 5,000 kilometres driven.
• 67 cents per kilometre for each additional kilometre.

Immediate Expensing for Greenhouses

The federal government has proposed allowing 100% immediate expensing for greenhouses, retroactive to November 4, 2025.

U.S. Citizenship Renunciation Fee Reduced

U.S. citizens are generally required to report their worldwide income on U.S. personal tax returns even when they do not live in the United States.

As of April 13, 2026, the fee to renounce U.S. citizenship was reduced from US$2,350 to US$450.

Strong Internal Accounting: Gross Negligence Penalties

A January 6, 2026 Tax Court of Canada case examined more than $6.4 million of unreported revenue over two taxation years.

CRA identified the amounts through a bank deposit analysis. More than $1.7 million of the discrepancy resulted from a failure to translate foreign-currency revenues into Canadian dollars.

CRA reassessed the taxpayer beyond the normal reassessment period and imposed gross negligence penalties.

What Went Wrong?

The business owner and manager was well educated, holding both a commerce degree and a chartered accountant designation.

He believed that the company's accounting software automatically converted foreign currency into Canadian dollars. The court found that relying on this assumption was not sufficient.

The court noted that the weakening Canadian dollar during the years in question should have made the reporting discrepancy apparent.

More importantly, both the owner and the employee responsible for accounting knew they were overwhelmed, yet the business chose not to bring in additional accounting resources.

Taxpayer Loses

The court concluded that the underreported revenue constituted a misrepresentation.

The failure to obtain adequate accounting support despite knowing that existing resources were insufficient demonstrated an indifference to tax compliance.

This was sufficient to permit CRA to reassess outside the normal reassessment period and supported the finding of gross negligence.

Action: Ensure that sufficient internal accounting and bookkeeping resources are available. Inadequate accounting support can result in errors, extended reassessment periods and gross negligence penalties.

Transfer of Corporate Assets to a Shareholder's Child

A January 5, 2026 Court of Quebec case considered the tax consequences when a corporation sold a cottage to the shareholder's sons for substantially less than its construction cost.

The corporation had constructed the cottage for approximately $1.25 million and sold it to the shareholder's sons for $700,000.

Following an audit, Revenu Québec denied a corporate capital loss of approximately $406,934 and assessed a taxable shareholder benefit of approximately $536,759.

Was the Cottage Really an Investment?

The corporation argued that the property had been held as an investment.

However, the court focused on the property's actual predominant use rather than the stated investment intention.

Evidence supporting personal use included:

• Utility and cable bills being placed in the spouses' names.
• Insurance being changed from corporate to personal names.
• The property being described as a secondary residence.
• Reports referring to it as a future family residence.
• Very little evidence supporting meaningful use as a rental investment.

Corporation Loses: Capital Loss Denied

The court concluded that the cottage was primarily used for the personal enjoyment of the shareholder and family.

It was therefore considered personal-use property, meaning that the corporation's capital loss was denied.

Shareholder Loses: Taxable Benefit

The corporation financed and constructed the property and then transferred it to related parties for significantly less than cost.

The court concluded that this was not a transaction that would normally occur between arm's-length parties.

The shareholder attempted to support the $700,000 transfer value using an appraisal. However, the court was not persuaded by the evidence.

The property had previously been listed for approximately $1.175 million and was later sold by the sons in 2022 for approximately $1.775 million.

The court ultimately accepted Revenu Québec's calculation of the shareholder benefit based on the difference between construction cost and the transfer price.

Action: When transferring corporate assets to a shareholder or family member, ensure the transaction occurs at an appropriate value and that reliable evidence supports the valuation.

Shareholder Benefits: Can a Loan to the Corporation Offset Them?

A December 17, 2025 Court of Quebec case examined approximately $1.6 million in personal expenses paid by a corporation on behalf of its shareholder between 2014 and 2017.

The shareholder had also advanced approximately $1.5 million in loans to the corporation.

He argued that the shareholder benefits should effectively be offset against the loans.

Taxpayer Loses

The personal expenses paid by the corporation included:

• Travel
• Meals
• Entertainment
• Retail purchases
• Construction costs

The court acknowledged that shareholder benefits may sometimes be offset against a shareholder loan account.

However, there must be clear evidence that the parties intended the loan balance to reimburse or offset the personal benefits at the time those benefits arose.

In this case, there were no journal entries, written agreements or other objective documentation demonstrating such an intention.

The taxpayer had also denied that the expenses were personal until several years later, further weakening the argument that repayment had been intended at the time.

The court determined that the loans had been advanced to finance operations and growth, rather than to repay personal expenditures.

Gross Negligence Penalties

The court permitted reassessment beyond the normal reassessment period for certain years and upheld gross negligence penalties totalling more than $200,000.

The court considered several factors, including:

• The repeated nature of the omissions.
• The amount involved.
• The taxpayer's business experience.
• The lack of voluntary disclosure.
• The fact that professional accounting support was available.

The omitted shareholder benefits exceeded 400% of the income originally reported.

Action: Personal expenses paid through a corporation should be documented and properly accounted for on an ongoing basis.

Buying, Building and Selling Houses: GST/HST

A February 2, 2026 Tax Court of Canada case examined whether spouses who repeatedly purchased, built and sold homes were considered builders for GST purposes.

Over an 11-year period from 2010 to 2021, the taxpayers purchased seven homes and sold five, including several homes built on vacant land.

CRA assessed approximately $22,875 of GST relating to one property.

Were They Builders?

The taxpayers argued that they were not builders.

Alternatively, they argued that the property had been constructed primarily as their family residence and therefore qualified for the personal-use exception.

Taxpayers Lose: Builder Classification

The court focused on:

• The frequency of similar transactions.
• The relatively short ownership and occupancy periods.
• The taxpayers' familiarity with constructing and selling homes.
• The history of selling properties for profit.

The taxpayers argued that they sold the home because its bedroom configuration was unsuitable for their toddler.

The court found that explanation unconvincing given their involvement in designing and constructing the property.

The taxpayers were therefore considered builders.

Personal-Use Exception Also Denied

The court concluded that the primary purpose of the property was to hold it as inventory for sale rather than as a genuine long-term family residence.

Although the taxpayers had lived in the home temporarily, their occupancy was considered incidental to a broader pattern of residential development and resale.

The court upheld CRA's GST assessment using an appraised property value of approximately $915,000.

Action: Repeatedly buying or building homes, briefly occupying them and then selling them for profit may result in an individual being treated as a builder for GST/HST purposes.

Adding Relatives to Property Title: Beneficial Ownership

A CRA Technical Interpretation examined whether a taxpayer remained the beneficial owner of her entire residence after adding two daughters to legal title for nominal consideration.

The daughters signed an acknowledgement confirming that the taxpayer did not intend to gift the property to them.

The intention was instead for the property eventually to pass equally among all six of the taxpayer's children.

The taxpayer continued paying all costs associated with the property, and neither daughter lived there.

How CRA Determines Beneficial Ownership

CRA noted that determining beneficial ownership requires considering all relevant circumstances.

Factors may include rights to:

• Possess the property.
• Collect rental income.
• Mortgage the property.
• Transfer title through sale or a will.

Relevant obligations can include:

• Maintaining and repairing the property.
• Paying property taxes.

This list is not exhaustive.

Based on the facts presented, CRA indicated that the taxpayer was likely to remain the beneficial owner throughout her lifetime, meaning that simply adding the daughters to title would not necessarily result in a disposition for tax purposes.

Action: Adding a family member to property title can create tax and legal consequences. Obtain professional advice and clearly document the intention before making the change.

Canada Child Benefit: Shared Custody

A February 2, 2026 Tax Court of Canada case considered whether a parent qualified as a shared-custody parent for purposes of the Canada Child Benefit (CCB).

To qualify, a child generally must reside with each parent:

• At least 40% of the time; or
• On an approximately equal basis.

The second approach can accommodate temporary circumstances where the normal 40% threshold is generally met but temporarily falls below that level because of events such as vacations or illness.

Residency Is Not the Same as Parenting Time

The taxpayer spent approximately three weekends each month with the child and also spent several three-to-four-hour periods with the child during weekdays.

Those weekday periods included activities such as shopping, going to movies, eating at restaurants and attending recreational activities.

The court distinguished between visiting with a child and the child actually residing with a parent.

Residency generally involves the parent and child carrying on their normal routines of life from a home to which they regularly return.

Taxpayer Loses

The child resided with the taxpayer for no more than approximately two days each week, well below the required 40% threshold.

The taxpayer was therefore not considered a shared-custody parent for CCB purposes.

Action: When reviewing CCB eligibility, distinguish between time spent with a child and where the child actually resides.

Labour Mobility Deduction: Temporary Relocation Expenses

The labour mobility deduction can provide eligible tradespeople and apprentices in the construction industry with a deduction for certain temporary relocation expenses.

Proposed 2026 Enhancements

For 2026 and subsequent years, the federal government has proposed:

• Reducing the required minimum relocation distance from 150 kilometres to 120 kilometres.
• Increasing the maximum deduction from $4,000 to $10,000.

The temporary lodging must generally be sufficiently closer to the temporary work location than the taxpayer's ordinary residence.

Employer Allowances and Reimbursements

Expenses are not deductible to the extent that the taxpayer receives reimbursement, an allowance or other assistance for the expense, unless the amount received is included in income.

An October 9, 2025 CRA Technical Interpretation clarified that receiving a non-taxable allowance does not necessarily make all relocation expenses ineligible.

Instead, only the portion of eligible expenses that exceeds the non-taxable employer allowance may qualify for the deduction.

Action: Construction tradespeople and apprentices working temporarily away from home should retain detailed records of lodging, travel and relocation expenses, as well as allowances or reimbursements received.

Final Thoughts

The Q2 2026 edition of Tax Tips & Traps highlights a recurring theme: good documentation and accurate accounting are often just as important as the tax rule itself.

Several taxpayers in the cases reviewed this quarter did not lose because their original business or financial decisions were inherently improper. They lost because their accounting records, supporting evidence, transaction structure or documentation did not support the position they later attempted to take.

Key lessons include:

• Do not allow inadequate bookkeeping resources to become a tax compliance problem.
• Document transactions between corporations, shareholders and family members carefully.
• Do not assume shareholder loans automatically offset personal expenses paid by a corporation.
• Repeated real estate development and resale activity can create GST/HST obligations.
• Adding relatives to title should be planned and documented before the transfer occurs.
• Benefit programs such as the CCB use specific residency tests that may differ from everyday understandings of parenting time.
• Employees and tradespeople should maintain clear records supporting deductible expenses.

If any of these developments apply to you, your family or your business, obtaining advice before completing a transaction or filing a return can help prevent unexpected tax consequences later.

Questions? Contact Kaplan Reinemo Professional Corporation at 905-513-6303.