Charity Law Perspectives – Budget 2026

Simplifying tax administration and driving economic growth are two principal themes of Budget 2026, tabled on November 5, 2026, and they carry through to the charity measures.

The headline change is the proposed elimination of the excess corporate holdings regime for private foundations; they would instead be subject to the acquisition of control rules that currently apply to public foundations. This change reflects requests we have made to the Department of Finance that narrowing or eliminating the excess business holdings regime would make it easier for Canadian private foundations to invest their capital, which would be consistent with encouraging Canadian economic growth.

Other proposals would streamline the registration of foreign charities as qualified donees, double the penalty for failing to file a charity information return to $1,000, and let the Minister of National Revenue designate certain administrative requirements, such as the content of donation receipts. These are all designed to either reduce administrative burden on charities or to reduce portions of the administrative workload on Canada Revenue Agency (CRA) that may not serve a regulatory purpose.

These tax administration changes are best read as a first instalment. On October 8, 2026, the Department of Finance and the Canada Revenue Agency launched a consultation on modernizing the federal framework for registered charities, from registration and digital services to audit, revocation, and objections. Tellingly, the Budget’s new non-extendible objection deadline will not, for now, apply to charities objecting to penalties or revocation, and the consultation asks whether a longer, non-extendible objection period would be preferable for charities. We expect the Department of Finance is waiting for submissions, due December 3, 2026, before going further, and we hope that the changes coming from the consultation will expand significantly on Budget 2026 in streamlining the compliance and appeals systems for charities.

List of Relevant Budget Measures

• excess corporate holdings regime replaced by public-foundation acquisition-of-control rules;
• ministerial designation of certain qualified donee requirements, such as receipt content and prescribed donees;
• certain changes to streamline administration of tax rules and requirements applying to qualified donees;
• AML/ATF: expanded access to beneficial ownership information and powers to dissolve fraudulent corporations;
• defence and public safety investments and possible role for philanthropy;
• T3010 late-filing penalty increased from $500 to $1,000;
• non-extendible objection deadline not yet applicable to charity penalty or revocation objections;
• Clergy Residence Deduction: changes to simplify how the deduction can be calculated; and
• enhanced NPO information return: intention to proceed with previously announced proposals from January 29, 2026.

Replacement of Excess Corporate Holdings Regime

Budget 2026 proposes replacing private foundations’ excess corporate holdings regime with the existing acquisition-of-control rules for public foundations, for taxation years beginning on or after January 1, 2027. This welcome reform addresses concerns previously raised by McCarthy Tétrault and others about compliance costs and barriers to investment.

Private Foundations: A Simpler Shareholding Regime

The current regime requires private foundations to track and report their own shareholdings and those of relevant persons, generally non-arm’s-length persons. Subject to exceptions and transitional rules, divestment can be required where a foundation holds more than 2% of a share class and combined holdings exceed 20%.

McCarthy Tétrault has previously urged the Department of Finance to address the regime’s complexity, compliance costs and forced divestments, which can discourage share donations and constrain investment. We welcome the move to a simpler framework.

Acquiring control: The Expected Rules

Based on the wording of Budget 2026, we expect the existing rule in paragraph 149.1(12)(a) of the Act to apply to private foundations under the replacement regime. It treats a foundation as controlling a corporation where the foundation, alone or together with non-arm’s-length persons, holds more than 50% of the corporation’s issued share capital having full voting rights in all circumstances. For the public-foundation revocation rule in paragraph 149.1(3)(c), however, a foundation is deemed not to have acquired control if it has not purchased or otherwise acquired for consideration more than 5% of the issued shares of any class. Shares received by gift without consideration do not count towards this 5% threshold. A foundation can therefore receive a controlling interest by gift without triggering this revocation rule, provided its acquisitions for consideration remain within that threshold for every share class.

If preserved, this distinction between purchases and gifts would give private foundations greater flexibility to accept share donations, including controlling interests where statutory conditions are met. It would not remove all investment restrictions.

Budget 2026 calls for amendments to the Act but provides no implementing detail.

Trust Holdings: Consequential Changes Needed

Replacing the excess corporate holdings regime with the acquisition-of-control framework described above also calls for consequential changes to the treatment of trust-held shares. We therefore expect repeal or amendment of subsections 188.1(3.3) to (3.5) of the Act. These rules attribute certain trust-held shares to foundations or relevant persons, with special assumptions for discretionary interests, and are tied to the existing regime’s divestment obligations.

The repeal of the excess corporate holdings regime should be accompanied by corresponding changes to the trust attribution rules. Private foundations can be beneficiaries of family trusts and can hold remainder interests under estate-planning trusts, including alter ego, joint partner and spousal trusts. Budget 2026 does not expressly confirm the rollback of these rules.

The reform is welcome. Private foundations should wait to see how the draft legislation will treat details such as existing holdings, outstanding divestment obligations, trust interests and the 5% exception.

Ministerial Delegations for Qualified Donees

Budget 2026 proposes changes to streamline the administration of certain tax rules including certain administrative requirements for charities and other qualified donees. While modest, the changes affecting charities reflect the government’s wider push to reduce red tape and simplify the tax system.

The first change concerns how certain rules are updated. Some administrative requirements for qualified donees are set out in the Income Tax Regulations (Regulations). Budget 2026 proposes that the Minister of National Revenue designate them instead. The budget gives two examples: the content of official donation receipts and the list of prescribed donees.

Receipt requirements matter to qualified donees and their donors because official receipts support charitable donation tax credits and deductions. The content requirements are currently set out in section 3501 of the Regulations. Ministerial designation should allow faster updates to those requirements. The practical benefit will turn on how the authority is used and how changes are communicated to the sector.

Prescribed donees are a much narrower group. A prescribed donee is a foreign charity named in the Income Tax Regulations. Being a prescribed donee does not itself confer qualified donee status. Instead, the designation supports special rules for gifts of Canadian real property by non-resident donors. For a non-resident individual, the recipient must undertake, in a form satisfactory to the Minister, to hold the property for use in the public interest. Subject to statutory conditions and limits, the donor can elect reduced proceeds of disposition, reducing the Canadian taxable gain. Only three U.S. conservation charities are presently on the list. Ministerial designation would simplify changes to the list, but Budget 2026 does not announce an expansion of it.

This is a sensible administrative simplification. The proposed authority would take effect 90 days after the enacting legislation receives royal assent.

The second change concerns the registration of foreign charities as temporary qualified donees under the government-gift route. Under this route, a foreign charity must have received a gift from the Government of Canada and carry on disaster relief, provide urgent humanitarian aid, or carry on activities in Canada’s national interest, in addition to meeting other eligibility requirements. The Minister of National Revenue currently registers these charities in consultation with the Minister of Finance and the registration period must include the date of the government gift. It may also be related to the fact that the Minister of Finance is currently also the Minister of National Revenue.

Budget 2026 proposes to remove the consultation requirement, effective on royal assent of the enacting legislation. This would remove an approval step without changing the eligibility requirement under this route. In our view, the proposal is a useful procedural improvement, but not a broadening of access to qualified donee status.

AML/ATF Proposals Impacting Not-for-profit Corporations

The government proposes to strengthen Canada’s anti-money laundering (AML) and anti-terrorist financing (ATF) regime to detect, disrupt, and deter financial crimes. These efforts appear to be largely focused on updating legislation, such as the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, enhancing FINTRAC’s powers, and to enhance AML / ATF supervision and compliance of large financial institutions.

Of interest to the charity and not-for-profit sector, Budget 2026 proposes to amend the Canada Not-for-profit Corporations Act, together with the Canada Business Corporations Act and Canada Co-operatives Act, to “expand government access to non-public beneficial ownership registry information and provide enhanced powers to dissolve fraudulent corporations.” This raises questions that future legislation will need to clarify, such as what is meant by “non-public beneficial ownership registry” in the context of corporations that do not have share capital and when a corporation will be considered “fraudulent”. Any future changes that would expand both the government’s access to not-for-profit information and power to dissolve corporations must be carefully thought out to avoid harming vulnerable communities. We also have concerns about the new power to dissolve being weaponized through bad faith public complaints, similar to those currently being filed with the Charities Directorate by ideological opponents of some charities.

The AML/ATF changes in the budget reflect the government’s ongoing concerns related to how charities and not-for-profits should be regulated under the AML/ATF regime. Last year, following the 2025 Budget, the federal government adopted Bill C-15 which amended the Canada Not-for-profit Corporations Act, Canada Business Corporations Act, and Canada Co-operatives Act to permit the Director appointed by the Minister of Industry under these acts to dissolve a corporation or a cooperative when the Director is notified that it is a “listed entity” pursuant to subsection 83.01(1) of the Criminal Code. Current listed entities include the Taliban, Proud Boys, and Al Qaida among others.

The not-for-profit sector should be aware of these proposals and monitor for upcoming changes, so that charities can review their governance and records and respond promptly.

Defence and Public Safety: A Greater Role for Philanthropy

Chapter 5 of Budget2026, “A safe and sovereign Canada,” signals the government’s continued commitment to major investments in expanding and modernizing the Canadian Armed Forces. Alongside its defence commitments, the chapter sets out measures to keep Canadians safe at home. For the charitable sector, these priorities raise a timely question: could a renewed emphasis on defence and public safety create more room for philanthropy to contribute?

Support for the efficiency of the Canadian armed forces and police services has long been recognized as charitable. The CRA’s published policy recognizes promoting the efficiency of the Canadian armed forces and police services as charitable. Yet we are aware of regimental charities whose registrations the CRA has questioned in recent years. We hope that the government’s renewed focus on the armed forces will prompt greater clarity from the CRA about the scope for charitable support.

Similar questions arise in community safety. We are aware that police forces and public security agencies are receiving growing interest from members of the public in helping to fund community-safety programs facing budget shortfalls. Budget 2026s emphasis on keeping Canadians safe makes the potential role of charitable funding particularly relevant. This renewed attention may lead to clearer guidance on how charities can support community-safety initiatives while remaining within the boundaries of charity law.

Proposed T3010 Penalty Increase and Potential Implications for CRA Enforcement

Budget 2026 proposes to increase the penalty for failing to file an annual information return from $500 to $1,000. The accompanying Notice of Ways and Means Motion (draft legislation) would, if passed, amend subsection 188.1(6) of the Act to impose the higher penalty on a registered charity, registered Canadian Amateur Athletic Association, or Registered Journalism Organization that fails to file a return for a taxation year as and when required by the Act. The proposed increase would apply to the 2028 and subsequent taxation years. The budget also contemplates adjusting the penalty for inflation over time.

The more interesting question is whether a higher penalty will change the CRA’s approach to enforcement. Under the Act, the Minister of National Revenue may give notice of intention to revoke a charity’s registration for failure to file. A higher penalty could provide greater leverage to encourage compliance without resorting to revocation. Whether the CRA will use that leverage to take a more lenient approach to revocation remains to be seen. The approach that we are hoping for would also reduce the administrative burden on the CRA, as many charities revoked for failure to file their annual information return immediately re-apply for registration.

That question also arises in the context of the CRA’s push for electronic filing. In recent public statements, the CRA has described paper returns as a significant drain on resources and has repeatedly urged the charitable sector to file electronically to free up much-needed capacity. We expect electronic filing to become mandatory in the coming years. Against that backdrop, the higher penalty could become a more prominent compliance tool, with the CRA choosing to impose it rather than revoke registration for failure to file. That is a possibility, however, not a confirmed shift in enforcement policy.

No Change for Charity Objections

One of the overall themes of Budget 2026 has been to simplify tax administration for charities, both to reduce the burden on Canadian taxpayers and, in our view, lower the CRA’s administrative costs. Currently, individual and graduated rate estate taxpayers who disagree with a CRA assessment have the opportunity to file an objection which gives access to an internal CRA administrative appeal process. The general rule is that the objection needs to be filed within 90 days of the CRA decision being disagreed with, but that the CRA can be asked for permission to extend the 90 days to one year. These extension applications take taxpayer and CRA resources, thereby causing additional burden for taxpayers and the CRA. Budget 2026 proposes to replace this extendible 90 day limit with a new non extendible limit of the later of one year from the notice of assessment and two years from the tax return filing due date for the taxation year being assessed.

However, this simplified objection deadline system will not apply at this time to objections filed by registered charities against penalty taxes or revocation. We expect that this is a result of the Department of Finance waiting to see the submissions made on the current charity regulation consultation. This consultation specifically asks for input on the charities compliance and appeal process.

Proposed Simplification of Clergy Residence Deduction

Budget 2026 proposes to let members of the clergy claim an optional flat amount of $1,000 per month for each month in which they are eligible for the clergy residence deduction, up to their annual remuneration. The clergy residence deduction is designed to address the tax consequences of housing provided to religious clergy by their congregations, often with an expectation that the housing will be used exclusively in the course of the clergy members’ duties. It is an important issue for religious charities.

How the deduction works today

Currently, paragraph 8(1)(c) of the Income Tax Act allows certain members of the clergy to deduct housing costs from employment income.

Those who receive employer-provided housing can deduct its full value, including utilities. Those who rent or own their home can deduct the lesser of the following:

• the greater of $1,000 per qualifying month (maximum ten months) and one-third of their remuneration;
• actual rent and utilities, or the fair rental value if the home is owned by the individual or their spouse or common-law partner, less amounts claimed for the same accommodation (e.g., home office expenses); and
• their remuneration for the year.

What Budget 2026 proposes

Budget 2026 proposes that eligible individuals can instead deduct $1,000 for each eligible month, to a maximum of $12,000 a year and no more than their remuneration. If both spouses qualify and share a residence, only one could claim $1,000 for a given month. If one spouse chooses the flat amount for a year, the other is not permitted to use the detailed method for that same residence that year. This new approach, which is part of a suite of simplification measures aimed at employees, will make tax compliance easier for clergy and their employers.

Intention to Proceed with NPO Reporting

The federal government first announced its intention to expand reporting requirements for non-profit organizations (“NPOs”) in the 2024 Fall Economic Statement, released on December 16, 2024, proposing broader annual information-return obligations and a new short-form return for smaller NPOs. Revised draft legislation released on January 29, 2026 would add a requirement to file the annual NPO information return where total receipts exceed $100,000 in a fiscal period and introduce a short-form return for organizations not otherwise required to file, subject to exceptions, including for organizations receiving $10,000 or less. These changes are proposed to apply to fiscal periods beginning on or after January 1, 2027. Budget 2026 confirms the government’s intention to proceed with the January 29, 2026 proposals, subject to any modifications resulting from consultations and deliberations since their release.

Together, the expanded annual-return requirement and new short-form return would give the CRA a more comprehensive picture of the NPO sector. The short-form return would collect information on activities, including activities outside Canada, directors and other officials, assets, liabilities and total receipts. We expect this broader data collection could lay the groundwork for a wider CRA compliance project focused on NPOs.