Canada's 2025 Budget Proposes Major Transfer Pricing Changes

Introduction

On November 4 Canadian Prime Minister Mark Carney's minority federal Liberal government published¹ its first budget.² That budget includes the most important amendments to Canada's modern transfer pricing rules since their enactment nearly 30 years ago. This article critically reviews those proposals against the background of existing law.

Background

Canada's modern transfer pricing rules were enacted in 1998³ in the Canadian Income Tax Act.⁴ The operative provision at subsection 247(2) adopts a two-pronged approach.⁵

First, the main rule, found in paragraphs (a) and (c), provides that, where a taxpayer and a nonresident person with whom the taxpayer does not deal at arm's length are participants in a transaction or a series of transactions and the terms or conditions of the transaction or series differ from those that would have been made between persons dealing at arm's length, any amounts that would be determined for the purposes of applying