Budget 2025: Transfer Pricing Changes to Canadian Corporations

Canada’s 2025 federal budget brings one of the most significant changes to corporate transfer pricing in decades. The rules will reshape how CRA reviews related-party cross-border transactions — especially for companies with foreign subsidiaries, including resource, tech, and manufacturing groups.

If your fiscal year begins after November 4, 2025, these changes will apply to you.

What’s Changing

1. OECD alignment becomes law Budget 2025 hard-wires that Canada’s transfer pricing rules must be applied consistent with the OECD Transfer Pricing Guidelines (2022) — moving from persuasive guidance to a binding interpretive framework.

2. “Accurate delineation” is now mandatory Every related-party transaction must be analyzed using five economically relevant characteristics:

• Contractual terms

• Functions, assets, and risks

• Characteristics of property or services

• Economic and market context

• Business strategies

CRA will emphasize what parties actually do, not just what their contracts say.

3. Broader adjustment powers CRA can now adjust not just the amount but also the nature of payments to reflect arm’s-length conditions. In exceptional cases, CRA can replace the transaction entirely if independents would never have done it.

4. Documentation and penalties tighten

• Transfer pricing documentation must be produced within 30 days of a CRA request (down from 3 months).

• The penalty threshold rises to $10 million in adjustments.

• A simplified documentation regime will be introduced for smaller taxpayers (details pending).

  
  

5. Effective for tax years starting after November 4, 2025For example, calendar-year filers are first affected in 2026.

Why This Matters

CRA will place far more weight on substance over form, particularly around risk control and who has the financial capacity to assume that risk.

• “Limited-risk” distributors or service providers will face deeper scrutiny.

• Companies will need to document why their chosen structure is realistic compared to alternatives available at arm’s length.

• The 30-day documentation clock significantly increases compliance pressure.

  
  

Example: Junior Mining Company with a Foreign Subsidiary

Scenario: CanMine Corp (Canada) owns CanMine International Ltd. in Country X. The subsidiary operates a mining project, pays large “management fees” to the Canadian parent, and sends low-interest intercompany loans back to fund exploration.

Under the new rules:

CRA will test whether these payments reflect real economic substance.

• Who decides mining strategy and capital spending?

• Who manages exploration risk or controls funding decisions?

• Would an independent lender offer loans at those terms?

Potential outcomes:

• CRA could recharacterize part of the “management fee” as a profit split or lower cost-plus service fee.

• The low-interest loan may be repriced to market rates or even treated as equity if no true lender would agree to it.

• Both adjustments increase taxable income in Canada and may trigger double taxation unless aligned with foreign filings.

  
  

Other Practical Examples

Limited-Risk Distributor A Canadian entity described as “limited-risk” actually sets prices and carries marketing spend. CRA may re-delineate it as a full-risk distributor, increasing margins.

Contract R&D

If a Canadian subsidiary called “contract R&D” actually directs projects and holds IP risks, CRA could shift to a profit-split model, granting higher returns to Canada.

Intercompany Loan

A related-party loan at 1% interest where market rates are 5% will likely be adjusted upward, plus possible guarantee fees.

What Good Looks Like for FY2026

• Maintain a transfer pricing file that clearly shows how your pricing reflects the five OECD factors.

• Document actual conduct: decision-making, funding authority, and risk control.

• Benchmark using independent market data for services, goods, and loans.

• Prepare to deliver documentation within 30 days of CRA’s written request.

• For cross-border groups, ensure foreign documentation aligns to prevent double tax.

  
  

Action Plan for Businesses

1. Map key intercompany flows: fees, loans, IP royalties, mining remittances.

2. Reconcile contracts to reality: update agreements that don’t match conduct.

3. Re-benchmark margins and rates: reflect arm’s-length outcomes under 2025 rules.

4. Coordinate with foreign tax teams: align TP files across borders.

5. Set up a 30-day response process: assign file owners and centralize data.

   
   

In Summary

The transfer pricing modernization isn’t just a technical update — it’s a shift to a substance-first system aligned with OECD standards. Groups with international subsidiaries, financing structures, or resource operations should act now to refresh benchmarking, realign contracts, and improve documentation readiness.

Need Help Preparing?

This post is for informational purposes only and not intended to provide guidance or advice.

At Ascensus CPA, we help corporations and resource groups model their intercompany transactions, update documentation, and prepare for the new 2026 CRA framework.