November 9, 2026
A company can report a healthy profit and owe little income tax. Before Ottawa asks for more, it should be able to explain why and a carefully designed corporate minimum tax is one practical way to get that answer without punishing genuine investment.
Sometimes the explanation is straightforward. A company may be recovering from a genuine loss, deducting the cost of new equipment, or claiming a research credit Parliament deliberately created. Those rules serve a purpose. The harder question arises when a business earns substantial profits year after year and can use arrangements among related companies to move taxable income away from the place where the work is done.
That is where Canada should consider a minimum corporate tax. The proposal is simple in principle. Calculate a minimum amount on a defined measure of adjusted profit, compare it with the eligible corporate income tax the company already owes, and collect the difference if there is a shortfall. Adjusted profit would start with financial-statement income. The rules should recognize genuine losses and the cost of capital investment, specify how to treat accelerated deductions and selected tax credits, and prevent the same expense from being deducted twice.
Sales tell us how much a company sells. Profits tell us how much it earns. A wholesaler with $6 million in sales and a 2% margin earns $120,000. A business with $4.9 million in sales and a 20% margin earns $980,000. Under a $5 million sales screen and a $500,000 profit exemption, the wholesaler would face the screening rules but owe no top-up. The more profitable firm could escape the test entirely because its sales fall just below the cutoff.
If Ottawa uses sales to screen businesses for size, it should test a gradual entry into the rules and count associated companies together. Otherwise, crossing the line by a dollar could bring a company’s existing profits into scope, while splitting activity among related companies could keep a larger business below the cutoff.
A simplified calculation or reduced documentation requirement for firms only modestly above the threshold would further limit unnecessary compliance costs. Finance should test whether a profit exemption alone would work better than a separate sales screen. It should also show how the proposed floor would affect firms eligible for the small-business deduction and protect the portion of income Parliament intends to tax at the preferential rate.
Canada has precedents, each with a different purpose
Ontario already has a corporate minimum tax. It generally applies to corporations or associated groups with at least $100 million in revenue and $50 million in assets. The province calculates the minimum at 2.7% of adjusted financial statement income after applicable losses and allocation, and collects it only to the extent it exceeds regular Ontario income tax.
Ontario also allows companies to carry unused minimum-tax credits forward. Ottawa should test a similar credit, usable only against future regular tax above the applicable floor. That would give a business room to recover a top-up caused by a temporary timing difference while preserving the minimum in future years. The Ontario experience demonstrates how a backstop can work alongside an existing income tax, though it tells us little about the cost of applying one to businesses with $5 million in sales.
Canada also participates in the international framework that sets a 15% effective floor for qualifying multinational groups. It generally covers groups with consolidated revenue of at least €750 million in two of the preceding four fiscal years. Fifteen per cent is therefore a figure worth testing. Parliament still has to establish whether that rate makes sense for a domestic proposal with a much lower entry point and a different definition of profit.
Protect genuine business costs and examine how profits are shifted
Wages, materials, rent, and the cost of using equipment belong in a calculation of business profit. Genuine losses should also receive fair treatment. If Parliament grants a credit to encourage research, it should say explicitly how the minimum tax will treat that credit—preferably by preserving the full value of incentives that have clear policy objectives while adding back pure timing or shifting preferences. Businesses should be able to assess the value of an incentive when they decide whether to invest.
Intercompany interest, royalties, and management fees deserve closer examination where the amounts are inflated or the underlying services are hard to substantiate. A royalty can pay for something of real value. A management fee can cover services a company actually receives.
The question is whether the payment reflects the work performed and the value received. Canada already has transfer-pricing rules and participates in the OECD’s BEPS framework. Clearer rules and effective audits are worth pursuing in their own right. A minimum tax can complement those targeted audits. The Canada Revenue Agency would need clear guidance and adequate resources to administer any new rules fairly and consistently.
Phase it in and make Ottawa show its work
I would ask the Department of Finance to model a three-year phase-in at 5%, 10%, and 15% of covered adjusted profits. The calculation should count eligible federal, provincial, and territorial corporate income taxes already owed, and the design should support coordination with provincial and territorial tax systems. The phase-in should follow corporate tax years so businesses can plan around it. Once the transition is complete, the dollar thresholds should rise annually with inflation.
Before setting the rates, Finance should publish how many firms would owe a top-up at each stage and how much they would owe, which industries would bear it, and how much net revenue it expects to collect after behavioural responses, delayed investment, recharacterization of payments, or restructuring to stay under thresholds. It should also show how the proposal would affect a business recovering from losses and one making a major capital investment.
Those examples would tell Canadians more about the policy than a headline revenue estimate alone. Parliament should also require a formal public review after five years that reports which firms paid, by industry and size, net revenue collected, observed behavioural effects, and compliance costs, so the policy can be adjusted or repealed on the basis of evidence.
Businesses rely on roads, courts, an educated workforce, and stable institutions. They also rely on Parliament to write predictable tax rules. A corporate minimum tax can honour both obligations if its scope is clear, its treatment of genuine costs is fair, its interaction with existing preferences is transparent, and its results are open to scrutiny.
When Parliament grants a tax preference, it owes Canadians an explanation of what that preference buys. When it closes one, it owes them the same accounting.
