Transfer Pricing: Simplified Documentation for Certain Transactions

On July 23, 2026, the Minister of Finance released legislative proposals introducing a new simplified documentation regime for transfer pricing in Canada. These measures are intended to reduce the administrative burden associated with certain lower-risk intragroup transactions, while maintaining the fundamental obligation to demonstrate that transfer prices are in line with the arm’s length principle. 

For many small and medium-sized multinational groups, this represents an important development in the Canadian transfer pricing regime, as it recognizes that the cost of preparing full documentation may sometimes be disproportionate to the tax risk associated with certain transactions.

The new rules would apply to taxation years that begin on or after January 1, 2026. As a result, several taxpayers could already be impacted for their current fiscal period.

A simplification, not an exemption

Canadian taxpayers that carry out transactions with related non-resident parties are required to maintain contemporaneous documentation in accordance with subsection 247(4) of the Income Tax Act. This documentation must notably cover the terms and conditions of the transactions, the participants, the functions performed, assets used, risks assumed, methods selected and analyses used to establish arm’s length prices or terms.

The new measures do not eliminate this obligation. Rather, they create a simplified documentation regime where certain specific conditions are met. Eligible taxpayers will still be required to make reasonable efforts to use transfer prices that reflect arm’s length conditions. Otherwise, the penalties provided under subsection 247(3) could continue to apply. 

The four categories of simplified documentation

The new Part XCVIII of the Income Tax Regulations provides for four categories of transactions that may benefit from simplified documentation requirements.

Eligibility criteria for the simplified documentation regimes

Small taxpayers and partnerships

• The total gross revenue of the taxpayer or partnership, and of any other Canadian members of the multinational enterprise group, must not exceed $25 million during the immediately preceding taxation year or fiscal period. 
• The taxpayer or partnership must not have disposed of intangible property or incorporeal property during the taxation year or fiscal period to a related non-resident person. 
• The taxpayer or partnership must not have paid or credited to, or received from, a related non-resident person, a royalty payment during the taxation year or fiscal period. 
• The taxpayer or partnership must elect, in prescribed form and manner, on or before its documentation-due date, to have subsection 247(4.1) apply.

Tangible property, sales or purchases

• The transaction or series must be a sale or purchase of tangible property or corporeal property between related parties.
• The gross amount paid or payable, or received or receivable, for the tangible property must not exceed $5 million during the taxation year or fiscal period. 
• The taxpayer or partnership must elect, in prescribed form and manner, on or before its documentation-due date, to have subsection 247(4.1) apply. 

Intra-group services

• The transaction or series must be the provision or receipt of services between related parties. 
• The gross amount paid or payable, or received or receivable, for the services must not exceed $2 million during the taxation year or fiscal period. 
• The taxpayer or partnership must elect, in prescribed form and manner, on or before its documentation-due date, to have subsection 247(4.1) apply. 

Loans

• The transaction or series must be the lending or borrowing of money between related parties.
• The gross amount of interest paid or payable, or received or receivable, on the loan must not exceed $1 million during the taxation year or fiscal period. 
• The taxpayer or partnership must elect, in prescribed form and manner, on or before its documentation-due date, to have subsection 247(4.1) apply.

Simplified documentation or full documentation?

Under the traditional regime in subsection 247(4), taxpayers are required to maintain a contemporaneous documentation covering all elements prescribed by the legislation. 

Under the simplified regime, the required records are more targeted. Depending on the category of transaction, the taxpayer will generally be required to keep records or documents describing the terms and conditions of the transaction or series, the identity of the participants, the property or services to which the transaction or series relates, the amounts paid (or payable) or received (or receivable), and the analysis performed to determine that the amounts are based on arm’s length conditions. 

For loans, the proposed regulations require more specific information, including the identity of the participants, principal amount, term, issuance date, maturity, credit rating of the borrower, interest rate, currency, payment terms, amounts paid or payable or received or receivable, and the purpose of the loan. 

The records must also be updated for each subsequent taxation year or fiscal period in which the transaction or series continues, where there is a material change to the relevant matters. 

Importantly, the records and documents prepared under the simplified regime must be provided to the Minister within 30 days after service of a written request, the same deadline that currently applies to traditional contemporaneous documentation. Accordingly, although the requirements are reduced, taxpayers will still need to maintain documentation that is readily available in the event of an audit. 

In addition, each of the four simplifications requires the taxpayer or partnership to elect, in prescribed form and manner, on or before its documentation-due date. However, at the time of writing, no information has yet been released regarding the mechanics of this election, the content of the prescribed form, or the administrative procedures that will accompany it.

A new anti-avoidance rule

The legislative proposals also include an anti-avoidance rule intended to protect the integrity of the simplified documentation regime. More specifically, notwithstanding sections 9801 to 9804 of the proposed Regulations, a taxpayer or partnership is deemed not to meet the prescribed conditions in subsection 247(4.1) where it is reasonable to conclude that one of the purposes of the transaction or series of transactions is to benefit from subsection 247(4.1). 

The explanatory notes provide examples of situations that could be captured, including the creation of a new entity to circumvent the eligibility criteria applicable to small taxpayers, the artificial fragmentation of a purchase or sale of tangible property to remain below the $5 million threshold, or the separation of transactions that would normally be aggregated in order to artificially satisfy the eligibility conditions. 

Where the anti-avoidance rule applies, the taxpayer or partnership is deemed not to satisfy the prescribed conditions in subsection 247(4.1), not only for the year in question, but also for any subsequent taxation year or fiscal period during which the transaction or series continues. The taxpayer or partnership would therefore be subject to the full contemporaneous documentation requirements under subsection 247(4). 

In practical terms, for the transaction or series in question, the benefit of the simplified documentation regime is effectively lost for as long as the transaction or series continues. This highlights the importance of avoiding any artificial restructuring or fragmentation designed primarily to meet the eligibility criteria for the simplified regime. 

Key takeaways

The proposals released in July 2026 represent an important change to the Canadian transfer pricing documentation regime. For the first time, eligible taxpayers could benefit from reduced documentation requirements in respect of four specific categories of transactions:

• small taxpayers and partnerships;
• sales or purchases of tangible property;
• intra-group services;
• loans. 

However, these measures should not be interpreted as eliminating transfer pricing documentation obligations. Eligible taxpayers will still need to analyze their transactions based on arm’s length conditions, maintain contemporaneous records and be able to provide them to the CRA within 30 days after a written request. The real relief lies in the reduced level of detail required, not in an exemption from documentation.