In the 2025 Federal Budget, Canada has decided to make an overhaul of its transfer pricing system quite radically, which could be considered one of the greatest updates to these rules in the last twenty years. The main objectives of the reforms are to enhance Canada’s power to question cross-border pricing of related companies, to make the tax system fairer, and to be more in line with the changing global standards.

The international firms that are operating in Canada shall now have to conform to the new requirements and provide their documentation at a faster pace.

A Major Shift in How the CRA Reviews Transfer Pricing

The change that is going to impact the most is the abolition of the differentiation between “pricing adjustments” and “transaction recharacterization,” which has been in place for decades. According to the new rules, the Canada Revenue Agency (CRA) will be in a position to adjust any intercompany transaction as per its will if it finds that the transaction does not meet the arm’s-length conditions, which is the standard that independent parties would apply.

Thus, the CRA is now permitted to audit more widely and may be able to increase the tax audits of the companies that are multinational and are either operating in Canada or have connections there.

Documentation Timeline Cut from 3 Months to 30 Days

One of the most significant impacts on the daily operations of the company is the imposition of the new condition that companies must submit transfer pricing documentation within 30 days of a CRA request, which is a total change from the earlier practice that allowed a 90-day window.

This shift refocuses attention from the time of last-minute file preparation to the need for contemporaneous, well-maintained records. Companies will need to be on top of their transfer pricing files throughout the year.

More Detailed Reporting Requirement

The modified regulations additionally brought forward:

• A new, wide-ranging delimitation of “economically relevant characteristics.”
• Higher functional analysis requirements
• Wider intercompany transaction documentation throughout the entire multinational group
• Compulsion to apply the most suitable OECD-aligned pricing method

To put it simply, this is going to put businesses through a process of turning their global operations into a value map and then narrating that through their papers clearly.

Penalty Thresholds Raised — But Compliance Expectations Are Higher

The threshold for transfer pricing penalties will be lifted from CA$5 million to CA$10 million.

Although this may reduce exposure for smaller adjustments, the direction of the government clearly points towards more extensive and possibly more frequent audits.

With the recently enhanced powers of CRA auditors, companies can assume a more aggressive enforcement scenario in the coming years.

Canada Moves Closer to Global Standards

The measures taken will not only serve to better align Canada with the OECD Transfer Pricing Guidelines, which are accepted worldwide for the regulation of cross-border transactions, but will also, along the line, reveal the budgetary exceptions which will be further explained later through regulation.

By moving towards an internationally harmonious approach, Canada is keeping pace with other major tax jurisdictions in the modernization of rules fit for a digital, interconnected economy.

Why This Matters for Canadian Businesses

The new rules will probably imply sooner transfer pricing reports for companies involved in cross-border transactions, which are the exporters, importers, tech firms, resource companies, and Canadian branches of foreign groups, among others:

• Earlier preparation of the transfer pricing documentation
• The way transactions are structured will attract
• More input from tax advisors
• Possibly more conflicts or the requirement for Advance Pricing Agreements (APAs)

The reforms were triggered by the government losing the high-profile Cameco court case, which revealed weaknesses in the previous legislation. The 2025 changes are intended to develop a more powerful and enforceable Canadian system.

Through the newly updated transfer pricing law, Canada once again showed that it wants to be among the most progressive tax jurisdictions and, at the same time, to ensure that taxable profits are located economically on-site. Therefore, the international companies should not only expect tighter compliance and scrutiny but also plan their approaches long before the new regulations come into force.

The transfer pricing changes are applicable for the income years that start after the date of 4 November 2025.