New Transfer Pricing Rules in Budget 2025: What CPAs Need to Know

December 17, 2025

Editor’s note – With the passing of Bill C-15 on March 26th, 2026, the new transfer pricing rules outlined in this article are now law.

After almost 30 years, Canada has fundamentally changed how it regulates transfer pricing, and the implications for Canadian businesses are significant.

On November 4, 2025, the federal government released the 2025 Budget, introducing sweeping updates to Canada’s transfer pricing rules, which if passed, will bring them in step with the 2022 Organization for Economic Co-Operation and Development (OECD) transfer pricing guidelines. These changes will apply to any Canadian business with cross-border transactions starting in their next fiscal year.

These changes arrive at a moment when Canadian businesses are already navigating trade tensions, tariffs, and economic uncertainty. In this environment, transfer pricing, how companies price transactions between related parties across borders, is under greater scrutiny.

The core principle behind the changes isn’t new: internal prices between related entities must match what independent parties would charge each other. What’s changed is how Canada enforces that principle and with what authority.

This isn’t just an issue for large multinationals; small and midsized enterprises exported over $282 billion in 2023. That’s why we sat down with Matthew Wall, nationally recognized transfer pricing expert, to discuss these changes, and what they mean for Canadian business and CPAs.

“The CRA considers all multinationals as high risk from a transfer pricing perspective until they are audited by the CRA,” says Wall. “It means that any company of size or any company with multiple cross-border transactions is going to get audited at some point. It’s guaranteed.”

Transfer pricing audits are significant and can take up to two years. “It’s a big undertaking and now that the CRA has the full authority of the OECD Guidelines, preparation is key.”

Here’s what CPAs needs to know about Canada’s new transfer pricing landscape.

A Long Time Coming

The last change to Canada’s transfer pricing regime was in 1997, with the introduction of section 247 in the Income Tax Act. Section 247 was relatively brief and aligned with the principle-based approach of the original 1995 OECD guidelines. The updated 2022 OECD guidelines are far more prescriptive. The original OECD guidelines were 247 pages, while the 2022 OECD guidelines clock in at a hefty 658.

Although the CRA has issued administrative guidance aligned with the 1995 and 2010 OECD guidelines, the absence of corresponding federal legislation in Section 247 meant that the CRA’s guidance including its references to the OECD Guidelines did not carry the full force of law. This lack of authority created uncertainty, most notably in 2012 when the Supreme Court of Canada confirmed that the OECD guidelines are not legally binding. As Wall pointed out: “These rules were long overdue.”

What’s Changed? Five Critical Updates

Here are 5 important takeaways for CPAs:

1. The OECD guidelines now have full legal authority

   “This budget will give the 2022 OECD Transfer Pricing Guidelines its full weight and authority in Canadian law.” Wall emphasizes, “This will remove the uncertainty that has existed for over a decade.”
   
   Once the 2022 Transfer Pricing Guidelines are written directly into section 247(1) of the Income Tax Act, CPAs will have to learn how to apply the transfer pricing guidelines for FY26, or after November 4, 2025. Canadian companies have 14 months to understand what they need to do to be compliant before their first filing under the new guidelines.
   
   

2. A dramatic reduction to the timeline for documentation requests

   The most immediate and impactful change under the new rules is the reduction of the timeline for CRA’s request for transfer pricing documentation from three months to 30 days. This change brings the timeline into alignment with the IRS in the U.S.
   
   This change is intended to increase compliance by encouraging taxpayers to prepare documentation at year-end. When companies do this work proactively, they reduce the risk of needing adjustments in later years.
   
   According to Wall, this measure protects taxpayers who prepare in advance. “Rushing to prepare documentation during a transfer pricing audit is too late if you discover errors and omissions,” says Wall. “By doing it at year-end, you mitigate the risk of adjustments years later.”
   
   

3. Balancing the legal form with economic substance

   The new rules remove the original definition for “arm’s length price,” which led some practitioners to lean too heavily on the legal form of a transaction. It replaces the definition for “arm’s length price” with a new definition for “arm’s length conditions” to ensure taxpayers balance the legal form with the “economically relevant characteristics” defined in section 247(1).
   
   The old approach allowed companies to structure their cross-border transactions based primarily on contractual agreements. In practice, this meant some businesses could create legal structures that optimized tax outcomes, even when those structures didn’t fully reflect the underlying economic activities of the business.
   
   The new rules introduce a more balanced approach. Tax authorities will now examine both the legal contracts and the economically relevant characteristics of transactions. This means looking at what’s happening in the business: who is performing which functions, who is bearing the risk, and who is contributing to the valuable assets.
   
   In practical terms, this will create a higher barrier for Canadian companies looking to relocate their profits offshore. Companies can no longer rely on contracts to justify their transfer pricing positions. If contracts don’t align with the economic substance of how a business actually operates, the CRA can challenge it.
   
   

4. Changed requirements for a transfer pricing adjustment

   Previously, the CRA made an important distinction between adjusting “terms and conditions” including the price of a transaction under section 247(2)(a) and (c), and adjusting the “transaction or series” of transactions under section 247(2)(b) and (d). Parts (b) and (d) are known as a recharacterization, described in the 1995 version of the OECD transfer pricing guidelines as restricted to use only under exceptional circumstances.
   
   The new rules combine these into a single two-step process, first by defining or “delineating” the controlled transaction, and second by comparing its conditions and economically relevant characteristics to comparable transactions between independent enterprises.
   
   “The big change is in the first step,” says Wall. “The CRA can now re-define the controlled transaction if its legal form is not consistent with economically relevant characteristics. This will become routine, not exceptional.”
   
   

5. Higher penalty thresholds

   Finally, transfer pricing rules also increase the threshold for transfer pricing penalties from $5 million to $10 million, or 10% of gross revenue, whichever is less.
   
   “The penalties are substantial and with the CRA having the full weight of the OECD Guidelines behind them, they will be in an even stronger position during transfer pricing audits,” Wall notes.
   
   

What should CPAs do?

Wall’s advice is clear: CPAs need to build their transfer pricing literacy. Whether a CPA is involved in tax, audit or advisory work, they need to understand what these changes are and what they mean. Wall’s advice is to not be intimidated.

“You don’t have to know all of the nitty-gritty,” says Wall. “You need to know the framework and the reasons for it. Since transfer pricing has a six-year assessment window, not the standard three years, there is time to get caught up.”

Here are three recommendations that Matthew Wall has for CPAs:

1. Continue to do more on transfer pricing year after year
   
   “I always advise people; continue to do more on your transfer pricing year after year” Wall says. “Neglect your transfer pricing, which many do, and year after year you’re getting further away from having the answers you need on hand when the audit comes.”
   
   
2. Maintain a regular schedule for health checks
   
   For most multinationals, Wall recommends a comprehensive transfer pricing review every three to five years, with routine maintenance in between. “Once every three to five years, you need to check how you are tracking your transfer pricing against the legislation, just to make sure what you’re doing is right."
   
   
3. Make it a priority before the audit – not during
   
   Wall notes that some companies complete their health checks before getting audited, but many get audited first. “They go into the transfer pricing audit with undiscovered issues meaning the likelihood of the audit ending in a reassessment is high.”
   
   Wall notes that after a difficult audit and reassessment, most companies invest more in their transfer pricing strategy. Ben Franklin once said that “by failing to prepare, you’re preparing to fail.” According to Wall, understanding the new transfer pricing obligations and preparing ahead of time will help ensure that businesses are ready when, not if, they are subject to an audit.
   
   “Do you want to spend all of your time growing your business, or half that time defending it?” Wall adds.

An Opportunity for CPAs

For CPAs willing to invest in understanding these transfer pricing changes, the opportunity to provide guidance has never been greater. As Wall puts it, “We’re on the front end of a big educational cycle that will go on for a few years. The tax community is going to need help understanding what they didn’t know they needed to know.”