Blakes has provided a little commentary on what the feds are doing with preferred shares in the 2026 Budget:
Taxable Preferred Shares
The Tax Act contains a regime that is intended to prevent erosion of the corporate tax base through after-tax financing that involves the issuance of shares with debt-like characteristics (“taxable preferred shares”) in lieu of debt instruments. Specifically, where a payer corporation is unable to immediately benefit from the tax deduction generated by interest expense (payable on a debt instrument) and the recipient can receive a dividend on an effectively tax-free basis (as compared to earning taxable interest income), the parties may be otherwise incentivized to use such preferred share financing, priced at a lower rate than equivalent debt financing would be.Dividends paid (and deemed to be paid) on such shares are subject to a special punitive “Part VI.1 tax” on the payer corporation. While Part VI.1 tax can be offset against ordinary income tax (where the corporation and its related corporate group are sufficiently taxable), even where the offset is fully available, some tax leakage still results due to imperfect provincial integration. Part VI.1 tax is also only payable for dividends paid in excess of an annual C$500,000 dividend allowance threshold (reduced to the extent dividends paid in the prior calendar year exceed C$1-million).
Budget 2026 proposes to introduce the following measures:
Exempt dividends paid by “Canadian-controlled private corporations” (CCPCs) from the taxable preferred share regime entirely
Increase the dividend allowance from C$500,000 to C$1.5-million, and the threshold for reduction of the dividend allowance from C$1-million to C$3-million
The CCPC exemption is proposed to apply to dividends paid on or after Budget Day, and the changes to the dividend allowance are proposed to apply to taxation years that end after 2026.Budget 2026 also announced a review of the broader preferred share regime in the Tax Act and is seeking stakeholder submissions by January 8, 2027.
These proposals will no doubt be helpful for many smaller corporations (and appear to directly address certain concerns raised by STEP Canada in a submission dated August 13, 2026) and the announcement of a broader review of the preferred share regime is welcome; however, the measures proposed in Budget 2026 do not address many of the issues and concerns with the Part VI.1 tax regime, which have been raised with the Department of Finance.
While the stated policy objective of the taxable preferred share regime is understandable, the rules as drafted are too broad, capturing many common commercial transactions and arrangements that in no way are designed to, or actually result in, the base erosion abuse described above. The definition of “taxable preferred share” is very broad. By way of example, the CRA’s view is that an agreement for a corporation or its majority shareholder to acquire a common share from a minority shareholder at a price equal to the common share’s pro rata portion of the fair market value of all the corporation’s common shares, determined without regard for minority or liquidity discount, arguably could cause the share to be a taxable preferred share. It is challenging to justify this result (or the uncertainty surrounding it), and it serves as an irritant in many ordinary course transactions. It is similarly difficult to understand why it is appropriate for Part VI.1 tax to apply to a dividend paid to a non-resident of Canada. In fact, if a goal is to attract further international investment into Canada, having the taxable preferred share rules applied in this manner is contrary to this objective.
The foregoing are but two examples of the ways in which the breadth of the taxable preferred share regime far exceeds its intended purpose. In addition to the STEP Canada submission noted above (which called for the repeal of Part VI.1 as its primary recommendation, failing which the implementation of a number of changes including those reflected in the Budget 2026 proposals), the Joint Committee made a comprehensive submission dated October 21, 2026, also recommending that Part VI.1 be repealed.
It is hoped that the Department of Finance will consider such submissions, together with the feedback from the consultation described above, with a view to addressing some of the other inequities in the taxable preferred share regime in the near term and further removing irritants to investment.
This was the topic of a recent comment by John19.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
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| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.3441 % | 2,747.1 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.3441 % | 5,173.3 |
| Floater | 5.64 % | 5.73 % | 45,818 | 14.28 | 1 | 0.3441 % | 2,981.4 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0133 % | 3,617.6 |
| SplitShare | 4.90 % | 5.38 % | 48,330 | 3.24 | 6 | -0.0133 % | 4,320.2 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0133 % | 3,370.8 |
| Perpetual-Premium | 5.77 % | 4.21 % | 43,297 | 0.08 | 1 | 0.5600 % | 3,042.9 |
| Perpetual-Discount | 5.70 % | 5.79 % | 44,017 | 14.17 | 33 | 0.4091 % | 3,303.9 |
| FixedReset Disc | 5.74 % | 6.14 % | 86,888 | 13.48 | 22 | -0.5301 % | 3,335.0 |
| Insurance Straight | 5.64 % | 5.74 % | 55,740 | 14.22 | 20 | 0.1962 % | 3,192.9 |
| FloatingReset | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.5301 % | 4,072.1 |
| FixedReset Prem | 6.00 % | 5.33 % | 69,595 | 2.15 | 28 | -0.0042 % | 2,610.4 |
| FixedReset Bank Non | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.5301 % | 3,409.1 |
| FixedReset Ins Non | 5.64 % | 5.63 % | 49,467 | 14.14 | 13 | -0.0225 % | 3,230.8 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BN.PF.G | FixedReset Disc | -6.53 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2056-11-11 Maturity Price : 22.48 Evaluated at bid price : 23.18 Bid-YTW : 6.63 % |
| BN.PR.X | FixedReset Disc | -4.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2056-11-11 Maturity Price : 20.48 Evaluated at bid price : 20.48 Bid-YTW : 6.38 % |
| BN.PF.M | FixedReset Prem | -2.26 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2031-01-01 Maturity Price : 25.00 Evaluated at bid price : 25.12 Bid-YTW : 5.73 % |
| MFC.PR.F | FixedReset Ins Non | -1.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2056-11-11 Maturity Price : 21.05 Evaluated at bid price : 21.05 Bid-YTW : 5.73 % |
| FTS.PR.F | Perpetual-Discount | 1.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2056-11-11 Maturity Price : 22.55 Evaluated at bid price : 22.80 Bid-YTW : 5.47 % |
| CU.PR.G | Perpetual-Discount | 1.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2056-11-11 Maturity Price : 21.00 Evaluated at bid price : 21.00 Bid-YTW : 5.37 % |
| CU.PR.E | Perpetual-Discount | 1.34 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2056-11-11 Maturity Price : 22.48 Evaluated at bid price : 22.74 Bid-YTW : 5.39 % |
| CU.PR.J | Perpetual-Discount | 1.90 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2056-11-11 Maturity Price : 21.70 Evaluated at bid price : 22.04 Bid-YTW : 5.38 % |
| CU.PR.F | Perpetual-Discount | 4.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2056-11-11 Maturity Price : 20.80 Evaluated at bid price : 20.80 Bid-YTW : 5.43 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BN.PF.N | FixedReset Disc | 119,671 | YTW SCENARIO Maturity Type : Call Maturity Date : 2032-01-01 Maturity Price : 25.00 Evaluated at bid price : 24.89 Bid-YTW : 5.61 % |
| BN.PF.I | FixedReset Prem | 62,528 | YTW SCENARIO Maturity Type : Call Maturity Date : 2027-03-31 Maturity Price : 25.00 Evaluated at bid price : 25.22 Bid-YTW : 4.74 % |
| ENB.PR.B | FixedReset Disc | 31,000 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2056-11-11 Maturity Price : 22.70 Evaluated at bid price : 23.41 Bid-YTW : 6.23 % |
| BMO.PR.E | FixedReset Prem | 23,991 | YTW SCENARIO Maturity Type : Call Maturity Date : 2028-11-25 Maturity Price : 25.00 Evaluated at bid price : 26.22 Bid-YTW : 4.19 % |
| SLF.PR.G | FixedReset Ins Non | 17,400 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2056-11-11 Maturity Price : 21.00 Evaluated at bid price : 21.00 Bid-YTW : 5.62 % |
| BN.PR.R | FixedReset Disc | 15,019 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2056-11-11 Maturity Price : 22.35 Evaluated at bid price : 23.10 Bid-YTW : 6.12 % |
| There were 6 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| See TMX DataLinx: ‘Last’ != ‘Close’ and the posts linked therein for an idea of why these quotes are so horrible. | ||
| Issue | Index | Quote Data and Yield Notes |
| GWO.PR.S | Insurance Straight | Quote: 22.47 – 24.90 Spot Rate : 2.4300 Average : 1.5795 YTW SCENARIO |
| BN.PF.G | FixedReset Disc | Quote: 23.18 – 24.97 Spot Rate : 1.7900 Average : 1.3028 YTW SCENARIO |
| BN.PR.X | FixedReset Disc | Quote: 20.48 – 21.48 Spot Rate : 1.0000 Average : 0.6031 YTW SCENARIO |
| GWO.PR.N | FixedReset Ins Non | Quote: 19.83 – 20.75 Spot Rate : 0.9200 Average : 0.5902 YTW SCENARIO |
| CU.PR.J | Perpetual-Discount | Quote: 22.04 – 23.00 Spot Rate : 0.9600 Average : 0.6980 YTW SCENARIO |
| BN.PF.B | FixedReset Prem | Quote: 24.84 – 25.58 Spot Rate : 0.7400 Average : 0.4941 YTW SCENARIO |