New Rules to Simplify Transfer Pricing for Small Taxpayers and Small Transactions
October 1, 2026
Canada’s government is reviewing comments on draft legislation to make the new and more complex transfer pricing rules simpler for small taxpayers and small transactions.
A Canadian business and foreign affiliate within a multinational group must comply with the new rules on transfer pricing when they buy or sell goods or services with each other.
This is the biggest change to Canada’s transfer pricing rules for almost 30 years, legally enforcing the 2022 transfer pricing guidelines from the Organisation for Economic Cooperation and Development (OECD).
However, Canada’s new transfer pricing rules aren’t just an issue for large multinationals, since small and mid-sized enterprises exported over $282 billion in 2023.
At a time when Canadian companies are attempting to mitigate the impact of an ongoing trade war with the U.S., the country’s biggest trading partner, how can Canada’s government keep from making its transfer pricing reforms more difficult for SMEs?
Learning from antipodean tax reforms
According to Matthew Wall, CPA, CA, a nationally recognized transfer pricing expert, the Canadian government can improve the new transfer pricing rules for small taxpayers and small transactions by learning from the Australian and New Zealand governments.
Wall, who has roughly 30 years’ experience in transfer pricing, says that, according to feedback from his contacts in Australia and New Zealand, their transfer pricing rules are widely regarded as clear, fair and efficient. “Taxpayers like it. Taxpayers are using it.”
In an effort to simplify transfer pricing documentation for SMEs, Australia allows reduced, and relatively basic, record keeping for small taxpayers with revenue up to $50 million AUD. Similarly, New Zealand allows this for distributors with revenues up to $30 million NZD. And Canada’s draft legislation on July 23, 2026 introduces simplified documentation for small taxpayers with gross revenue for the Canadian Group up to $25 million CAD.
Profit guidelines and transfer pricing
Australia and New Zealand do not require transfer pricing analysis for distributors that earn an operating margin of 3% or more since, as New Zealand explains, this ensures their transfer pricing arrangements are broadly indicative of an arm’s length outcome.
As New Zealand’s tax authority puts it: our “transfer pricing rules have always been about striking a balance between protecting the tax base and containing compliance costs.”
Wall explains, if the transactions meet the transfer pricing requirements, then the resulting profits of the tested party should fall within an arm’s length range, and vice versa.
However, since Canada’s draft legislation does not set a minimum profit, a small taxpayer in Canada must provide analysis to determine the transaction amounts are based on arm’s length conditions including the identity of the tested party, a description of the transfer pricing method, and results – something Australia and New Zealand do not require.
Small transactions
Australia does not require transfer pricing analysis for low value services up to $2 million AUD with a 5% mark-up, technical services up to 50% of all related party transactions with a 10% mark-up, and loans up to $50 million AUD with a cap on interest. And New Zealand has similar guidance for documenting low value services and loans up to $10 million NZD.
Similarly, Canada’s draft legislation covers goods up to $5 million CAD, services up to $2 million CAD, and interest on loans up to $1 million CAD. However, unlike Australia and New Zealand, a Canadian taxpayer must include transfer pricing analysis in their documentation to determine that the amounts are based on arm’s length conditions.
And apart from checking that a taxpayer meets the eligibility criteria, Australia will not allocate resources to review these transactions, since it considers them to be a “low risk.” However, unlike Australia and New Zealand, Canada requires transfer pricing analysis for small transactions and provides no assurances that they will not be audited.
Business-friendly tax rules
Canada’s tax policies, including transfer pricing rules, if they are following the best practice shown by Australia and New Zealand, should reduce the full-fledged documentation for larger, more complex transactions down to only a few pages of simplified documentation for small taxpayers and small transactions.
Wall explains, “We need simpler policies for small taxpayers and small transactions so they can spend more time growing their business and less time defending it.” And if the policy required a minimum level of profit, the transactions should be close to an arm’s length outcome, which reduces the need for – and threat of – a transfer pricing audit.
Wall believes the simplification measures in Australia and New Zealand provide three specific benefits. First, taxpayers will better understand the risk of an audit using profit-based guard rails. Second, taxpayers can move to a lower risk category by adjusting transactions and profits before closing the books. Third, this frees up resources to focus on larger, more complex transactions to ensure compliance and mitigate the risk of an audit.
What should CPAs do?
CPAs need to review the related party transactions, methods, and documentation used in Fiscal 2025, which likely continued into the current year unchanged, and might be offside with the new transfer pricing rules in Budget 2025 that came into effect for Fiscal 2026.
As Canadian companies begin preparing their financial statements and corporate tax returns for Fiscal 2026, including disclosures on transfer pricing in the T106 forms, they will need help from CPAs in accounting, tax, and transfer pricing to comply with the new rules.
Says Wall: “Many Canadian small and medium-sized enterprises don't know about the new transfer pricing rules yet … they're still focused on the trade war.”
Finally, in such a complex environment, SMEs hope Canada will learn from Australia’s and New Zealand’s experience on simplified documentation to clarify and improve its proposed rules for documenting small taxpayers and small transactions without excessive red tape.