The government says it will crack down on car rental companies that rent out cars in Canada to residents and business owners.
The Canadian Taxpayers Federation says the legislation will target companies that do not pay tax on their rental income.
The government is proposing a new regulation that would limit the amount of car rental income that could be deducted by businesses.
Businesses that rent cars in the country would be required to report their rental revenues on their financial statements, or face a $5,000 penalty.
If a business does not report their income, the government would also require that the rental company pay back the difference between what it pays in taxes and what it earns on rental revenues.
The legislation would be the first major regulation of car rentals in Canada, following measures introduced in 2013 to curb illegal parking.
It also comes as the number of Canadians renting cars has surged, with a new report from the Centre for Disease Control showing that the number has increased by more than 4 million over the past decade.