John Ridsdel, 68, was taken from a tourist resort along with three others by the Abu Sayyaf group in September last year.
The group had threatened to kill a male hostage on April 25 if a ransom was not paid.
Confirming the death, Canadian Prime Minister Justin Trudeau called it "an act of cold-blooded murder".
Mr Ridsdel was kidnapped from a marina near the city of Davao along with another Canadian, Robert Hall, Norwegian Kjartan Sekkingstad and a Philippine woman, Mr Hall's girlfriend Marites Flor.
They were taken 500km (300 miles) to the island of Jolo. Abu Sayyaf released a video of the group in November, in which they demanded $80m (Â£55m) for their release.
Mr Ridsdel later warned that he was due to be killed if no ransom was paid.
Several hours after the deadline, a severed head was found in a street on Jolo. The Philippine authorities said it belonged to a foreign man but it has not yet been formally identified.
"It's hard," a friend of Mr Ridsdel, Bob Rae, told CBC News. "It's just very hard. I've been involved behind the scenes for the last six months trying to find a solution and it's been very painful."
A former mining executive, Mr Ridsdel is described by Canadian media as semi-retired.
He also worked as a journalist.
Offering his condolences, Mr Trudeau gave few details, saying he would not compromise the safety of the other captives.
Abu Sayyaf was set up in the 1990s and received funding from al-Qaeda.  It is fighting for an independent Islamic province in the Philippines.
Several of its factions have declared their allegiance to the militant group Islamic State. Abu Sayyaf is also holding several other foreigners.
Eighteen Philippine soldiers were killed in clashes with the militants on Basilan island near Jolo island earlier this month.
A Canadian man held captive by Islamist militants for months in the Philippines has been killed.