Canada To Amend Income Tax Regulations

by Mike Godfrey, Tax-News.com, Washington

21 March 2011

Canada is to make substantial changes relating to its income tax regulations, with the Department of Finance releasing draft legislative proposals to this effect.

On March 16, the Department of Finance announced draft legislative proposals relating to the Income Tax Act and Income Tax Regulations concerning the deductibility by a taxpayer of contingent amounts, the withholding tax that applies to interest payments made to non-residents, and the tax treatment of a life insurance corporation’s reserves in respect of its segregated fund policies.

These proposals are in response to three Federal Court of Appeal decisions, in response to which the government intends clarify:

• That a taxpayer who has a right to reduce an amount in respect of an expenditure is to be given recognition for tax purposes for only that reduced amount;
• That withholding tax under Part XIII of the Income Tax Act will apply (subject to the application of Canada’s tax treaties) to interest paid or credited by a person who is resident in Canada (the payer) to any non-resident person in respect of a debt that is owed to a non-resident person who does not deal at arm’s length with the payer; and
• The rules for computing a life insurance corporation’s segregated fund policy reserves.

A consultation process has now begun on the proposals, and interested parties are invited to send comments by April 15, 2011.

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