Canada To Improve Taxation Of Financial Institutions

by Mike Godfrey, Tax-News.com, Washington

09 November 2007

Jim Flaherty, Canada's Minister of Finance, is seeking public comment on draft amendments to improve the taxation of financial institutions by better aligning tax laws with new standards set out by the Accounting Standards Board.

"The Government is committed to reducing the compliance burden faced by Canadian businesses," announced Minister Flaherty. "These changes will ease this burden on financial institutions as well as improve the economic efficiency of the tax system by improving the measurement of income and capital for tax purposes."

The intention to release these proposals was originally announced by the Minister on December 28, 2006.

The proposed amendments to the Income Tax Act and the Income Tax Regulations relate to the calculation of: the income of financial institutions from certain share holdings and debt obligations; policy reserves that are deductible by insurance corporations in computing income for tax purposes; and the minimum tax for life insurance corporations resident in Canada.

These proposals are intended to become effective for taxation years that begin on or after October 1, 2006.

This package also contains a number of additional changes to the "mark-to-market" rules determining the income of financial institutions from certain share holdings and debt obligations. These changes will provide that, in certain situations, securities held in corporations carrying on a stock exchange or a credit card business will not be subject to these rules.

The Finance Department has said that is requesting comments on the proposals by November 30, 2007, and will work toward introducing these measures in Parliament at the "earliest opportunity".

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