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Canada Foreign Affiliate Regulations Released

by Mike Godfrey,, Washington

23 December 2009

Jim Flaherty, Canadian Minister of Finance, has released for consultation a package of draft Income Tax Regulations, as well as other draft legislation, relating to the taxation of Canadian multinational corporations with foreign affiliates.

The package, released on December 18, includes draft regulations that are consequential to the Budget 2007 foreign affiliate changes to the Income Tax Act.

“Our government is committed to enhancing the fairness and competitiveness of Canada’s international tax rules,” said Flaherty upon the release of the documents. “The proposals I am announcing today will improve the tax system and assist Canadian businesses in complying with the tax law.”

Bill C-28, the second Budget 2007 implementation bill, which received Royal Assent on December 14, 2007, implemented a number of amendments to the Income Tax Act relating to foreign affiliates. Included in the Bill were provisions allowing taxpayers to elect retroactive application of some of its foreign affiliate amendments.

In response to concerns that the deadline for filing those elections was too early, the government announced in June 2008 an 18-month extension of that deadline – the new deadline for a corporation having a taxation year coinciding with the calendar year is December 31, 2009. The package released on December 18, 2009, contains all of the proposed changes to the Income Tax Regulations that are relevant in determining whether or not to make any of the retroactive elections provided for in Bill C-28.

Furthermore, all seven of these retroactive elections are being made revocable. Thus, for example, calendar year corporations will have until June 30, 2011, to decide whether or not to cancel any such election.

Flaherty indicated that the government will be accepting comments from stakeholders until February 15, 2010, and will proceed with legislation at an early opportunity to implement the proposed amendments, taking into account any comments received.

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