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Canada Tax Fairness Plan Passed In Commons

by Mike Godfrey, Tax-News.com, Washington

14 June 2007


The Canadian Budget Implementation Bill, which contains Finance Minister Jim Flaherty's controversial 'Tax Fairness Plan' has been passed by the House of Commons and now awaits the approval of the Senate.

Welcoming the passing of the measure, Flaherty said: "Budget 2007 is great for Canadians. It delivers tax relief for families and businesses. It supports clean air and climate change projects. It provides predictable, long-term funding for post-secondary education, social assistance and social services. And it continues to make significant progress in reducing our federal debt.”

However, Flaherty made no mention of the unpopular decision to introduce a new 'Distribution Tax' on Income Trusts in an attempt to tackle what he considers a "growing trend toward corporate tax avoidance" caused by the vehicle's more favourable tax treatment compared with the more conventional company structure. This tax, also contained in the bill passed Tuesday, is being applied beginning this year to distributions from publicly traded income trusts and limited partnerships set up after Flaherty's October 31 2006 announcement. Trusts formed prior to this date will benefit from a four-year transition period.

The new tax, which was devised largely without consultation and announced without warning, has caused consternation in Canada's business and investment sector, and several corporations with well-advanced plans towards converting to trust status have been forced to rethink their strategies.

According to Flaherty, the estimated federal revenue loss for 2006 due to the special tax advantage for income trusts would be C$500 million (US$424 million) - a burden he argued was unfairly being shifted to ordinary taxpayers and other tax-paying corporations.

Other measures in the bill passed by the Commons included: the 'Tax Back Guarantee Act,' which commits all interest savings from federal debt reduction each year to reducing personal income taxes; up to C$310 per child of tax relief for more than 3 million Canadian families; up to C$209 of tax relief for supporting spouses or single taxpayers supporting a child or relative; and other initiatives under the Tax Fairness Plan which Flaherty says will provide C$1 billion in tax savings for pensioners and seniors.

The bill also modernises bankruptcy and insolvency rules to ensure full legal protection for eligible financial contracts.

“I now encourage members of the Senate to follow suit and pass the budget bill as quickly as possible,” stated Minister Flaherty. “If the bill is delayed, Canadian families, provinces and non-profit organizations will be denied access to billions of dollars in funding.”

Legislation to implement the remaining Budget 2007 proposals is being developed for introduction at a later time.


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