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Canada To Implement 2014 Budget Tax Provisions

by Mike Godfrey,, Washington

15 October 2014

The Canadian Government has tabled a detailed Notice of Ways and Means Motion to implement tax provisions contained in its 2014 Budget, along with a number of previously unannounced measures.

Finance Minister Joe Oliver said: "Canada's Economic Action Plan builds on our Government's record of keeping taxes low for families and businesses. Our Government's plan for jobs and growth is creating opportunities right across the country. It is keeping Canada on track to return to balanced budgets in 2015 so that we can continue to lower taxes and promote long-term prosperity for Canadians."

The Motion proposes the implementation of Budget measures relating to international, business, and personal taxation. It also includes a number of new income tax and sales tax measures.

The Motion includes plans for better circumscribing an existing exception from the "investment business" definition in the foreign accrual property income regime, by introducing additional conditions for the application of the exception. It adjusts Canada's foreign accrual property income rules to address offshore insurance swap transactions and ensure that income derived directly or indirectly from the insurance of Canadian risks is taxed appropriately.

The Motion also adds a specific anti-avoidance rule in respect of withholding tax on interest payments and modifies an existing anti-avoidance rule in the thin capitalization rules. Both measures are designed to address back-to-back loan arrangements involving an intermediary.

The Motion amends the foreign affiliate dumping rules, to ensure that the rules apply in appropriate circumstances and, where applicable, provide appropriate results. It alters the definition of "non-qualifying country" in the foreign affiliate rules. The new definition will exclude those countries or jurisdictions for which the Convention on Mutual Administrative Assistance in Tax Matters is in force and effect, and aims to avoid unintended tax consequences with respect to the British Virgin Islands, which now has a comprehensive tax information exchange agreement with Canada.

The foreign affiliates rules will also better accommodate the use of partnerships.

The remaining tax measures included in the Motion will:

  • Revise the base erosion rules, to more appropriately apply to certain securities transactions and funding arrangements involving foreign affiliates of Canadian banks;
  • Eliminate graduated rate taxation for trusts and certain estates, with an exception for cases involving testamentary trusts whose beneficiaries include individuals eligible for the Disability Tax Credit;
  • Ensure the appropriate taxation of taxpayers that invest in certain Australian trusts;
  • Include in the definition of "split income" income from a business or property that is paid or allocated to a minor child from a partnership or trust, where a person related to the child is engaged in the activities of the partnership or trust to earn that income;
  • Expand the eligibility for the accelerated capital cost allowance for clean energy generation and energy conservation equipment under Class 43.2 to include water-current equipment and a broader range of equipment used to gasify eligible waste;
  • Subject Pooled Registered Pension Plans to similar goods and services tax/harmonized sales tax treatment as Registered Pension Plans;
  • Permit income contributed to an amateur athlete trust to qualify as earned income for Registered Retirement Savings Plan contribution limit purposes, with a three-year retroactive application;
  • Extend the intergenerational rollover and lifetime capital gains exemption to farming and fishing businesses;
  • Extend the tax deferral provision with respect to breeding animals, to include bees and horses over 12 months of age;
  • Allow greater flexibility in the income tax rules for recognizing charitable donations made by will or on death;
  • Modernize the rules applying to international shipping corporations;
  • Double the Children's Fitness Tax Credit to CAD1,000 (USD893) and make it refundable;
  • Improve the operation of the Canadian Film or Video Production Tax Credit, and
  • Extend the existing credit for interest paid on Government-sponsored student loans to interest paid on a Canadian Apprentice Loan.

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