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Canada Consults On 2013 Economic Action Plan

Wednesday, September 18, 2013

On September 13, the Department of Finance released for consultation draft legislative proposals that would implement a number of tax measures from Canada's Economic Action Plan 2013, which was originally introduced in March this year by Finance Minister Jim Flaherty during his 2013 Budget.

The draft legislation contains various measures to be taken within the personal income tax code, including an increase to the Lifetime Capital Gains Exemption to CAD800,000 (USD774,000) and indexing the new limit to inflation.

However, the major elements within the personal income tax changes relate to tax compliance. Examples include: extending the reassessment period for reportable tax avoidance transactions and tax shelters when information returns are not filed properly and on time; ensuring that derivative transactions cannot be used to convert fully taxable ordinary income into capital gains taxed at a lower rate; and ensuring that the tax attributes of trusts cannot be inappropriately transferred among arm's length persons, and responding to the Federal Court of Appeal decision in the Sommerer case to restore the intended tax policy result in relation to non-resident trusts.

In like manner, with regard to international taxation, the reassessment period for taxpayers who have failed to correctly report income from a specified foreign property on their annual income tax return, will be extended; as will the application of Canada's thin capitalization rules to Canadian resident trusts and non-resident entities.

In respect of business taxation, the draft legislation will eliminate the unintended tax benefits of leveraged life insurance arrangements, and enhance corporate anti-loss trading rules to address planning that avoids those rules. It will also expand the eligibility for the accelerated capital cost allowance for clean energy generation equipment to include a broader range of biogas production equipment and equipment used to treat gases from waste.

In addition, the accelerated capital cost allowance for capital assets used in new mines and certain mine expansions will be phased out, and the deduction rate for pre-production mine development expenses will be reduced.

Interested parties are invited to provide comments on the draft legislative proposals by October 15, 2013.