Canada Consults On Numerous Tax Law Amendments

Wednesday, September 3, 2014

The Canadian Government is consulting on draft legislative proposals that would implement personal, business, and international tax measures announced in the Economic Action Plan 2014.

On the personal income tax front, the following measures are proposed:

• Extending the intergenerational rollover and life-time capital gains exemption for farming and fishing businesses;
• Permitting income contributed to an amateur athlete trust to qualify as earned income for Registered Retirement Savings Plan contribution limit purposes, with a three-year retrospective application;
• Including, 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; and
• Eliminating 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.

In the business income tax sphere, the following measures are proposed:

• Expanding eligibility for the accelerated capital cost allowance for clean energy generation and energy conservation equipment under Class 43.2 to include water-current energy equipment and a broader range of equipment used to gasify eligible waste; and
• Extending the tax deferral provision with respect to breeding animals to bees, and to all types of horses that are over 12 months of age, that are kept for breeding.

The following international tax changes are proposed:

• 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;
• Adjusting Canada's foreign accrual property income rules in order to address offshore insurance swap transactions and ensure that income derived directly or indirectly from the insurance of Canadian risks is taxed appropriately; and
• Addressing back-to-back loan arrangements involving an intermediary by adding a specific anti-avoidance rule in respect of withholding tax on interest payments, and modifying an existing anti-avoidance rule in the thin capitalization rules.

For charities, it is proposed that greater flexibility will be allowed in income tax rules for the recognition of charitable donations made in a well or on death.

A number of other measures, which were not included in the Economic Action Plan 2014, are proposed, including:

• Modernizing the life insurance policy exemption test;
• Amending the foreign affiliate dumping rules to ensure the rules apply in appropriate circumstances and, where applicable, provide appropriate results.
• Amending the definition "non-qualifying country" in the foreign affiliate rules to:
• exclude from this definition those countries or other jurisdictions for which the Convention on Mutual Administrative Assistance in Tax Matters is in force and effect; and
• avoid unintended tax consequences with respect to the British Overseas Territory of the British Virgin Islands, which is now a jurisdiction that has a comprehensive tax information exchange agreement with Canada.
• Ensuring that Pooled Registered Pension Plans are subject to similar Goods and Services Tax/Harmonized Sales Tax treatment as registered pension plans.

The consultation is open until September 28.