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2013 Federal Budget Part 2 - Draft Legislation Released 

Canadian Tax Adviser

 

September 17, 2013

 

Finance released draft legislative proposals to implement certain outstanding measures originally announced in the 2013 federal budget on September 13, 2013. The proposals, which are contained in 67 pages of draft legislation and 94 pages of explanatory notes, relate to character conversion transactions, synthetic dispositions, leveraged life insurance arrangements, trust and corporate tax loss trading, mining tax changes, and the extension of the thin capitalization rules to Canadian resident trusts and non-resident entities. Finance is accepting comments on the draft legislative proposals until October 15, 2013.

For details of the 2013 federal budget, see TaxNewsFlash-Canada 2013-10, "2013 Federal Budget Highlights". Finance's press release states that the draft legislation includes:

 

Business tax measures
The proposals:

 

  • Expand 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
  • Impose a penalty where information on tax preparers and billing arrangements is missing, incomplete or inaccurate on Scientific Research and Experimental Development program claim forms
  • Phase out the accelerated capital cost allowance for capital assets used in new mines and certain mine expansions, and reduce the deduction rate for pre-production mine development expenses
  • Adjust the five-year phase-out of the additional deduction for credit unions
  • Eliminate certain benefits of leveraged life insurance arrangements
  • Clarify the restricted farm loss rules and increase the restricted farm loss deduction limit.
  • Enhance corporate anti-loss trading rules to address planning that avoids those rules.

 

International tax measures
The proposals:

 

  • Extend the reassessment period for taxpayers who have failed to correctly report income from a specified foreign property on their annual income tax return where:
    • Form T1135, "Foreign Income Verification Statement", was not filed on time
    • A specified foreign property was not identified on Form T1135
    • A specified foreign property was improperly identified on Form T1135
  • Further extend the application of Canada's thin capitalization rules to Canadian resident trusts and non-resident entities.

 

Personal Tax Measures
The proposals:

 

  • Increase the Lifetime Capital Gains Exemption to $800,000 and index the new limit to inflation.
  • Streamline the process for pension plan administrators to refund a contribution made to a Registered Pension Plan as a result of a reasonable error.
  • Extend the reassessment period for reportable tax avoidance transactions and tax shelters when information returns are not filed properly and on time.
  • Phase out the federal Labour-Sponsored Venture Capital Corporations tax credit. (These proposals do not include any additional amendments to the tax rules governing Labour-Sponsored Venture Capital Corporations to assist with an orderly phase-out of the tax credit. These tax rules are the subject of a public consultation undertaken by the Government.)
  • Ensure that the tax attributes of trusts cannot be inappropriately transferred among arm's-length persons. (These proposals remain subject to the 180-day consultation, launched on March 21, 2013 in Economic Action Plan 2013, on their application to personal trusts.)
  • Respond to the Federal Court of Appeal decision in the Sommerer case to restore the intended tax policy result in relation to non-resident trusts.

 

Other anti-avoidance measures
The proposals:

 

  • Ensure that derivative transactions cannot be used to convert fully taxable ordinary income into capital gains taxed at a lower rate, (i.e., character conversion transactions)
  • Ensure that the tax consequences of disposing of a property cannot be avoided by entering into transactions that are economically equivalent to a disposition of the property, but where legal ownership of the property is retained (i.e., synthetic disposition transactions)

 

Indirect tax changes
The proposals:

 

  • Clarify that the supplies of paid parking are not caught by the GST/HST provision that exempts supplies by a public sector body (PSB) of a property or a service if all or substantially all of the supplies of the property or service by the PSB are made for free.

 

For more information, contact your KPMG adviser.

 

 

 

 

 

 

Information is current to September 17, 2013. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

 

Publications

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