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2012 Federal Budget Tax Measures Now Substantively Enacted - by Heather O'Hagan and Pam Zabarylo 

Global Tax Adviser

 

October 18, 2012

 

Heather O'Hagan

GTA, International Corporate Tax
 

Pam Zabarylo
GTA, Canadian Corporate Tax

 

Bill C-45 to implement most of the remaining 2012 federal budget measures received first reading in the House of Commons on October 18, 2012. The bill will implement the proposed amendments reflected in the Notice of Ways and Means Motion (NWMM) tabled in Parliament on October 15, 2012, including proposals initially released in draft legislation on August 14, 2012 related to SR&ED, foreign affiliate dumping, thin capitalization and section 88 bump denial limits for partnerships. Also included in the bill are measures related to Pooled Registered Pension Plans (PRPP) and Excise Tax Act changes covering pension plans and selected listed financial institutions.

Since the bill has received first reading in the House of Commons, the legislation is considered substantively enacted for purposes of IFRS and Canadian GAAP as of October 18, 2012 (as Canada has a majority federal government).

 

Bill C-45 includes the following business and international tax measures from the 2012 federal budget. According to Finance, the bill:

 

  • Restricts the ability of foreign-based multinational corporations to transfer, or "dump", foreign affiliates into their Canadian subsidiaries, while preserving the ability of these subsidiaries to undertake legitimate expansions of their Canadian businesses
  • Improves the integrity and fairness of the thin capitalization rules
  • Reduces the general Scientific Research and Experimental Development (SR&ED) investment tax credit rate to 15% (from 20%)
  • Reduces the prescribed proxy amount, which taxpayers use to claim SR&ED overhead expenditures, to 55% of the salaries and wages of employees who are engaged in SR&ED activities (from 65%)
  • Removes the profit element from arm's-length third-party contracts for the purpose of the calculation of SR&ED tax credits
  • Removes capital from the base of eligible expenditures for the purpose of the calculation of SR&ED tax incentives
  • Prevents the avoidance of corporate income tax through the use of partnerships to convert income gains into capital gains
  • Ensures that transfer pricing secondary adjustments will be treated as dividends for Part XIII withholding tax purposes
  • Phases out the Atlantic investment tax credit for activities related to the oil and gas and mining sectors
  • Phases out the Corporate Mineral Exploration and Development Tax Credit
  • Provides that qualified property for the purposes of the Atlantic investment tax credit will include certain electricity generation equipment and clean energy generation equipment used primarily in an eligible activity
  • Expands the eligibility for the accelerated capital cost allowance for clean energy generation equipment to include a broader range of bioenergy equipment
  • Phases out the Overseas Employment Tax Credit.

 

For more information, contact your KPMG adviser.

 

 

 

 

Information is current to October 18, 2012. 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.

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