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Tax Accounting — Snapshot of Rates on June 30, 2013 



Tax Accounting — Snapshot of Rates on June 30, 2013

July 5, 2013
No. 2013-25


If you are involved in preparing financial reports for corporations or other organizations, certain 2013 income tax changes may need to be reflected in your interim period financial statements under International Financial Reporting Standards (IFRS), Accounting Standards for Private Enterprise (ASPE) or U.S. generally accepted accounting principles (U.S. GAAP).


When do new tax measures have to be taken into account?


Under IFRS and ASPE, the tax effect of changes in tax law and rates is recognized in the period that includes the date that the changes were substantively enacted. Under U.S. GAAP, tax law and rate changes are recognized in the period that includes the date that the changes were enacted.


Corporate tax rates for 2013


The following federal and provincial corporate rates for income earned by a general corporation are substantively enacted as at June 30, 2013:

 


New Brunswick and British Columbia are the only provinces that proposed changes to the general corporate tax rate as part of their 2013 budgets. New Brunswick increased the provincial general corporate tax rate to 12% (from 10%) effective July 1, 2013. British Columbia increased the provincial general corporate tax rate to 11% (from 10%) effective April 1, 2013. Both changes are substantively enacted as at June 30, 2013.


The federal budget did not propose changes to the federal general corporate tax rate. 


The latest general corporate tax rates, as well as rates for Canadian-controlled private companies, are always available on our Canadian Corporate Tax Tables page.


Status of legislation at June 30, 2013


The tables below provide more information on the 2013 federal and provincial corporate tax measures that you may need to reflect in your interim period financial statements. The tables include:

 

  • Table A — Bill C-48 Catch-Up Tax Technical Amendments
  • Table B — 2013 Federal Budget Measures — Bill C-60
  • Table C — Outstanding Federal Tax Legislation — June 30, 2013
  • Table D — Provincial Tax Legislation — June 30, 2013.

 

For more information about these changes, contact your KPMG adviser or see the editions of TaxNewsFlash-Canada noted below.


We can help


KPMG’s tax accounting and audit support professionals can help you assess the impact these changes in tax law will have on your organization’s financial statements. We can also help your organization understand and manage your obligations under the Canadian, U.S. and international financial reporting standards for income tax accounts and disclosures. For details, contact your KPMG adviser.

 

Table A — Bill C-48 Catch-Up Tax Technical Amendments

 

Date "substantively enacted" under ASPE/IFRS

Date “enacted” under U.S. GAAP

November 21, 2012

June 26, 2013

 

Bill C-48 consolidates almost all outstanding tax measures that Finance released beginning in 2002 related to foreign affiliates, non-resident trusts, real estate investment trusts (REITs) and many more general technical amendments to hundreds of section of the Income tax Act (the Act), including two mini-technical bills.

 

Some of the measures related to foreign affiliates included in the Bill introduce new rules for:

 

  • Upstream loans
  • Hybrid surplus
  • Foreign tax credit generator rules
  • Foreign affiliate distributions
  • Extending the deadline to revoke many foreign affiliate elections, including the recharacterization rule for acquisition financing election ("Cap D election").

 

The bill also contains a number of general technical amendments to hundreds of sections of the Act, including:

 

  • Restrictive covenant provisions
  • Expenditure limitations for the issuance of certain non-monetary compensation
  • Amendments consequential to the general corporate rate reductions, including amendments to the factor in the paragraph 110(1)(k) deduction for Part VI.I tax
  • Aggressive tax planning
  • Loss utilization regarding income trust conversions

 

For further details of these and other measures included in Bill C-48, see

TaxNewsFlash-Canada 2012-39, TaxNewsFlash-Canada 2012-42 and the webcast replay of "Canada's New Foreign Affiliate Rules Finally Take Hold"

 

 

Table B — 2013 Federal Budget Measures — Bill C-60

 

Date "substantively enacted" under ASPE/IFRS

Date “enacted” under U.S. GAAP

April 29, 2013

June 26, 2013

 

Bill C-38 enacts certain tax measures announced in the 2013 federal budget. The bill:

 

  • An extension of the Class 29 capital cost allowance rate for manufacturing and processing equipment.

 

The bill does not include the more controversial tax changes in the budget such as the life insurance changes, trust and corporate tax loss trading, the mining tax changes, thin capitalization, character conversion transactions, synthetic dispositions, or restricted farm loss changes

 

For details of the 2013 federal budget, see TaxNewsFlash - Canada 2013-10, "2013 Federal Budget Highlights".

 

 

Table C — Outstanding Federal Tax Legislation — June 30, 2013

 

Date "substantively enacted" under ASPE/IFRS

Date “enacted” under U.S. GAAP

Not substantively enacted

Not enacted

 

Federal tax legislation that has been announced or released in draft form but has not yet reached the bill stage is not considered substantively enacted or enacted for accounting purposes. Pending federal legislation includes:

 

2013 federal budget proposals

The more controversial tax measures included in the 2013 federal budget have not yet been included in a bill. These measures include:

 

  • Life insurance changes
  • Trust and corporate tax loss trading rules
  • Mining tax changes
  • Thin capitalization changes
  • New rules for character conversion transactions
  • New rules for synthetic dispositions
  • Restricted farm loss changes.

 

For details of the 2013 federal budget, see TaxNewsFlash-Canada 2013-10.


2012 federal budget proposals

 

The only remaining key corporate tax measure included in the 2012 federal budget not yet included in a bill are amendments to the “base erosion test” for Canadian banks.  Draft legislation was released for comment on November 27, 2012, but has not yet been included in a bill.

 

December 2012 draft technical amendments

 

On December 21, 2012, Finance released a 21-page package of draft legislative proposals for comment that include a number of technical changes to the Act and Income Tax Regulations.  According to Finance, the proposals include technical changes related to:

 

  • A number of amendments to sections 55 and 88 of the Act related to comfort letters issued to taxpayers by the Department of Finance, along with a change to section 88 to ensure that a parent corporation cannot benefit from an inappropriate step-up in cost base on the winding-up of a subsidiary corporation.

 

Specified investment flow-through (SIFT) proposals

 

Finance introduced proposals on July 20, 2011 in a press release and three-page backgrounder to amend the rules that apply to SIFT entities. The proposals tighten the SIFT rules by restricting the deductibility of payments related to publicly traded stapled securities and by requiring SIFTs to pay instalments monthly instead of quarterly. However, the proposals also provide some relief by expanding the definition of qualifying investor for certain SIFTs and clarifying the meaning of "non-portfolio property".  Draft legislation was released for comment on July 25, 2012, but has not yet been included in a bill.

 

 

Table D — Provincial Tax Legislation — June 30, 2013

 

Ontario Bill 65

Date “substantively enacted” under ASPE/IFRS

Date “enacted” under U.S. GAAP

June 11, 2013

June 13, 2013

 

Bill 65 enacts certain tax measures in Ontario’s 2013 budget. The bill does not contain any corporate income tax changes, but includes personal tax measures and retail sales tax measures proposed in the budget.

 

For details, see TaxNewsFlash-Canada 2013-19.

 

Quebec Bill 18

Date “substantively enacted” under ASPE/IFRS

Date “enacted” under U.S. GAAP

May 29, 2013

June 5, 2013

 

Bill 18 enacts various items mentioned in the former Liberal government’s March 2012 Quebec budget, as well as other measures announced in various 2011 and 2012 Information Bulletins. Among other changes, the bill includes several changes to the tax treatment of financial services corporations including:

 

  • A new 40% tax credit of the qualified expenditures limited to $375,000 (up from $150,000), as announced in Information Bulletin 2012-6
  • A credit for the hiring of employees by a new financial services corporation for a maximum of five years (maximum credit being 30% of $100,000 wages) (up from $30,000, as announced in Information Bulletin 2012-6)
  • A new tax holiday for foreign specialists employed by such a corporation.

 

The bill also introduces other corporate tax changes to:

 

  • Introduce a tax credit for the market diversification of manufacturing businesses
  • Enhance the tax credit for investments relating to manufacturing and processing equipment
  • Renew the tax credit for labour training in the manufacturing, forestry and mining sectors
  • Adjust tax credits in the cultural sector.

 

For more details of the March 2012 Quebec budget measures, see TaxNewsFlash-Canada 2012-11.
 

Quebec Bill 34

Date “substantively enacted” under ASPE/IFRS

Date “enacted” under U.S. GAAP

Not substantively enacted

Not enacted

 

Bill 34 contains corporate tax measures announced in the 2013-2014 Quebec budget delivered on November 20, 2012, as well as other measures announced in various Quebec 2012 Information Bulletins. In addition to various personal and indirect tax measures, the bill:

 

  • Enhances the tax credit for investments relating to manufacturing and processing equipment
  • Temporarily increases the rate of the tax credit for scientific research and experimental development (SR&ED) for biopharmaceutical activities
  • Extends the "temporary" compensation tax on financial institutions and increases the rates that apply to this temporary tax
  • Adjusts the tax credit for the development of e-business
  • Introduces a new tax holiday for large investment projects
  • Introduces an exemption from payment of the employer contributions to the Health Services Fund in carrying out a large investment project
  • Changes the investment requirement related to the Capital régional et coopératif Desjardins.


For more details on the 2013-2014 budget, see TaxNewsFlash-Canada 2012-38.

 

Quebec Information Bulletins — 2013

Date “substantively enacted” under ASPE/IFRS

Date “enacted” under U.S. GAAP

Not substantively enacted

Not enacted

 

Quebec has also introduced a number of measures through various information bulletins in 2013, including amendments to the Mining Tax Act as part of the revision of the mining tax regime, effective January 1, 2014. However, none of these measures have been included in a bill yet. The amendments to the mining tax regime will:

 

  • Require mining operators in Quebec to pay the higher of a new minimum tax applied to the value of the ore at the mine shaft head and a progressive tax on excess profits
  • Introduce rules to enhance the resource allowance deduction.


For more details on the new mining tax regime, see Canadian Tax Adviser – Quebec Shakes Up Mining Tax Regime.

 

British Columbia Bill 2

Date “substantively enacted” under ASPE/IFRS

Date “enacted” under U.S. GAAP

June 27, 2013

Not enacted

 

Bill 2 contains corporate tax measures included in British Columbia’s 2013 budget, re-introduced on June 27, 2013. The bill:

 

  • Increases the provincial general corporate tax rate to 11% (from 10%), effective April 1, 2013.

 

For details, see TaxNewsFlash-Canada 2013-24.
 

Manitoba Bill 47

Date “substantively enacted” under ASPE/IFRS

Date “enacted” under U.S. GAAP

May 30, 2013

Not enacted

 

Bill 47 contains corporate tax measures included in Manitoba’s 2013 budget. The bill:

 

  • Increases the Corporation Capital Tax on Financial Institutions to 5% (from 4%), for fiscal years ending on or after April 17, 2013
  • Increases the small business income threshold to $425,000 (from $400,000) effective January 1, 2014
  • Introduces a new rental housing construction credit
  • Includes changes to several other tax credits for businesses.


For details, see TaxNewsFlash-Canada 2013-16.

 

Nova Scotia Bill 51

Date “substantively enacted” under ASPE/IFRS

Date “enacted” under U.S. GAAP

April 18, 2013

May 10, 2013

 

Bill 51 contains corporate tax measures included in Nova Scotia’s 2013 budget. The bill:

 

  • Reduces the small business corporate income tax rate to 3% (from 3.5%), effective January 1, 2014
  • Decreases the small business income threshold to $350,000 (from $400,000), effective January 1, 2014.

 

The bill also contains changes not included in the 2013 provincial budget, such as changes to the computation of taxable paid-up capital of a bank.

 

For details, see TaxNewsFlash-Canada 2013-15.
 

New Brunswick Bill 51

Date “substantively enacted” under ASPE/IFRS

Date “enacted” under U.S. GAAP

May 22, 2013

June 21, 2013

 

Bill 51 contains corporate tax measures included in New Brunswick’s 2013 budget. The bill:

 

  • Increases the provincial general income tax rate to 12% (from 10%), effective July 1, 2013.

 

For details, see TaxNewsFlash-Canada 2013-12.

 

Prince Edward Island Bill 47

Date “substantively enacted” under ASPE/IFRS

Date “enacted” under U.S. GAAP

April 23, 2013

May 8, 2013

Bill 47 contains corporate tax measures included in Prince Edward Island’s 2013 budget. The bill:

 

  • Increases the small business corporate income tax rate to 4.5% (from 1%), effective April 1, 2013.

 

For details, see TaxNewsFlash-Canada 2013-14.

 

 

There were no corporate tax rate changes proposed in the 2013 provincial budgets for Alberta, Newfoundland and Labrador, Northwest Territories, Nunavut, Saskatchewan or Yukon.

 

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Information is current to June 30, 2013. The information contained in this TaxNewsFlash-Canada 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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