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Tax Accounting Round-Up — 2013 Canadian Tax Changes 

Tax Accounting Round-Up — 2013 Canadian Tax Changes

 

December 31, 2013

No. 2013-46

If you are involved in preparing financial reports for corporations or other organizations, certain 2013 Canadian income tax changes may need to be reflected in your year-end financial statements under International Financial Reporting Standards (IFRS), Accounting Standards for Private Enterprises (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 in effect as at December 31, 2013:

Tax Accounting Round-Up — 2013 Canadian Tax Changes

 

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 enacted as at December 31, 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 December 31, 2013

 

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

 

  • Federal Tax Legislation — December 31, 2013
    • Bill C-48 Catch-Up Tax Technical Amendments
    • 2013 Federal Budget Measures — Bill C-60 and Bill C-4
    • Outstanding Federal Tax Legislation — December 31, 2013
  • Provincial Tax Legislation — December 31, 2013.

 

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

 

Federal Tax Legislation — December 31, 2013

 

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 sections 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 KPMG’s TaxNewsFlash-Canada 2012-39, “Tax Accounting Update — Finance Clears the Slate”, TaxNewsFlash-Canada 2012-42, “Foreign Affiliate Rules Now Set — Take Action to Manage Their Impact” and slides from the webcast of “Canada’s New Foreign Affiliate Rules Finally Take Hold [PDF 624KB]”.

 

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-60 enacts certain corporate tax measures announced in the 2013 federal budget. The bill includes an extension of the Class 29 capital cost allowance rate for manufacturing and processing equipment.

 

Bill C-60 does not include the more controversial tax changes in the budget, which were subsequently included in Bill C-4 (see below).

 

2013 Federal Budget Measures — Bill C-4

Date “substantively enacted” under ASPE/IFRS

Date “enacted” under U.S. GAAP

October 22, 2013

December 12, 2013

 

Bill C-4 enacts the remaining measures in the 2013 federal budget, as well as “certain previously announced tax measures”. Measures from the 2013 budget in the bill 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 to ensure synthetic disposition transactions are taxed as actual dispositions
  • Restricted farm loss changes
  • Expansion of the accelerated capital cost allowance to further encourage investments in clean energy generation
  • Amendments to the rules that apply to non-resident trusts.

 

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

 

Bill C-4 also includes certain previously announced tax measures, including:

 

  • December 21, 2012 technical amendments — Amendments to RRSP anti-avoidance rules, section 88 bump denial rules, and section 55 divisive reorganization rules, as well as changes to Alternative Minimum Tax
  • July 25, 2012 draft legislation — Amendments to address SIFT stapled securities and withholding tax on trusts emigrating to Canada.

 

Outstanding Federal Tax Legislation — December 31, 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:

 

Transitional relief for Labour-Sponsored Venture Capital Corporation (LSVCC) phase-out
On November 27, 2013, Finance released draft legislation to provide transitional relief for taxpayers affected by the phase-out of the federal LSVCC tax credit by 2017, as announced in the 2013 federal budget. (See KPMG’s Canadian Tax Adviser, “Finance Eases Phase-Out of Labour Tax Credit”, dated December 3, 2013.)

 

Life insurance
On August 23, 2013, Finance released draft legislative amendments to implement changes to the exemption test and other life insurance policyholder taxation rules, relating to changes announced in the 2012 federal budget. (See KPMG’s Canadian Tax Adviser, “Finance Proposes New Exempt Life Insurance Policy Rules”, dated August 27, 2013.)

 

Foreign affiliate dumping
Finance released relieving amendments to Canada’s foreign affiliate (FA) dumping rules on August 16, 2013. According to Finance, among other things, the legislative proposals generally:

 

  • Limit the application of the rules where a corporation resident in Canada (CRIC) makes an investment in a foreign affiliate before that corporation becomes controlled by a non-resident corporation
  • Extend the rule reinstating a CRIC’s paid-up capital in certain situations
  • Make the paid-up capital offset rule apply automatically
  • Amend the computation of the CRIC’s debt for the purpose of determining the CRIC’s debt-to-equity ratio under the thin capitalization rules.

 

For details, see KPMG’s Global Tax Adviser, “Foreign Affiliate Dumping Rules — New Relieving Measures Proposed”, dated August 20, 2013 and “Welcome Changes to FA Dumping Rules”, dated August 28, 2013.

 

Foreign affiliates and the foreign currency election
Finance released draft legislation on July 12, 2013, relating to, among other things, the taxation of foreign affiliates, non-resident corporations without share capital, residence of international shipping corporations and the foreign currency election.

 

For details, see KPMG’s Global Tax Adviser, “Finance Releases Foreign Affiliate Draft Legislation” and “Finance Releases More Flexible Rules for International Shipping”, dated July 16, 2013.

 

Base erosion test
Key corporate tax measures included in the 2012 federal budget that are not yetincluded in a bill are amendments to the “base erosion test” for Canadian banks. According to Finance, these amendments are generally intended to alleviate the tax cost to Canadian banks of using the excess liquidity of their foreign affiliates in their Canadian operations. Finance also stated that the amendments ensure that certain securities transactions undertaken in the course of a bank's business that facilitate trades for arm’s-length customers are not caught by the base erosion rules. Draft legislation was released for comment on November 27, 2012, but has not yet been included in a bill.

 

Provincial Tax Legislation — December 31, 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 KPMG’s TaxNewsFlash-Canada 2013-19, “Highlights of the 2013 Ontario Budget”.

 

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 details of the March 2012 Quebec budget measures, see KPMG’s TaxNewsFlash-Canada 2012-11, “Highlights of the 2012 Quebec Budget”.

 

Quebec Bill 59

Date “substantively enacted” under ASPE/IFRS

Date “enacted” under U.S. GAAP

Not substantively enacted

Not enacted

 

Bill 59 contains various items included in Information Bulletins, as well as measures to harmonize with federal changes included in the 2012 and 2013 federal budgets and federal Bill C-48, the “catch-up bill”. Harmonization measures in Bill 59 include:

 

  • Various adjustments to the thin capitalization rules
  • Abolition of the tax credit for employment out of Canada
  • Tax avoidance through the use of partnerships.

 

Among other changes, this bill also includes measures in the November 20, 2012 Quebec budget and Information Bulletins 2012-4 and 2013-7 regarding the introduction of a temporary refundable tax credit for damage insurance firms and compensation tax relating to financial institutions (see KPMG’s Canadian Tax Adviser, “Bill 59 — Quebec Introduces 2012 and 2013 Budget Legislation”, dated November 26, 2013).

 

Quebec Bill 55

Date “substantively enacted” under ASPE/IFRS

Date “enacted” under U.S. GAAP

Not substantively enacted

Not enacted

 

Bill 55 contains amendments to Quebec’s Mining Tax Act, effective January 1, 2014, including:

 

  • Introducing progressive mining tax rates ranging from 16% to 28% (replacing the single tax rate of 16%)
  • Implementing a minimum mining tax based on the mine-mouth output value
  • Implementing a non-refundable duties credit on account of the minimum mining tax
  • Increasing the processing allowance
  • Introducing anti-avoidance rules to ensure compliance with the Mining Tax Act (seeKPMG’s Canadian Tax Adviser, “Bill 55 — Quebec Introduces Mining Tax Legislation”, dated November 19, 2013).

 

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 KPMG’s TaxNewsFlash-Canada 2012-38, “Highlights of the 2013-2014 Quebec Budget”.

 

Quebec Information Bulletins - 2013

Date “substantively enacted” under ASPE/IFRS

Date “enacted” under U.S. GAAP

Not substantively enacted

Not enacted

 

Quebec also announced additional tax measures in several Information Bulletins issued in 2013. Among others things, the changes include amendments to Quebec’s mining tax regime that will:

 

  • Postpone the reduction in the rate of the refundable tax credit for resources for a year (as such, the reduction will apply for expenses incurred after December 31, 2014)
  • Change the flow-through share regime by replacing the following concepts:
  • “operation” of a mineral resource or oil or gas well will be replaced with the requirement that no gross income be earned from the operation in reasonable commercial quantities of such a resource
  • “control” will be replaced by the notion of “associated group”
  • Ease the restriction application to the depreciation allowance of certain property (Class 4 and 4A) for the purposes of the mining tax regime.

 

British Columbia Bill 2

Date “substantively enacted” under ASPE/IFRS

Date “enacted” under U.S. GAAP

June 27, 2013

July 25, 2013

 

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 KPMG’s TaxNewsFlash-Canada 2013-24, “British Columbia Budget Comes Back with Tax Increases Intact”.

 

Manitoba Bill 47

Date “substantively enacted” under ASPE/IFRS

Date “enacted” under U.S. GAAP

May 30, 2013

December 5, 2013

 

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 KPMG’s TaxNewsFlash-Canada 2013-16, “Highlights of the 2013 Manitoba Budget”.

 

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 KPMG’s TaxNewsFlash-Canada 2013-15, “Highlights of the 2013 Nova Scotia Budget”.

 

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 KPMG’s TaxNewsFlash-Canada 2013-12, “Highlights of the 2013 New Brunswick Budget”.

 

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 KPMG’s TaxNewsFlash-Canada 2013-14, “Highlights of the 2013 P.E.I. Budget”.

 

Prince Edward Island Bill 7

Date “substantively enacted” under ASPE/IFRS

Date “enacted” under U.S. GAAP

November 13, 2013

December 6, 2013

 

Bill 7 contains corporate tax measures to gradually phase-out the additional deduction for credit unions, mirroring the plans announced in the 2013 federal budget (see KPMG’s Canadian Tax Adviser, “P.E.I. Bill for 2014 Non-Eligible Dividends and Credit Unions Receives Royal Assent”, dated December 17, 2013).

 

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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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.

 


 

Information is current to December 31, 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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