June 6, 2011 No. 2011-19
	2011 Federal Budget Comes Back with Tax Measures Intact The newly elected Conservative government today reintroduced the 2011 federal budget originally presented on March 22, 2011. The government has revised its deficit forecast so that the projected deficit has fallen to $36.2 billion (from $40.5 billion) for 2011 but increased to $32.3 billion (from $29.6 billion) for 2012. The government says the remaining years of the forecast period are largely unchanged with a deficit of $19.4 billion in 2013, $9.4 billion in 2014 and a balanced budget in 2015. The March budget did not change the corporate or personal tax rates or the GST rate but it did include several measures to tighten the tax base, including ending corporate partnership tax deferral, new RRSP anti-avoidance rules and more restrictive rules for individual pension plans. As expected, these tax measures remain essentially the same in the June budget, with the same effective dates. A new measure in the June budget states that the government has made a provision in 2011-12 for $2.2 billion in support of an agreement between Canada and Quebec on sales tax harmonization. Selected budget measures are highlighted below. For details on these and other tax measures included in the budget, see KPMG’s TaxNewsFlash-Canada 2011-08, “2011 Federal Budget Highlights”. You can also get information and insight on the budget from KPMG’s March 22, 2011 webcast, available on kpmg.ca. Business Tax Changes Corporate partnership tax deferral The June budget reintroduces the March budget’s proposal to limit the deferral opportunities for corporations (other than professional corporations) with significant interests in partnerships that have a fiscal period different from the corporation’s taxation year. This measure will apply for the corporation’s first taxation year ending after March 22, 2011, with transitional provisions. KPMG observation We have identified a technical issue in these proposals that may surprise certain taxpayers. In particular, it seems that no transitional reserve is available to a corporate taxpayer in a single-tiered partnership structure where, for example, the corporate partner has a short year-end ending after March 22, 2011 (due for example to an acquisition of control) and that corporate partner is a member of a partnership that does not have a year-end within the corporate partner’s short year-end.  In this situation, the corporate partner may not be able to claim a reserve under the proposed new rules. Many complexities are also inherent in multi-tiered partnership structures. We may have to await release of draft legislation to gain more certainty on the application of these rules to the wide range of corporate partners’ particular situations. Highlights of business tax measures Other measures reintroduced in the June budget will: · Extend the accelerated capital cost allowance (CCA) for manufacturing and processing equipment · Accelerate CCA for clean energy generation equipment · Expand the range of trusts eligible for Qualifying Environmental Trust treatment · Change the tax treatment of capital expenses in oil sands projects · Extend the stop-loss rules that apply to share redemptions · Introduce a hiring tax credit for small businesses · Review the rules applying to employee profit sharing plans. Personal Tax Changes RRSP anti-avoidance rules The June budget also reintroduces the March budget’s proposal to enhance existing RRSP anti-avoidance rules to address concerns regarding the use of RRSPs in certain tax planning schemes. These proposed rules are similar to three anti-avoidance rules that apply to Tax-Free Savings Accounts (TFSA): the advantage rules, the prohibited investment rules and the non-qualified investment rules. KPMG observation Unfortunately, certain individuals such as successful entrepreneurs who have used their RRSPs to make a qualified investments under the current law in their private company shares may face surprise adverse tax consequences under the new “prohibited investment” regime unless they remove their private company shares from their RRSPs within the short transitional period before 2013. Another concern that has been identified is the tax treatment of income on a prohibited investment earned before March 22, 2011 that is paid out to the RRSP after March 22, 2011 on an investment that has become a prohibited investment as of March 22, 2011 under the proposed new regime. Hopefully, the draft legislation will provide some clarity and relief in these situations. Donations of publicly listed flow-through shares The June budget reintroduces the March budget’s proposal to disallow the exemption from capital gains tax on donations of shares issued under a flow-through share agreement entered into on or after March 22, 2011, except to the extent that cumulative capital gains from dispositions of the shares exceed their original cost. Highlights of personal tax measures Other measures reintroduced in the June budget will: · Change the rules applying to contributions and withdrawals from Individual Pension Plans · Extend the tax on split income to capital gains · Extend eligibility for the Mineral Exploration Tax Credit · Introduce a new Children’s Arts Tax Credit · Introduce a new Family Caregiver Tax Credit · Change the withdrawal rules for Registered Disability Savings Plans · Extend the Tuition Tax Credit to certain examination fees · Introduce a new Volunteer Firefighters Tax Credit · Remove the limit on claiming certain eligible expenses under the Medical Expense Tax Credit · Allow RESPs more flexibility in sharing assets among siblings. Legislative budget resolutions reintroduced The June budget includes all 41 budget resolutions to change the tax legislation that were introduced in the Notice of Ways and Means Motion attached to the March budget. We can help Your KPMG adviser can help you assess the effect of the tax changes in this year’s federal budget on your personal finances or business affairs, and point out ways to take advantage of their benefits or ease their impact. We can also keep you abreast of the progress of these proposals as they make their way into law and help you bring any concerns you may have to the attention of the Ministry of Finance.
	Information is current to June 6, 2011. 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. KPMG LLP, the audit, tax and advisory firm (kpmg.ca), a Canadian limited liability partnership established under the laws of Ontario, is the Canadian member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 140,000 professionals, including more than 7,900 partners, in 146 countries. The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss entity. Each KPMG firm is a legally distinct and separate entity, and describes itself as such. KPMG's Canadian Web site is located at http://www.kpmg.ca/ © 2011 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.