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January 16, 2012

No. 2012-03

 

 

Tax Accounting Round-Up — 2011 Tax Changes

 If you are involved in preparing financial reports for corporations or other organizations, certain 2011 tax changes may need to be reflected in your year-end financial statements under International Financial Reporting Standards (IFRS) and U.S. generally accepted accounting principles (GAAP).

General corporate tax rates

Only New Brunswick’s 2011 budget proposed changes to the general corporate tax rate, cancelling a scheduled decrease to 8% (from 10%) for 2012. No other federal and provincial budgets proposed changes to the general corporate tax rate. As a result, the following rates are enacted:

 

General Corporate Tax Rates

 

2009

2010

2011

2012

2013

Beyond

Federal

19.0%

18.0%

16.5%

15.0%

15.0%

15.0%

Provincial

British Columbia

11.0%

10.5%

10.0%

10.0%

10.0%

10.0%

Alberta

10.0%

10.0%

10.0%

10.0%

10.0%

10.0%

Saskatchewan

12.0%

12.0%

12.0%

12.0%

12.0%

12.0%

Manitoba

12.5%

12.0%

12.0%

12.0%

12.0%

12.0%

Ontario

14.0%

13.0%

11.75%

11.25%

10.5%

10.0%

Quebec

11.9%

11.9%

11.9%

11.9%

11.9%

11.9%

New Brunswick

12.5%

11.5%

10.5%

10.0%

10.0%

10.0%

Nova Scotia

16.0%

16.0%

16.0%

16.0%

16.0%

16.0%

Prince Edward Island

16.0%

16.0%

16.0%

16.0%

16.0%

16.0%

Newfoundland

14.0%

14.0%

14.0%

14.0%

14.0%

14.0%

 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 2011 corporate tax measures

The chart below provides more information on 2011 federal and provincial corporate tax measures that you may need to reflect in your year-end financial statements. For more information about these changes, contact your KPMG adviser or see the editions of TaxNewsFlash-Canada noted below.

When do new tax measures have to be taken into account?
Under IFRS, 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. 

 

 

 Update – 2011 Federal and Provincial Corporate Tax Measures

Enabling legislation

Date “substantively enacted” under Canadian GAAP/IFRS

Date “enacted” under U.S. GAAP

Federal Bill C-13

October 4, 2011

December 15, 2011

Bill C-13 enacts certain tax measures announced in the 2011 federal budget. The bill:

·      Limits tax 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

·      Introduces anti-avoidance rules for Registered Retirement Savings Plans (RRSPs)

·      Extends to the end of 2013 the temporary 50% accelerated capital cost allowance (CCA) rate for investment in manufacturing or processing machinery equipment

·      Expands accelerated CCA for clean energy generation equipment (class 43.2) to include equipment used by a taxpayer to generate electricity in a process in which all, or substantially all, of energy input is from waste heat

·      Extends application of the stop-loss rules on share redemptions to any dividend deemed to be received on redemption of shares held, directly or indirectly, by a corporation

·      Changes corporate tax rules affecting:

o    Qualifying environmental trusts

o    Intangible capital expenses in oil sands projects.

For details, see TaxNewsFlash-Canada 2011-08, “2011 Federal Budget Highlights”.

 

Ontario Bill 173

       March 29, 2011

May 12, 2011

Bill 173 enacts certain tax measures in Ontario’s 2011 budget, which did not include any corporate tax rate changes. The bill:

·      Introduces a 30% refundable tax credit for Ontario book publishing corporations for qualifying expenditures related to publishing and promoting a book by a Canadian author in an eligible category of writing

·      Allows mine operators who report in a functional currency under the federal Income Tax Act to elect to file their Ontario mining tax returns in the same functional currency — in such cases, they would no longer have to prepare a separate set of Canadian-dollar financial statements solely for Ontario mining tax purposes.

Quebec Bill 32

November 2, 2011

December 9, 2011

Bill 32 enacts measures announced in the 2011 Quebec budget, harmonization measures with the 2010 federal budget and measures announced in various Information Bulletins released in 2010 and 2011. These measures include:
 

·      Harmonization with the 2010 federal budget such as amendments to the tax incentives for employee stock options, reform of the disbursement quota rules for registered charities and revisions to the Quebec Sales Tax (QST) rules related to the new rebate for registered pension plan trusts

·      A new refundable tax credit of up to 15¢ per litre of cellulosic ethanol produced, to apply in parallel with the existing tax credit for the production of ethanol, beginning March 18, 2011 and ending March 31, 2018

·      Allowing printed books sold with “other property” (i.e., a read-only medium or a right to access a website) after October 31, 2011 to be generally eligible as zero-rated printed books for QST purposes

·      Amending the tax treatment of amounts reimbursed by an estate

·      Various technical, terminology and other consequential amendments.

For details see the December 13, 2011 Canadian Tax Adviser, Quebec 2011 Budget and Tax Harmonization Measures Enacted”.

Quebec Bill 5

May 4, 2011

June 6, 2011

Bill 5: 

·      Increases the QST rate to 9.5% (from 8.5%) on January 1, 2012

·      Overhauls the mining duties regime, for expenses incurred after March 30, 2010, as announced in the 2010 Quebec budget (see TaxNewsFlash-Canada 2010-19, “2010 Quebec Budget Highlights”)

·      Amends the designated trust rules to establish criteria of attachment to Quebec for affected beneficiaries and amends the calculation of the tax credit where the designated beneficiary is a corporation

·      Harmonizes with the following federal amendments enacted in Bill C-9 and Bill C-47:

o    Revisions to the definition of "taxable Canadian property" (and "Quebec taxable property")

o    Rules to implement Employee Life and Health Trusts

o    Revisions to the QST rules for financial services, cosmetic services and network sellers.

·      The bill did not appear to include any amendments to reflect harmonization with the federal GST/HST pension plan rules.

Quebec Bill 10

May 11, 2011

June 13, 2011

Bill 10:
 

·      Raises the Quebec Pension Plan (QPP) contribution rate to 10.8% (from 9.9%) over six years in annual increments of 0.15%, starting January 1, 2012

·      Amends the Mining Act to implement measures affecting leases to produce petroleum and natural gas.

Quebec Bill 117

November 4, 2010

February 16, 2011

Bill 117:

·      Deems a corporation to have a permanent establishment at its designated head office (clause 19) 

·      Amends the scientific research and experimental development credit for:

o    Non-arm’s-length subcontracting (clause 55)

o    Indemnities paid for clinical trials (clause 57)

·      Amends the refundable tax credit for e-business development

·      Replaces the international financial centres (IFC) regime with a refundable tax credit

·      Introduces an improved film dubbing credit (clauses 62 and 63)

·      Temporarily raises compensatory tax on financial institutions (clauses 109 and 110).

 

For details, see TaxNewsFlash-Canada 2010-19, “2010 Quebec Budget Highlights”.

British Columbia

Not yet substantively enacted

Not yet enacted

B.C. proposed to increase its corporate tax rate to 12% (from 10%) effective January 1, 2012 and postpone a reduction to its small business tax rate that was planned for April 1, 2012. The status of these proposals is unclear because they were tied to the result of the HST referendum and were dependent on the HST being retained. However, on August 26, 2011, it was announced that B.C. voters had elected to abolish the HST. B.C.’s 2012 budget, scheduled for February 21, 2012, may provide more clarity in this regard.

 

Manitoba Bill 51

June 7, 2011

June 16, 2011

Bill 51:

·      Extends the Manufacturing Investment Tax Credit (ITC) to December 31, 2014 (from December 31, 2011), which provides Manitoba companies with a 10% corporation income tax credit based on the capital cost of new and used manufacturing buildings, machinery and equipment acquired for use in manufacturing or processing in Manitoba.

Saskatchewan Bill 171

April 18, 2011

May 18, 2011

Bill 171:

·      Reduces the small business corporate income tax rate to 2% (from 4.5%) on the first $500,000 of taxable income, effective July 1, 2011.

New Brunswick Bill 53

June 7, 2011

June 10, 2011

Bill 53:

·      Increases the general corporate tax rate to 10% effective July 1, 2012. The general corporate income tax rate was scheduled to decrease to 10% (from 11%) effective July 1, 2011, but a subsequent decrease to 8% on July 1, 2012 has been repealed, maintaining the 10% rate effective as of July 1, 2012.

·      Reduces the small business corporate income tax rate to 4.5% (from 5%) on the first $500,000 of taxable income, effective January 1, 2012.

Nova Scotia Bill 27

April 15, 2011

May 19, 2011

Bill 27:

·      Reduces the small business corporate income tax rate to 4% (from 4.5%) on the first $400,000 of taxable income, effective January 1, 2012

·      Reduces the Large Corporations Tax on capital of non-financial institutions (with taxable capital of $10 million or more) to 0.05% (from 0.1%), effective July 1, 2011 (the tax is scheduled to be eliminated on July 1, 2012)

·      Removes the total production costs cap for the film industry tax credit, which encourages producers to hire locally by allowing them to claim between 50% - 65% of eligible Nova Scotia labour costs.

 

Additional federal technical measures — “Old Bill C-10”

Finance released draft legislative proposals on July 16, 2010 to implement various income tax technical measures, which appear to be the majority of the items formerly proposed in "Old Bill C-10" in 2007. These measures have been considered substantively enacted for some time for Canadian GAAP purposes, even though Old Bill C-10 died on the Order Paper when Parliament was dissolved for the October 14, 2008 federal election. These measures are also considered substantively enacted for IFRS purposes. However, since these measures are not yet law, they cannot be recognized for U.S. GAAP purposes.

These measures include:

  • Changes to the restrictive covenant provisions
  • Changes to provisions that apply to the issuance of non-monetary consideration (e.g., shares or options) in section 143.3 of the Income Tax Act
  • Updated amendments to reflect previously announced general corporate income tax rate reductions
  • Changes to the provisions concerning the rate applied to investment income earned by cooperatives and credit unions
  • Draft amendments to the Income Tax Regulations.

Pending federal tax measures

Federal tax legislation that has been announced or released in draft form but has not yet reached the bill stage is therefore not substantively enacted or enacted for accounting purposes. This legislation includes certain 2011 foreign affiliate proposals, real estate investment trusts (REIT) proposals and the remaining 2010 federal budget proposals.

Foreign affiliate proposals
Draft legislation was released on August 19, 2011 that replaced a large number of controversial amendments that were announced in 2004 but never passed into law. Among other things, the 200-page package of legislative proposals includes:

·        New provisions modelled on the current shareholder benefit rules in subsection 15(2) of the Income Tax Act that apply to loans from a foreign affiliate to a “specified debtor” (i.e., the new “upstream loan” rule)

·        A new category of “hybrid surplus” that will include, among other items, 100% of the capital gains and losses that arise on a foreign affiliate’s disposition of shares of another foreign affiliate, a partnership interest and certain financial instruments.

For details, see TaxNewFlash-Canada 2011-24, “Foreign Affiliate Tax Rules Get a Make-Over” and KPMG Webcast: New Rules for Canadian Companies’ Foreign Affiliates.

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".

For details, see the July 28, 2011 Canadian Tax Adviser, “Finance SIFT Proposals Target Stapled Securities”.

Proposals to overturn court decisions
Draft legislation was released on March 16, 2011 that effectively overturns three recent Federal Court of Appeal decisions in favour of the taxpayers. The draft amendments address:

·      Non-resident withholding tax on interest payments (Lehigh Cement Ltd v. the Queen)

·      Deductibility of contingent amounts (Collins v. the Queen)

·      Tax treatment of insurance corporations' policy reserves (The Queen v. National Life Assurance Company of Canada).

REIT proposals 
Draft income tax legislation was released on December 16, 2010 to amend the provisions relating to the tax treatment of REITs. These rules allow REITS to hold up to 10% of their non-portfolio property as non-qualifying REIT property without losing REIT status and the exemption from tax on specified investment flow-through entities.

For details, see TaxNewsFlash-Canada 2010-41, “Finance Eases REIT Rules”.

2010 federal budget proposals
Draft legislation was released on August 27, 2010 to implement most of the remaining 2010 federal budget proposals. These proposals affect rules related to:

·       Foreign investment entities and non-resident trusts (Part 1 of the August 27, 2010 draft legislation)

·       Foreign affiliates (Part 2 of the August 27, 2010 draft legislation)

·       Information reporting of tax avoidance transactions (a.k.a. the aggressive tax planning rules)

·        Foreign tax credit generators (proposed section 91, section 126 and Regulation 5907 of the Income Tax Act and Regulations)

·        Loss utilization regarding income trust conversions (proposed subsection 256(7))

·       Tax arbitrage opportunities, which extend the specified leasing property rules to property that is leased to a government or other tax-exempt entity, or to a non-resident (proposed Regulation 1100(1.13)).

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 January 13, 2012. 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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