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July 25, 2012

No. 2012-30

 

 

Tax Accounting —Snapshot of Rates on
June 30, 2012

If you are involved in preparing financial reports for corporations or other organizations, certain 2012 tax changes may need to be reflected in your interim period financial statements under International Financial Reporting Standards (IFRS) and U.S. generally accepted accounting principles (GAAP).

Corporate Tax Rates

Ontario is the only province that proposed changes to the general corporate tax rate in its 2012 budget. Ontario cancelled scheduled decreases to 11% and 10% (from 11.5%) for 2012 and 2013, respectively.

British Columbia proposed to temporarily increase the general corporate tax rate to 11% (from 10%) effective April 1, 2014, if the province’s fiscal situation worsens. This proposed increase, however, was not included in the bill implementing British Columbia’s 2012 budget. As a result, British Columbia’s corporate rate remains at 10%.

The federal budget did not propose changes to the federal general corporate tax rate. As a result, the following general corporate rates are now in effect as of June 30, 2012:

 

 

2010

2011

2012 and Beyond

Federal

18.0%

16.5%

15.0%

Provincial

British Columbia

10.5%

10.0%

10.0%

Alberta

10.0%

10.0%

10.0%

Saskatchewan

12.0%

12.0%

12.0%

Manitoba

12.0%

12.0%

12.0%

Ontario

13.0%

11.75%

11.5%

Quebec

11.9%

11.9%

11.9%

New Brunswick

11.5%

10.5%

10.0%

Nova Scotia

16.0%

16.0%

16.0%

Prince Edward Island

16.0%

16.0%

16.0%

Newfoundland

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.

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. 

 The chart below provides more information on 2012 federal and provincial corporate tax measures that you may need to reflect in your interim period financial statements. For more information about these changes, contact your KPMG adviser or see the editions of TaxNewsFlash-Canada noted below.

 

 Update – 2012 Federal and Provincial Corporate Tax Measures

Enabling legislation

Date “substantively enacted” under Canadian GAAP/IFRS

Date “enacted” under U.S. GAAP

Federal Bill C-38

April 26, 2012

June 29, 2012

Bill C-38 enacts certain tax measures announced in the 2012 federal budget. The bill:

 ·      Allows taxpayers to make split or late eligible dividend designations

·      Introduces a mandatory e-filing requirement for returns prepared by a “tax preparer” and a related penalty

·      Implements the GST/HST measures included in the 2012 federal budget.

·      For details, see TaxNewsFlash-Canada 2012-15.

Federal

Not substantively enacted

Not enacted

2012 federal budget proposals

Key corporate tax measures included in the 2012 federal budget that have not yet been included in a bill include:

·      Changes to the scientific research and experimental development (SR&ED) program, including, among other changes:

o    Reducing the general SR&ED investment tax credit rate to 15% (from 20%), effective January 1, 2014

o    Reducing the prescribed proxy amount to 55% (from 65%) of direct labour costs, effective January 1, 2014

·      Limitations to the application of the section 88 “bump” in the wind-up involving a partnership interest where all the fair market value of the partnership interest is derived from income assets

·      Accelerated capital cost allowance for certain equipment

·      Changes to the thin capitalization rules including:

o    Reducing the debt-to-equity ratio to 1.5:1 (from 2:1)

o    Including partnership debt in the debt-to-equity ratio, and

o    Treating disallowed interest as dividends

·      “Foreign affiliate dumping” rules whereby a dividend will be deemed to be paid by a Canadian subsidiary to its foreign parent where certain conditions are met

·      Amendments to the “Base erosion test” for Canadian banks

·      Treatment of secondary transfer pricing adjustments as a dividend for purposes of non-resident withholding tax in Part XIII of the Act.

·      For details, see TaxNewsFlash-Canada 2012-15.

Ontario Bill 114

   June 20, 2012

June 20, 2012

Bill 114 enacts certain tax measures in Ontario’s 2012 budget. The bill:

·      Freezes the general corporate income tax rate at 11.5%, cancelling the previously enacted rate reductions for 2012 and 2013 to 11.0% and 10.0%, respectively

·      For details, see TaxNewsFlash-Canada 2012-13.

Quebec Bill 63

April 18, 2012

May 9, 2012

Bill 63 contains measures announced in the 2011 Quebec budget and various harmonization measures. The bill:

·      Extends the stop-loss rules on the redemption of shares held by a corporation

·      Extends the regulatory regime that currently applies to registered charities to registered Canadian amateur athletic associations and the rules regarding the granting of options to qualified donees.

Quebec

Not substantively enacted

Not enacted

Quebec’s 2012 corporate tax measures have not yet been included in a bill. These measures:

·      Extend the refundable tax credit for labour training in the manufacturing, forestry and mining sectors to December 31, 2015

·      Improve the eligibility for the investment tax credit relating to manufacturing and processing equipment for purchases between March 20, 2012 and January 1, 2018

·      Introduce a refundable tax credit for Quebec manufacturing companies expanding markets outside of Quebec

·      Simplify refundable tax credits for multimedia titles

·      Introduce a new refundable tax credit for the production of multimedia environments or events staged outside of Quebec generally equal to 35% of labour expenditures incurred to carry out a production certified by the Société de développement  des enterprises culturelles (up to 50% of production expenses to a maximum of $350,000)

·      Introduce fiscal measures to encourage the creation of new financial service corporations

·      For details, see TaxNewsFlash-Canada 2012-11.

 

British Columbia Bill 21

February 21, 2012

May 14, 2012

Bill 21 contains measures included in British Columbia’s 2012 budget. The bill:

·      Extends the B.C. Training Tax Credits, which provide employers with refundable tax credits for salary and wages paid to eligible apprentices, for an additional three years, to the end of 2014.

·      Introduces a new refundable tax credit for eligible shipbuilding and ship repair industry employers of 20% of wages per year, up to $5,250 per eligible apprentice in the first 24 months of an eligible apprenticeship program

·      For details, see TaxNewsFlash-Canada 2012-08.

British Columbia Bill 54

May 14, 2012

May 31, 2012

Bill 54 contains:

·      Legislation to transition from the harmonized sales tax (HST) and re-implement the provincial sales tax (PST)

·      For details, see TaxNewsFlash-Canada 2012-07.

Alberta

Not substantively enacted

Not enacted

The corporate tax measures in Alberta’s 2012 budget have not yet been included in a bill. These measures:

·      Eliminate the “grind” to the Alberta Scientific Research and Experimental Development tax credit, effective for tax years ending after March 31, 2012

·      For details, see TaxNewsFlash-Canada 2012-05.

 

Saskatchewan Bill 43

April 23, 2012

May 16, 2012

Bill 43 contains measures included in Saskatchewan’s 2012 budget. The bill:

·      Includes a tax rebate that will reduce the general corporation income tax rate on income earned from the rental of newly constructed qualifying multi-unit residential projects by 10%

·      Limits “refundable” research and development tax credits to qualifying expenditures incurred on or after April 1, 2012, to Canadian controlled private corporations, subject to an annual qualifying expenditure limit of $3 million; amounts in excess of this limit, as well as all qualifying expenditures incurred by other corporations, will instead be eligible for a new 15% non-refundable research and development tax credit

·      Eliminates the Film Employment Tax Credit for productions after April 1, 2012

·      For details, see TaxNewsFlash-Canada 2012-12.

Manitoba Bill 39

June 6, 2012

June 14, 2012

Bill 39 contains measures included in Manitoba’s 2012 budget. The bill:

·      Increases the Corporation Capital Tax on Financial Institutions to 4% (from 3%), beginning with taxation years ending after April 17, 2012

·      Introduces or enhances various tax credits, including:

o    Co-op Education and Apprenticeship Tax Credits

o    Data Processing Investment Tax Credit

o    Film and Video Production Tax Credit

o    Nutrient Management Tax Credit

o    Neighbourhoods Alive! Tax Credit

·      For details, see TaxNewsFlash-Canada 2012-19.

Nova Scotia Bill 17

April 12, 2012

May 17, 2012

Bill 17 contains measures included in Nova Scotia’s 2012 budget. The bill:

·      Reduces the small business corporate income tax rate to 3.5% (from 4%) on the first $400,000 of taxable income, effective January 1, 2013

·      Lowers the province’s Harmonized Sales Tax to 14% (from 15%) in 2014 and to 13% (from 14%) in 2015 by providing that Nova Scotia will take the necessary steps under the Comprehensive Integrated Tax Co-ordination Agreement to reduce the provincial component of Harmonized Sales Tax rate to 9% (from 10%) effective July 1, 2014 and to 8% (from 9%) effective July 1, 2015 (or earlier dates in 2014 and 2015 as determined by the Governor in Council)

·      For details, see TaxNewsFlash-Canada 2012-16.

New Brunswick Bill 42

May 11, 2012

June 13, 2012

Bill 42 contains measures included in New Brunswick’s 2012 budget. The bill:

·      Increases the Financial Corporation Capital Tax Rate to 4% (from 3%), effective April 1, 2012

·      For details, see TaxNewsFlash-Canada 2012-14.

Prince Edward Island

Not substantively enacted

Not enacted

The corporate tax measures in Prince Edward Island’s 2012 budget have not yet been included in a bill. These measures:

·      Announce the province’s intention to consolidate its provincial sales tax and the goods and services tax to introduce a 14% harmonized sales tax effective April 1, 2013

·      For details, see the  Canadian Tax Adviser article “2012 P.E.I. Budget Announces HST Effective April 1, 2012”, dated April 18, 2012.

 

Outstanding Federal Tax Measures — 2012 and Earlier

Selected federal tax measures introduced in 2012 and earlier years that have not yet been passed into law are highlighted below.

Federal technical measures — “Old Bill C-10”
Finance released draft legislative proposals on July 16, 2010 to implement various income tax technical measures. These measures 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., share 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 not considered substantively enacted or enacted for accounting purposes. Pending federal legislation includes:

  • Certain 2011 foreign affiliate proposals Released August 19, 2011
  • Specified investment flow-through (SIFT) proposals Released July 20, 2011
  • Proposals to overturn certain court decisions Released March 16, 2011
  • Real estate investment trusts (REIT) proposals Released December 16, 2010
  • The remaining 2010 federal budget proposals Released August 27, 2010.

For more details on these measures, see TaxNewsFlash-Canada 2012-03, “Tax Accounting Round-Up — 2011 Tax Changes”.

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 July 25, 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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