Based on our initial reading, this appears to be a technical "fix-up" bill . The proposals make changes to over 60 sections of the Act and its regulations, and includes changes to international measures, business measures, personal tax and trust measures, SRED measures, and more.
Many of the coming-into-force dates are before the September 16, 2016 announcement date-several are in 2012, and some go back even further.
Finance has given taxpayers 60 days (until November 15, 2016) to provide comments on the draft legislation.
International tax measures
- Change the "upstream loan" rules (and related transitional relieving rules), which Finance says are largely relieving
- Re-introduce previously proposed rules to ensure what Finance considers is an appropriate income inclusion for stub-year FAPI on dispositions or acquisitions of foreign affiliate shares
- Introduce a new elective rule that provides tax-deferred treatment in respect of dispositions of taxable Canadian property on a foreign merger
- Change the shareholder benefit rules, which are altered in the ways that they apply to foreign corporate reorganizations that Finance says are "generally relieving"
- Clarify the taxation of dispositions of taxable Canadian property resulting from a "negative adjusted cost base" in a property.
Business tax measures
The proposals include changes that will
- Amend measures applicable to the sale of linked notes, by
- Changing the effective date to sales of linked notes that occur after 2016 (the effective date was previously proposed to be effective for sales after September 2016), and
- Simplifying the calculation of the deemed interest amount and the associated reporting requirements
- Amend the definition of "capital dividend account" so that the non-allowable portion of a corporation's realized capital losses reduces the non-taxable portions of capital gains distributed from a trust to the corporation
- Allow those partnerships in a tiered-partnership structure, to which a multi-tiered alignment election applies, to retain their common non-calendar fiscal period in some cases that are not currently permitted, as well as changes related to the reverse takeover of a trust or partnership by a loss corporation
- Amend the definition of 'relevant spot rate' in light of the Bank of Canada's announcement that it will no longer publish noon rates beginning March 1, 2017
- Add new subsections 112(11) to (13), which are anti-avoidance measures to ensure that taxpayers don't circumvent the dividend stop-loss rules in subsections 112(3) to (7) by holding shares through a partnership
- Add new paragraph 20(1)(m.3) to allow a taxpayer to claim a reserve for the unamortized amount of certain bond premiums
- Amend the taxation of character conversions and derivative forward agreements.
Personal/trust tax measures
New proposals include amendments to the taxation of
- Pooled registered pension plans (section 56)
- Restrictive covenants (section 56.4)
- The Canada Child Tax Benefit, Universal Childcare Benefit, and Canada Child Benefit amounts held in trust for a child so that they are not subject to the subsection 75(2) attribution rule if certain conditions are met
- Non-resident trusts that are deemed to be resident in Canada related to the computation of the subsection 20(12) deduction and foreign tax credit (paragraph 94(3)(b)
- Stock option deductions on death (paragraph 110(1)(d))
- Qualified disability trusts and the computation of the recovery tax (section 122)
- Registered disability savings plans, specified pension plans, and pooled registered pension plans related to the transfer of certain amounts on a tax-deferred basis (section 146.4)
- Life Insurance Policies under section 148, including,
- Amendments (clarifying and consequential) to the definition of adjusted cost base of a taxpayer's interest in a life insurance policy
- Changes to the rules deeming a disposition of an interest in a life insurance policy
The new proposals will also extend the alternative minimum tax rules to allow individuals (including trusts) to claim certain partnership losses incurred in their 2003 to 2011 taxation years where the taxpayer has filed the election in writing before March 12, 2014. This relieving provision of the coming-into-force provision was in a comfort letter issued by Finance in 2016.
SRED tax measures
New proposals include changes to clarify:
- The filing requirements in respect of SR&ED claims
- That a failure to provide the required claim information will not prevent SR&ED deduction.
The proposals also include changes to a number of regulations, including:
- Exempt policies (Reg 306)
- Banks and Federal Credit Union allocations (Regs 404, 404.1 and 412)
- Prescribed foreign spin-off distributions (Reg 5600)
- Foreign tax credit generators (the hybrid entities exception in Reg 5907)
- Stub period FAPI (Reg 5907)
- Prescribed shares for 110(1)(d) (Reg 6204).
For more information, contact your KPMG adviser.
Information is current to September 20, 2016. The information contained in this publication 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