2016 Federal Budget Bill #2 Receives First Reading | KPMG | CA

2016 Federal Budget Bill #2 Receives First Reading

2016 Federal Budget Bill #2 Receives First Reading

Bill C-29 implements most of the outstanding tax measures from the 2016 federal budget.

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Specifically, the bill includes the 2016 federal budget measures contained in the draft legislation that was released by Finance on July 29, 2016, and the common reporting standard draft legislation released on April 15, 2016. The bill also includes the trusts and estates and trust loss restriction event measures that were contained in draft legislation released on January 15, 2016.

Since Bill C-29 received first reading on October 25, 2016, the corporate tax measures that it introduces are considered to be substantively enacted for purposes of IFRS and ASPE as of this date (as Canada has a majority Liberal government).

The bill was first released as a Notice of Ways and Means Motion on October 21, 2016, along with accompanying Explanatory Notes.

2016 Federal budget tax measures

Measures from the July 29, 2016 draft legislation

Bill C-29 includes all of the measures from the July 29, 2016 draft legislation with the exception of the proposed regulations to expand and accelerate CCA related to clean energy equipment. Bill C-29 includes measures to:

  • Repeal the ECP regime and replace it with a new CCA class 
  • Prevent the multiplication of the small business deduction and the avoidance of the small business limit and the taxable capital limit 
  • Ensure that certain amounts are not received tax-free by a policyholder as a result of a disposition of an interest in a life insurance policy by amending the capital dividend account and partnership interest adjusted cost base 
  • Introduce back-to-back rules to 
    • Prevent the avoidance of the shareholder loan rules by using back-to-back arrangements 
    • Apply the back-to-back loan withholding tax rules to multiple intermediary structures 
    • Add character substitution back-to-back loan rules to the withholding rules
  • Tighten the cross-border surplus-stripping anti-avoidance rules 
  • Ensure that any accrued foreign exchange gains on a foreign currency debt will be realized when the debt becomes a parked obligation 
  • Clarify the tax treatment of emissions allowances and eliminate the double taxation of certain free emissions allowances 
  • Exclude derivatives from the application of the inventory valuation rules 
  • Provide that the CRA and the courts may increase or adjust an amount included in an assessment that is under objection or appeal at any time, provided the total amount of the assessment does not increase 
  • Ensure that an exchange of shares of a mutual fund corporation or investment corporation that results in the investor switching between funds will be considered to be a disposition at fair market value 
  • Ensure that the return on a linked note retains the same character whether it is earned at maturity or reflected in a secondary market sale 
  • Implement country-by-country reporting requirements.

Common Reporting Standard measures from the April 15, 2016 draft legislation

Bill C-29 includes measures from the April 15, 2016 draft legislation to implement the common reporting standard recommended by the OECD for the automatic exchange of financial account information between tax authorities.

GST/HST and excise duties measures

Bill C-29 implements certain GST/HST measures proposed or confirmed in the 2016 federal budget, including measures to:

  • Add certain exported call centre services to the list of GST/HST zero-rated exports 
  • Strengthen the test for determining whether two corporations, or a partnership and a corporation, can be considered closely related 
  • Ensure that the application of the GST/HST is unaffected by the income tax amendments that convert eligible capital property into the new CCA class 
  • Provide that the CRA and the courts may increase or adjust an amount included in an assessment that is under objection or appeal at any time, provided the total amount of the assessment does not increase.

Other tax measures

Trusts and estates (January 15, 2016 draft legislation)

Bill C-29 includes the measures from the January 15, 2016 draft legislation concerning trusts and estates. This legislation provides relief for trusts and estates affected by the "graduated rate estate rules", and also includes amendments affecting trusts that are subject to the "loss restriction event" rules. Specifically, Bill C-29 includes measures to:

  • Allow greater flexibility for recognizing charitable donations made by an individual's former graduated rate estate 
  • Ensure that income arising in certain trusts on the death of the trust's primary beneficiary is taxed in the trust and not in the hands of that beneficiary, subject to a joint election for certain testamentary trusts to report the income in that beneficiary's final tax return 
  • Clarify what types of investment funds are excluded from the loss restriction event rules that otherwise limit a trust's use of certain tax attributes.

For more information, contact your KPMG adviser.

Information is current to November 01, 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

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