Canada: Tax provisions in 2016 budget affecting financial services sector

Canada: Tax provisions in 2016 budget

Entities in Canada’s financial services sector need to consider preparing for the effect of certain tax changes proposed in the 2016 federal budget. Specifically, the 2016 budget proposes corporate and indirect tax measures for:

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  • Mutual fund corporation (“switch funds”) share exchanges
  • Sale of linked notes
  • Derivatives—lower of cost or market
  • The “closely related” test for GST/HST* elections
  • GST/HST on cross-border reinsurance with affiliates 
  • GST/HST de minimis financial institution—interest from guaranteed investment certificates (GICs) or deposits
  • Zero-rated call centre services to non-residents 


* GST/HST = goods and services tax / harmonized sales tax

The budget introduces a “bail-in” regime to protect taxpayers in the event of a large bank failure. This would allow authorities to convert eligible long-term debt of a failing bank into common shares, to recapitalize the bank and allow it to remain in operation. The Finance Department indicated that legislation implementing this measure will follow, and that stakeholders will have an opportunity to provide comments.  

Finance also stated that it will provide technical amendments to provide for the integrity of the tax system. 


Read a March 2016 report [PDF 91 KB] prepared by the KPMG member firm in Canada: Financial Services Industry — Prepare for 2016 Budget Measures

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