doing business in canada - Davies Ward Phillips & Vineberg LLP

expense ("COGPE"), Canadian development expense ("CDE") or Canadian exploration expense ("CEE").Expenditures related to the acquisition of Canadian oil and gas properties or rights are generally classified asCOGPE. Expenditures related to the acquisition of Canadian mining properties or rights (including, in manycases, properties or rights in respect of heavy oil) are generally classified as CDE. Expenditures in respect of theexploration and development of Canadian resource properties are classified as either CDE or CEE.Once classified as COGPE, CDE or CEE, the expenditures are added to the corresponding cumulative accounts.Subject to certain restrictions, a taxpayer may deduct in a taxation year 10% of its cumulative COGPE, 30% ofits cumulative CDE and 100% of its cumulative CEE.Some provinces, such as Quebec, offer similar or additional incentives.Capital TaxThe federal government imposes a capital tax on financial institutions at a rate of 1.25% of their "taxable capitalemployed in Canada" in excess of $1 billion.The capital tax on corporations that are not financial institutions was eliminated by the federal government for2006 and subsequent taxation years.Some provinces, including Ontario and Québec, also impose their own capital tax on taxable capital employed inthe province. Ontario capital tax will be eliminated by the middle of 2010 and Québec capital tax is proposed tobe phased out by 2011.Corporate ReorganizationsThe Tax Act permits many corporate reorganizations to be effected on a "rollover" or tax-deferred basis toshareholders. Some reorganizations, such as share-for-share exchanges, are relatively straightforward from atax perspective, whereas others, such as tax-deferred spin-offs, have complex statutory and administrativerestrictions.PartnershipsPartnerships are common investment vehicles in Canada because they are generally flow-throughs for taxpurposes. Although partnerships are not taxpayers per se under the Tax Act, a partnership is required tocompute its income as though it were a taxpayer resident in Canada. Each member of the partnership includesin income the member's allocable share of the income, gain or loss of the partnership. Special rules apply tolimited partners that may, in certain circumstances, restrict their ability to claim losses of a limited partnershipallocated to them.TrustsUnlike partnerships, trusts resident in Canada are taxable entities under the Tax Act. However, certain trusts,including personal trusts and mutual fund trusts, may be eligible for an offsetting deduction in respect ofamounts distributed to beneficiaries. The effect of such rules is to reduce (or eliminate) tax at the trust level.Such distributions are generally taxable in the hands of the beneficiaries.As previously noted, the Tax Act may deem non-resident trusts to be resident in Canada in certaincircumstances.SPECIFIED INVESTMENT FLOW-THROUGHSThe Tax Act has been amended to change the taxation of certain publicly-traded trusts and partnershipsreferred to as "specified investment flow-through" entities or "SIFTs" (the "SIFT Amendments"). Under the SIFTTax Considerations 85