Ultra CGA

• Removing the profit element
from arm’s-length
third-party contracts for
the purpose of calculating
SR&ED tax credits.
• Removing capital from the
base of eligible expenditures
for the purpose
of calculating SR&ED tax
incentives.
• Preventing the avoidance
of corporate income
tax through the use of
partnerships to convert
income gains into capital
gains.
International Taxation
• Ensuring that transfer
pricing secondary adjustments
will be treated as
dividends for Part XIII withholding
tax purposes.
• Improving the integrity
and fairness of the thin
capitalization rules by:
- reducing the debtto-equity
ratio from 2-to-1
to 1.5-to-1;
- extending the scope of
the thin capitalization rules
to debts of partnerships of
which a Canadian-resident
corporation is a member;
- treating disallowed
interest expense under the
thin capitalization rules as
dividends for Part XIII withholding
tax purposes; and
- preventing double
taxation in certain circumstances
where a Canadian
resident corporation
borrows money from its
controlled foreign affiliate.
• Restricting the ability of
foreign-based multinational
corporations to transfer,
or “dump”, foreign affiliates
into their Canadian subsidiaries,
while preserving the
ability of these subsidiaries
to undertake legitimate
expansions of their Canadian
businesses.
• Phasing out the Overseas
Employment Tax Credit.
Other draft income
tax legislation
On July 25, 2012, the Department
of Finance released
draft legislation to amend the
Income Tax Act. The draft legislation
would add new sections
12.6 and 18.3 regarding
stapled securities and would
amend the definitions of
“non-portfolio property” and
“excluded subsidiary entity” in
subsection 122.1(1) and the
instalment rules for SIFT trusts
and SIFT partnerships. As well,
the draft legislation includes
an amendment to subsection
214(3) to address the issue of
withholding tax on amounts
that are payable from a
Canadian resident trust to
a non-resident beneficiary
but which are actually paid
after the trust ceases to be a
Canadian resident.
On June 8, 2012, the Department
of Finance released
draft legislation to amend
the Tax Court of Canada Act
and the Income Tax Act. These
proposed amendments will
implement the changes
required to improve the
caseload management of the
Tax Court of Canada.
We have had a tax legislative
hangover for many years.
Legislation announced in
2000, 2002 and 2003 has
sat unpassed yet has been
administered at times by
the CRA as if it were law. This
has caused mass confusion.
Proposed legislation dealing
with issues such as restrictive
covenants, attribution, foreign
trusts and other technical
matters was released in July
2010 but has not yet been
passed. On August 19, 2011,
draft legislation and regulations
emerged regarding
rules relating to foreign affiliates.
Some rules are new and
others are revised from an
earlier release on February 27,
2004. On December 14, 2011,
On June 8, 2012,
the Department
of Finance
released draft
legislation to
amend the Tax
Court of Canada
Act and the
Income Tax Act.
the Department of Finance
released for consultation draft
income tax legislation, regulations
and explanatory notes
regarding pooled registered
pension plans.
On October 31, 2011, the
Department of Finance
released for comments draft
legislation, regulations and
explanatory notes regarding
technical amendments to the
Income Tax Act and the Excise
Tax Act. This package includes
technical changes relating to
trusts, investment corporations,
mortgage investment
corporations, mutual fund
corporations and agricultural
cooperative corporations; the
treatment of non-residents
with Canadian service providers;
corporations that carry on
an insurance business; and
the reporting of recaptured
input tax credits.
On March 16, 2011, the Department
of Finance released
draft income tax legislation in
response to decisions in three
recent court cases. They are
Collins v. The Queen, 2010 DTC
5028 (FCA), regarding contingent
amounts; Lehigh Cement
Limited v. The Queen, 2010
DTC 5081 (FCA), regarding
withholding tax on interest
paid to a non-arm’s length
non-resident; and The Queen
v. National Life Assurance
Company of Canada, 2008 DTC
6141 (FCA), regarding a life
insurance corporation’s segregated
fund policy reserves.
Income tax case law
released during the
summer
The appellate courts and
the Tax Court of Canada do
not sit frequently in July and
August and decisions are not
issued very often. However,
the Supreme Court of
Canada released Craig, which
involves a Toronto lawyer
who claimed farming losses
outlook 07