Archived - Department of Finance Consults on Draft Tax Legislation

August 29, 2014 – Ottawa, Ontario – Department of Finance

The Department of Finance today released for consultation draft legislative proposals that would implement tax measures from Economic Action Plan 2014.

These proposals include:

Personal Income Tax

Extending the intergenerational rollover and lifetime capital gains exemption for farming and fishing businesses.
Permitting income contributed to an amateur athlete trust to qualify as earned income for Registered Retirement Savings Plan contribution limit purposes, with a three-year retrospective application.
Including in the definition of “split income” income from a business or property that is paid or allocated to a minor child from a partnership or trust where a person related to the child is engaged in the activities of the partnership or trust to earn that income.
Eliminating graduated rate taxation for trusts and certain estates with an exception for cases involving testamentary trusts whose beneficiaries include individuals eligible for the Disability Tax Credit.

Charities

Allowing greater flexibility in the income tax rules for recognizing charitable donations made by will or on death.

Business Income Tax

Expanding eligibility for the accelerated capital cost allowance for clean energy generation and energy conservation equipment under Class 43.2 to include water-current energy equipment and a broader range of equipment used to gasify eligible waste.
Extending the tax deferral provision with respect to breeding animals to bees, and to all types of horses that are over 12 months of age, that are kept for breeding.

International Taxation

Better circumscribing an existing exception from the “investment business” definition in the foreign accrual property income regime by introducing additional conditions for the application of the exception.
Adjusting Canada’s foreign accrual property income rules in order to address offshore insurance swap transactions and ensure that income derived directly or indirectly from the insurance of Canadian risks is taxed appropriately.
Addressing back-to-back loan arrangements involving an intermediary by adding a specific anti-avoidance rule in respect of withholding tax on interest payments, and modifying an existing anti-avoidance rule in the thin capitalization rules.

Other Measures

The draft legislative proposals also include other income tax and sales tax measures that were not included in Economic Action Plan 2014:

Modernizing the life insurance policy exemption test.
Amending the foreign affiliate dumping rules to ensure the rules apply in appropriate circumstances and, where applicable, provide appropriate results.
Amending the definition “non-qualifying country” in the foreign affiliate rules to:
- exclude from this definition those countries or other jurisdictions for which the Convention on Mutual Administrative Assistance in Tax Matters is in force and effect; and
- avoid unintended tax consequences with respect to the British Overseas Territory of the British Virgin Islands, which is now a jurisdiction that has a comprehensive tax information exchange agreement with Canada.
Ensuring that Pooled Registered Pension Plans are subject to similar Goods and Services Tax/Harmonized Sales Tax treatment as registered pension plans.

References to “Announcement Date” in the draft legislative proposals refer to today’s date. Explanatory notes are included with the draft legislative proposals.

After engaging in consultations on a proposed anti-treaty shopping measure, the Government will instead await further work by the Organisation for Economic Co-operation and Development and the Group of 20 (G-20) in relation to their Base Erosion and Profit Shifting initiative.

Interested parties are invited to provide comments on the draft legislative proposals by September 28, 2014. Please send your comments to EAP-PAE2014.tax-fiscalite@fin.gc.ca or to:

Tax Policy Branch
Department of Finance
90 Elgin Street
Ottawa, Ontario
K1A 0G5