The bill includes tax measures that were announced in the 2017 Federal budget, which were previously included in September 8, 2017 draft legislation and other catch-up measures affecting international tax, business tax, personal tax, trusts, and the SR&ED regime, among other areas, that were previously included in September 16, 2016 draft legislation. It also contains measures related to the specified cooperative income measures that were released in draft legislation in the spring.
Since Bill C-63 received first reading on October 27, 2017, the corporate income tax measures that it introduces are considered to be substantively enacted for purposes of IFRS and Accounting Standards for Private Enterprise (ASPE) as of this date (as Canada has a majority government).
Bill C-63 also includes GST/HST measures related to pension plans and drop shipments, and other measures that were previously released in draft legislation on September 8, 2017 (see TaxNewsFlash-Canada No. 2017-50).
The bill was first released as a NWMM on October 25, 2017.
2017 Federal budget and other proposals
Bill C-63 includes the outstanding 2017 federal budget and other measures, including corporate income tax amendments to:
- Eliminate the ability to elect to use billed-basis accounting subject to a five-year transitional rule to value work in progress from certain professional practices, including accountants, lawyers and doctors (the 2017 federal budget measures previously proposed a two-year transition period)
- Change the meaning of factual control
- Introduce new rules to ensure that taxpayers include the appropriate portion of stub period foreign accrual property income (FAPI) in the year that a taxpayer's interest in a foreign affiliate changes (amended since the measures were previously released in September 2016
- Extend the FAPI base erosion and anti-avoidance rules to foreign branches of life insurers in respect of the insurance of Canadian risks
- Introduce an elective mark-to-market regime for derivatives held on income account
- Introduce a new anti-avoidance rule to target straddle transactions that allow taxpayers to selectively realize gains and losses on derivatives
- Extend the ability to reorganize on a tax-deferred basis to switch fund corporations and segregated funds in certain circumstances
- Change the rules on investing in specified clean energy generation and conservation equipment under the capital cost allowance regime
- Reclassify expenses renounced to flow-through share investors by oil and gas corporations
- Reclassify expenditures related to drilling or completing a discovery well as Canadian Development Expenses.
For more details on the 2017 budget, see TaxNewsFlash-Canada No. 2017-10.
September 2016 draft legislation measures
Bill C-63 also includes the following corporate income tax measures included in draft legislation released on September 16, 2016:
Business tax measures
- Amendments to the "capital dividend account" definition so that the "non-allowable" portion of a corporation's realized capital losses reduces the non-taxable portions of capital gains distributed from a trust to the corporation
- Amendments allowing partnerships in a tiered-partnership structure where a multi-tiered alignment election applies to keep their common non-calendar fiscal period in some cases that are not currently permitted, as well as changes related to the reverse takeover of a trust or partnership by a loss corporation
- Amendment to the 'relevant spot rate' definition
- Addition of new anti-avoidance measures, to ensure that taxpayers don't circumvent the dividend stop-loss rules by holding shares through a partnership
- Addition of a new rule to allow a taxpayer to claim a reserve for the unamortized amount of certain bond premiums
- Amendment to the taxation of character conversions and derivative forward agreements
- Amendment to the taxation of restrictive covenants.
International tax measures
- Changes to the "upstream loan" rules (and related transitional relieving rules)
- Introduction of a new elective rule that allows deferred tax-treatment related to dispositions of taxable Canadian property on a foreign merger
- Clarification to the taxation of dispositions of taxable Canadian property resulting from a "negative adjusted cost base" in a property.
SRED tax measures
- Clarification of the filing requirements in respect of SR&ED claims
- Clarification that a failure to provide the required claim information will not prevent SR&ED deduction.
The measures also include changes to a number of regulations, including:
- Exempt policies
- Banks and Federal Credit Union allocations
- Prescribed foreign spin-off distributions
- Foreign tax credit generators (the hybrid entities exception)
- Prescribed shares for 110(1)(d).
Specified cooperative income-Draft Legislation from May 5, 2017
Bill C-63 also includes an amendment to exclude "specified cooperative income" from the definition of "specified corporate income" under the small business deduction rules.
For more information, contact your KPMG adviser.
Information is current to October 31, 2017. 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