dividend deemed to be received on that repurchase when that dividend is eligible for the inter-corporate dividend deduction.
This measure will apply in respect of share repurchases that occur on or after Budget Day.
Budget 2018 proposes to amend the provisions of the Income Tax Act pertaining to shares held as mark-to-market property so that the tax loss otherwise realized on a share repurchase is generally decreased by the
dividend deemed to be received on that repurchase when that dividend is eligible for the inter-corporate dividend deduction. This measure will apply in respect of share repurchases that occur on or after Budget Day.
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Budget 2018 proposes two measures, applicable to taxation years that begin after 2018, to limit tax deferral advantages on passive investment income earned inside private corporations. These measures take into account the feedback received from stakeholders in response to the July 2017 consultation.
Budget 2018 proposes to reduce the business limit for CCPCs (and their associated corporations) that have significant income from passive investments. Under this measure, the business limit will be reduced on a straight-line basis for CCPCs having between $50,000 and $150,000 in investment income. Budget 2018 proposes an amendment to the no tax-indifferent investor exception to the synthetic equity arrangement rules that will clarify that the exception cannot be met when a tax-indifferent investor obtains all or substantially all of the risk of loss and opportunity for gain or profit in respect of the Canadian share, in any way, including where the tax-indifferent investor has not entered into a synthetic equity arrangement or a specified synthetic equity arrangement in respect of the share.
The proposed amendments will apply to dividends that are paid, or become payable, on or after Budget Day. A recent Federal Court of Appeal decision has constrained the application of the at-risk rules in the context of tiered partnership structures. The decision is inconsistent with the policy underlying the at-risk rules and could result in limited partnership losses becoming deductible in situations where, under the long-standing understanding of the at-risk rules, they would have been restricted. Given the indefinite carry-forward of limited partnership losses, this poses a significant risk to the tax base.
Budget 2018 proposes to clarify that the at-risk rules apply to a partnership that is itself a limited partner of another partnership. This measure, along with a number of consequential changes, will ensure that the at-risk rules apply appropriately at each level of a tiered partnership structure. In particular, for a partnership that is a limited partner of another partnership, the losses from the other partnership that can be allocated to the partnership’s members will be restricted by that partnership’s at-risk amount in respect of the other partnership. Canada has entered into 93 tax treaties and 23 Tax Information Exchange Agreements (TIEAs), and is one of 117 parties to the Convention on Mutual Administrative Assistance in Tax Matters (the “Convention”). Most of the jurisdictions with which Canada has a tax treaty or TIEA are also parties to the Convention. Tax treaties, TIEAs and the Convention provide for the sharing of tax-related information for both civil and criminal tax law purposes, subject to the confidentiality provisions of the agreement at issue.
In addition, Canada has entered into numerous mutual legal assistance agreements. Mutual legal assistance agreements provide for the sharing of information for criminal law purposes. These international instruments facilitate the administration and enforcement of the tax and other laws of both Canada and its international partners. The sharing of information internationally for the investigation, prosecution and suppression of serious criminal offences, both tax-related and non-tax-related is vital to the global fight against serious crime and is consistent with the Government’s commitments to address global tax evasion and to improve the fairness of the tax system. Sharing Tax Information Relating to Tax Offences As noted above, Canada is obligated to share certain information, including information to be used in respect of tax-related offences, under its tax treaties and TIEAs, and the Convention. The Canada Revenue Agency is responsible for the sharing of tax-related information under the terms of these agreements. To facilitate the sharing of information, Budget 2018 proposes to allow the legal tools available under the Mutual Legal Assistance in Criminal Matters Act (MLACMA) to be used with respect to the sharing of criminal tax information under Canada’s tax treaties and TIEAs, and the Convention. These tools include the ability for the Attorney General to obtain court orders to gather and send information. The Canada Revenue Agency will continue to be involved in sharing tax information internationally and will work with the Department of Justice, which administers the MLACMA. To give effect to this measure, legislative amendments may be proposed to the MLACMA, the Income Tax Act, Part IX of the Excise Tax Act (in relation to the Goods and Services Tax/Harmonized Sales Tax) and the Excise Act, 2001 (in relation to excise duties on products such as tobacco and alcohol). The Government intends to propose that any such amendments come into force upon Royal Assent to the enacting legislation. Sharing Tax Information Relating to Serious Non-Tax Offences Canada’s mutual legal assistance agreements provide for a wide range of international cooperation in criminal matters. Canada also has the ability to enter into case-specific arrangements to give effect to a request for mutual legal assistance. The MLACMA gives the Attorney General the authority to obtain gathering and sending orders for various types of information in relation to serious non-tax offences, but tax information cannot currently be obtained or shared through this process. Therefore, while many of Canada’s mutual legal assistance partners are able to share tax information in response to a request from Canada for mutual legal assistance, Canada lacks the legal authority to reciprocate. Budget 2018 proposes to enable the sharing of tax information with Canada’s mutual legal assistance partners in respect of acts that, if committed in Canada, would constitute terrorism, organized crime, money laundering, criminal proceeds or designated substance offences (i.e., offences listed in section 462.48 of the Criminal Code). A similar issue relates to the authority of the Attorney General to apply for a court order to allow Canadian police officers to obtain taxpayer information under the Income Tax Act for an investigation or prosecution of those offences. Currently, there is no ability to obtain similar confidential information under Part IX of the Excise Tax Act or the Excise Act, 2001. To address this inconsistency, Budget 2018 also proposes to enable confidential information under Part IX of the Excise Tax Act and the Excise Act, 2001 to be disclosed to Canadian police officers in respect of those offences where such disclosure is currently permitted in respect of taxpayer information under the Income Tax Act. To give effect to these measures, legislative amendments may be proposed to the MLACMA, the Criminal Code, the Income Tax Act, Part IX of the Excise Tax Act and the Excise Act, 2001. The Government intends to propose that any such amendments come into force upon Royal Assent to the enacting legislation. Budget 2018 proposes two measures, applicable to taxation years that begin after 2018, to limit tax deferral advantages on passive investment income earned inside private corporations. These measures take into account the feedback received from stakeholders in response to the July 2017 consultation. Business Limit The Government has proposed to reduce the tax rate for qualifying active business income of small CCPCs from 10.5 per cent to 10 per cent for 2018 and to 9 per cent as of 2019. This lower rate – relative to the 15-per-cent general corporate rate – is intended to increase the after-tax income available for reinvestment in the active business, in recognition that small businesses tend to have more difficulty accessing capital. This rate reduction is provided through the small business deduction. This preferential tax rate applies on up to $500,000 of qualifying active business income of a CCPC (the “business limit”). There is a requirement to allocate the business limit among associated corporations. The business limit is reduced on a straight-line basis for a CCPC and its associated corporations having between $10 million and $15 million of total taxable capital employed in Canada. When retained earnings taxed at the small business rate are used to invest passively, rather than in the active business, significant tax deferral advantages can be realized relative to an individual investor. Budget 2018 proposes to reduce the business limit for CCPCs (and their associated corporations) that have significant income from passive investments. What's new for Individuals and families in terms of 2017 tax and benefits?
1 Scholarships, fellowships, bursaries, and artists’ project grants exemption (line 130) – The eligibility for the exemption has been enhanced under certain conditions to include scholarships and bursaries received for occupational skills courses that are not at the post-secondary level. 2 Canada caregiver amount – The Canada caregiver amount has replaced the family caregiver amount, the amount for infirm dependent age 18 or older (line 306), and the caregiver amount (line 315). You could be entitled to claim this amount in the calculation of certain non-refundable tax credits if the person you are making the claim for has an impairment in physical or mental functions. 3 Your tuition, education, and textbook amounts (line 323) –As of January 1, 2017, the federal education and textbook amounts have been eliminated. The eligibility criteria for the tuition amount has been enhanced under certain conditions to include fees paid for occupational skills courses that are not at the post-secondary level. 4 Medical expenses (lines 330 and 331) – Individuals who need medical intervention to conceive a child are eligible to claim the same expenses as individuals with medical infertility. You can also request an adjustment to claim such medical expenses on any income tax return for the 10 previous calendar years. 5 Donations and gifts (line 349) – A gift of ecologically sensitive land cannot be made to a private foundation after March 21, 2017. There are also a number of changes to the Ecological Gifts Program. 6 Public transit amount (line 364) – As of July 1, 2017, this amount has been eliminated. 7 Children’s arts amount (line 370) – As of January 1, 2017, this amount has been eliminated. 8 Children’s fitness tax credit (lines 458 and 459) – As of January 1, 2017, this credit has been eliminated. 9 Disability tax credit (DTC) certification – As of March 22, 2017, nurse practitioners have been added to the list of medical practitioners who may certify eligibility of a person for the DTC. Interest and investments 1 Investment tax credit (line 412) – Eligibility for the mineral exploration tax credit has been extended to flow-through share agreements entered into before April 2018. In addition, as of March 22, 2017, expenses for the creation of child care spaces are no longer eligible for the investment tax credit. 2 Labour-sponsored funds tax credit (lines 411 and 419) – As of January 1, 2017, the tax credit for the purchase of shares of federally registered labour-sponsored venture capital corporations (LSVCC) has been eliminated. The tax credit for provincially registered LSVCC can still be claimed on lines 413 and 414. |
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