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![]() Memorandum of Agreement
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_____________________, 2006 | _____________________, 2006 | |
__________________________ | __________________________ | |
FOR CANADA The Honourable James M. Flaherty Minister of Finance of Canada |
FOR ONTARIO The Honourable Greg Sorbara Minister of Finance of Ontario |
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__________________________ | ||
FOR CANADA The Honourable Carol Skelton Minister of National Revenue of Canada |
Specifics of funding commitment by Canada and Ontario.
To assist the province in ensuring a smooth transition to a single corporate tax administration, Canada has agreed to pay two cash instalments totalling $400 million to Ontario. These cash instalments will be made as follows:
b. $150 million to be paid on October 1, 2008.
2. TCA Costs
2.1. Canada agrees to pay virtually all of the ongoing costs of administering Ontario’s corporation income tax under an amended TCA.
2.2. Clause 3.6 of the Model TCA (see Annex B) sets out the rules with respect to the administrative fees payable for a year by Ontario to Canada for the administration of corporation income tax. Consistent with this costing approach, specific elements of the provincial corporation income tax system not covered by the general provisions of the Model TCA, such as a provincial corporate minimum tax, will be costed on an incremental basis by CRA.
3. Other Costs
3.1 Canada agrees to paya. as part of the transition to a single administration of Ontario’s corporation income tax and corporate minimum tax under an amended TCA, costs incurred by the CRA, estimated not to exceed $260 million for the period 2006-07 to 2009-10, for
ii. integrated audits and other functions in respect of taxation years prior to the implementation of the single tax administration; and
iii. a national initiative comprising
B. enhanced targeting of inter-provincial tax avoidance by corporations, and
C. the additional workload relating to the issues under clauses (A) and (B) in the areas of rulings and technical interpretations.
Funding for the national initiative is $25 million annually, of which it is expected that Ontario’s share, based upon the province’s share of corporation taxable income relative to the other agreeing provinces and territories, will be approximately $15 million annually.
b. Ontario’s share of the development costs that were incurred in developing the tax-on-income system for personal income tax in 1999-2000; and
c. for the period beyond 2009-10
i. costs incurred by the CRA relating to the development of a single administration of corporate tax, and any ongoing costs associated with integrated audits of taxation years prior to the implementation of the single tax administration, and,
ii. costs incurred by the CRA relating to a national initiative, consistent with that established during the 2006-07 to 2009-10 period, comprising
B. enhanced targeting of inter-provincial tax avoidance by corporations, and
C. the additional workload relating to the issues under clauses (A) and (B) in the areas of rulings and technical interpretations.
a. information technology, training or other human resource costs during the transition to a single administration of corporate tax;
b. any additional services requested of CRA in relation to the administration of the corporation income tax beyond the administration provided under a tax collection agreement; and
c. the administration, by CRA, of any other corporate taxes (referenced in Annex C), as agreed to between Ontario and CRA.
3.1. (1) The definitions in this subclause apply in this Chapter.
"Common Tax Base" means
(b) any royalty related tax measure imposed under the Provincial Act.
"Income Tax", in respect of the Province, means the corporation income tax measures imposed under the Provincial Act and administered by Canada in accordance with this Agreement.
"Taxable Income Earned in the Year in the Province" means taxable income earned in the year in the Province by a corporation as determined for the purpose of the definition "taxable income earned in the year in a province" in subsection 124(4) of the Federal Act.
(2) Unless the context otherwise requires, the rules in this Chapter apply with respect to the corporation income tax system.
BASIC CORPORATION INCOME TAX
3.2. The Province will, in respect of each year comprising the Term of this Agreement, impose a general provincial corporation income tax expressed as a percentage in full or one-tenths of percentage points of the Taxable Income Earned in the Year in the Province.
3.3. The Province may, in respect of each year comprising the Term of this Agreement,
(a) impose another provincial rate of tax for corporations eligible for a provincial deduction similar to the small business deduction under section 125 of the Federal Act; and
(b) impose another provincial rate of tax for corporations eligible for the manufacturing and processing profits deduction under section 125.1 of the Federal Act.
TAX PROGRAMS
3.4. Upon agreement, evidenced by an exchange of letters between the Provincial Minister and the Minister, the Minister will amend the Schedule by adding, deleting or changing a reference to a Tax Program. In deciding whether or not to amend the Schedule, in relation to a tax measure, the Minister will consider the following principles:
(b) The tax measure should not impede the free flow of capital, labor, goods and services. In evaluating the tax measure, consideration will be given to whether the measure would have a material impact on the economic and fiscal base of other Agreeing Provinces. In particular, but without limiting the generality of the foregoing, a tax measure should not provide preferential tax treatment only to income, capital or labor located outside the borders of the Province with the requirement that these factors relocate to the Province offering the measure.
(c) The tax measure should be consistent with Canada’s international obligations.
3.5. (1) The timing of delivery of a Tax Program set out in any of sections E and F of the Schedule will be negotiated between the Canada Customs and Revenue Agency and the Provincial Minister, with the Canada Customs and Revenue Agency making best efforts to adhere to the Provincial Minister’s timetable.
(2) The amounts of the Tax Programs set out in section F of the Schedule and to which a corporation is entitled for a year will be applied by Canada in the following order:
(a) as a deduction from the tax, including interest and penalties, otherwise payable by the corporation under the Provincial Act for that and any preceding year;(b) as a deduction from any amount owing to Her Majesty in right of any other Agreeing Province or to an aboriginal government in respect of income taxes, including interest and penalties, payable by the corporation for that and any preceding year; and,
(c) as a deduction from any amount owing to Her Majesty in right of Canada in respect of federal tax, contributions under the Canada Pension Plan or premiums under the Employment Insurance Act, S.C. 1996, c.23, including interest and penalties, payable by the corporation in respect of that and any preceding year.
ADMINISTRATIVE FEES
3.6. The following rules apply with respect to the administrative fees payable for a year by the Province to Canada for the administration of Income Tax:
(b) for administration of the Tax Programs related to corporations set out in sections E and F of the Schedule, the fees are calculated in accordance with paragraph 2.7(1)(b) and are deducted in accordance with subclause 2.7(2).
PAYMENTS TO THE PROVINCE
3.7. (1) Canada will make payments to the Province, in accordance with the Federal-Provincial Fiscal Arrangements Act, in respect of each year comprising the Term of this Agreement on account of Income Tax assessed for that year.
(2) Subject to subclause (3), the amount payable to the Province in respect of each year comprising the Term of this Agreement is the amount that is equal to the aggregate of amounts assessed under the Provincial Act on or before December 31 of the year following that year in respect of
(a) Income Tax for the taxation years of corporations ending in the year, and
(b) Income Tax, or adjustments of Income Tax, for previous years comprising the Term of this Agreement, not included in the calculation of the amount payable for a previous year.
(3) In respect of each year comprising the Term of this Agreement, the Minister will
(a) estimate the amounts payable in respect of Income Tax under paragraphs (2)(a) and (2)(b), net of the amounts relating to the Tax Programs related to corporations set out in sections E and F of the Schedule, by applying a methodology agreed to between the Minister and the Provincial Minister,
(b) make payments to the Province on the basis of the estimate referred to in paragraph (a) in twenty-four equal instalments throughout the twelve-month period beginning with the month of March in the year, two of which will be in each such month as follows:
(i) on the first Working Day following the tenth day of the month,
(ii) on the third Working Day following the fifteenth day of the month, and
(c) provide to the Provincial Minister a statement outlining the method of calculating the estimate referred to in paragraph (a) at the time the first instalment is made for that year in respect of the estimate.
(4) If, for a year in respect of which payments are being made in accordance with this clause, it becomes apparent to the parties to this Agreement that the estimate made in accordance with paragraph (3)(a) in respect of that year should be revised, the Minister will, subject to the agreement of the Provincial Minister, make a new estimate and the remaining payments in respect of that year will be adjusted accordingly.
(5) If, for a year in respect of which payments are being made in accordance with this clause, it becomes apparent to the parties to this Agreement that the timing of the payments made in accordance with paragraph (3)(b) should be revised, the Minister may make a new schedule of payments and, by mutual agreement with the Provincial Minister, the payments for subsequent years will be adjusted accordingly.
(6) For each year in respect of which payments in accordance with this clause have been made by Canada to the Province, Canada will provide to the Province information on amounts assessed under subclause (2) as of the last day of May following the end of that year and as of the last day of each subsequent month until the last day of December following the end of that year (each of these days referred to hereafter as the "Cut-off Date"). The information will be provided to the Province no later than one month after the Cut-off Dates.
(7) Following the end of each year in respect of which payments in accordance with this clause have been made by Canada to the Province, and in no case later than November 30 of the year following that year, the Minister will, on the basis of information available on September 30 of the year following that year,
(a) make an interim recalculation of the amount payable to the Province in accordance with subclause (2); and
(b) provide the Provincial Minister with a statement outlining the method and result of that interim recalculation.
(8) Following the end of each year in respect of which payments in accordance with this clause have been made by Canada to the Province, and in no case later than the last day of the fourteenth month following the end of that year, the Minister will, on the basis of information available on December 31 of the year following that year,
(a) make a revised recalculation of the amount payable to the Province in accordance with subclause (2),
(b) provide the Provincial Minister with a statement outlining the method and result of that revised recalculation, and
(c) pay to the Province, no later than the last day of the fifteenth month following the end of that year, the amount, if any, of that revised recalculation that exceeds the total payments made to the Province in respect of that year.
(9) On or before the last day of the twenty-seventh month following the day on which the Term of this Agreement ends in accordance with clause 4.16, on the basis of information available on the last day of the twenty-fourth month following the day on which the Term of this Agreement so ends, the Minister will
(a) calculate the amount of Income Tax assessed for the last year of the Term of this Agreement for any taxation year of corporations that includes December 31 of that last year, which taxation year includes that portion of the taxation year that immediately follows the last year of this Agreement (for those corporations whose taxation years do not coincide with the calendar year),
(b) calculate the amount of Income Tax assessed (other than any reassessments included under paragraph (a)) on or before the last day of the twenty-fourth month following the day on which the Term of this Agreement so ends, in respect of the years comprising the Term of this Agreement that were not included in previous calculations of payments,
(c) provide the Provincial Minister with a statement outlining the method and result of the calculations under paragraphs (a) and (b), and
(d) pay to the Province the amount, if any, calculated in accordance with paragraphs (a) and (b).
(10) On or before March 31 in each year beginning in the fourth year following the last year of this Agreement, on the basis of the information available on December 31 of the preceding year as to Income Tax assessed, the Minister will
(a) recalculate the amount payable to the Province in respect of each year comprising the Term of this Agreement,
(b) provide the Provincial Minister with a statement outlining the method and result of that recalculation, and
(c) pay to the Province the amount, if any, by which the amount of that recalculation exceeds the total of payments made to the Province in respect of the Term of this Agreement.
(11) Notwithstanding anything in this clause, the aggregate of all amounts to be paid to the Province by Canada on account of Income Tax in respect of each year comprising the Term of this Agreement will be the amount that is equal to the total amount of Income Tax assessed in accordance with the Provincial Act.
CHANGES IN PROVINCIAL TAX
3.8. If the Province modifies the tax rates used for the calculation of Income Tax or the amount of income eligible for the small business deduction, the Province will
(a) make the modification effective on the first day of any month and a notice in writing to that effect will be sent to the Minister by the Provincial Minister no later than four months after the effective date of such modification,
(b) make the modification in such manner so that the modified tax rate for the period shall be expressed in full or one-tenths of percentage points, and
(c) state the income eligible for the small business deduction in whole dollars.
BETWEEN:
The Canada Revenue Agency (referred to in this MOU as "CRA"), as represented by the Commissioner of Revenue
AND:
The Ontario Ministry of Finance (referred to in this MOU as "Ontario"), as represented by the Commissioner of Revenue
1. Purpose of Understanding
1.1. This Memorandum of Understanding (MOU) is consequential to Canada and Ontario entering into a Memorandum of Agreement Concerning a Single Administration of Ontario Corporate Tax (MOA). The MOA provides for the amendment of the current Tax Collection Agreement (TCA) to add Chapter 3 – Corporation Income Tax, which will result in a single corporate tax administration for Ontario businesses.
1.2 Recognizing that a single corporate tax administration will require the development of close working relationships and careful transition planning, the CRA and Ontario have agreed on further undertakings.
1.3 The purpose of this MOU is to provide for the development of certain administrative arrangements with a view to ensuring a smooth transition and ongoing effective management of Ontario corporate taxes by the CRA.
2. Service Management Framework Agreement for Corporation Income Tax
2.1. Pursuant to clause 1.6 of the TCA, the CRA and Ontario will enter into a Service Management Framework Agreement (SMFA) in respect of the Ontario corporation income tax. For the purposes of this MOU, Ontario corporation income tax includes the corporate minimum tax imposed under Part II.1 of the Provincial Act.
2.2 The SMFA will outline a management and accountability framework for the governance of the relationship between Ontario and the CRA consistent with the following principles:
(b) integrity – The CRA will be responsive to Ontario’s needs and concerns regarding administration of the province’s corporation income tax and will:
(i) employ the same validation and verification procedures and annual service levels as it does for national programs, and
(ii) at the request of Ontario, provide validation and verification procedures at service levels that are above those that CRA establishes annually for national programs and costed on an incremental basis. If the procedure is audit, increased levels of service may be in the form of either restricted or full compliance audits.
(ii) exchanges of information, to the extent permitted by law, on a timely basis to meet each other’s needs with respect to:
A. economic and fiscal management,
B. financial and public reporting,
C. tax administration, and
D. accountability.
The CRA and Ontario will, where there are impediments to the release of information held by the CRA or Ontario that is relevant to these purposes, collaborate to resolve such impediments in a manner that is consistent with each other’s legislation, roles, responsibilities and related obligations.
(iii) the ongoing identification and implementation of measures to streamline tax administration and minimize compliance burdens on the taxpayers of Ontario.(b) accountability – The CRA and Ontario are accountable to each other for the success of the SMFA. The CRA is responsible for the day-to-day administration and management of the Ontario corporation income tax, and is accountable to Ontario for results achieved and for reporting on its performance. The SMFA will include the accountability standards, reporting requirements and the procedures if these standards and requirements are not met.
(c) adaptability – The SMFA will be structured so that it is responsive to changing circumstances.
2.3. Within the context of the SMFA and the above principles, further details on the specific services and terms of service delivery would be set out in Service Level Agreements appended to the SMFA.
3. Memoranda of Understanding for Other Taxes
The CRA and Ontario agree to negotiate separate Memoranda of Understanding for the administration, on a cost recovery basis, of:
b. a special additional tax on life insurance corporations similar to that imposed under section 74.1 of the Provincial Act; and
c. to the extent that Ontario requests federal administration,
(i) insurance premiums taxes, namely
(A) a tax on insurance corporations similar to that imposed under section 74 of the Provincial Act,
(B) a tax in respect of benefit plans similar to that imposed under section 74.2 of the Provincial Act,
(C) a tax in respect of contracts with unlicensed insurers similar to that imposed under section 74.3 of the Provincial Act, and
(D) a tax on insurance exchanges similar to that imposed under section 74.4 of the Provincial Act,
(iii) payments in lieu of federal corporate tax similar to those imposed under section 89 of the Electricity Act, 1998, S.O. 1998, c. 15,
(iv) payments in lieu of provincial corporate tax similar to those imposed under section 90 of the Electricity Act, 1998, S.O. 1998, c. 15,
(v) payments in lieu of federal and provincial tax similar to those imposed on municipal electricity utilities under section 93 of the Electricity Act, 1998, S.O. 1998, c. 15, and
(vi) a transfer tax with regard to municipal electricity property similar to that imposed under section 94 of the Electricity Act, 1998, S.O. 1998, c. 15.
4. Transition
4.1. The CRA will outline its commitments pertaining to the development of the single corporate tax administration and early integration of audit and other functions as required for a smooth transition. The funding for these commitments is described in section 3.1 of Annex A of the MOA and the timetables for implementing the commitments will be provided for in the transition agreements referred to in section 4.3.
4.2. Ontario will
(b) provide information technology access and maintain systems as required to facilitate CRA’s implementation of a single corporate tax administration; and
(c) establish any new information technology and administrative systems or measures as required to facilitate transition to a single corporate tax administration.
4.3. The CRA and Ontario will
(a) negotiate Transition Agreements on mutually acceptable timetables for developing and implementing transitional strategies for administrative issues during the move to a single corporate tax administration including the early integration of audit and other functions; and
(b) establish a communications plan and protocol on administrative matters for CRA and Ontario stakeholders.
5. Inter-provincial Tax Avoidance
5.1. During the period 2006-07 to 2009-10, CRA will develop and implement a national initiative comprising
(a) enhanced audits of provincial allocation of taxable income by corporations,
(b) enhanced targeting of inter-provincial tax avoidance by corporations, and
(c) the additional workload relating to issues under paragraphs (a) and (b) in the areas of rulings and technical interpretations
as described in section 3.1 of Annex A of the MOA. Recommendations of the Federal-Provincial Sub-committee on Tax Avoidance, as described in paragraph 4.3(b) of the MOA, will be incorporated into CRA’s approach to inter-provincial tax avoidance.
5.2. For taxation years prior to the implementation of the single corporate tax administration, Ontario may undertake additional audit activity above that provided by the CRA under paragraph 5.1(b) as required by the province to meet its compliance objectives.
6. Human Resources
6.1. The CRA and Ontario agree that provincial employees possess skills and knowledge that are valuable to the operation of a single corporate tax administration.
6.2. The CRA and Ontario agree that effective management of human resources is an essential component for the foundation of a high-performing organization.
6.3. The CRA and Ontario acknowledge that they each must consider relevant legislation and policies, and have collective agreement obligations with their respective bargaining agents. Within this context, the CRA and Ontario agree to negotiate the best possible arrangements, to be contained within a Human Resources Agreement, for employment of Ontario employees with the CRA.
6.4. The CRA and Ontario agree to disclose, to the extent permitted by law, relevant information that will assist the parties during these negotiations.
6.5. Consistent with the principles of change management, the CRA and Ontario agree to a coordinated approach for employee communication throughout the transition toward a single corporate tax administration.
7. Process
The Commissioner of Revenue of Canada and the Commissioner of Revenue of Ontario will oversee the process of concluding the Service Management Framework Agreement, Memoranda of Understanding, Transition Agreements and the Human Resources Agreement.
8. Coming into Force
This MOU will be effective as of the date that Canada and Ontario sign the MOA concerning a single administration of Ontario corporate tax.
THIS MEMORANDUM OF UNDERSTANDING ENTERED INTO ON
_____________________, 2006 | _____________________, 2006 | |
__________________________ | __________________________ | |
FOR CRA Michel Dorais Commissioner of Revenue of Canada Commissioner |
FOR ONTARIO Angela Longo Commissioner of Revenue of Ontario |
1. The Ontario tax measures to which paragraph 3.2(a) of this MOA applies and to be administered by Canada pursuant to Chapter 3 of the Model TCA are as follows:
2. The Ontario tax measures to which paragraph 3.2(b) of this MOA applies and to be administered by Canada in the form of a tax credit pursuant to Chapter 3 of the Model TCA are as follows:
3. Canada will review the legislation related to the measures included in sections 1 and 2 for which Ontario requests administration and will work with Ontario to resolve any technical and costing issues that may arise.
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Last Updated: 2006-11-28 |