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Ottawa, December 8, 1997
1997-117
Government Tables Income Tax Legislation
Related documents:
- Backgrounder.
- Summary of Technical Amendments Proposed in the Notice of Ways and Means Motion that were not contained in Bill C-69.
- Notice of Ways and Means Motion (Adobe Acrobat format):
- Explanatory Notes (Adobe Acrobat format):
- Pages 1-137 - 283,682 bytes.
- Pages 138-279 - 292,069 bytes.
- Pages 280-489 - 423,409 bytes.
- Pages 490-578 - 175,901 bytes.
Minister of Finance Paul Martin today tabled a Notice of Ways and Means Motion in the House of Commons relating to the income tax measures announced in the February 1997 budget and other income tax and related measures.
Many of these provisions were previously tabled as Bill C-69, which principally comprised technical income tax amendments. Other provisions incorporate amendments previously announced by press release. A more detailed description of many of the proposed amendments is included in the attached backgrounder.
The Minister also released detailed explanatory notes on the legislation.
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For further information:
Tax Legislation Division
(613) 947-7094 or
(613) 947- 7092
Backgrounder
The Notice of Ways and Means Motion tabled today proposes to amend the Income Tax Act and other statutes. The Notice is set out in two distinct sections. The first section includes all the 1997 budget proposals relating to income tax and the second section contains all other amendments. The following note describes those items of greater significance.
Charitable Donations
These amendments introduce capital gains tax relief for gifts of certain listed securities, increase the charitable donations income limit by recaptured depreciation that may arise in respect of gifts of depreciable property and deny charitable donation treatment for loan-back arrangements, with modifications for donations of private company shares to public charities.
Registered Education Savings Plans (RESPs)
These proposals increase the annual RESP contribution limit from $2,000 to $4,000 per beneficiary, allow growth on RESP contributions not to be forfeited in certain cases in which post-secondary education is not pursued by beneficiaries, and provide a 20-per-cent penalty on any portion of such growth that is not transferred on a tax-deductible basis to a registered retirement savings plan (RRSP).
Transfer Pricing
These amendments, which were proposed in the February 18, 1997 budget and released in draft form on September 11, 1997, implement, in conformity with the revised transfer pricing guidelines of the Organization for Economic Co-operation and Development, a transfer pricing regime for transactions between non-arm's length parties, and introduce penalties for failure to make reasonable efforts to establish arm's length transfer prices.
Matchable Expenditure Rules
Amendments are proposed to affect the income tax treatment of transactions under which investors achieve tax shelter benefits by financing the business expenses of other taxpayers in exchange for a right to receive future income. These amendments were originally announced in a news release issued by the Minister of Finance on November 18, 1996 (with enhanced transitional relief announced December 19, 1996).
Loss Trading
The proposed amendments address the utilization of losses by "affiliated" parties where property is transferred between them. The amendments curtail the transferability of such losses.
Treatment of Bankrupt Individuals
Amendments are proposed to replace the provisions of the Income Tax Act that allow bankrupt individuals to claim certain personal tax credits twice in the year of bankruptcy with provisions that require credits to be prorated between the pre- and post-bankruptcy periods. These amendments also ensure that income from both periods will be considered in determining the child tax benefit and goods and services tax (GST) credit.
Changes to Tax Status of Corporations
These proposed amendments clarify the rules that apply when a corporation becomes or ceases to be exempt from tax. They eliminate the carry-over of losses, deductions and credits by a corporation from a tax-exempt period to a taxable period and clarify that the Large Corporations Tax and certain other taxes apply to Crown corporations (with effect as of the date on which those taxes were introduced).
Tax Shelters
These proposed amendments include measures to prevent abuses through aggressive tax shelter promotions by affecting limited-recourse financing, extending the income base on which the alternative minimum tax is calculated and modifying the tax shelter identification rules.
Disability Benefits - Top-Ups
These proposed measures ensure that there will be no change in the income tax treatment to recipients of disability benefits where the insurance company paying the benefits becomes insolvent and employers take responsibility for continuing the current level of payments.
Adventures in the Nature of Trade
These amendments require that, for income tax purposes, inventory held as an adventure or concern in the nature of trade must be valued at its historical cost, rather than at the lower of cost or fair market value. Generally, this means that accrued losses on such property may be recognized only on disposition.
Impaired Loans
The proposed amendments incorporate proposals released in draft form on November 14, 1997, which harmonize the tax treatment of impaired loans (doubtful debts) with the new accounting standards established by the Canadian Institute of Chartered Accountants with respect to impaired loans.
Film or Video Production Services Tax Credit
The new Film or Video Production Services Tax Credit (FVPSTC), which was announced on October 28, 1997, is a refundable income tax credit available to corporations involved in film or video production services provided in Canada. The credit is equal to 11 per cent of salary and wages paid to Canadian residents in respect of their services in Canada. The FVPSTC involves a certification process through the Canadian Audio-Visual Certification Office, and includes measures to prevent taxpayers from claiming the FVPSTC and the Canadian Film Tax Credit in respect of the same production.
Summary of Technical Amendments Proposed in the Notice of Ways and Means Motion that were not contained in Bill C-69
Many of the proposed amendments in this Notice were previously contained in Bill C-69. The following list highlights a number of proposed additional technical items (other than those described in the Backgrounder) to amend the Income Tax Act that have been included in this Notice which were not contained in Bill C-69. This list is not exhaustive.
Winding-Up of a Corporation
The meaning of substituted property in proposed paragraph 88(1)(c.3) for the purpose of the definition "ineligible property" in proposed subparagraph 88(1)(c)(vi) has been amended to exclude, among other things, certain debt of a parent corporation and shares of certain grandparent corporations. The cost of ineligible property may not be increased on the winding-up of a subsidiary corporation into the parent corporation.
Losses on Trust Interest
Paragraph 107(1)(c) of the Act limits the losses a trust beneficiary may realize on the disposition of a capital interest in the trust. In addition to the changes that were included in the former Bill C-69, the paragraph is amended to apply to all losses, not only capital losses. This change will apply to dispositions after 1997.
Dues Paid to a Professions' Board
Employees' dues paid to professions' boards, such as the Office des professions du Québec, are being made deductible to the extent that the payment of such dues is required under a provincial statute.
Exempt Corporations
The income tax rules dealing with the tax exemption granted to municipal corporations are being modified to prevent situations where effective control of such corporations could be in the hands of someone other than the municipality, and to prevent municipally owned corporations from competing in commercial activities on a tax-free basis outside the municipal boundaries.
Family Farm Corporations
This Notice amends the definition "share of the capital stock of a family farm corporation" in subsection 70(1) of the Act to allow property used in the qualifying farming business of one corporation to be held by a subsidiary of that corporation, but not by a parent corporation .
Additional Business Income and Reserve for December 31, 1995 Income
The representative of a deceased taxpayer who files a separate return under subsection 150(4) of the Income Tax Act, and for whom a notional amount of business income under subsection 34.1(1) of the Act would have otherwise been included in income for the year, must include a similar notional amount in income for the year of death, for which a deduction is available on the separate return. As well, the representative has the option of claiming a reserve for the year of death in respect of "December 31, 1995 income", if the amount claimed is reported on the separate subsection 150(4) return.
Unit Trusts
Under paragraph 108(2)(b) of the Act, at least 80 per cent of the property of trusts qualifying as "unit trusts" under that paragraph must consist of specified property. Debentures and share warrants will now be included in the list of specified property for this purpose.
Alternative Minimum Tax
Proposed amendments relating to partnership losses have been revised such that partnership losses in the year a partnership dissolves are not denied for the purpose of the Alternative Minimum Tax.
African Development Bank
The 20-per-cent foreign property limit in Part XI of the Act is further amended by allowing debt issued by the African Development Bank not to be treated as foreign property.
Information Returns for Foreign Trusts
The reporting rules in section 233.2 of the Act for transfers and loans to foreign trusts are modified by not requiring information returns with respect to foreign trusts governed by employees profit sharing plans. These rules are also modified by ensuring that the rules cannot be avoided through the use of trusts that name beneficiaries as a consequence of the exercise of discretion.
Transfers from Registered Retirement Income Funds
There is no longer a requirement to file a prescribed form in paragraph 146.3(2)(e) of the Act in connection with transfers from registered retirement income funds.
Canadian Field Processing
The definition "Canadian field processing" in subsection 248(1) of the Act is being amended to clarify the tax treatment of mainline straddle plants. Processing by a taxpayer at such a plant will generally allow the taxpayer to claim a manufacturing and processing tax credit, rather than result in an increase in the taxpayer's resource allowance.
Unremitted Source Deductions
This Notice incorporates amendments first announced by press release April 7, 1997 relating to deemed trust provisions securing priority for the Crown in relation to certain statutory withholdings.
Legal Representatives
This Notice contains a new definition of the term "legal representative" and clarifies the responsibilities of taxpayers' representatives.
Set-Off for Crown Debts
These amendments would allow the Minister of National Revenue to take a tax refund or repayment that would otherwise be paid to a taxpayer and to use it to pay the taxpayer's debt to Her Majesty in Right of a province. At present, the Income Tax Act only provides the authority to do so in cases of debts owed to Her Majesty in Right of Canada.
Definition "Beneficially Interested"
This Notice contains an amendment expanding the definition "beneficially interested" in subsection 248(25) of the Income Tax Act.
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