- Taxes and Tariffs -
Memorandum of Agreement
Concerning a Single Administration of Ontario Corporate Tax
BETWEEN:
The Government of Canada (referred to in this MOA as "Canada"),
as represented by the Minister of Finance and the Minister of National
Revenue
AND:
The Government of Ontario (referred to in this MOA as
"Ontario"), as represented by the Minister of Finance
1. Introduction
On May 13, 2004, Canada and Ontario signed a Memorandum of Agreement on
Collaboration in the Delivery of Public Service. It provides a framework for
governments to pursue service delivery and innovative initiatives aimed at
responding to the needs of citizens in Ontario. The parties signed an
Addendum to that agreement on May 17, 2005 to accelerate progress on the
implementation of the agreement and expand their commitment to shared
prosperity and meeting the needs of Ontarians and all Canadians.
As part of that Addendum, Canada and Ontario committed to conclude, as
soon as possible, an agreement to create a single administration of
corporate income tax. This included a commitment, on behalf of Canada, to
fund the administrative, transition and enhanced audit costs associated with
a single administration of corporation income tax. Furthermore, Canada
agreed to pay $400 million to Ontario in two cash instalments ($250 million
in 2007-08 and $150 million in 2008-09) to assist the province in ensuring a
smooth transition to a single corporate tax administration. (Annex A
describes the specifics of the funding commitment.)
The purpose of this Memorandum of Agreement (MOA), which includes the
Annexes, is to outline the various undertakings by both Canada and Ontario
that would allow for the amendment of the existing Canada-Ontario Tax
Collection Agreement (TCA) to include Chapter 3 – Corporation Income Tax
of the model tax collection agreement (Model TCA), which would be
substantially similar to the attached Annex B. This initiative will increase
the harmonization of the tax systems in Canada, reduce compliance costs for
businesses and reduce administration costs for governments. This initiative
will also require the negotiation of further arrangements between the Canada
Revenue Agency (CRA) and Ontario, as described in Annex C: a Service
Management Framework Agreement, Memoranda of Understanding, Transition
Agreements and a Human Resources Agreement.
2. General Covenant and Interpretation
2.1. The parties agree to make best efforts to procure the enactment of
any legislation as may be required for the purposes of this MOA and
acknowledge that arrangements subsequent to this MOA may be subject to the
parties obtaining Governor-in-Council or Lieutenant Governor-in-Council
approvals.
2.2. The following applies in this MOA:
(a) a reference to provisions of the Provincial Act means the Corporations
Tax Act, R.S.O. 1990, c. C. 40, in effect at the time this MOA is
signed; and
(b) a reference to the Federal Act means the Income Tax Act,
R.S.C.1985, c. 1 (5th Supp.), in effect at the time this MOA is
signed.
3. Tax Collection Agreement for Corporation Income Tax
3.1. Canada and Ontario agree to amend the TCA to add a Chapter 3. That
chapter will include the following provisions whereby Canada will
administer:
a. a surtax substantially similar to that imposed under section 41.1 of
the Provincial Act;
b. a lower manufacturing and processing tax rate that encompasses the
provisions of section 43 of the Provincial Act; and,
c. a corporate minimum tax similar to that imposed under Part II.1 of
the Provincial Act.
3.2. To the extent requested by Ontario, Canada agrees to administer:
a. Ontario tax measures substantially similar to those in effect at the
time this MOA is signed, and described in section 1 of Annex D;
b. Ontario tax measures in respect of outlays or expenses that replace
tax measures in effect at the time this MOA is signed, and described in
section 2 of Annex D; and,
c. any other Ontario tax measures that may be introduced prior to the
effective date of the amended TCA, provided such measures are in
conformity with the TCA.
3.3. Ontario acknowledges that administrative fees will be payable, in
accordance with section 3.6 of the Model TCA, for the administration of the
measures described in clauses 3.1 and 3.2.
4. Transition
4.1. Canada undertakes to
a. work with the provinces and territories to establish a timetable to
implement, no later than the beginning of the first taxation year of TCA
administration, the following provisions:
iii. foreign insurance premiums – it is proposed that Part IV
of the Regulations made pursuant to the Federal Act be amended to
allocate, in an appropriate manner, to an insurance company operating
from a permanent establishment in a particular Canadian province or
territory, the company’s foreign insurance premiums (i.e., insurance
premiums paid to the company by non-residents or in respect of property
situated outside Canada) attributable to countries other than Canada in
which the company does not maintain a permanent establishment; and
iv. consequential assessments – it is proposed that the
Federal Act be amended to provide for an extension of time for
assessments that are consequential to assessment actions carried out by
another taxing authority. It is acknowledged that the proposed
amendments relating to consequential assessments may also require
amendments to provincial and territorial legislation.
b. ensure that geographic-based federal measures that reduce the common
tax base do not impact provincial and territorial revenues of
jurisdictions other than those where the measure applies. It is proposed
that Part IV of the Regulations made pursuant to the Federal Act be
amended to include a special provision in the allocation formula for
international banking centres (IBCs) ensuring that taxable income is
allocated prior to claiming the IBC deduction in each province or
territory other than Quebec and British Columbia.
c. review all federal non-Part I taxes to determine whether any should
be shared with provinces and territories, and provide the results of this
review to provinces and territories for discussion.
d. conclude a study on the current timing of payments and consult with
provinces and territories on the results. If federal-provincial agreement
cannot be reached on the adequacy of the timing of payments, Canada and
the provinces and territories will establish a mutually acceptable process
for achieving a resolution, which could include involving a third party to
provide a recommendation on the appropriate timing of payments. Any
adjustment to the timing of corporation income tax payments will be made
consistent with subclause 3.7(5) of the Model TCA.
4.2. Ontario undertakes to
i. the structure of any required transitional measures (reflecting
differences in federal and Ontario tax attributes, such as resource
pools, adjusted cost bases, losses available for carryover, balances
available for depreciation, as of the beginning of the first taxation
year of TCA administration) as debits and credits, and
ii. that transition, as it relates to taxpayers, will occur over a
reasonable period of time (e.g. 5 years);
b. propose legislation for the structure of tax credits and tax debits
that are consistent with this MOA; and
c. propose legislation for the adoption of the federal rules for
determining the existence of a permanent establishment in Ontario.
4.3. Canada and Ontario undertake to
a. work collaboratively to ensure the appropriate federal and Ontario
treatment of taxes levied by each; e.g., the deductibility of Ontario’s
special additional tax on life insurers;
b. work collaboratively on issues surrounding inter-provincial
anti-avoidance; in particular, as participants of the Federal-Provincial
Sub-committee on Tax Avoidance, to examine issues and propose options for
addressing them. The Sub-committee is expected to report to the
Federal-Provincial Committee on Taxation with recommendations by the Fall
of 2006, at which time a review of its accomplishments will be undertaken.
Should a consensus on administrative and / or legislative recommendations
be reached among members of the Sub-committee, representing Canada,
Ontario and provincial governments participating in a corporation income
tax collection agreement, Canada agrees to initiate the approval process
for these recommendations, including the preparation of any federal draft
amendments and model provincial amendments, that are consistent with those
recommendations. These proposals would form part of the national
initiative described in Annexes A and C.
c. agree on a mutually acceptable timetable for developing and
implementing transitional strategies for administrative issues during the
move to a single corporate tax administration;
d. agree on an appropriate payments stream during the transition to a
single administration of corporation income tax; in particular, to address
the cash flow to the province in the year immediately preceding the filing
of joint corporate tax returns;
e. establish a communications plan and protocol for stakeholders;
f. work together in preparing the required legislation, with Canada’s
primary function in this regard being the review of draft legislation
prepared by Ontario;
g. develop a transitional mechanism for setting-off overpayments of
corporation income tax by a taxpayer arising under the Provincial Act (or
a successor to the Provincial Act), after new Chapter 3 of the Model TCA
comes into effect, against amounts owed by that taxpayer under that Act
for taxation years ending before that time; and
h. explore the feasibility of developing, together with other
interested provinces and territories, a refund set-off program that would
allow a refund or repayment of corporation income tax to be applied
against debts owed by a taxpayer under a designated tax or premium levied
by the participating jurisdiction.
5. Timetable
Canada and Ontario agree to make their best efforts to complete the
undertakings under this MOA in order that:
a. all policy and administrative details are finalized, including any
necessary legislative amendments and the signing of appropriate
agreements, before the end of 2007;
b. single corporate tax instalments to the CRA commence in February
2008 (in respect of taxation years ending after December 31, 2008); and
c. full implementation, including the filing of a single corporate tax
return, commences as of January 2009 (in respect of taxation years ending
after December 31, 2008).
6. Process
The Minister of Finance of Canada, the Minister of National Revenue of
Canada and the Minister of Finance of Ontario will oversee the process of
implementation of this Agreement.
The Minister of Finance of Canada and the Minister of Finance of Ontario
will seek the necessary approvals to implement the amended TCA.
THIS MEMORANDUM OF AGREEMENT ENTERED INTO ON
_____________________, 2006 |
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_____________________, 2006 |
|
__________________________ |
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__________________________ |
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 |
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Annex A
Specifics of funding commitment by Canada and Ontario.
1. Cash Payments
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:
a. $250 million to be paid on October 1, 2007;
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 pay
a. 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
i. the development of a single administration system, including
information technology and training costs;
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
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 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
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 the issues under clauses (A)
and (B) in the areas of rulings and technical interpretations.
3.2 Ontario agrees to pay any costs incurred by the province for
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.
Annex B
Chapter 3 – Corporation Income Tax of the Model TCA
CHAPTER 3
CORPORATION INCOME TAX
INTERPRETATION
3.1. (1) The definitions in this subclause apply in this Chapter.
"Common Tax Base" means
"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:
(a) The tax measure should not materially alter the Common Tax Base, in
any of the Agreeing Provinces, except by granting relief by way of a
credit in respect of an outlay or an expense.
(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:
(a) for the general provincial corporation income tax, as described in
clause 3.2, for the provincial small business deduction, as described in
subclause 3.3(a), and for the provincial manufacturing and processing
profits deduction, as described in subclause 3.3(b), the administrative
fees are zero, and,
(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.
Annex C
Memorandum of Understanding
Concerning Administration of Ontario Corporate Taxes
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:
(a) clear roles and responsibilities – The CRA and Ontario will jointly
determine the strategic direction of Ontario corporate tax administration,
which includes establishing objectives and priorities and addressing
issues and risks.
(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.
collaboration – The CRA and Ontario will actively collaborate to maximize
the benefits, effectiveness and efficiency of a single corporate tax
administration. This collaboration will include:
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:
a. a capital tax similar to that imposed on corporations under Part III of
the Provincial Act;
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,
(ii) a mining tax similar to that imposed on operators under the Mining
Tax Act, R.S.O. 1990, c. M 15,
(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
(a) maintain and fund its information technology and administrative
systems for a period of time sufficient to process and assess all taxation
years ending prior to the implementation of a single corporate tax
administration;
(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 |
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_____________________, 2006 |
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__________________________ |
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__________________________ |
FOR CRA
Michel Dorais
Commissioner of Revenue of Canada Commissioner |
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FOR ONTARIO
Angela Longo
Commissioner of Revenue of Ontario |
Annex D
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:
- the foreign tax deduction provided for under section 40 of the
Provincial Act,
- the corporate minimum tax credit provided for under section 43.1 of
the Provincial Act,
- the qualifying environmental trust tax credit provided for under
section 43.2 of the Provincial Act,
- the Ontario innovation tax credit provided for under section 43.3 of
the Provincial Act,
- the co-operative education tax credit provided for under section 43.4
of the Provincial Act,
- the Ontario film and television tax credit provided for under section
43.5 of the Provincial Act,
- the Ontario book publishing tax credit provided for under section 43.7
of the Provincial Act,
- the Ontario computer animation and special effects tax credit provided
for under section 43.8 of the Provincial Act,
- the Ontario business-research institute tax credit provided for under
section 43.9 of the Provincial Act,
- the Ontario production services tax credit provided for under section
43.10 of the Provincial Act,
- the Ontario interactive digital media tax credit provided for under
section 43.11 of the Provincial Act,
- the Ontario sound recording tax credit provided for under section
43.12 of the Provincial Act,
- the apprenticeship training tax credit provided for under section
43.13 of the Provincial Act,
- the Ontario capital gains refund for "mutual fund
corporations" and "investment corporations", as defined
in the Federal Act and provided for under sections 46 and 48 of the
Provincial Act, and
- the additional deduction for credit unions (similar to s.137(3) of the
Federal Act) provided for under subsection 51(4) of the Provincial Act.
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:
- the deduction in respect of the capital cost of grain elevators
provided for under clause 11(10)(a) of the Provincial Act and
subsections 201(8) and 201(9) of Regulation 183 made pursuant to the
Provincial Act,
- the deduction in respect of the capital cost of new technology
provided for under paragraph 11(10)(a) of the Provincial Act and section
203 of Regulation 183 made pursuant to the Provincial Act,
- the deduction in respect of the capital cost of assets relating to
electricity generation provided for under paragraph 11(10)(a) of the
Provincial Act and section 204 of Regulation 183 made pursuant to the
Provincial Act,
- the rules for the treatment of the federal investment tax credit for
scientific research and experimental development provided for under
section 11.2 of the Provincial Act,
- the current cost allowance deduction for pollution control equipment
provided for under section 13 of the Provincial Act and section 202 of
Regulation 183 made pursuant to the Provincial Act,
- the deduction for Canadian exploration expense, Canadian development
expense and Canadian oil and gas property expense provided for under
section 19 of the Provincial Act,
- the deduction for gifts to Her Majesty in right of Ontario provided
for under subsection 34(1.1) of the Provincial Act, and
- the political donations deduction provided for under section 36 of the
Provincial Act.
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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