Notice To Implement Income Tax Provisions In Canada- What You Must Know

By Author: martin well
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The Canadian government has tabled a Notice of Ways and Means Motion that will allow it to implement certain tax provisions from the country’s Economic Plan 2012 and also certain other previously approved tax measures. The motion seeks to implement provisions for international taxation and personal and corporate income tax from the Economic Plan 2012.

International Taxation provisions include:
• Measures to ensure that transfer pricing secondary adjustments are regarded as dividends for Part XIII withholding tax.
• Measures for enhancement of reliability and fairness of thin capitalization regulations. The thin capitalization rules are broadened to include debts of partnerships that have Canadian resident corporate partners, either directly or through multiple tiers of partnerships. Interest that is denied (under particular provisions) will be considered as a dividend and not as interest for the purposes of withholding tax.
• Measures to prevent foreign-based multinational corporations from transferring or dumping foreign affiliates into their Canadian subsidiaries and at the same time ...
... preserving the ability of the subsidiaries to carry out valid expansions of their Canadian operations.
• End of the overseas employment tax credit. The credit would be terminated. The credit is available to individuals resident in Canada who are employed for at least six successive months in a foreign country by a particular employer in connection with a resource, construction, installation, agricultural or engineering project.

Personal Income Tax provisions include:
• Measures to boost or enhance the Registered Disability Savings Plan (RDSP).
• Tax changes with regards employer contributions to group sickness or accident insurance plans. Employers need to evaluate how these tax changes may affect employee communications and contracts, and make appropriate modifications at the earliest opportunity.
• Revision of retirement compensation arrangement regulations to track and stop tax evasion schemes.
• Amendment to Employees Profit Sharing Plan regulations aimed at addressing perceived abuses affecting "specified employees"– defined as employees who have a significant equity interest in their employers or who do not deal at arm’s length with their employers. According to the amendments, if the amount allocated under an EPSP to a specified employee exceeds 20% of the salary the employee received from the employer in the year, a special tax will apply. Closely-held companies in particular and all employers in general that maintain an EPSP should review the terms to ensure contributions related to specified employees do not inadvertently trigger the new tax.

Corporate Income Tax provisions include:
• Expansion of qualifying criteria for accelerated capital cost allowance for clean energy generation equipment to include an array of bio-energy equipments.
• End of the Corporate Mineral Exploration and Development Tax Credit.
• End of the Atlantic investment tax credit for the oil & gas and mining sector activities.
• For the Atlantic investment tax credit, eligible property includes certain electricity generation and clean energy generation equipment used in a qualified activity.
• Reduction in the general Scientific Research and Experimental Development (SR&ED) investment tax credit rate to 15 percent.
• Reduction in the proxy amount that taxpayers use to claim SR&ED operating expenses to 55% of employees’ earnings engaged in SR&ED activities.
• Removal of profit element from arm’s length third-party contracts to calculate SR&ED tax credits.
• Removal of capital from the base of eligible expenses to calculate SR&ED tax incentives.
• Prevention of corporate income tax avoidance of the use of partnerships of converting income gains into capital gains.

The Notice also includes tax measures that implement technical rules affecting the financial services sector in respect of Goods and Services Tax and Harmonized Sales Tax.

Partnering with a professional expert can be a major boost to your chance in an international expansion in Canada. In order to ensure a smooth transition when doing business overseas, you need the guidance of a professional who can help you follow the legal norms and understand all the changes in the taxation and compliance regulations. Having a trustworthy vendor by your side will ensure that you get the necessary assistance in all areas of your business be it global transfer pricing, taxation or international financial reporting.

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