Corporate Tax, Canada updates

Thin capitalisation development on non-Canadian dollar intra-group debt
  • Canada
  • December 18 2015

The Canada Revenue Agency recently announced that it applies Canada's thin capitalisation rules limiting the deductibility of interest expense in order to ignore foreign exchange fluctuations on the debt principal occurring after the debt is incurred. This confirmation will help many Canadian debtors, given the recent depreciation of the Canadian dollar that might otherwise have caused such borrowers to exceed the permitted thin capitalisation limits.

CRA forces disclosure of uncertain tax position analysis
  • Canada
  • August 28 2015

The Canada Revenue Agency (CRA) recently obtained an order forcing the taxpayer to turn over a list of uncertain tax positions created as part of the financial statement preparation process on the pretext that the list would be useful as a tax audit "roadmap" to make sure it had not "missed anything". This provocative action signals a major change in what constitutes 'fair game' in the CRA's use of its information-gathering powers.

Federal Budget 2015 – a budget to run on
  • Canada
  • May 15 2015

The minister of finance recently tabled the government's 2015 Federal Budget, which proposes a number of business income tax, international tax, personal income tax and charity measures. The government's intentions in introducing these measures are to improve the fairness and integrity of the tax system, help the economy to grow, spur job creation and reduce the tax compliance burden.

Potential loss of tax-exempt status when NPOs wind up
  • Canada
  • April 17 2015

The Canada Revenue Agency recently released a technical interpretation pertaining to the distribution of assets from a tax-exempt 149(1)(l) not-for-profit organisation (NPO). The interpretation request concerned an NPO which held private company shares and wanted to transfer either ownership or proceeds of disposition of the shares to some of its members either before or during the NPO's winding-up.

CRA curbs GST/HST reporting by bare trustees and nominee corporations
  • Canada
  • February 20 2015

The Canada Revenue Agency (CRA) has amended its policy so that bare trustees or nominee corporations of a joint venture can no longer account for goods and services tax and harmonised sales tax collection and related input tax credit claims on the joint venture's behalf. As a result, participants in joint ventures should give careful consideration to whether their structure remains compliant with CRA policy.

Proposed changes to trust loss restriction rules for investment funds
  • Canada
  • November 14 2014

The government recently tabled proposed amendments to the Income Tax Act. The proposed legislation provides relief from the loss restriction event rules for certain investment funds that are mutual fund trusts under the act or that would be mutual fund trusts if they had 150 unitholders.

Lawyer-client privilege in tax planning
  • Canada
  • November 07 2014

The tax authorities have broad powers to demand information and documents that are potentially relevant to determining tax liability. Attorney-client privilege is one of the few permissible reasons for refusing to provide documents to the tax authorities. Such privilege protects communications between the lawyer and the client from disclosure and taxpayers should be careful to establish and maintain privilege wherever possible.

Non-profit Risk Identification Project report: a changing landscape for NPOs
  • Canada
  • October 31 2014

The Canada Revenue Agency has released its report on the Non-profit Risk Identification Project, which concludes that a significant number of non-profit organisations (NPOs) sampled during the project would fail to qualify for tax-exempt NPO status. NPOs at risk are those earning non-incidental profits, those with disproportionately large reserves and those with income available for personal benefit.

Canada Not-for-profit Corporations Act continuance reminders
  • Canada
  • October 17 2014

As the deadline for continuing under the new Canada Not-for-profit Corporations Act approaches, the Canada Revenue Agency has been sending letters to registered charities in order to remind those that may be lagging behind that they need to continue by October 17 2014. Charities that have already continued or that are incorporated under the act need take no additional action because of the letter.

Back-to-back loan proposals create tax problems
  • Canada
  • June 06 2014

Over-broad proposals in the federal Budget aimed at tackling 'back-to-back' loans, set to take effect in 2015, would in fact apply to a wide range of ordinary commercial transactions with no tax avoidance motive – particularly where the non-resident providing security for the Canadian entity's debt is a foreign parent, sister or subsidiary of the Canadian debtor. Revisions are now being considered to address these issues.

Canada Revenue Agency's voluntary disclosure programme
  • Canada
  • May 16 2014

Taxpayers with unreported income should consider the merits of making a disclosure under the voluntary disclosure programme offered by the Canada Revenue Agency (CRA). The programme allows taxpayers that meet certain conditions the opportunity to disclose voluntarily previously unreported income and correct inaccurate or incomplete information filed with the CRA without penalties or prosecution.

2014 federal budget report
  • Canada
  • February 28 2014

Canada's finance minister has tabled the government's 2014 federal budget. According to Budget 2014, the government is on track to return to balanced budgets in 2015. Budget 2014 proposes a number of international tax measures, which aim to improve the fairness and integrity of the tax system.

Canadian tax-planning deadlines for 2013
  • Canada
  • December 06 2013

As the end of 2013 approaches, taxpayers should be aware of some important tax-planning deadlines in the Canadian tax system. Some of these are recurring matters that arise every year, while others are specific to 2013. In both cases it is useful to review some of the most important pending deadlines to ensure that opportunities for reducing or eliminating Canadian taxes are not missed.

Canada releases foreign affiliate dumping amendments
  • Canada
  • October 11 2013

Canada's Department of Finance recently released proposed amendments to the foreign affiliate dumping rules enacted in late 2012. The rules are directed at perceived tax avoidance by foreign-controlled Canadian corporations that acquire or make investments in foreign subsidiaries.The proposals provide for a number of technical changes that refine the scope of the foreign affiliate dumping rules.

Character conversion transactions: grandfathering changes announced
  • Canada
  • July 26 2013

The 2013 Federal Budget eliminated the tax benefits associated with character conversion transactions. A series of agreements had a transition period of 180 days before tax benefits would be eliminated. To provide additional transition time for short-term forwards, the Department of Finance is now proposing to extend grandfathering to include a continuous series of short-term forward agreements first entered into before March 21 2013.

Taxpayers not "over a barrel" after all
  • Canada
  • June 21 2013

In a recent case the Canada Revenue Agency (CRA) was taken to task for delaying assessments (and refunds) against taxpayers who had participated in a tax shelter scheme. The case is another recent example of the CRA unsuccessfully using its administration or enforcement powers to try to shape taxpayers' behaviour by 'chilling' participation in transactions of which it does not approve.

Budget 2013: improving the integrity of the tax system
  • Canada
  • May 03 2013

According to the recent 2013 Federal Budget, the government remains on track to return to balanced budgets by 2015-2016, despite continued global economic uncertainty. Budget 2013 proposes a number of significant business income tax and international tax measures. The government's intentions in introducing these measures are, among other things, to improve the integrity of the tax system and to close tax loopholes.

Revenue minister cannot use audit to 'chill' business, court rules
  • Canada
  • March 28 2013

The Federal Court of Appeal has held that the minister of national revenue could not use her authority to demand information for the primary purpose of 'chilling' a business. The minister was held to have acted improperly by using audit powers primarily for "sending a message to the industry" rather than for a valid audit purpose, and for failing to provide full and frank disclosure to the court.

Tax Court compels disclosure in GAAR case
  • Canada
  • February 22 2013

A recent Tax Court of Canada ruling set an important precedent that compels Canadian tax authorities to provide greater disclosure in the pleadings that they file when litigating a case under the general anti-avoidance rule in the Income Tax Act. The Canada Revenue Agency can now be compelled to disclose what it assumes to be the object, spirit and purpose of the relevant provisions that were allegedly abused or misused.

Reviewing the significant tax developments of 2012
  • Canada
  • January 25 2013

The year 2012 brought significant Canadian tax developments in several areas. Among other things, the 2012 federal budget strengthened Canada's thin capitalisation rules by reducing the debt-to-equity limit and treating disallowed interest as a dividend for Canadian withholding tax purposes. In addition, persons doing business in Canada were busy preparing for significant commodity tax changes in 2013.

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