Department of Finance Publishes Significant Draft Legislative Proposals for Public Comment

On February 4, 2022, Canada’s Department of Finance published draft legislative proposals and related materials (the “Published Materials”) for public comment. The Published Materials relate to the proposed implementation of various tax measures, including those outlined in the Government of Canada’s 2021 federal budget.

The full text of the draft legislative proposals relating to the federal Income Tax Act (“ITA”) can be found here. The full text of the draft legislative proposals relating to the Excise Tax Act, the Air Travellers Security Charge Act, the Excise Tax Act, 2001, and the Greenhouse Gas Pollution Pricing Act can be found here.

The Published Materials include explanatory materials relating to the proposed “mandatory disclosure rules” which would amend the ITA’s reportable transaction regime. The Department of Finance’s document “Mandatory Disclosure Rules” can be found here. The proposed amendments to the reportable transaction regime would, among other things, introduce the concept of a notifiable transaction and would require certain large corporate taxpayers to report particular “uncertain tax treatments” to the Canada Revenue Agency (“CRA”).

The Published Materials also include six sample notifiable transactions that would, among other things, trigger accelerated reporting requirements under the ITA pursuant to the draft legislative proposals. These sample notifiable transactions can be found here.

Also included in the Published Materials is a backgrounder relating to the measures that, if implemented, would expand the availability of support for businesses investing in new technologies. The Department of Finance’s document “Expansion of the Eligibility for Tax Support for Business Investments” can be found here.

The Department of Finance’s summary of the draft legislative proposals state that they would implement measures to:

  • allow for the immediate expensing of up to $1.5 million of eligible investments by Canadian-controlled private corporations, sole proprietors and certain partnerships to help businesses invest in new technologies and move forward with capital projects;
  • reduce by 50% the general corporate and small business income tax rates for businesses that manufacture zero-emission technologies;
  • expand access to the accelerated capital cost allowance for certain clean energy equipment and implement certain restrictions;
  • improve access to the Disability Tax Credit;
  • include postdoctoral fellowship income in “earned income” for Registered Retirement Savings Plan purposes;
  • enhance Canada’s income tax mandatory disclosure rules;
  • increase flexibility for plan administrators of defined contribution pension plans to correct for both under-contributions and over-contributions;
  • improve the fairness of certain taxes applicable to Registered Investments;
  • improve administration of, and compliance with, electronic filing and certification of tax and information returns;
  • temporarily extend certain timelines for the Canadian Film or Video Production Tax Credit and the Film or Video Production Services Tax Credit;
  • combat the avoidance of tax debts through complex transactions that attempt to circumvent the tax debt collection avoidance rule;
  • ensure that the CRA has the authority it needs to conduct audits and undertake other compliance activities;
  • limit the amount of interest and other financing expenses that businesses may deduct for income tax purposes based on a proportion of earnings;
  • enhance the tax reporting requirements for trusts in order to improve the collection of beneficial ownership information; and
  • update rules that address tax planning relating to allocations to redeeming fund unit holders in the mutual fund industry.

The Department of Finance has stated that the draft legislative proposals would also:

  • address an error in the current law for the COVID-19 GST Credit Top-up so that it is consistent with the original intent of the measure;
  • ensure the proper functioning of the revocation tax with respect to organizations that have their registration as a charity revoked due to being listed as a terrorist entity; and
  • specify that crypto asset mining would generally not be considered a “supply” for GST/HST purposes, such that GST/HST would not apply to the provision of crypto asset mining and input tax credits would be unavailable the person providing such mining.

The Department of Finance is accepting submissions on the draft legislative proposals and has stated that submissions on the following measures should be received by April 5, 2022:

  • Taxes applicable to Registered Investments;
  • Mandatory Disclosure Rules;
  • Avoidance of Tax Debts;
  • Audit Authorities;
  • Reporting Requirements for Trusts;
  • Mutual Funds: Allocation to Redeemers; and
  • Crypto Asset Mining.

The Department of Finance has also stated that submissions specifically relating to the Interest Deductibility Limitation measure will be accepted until May 5, 2022, and submissions on all other measures should be received by March 7, 2022.

Prepared by: Brendan Forrest

Brendan Forrest is an associate working out of the Toronto office of Thorsteinssons LLP. Brendan’s practice focuses on corporate tax advisory and planning services. Brendan earned his Bachelor of Arts (Honours) from St. Michael’s College at the University of Toronto… more »