Annex 5.1 - Tax Mesures: Supplementary Information

Overview

This annex provides detailed information on each of the tax measures proposed in the Budget.

Table A5.1 lists these measures and provides estimates of their budgetary impact.

The annex also provides the Notices of Ways and Means Motions to amend the Income Tax Act, the Excise Tax Act andthe Excise Act, 2001.

Table A5.4 lists integrity and fairness tax measures introduced since Budget 2010 and provides estimates of their budgetary impact.

In this annex, references to “Budget Day” are to be read as references to the day on which this Budget is presented.

Personal Income Tax

Tax-Free Savings Account

The Tax-Free Savings Account (TFSA) is a flexible, registered general-purpose account that was introduced in 2009 to improve the taxation of savings. Contributions to a TFSA are not tax-deductible, but investment income earned in a TFSA and withdrawals from it are tax-free. Unused TFSA contribution room is carried forward and withdrawals from a TFSA can be re-contributed to a TFSA in future years.

The TFSA was introduced with an annual contribution limit of $5,000 per individual, indexed to inflation in $500 increments. On January 1, 2013, the TFSA annual contribution limit increased to $5,500 due to indexation.

Budget 2015 proposes to increase the TFSA annual contribution limit to $10,000. This increase will apply as of January 1, 2015, so that a single annual contribution limit of $10,000 applies to the 2015 and subsequent calendar years. The TFSA annual contribution limit will no longer be indexed to inflation.

Home Accessibility Tax Credit

Budget 2015 proposes to introduce a new Home Accessibility Tax Credit. The proposed non-refundable credit will provide tax relief of 15 per cent on up to $10,000 of eligible expenditures per calendar year, per qualifying individual, to a maximum of $10,000 per eligible dwelling.  

Qualifying Individuals

Seniors and persons with disabilities will be considered qualifying individuals for the purposes of the Home Accessibility Tax Credit and will be able to claim the credit. For the purposes of this credit: 

• seniors are individuals who are 65 years of age or older at the end of the particular taxation year; and
• persons with disabilities are individuals who are eligible for the Disability Tax Credit at any time in a particular taxation year.   

Eligible Individuals

Eligible individuals will also be eligible to claim the Home Accessibility Tax Credit. For the purposes of this credit, an eligible individual, in respect of a qualifying individual, will be an individual who has claimed the spouse or common law partner amount, eligible dependant amount, caregiver amount or infirm dependant amount for the qualifying individual for the taxation year. In addition, an eligible individual, in respect of a qualifying individual, will be an individual who could have claimed such an amount for the taxation year if:

• in the case of the spouse or common-law partner amount, the qualifying individual had no income for the particular taxation year;
• in the case of the eligible dependant amount, the eligible individual was not married or in a common-law partnership and the qualifying individual had no income in the particular taxation year; and
• in the case of the infirm dependant and caregiver amounts, if the qualifying individual had been 18 years of age or older and had no income in the particular taxation year.

The Home Accessibility Tax Credit may therefore be claimed by the following individuals (provided that all other conditions are met): 

• the spouse or common-law partner of the qualifying individual;
• a parent, grandparent, child, grandchild, brother, sister, aunt, uncle, niece or nephew of the qualifying individual; or
• a parent, grandparent, child, grandchild, brother, sister, aunt, uncle, niece or nephew of the qualifying individual’s spouse or common-law partner.

Where one or more qualifying individuals or eligible individuals make a claim in respect of an eligible dwelling, the total of all amounts claimed by the qualifying individual(s) and eligible individuals for the year in respect of the eligible dwelling must not exceed $10,000.

Eligible Dwellings

An eligible dwelling (which includes the land on which the dwelling is situated) must be the principal residence of the qualifying individual at any time in the taxation year.

In general, a housing unit will be considered to be a qualifying individual’s principal residence where it is ordinarily inhabited (or is expected to be ordinarily inhabited within that taxation year) by the qualifying individual and it is owned (either jointly or otherwise) by the qualifying individual or the qualifying individual’s spouse or common-law partner. For the purposes of the Home Accessibility Tax Credit, a qualifying individual may have only one principal residence at any time, but may have more than one principal residence in a taxation year (e.g., in a situation where an individual moves in the taxation year). In situations where a qualifying individual has more than one principal residence in a taxation year, the total eligible expenditures in respect of all such principal residences of the qualifying individual will be subject to the $10,000 limit.

In the case of condominiums and co-operative housing corporations, the credit will be available for eligible expenditures incurred to renovate the unit that is the qualifying individual’s principal residence as well as for the qualifying individual’s share of the cost of eligible expenditures incurred in respect of common areas.  

In the case where a qualifying individual does not own a principal residence, a dwelling will also be considered to be an eligible dwelling of the qualifying individual if it is the principal residence of an eligible individual in respect of the qualifying individual and the qualifying individual ordinarily inhabits that dwelling with the eligible individual.

Qualifying or eligible individuals who earn business or rental income from part of their principal residence will be allowed to claim the credit for the full amount of eligible expenditures made in respect of the qualifying individual’s personal-use areas of the residence. For expenditures made in respect of common areas or that benefit the housing unit as a whole, the administrative practices ordinarily followed by the Canada Revenue Agency to determine how business or rental income and expenditures are allocated between personal use and income-earning use will apply in establishing the amount qualifying for the credit. 

Eligible Expenditures

Expenditures will be eligible for the Home Accessibility Tax Credit if they are made or incurred in relation to a renovation or alteration of an eligible dwelling, provided that the renovation or alteration:

• allows the qualifying individual to gain access to, or to be more mobile or functional within, the dwelling; or
• reduces the risk of harm to the qualifying individual within the dwelling or in gaining access to the dwelling. 

The improvements must be of an enduring nature and be integral to the eligible dwelling. Examples of eligible expenditures include expenditures relating to wheelchair ramps, walk-in bathtubs, wheel-in showers and grab bars. Eligible expenditures will include the cost of labour and professional services, building materials, fixtures, equipment rentals and permits. Items such as furniture, as well as items which retain a value independent of the renovation (such as construction equipment and tools), would not be integral to the dwelling and expenditures for such items will therefore not qualify for the credit.

The following are examples of other expenditures that will not be eligible for the Home Accessibility Tax Credit:

• expenditures made with the primary intent of improving or maintaining the value of a dwelling; 
• the cost of routine repairs and maintenance normally performed on an annual or more frequent basis;
• expenditures for household appliances and devices, such as
  audio-visual electronics;
• payments for services such as outdoor maintenance and gardening, housekeeping or security; and  
• the costs of financing a renovation (e.g., mortgage interest costs).

The Home Accessibility Tax Credit will not be reduced by any other tax credits or grants to which a qualifying or eligible individual is entitled under other government programs. For instance, in the case of an individual who claims an eligible expenditure that also qualifies for the Medical Expense Tax Credit, the individual will be permitted to claim both the Home Accessibility Tax Credit and the Medical Expense Tax Credit in respect of that expenditure. Expenditures that are reimbursed, or are expected to be reimbursed, other than through a government program, will not be eligible. 

Expenditures will not be eligible for the Home Accessibility Tax Credit if they are for goods or services provided by a person not dealing at arm’s length with the qualifying or eligible individual, unless that person is registered for Goods and Services Tax/Harmonized Sales Tax purposes under the Excise Tax Act. 

The Home Accessibility Tax Credit will apply in respect of eligible expenditures for work performed and paid for and/or goods acquired after 2015. Any eligible expenditure claimed for the Home Accessibility Tax Credit must be supported by a receipt. 

Minimum Withdrawal Factors for Registered Retirement Income Funds

A Registered Retirement Savings Plan (RRSP) must be converted to a Registered Retirement Income Fund (RRIF), or the savings used to purchase a qualifying annuity, by the end of the year in which the RRSP holder attains 71 years of age. Contributions to a RRIF are not permitted and a minimum amount must be withdrawn annually beginning the year after it is established (i.e., no later than the year in which the RRIF holder attains 72 years of age). To determine the required minimum withdrawal amount, a percentage factor corresponding to the RRIF holder’s age at the beginning of the year is applied to the value of the RRIF assets at the beginning of the year. At the time of establishing the RRIF, holders also have the option to base the minimum withdrawal amounts on the age of their spouse or common-law partner.

The minimum withdrawal requirements for RRIFs ensure that tax-deferred RRSP/RRIF savings serve their intended purpose, which is to provide retirement income. The RRIF factors are also used to determine the minimum amount that must be withdrawn annually, starting at age 71, from a defined contribution Registered Pension Plan (RPP) and a Pooled Registered Pension Plan (PRPP).

The existing RRIF factors were determined on the basis of providing a regular stream of payments from age 71 to 100 assuming a seven per cent nominal rate of return on RRIF assets and indexing at one per cent annually. The factors are capped at 20 per cent for ages 94 and above to ensure that the RRIF may continue for the life of the holder (or the holder’s spouse or common-law partner).  

Budget 2015 proposes to adjust the RRIF minimum withdrawal factors that apply in respect of ages 71 to 94, on the basis of a five per cent nominal rate of return and two per cent indexing. These assumptions are more consistent with long-term historical real rates of return on a portfolio of investments and expected inflation. The new RRIF factors will permit holders to preserve more of their RRIF savings in order to provide income at older ages, while continuing to ensure that the tax deferral provided on RRSP/RRIF savings serves a retirement income purpose. Table A5.2 shows the existing and proposed new RRIF factors. There will be no change to the minimum withdrawal factors that apply in respect of ages 70 and under, which will continue to be determined by the formula 1/(90 – age).

The new RRIF factors will apply for the 2015 and subsequent taxation years. To provide flexibility, RRIF holders who at any time in 2015 withdraw more than the reduced 2015 minimum amount will be permitted to re-contribute the excess (up to the amount of the reduction in the minimum withdrawal amount provided by this measure) to their RRIFs. Re-contributions will be permitted until February 29, 2016 and will be deductible for the 2015 taxation year. Similar rules will apply to those receiving annual payments from a defined contribution RPP or a PRPP.

Lifetime Capital Gains Exemption for Qualified Farm or Fishing Property

The income tax system provides an individual with a lifetime tax exemption for capital gains realized on the disposition of qualified small business corporation shares and qualified farm or fishing property. The amount of the Lifetime Capital Gains Exemption is $813,600 in 2015 and is indexed to inflation.

Budget 2015 proposes to increase the Lifetime Capital Gains Exemption to apply to up to $1 million of capital gains realized by an individual on the disposition of qualified farm or fishing property. This measure will apply to dispositions of qualified farm or fishing property that occur on or after Budget Day.

The Lifetime Capital Gains Exemption applicable to capital gains realized on the disposition of qualified farm or fishing property will be the greater of (1) $1 million; and (2) the indexed Lifetime Capital Gains Exemption applicable to capital gains realized on the disposition of qualified small business corporation shares.

Registered Disability Savings Plan – Legal Representation

Budget 2012 introduced a temporary measure to allow a qualifying family member (i.e., a beneficiary’s parent, spouse or common-law partner) to become the plan holder of a Registered Disability Savings Plan (RDSP) for an adult individual who may lack the capacity to enter into a contract. Budget 2012 indicated that this measure would apply until the end of 2016. 

This measure was introduced in response to concerns that a number of adults with disabilities have experienced difficulties in establishing an RDSP because their capacity to enter into a contract was in doubt. Questions of appropriate legal representation in these cases are a matter of provincial and territorial responsibility. In some provinces and territories, the only way that an RDSP can be opened in these cases is for the individual to be declared legally incompetent and to have someone named as their legal guardian, a potentially lengthy and expensive process that could have significant repercussions for the individual.

Some provinces and territories have instituted streamlined processes that allow for the appointment of a trusted person to manage resources on behalf of an adult who lacks contractual capacity, or have indicated that their system already provides sufficient flexibility to address this concern.

To give the remaining provinces and territories the opportunity to address the RDSP legal representation issue described above, Budget 2015 proposes to extend the temporary measure introduced in Budget 2012 to apply to the end of 2018. The rules implementing the Budget 2012 measure will not otherwise be changed and a qualifying family member who becomes a plan holder before the end of 2018 can remain the plan holder after 2018.

Repeated Failure to Report Income Penalty

Penalties may apply when a taxpayer fails to report all of their income on their income tax return. Where a taxpayer fails to report an amount of income in a taxation year and had failed to report an amount of income in any of the three preceding taxation years, the taxpayer is liable to a penalty equal to 10 per cent of the unreported income for that taxation year.

Another penalty (the “gross negligence” penalty) applies if the taxpayer knew or, under circumstances amounting to gross negligence, ought to have known that an amount of income should have been reported. The amount of this penalty is generally equal to 50 per cent of the understatement of tax payable (or the overstatement of tax credits) related to the omission. The penalty for repeated failure to report income does not apply if this penalty applies.  

The repeated failure to report income penalty can sometimes be disproportionate to the actual associated tax liability, particularly for lower income individuals. In some cases, it can also result in a greater penalty than would be levied if the gross negligence penalty applied.

Budget 2015 proposes to amend the repeated failure to report income penalty to apply in a taxation year only if a taxpayer fails to report at least $500 of income in the year and in any of the three preceding taxation years. The amount of the penalty will equal the lesser of:

• 10 per cent of the amount of unreported income; and
• an amount equal to 50 per cent of the difference between the understatement of tax (or the overstatement of tax credits) related to the omission and the amount of any tax paid in respect of the unreported amount (e.g., by an employer as employee withholdings).

No changes are proposed to the gross negligence penalty, which will continue to apply in cases where a taxpayer fails to report income intentionally or in circumstances amounting to gross negligence.

This measure will apply to the 2015 and subsequent taxation years.

Alternative Arguments in Support of Assessments

An income tax assessment is a calculation of a taxpayer’s total tax liability for a particular taxation year. Long-standing jurisprudence has held that on appeal from a tax assessment, the question to be answered is, generally, whether the Canada Revenue Agency’s assessment is higher than mandated under the Income Tax Act. The understanding in such an appeal was that, although the total amount from all sources that is assessed cannot increase after the expiration of the normal reassessment period, the basis of the assessment could change. This would allow, for instance, a reduced liability in relation to one item included in the computation of an assessment to be offset by an increased liability in relation to another item.

Consistent with this principle, there is a specific provision in the Income Tax Act which provides that the Minister of National Revenue may advance an alternative argument in support of an assessment at any time after the normal reassessment period. The purpose of this provision is to allow the Minister to advance an alternative argument after the relevant reassessment period has expired. This process of raising arguments and counter-arguments “in the alternative” is a conventional part of the litigation process. 

A recent court decision held that, while the basis of an assessment can be changed after the expiration of the normal reassessment period, each source of income is to be considered in isolation and the amount of the assessment in respect of any particular source of income cannot increase.

Budget 2015 proposes that the Income Tax Act be amended to clarify that the Canada Revenue Agency and the courts may increase or adjust an amount included in an assessment that is under objection or appeal at any time, provided the total amount of the assessment does not increase. Similar amendments are proposed to be made to Part IX of the Excise Tax Act (in relation to the Goods and Services Tax/Harmonized Sales Tax) and the Excise Act, 2001 (in relation to excise duties on tobacco and alcohol products) to help ensure consistency in administrative measures in federal tax statutes. 

These measures will apply in respect of appeals instituted after Royal Assent to the enacting legislation.

Information Sharing for the Collection of Non-Tax Debts

The Canada Revenue Agency collects debts owing to the federal and provincial governments under a number of non-tax programs. Confidential taxpayer information currently cannot be used by Canada Revenue Agency staff to collect debts under many of these programs. As a result, the Canada Revenue Agency must segregate its tax and non-tax collection activities. This means that separate Canada Revenue Agency staff are required to collect the different types of debts and cannot share taxpayer information with each other. This limits the ability of the Government to achieve administrative efficiencies and can be frustrating for taxpayers who owe amounts under both tax and non-tax programs and who may be contacted by more than one Canada Revenue Agency debt collector.

To facilitate efficiency and coordination within the Canada Revenue Agency, Budget 2015 proposes to amend the Income Tax Act, Part IX of the Excise Tax Act (in relation to the Goods and Services Tax/Harmonized Sales Tax) and the Excise Act, 2001 (in relation to excise duties on tobacco and alcohol products) to permit the sharing of taxpayer information within the Agency in respect of non-tax debts under certain federal and provincial government programs. To ensure greater consistency in the information sharing rules in federal tax statutes, Budget 2015 also proposes to amend Part IX of the Excise Tax Act and the Excise Act, 2001 to permit information sharing in respect of certain programs where such information sharing is currently permitted under the Income Tax Act.

This measure will apply on Royal Assent to the enacting legislation.

Transfer of Education Credits – Effect on the Family Tax Cut

The Family Tax Cut is a proposed federal non-refundable tax credit, capped at $2,000, for couples with children under the age of 18. The credit is intended to reduce or eliminate the difference in federal tax payable by a one-earner couple relative to a two-earner couple with a similar family income. The Family Tax Cut allows a higher-income spouse or common-law partner to notionally transfer up to $50,000 of taxable income to a spouse or common-law partner. The credit will apply for the 2014 and subsequent taxation years.

Where personal income tax credits have been transferred from one spouse or common-law partner to the other, the Family Tax Cut suppresses the use of those credits in the transferee’s hands. Instead, the personal income tax credits previously transferred are taken into consideration in the calculation of the transferor’s adjusted tax payable. This prevents the double counting of these credits in the calculation of the Family Tax Cut.

The previously-announced Family Tax Cut rules prevent transferred education-related amounts (Tuition, Education and Textbook Tax Credits) from being included in the Family Tax Cut calculation. Due to the rules for calculating these education-related credits, the double-counting issue described above is not present. This may therefore reduce the value of the Family Tax Cut for couples who transfer education-related amounts between themselves. This affects a very small percentage of couples claiming the Family Tax Cut for the 2014 taxation year.

Budget 2015 proposes to revise the calculation of the Family Tax Cut for the 2014 and subsequent taxation years to ensure that couples claiming the Family Tax Cut and transferring education-related credits between themselves receive the appropriate value of the Family Tax Cut. After the enacting legislation receives Royal Assent, the Canada Revenue Agency will automatically reassess affected taxpayers for the 2014 taxation year to ensure that they receive any additional benefits to which they are entitled under the Family Tax Cut.

Charities

Donations Involving Private Corporation Shares or Real Estate

Donations to registered Canadian charities and other qualified donees are eligible for a charitable donation tax credit (if the donor is an individual) or deduction (if the donor is a corporation). In addition, donations of publicly listed securities to qualified donees are exempt from capital gains tax. Donations of ecologically sensitive land and certified cultural property to certain qualified donees are also exempt from capital gains tax. In contrast, taxable capital gains can arise on donations of private corporation shares or other types of real estate. 

To increase support for charities, Budget 2015 proposes to provide an exemption from capital gains tax in respect of certain dispositions of private corporation shares and real estate. The exemption will be available where:

• cash proceeds from the disposition of the private corporation shares or real estate are donated to a qualified donee within 30 days after the disposition; and
• the private corporation shares or real estate are sold to a purchaser that is dealing at arm’s length with both the donor and the qualified donee to which cash proceeds are donated.

The exempt portion of the capital gain will be determined by reference to the proportion that the cash proceeds donated is of the total proceeds from the disposition of the shares or real estate.

Anti-avoidance rules will ensure that the exemption is not available in circumstances where, within five years after the disposition:

• the donor (or a person not dealing at arm’s length with the donor) directly or indirectly reacquires any property that had been sold;
• in the case of shares, the donor (or a person not dealing at arm’s length with the donor) acquires shares substituted for the shares that had been sold; or
• in the case of shares, the shares of a corporation that had been sold are redeemed and the donor does not deal at arm’s length with the corporation at the time of the redemption.

Where the anti-avoidance rules apply, the exemption will be reversed by including the previously exempted amount in the income of the donor in the year of the re-acquisition by the donor (or the non-arm’s length person) or the redemption.

This measure will apply to donations made in respect of dispositions occurring after 2016.

Investments by Registered Charities in Limited Partnerships

Charitable organizations and public foundations are permitted to engage in business activities to raise revenues, provided that the activities qualify as a related business. A related business includes a business that is linked to a charity’s purpose and that is subordinate to that purpose, as well as a business that is run substantially by volunteers. Private foundations are not permitted to engage in any business activities.

Under provincial law, a partnership is generally considered to be a relationship among persons carrying on business in common with a view to profit. As a result, a charity which holds an interest in a partnership is considered to be carrying on a business. Charitable organizations and public foundations can only engage in related businesses, with the result that few are in a position to hold interests in a partnership. Private foundations cannot engage in any business activities, meaning that they cannot hold an interest in a partnership. 

Partnerships are used extensively as investment vehicles to pool funding received by institutional and other large investors in order to invest in private market opportunities. Allowing registered charities to invest in limited partnerships would permit them to access a wider range of investment opportunities and diversify their investment portfolios. Since limited partnerships can also be used to structure social impact investments, allowing registered charities to invest in limited partnerships would also provide them the flexibility to use more innovative approaches to address pressing social and economic needs in Canada. Budget 2015 therefore proposes to amend the Income Tax Act to provide that a registered charity will not be considered to be carrying on a business solely because it acquires or holds an interest in a limited partnership.

To ensure that a registered charity’s investment in a limited partnership remains a passive investment, the measure will apply only if:

• the charity – together with all non-arm’s length entities – holds 20 per cent or less of the interests in the limited partnership; and
• the charity deals at arm’s length with each general partner of the limited partnership. 

These rules would not apply where a charitable organization or public foundation carries on a related business through a limited partnership.

Registered Canadian amateur athletic associations and charitable organizations are subject to similar tax rules, including restrictions on business activities. Accordingly, the amendments are proposed to also apply in respect of investments in limited partnerships by registered Canadian amateur athletic associations.

The excess corporate holdings rules, which place limits on shareholdings by private foundations, will be amended to “look through” limited partnerships. The non-qualifying security rules and the loanback rules that apply to donations of shares will also apply to donations of interests in limited partnerships.

This measure applies in respect of investments in limited partnerships that are made or acquired on or after Budget Day.

Gifts to Foreign Charitable Foundations

Canadian registered charities are “qualified donees” under the Income Tax Act and donations made to them by Canadian taxpayers are eligible for the charitable donation tax credit or deduction. In addition, Canadian registered charities are permitted to make gifts to other qualified donees.

Budget 2015 proposes to amend the Income Tax Act to allow foreign charitable foundations to be registered as qualified donees if they receive a gift from the Government and if they are pursuing activities related to disaster relief or urgent humanitarian aid or are carrying on activities in the national interest of Canada. The Minister of National Revenue may, in consultation with the Minister of Finance, grant qualified donee status to a foreign charitable foundation that meets these conditions. Qualified donee status will be granted for a 24-month period that begins on the date chosen by the Minister of National Revenue, which normally would be no later than the date of the gift from the Government, and registered foreign charitable foundations will be included on the list of registered foreign charities maintained on the Canada Revenue Agency’s website.

This measure will apply on Royal Assent to the enacting legislation. 

Business Income Tax

Small Business Tax Rate

The small business deduction currently reduces to 11 per cent the federal corporate income tax rate applying to the first $500,000 per year of qualifying active business income of a Canadian-controlled private corporation (CCPC). There is a requirement to allocate the annual eligible income limit of $500,000 among associated corporations. Access to the small business deduction is phased out on a straight-line basis for CCPCs having between $10 million and $15 million of taxable capital employed in Canada.

To compensate a taxable individual receiving dividends for corporate income taxes that are presumed to have been paid on the corporate income that funded those dividends, the tax rules provide a dividend tax credit (DTC). The DTC is generally meant to ensure that income earned by a corporation and paid out to an individual as a dividend will be subject to the same amount of tax as income earned directly by the individual.

To further reduce taxes paid by small businesses, Budget 2015 proposes a two-percentage-point decrease in the 11-per-cent small business tax rate. The reduction will be implemented as follows:

• effective January 1, 2016, the rate will be reduced to 10.5 per cent;
• effective January 1, 2017, the rate will be reduced to 10 per cent;
• effective January 1, 2018, the rate will be reduced to 9.5 per cent; and
• effective January 1, 2019, the rate will be reduced to 9 per cent.

The reduction in the small business rate will be pro-rated for corporations with taxation years that do not coincide with the calendar year.

In conjunction with the proposed reduction in the small business tax rate, Budget 2015 also proposes to adjust the gross-up factor and DTC rate applicable to non-eligible dividends (generally dividends distributed from corporate income taxed at the small business tax rate). Specifically, Budget 2015 proposes to adjust the gross-up factor applicable to non-eligible dividends from 18 per cent to 17 per cent effective January 1, 2016, 16 per cent effective January 1, 2018 and 15 per cent effective January 1, 2019. The corresponding DTC rate will also be adjusted, moving from 13/18 to 21/29 of the gross-up amount effective January 1, 2016, 20/29 of the gross-up amount effective January 1, 2017, and 9/13 of the gross-up amount effective January 1, 2019.

Expressed as a percentage of the grossed-up amount of a non-eligible dividend, the effective rate of the DTC in respect of such a dividend will be 10.5 per cent in 2016, 10 per cent in 2017, 9.5 per cent in 2018 and 9 per cent after 2018, in line with the proposed reductions in the small business tax rate.

Manufacturing and Processing Machinery and Equipment: Accelerated Capital Cost Allowance

Machinery and equipment acquired by a taxpayer, after March 18, 2007 and before 2016 primarily for use in Canada for the manufacturing or processing of goods for sale or lease, qualifies for a temporary accelerated capital cost allowance (CCA) rate of 50 per cent calculated on a straight-line basis under Class 29 of Schedule II to the Income Tax Regulations. These assets would otherwise be included in Class 43 and qualify for a CCA rate of 30 per cent calculated on a declining-balance basis.

Budget 2015 proposes to provide an accelerated CCA rate of 50 per cent on a declining-balance basis for machinery and equipment acquired by a taxpayer after 2015 and before 2026 primarily for use in Canada for the manufacturing and processing of goods for sale or lease. Eligible assets are those that would currently be included in Class 29. These assets will be included in new CCA Class 53.

The “half-year rule”, which allows half the CCA deduction otherwise available in the taxation year in which an asset is first available for use by a taxpayer, will apply to machinery and equipment eligible for this measure. These assets will be considered “qualified property” for the purpose of the Atlantic Investment Tax Credit.

Eligible assets acquired in 2026 and subsequent years will qualify for the 30-per-cent declining-balance rate under Class 43.

Agricultural Cooperatives: Deferral of Tax on Patronage Dividends Paid in Shares

Agricultural cooperative corporations play an important role in rural communities. To support the capitalization of these cooperatives, Budget 2005 introduced a temporary measure to provide a tax deferral that applies to patronage dividends paid to members by an eligible agricultural cooperative in the form of eligible shares. To be eligible for this tax deferral, a share must be issued after 2005 and before 2016.

Absent the tax deferral, a patronage dividend paid in shares would be taxable to the member in the year received. The cooperative paying the dividend would also be required to withhold an amount from the dividend and remit it to the Canada Revenue Agency on account of the recipient’s tax liability. Prior to the introduction of the deferral, a portion of the dividend was typically paid in cash in order to fund the member’s tax liability. This cash portion could represent a significant outlay of capital for the agricultural cooperative.

The tax deferral measure allows eligible members of eligible agricultural cooperatives to defer the inclusion in income of all or a portion of any patronage dividend received as an eligible share until the disposition (or deemed disposition) of the share. Further, when an eligible agricultural cooperative issues an eligible share as a patronage dividend, there is no withholding obligation in respect of the patronage dividend. Instead, there is a withholding obligation when the share is redeemed. An eligible share must not, except in the case of death, disability or ceasing to be a member, be redeemable or retractable within five years of its issue.

Budget 2015 proposes to extend this measure to apply in respect of eligible shares issued before 2021.

Quarterly Remitter Category for New Employers

Employers are required to remit source deductions to the Government in respect of employees’ income tax, as well as the employer and employee portions of Canada Pension Plan contributions and Employment Insurance premiums (collectively, “withholdings”). These withholdings must be remitted on a weekly, twice-monthly, monthly or quarterly basis. An employer’s remittance frequency is determined on the basis of its average monthly withholding amount in preceding calendar years. New employers must currently remit on a monthly basis for at least one year, after which time they may be eligible to apply for quarterly remitting if they have an average monthly withholding amount of less than $3,000 and have demonstrated a perfect compliance record over the preceding 12 months.

To reduce the tax compliance burden, Budget 2015 proposes to decrease the required frequency of remittances for the smallest new employers by allowing eligible employers to immediately remit on a quarterly basis.

Eligible employers will be new employers with withholdings of less than $1,000 in respect of each month. This amount corresponds to the withholdings related to one employee at a salary of up to $43,500, depending on the province of residence. Eligibility for quarterly remitting will depend on the employer maintaining a perfect compliance record in respect of its Canadian tax obligations.

Employers will remain eligible for quarterly remitting, as provided under this measure, provided that their required monthly withholding amount remains under $1,000. If withholdings rise above that level, then the Canada Revenue Agency will classify an employer as a weekly, twice-monthly, monthly or quarterly remitter in accordance with the existing remittance rules.

This measure will apply in respect of withholding obligations that arise after 2015.

Synthetic Equity Arrangements

The Income Tax Act permits a corporation to deduct, subject to certain exceptions, taxable dividends received in computing its taxable income. This inter-corporate dividend deduction is intended to limit the imposition of multiple levels of corporate taxation on earnings distributed from one corporation to another. 

The existing dividend rental arrangement rules are intended to deny the inter-corporate dividend deduction to a shareholder where the main reason for an arrangement is to enable the shareholder to receive a dividend on a share and the economic exposure (expressed as a taxpayer’s risk of loss or opportunity for gain or profit) to the share accrues to someone else.

Certain taxpayers, typically financial institutions, enter into particular financial arrangements (synthetic equity arrangements) where the taxpayer retains the legal ownership of an underlying Canadian share, but all or substantially all of the risk of loss and opportunity for gain or profit in respect of the Canadian share is transferred to a counterparty using an equity derivative. Some taxpayers take the position that the existing dividend rental arrangement rules do not apply to these arrangements and claim an inter-corporate dividend deduction on the dividends received on the underlying Canadian share. A taxpayer that enters into a synthetic equity arrangement in respect of a share is generally required to transfer the economic benefit of any dividends received through “dividend-equivalent payments” to the counterparty. On the premise that the dividend rental arrangement rules do not apply, the taxpayer realizes a tax loss on the arrangement by taking advantage of the inter-corporate dividend deduction, resulting in tax-free dividend income, while also deducting the amount of the dividend-equivalent payments.

Synthetic equity arrangements entered into with certain investors that do not pay any Canadian income tax on the dividend-equivalent payments received – namely, tax-exempt Canadian entities and non-resident persons (collectively, “tax-indifferent investors”) – have the potential to significantly erode the Canadian tax base.

Depending on the particular facts, synthetic equity arrangements can be challenged by the Government based on existing rules in the Income Tax Act. However, as any such challenge could be both time-consuming and costly, the Government is introducing specific legislative measures to ensure that the appropriate tax consequences apply to these arrangements.

To protect the Canadian tax base, Budget 2015 proposes to modify the dividend rental arrangement rules to deny the inter-corporate dividend deduction on dividends received by a taxpayer on a Canadian share in respect of which there is a synthetic equity arrangement. A synthetic equity arrangement, in respect of a share owned by a taxpayer, will be considered to exist where the taxpayer (or a person that does not deal at arm’s length with the taxpayer) enters into one or more agreements that have the effect of providing to a counterparty all or substantially all of the risk of loss and opportunity for gain or profit in respect of the share. Where a person that does not deal at arm’s length with the taxpayer enters into such an agreement, a synthetic equity arrangement will be considered to exist if it is reasonable to conclude that the non-arm’s length person knew, or ought to have known, that the effect described above would result. 

In general terms, an exception to the proposed dividend rental arrangement rule will be provided where a taxpayer can establish that no tax-indifferent investor has all or substantially all of the risk of loss and opportunity for gain or profit in respect of the share by virtue of a synthetic equity arrangement or another equity derivative that is entered into in connection with the synthetic equity arrangement. For this purpose, a taxpayer will be presumed to qualify for this exception if it obtains representations from its counterparty to the synthetic equity arrangement that the counterparty is not a tax-indifferent investor and either:

• does not reasonably expect to eliminate all or substantially all of its risk of loss and opportunity for gain or profit in respect of the share; or
• has transferred all or substantially all of its risk of loss and opportunity for gain or profit in respect of the share to its own counterparty and has obtained the representations described above from that counterparty.

If the representations are later determined to be inaccurate, the arrangement will be treated as a dividend rental arrangement.

This measure will not apply to agreements that are traded on a recognized derivatives exchange unless it can reasonably be considered that the taxpayer knows, or ought to know, the identity of the counterparty to the agreement.

To support this measure, an anti-avoidance rule will deem certain agreements that do not meet the definition “synthetic equity arrangement” to be dividend rental arrangements. Specifically, agreements that have the effect of eliminating all or substantially all of the taxpayer’s risk of loss and opportunity for gain or profit in respect of a share will be deemed to be a dividend rental arrangement if one of the purposes of the series of transactions that includes these agreements is to avoid the measure.

This measure will apply to dividends that are paid or become payable after October 2015.

Consultation

From a tax policy perspective, a case can be made that a shareholder should always be required to bear the risk of loss and enjoy the opportunity for gain or profit on a Canadian share in order to take advantage of the inter-corporate dividend deduction on dividends received on that share. Accordingly, an alternative proposal could be supported that would deny the inter-corporate dividend deduction on dividends received by a taxpayer on a Canadian share in respect of which there is a synthetic equity arrangement, regardless of the tax status of the counterparty. Such a proposal would have a broader effect on the concerned taxpayers, but would eliminate some of the complexities of the measure described above. 

The Government invites stakeholders to submit comments by August 31, 2015 concerning whether the scope of the measure should be broadened as described above. Such a proposal, if adopted after the consultation, would not apply before the results of the consultation process are announced. Please send your comments to legislation-taxation@fin.gc.ca.

Parties making a submission are asked to indicate whether they consent to have the submission posted on the Department of Finance website and, if so, the name of the individual or the organization which should be identified on the website as having made the submission. Submissions which are to be posted should preferably be provided electronically in PDF format or in plain text. The Department will not post submissions that do not clearly indicate consent to posting.

Tax Avoidance of Corporate Capital Gains (Section 55)

The Income Tax Act contains an anti-avoidance rule that generally taxes as capital gains certain otherwise tax-deductible inter-corporate dividends. This rule typically applies where a corporation that is about to dispose of shares of another corporation receives from that other corporation tax-deductible dividends that in substance reflect the untaxed appreciation in the value of the other corporation. The tax-deductible dividends decrease the fair market value of the shares, or in some cases increase the cost of the shares, to the point where the unrealized capital gain on the shares is reduced.

The anti-avoidance rule generally applies to a dividend where, among other things, one of the purposes of the dividend was to effect a significant reduction in the portion of the capital gain that, but for the dividend, would have been realized on a disposition of any share at its fair market value.  Certain exceptions to the application of the anti-avoidance rule are provided. Notably, an exception is provided where the dividend can reasonably be attributed to after-tax earnings (called “safe income on hand”), enabling a corporation to distribute such earnings as a tax-deductible inter-corporate dividend. Another exception allows for dividends received in certain related-party transactions.

Where the anti-avoidance rule applies to the dividend received on a share, the dividend is treated as proceeds of disposition if a corporation has disposed of the share, or as a gain from a disposition of capital property where a corporation has not disposed of the share.

As noted, the anti-avoidance rule currently applies where a dividend significantly reduces the capital gain on any share. However, the same tax policy concern arises where dividends are paid on a share not to reduce a capital gain on that share but instead to cause the fair market value of the share to fall below its cost or a significant increase in the total cost of properties. In that case, the shareholder could attempt to use the unrealized loss created by the payment of the dividend to shelter an accrued capital gain in respect of other property.

A recent decision of the Tax Court of Canada held that the current anti-avoidance rule did not apply in a case where the effect of a dividend in kind (consisting of shares of another corporation) was to create an unrealized capital loss on shares. The unrealized loss was then used to avoid capital gains tax otherwise payable on the sale of another property. These transactions can have an effect identical to transactions that directly reduce a capital gain. Such transactions may be challenged by the Government under the existing general anti-avoidance rule. However, as any such challenge could be both time-consuming and costly, the Government is introducing specific legislative measures to ensure that the appropriate tax consequences apply.

Budget 2015 proposes an amendment to ensure that the anti-avoidance rule applies where one of the purposes of a dividend is to effect a significant reduction in the fair market value of any share or a significant increase in the total cost of properties of the recipient of the dividend.

Related rules are also proposed to ensure this amendment is not circumvented. For example, if a dividend is paid on a share of a corporation, and the value of the share is or becomes nominal, the dividend will be treated as having reduced the fair market value of the share. As well, changes will address the use of stock dividends (i.e., dividends that consist of additional shares of the same corporation) as a means of impairing the effectiveness of the anti-avoidance rule.

Budget 2015 proposes an amendment to ensure that any dividend to which the anti‑avoidance rule applies is to be treated as a gain from the disposition of capital property.

Budget 2015 also proposes that the exception for dividends received in certain related-party transactions be amended so that the exception will apply only to dividends that are received on shares of the capital stock of a corporation as a result of the corporation having redeemed, acquired or cancelled the shares.

This measure will apply to dividends received by a corporation on or after Budget Day.

Small Business Deduction: Consultation on Active versus Investment Business

The small business deduction is available on up to $500,000 of active business income of a Canadian-controlled private corporation. The deduction is intended to enhance the deferral of income tax on active business income that is retained in a private corporation, therefore encouraging the reinvestment of after-tax income for further growth.

Active business income does not include income from a “specified investment business”, which is generally a business the principal purpose of which is to derive income from property. A “specified investment business” does not include a business that has more than five full-time employees, with the result that income earned from such a business is eligible for the small business deduction even though its principal purpose is to derive income from property.

Stakeholders have expressed concern as to the application of these rules in cases such as self-storage facilities and campgrounds. Budget 2015 announces a review of the circumstances in which income from a business, the principal purpose of which is to earn income from property, should qualify as active business income.

The Government invites interested parties to submit comments by August 31, 2015. Please send your comments to business-entreprise@fin.gc.ca.

Parties making a submission are asked to indicate whether they consent to have the submission posted on the Department of Finance website and, if so, the name of the individual or the organization which should be identified on the website as having made the submission. Submissions which are to be posted should preferably be provided electronically in PDF format or in plain text. The Department will not post submissions that do not clearly indicate consent to posting.

Consultation on Eligible Capital Property

To reduce the compliance burden for taxpayers, Budget 2014 announced a public consultation on the proposal to repeal the eligible capital property regime and replace it with a new capital cost allowance class.

The Government has heard from a number of stakeholders and continues to receive submissions on the proposal. All representations will be considered in the development of the rules relating to the new capital cost allowance class as well as the transitional rules. It is the intention of the Government to release detailed draft legislative proposals for stakeholder comment before their inclusion in a bill.

International Tax

Withholding for Non-Resident Employers

Canada generally taxes the employment income of non-residents that is earned in Canada. However, a resident of a country that has a tax treaty with Canada is generally exempt from Canadian tax on employment income from a non-resident employer if certain conditions are met. For example, a U.S. resident employee will generally be exempt from Canadian tax if the employee is present in Canada for no more than 183 days in any 12-month period commencing or ending in the relevant calendar year and their employer has no permanent establishment in Canada. 

An employer (including a non-resident employer) is generally required to withhold amounts on account of the income tax liability of an employee working in Canada, even if the employee is a non-resident who is expected to be exempt from Canadian tax because of a tax treaty. It may be possible for the employer to obtain an employee-specific waiver from the Canada Revenue Agency in order to be relieved from its obligation to withhold. However, the existing employee waiver system has been criticized as inefficient because each waiver is granted only in respect of a specific employee and for a specific time period.

In order to reduce the administrative burden of businesses engaged in cross-border trade and commerce, Budget 2015 proposes to provide an exception to the withholding requirements for payments by qualifying non-resident employers to qualifying non-resident employees. An employee will be a qualifying non-resident employee in respect of a payment if the employee:

• is exempt from Canadian income tax in respect of the payment because of a tax treaty; and
• is not in Canada for 90 or more days in any 12-month period that includes the time of the payment.

In order to be a qualifying non-resident employer, an employer (other than a partnership) must be resident in a country with which Canada has a tax treaty. In order for an employer that is a partnership to qualify, at least 90% of the partnership’s income for the fiscal period that includes the time of the payment must be allocated to persons that are resident in a treaty country. In all cases, the employer must not carry on business through a Canadian permanent establishment of the employer in its fiscal period that includes the time of the payment and the employer must be certified by the Minister of National Revenue at the time of the payment. Certification may be denied or revoked if the employer does not meet the conditions described above or fails to comply with its Canadian tax obligations. 

Although a qualifying non-resident employer will not be obligated to withhold under these circumstances, it will continue to be responsible for its reporting requirements under the Income Tax Act with respect to amounts paid to its employees. Certification will not affect the determination of a non-resident’s Canadian tax liability. Employers will continue to be liable for any withholding in respect of non-resident employees found not to have met the conditions set out above. However, no penalty will apply to a qualifying non-resident employer for failing to withhold in respect of a payment if, after reasonable inquiry, the employer had no reason to believe, at the time of payment, that the employee did not meet the conditions set out above.

This measure will apply in respect of payments made after 2015.

Streamlining Reporting Requirements for Foreign Assets

A Canadian-resident individual, corporation or trust that, at any time in a taxation year, owns specified foreign property with a total cost of more than $100,000 must file a Foreign Income Verification Statement (Form T1135) with the Canada Revenue Agency. Form T1135 must also be filed by certain partnerships that hold specified foreign property. Specified foreign property generally includes funds and investments held outside of Canada, but excludes property used exclusively in carrying on an active business, real estate and other property that is for personal use, as well as shares and indebtedness of a foreign affiliate of the taxpayer. Property held in registered plans, such as Registered Retirement Savings Plans and Tax-Free Savings Accounts, are excluded from the Form T1135 reporting requirements.

The Canada Revenue Agency introduced a revised Form T1135 in 2013. The revised form requires taxpayers to provide more detailed information regarding each specified foreign property. Stakeholders have commented that this approach has resulted in a compliance burden for some taxpayers that may be disproportionate to the amount of their foreign investments.

To reduce the compliance burden on taxpayers while maintaining the Government’s commitment to combatting international tax evasion and aggressive tax avoidance, Budget 2015 proposes to simplify the foreign asset reporting system for taxation years that begin after 2014. Under the revised form being developed by the Canada Revenue Agency, if the total cost of a taxpayer’s specified foreign property is less than $250,000 throughout the year, the taxpayer will be able to report these assets to the Canada Revenue Agency under a new simplified foreign asset reporting system. The current reporting requirements will continue to apply to taxpayers with specified foreign property that has a total cost at any time during the year of $250,000 or more.

Captive Insurance

The Canadian tax system contains rules that protect the tax base by preventing taxpayers from shifting certain Canadian-source income to no- or low-tax jurisdictions. Under these rules, such income earned by a controlled foreign affiliate of a taxpayer resident in Canada is considered foreign accrual property income (FAPI) that is taxable in the hands of the Canadian taxpayer on an accrual basis.

A specific anti-avoidance rule in the FAPI regime is intended to prevent Canadian taxpayers from shifting income from the insurance of Canadian risks (i.e., risks in respect of persons resident in Canada, property situated in Canada or businesses carried on in Canada) to a foreign affiliate resident in a lower-tax jurisdiction. This anti-avoidance rule was amended in 2014 to curtail certain sophisticated
tax-planning arrangements (sometimes referred to as “insurance swaps”). These arrangements were designed to circumvent the existing anti-avoidance rule while allowing the affiliate to retain its economic exposure to a pool of Canadian risks.

The Government has become aware of alternative arrangements that are intended to achieve tax benefits similar to those that the 2014 amendment was intended to prevent. Under these alternative arrangements, the affiliate receives consideration with an embedded profit component (based upon the expected return on the pool of Canadian risks) in exchange for ceding its Canadian risks. The Budget 2014 amendment may not apply to these alternative arrangements if the affiliate does not enter into an insurance swap transaction that provides it with economic exposure to the Canadian risks. Although existing anti-avoidance or other rules in the Income Tax Act may apply to such alternative arrangements, such challenges can be time-consuming and costly. Accordingly, specific legislative action is proposed to clarify that these arrangements give rise to FAPI.

Budget 2015 proposes to amend the existing anti-avoidance rule in the FAPI regime that relates to the insurance of Canadian risks. This amendment is intended to ensure that profits of a Canadian taxpayer from the insurance of Canadian risks remain taxable in Canada. In particular, it will be amended so that:

• a foreign affiliate’s income in respect of the ceding of Canadian risks is included in computing the affiliate’s FAPI; and
• for these purposes, when an affiliate cedes Canadian risks and receives as consideration a portfolio of insured foreign risks, the affiliate is considered to have earned FAPI in respect of the ceding of the Canadian risks in an amount equal to the difference between the fair market value of the Canadian risks ceded and the affiliate’s costs in respect of having acquired those Canadian risks.

This measure will apply to taxation years of taxpayers that begin on or after Budget Day.

The Government invites interested stakeholders to submit comments on this measure by June 30, 2015. Please send your comments to legislation-taxation@fin.gc.ca.

Parties making a submission are asked to indicate whether they consent to have the submission posted on the Department of Finance website and, if so, the name of the individual or the organization which should be identified on the website as having made the submission. Submissions which are to be posted should preferably be provided electronically in PDF format or in plain text. The Department will not post submissions that do not clearly indicate consent to posting.

Update on Tax Planning by Multinational Enterprises

Members of the Organisation for Economic Co-operation and Development (OECD) and the G-20 are working together on the issues identified in the OECD’s Action Plan on Base Erosion and Profit Shifting (BEPS), which was released by the OECD in July 2013. BEPS refers to legal tax planning arrangements undertaken by multinational enterprises that exploit the interaction between domestic and international tax rules to shift profits away from the countries where income-producing activities take place. In 2014, Canada and the other members of the G-20 welcomed the first seven deliverables under the BEPS Action Plan. G-20 Finance Ministers also welcomed the three BEPS-related items delivered in February 2015.

In Economic Action Plan 2014, the Government invited input from stakeholders on issues related to international tax planning in order to inform Canada’s participation in these international discussions. The consultations sought to obtain views on how to ensure tax fairness and better protect the Canadian tax base while maintaining an internationally competitive tax system.

Input from stakeholders on these issues has helped shape Canada’s ongoing participation in the international discussions related to the OECD/G-20 BEPS project. The Government looks forward to the conclusion of the project and to discussions with the international community on the implementation of its recommendations.

The Government will proceed in this area in a manner that balances tax integrity and fairness with the competitiveness of Canada’s tax system. Improving business tax fairness and competiveness has been a central element of the Government’s approach to fostering an environment in which businesses can thrive and compete in a global economy. Taxes are one of the main factors that drive investment decisions and the Government is committed to maintaining Canada’s advantage as an attractive destination for business investment.

Update on the Automatic Exchange of Information for Tax Purposes

The exchange of tax information between countries is an important tool for promoting compliance and combating tax evasion. As such, it helps to protect the revenue base and ensure public confidence in the fairness and equity of the tax system.

G-20 Leaders committed in 2013 to the automatic exchange of tax information in respect of financial accounts as the new global standard. In November 2014, Canada and the other G-20 countries endorsed a new common reporting standard for automatic information exchange developed by the Organisation for Economic Development and Co-operation and committed to a first exchange of information by 2017 or 2018. G-20 Finance Ministers committed in February 2015 to work towards completing the necessary legislative procedures within the agreed timeframe.

Under the new standard, foreign tax authorities will provide information to the Canada Revenue Agency relating to financial accounts in their jurisdictions held by Canadian residents. The Canada Revenue Agency will, on a reciprocal basis, provide corresponding information to the foreign tax authorities on accounts in Canada held by residents of their jurisdictions. In order for the Canada Revenue Agency to obtain the information to be exchanged, the common reporting standard will require financial institutions in Canada to implement due diligence procedures to identify accounts held by non-residents and report certain information relating to these accounts to the Agency. It will not require reporting on accounts held by residents of Canada with foreign citizenship. The standard includes important safeguards to protect taxpayer confidentiality and ensure that the exchanged information is used only by tax authorities and only for tax purposes.

Canada proposes to implement the common reporting standard starting on July 1, 2017, allowing a first exchange of information in 2018. As of the implementation date, financial institutions will be expected to have procedures in place to identify accounts held by residents of any country other than Canada and to report the required information to the Canada Revenue Agency. As the Canada Revenue Agency formalizes exchange arrangements with other jurisdictions, having been satisfied that each jurisdiction has appropriate capacity and safeguards in place, the information will begin to be exchanged on a reciprocal, bilateral basis. Draft legislative proposals will be released for comments in the coming months.

Implementation of the common reporting standard will further the Government’s commitment to tax fairness and responsible fiscal management.

Other Measures

Aboriginal Tax Policy

Taxation is an integral part of good governance as it promotes greater accountability and self-sufficiency and provides revenues for important public services and investments. Therefore, the Government of Canada supports initiatives that encourage the exercise of direct taxation powers by Aboriginal governments.

To date, the Government of Canada has entered into 35 sales tax arrangements under which Indian Act bands and self-governing Aboriginal groups levy a sales tax within their reserves or their settlement lands. In addition, 14 arrangements respecting personal income taxes are in effect with self-governing Aboriginal groups under which they impose a personal income tax on all residents within their settlement lands. The Government reiterates its willingness to discuss and put into effect direct taxation arrangements with interested Aboriginal governments.

The Government of Canada also supports direct taxation arrangements between interested provinces or territories and Aboriginal governments and has enacted legislation to facilitate such arrangements.

Previously Announced Measures

Budget 2015 confirms the Government’s intention to proceed with the following previously announced tax and related measures, as modified to take into account consultations and deliberations since their announcement or release:

• Legislative proposals released on July 12, 2013, providing new rules to ensure an appropriate income inclusion for stub-year foreign accrual property income on dispositions of foreign affiliate shares. 
• Legislative amendments proposed in Economic Action Plan 2014 to ensure that the Office of the Chief Actuary can efficiently and effectively deliver its services to key clients.
• Measures announced in Economic Action Plan 2014 relating to the Goods and Services Tax/Harmonized Sales Tax joint venture election.
• A proposed change announced on December 23, 2014 to the limit on the deduction of tax-exempt allowances paid by employers to employees that use their personal vehicle for business purposes.
• Regulatory proposals released on February 19, 2015, establishing a capital cost allowance rate of 30 per cent for equipment used in natural gas liquefaction and 10 per cent for buildings at a facility that liquefies natural gas.
• Measures announced on March 1, 2015 to support Canadian mining:
  • Extending the 15% Mineral Exploration Tax Credit for investors in flow-through shares for an additional year, until March 31, 2016; and
  • Ensuring that the costs associated with undertaking environmental studies and community consultations that are required in order to obtain an exploration permit will be eligible for treatment as Canadian Exploration Expenses.
• Measures to make the new Family Caregiver Relief Benefit and Critical Injury Benefit, announced on March 17, 2015 and March 30, 2015, non-taxable to Veterans.

Budget 2015 also reaffirms the Government’s commitment to move forward as required with technical amendments to improve the certainty of the tax system.