This bill implements certain measures announced in the 2017 federal budget. Bill C-63 also includes catch-up measures previously included in September 16, 2016 draft legislation, measures related to the principal residence exemption, and some specified cooperative income measures. Bill C-63 also contains some GST/HST measures related to pension plans and drop shipments, and other indirect tax measures that were previously released in draft legislation on September 8, 2017 (see TaxNewsFlash-Canada No. 2017-50).
Since Bill C-63 received first reading on October 27, 2017, the corporate income tax measures that it introduces are considered to be substantively enacted for purposes of IFRS and Accounting Standards for Private Enterprise (ASPE) as of this date (as Canada has a majority government). Bill C-63 is considered enacted for U.S. GAAP purposes on December 14, 2017, the date it received Royal Assent.
Business tax measures
Federal Bill C-63 contains business tax measures to:
- Eliminate the ability to elect to use billed-basis accounting
- Change the meaning of factual control
- Introduce an elective mark-to-market regime for derivatives held on income account
- Introduce a new anti-avoidance rule to target straddle transactions that allow taxpayers to selectively realize gains and losses on derivatives
- Amend the definition of “specified corporate income” under the small business deduction rules to exclude “specified cooperative income”
- Amend the “capital dividend account” definition so that the “non-allowable” portion of a corporation’s realized capital losses reduces the non-taxable portions of capital gains distributed from a trust to the corporation
- Allow partnerships in a tiered-partnership structure where a multi-tiered alignment election applies to keep their common non-calendar fiscal period in some cases that are not currently permitted, as well as change rules related to the reverse takeover of a trust or partnership by a loss corporation
- Amend the ‘relevant spot rate’ definition
- Add new anti-avoidance measures, to ensure that taxpayers don’t circumvent the dividend stop-loss rules by holding shares through a partnership
- Add a new rule to allow a taxpayer to claim a reserve for the unamortized amount of certain bond premiums
- Amend the taxation of character conversions and derivative forward agreements
- Extend the ability to reorganize, on a tax-deferred basis, switch fund corporations and segregated funds in certain circumstances
- Change the rules for investing in specified clean energy generation and conservation equipment under the capital cost allowance regime
- Reclassify expenses renounced to flow-through share investors by oil and gas companies
- Reclassify expenditures related to drilling or completing a discovery well as Canadian Development Expenses
- Amend the taxation of restrictive covenants.
International tax measures
Federal Bill C-63 contains international tax measures to:
- Introduce new rules to ensure that taxpayers include the appropriate portion of stub period foreign accrual property income (FAPI) in the year that a taxpayer’s interest in a foreign affiliate changes
- Extend the FAPI base erosion and anti-avoidance rules to foreign branches of life insurers in respect of insurance of Canadian risks
- Changes to the “upstream loan” rules (and related transitional relieving rules)
- Introduce a new elective rule that allows deferred tax-treatment related to dispositions of taxable Canadian property on a foreign merger
- Clarify the taxation of dispositions of taxable Canadian property resulting from a “negative adjusted cost base” in a property.
Other tax measures
Other tax measures announced in Federal Bill C-63 include measures to:
- Clarify the filing requirements in respect of SR&ED claims
- Clarify that a failure to provide the required claim information will not prevent a SR&ED deduction.
Various changes to regulations
The measures also include changes to a number of regulations, including those related to:
- Exempt life insurance policies
- Bank and Federal Credit Union allocations of taxable income earned in a province
- Prescribed foreign spin-off distributions
- Foreign tax credit generators (the hybrid entities exception)
- Prescribed shares for paragraph 110(1)(d) (stock option deduction).
Indirect tax measures
- Extend the application of current GST/HST pension plan rules to pension plan structures that include master trusts or master corporations
- Clarify certain aspects of the GST/HST drop-shipment rules and broaden the application of the rules to additional circumstances
- Introduce a new GST/HST measure to allow public service bodies to claim missed eligible rebates of the two prior years in a rebate application for a current claim period.
Bill C-63 also includes a number of additional measures applicable to individuals and trusts.
Have a question? Contact Annie Long. Your comments are always welcome!