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Weekly tax highlights - October 27, 2011

October 27, 2011

Budget 2012: Deloitte’s tax policy vision for Canada

On October 20, 2011, tax leaders from Deloitte provided their tax policy recommendations for Canada’s 2012 federal budget in a letter to Finance Minister Jim Flaherty. Deloitte’s four broad recommendations are:

  • Foster innovation through improvements to the Scientific Research & Experimental Development program
  • Support a “start-up economy” with improved financing support
  • Attract and retain the world’s most talented people
  • Enhance certainty through tax administration

Read more in Budget 2012 – enhancing prosperity through increased national competitiveness.

TIEA update – Aruba and San Marino

On October 20, 2011, the Department of Finance announced that a Tax Information Exchange Agreement (TIEA) was signed between Canada and the Kingdom of the Netherlands in respect of Aruba. TIEAs provide for the mutual exchange of tax information with a view to better administering and enforcing taxation laws and preventing international fiscal evasion. As well, if a jurisdiction enters into a TIEA with Canada, active business income earned by a foreign affiliate of a Canadian corporation that is resident in that jurisdiction and carrying on business there will be included in “exempt surplus” and, consequently, dividends paid to the Canadian corporation from the affiliate will not be subject to Canadian tax. The TIEA will enter into force once each party has confirmed to the other the completion of the necessary internal procedures for the entry into force of the agreement.

On October 26, 2011, the Department of Finance announced that the TIEA previously signed between Canada and the Republic of San Marino entered into force on October 20, 2011. The Income Tax Regulations provide that a foreign affiliate of a Canadian company that is resident in a country which has entered into a TIEA with Canada can earn exempt surplus in respect of active business income for its taxation year that includes the effective date of the particular TIEA, retroactive to the beginning of the taxation year. Thus, a foreign affiliate in San Marino that has a taxation year based on the calendar year will be eligible to earn exempt surplus for its entire 2011 taxation year.

For more information on Canada’s TIEAs, please see our previous Alert. For a list of jurisdictions with which Canada has entered into a TIEA or with which negotiations are ongoing, please see the Department of Finance website.

Lump sum amounts received in lieu of health and dental coverage: confirmation of the CRA’s position

On June 9, 2011, we reported on a change in the Canada Revenue Agency’s (CRA’s) administrative position regarding lump sum payments received in lieu of health and dental coverage. More recently, we approached the CRA on this issue to confirm their position in a particular client situation. During the course of that conversation, the CRA clarified their position and stated that lump sum payments made in 2011 would be taxable unless the payments were made in a “special situation”. A special situation would include insolvency, wind up of a corporation or a payment made in settlement of a dispute. After 2011, a lump sum received in lieu of health and dental coverage would always be taxable. For more information, feel free to contact your Deloitte tax advisor.

Pooled Registered Pension Plans – Update from the Department of Finance

On October 14, 2011, the Department of Finance issued a release focusing on Pooled Registered Pension Plans (PRPPs). While no timeline for the introduction of PRPPs in Canada was provided, Ted Menzies, Minister of State (Finance), welcomed interested Canadians to submit their views on PRPPs by email (prpp-consultations-rpac@fin.gc.ca).

As proposed, PRPPs will differ from existing Registered Pension Plans in that they will allow individuals who currently may not participate in a pension plan, such as the self-employed and employees of companies that do not offer a pension plan, to benefit from a large-scale, low-cost pension plan. More details on PRPPs are available on the Finance Canada website.

 

This publication is produced by Deloitte & Touche LLP as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors. Your use of this document is at your own risk.