Weekly tax highlights, December 22, 2011
December 22, 2011
Pre-budget consultation report released
On December 14, 2011, the House of Commons Standing Committee on Finance (the “Committee”) released its pre-budget consultation report entitled Staying Focused on Canadian Jobs and Growth. The report outlines the Committee’s recommendations after considering more than 400 submissions (the Deloitte submission is available here) and hearing from more than 150 witnesses, including Deloitte’s Managing Partner of Tax, Andrew W. Dunn.
Read more in our Canadian Tax Policy Alert.
Copthorne — Supreme Court of Canada upholds lower courts’ decisions and applies the GAAR
Copthorne Holdings v. Canada, the latest Supreme Court of Canada decision on the general anti-avoidance rule (GAAR), was unanimous, well written and clear. With this decision, the court reestablished the unanimity of approach to analyzing the GAAR as expressed in Canada Trustco and Mathew. However, as should have been expected, it did not provide certainty as to the application of the GAAR or the determination of the existence of a series of transactions.
In affirming the decisions of the Tax Court of Canada and the Federal Court of Appeal, Justice Rothstein concluded that the GAAR was applicable to the series of transactions.
Read more in our Canadian Tax Alert.
The HST and pension plans — Canadian Indirect Tax News
If you work with employee pension plans — either for the employer, trustee or administrator — you know how complex and difficult it is to apply the new harmonized sales tax regime for pension plans. Now may be the time to look again at whether you have covered all the bases, as some deadlines are looming. Here are a few things you should be thinking of:
- Does the pension trust need to be registered?
- Has the pension trust’s 33% rebate been claimed?
- Has the employer reported a deemed supply for expenses paid on behalf of the pension plan in their year-end return?
- Have your pension trusts reported their “investor percentage” to all investee funds?
Read more in the latest edition of Canadian Indirect Tax News.
Extension for filing corporate partnership alignment elections
On December 16, 2011, Finance Minister Jim Flaherty announced that the Government intends to consider corporate partnership alignment elections under the partnership deferral rules to have been filed on time if they are filed by January 31, 2012. Pursuant to the 2011 federal budget, the corporate partnership tax deferral rules allow corporate partners to elect to align the fiscal period of their partnership with the taxation year of one of the corporate partners or, in the case of a tiered-partnership structure, to a common fiscal period for all partnerships in the structure. The time period originally provided for filing this election meant that some corporate partners would have had to file the election as early as September 23, 2011.
The CRA’s letter campaign initiative to begin shortly
On December 16, 2011, the Canada Revenue Agency (CRA) announced that it will be soon be conducting its 2012 letter campaign and expects to send selected Canadians two types of letters. The first letter will explain the eligibility criteria for certain deductions claimed on recent income tax returns. The second letter will inform taxpayers that their income tax returns may be selected for audit. Individuals will be asked to review their income and expense claims related to rental and/or business activities and employment expenses and the calculation of capital gains or losses arising from certain dispositions. Taxpayers will be allowed to amend their income tax returns where they have claimed deductions in error or provided inaccurate information.
If you receive a letter from the CRA and have any questions or concerns, contact your Deloitte representative.
Entry into force of new protocol to treaty with Switzerland
On December 19, 2011, the Department of Finance announced that the protocol amending the May 5, 1997 tax treaty between Canada and Switzerland entered into force on December 16, 2011.
Among other things, the protocol provides for enhanced exchange of information provisions aligned with the standard developed by the Organisation for Economic Co-operation and Development. The new exchange of information provisions will be applicable:
- In respect of taxes withheld at source, on amounts paid or credited on or after January 1, 2012
- In respect of other taxes, for taxation years beginning on or after January 1, 2012
The full text of the protocol is posted on the Department of Finance website.
TIEA update: Jersey, the Isle of Man and Guernsey
The Tax Information Exchange Agreement (TIEA) previously concluded between Canada and the Government of Jersey entered into force on December 19, 2011. The TIEA previously concluded between Canada and the Government of the Isle of Man also entered into force on December 19, 2011. The TIEA previously concluded between Canada and the States of Guernsey will enter into force on January 18, 2012.
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, the income tax regulations were amended in 2008 to extend to countries with which Canada has a TIEA certain favourable corporate tax provisions that had previously only been available to countries with which Canada has concluded a tax treaty. These incentives provide that 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 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 Jersey or the Isle of Man, 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.
Prescribed federal and Quebec interest rates are unchanged
On December 15, 2011, the CRA announced the prescribed annual interest rates that will apply from January 1, 2012 to March 31, 2012. The rates are unchanged from the previous quarter. The rate on amounts owed to the CRA will be 5%, the rate on amounts that the CRA owes to individuals will be 3%, the rate on amounts that the CRA owes to corporations will be 1% and the rate used to calculate taxable benefits will be 1%.
Revenue Quebec has recently published the interest rates that will apply on debts and refunds for the January 1, 2012 to March 31, 2012 period. The rate applicable to amounts owed to Revenue Quebec remains at 6% and the rate applicable on refunds payable by Revenue Quebec remains at 1.5%.
Deloitte’s World Tax Advisor
The latest issue of Deloitte’s World Tax Advisor provides information on tax developments from around the world, including the following:
- Russian government introduces tax incentives for IT and high-tech companies
- China authorities clarify reinvestment rule applicable to holding companies
- More changes to the Netherlands “30% ruling”
- Tax treaty developments
This international tax newsletter offers a weekly analysis of cross-border tax developments that reflect the dynamic business environment for multinationals. If you would like to subscribe, click here.
This is the last edition of Weekly Tax Highlights
For more than a decade, Deloitte has delivered short tax updates to our clients, first as a daily newsletter and now as a weekly missive. However, the means by which our readers access information have changed, particularly due to emergent information technologies. Given the scope of this change, we have decided to cease publication of Weekly Tax Highlights. As announced last week, we are publishing the final edition today. In the coming months, we will explore new opportunities to discuss our bold positions on tax policy, and our reflections on tax issues. We welcome your feedback on this change; please write to us at Deloitte tax publications. We continue to publish our subscription-based publications, Canadian Indirect Tax News, and R&D Tax Update, which you may subscribe to on Deloitte.ca. We will also continue to publish Transfer Pricing Alerts, International Tax Alerts, and Canadian Tax Alerts, which you may read via our list of Deloitte tax publications.
Thank you for reading Weekly Tax Highlights.
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.