Post by Sapphire Capital on Jul 16, 2008 19:49:30 GMT 4
The Canadian government has published proposals to help income trusts become corporations without tax repercussions.
The issue has been fiercely controversial since 2006, when Jim Flaherty, the finance minister, unveiled plans to bring income trusts into the tax net in 2011. The structures don't have to pay federal and provincial income tax if they pay most of, or all, what they earn to investors rather than retain the income for future investment. The government took the initiative because of its concern that too many corporations were becoming income trusts and so depriving the exchequer of revenue.
The minister had to row back on some of his plans at the end of 2006 when he announced that income trusts could become corporations without any tax charge.
The other draft legislation the minister announced on July 14 included:
• steps to increase the amount that corporations will be able to pay in future as "eligible dividends", to reflect lower corporate income tax rates and to keep in line with changes to the dividend tax credit in the Budget 2008;
• financial institution accounting changes;
• changes to the treatment of capital gains and losses when a taxpayer acquires control of a corporation and to gains and losses that result from fluctuations in foreign exchange rates when debt is denominated in foreign currency;
• an enhanced carry-forward for investment tax credits;
• changes to the computation of income, gains and losses of a foreign affiliate; and modifications to the tax treatment of a foreign affiliate's active business income earned in a jurisdiction with which Canada has a tax information exchange agreement.
The Department of Finance said the proposals, which are under consultation until September 15, will be introduced into parliament later this year in a Bill that may contain other tax measures.
The issue has been fiercely controversial since 2006, when Jim Flaherty, the finance minister, unveiled plans to bring income trusts into the tax net in 2011. The structures don't have to pay federal and provincial income tax if they pay most of, or all, what they earn to investors rather than retain the income for future investment. The government took the initiative because of its concern that too many corporations were becoming income trusts and so depriving the exchequer of revenue.
The minister had to row back on some of his plans at the end of 2006 when he announced that income trusts could become corporations without any tax charge.
The other draft legislation the minister announced on July 14 included:
• steps to increase the amount that corporations will be able to pay in future as "eligible dividends", to reflect lower corporate income tax rates and to keep in line with changes to the dividend tax credit in the Budget 2008;
• financial institution accounting changes;
• changes to the treatment of capital gains and losses when a taxpayer acquires control of a corporation and to gains and losses that result from fluctuations in foreign exchange rates when debt is denominated in foreign currency;
• an enhanced carry-forward for investment tax credits;
• changes to the computation of income, gains and losses of a foreign affiliate; and modifications to the tax treatment of a foreign affiliate's active business income earned in a jurisdiction with which Canada has a tax information exchange agreement.
The Department of Finance said the proposals, which are under consultation until September 15, will be introduced into parliament later this year in a Bill that may contain other tax measures.