Controversial Budget Proposal Subject To Change.Edited by Vince Imerti The last edition of CanadianTax @ Gowlings contained a discussion of a significant proposal from the 2007 Canadian Federal Budget
In Canada, federal budgets are presented annually by the Government of Canada to identify planned government spending, expected government revenue, and forecasted economic which would significantly curtail cur·tail tr.v. cur·tailed, cur·tail·ing, cur·tails To cut short or reduce. See Synonyms at shorten. [Middle English curtailen, to restrict the deductibility of interest on money borrowed by Canadian corporations to finance foreign affiliates. As indicated in our last edition, the proposal would eliminate the current interest deduction Interest deduction An interest expense, such as interest on a margin account, that is allowed as a deduction for tax purposes. for borrowed money used to finance foreign affiliates, and replace it with a carry-forward that can be deducted de·duct v. de·duct·ed, de·duct·ing, de·ducts v.tr. 1. To take away (a quantity) from another; subtract. 2. To derive by deduction; deduce. v.intr. in future years to the extent that the foreign affiliate generates non-exempt income for the corporation (in other words Adv. 1. in other words - otherwise stated; "in other words, we are broke" put differently , income, including capital gains, other than exempt dividends received out of the "exempt surplus" of a foreign affiliate - being Canada's form of participation exemption). As announced in the Budget, this proposal is to take effect for interest payable in 2007 on debts incurred on or after March 19, 2007; for interest payable after 2008 on non-arm's-length debt outstanding on March 19, 2007; and for interest payable after 2009 on arm's length arm's length adj. the description of an agreement made by two parties freely and independently of each other, and without some special relationship, such as being a relative, having another deal on the side or one party having complete control of the other. debt outstanding on March 19, 2007. In the weeks since the Budget was released, the measure has attracted considerable opposition from the Canadian business Canadian Business is the longest-publishing business magazine in Canada. It was founded in 1928 as The Commerce of the Nation, the organ of the Canadian Chamber of Commerce. The magazine was renamed Canadian Business in 1933. community. Respected tax expert Jack Mintz, who led the 1997 Technical Committee on Business Taxation which first advanced a similar (but narrower) proposal, criticized both the breadth and implementation of the proposals. Opposition politicians and corporate leaders have both questioned the effect of the proposal on Canadian competitiveness. There have been recent signs that Finance is considering tightening the proposal to affect fewer borrowers. The Budget documents, and subsequent statements by Finance officials including the Minister, indicated that the Department introduced the proposals because of concerns with Canadian investment in tax havens Tax Haven A country that offers individuals and businesses little or no tax liability. Notes: There are several countries in the Caribbean that are considered tax havens. ; however, the proposal as drafted applies to all foreign affiliates. It is also our understanding, from our conversations with various interested parties, that Finance's primary concern is so-called "second-tier financing" structures in which Canadian subsidiaries of foreign parents borrow to further finance other entities in the corporate group. This is mirrored in the Minister's public criticism of "double-dipping" of interest deductions. However, this is at odds with how Finance described the rationale rationale (rash´  nal´),n the fundamental reasons used as the basis for a decision or action. for the proposal in the Budget documents. Nevertheless, it appears that the grounds on which the proposal is based are shifting - a sign that changes to the proposal may be imminent. The Minister of Finance has been quoted in media reports as saying that he will announce changes to the proposal on Monday, May 14. He has also announced that he may either extend the transition period or "grandfather" existing debts, and that the proposal will not entirely eliminate interest deductibility for foreign financings. The Minister is scheduled to speak at an conference of the International Fiscal Association to be held in Toronto on Thursday, May 17 and further clarification may be available at that time. The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or . Gowlings Commerce Court West Suite 4900 Toronto Ontario M5L 1J3 CANADA E-mail: info@gowlings.com Click Here for related articles (c) Mondaq Ltd, 2007 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com |
|
||||||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion