NPO reporting
- Regarding proposed s. 149(13), it is recommended that a de minimis test be introduced so that small nonprofit organizations are not required to file an annual information return.
Expansion of exemption for purpose-built residential rentals
- The exclusion in the definition of exempt interest financing expense for borrowings that are used to acquire purpose-built residential rentals should be extended to: land that can reasonably be considered to be necessary for the use and enjoyment of such property, and outlays or expenses incurred by the borrower that are included in computing the cost to the borrower of the purpose-built rental or related land.
Revocation of election
- The election under s. 18.2(20) to cause the income of a Canadian regulated energy utility business to be forever excluded from adjustable taxable income (ATI) should be revised to allow the election to be revoked.
Backdating an Effective Date to December 31, 2023
The proposed amendments to accommodate foreign jurisdictions that have implemented a domestic minimum top-up tax (DMTT), e.g., for purposes of the FAT and certain foreign tax credit and surplus account rules, should be effective, not on the announcement date, but rather retroactively to the earliest date on which the DMTT regime could apply (December 31, 2023 is suggested).
Paragraph E(a) double deduction for loss carryforwards
- Paragraph E(a) of the ATI definition should be deleted to prevent duplication, given the amendment to the description of D. This amendment allows taxable income to be a negative amount, which might occur when there is a non-capital loss for the year or where a non-capital loss has been carried forward.
Property Carve-Outs
- S. 85.1(4) excludes rollover treatment for a drop-down described in s. 85.1(3) where there is a “relevant disposition” as part of the same series of the rolled-down shares, property substituted therefor or of property deriving any portion of its FMV from such shares or property – but with a narrow exclusion (i.e., carve-out) for dispositions of shares of a Canadian-resident corporation.
- Detailed examples are provided to illustrate the proposition that this carve-out rule in s. 85.1(4)(a)(i) (and a similar rule in s. 87(8.3)(b)) should be expanded to include dispositions of property by a Canadian taxpayer (given inter alia that this generates tax to the Canadian system), and dispositions of some types of non-share property such as indebtedness also should not be problematic.
- An exception should also be included in s. 85.1(4)(a)(i)(B) for non-share consideration described in s. 85.1(3)(a), so that the transfer of such non-share consideration (or property that derives its value from such non-share consideration) would not affect the application of s. 85.1(3).
Exception for s. 17 CFAs
- S. 85.1(4)(a)(ii)(B) describes one of the “bad” transferees for purposes of what is a relevant disposition, namely, a non-resident who is not at arm’s length with the taxpayer throughout the series, but with a safe-harbour carve-out for a controlled foreign affiliate (CFA) of the taxpayer as described in s. 17.
- This carve-out is problematic because it requires that such CFA not deal at arm's length with the taxpayer throughout the series.
- For example, where Canco acquires a foreign corporation (CFA2), which thus would not be a CFA at the commencement of the series, and then contributes CFA2 to an existing CFA, CFA2 would not be a CFA of Canco prior to the acquisition of CFA2 for purposes of the above carve-out (and also would not be dealing at arm's length with Canco immediately before the beginning of the series for purpose of the carve-out in s. 85.1(4)(a)(ii)(A)(I)).
- Where there is a merger of CFAs of Canco, there is no continuity rule deeming the merged corporation to be a continuation of the predecessors. As a result, it could not be considered to be an s. 17 CFA for purposes of the portion of the series preceding such merger.
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