Originally published in Blakes Bulletin on Tax, July
On July 12, 2010, An Act to implement certain provisions of
the budget tabled in Parliament on March 4, 2010 and other
measures, S.C. 2010, c.12 (Bill C-9) received Royal Assent and
became law. Bill C-9 includes important income tax amendments first
announced on March 4, 2010, as part of the 2010 federal budget.
One important measure contained in Bill C-9 is the change to the
definition of "taxable Canadian property" (TCP) and the
corresponding change to the scope of section 116 of the Income
Tax Act. As reported in our March 2010 Blakes Bulletin on Tax, the
definition of TCP has been dramatically narrowed. In most cases,
shares will no longer be TCP unless they are real property
interests. This eliminates the time-consuming and invasive section
116 procedure in many cross-border share-purchase transactions.
While the change is retroactive to March 5, 2010, during the
interim period since the initial announcement, some buyers have
been unwilling to take the risk that the proposal would not be
enacted and have been insisting on withholding for this reason. The
enactment of this measure eliminates the potential theoretical risk
of relying on the proposed legislation and should eliminate the
perceived need for withholding in most transactions.
As always, there are important nuances in the new rules, and in
some isolated cases, shares may be TCP even where they are not real
property interests. In addition, shares of many resource companies
will continue to be TCP. The facts of each case should be reviewed
to confirm that the relevant shares are not TCP.
The 2010 federal budget contained other business income tax
measures, including proposed amendments aimed at preventing the use
of "loss corporations" in connection with income trust
conversions, foreign tax credit "generator" structures,
mandatory disclosure rules for "aggressive" transactions
and changes to the rules relating to employee stock options. These
and other measures are expected to be included in a separate bill
later this year.
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.
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