Copyright 2010, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on Tax, July 2010
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.
