Canada: Business Income Tax Measures

Loss Trading

Corporate Loss Trading

Budget 2013 proposes to introduce a new rule to target what the Government describes as a form of corporate loss trading.  The Budget materials cite as an example the transfer by a profitable corporation (Profitco) of income earning assets to an unrelated corporation with tax attributes (Lossco), in return for shares of Lossco.  The acquisition of control loss-restriction rules of the Income Tax Act (Canada) (the ITA), which could otherwise constrain a corporation from using its tax attributes following an acquisition of control (the loss restriction rules), do not apply to Lossco on the basis that the shares of Lossco taken back by Profitco do not give Profitco voting control over Lossco, although they would represent the majority of the fair market value of all of Lossco's shares.  Lossco would then earn income sheltered by its tax attributes, and pay to Profitco tax-free inter-corporate dividends. 

The new rule applies at a particular time where:  (a) a person or a group of persons first holds shares of the capital stock of a corporation (Targetco) with an aggregate fair market value that exceeds 75% of the fair market value of all of the shares of the capital stock of Targetco, (b) the person or group does not control Targetco, (c) and it is reasonable to conclude that one of the main reasons that the person or group does not control Targetco is to avoid the application of one or more loss-restriction rules.  If the rule applies, then, for the purposes of the loss-restriction rules and certain other rules of the ITA, among other things, the person or group of persons is deemed at the particular time to acquire control of Targetco, and of each corporation controlled by Targetco.  In determining whether the 75% value test has been met, the person, or each member of the group, as applicable, is deemed to have exercised rights it holds to acquire shares of Targetco.  Certain measures are also introduced to prevent the effect of transactions entered into to avoid the application of the rule.  In applying the rule, if the fair market value of the shares of Targetco is nil at any time, Targetco is deemed to have a net asset value of $100,000, and income for the current taxation year of $100,000.

Trust Loss Trading

Budget 2013 also proposes to extend the application of the loss restriction rules and related rules to trusts.  The rules would apply to a trust if the trust is subject to a "loss restriction event".  Very generally, a trust will be subject to a loss restriction event when a person (including a partnership) becomes a majority-interest beneficiary of the trust, or a group of persons become a majority-interest group of beneficiaries of the trust.  The concepts of majority-interest beneficiary and majority-interest group of beneficiaries will be as they apply under the affiliated persons rules of the ITA, with appropriate modifications.  In general, these rules provide that a majority interest beneficiary of a trust is a beneficiary whose interest in the income or capital of the trust, together with the beneficial interests of persons or partnerships with whom the beneficiary is affiliated, has a fair market value that is greater than 50% of the fair market value of all the interests in the income or capital, respectively, of the trust. 

The proposed rules that determine when a loss restriction event occurs are lengthy and detailed.  Among other things, they ensure that the rules of the ITA that deem an acquisition of control of a corporation to have (or have not) occurred as a result of a particular transaction or event will apply, with appropriate modifications, to determine whether a loss restriction event has (or has not) occurred.  Budget 2013 states it is expected, and appropriate from a tax policy perspective, that typical transactions or events involving changes in the beneficiaries of a personal trust will not, because of continuity of ownership rules introduced as part of these measures, result in a loss restriction event.  Taxpayers are invited to submit, within 180 days after March 21, 2013 (Budget Day), comments as to whether additional transactions or events should be treated in a similar manner.

The new corporate and trust loss trading rules come into force as of Budget Day, but generally will not apply to an event or transaction that occurs on or after that time pursuant to obligations created by the terms of a written agreement entered into before Budget Day.  Budget 2013 states the Government will continue to monitor the effectiveness of the constraint on trading of losses and determine whether further action is warranted.

Benefits to the Manufacturing Sector

Certain manufacturing and processing machinery and equipment that would otherwise be included in Class 43 of Schedule II of the Income Tax Regulations currently qualifies for an accelerated capital cost allowance (CCA) under Class 29 if it is acquired by a taxpayer after March 18, 2007 and before 2014.  Budget 2013 extends this temporary measure by an additional period of two years so that manufacturing and processing machinery and equipment acquired in 2014 and 2015 will also qualify.

This extension forms part of a package of benefits to the manufacturing sector valued at $4.5 billion, including $1.4 billion in foregone tax revenues over three years for this extension, $1 billion over 5 years for aerospace development (previously committed), $200 million over five years for a new Advance Manufacturing Fund in Ontario and $92 million over two years for forestry innovation.  In addition, the Government proposes to expend $53.5 billion over five years on public projects.

Scientific Research and Experimental Development Program – Disclosure of Third Parties

Budget 2013 proposes to introduce additional information reporting measures with respect to Scientific Research & Experimental Development (SR&ED) claims where the risk of non-compliance is perceived to be high.  In particular, detailed information about SR&ED program tax preparers and billing arrangements will be required to be provided on program claim forms where one or more third parties have assisted with the preparation of a claim.  A claimant will otherwise be required to certify that no third party assisted in any aspect of the preparation of the SR&ED claim.

Budget 2013 also proposes that a $1,000 penalty be imposed on each SR&ED program claim for which the information about the SR&ED program tax preparers and billing arrangements is missing, incomplete or inaccurate. A third party preparer who has assisted in the preparation of the claim will be jointly and severally, or solidarily, liable for the penalty.

These proposals apply to SR&ED program claims filed on or after the later of January 1, 2014 and the day the enacting legislation receives Royal Assent.

Future Reclamation Costs

Under the ITA, a taxpayer earning income from a business may generally claim a reserve for amounts received in a taxation year in respect of services that may reasonably be expected to be rendered after the end of that taxation year. In the Government's view, this reserve is not intended to provide relief for taxpayers who have rendered services to customers, but who have future obligations to persons other than customers arising from the provision of such services.  Consequently, Budget 2013 proposes to amend the ITA to make the reserve inapplicable to amounts received in respect of future reclamation obligations. Budget 2013 states that taxpayers with future reclamation obligations are generally eligible to use the Qualifying Environmental Trust rules.

Mining Expenses

Budget 2013 proposes two new measures intended to more closely align the deduction rates for tangible and intangible costs incurred in the mining sector with those incurred in the oil and gas sector, including bituminous sands. First, the deduction rate for pre-production development costs (essentially intangible expenses incurred for the purpose of bringing a new mine into production in reasonable commercial quantities) will be reduced from 100% to 30% per year, on a declining balance basis. This change is effective as of 2018 for expenses incurred under an existing written agreement, or in respect of a new mine on which construction was started or engineering and design work began before Budget Day. For other costs, the change will be phased in on a gradual basis, beginning in 2015 until 2018. 

Budget 2013 also proposes to phase out the accelerated CCA deduction that currently applies, in addition to the normal 25% CCA rate, for the cost of most machinery, equipment and structures acquired for use in new mines or eligible mine expansions. Under the transitional measures proposed, the accelerated CCA deduction will continue to be available in respect of assets acquired before 2018 either under an existing written agreement, or in respect of a new mine or as part of an eligible mine expansion on which construction was started or engineering and design work began before Budget Day.  For other assets, the accelerated CCA deduction will be phased out on a gradual basis beginning in 2017 until 2021.

Taxation of Corporate Groups

Budget 2013 announces the completion of the Government's previously announced initiative to review whether new rules for the taxation of corporate groups - such as the introduction of a formal system for loss transfers or consolidating reporting - could improve the functioning of the tax system.  The Government has determined that moving to a formal system of corporate group taxation is not a priority as this time.  However, going forward, the Government will continue to work with provinces and territories regarding their concerns with current approaches to loss utilization.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.