Canada: Canadian Government Tables Omnibus Income Tax Legislation

Last Updated: December 12 1997


Earlier this week, the federal Minister of Finance tabled an extensive package of tax legislation in the House of Commons. This package received first reading and is now formally Bill C-28. It should eventually be passed, with some minor modifications, by the House and Senate before March 31, 1998. A small segment of the Bill arises from the February 1997 federal budget proposals, but most of the 460-plus pages of legislation comprise technical amendments to numerous sections of the Income Tax Act. Many of these changes will have retroactive effect - some significant ones as far back as 1994!

The following gives a brief description of some of the items of greater consequence. This list is not exhaustive, so readers are advised to refer to the actual legislation where transactions of any significance are contemplated.

Charitable Donations

The amendments introduce capital gains relief for gifts of certain listed securities, increase the general charitable donations income limit, deny charitable donation treatment for loan-back arrangements, and modify the rules for donations of private company shares to public charities. (In a separate announcement, the government also extended to January 31, 1998 the deadline for making most charitable donations that may be claimed for 1997 tax years.)

Transfer Pricing

These amendments, which were proposed in the February 1997 budget and released in draft form on September 11, 1997, implement, in conformity with the revised transfer pricing guidelines of the Organization for Economic Co-operation and Development, a transfer pricing regime for transactions between non-arm's-length parties. The legislation includes new contemporaneous documentation requirements and imposes a significant penalty for those who do not determine and use arm's-length transfer prices.

Loss Trading

The proposed amendments address the utilization of losses by what are termed "affiliated" parties where property is transferred between them. The amendments, which generally apply to transfers of property that take place after April 26, 1995, curtail the transferability of such losses.

Matchable Expenditure Rules

These amendments affect the income tax treatment of transactions under which investors achieve tax shelter benefits by financing the business expenses of other taxpayers in exchange for a right to receive future income. These amendments were originally announced in a news release issued by the Minister of Finance on November 18, 1996 (with extended transitional relief for certain transactions announced December 19, 1996 and July 30, 1997).

Tax Shelters

Bill C-28 includes measures to prevent perceived abuses through tax shelter promotions by affecting limited-recourse financing, extending the income base on which the alternative minimum tax is calculated and modifying the tax shelter identification rules. Many of these changes apply retroactively back to December 1, 1994!

Shares of Non-Resident Corporations

These amendments treat certain shares of non-resident corporations, even when held by another non-resident corporation, as taxable Canadian property and thereby subject to tax in Canada on their disposition after April 26, 1995. (The fourth Protocol to the Canada-United States Tax Treaty would exempt the shares of U.S. corporations. It is expected that the exchange of instruments of ratification will occur the week of December 15.)

Adventures in the Nature of Trade

These amendments implement the measures requiring that, for income tax purposes, inventory held as an adventure or concern in the nature of trade must be valued at its historical cost, rather than at the lower of cost or fair market value. Generally, this means that accrued losses on such property may be recognized only on disposition. These amendments also include anti-avoidance rules deferring the recognition of a loss where such property is transferred to a non-arm's-length person. These changes generally apply for tax years ending after December 20, 1995.

Foreign Property Limits for Deferred Income Plans

Bill C-28 measures address uncertainties with respect to the existing rules on investments in foreign property by deferred income plans and seek to ensure that shares and indebtedness issued by Canadian companies will not be "foreign property" only if the issuer has a substantial presence in Canada. These amendments apply to property acquired after 1995.

Unremitted Source Deductions

This legislation incorporates amendments first announced by press release April 7, 1997 relating to the deemed trust provisions securing priority for the Crown in relation to certain statutory withholdings.

Film or Video Production Services Tax Credit

The new Film or Video Production Services Tax Credit ("FVPSTC"), which was announced on October 28, 1997, is a refundable income tax credit available to corporations involved in film or video production services provided in Canada. The credit is equal to 11% of salary and wages paid to Canadian residents in respect of their services in Canada. The FVPSTC involves a certification process through the Canadian Audio-Visual Certification Office, and includes measures to prevent taxpayers from claiming the FVPSTC and the Canadian Film Tax Credit in respect of the same production.

Impaired Loans

Bill C-28 incorporates proposals released in draft form on November 14, 1997, which harmonize the tax treatment of impaired loans (doubtful debts) with the new accounting standards established by the Canadian Institute of Chartered Accountants with respect to impaired loans.

The information provided herein is for general guidance on matters of interest only. The application and impact of laws, regulations and administrative practices can vary widely, based on the specific facts involved. In addition, laws, regulations and administrative practices are continually being revised. Accordingly, this information is not intended to constitute legal, accounting, tax, investment or other professional advice or service.

While every effort has been made to ensure the information provided herein is accurate and timely, no decision should be made or action taken on the basis of this information without first consulting a Coopers & Lybrand professional. Should you have any questions concerning the information provided herein or require specific advice, please contact your local office.
David W. Steele
145 King Street West
Toronto, Ontario  M5H 1V8
Fax:    1-416-941-8415
E-mail:    Click Contact Link 

Click Contact Link

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.