Canada: The Stikeman Elliott Federal Budget Commentary 2018



Business Tax Measures

  • Substantial pullback on passive income proposals
  • Additional rules to prevent the realization of "artificial"  losses by financial institutions
  • Green v. R. (FCA) overturned – limited partnership losses  trapped in tiered partnerships

International Tax Measures

  • Extension of cross-border surplus stripping rule to  partnerships and trusts
  • Foreign affiliate amendments to shutdown "tracking  arrangements"

Sales and Excise Tax Measures

  • Minor modifications to previous proposals in respect of  GST/HST on management services provided to  "investment limited partnerships"
  • New federal excise duty for cannabis

On July 18, 2017, the government indicated that there were three aspects of the taxation of private corporations that, while legal, were unfair to the undefined "middle class". First, private corporations were able to split or sprinkle income among family members so as to unfairly reduce the aggregate level of family tax. Second, because corporate tax rates are lower than personal rates, income retained within a private corporation benefited from a substantial deferral that enabled its shareholders to indirectly enjoy more passive investment income than would otherwise be the case. Third, numerous structures were available that enabled the owners of private corporations to reduce or eliminate tax on a disposition of their shares.

The first of these issues is dealt with by the Tax On Split Income rules that were released as draft legislation on December 13, 2017. The government decided to abandon the third issue because, although "unfair", it could not be addressed without affecting inter-generational transfers of businesses, including farms, in a way that was acceptable to the government.

The second issue was left to be dealt with in Budget 2018. In a display of common (and perhaps political) sense, the government effectively abandoned the passive income rules in this budget. It is a shame that the Department of Finance officials, with many other things to do, spent countless hours drafting legislation that has now been rightfully abandoned.

No matter how well-intentioned or "fair" the previously proposed passive income rules may have been, they were simply too complex. Complexity is a serious issue that deserves more than lip-service. Complexity breeds unfairness for many reasons. First, fairness is largely a matter of perspective and cannot be measured or experienced by anyone who doesn't understand the rules. As a result, it undermines a self-assessing system. Second, complexity fosters unintentional and intentional non-compliance that the Canada Revenue Agency (the "CRA") does not have the capacity to uncover. Third, it favours those with the means to obtain expensive advice. Fourth, it results in further overburdening an already underfunded and over-worked judicial system.

In a perfect world, it would be great to eliminate all "unfairness" in life. In the very small world of tax, "fairness" would involve taxing on the basis of ability to pay based on a "fair" mixture of commodity tax, wealth tax and income tax, and an accurate measurement of everyone's consumption, earnings and wealth. Most economists would agree that we don't have the right mix.

Starting with an imperfect mix of taxes and an impossible to perfectly measure calculation of anyone's annual earnings, the objective of any income tax measure should never be more than "good enough". It is not that anyone prefers rules that are less than perfect, but rather a realization that starting with a less than perfect basis for taxation and knowing that no one can draft rules that will cover every conceivable fact pattern, or establish a clear legislative scheme, means that "good enough" rules are the best that anyone can do. In fact, good enough rules are "fairer" than rules that are designed to achieve perfection through complex drafting. This is because added complexity can create more unfairness than the extra fairness that can theoretically result from attempting the impossible task of drafting perfect rules.

One of the inherent imperfections in our system is that we tax on an annual basis with no averaging over years. Just ask a doctor who spends 14 years accumulating substantial student debt during university and residency before she starts making any reasonable amount of money and then retires 30 years later without a pension, what she thinks about the heavily subsidized pensions received by members of Parliament. How is it "unfair" that the doctor cannot use the current rules to save for retirement? Isn't it "fair" that she be allowed to bump up her savings to partially "compensate" her for the lean years?

In abandoning the passive income rules that were meant to make the system "fairer", the government has left the system far fairer than it would have been had they proceeded with the previous proposals. The surviving amendments dealing with passive income in private corporations are discussed below.

Balancing the Budget or Not

Warning: the next two sentences are scary. Since being elected, this government has increased program spending by an incredible 20.1%, from $253.9 billion in 2014-2015 to a projected $304.6 billion in 2017-2018. This 6.3% annualized growth rate is about double the rate of growth in each of revenue, inflation plus population growth and growth in nominal GDP.1

Budget 2018 shows program spending increasing by 23% over the next five years to reach $350.1 billion in 2022-2023. The drop to less than 5% per annum is like training your dog to only bite the mail carrier every third day, instead of every second day. Budget 2018 projects a $19.9 billion deficit this year, declining to $12.3 billion by 2022-2023.

In the last budget the government decided that it was politically best to stop emphasizing deficits and surpluses and, instead, judge fiscal results by reference to the federal debt-to-GDP ratio. Budget 2018 projects a current debt-to-GDP ratio of 30.4%, reducing to 28.4% in 2022-2023. One issue with the debt-to-GDP ratio is that it appears to legitimize increasing government debt when GDP is rising, which seems to us to be contrary to sound fiscal management.

Ratios and deficit numbers aside, adding $51 billion to program spending over three years seems to us to be excessive. As Winston Churchill famously said, "For a nation to try to tax itself into prosperity is like a [person] standing in a bucket and trying to lift [themselves] up by the handle." Perhaps the government should try a bit harder to reduce income tax rates and more than make up the difference by cutting back on the program spending. The Chretien – Martin team reduced program spending by 9.7% from 1994-1995 to 1996-1997 by finding savings through a comprehensive review of programs.2

For the first time in many years, U.S. corporate tax rates are roughly equal to or lower than Canadian rates. There is buzz now that the U.S. is the place to do business, which could have significant repercussions for the Canadian economy. The government appears to be taking a "wait and see" attitude but we trust they will be monitoring the situation carefully and be ready to move quickly, if necessary. Corporate income has a tendency to flow towards the lowest taxing spot and we question Budget 2018's projected growth of corporate revenues from $42.2 billion in 2016-2017 to $52.2 billion in 2022-2023. Personal rate differences will continue to create a challenge for retaining people in Canada and for enticing people to move here.


Passive Investment Income

Two new rules are introduced to limit the advantage of accumulating passive income in private corporations. The business limit which limits access to the small business tax rate will be reduced for Canadian Controlled Private Corporations ("CCPCs") having between $50,000 and $150,000 in investment income. Refundable Dividend Tax on Hand ("RDTOH"), other than RDTOH created by the receipt of dividends from public corporations, will only be refundable where the corporation pays non-eligible dividends.

Business Limit

The current business limit of $500,000 is reduced on a straight-line basis for a CCPC having between $10 million and $15 million of total taxable capital employed in Canada. Commencing in taxation years beginning after 2018, the business limit will be reduced on a straight-line basis for CCPC's having between $50,000 and $150,000 in investment income. This change will only affect CCPCs to the extent that their income exceeds the limit.

Investment income will not include taxable capital gains that arise from the disposition of a property that is used principally in an active business or generally from the disposition of a share of a connected CCPC, all or substantially all of whose assets are principally used in an active business carried on primarily in Canada.

RDTOH Refunds

The Department of Finance presumes that passive income should be paid out to shareholders as non-eligible dividends. To achieve this result, starting in taxation years beginning after 2018 there will be an eligible RDTOH account and non-eligible RDTOH account. The eligible account will include Part IV tax paid on eligible portfolio dividends and the refund will be triggered by the payment of either an eligible or a non-eligible dividend. The non-eligible account will include investment income taxed under Part I and Part IV tax on non-eligible dividends.

Upon payment of a non-eligible dividend, a refund is first to be claimed against the non-eligible RDTOH account. Upon payment of an eligible dividend, a refund may only be claimed against the eligible dividend account.

As a transitional matter, the lesser of (a) a CCPC's existing RDTOH balance, and (b) 38 1/3% of its general rate income pool will be added to the CCPC's eligible RDTOH account.

Preventing Artificial Losses

Over the last several years, the Department of Finance has introduced several measures that it calls integrity measures designed to ensure fairness in the tax system. Many of these measures have been aimed at the creation of tax losses by financial institutions in the course of transactions involving derivative financial arrangements. Budget 2018 continues this trend with a tightening of the rules relating to synthetic equity arrangements and the stop-loss rules applicable to mark-to-market property held by financial institutions.

Equity-Based Financial Arrangements

The perceived abuse these rules prevent is as follows. A financial institution ("FI") enters into an equity derivative transaction with a counterparty. Under the derivative contract, the counterparty receives all of the economic benefit of ownership of a particular share while the FI continues to be the legal owner of the share. The FI receives tax-free dividends on the share and deducts dividend equivalent amounts paid to the counterparty. As a result, the FI incurs a net tax loss from the arrangement.

Budget 2015 introduced rules dealing with synthetic equity arrangements that would deny the intercorporate dividend deduction in these circumstances. These rules contain an exception for situations in which the FI can establish that no tax indifferent investor has all or substantially all of the risk of loss or opportunity for gain or profit in respect of the underlying share. For these purposes, a tax indifferent investor includes a tax-exempt or non-resident person.

The Budget papers suggest that there is a concern that some taxpayers have taken the position that a tax indifferent investor can obtain all or substantially all of the risk of loss or opportunity for gain or profit in respect of a share by entering into arrangements that are not synthetic equity arrangements. Budget 2018 proposes an amendment to the synthetic equity arrangement rules to ensure that the non-tax indifferent investor exception applies any time that a tax indifferent investor obtains all or substantially all of the risk of loss or opportunity for gain or profit with respect to an underlying share in any way, through a synthetic equity arrangement or otherwise. This amendment will apply to dividends received on or after Budget Day.

Similar tax losses may be generated under a securities lending arrangement. Under such an arrangement, a taxpayer borrows a share from a counterparty and agrees to return an identical share to the counterparty in the future. In addition, the taxpayer is obligated to make payments to the counterparty equal to the dividends received on the share. To the extent that the deductible dividend compensation payments made by the taxpayer exceed the amount of the dividends received by the taxpayer on the share that are included in the taxpayer's income, a loss is realized. If the securities lending arrangement is designed to fall outside of the rules dealing with such arrangements, the dividend compensation payments are fully deductible, whereas the dividends on the share may be received tax-free provided that the dividend rental arrangement rules do not apply.

Budget 2018 proposes an amendment to the securities lending arrangement definition to include arrangements that are substantially similar to the arrangements that fall within the definition. As a result, when taxpayers receive dividends under such substantially similar arrangements, the dividend rental arrangement rules will apply to deny the inter-corporate dividend deduction such that no loss will be realized. This amendment will apply to dividend compensation payments made on or after Budget Day unless the securities lending arrangement was in place before Budget Day, in which case the amendment will apply to dividend compensation payments made after September 2018.

Stop-Loss Rule on Share Repurchase Transactions

 Tax losses could also be realized by financial institutions in the course of share repurchase transactions. In the absence of stop-loss rules, on a share repurchase by a corporation (other than a repurchase that occurs in the open market), a taxpayer realizes a deemed dividend equal to the difference between the amount received for the share purchased and the paid-up capital of the share. The taxpayer's proceeds of disposition are reduced by the amount of the deemed dividend with the result that the taxpayer realizes a loss equal to the difference between the cost of the share to the taxpayer and the paid-up capital of the share. If the taxpayer is a corporation, it is also entitled to deduct the dividend giving it a net tax loss. Existing rules provide that the stop-loss rules in the Income Tax Act (the "ITA") applicable to mark-to-market property apply in all cases in which a taxpayer realizes a deemed dividend on a share repurchase. However, the existing rules allow a loss to be realized in an amount equal to the previous mark-to-market gains realized by the taxpayer on the share. If the taxpayer has entered into arrangements to hedge its exposure on the share, the previous mark-to-market gains were likely sheltered by losses realized on the hedge. As a result, the repurchase produces a net tax loss for the taxpayer.

Budget 2018 proposes to amend the existing stop-loss rules applicable to mark-to-market property so that any loss realized on a share repurchase is reduced by the full amount of the deemed dividend realized on the repurchase, if the dividend deemed to be received on the repurchase is eligible for the inter-corporate dividend deduction. This amendment applies to share repurchases made on or after Budget Day.

Tiered-Partnership and At-Risk Rules

The tax rules for the computation of income and losses of partnerships are found in section 96 of the ITA. A subset of such rules, the "at-risk" rules, seek to limit the amount of losses that can be claimed by limited partners of a partnership to the amount of capital invested that is at risk, which is increased by, among other things, undistributed income allocated from the partnership. The tax policy behind these rules is that limited partners should not be able to shelter income from other sources with partnership losses in excess of what was put at-risk in the partnership.

Losses of a partnership allocated to a limited partner in excess of their at-risk amount in respect of the partnership are not deductible and become "limited partnership losses", which can generally be carried forward indefinitely. These limited partnership losses are personal to the limited partner, cannot be sold with the partnership units, and can be deducted against taxable income in future years to the extent that the at-risk amount of such limited partner has increased. Since a partnership does not compute taxable income, because it is not a taxpayer (except for limited purposes where the ITA specifically deems it to be a taxpayer for those purposes), it was generally understood that limited partnership losses incurred by a lower-tier partnership in a tiered arrangement were never deductible by any taxpayer. This meant that limited partnership losses in tiered partnership structures effectively became trapped.

Contrary to this conventional understanding, the Federal Court of Appeal affirmed the decision of the Tax Court of Canada in Green et al v. R3, in which it was held that the at-risk rules did not apply between two partnerships. While the Green decision avoided an inappropriate result (i.e., having limited partnership losses trapped in the lower-tier partnership), the conclusions if applied broadly, could have potentially led to inappropriate results and abuses in other contexts.

Budget 2018 proposes to deem a taxpayer to include a partnership for purposes of section 96 of the ITA.4 The intention was to clarify that the at-risk rules should apply between partnerships. However, the approach taken has broader application for the computation of income and losses of partnerships. The Department of Finance entirely disregarded the written submissions made on January 19, 2018 by The Joint Committee on Taxation of The Canadian Bar Association and Chartered Professional Accountants of Canada, whereby they suggested a measured approach to any legislative response to the Green decision. As was pointed out, a deeming partnership to be a taxpayer for all portions of section 96 of the ITA could give rise to unintended consequences. Moreover, it is surprising that the limited consequential amendments proposed for the at-risk rules do not seek to fix the issue of trapped limited partnership losses in the context of tiered partnerships.

The proposed amendments will apply to losses incurred in taxation years that end on or after the Budget Day, and to losses incurred in taxation years prior to the Budget Day and carried forward but not yet used. The proposed rules include an element of retroactivity, since existing losses that have flowed up in a tiered partnership structure realized before the Budget Day may not be available for carry-forward

Accelerated CCA for Clean Energy

The Government has renewed its commitment this year to support initiatives to reduce greenhouse gas emissions and air pollutants. It proposed to extend the eligibility period for accelerated capital cost allowance deductions for property that falls within Class 43.1 and Class 43.2 of Schedule III of the Income Tax Regulations.5 These classes generally include eligible equipment that generate or conserve energy by:

  • using a renewable energy source (e.g., wind, solar or small hydro);
  • using fuel from waste (e.g., landfill gas, wood waste or manure);
  • making efficient use of fossil fuels (e.g., high efficiency cogeneration systems, which simultaneously produce electricity and useful heat).

Class 43.2 was introduced in 2005 and is currently applicable in respect of eligible property acquired before 2020. Budget 2018 proposes to extend eligibility for Class 43.2 by five years, thereby making it available for eligible property acquired before 2025.


Cross-Border Surplus Stripping using Partnerships and Trusts

Paid-up capital ("PUC") generally represents amounts that can be repatriated from a Canadian corporation to a non-Canadian shareholder free of dividend withholding tax. As this is a valuable tax attribute, the ITA contains a specific anti-avoidance rule designed to prevent a non-resident shareholder from entering into certain non-arm's length transactions that extract (on a tax-free basis) the surplus of the Canadian corporation in excess of its PUC, or that artificially increase the PUC of the shares of the Canadian corporation.

In particular, section 212.1 of the ITA applies in circumstances where a non-resident person disposes of shares (called the "subject shares") of the capital stock of a corporation resident in Canada to another corporation resident in Canada (called the "purchaser corporation") with which the non-resident person does not deal at arm's length. When this rule applies, the PUC of the shares of the purchaser corporation issued to the non-resident person on the transfer is generally limited to the PUC of the subject shares less the fair market value of any non-share consideration received by the non-resident person. Furthermore, to the extent that the non-resident person receives non-share consideration on the transfer in excess of the PUC of the subject shares, a dividend (subject to withholding tax) equal to such excess is deemed to have been paid to the non-resident person.

The specific anti-avoidance rule in section 212.1 only applies where shares of a corporation resident in Canada are transferred to the purchaser corporation. This rule does not apply in circumstances where interests in other intermediaries, such as partnerships or trusts, are transferred by the non-resident person, even if such intermediaries derive a substantial portion of their value from the ownership of shares of a Canadian corporation. As a result, a non-resident person can transfer an interest in a partnership, which holds shares of a Canadian corporation, to a non-arm's length Canadian company and arguably achieve a result which section 212.1 is designed to prevent.

Budget 2018 proposes to amend section 212.1 to add a comprehensive "look-through" rule for partnerships and trusts. In essence, this rule will allocate the assets, liabilities and transactions of a partnership or trust to its members or beneficiaries, based on the fair market value of their interests. As a consequence, a transfer by a non-resident person of an interest in a partnership which holds shares of a Canadian company will be treated, for purposes of section 212.1, as if the non-resident transferred the shares of the Canadian company directly. This proposal will apply to transactions that occur on or after Budget Day.6

While the implication of Budget 2018 is that the transfer of a partnership interest represents a current "gap" in the legislation, we note that section 212.1 already contemplates the utilization of partnerships in certain circumstances. As a consequence, it may not be surprising to see a debate, similar to that found in the decisions of Univar Holdco Canada ULC v. The Queen7 and Canada v. Oxford Properties Group Inc.8 as to whether this amendment is merely "clarifying" rather than "altering" the original purpose of section 212.1.

Foreign Affiliates

Definition of Investment Business

Certain types of passive income, defined in the ITA as foreign accrual property income ("FAPI"), are included in the income of a Canadian taxpayer when earned by a "controlled foreign affiliate" of the taxpayer. For these purposes, FAPI includes the income from an "investment business" carried on by the affiliate. In general terms, an investment business is defined as a business the principal purpose of which is to derive income from property. However, an investment business does not include certain businesses if the affiliate employs more than five employees full time in the active conduct of that business (generally referred to as the "six employee test").

It came to the attention of the Department of Finance that certain taxpayers, whose foreign activities would not normally warrant more than five full time employees were aggregating their interests with taxpayers in similar circumstances to meet the six employee test. This type of planning generally involved a number of taxpayers aggregating their financial assets together in a common affiliate (with more than five full time employees), with each taxpayer maintaining control over its contributed assets and any returns on such assets accruing (typically through the issuance by the affiliate of "tracking shares") to the benefit of each taxpayer who transferred their particular assets. This planning facilitated the taxpayers' taking the position that the affiliate carried on a single investment business with five or more employees and hence the exception to the investment business applied.

Budget 2018 proposes to introduce a rule for the purposes of the investment business definition so that, where income attributable to specific activities accrues to the benefit of a specific taxpayer under what the Department of Finance has called a "tracking arrangement", those activities will be deemed to be a separate business carried on by the affiliate. Each separate business of the affiliate, therefore, will need to satisfy the six employee test in order for such affiliate's income to be excluded from FAPI. The Department of Finance has not yet released proposed legislation as to how it will define a "tracking arrangement".

This measure is intended to apply to taxation years of a taxpayer's foreign affiliate that begin on or after Budget Day.

Controlled Foreign Affiliate Status

As mentioned earlier, the FAPI of a "controlled foreign affiliate" is included in the income of a Canadian taxpayer when earned. In general terms, a non-resident corporation is a "controlled foreign affiliate" of a taxpayer if the taxpayer controls the foreign affiliate, or would control the foreign affiliate if it held, at the time, all shares of the foreign affiliate that are held by (i) the taxpayer; (ii) persons with which the taxpayer does not deal at arm's length; (iii) any four other persons that are resident in Canada; and (iv) any non-resident persons that do not deal at arm's length with the persons in (iii).

Similar to the discussion related to the definition of "Foreign Affiliates – Definition of Investment Business", the Department of Finance has become aware that certain taxpayers are using "tracking arrangements" to avoid controlled foreign affiliate status. Under these arrangements, the taxpayers maintain control over their contributed assets and any, returns that accrue to their benefit. Controlled foreign affiliate status is avoided by having a group of taxpayers sufficiently large so that no one taxpayer, or the taxpayer together with the other relevant persons for such definition, control the foreign affiliate.

To address the above concern, Budget 2018 proposes to deem a foreign affiliate of a taxpayer to be a controlled foreign affiliate of the taxpayer if FAPI attributable to activities of the foreign affiliate accrues to the benefit of the taxpayer under a "tracking arrangement". Again, the Department of Finance has not yet released proposed legislation as to how it will define a "tracking arrangement".

This measure is intended to apply to taxation years of a taxpayer's foreign affiliate that begin on or after Budget Day.

Trading or Dealing in Indebtedness

Budget 2018 proposes to add certain minimum capital requirements to the exception, from an affiliate's FAPI, which applies for regulated foreign financial institutions in respect of their income from trading or dealing in indebtedness. This amendment will apply to taxation years of a taxpayer's foreign affiliate that begin on or after Budget Day.


For most taxpayers with foreign affiliates, the CRA generally has four years after its initial assessment in which it can reassess the taxpayer. Budget 2018 proposes to extend the reassessment period by three years in respect of income arising in connection with a foreign affiliate of the taxpayer. This measure will apply to taxation years of a taxpayer that begin on or after Budget Day.

Reporting Requirements

Currently, a taxpayer's information return in respect of the taxpayer's foreign affiliates is due 15 months after the end of its taxation year. Budget 2018 proposes to require that such information returns be filed within six months after the end of the taxpayer's taxation year. This measure will apply to taxation years of a taxpayer that begin after 2019.

Personal Income Tax Measures

Extension of Mineral Exploration Tax Credit for Flow-Through Share Investors

Budget 2018 proposes to extend eligibility for the Mineral Exploration Tax Credit, currently set to expire on March 31, 2018, for an additional year in respect of a flow-through share agreement entered into on or before March 2019. This extension of the credit will support eligible exploration expenses up to the end of 2020. The credit, which is equal to 15% of specified mineral exploration expenses incurred in Canada and renounced to individual investors, is an additional incentive for individuals to invest in flow-through shares issued by such mining companies to fund exploration. The credit was first introduced in the early 2000s and has traditionally been set to expire after one year but thus far has been renewed in each annual Federal Budget.

Sales and Excise Tax Measures

GST/HST and Investment Limited Partnerships

On September 8, 2017, the Department of Finance released draft legislation containing a new proposal relating to the Goods and Services Tax/Harmonized Sales Tax ("GST/HST") treatment of management and administrative services provided to an "investment limited partnership" ("ILP") by its general partner. The September 8th proposed measures can be summarized as follows:

  • Proposed subsection 272.1(8) of the Excise Tax Act (the "ETA") applies in respect of the provision of any management or administrative service to an ILP by a general partner of such ILP.
  • Even if the general partner provides the management or administrative service pursuant to its obligations as a member of the ILP, the provision of the service is deemed not to be supplied by the general partner as a member of the ILP and the supply of the service by the general partner to the ILP is deemed to have been made otherwise than in the course of the ILP's activities.
  • The ILP is deemed (for GST/HST purposes) to have received a supply of the general partner's services for their fair market value. The general partner would have an obligation to register and collect GST/HST on the management or administrative services supplied to the ILP.
  • The proposed rules are only applicable to ILPs. An ILP is defined a limited partnership, the primary purpose of which is to invest funds in property consisting primarily of financial instruments (such as shares, partnership units or trust units), if (a) the limited partnership is, or forms part of an arrangement or structure that is, represented or promoted as a hedge fund, investment limited partnership, mutual fund, private equity fund, venture capital fund or other similar collective investment vehicle, or (b) the total value of all interests in the limited partnership held by listed financial institutions (such as banks, mutual fund trusts, pension plans or REITs) represents 50% or more of the total value of all interests in the limited partnership.
  • These rules were proposed to apply to consideration that is paid or becomes due on or after September 8, 2017 (or was paid on or after that day without having become due).
  • ILPs are also considered as "investment plans" under proposed paragraph 149(5)(f.1) of the ETA and therefore, listed financial institutions (subparagraph 149(1)(a)(ix) of the ETA) effective as of January 1, 2019.
  • Proposed subsection 132(6) of the ETA provides a GST/HST relief for ILPs where, provided certain conditions are met, the total value of all interests in the partnership held by non-residents (other than certain prescribed members) is 95% or more of the total value of all interests in the partnership.
  • Budget 2018 confirms the Government's intention to proceed with these proposals, but subject to the following changes:
  • GST/HST will apply to management and administrative services rendered by the general partner on or after September 8, 2017; it will not apply to management and administrative services rendered by the general partner before September 8, 2017 unless the general partner charged GST/HST in respect of such services before that date.
  • GST/HST will generally be payable on the fair market value of management and administrative services in the period in which these services are rendered.

Budget 2018 also proposes to allow an ILP to elect to advance the application of the rules as of January 1, 2018.

Tobacco Tax

Under current rules, tobacco excise duty rates are set to automatically increase every five years to account for inflation. Budget 2018 proposes that such adjustments instead be made on an annual basis. Budget 2018 also proposes to increase excise duty rates on cigarettes and other tobacco products.

Cannabis Tax

Budget 2018 proposes a new framework for excise duties on cannabis products. Excise duties will be imposed on federally-licensed cannabis producers at the greater of (i) a flat rate applied on the quantity of cannabis contained in a final product, and (ii) a percentage of the dutiable amount (i.e. the portion of the producer's sales price that does not include the cannabis duties under the ETA) of the product as sold by the producer. The applicable duty becomes payable at the time of delivery to a purchaser and is paid by the licensee who packaged the cannabis product for final retail sale.

Packaged products that contain no more than 0.3% THC would not be subject to excise duty; neither would pharmaceutical products that are approved by Health Canada and that can only be acquired through a prescription.


1 "Balanced budget still within Trudeau's reach", Charles Lamman and Hugh   2 Ibid.   3 2017 FCA 107, aff'g 2016 TCC 10. 

4 The deeming provision in subsection 102(2) of the ITA is still relevant as it applies to the entire subdivision j, Division B, Part I of the ITA (sections 96 to 103), whereas the new proposed deeming rule in subsection 96(2.01) only applies for purposes of section 96 of the ITA.

5 Class 43.1 benefits from a 30% CCA deduction on a declining-balance, whereas the rate for Class 43.2 is 50%.

6 Budget 2018 also proposes to ensure that the corporate immigration rule is not frustrated by transactions involving partnerships and trusts. Similarly, Budget 2018 proposes to remove any contributed surplus which arose at a time when a corporation was non-resident from the equity component of Canada's thin-capitalization ratio and the rule which generally allows contributed surplus to be converted into PUC (without any Canadian tax consequences).

7 2017 FCA 207.

8 2018 FCA 30.

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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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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions