Canada: Canada’s 2000 Federal Budget: Commitments Made – Promises to Keep

Last Updated: March 8 2000


Committed to a balanced budget or better for the current and each of the next two years, the Honourable Paul Martin noted this would be only the third time since Confederation that the budget has been balanced or in surplus for at least five consecutive years, and the first time in the last fifty years. Nonetheless, many will be very disappointed with the fact that the Finance Minister has taken no clear steps to deal with the public debt, now at a level of nearly $580 billion.

Mr. Martin did:

  • propose a five-year tax reduction plan that will:

- immediately restore full indexation for inflation of the personal tax system;

- cut personal tax rates for the first time in twelve years by reducing the middle income tax rate; and

- allow individuals to earn up to $8,000 tax free, raise the middle and top income brackets and eliminate the 5% surtax.

  • propose measures to help Canada compete internationally that will:

- reduce corporate tax rates from 28% to 21% over five years; and

- relax taxation of capital gains and employee stock options.

Many of the above changes have been anticipated by various observers. Not anticipated, however, were measures designed to prevent perceived abuse of Canada’s tax system. Most notable are measures that considerably restrict a Canadian company’s ability to deduct interest on debt payable to related non-residents and the repeal of the facilitating non-resident owned investment company legislation.

Mr. Martin did not:

  • provide any significant reduction of the public debt nor provide a clear indication as to a specific plan for such a reduction;
  • accelerate awaited increases in RRSP and pension plan contribution limits, currently scheduled for nominal increases beginning in 2003 and 2004;
  • extend indexing to negate taxation of the inflationary element in capital gains; and
  • eliminate or modify the $500,000 capital gains exemption for qualifying family farms and shares of private Canadian companies.

General Personal Tax Measures

Pre-budget predictions of changes to the personal tax system included:

  • full indexation of tax rate thresholds and tax credits;
  • reductions to the middle tax bracket;
  • increases to the threshold at which the top 29% federal tax rate kicks in;
  • enhancements to the Child Tax Benefit program; and
  • reduction or elimination of the 5% surtax.

Currently, the highest federal tax rate of 29% takes effect at taxable income of just over $59,000. In contrast, the highest U.S. federal tax rate of 39.6% cuts in at roughly $US 288,000. Individuals in the U.S. can earn up to $US 9,432 before taxes begin to apply, versus $7,131 in Canada.

The Minister provided only limited immediate relief to individual Canadians, although a five-year plan promises ongoing tax reduction.

Full indexation

Effective January 1, 2000, full indexation will be restored to all amounts that are currently only partially indexed. These include the basic personal tax credit, the goods and services tax credit, the age credit and the Old Age Security reduction threshold. While the immediate effects of full indexation will be nominal, it is viewed as an important measure to combat what has been coined as "tax bracket creep." Further, the thresholds for the three tax rate brackets will rise by 1.4% for the 2000 taxation year (see below).

In its five-year plan, the government proposes to increase the amount of income Canadians can receive tax-free to at least $8,000.

Reducing the middle tax rate

For the first time in 12 years, a federal personal income tax rate – the middle rate – will be lowered. Effective July 1, 2000, the middle tax rate will drop to 24% from 26% (an effective rate of 25% for 2000). The middle rate is slated to drop to 23% within the next five years.

The reduced middle tax rate, coupled with the full indexation factor, will result in the following federal tax rate structure for 2000:


Taxable Income



Above $60,009


Between $30,004 and $60,009


Up to $30,004

In its five-year plan, the government proposes to increase the amounts at which the middle and upper tax rates apply to at least $35,000 and $70,000, respectively.


The 5% surtax currently applies to basic federal tax in excess of $12,500 (reached at an income level of approximately $65,000). This threshold will be increased to $18,500 (at an income level of about $85,000) effective July 1, 2000. Accordingly, for the 2000 taxation year, the 5% surtax will apply on basic federal tax exceeding $15,500.

The budget promises to reduce the 5% surtax rate to 4% effective January 1, 2001 and proposes to eliminate it entirely within the next five years.

Child Tax Benefit

Building on the Canada Child Tax Benefit (CCTB) program measures of its last three budgets, the government sets out a five-year plan to increase the CCTB benefits by $2.5 billion annually by 2004. Base benefits under CCTB will increase in July 2000 and will be fully indexed as of January 2000, ensuring values keep up with inflation. Further, the CCTB supplement will be increased beyond indexation in July, 2001. Over the next five years, the government intends to take a number of steps to increase the benefits for middle-income families by increasing the income levels at which families receive full benefits and by reducing benefits more gradually for families with incomes beyond those levels.

Enhanced measures for persons with disabilities

With a view to promoting the full participation of persons with disabilities in Canadian society, the budget provides additional tax assistance for them. The budget expands eligibility for, and transferability of, the disability tax credit; provides measures to assist parents of children with disabilities; and broadens and enhances the disability and the medical expense tax credits for specific disability-related expenses.

Offsetting interest on personal tax over- and under-payments

The taxation of refund interest and non-deductibility of arrears interest can produce inappropriate results. A relieving mechanism will apply to individuals (other than trusts) in respect of arrears and refund interest amounts that accrue concurrently after 1999, regardless of the taxation year to which the amounts relate. Refund interest accruing over a period will be taxable only to the extent that it exceeds any arrears interest that accrued over the same period to which the refund interest relates.

Partial exemption for scholarships, fellowships and bursaries

To provide additional assistance to students, the annual exemption for scholarship, fellowship or bursary income will increase from $500 to $3,000 beginning with the 2000 taxation year. The $2,500 increase in the exemption will apply only to amounts received by a student enrolled in a program entitling the student to claim the education tax credit.

Non-resident federal surtax

Individuals with income considered to have been earned in Canada, but not earned in a province, pay a special federal surtax designed to approximate provincial taxes, thereby ensuring their tax burden is roughly comparable to that of Canadian residents. Effective for 2000 and subsequent taxation years, the federal surtax for non-residents is reduced to 48% from 52% of basic federal tax.

EI-related leave doubled

Employment insurance maternity and parental leave will be doubled from six months to one year. This extended leave will be available to parents with a child born or adopted on or after December 31, 2000. Further, parents will be able to work part-time while receiving parental benefits, in the same way as regular EI claimants.

Employee Stock Options

Deferral of stock option benefit

Many employers use stock option plans to attract and retain the best and brightest employees. The tax rules that apply to stock options have a significant impact on whether this form of compensation actually achieves its objective.

The budget increases the attractiveness of employee stock options. In a nutshell, the income inclusion from exercising employee stock options for publicly traded shares will be subject to tax when the shares are disposed of, rather than when the options are exercised.

The current rules

The existing rules provide that, at the time a stock option is exercised, the employee must report as employment income a stock option benefit equal to the difference between:

  • the fair market value of the shares at the date of exercise; and
  • the option price.

This timing of the benefit is problematic in that employees may be forced to sell the shares at the time of exercise to pay the tax on the stock option benefit.

Under an exception, this problem does not arise if the issuer is a Canadian-controlled private corporation (CCPC). In this case, the employee is not subject to tax on the stock option benefit until the shares are disposed of.

In both cases, the excess of the selling proceeds over the fair market value of the shares at the date of exercise will result in a capital gain.

The changes

The exception that applies when the issuer is a CCPC is extended to employee stock options exercised after February 27, 2000 to acquire ordinary common shares in public companies. Therefore, stock option benefits in respect of Canadian or foreign publicly traded shares will be included in income in the year the shares are disposed of, rather than at the time the option is exercised.

The maximum benefit that may be deferred is subject to an annual vesting limit of $100,000. This limit ensures that if the options that "vest" in a year (i.e., become exercisable) have a fair market value at the time the option was granted exceeding $100,000, the excess is not eligible for the deferral. For example, if the options vesting in an employee in a year have a fair market value of $500,000 at the time the option was granted, only one-fifth of the underlying shares will be eligible for the deferral.

Furthermore, the deferral will be available only if all of the following conditions are satisfied:

  • the employee:

- deals at arm’s-length with the employer and any related corporations; and

- owns less than 10% of all classes of the corporation’s shares;

  • the employee is entitled to a deduction in respect of the stock option benefit (as discussed below);
  • the employer can monitor compliance with the $100,000 vesting limit; and
  • the employment benefit will be reported accurately and on a timely basis.

Deduction From Stock Option Benefit

The current rules

There is a partial offsetting deduction equal to one-quarter of the stock option benefit if, among other things, the option price is equal to or greater than the fair market value of the shares at the time the option was granted. If the issuer is a CCPC, the one-quarter deduction is available if the employee holds the shares for at least two years.

The changes

Consistent with the reduction in the capital gains inclusion rate from three-quarters to two-thirds (discussed under "Capital Gains"), the deduction available for stock option benefits is increased to one-third. The net effect is that two-thirds of the stock option benefit is subject to tax.

Donations of shares acquired with employee stock options

Under the existing rules, donations of publicly traded securities are eligible for a reduced capital gains inclusion rate. This budget extends parallel treatment to donations of shares acquired on the exercise of employee stock options. This is achieved by permitting donors an additional deduction equal to one-third of the stock option benefit. As a result, only one-third of the stock option benefit in respect of donated shares will be subject to tax, after taking into account the proposal to increase the existing stock option deduction to one-third (discussed above).

The additional deduction is available in respect of shares acquired after February 27, 2000 and before 2002 if the individual:

  • donates the shares:

- within the same year they were acquired; and

- within 30 days after their acquisition; and

  • was entitled to deduct one-third of the stock option benefit (because, among other things, the option price is equal to or greater than the fair market value of the shares at the time the option was granted).

In addition, the donation must meet the existing criteria for donations of publicly traded securities (e.g., the donation must be made to an eligible charity other than a private foundation).

The additional deduction will be based on the fair market value of the shares at the date of the donation, if this is less than their fair market value at the date of exercise. Therefore, if the shares declined in value from the date of acquisition, the deduction will actually be less than one-third of the stock option benefit.

Retirement Plans

Significant changes were announced in respect of retirement plans:

  • Foreign property limit: The Minister announced the long-awaited change to the foreign property rule (FPR), which limits the amount of foreign property that can be held inside pension plans (e.g. RRSPs) and deferred income plans. For 2000, the amount of foreign property that can be held inside such plans is increased from 20% to 25%, increasing to 30% after 2000;
  • Deferred income plans’ "3-for-1 bump": A special rule, designed to encourage investment by deferred income plans in small businesses operated in Canada, allows an extra $3 of foreign property room for every $1 invested by the plan in a qualifying small business property. This rule is also being amended as a result of the increase in the foreign property limit. Currently, the extra foreign property room generated cannot result in a plan’s foreign content exceeding 40%. The limit with regard to small business investment by deferred income plans is increased to 45% for 2000 and 50% after 2000;
  • Extension of rule to segregated funds: Currently the foreign property rule applies to mutual funds that issue units to deferred income plans, but not to segregated funds, which are an insurance product offered by life insurers. After 2001, the rule will be applied to segregated funds in basically the same way that it is applies to mutual funds.

Charitable Donations

A number of changes relating to charitable donations were announced, including the following:

  • Designations in favour of a charity: Under the current rules, donations that are made by way of a donor’s will qualify for the charitable donations tax credit on death. Donations made as a consequence of a direct designation made under the terms of an RRSP, RRIF or an insurance policy do not qualify for the credit. In respect of an individual’s death occurring after 1998, the charitable donations tax credit will qualify with respect to donations of RRSP, RRIF and insurance proceeds made through direct beneficiary designations;
  • Ecologically sensitive lands: Effective for ecological gifts made after February 27, 2000, the income inclusion applicable in respect of capital gains arising from gifts and ecologically sensitive land and related easements, covenants and servitudes to qualified donees (other than private foundations) is reduced by one-half. The value of all ecological gifts will be determined by a special process to be established by the Minister of the Environment;
  • Personal-use property: The Income Tax Act will be amended so that the $1,000 deemed adjusted cost base and deemed proceeds of disposition for personal-use property will not apply for property acquired after February 27, 2000 as part of an arrangement in which the property is donated as a charitable gift.

Capital Gains

The income inclusion rate for capital gains is reduced to two-thirds, from the current three-quarters income inclusion, for capital gains realized after February 27, 2000. Capital gains and losses must be separately reported as pre-February 28, 2000 and post-February 27, 2000.

A taxpayer’s effective capital gains inclusion rate for the 2000 taxation year will depend on whether the taxpayer has realized net gains/losses in one or both periods.

If a taxpayer has net capital gains or net losses in both periods, the taxable capital gain/allowable capital loss for the year is based on the sum of the net gain/loss determined for each period. If the taxpayer has a net gain in one period and a net loss in the other, the net gain/loss is determined by netting the two amounts.

A few simple examples illustrates how this provision will work:

Example 1:

Mr. M sells shares in SCo. on January 30, 2000 for a loss of $300; he sells TCo. shares on March 20, 2000 for a gain of $1,000.

His pre-February 28 net loss is $300; his post-February 27 net gain is $1,000. After deducting the net loss of $300, $700 of his post-February 27 gain remains. His taxable capital gain for the year is $466.67 (two-thirds x $700). If, on the other hand, his pre-February 28 net gain was $1,000 and his post-February 27 loss were $300, though the net gain would be the same, the taxable capital gain would be $525 (three-quarters x $700)

Example 2:

Ms. A sells shares in XCo. on January 30, 2000 for a gain of $500; she sells more XCo. shares on March 20, 2000 for a gain of $1,000. She sell shares of Y Co. on June 1, 2000 for a loss of $250.

Her pre-February 28 net gain is $500; her post-February 27 net gain is $750 ($1,000-$250). Her taxable capital gains for 2000 is $875 (three-quarters x $500 + two-thirds x $750).

A taxpayer’s effective capital gains inclusion rate for the year, which will be needed if the taxpayer will be applying a capital loss carryforward, is the taxable capital gain/allowable capital loss divided by the net gain/loss for the year. In Example 2, Ms. A’s effective capital gains inclusion rate for the year is 70% ($875/$1,250).

For taxpayers with non-calendar taxation years (e.g. some corporations) the reduced inclusion rate applies to capital gains/losses realized after February 27, 2000.

Loss carryovers

If a net capital loss of a given year is carried over and applied to reduce a taxable capital gain of another year that had a different capital gains inclusion rate, the amount of the loss will have to be adjusted to match the inclusion rate in effect for the year in which the loss is being applied. The adjustment factor will be determined by dividing the inclusion rate for the year the loss is claimed by the inclusion rate for the year in which the loss arose. The amount of the net capital loss carryover that may be deducted in the year the loss carryover is applied is the adjustment factor multiplied by the net capital loss carried forward.

Consequential amendments to other sections of the Income Tax Act will also be made to reflect changes to the capital gains inclusion rate.

Capital gain rollover for investment in small business

To improve access to capital for small business corporations, individuals (but not trusts) will be allowed a rollover of capital gains on the disposition of eligible small business investments where the proceeds of disposition are used to make other small business investments. The cost base of the new investment will be reduced by the deferred capital gain.

The deferral will be available with respect to capital gains realized after February 27, 2000, on up to $500,000 of eligible small business investment (by reference to adjusted cost base) in any particular corporation or related group. These provisions will also be applied to investments held through a qualifying pooling arrangement.

The total amount of proceeds an individual may reinvest is not limited, but no amount reinvested in excess of $500,000 in shares of a particular corporation will qualify for additional capital gain deferral.

To qualify as an eligible small business investment:

  • the investment must be in ordinary common shares newly issued to the investor;
  • the investment must be in a corporation that is, at the time the shares are issued, an eligible small business corporation, which generally will be defined as a CCPC with at least 90% of its assets (by value) used in an active business carried on primarily in Canada, or shares of related eligible small business corporations;
  • the total carrying value of the assets of the corporation and related corporations must not exceed $2.5 million immediately before the investment is made and must not exceed $10 million immediately after the investment (with look-through rules applying to account for assets held through partnerships and trusts); and
  • while the investor holds the shares, the issuing corporation must be an eligible active business corporation, which generally will be defined as a taxable Canadian corporation with at least 90% of its assets (by value) used in an active business carried on primarily in Canada (or consisting of shares of related eligible active business corporations).

Given the characteristics of an eligible small business investment, rollovers of gains will be allowed irrespective of the company’s size at the time of sale or the fact that it may have gone public before the sale.

To defer the gain, the eligible small business investment must be held for more than six months from the time of acquisition and there will be time limits within which the replacement eligible investment must be made.

General Corporate Tax Measures

Corporate tax rate reduction

To help Canada’s corporate tax system compete internationally, the budget proposes to reduce the federal corporate tax rate from 28% to 21% within five years. The first reduction from 28% to 27% will take effect January 1, 2001. The rate reduction will apply to industry sectors not already benefiting from preferential rates. Thus the services and knowledge-based sectors of the economy will benefit. However, small businesses enjoying reduced corporate rates, manufacturing companies accessing the manufacturing and processing tax credit, investment companies benefiting from the refundable tax provisions and mutual fund and investment corporations will not.

Canadian-controlled private corporations earning active business income in Canada between $200,000 and $300,000 will be able to benefit from the reduction of the federal rate from 28% to 21% effective January 1, 2001 (pro-rated for taxation years including that date). Associated companies will share the rate benefit in proportion to their share of the $200,000 small business limit.

Scientific research & experimental development (SR&ED)

The federal government and the provinces provide SR&ED incentives in the form of investment tax credits (ITCs), deductions from income and so-called "super-deductions" (deductions over 100% of cost). Differences in the design of provincial incentives can provide inequities. For example, in computing the federal ITC, the cost of the eligible expenditures are reduced by provincial government assistance or reimbursements. However, provincial assistance in the form of super-deductions do not reduce the federal base on which the federal ITC is computed. The budget proposes to "level the playing field" by treating provincial deductions in excess of the actual expenses as government assistance.

The provincial assistance will be computed as follows:

  • for Canadian-controlled private corporations eligible for the enhanced 35% ITC rates, the applicable provincial small business tax rate multiplied by the difference between the actual deduction for provincial tax purposes and the actual expenditure;
  • for all other corporations, the formula will be the same, except that the provincial tax rate will equal the maximum provincial corporate tax rate applicable to active business income.

This measure will apply to taxation years ending after February 2000.

Once again, the government has noted its serious concerns with the magnitude of SR&ED claims submitted by taxpayers in the area of information technology and software development. The government is frustrated with the number of disputes with taxpayers submitting SR&ED claims. The budget reconfirms the government’s commitment to rigorously apply the current SR&ED criteria to these claims. The government has also announced its intention to consult with industry representatives to provide clarity and improve compliance, after which it will determine whether amendments to the Income Tax Act will be made.

Film tax incentives

The federal government’s current support for the Canadian film and television industry includes:

  • the Canadian Film or Video Production Tax Credit (CFVPTC), generally equal to 25% of eligible labour expenses); and
  • the Film or Video Production Services Tax Credit (FVPSTC), generally equal to 11% of eligible Canadian labour expenses.

The budget acknowledges that the CFVPTC may not be as accessible to Canadian film producers as intended. Accordingly, the government intends to review the rules and consult with industry associations with the objective of streamlining and simplifying the mechanism for accessing this incentive. No other details were provided in the budget documents.

Capital cost allowance

The budget proposes the following changes to the capital cost allowance (CCA) system for assets acquired after February 27, 2000:

  • Rail Assets: Increase CCA rate from 10% to 15% for such railway assets as locomotives, railway cars and rail suspension devices. In cases where railway assets are leased, the proposed increase to 15% will apply only if the lessor elects to have the "specified leasing property" rules apply.
  • Separate Class Election for Manufacturing and Processing (M&P) Equipment: Allow taxpayers to elect to place eligible M&P assets, included in class 43 and costing more than $1,000, in a separate CCA class. This measure will allow taxpayers who make this election to write off the balance of the undepreciated cost of class 43 assets (i.e. with a shorter useful life) upon their disposition. The proposed election must be filed with the tax return for the taxation year in which the assets are acquired.
  • Electrical Generating Equipment: Increase the current CCA rate from 4% to 8% for property included in class 1 for new electrical generating equipment, production and distribution equipment of a producer or distributor of heat, and distribution equipment for a distributor of water. (Buildings and other structures will not qualify for the increase in rate.) New combustion turbines that generate electricity will also be eligible for separate class election, as discussed above.

Weak currency borrowing

In direct response to the Supreme Court of Canada case Shell Canada, the budget proposes to eliminate the unintended advantage obtained when a taxpayer borrows funds at a higher interest rate in a weak currency and then converts the weak currency into the taxpayer’s operating currency.

The budget proposes to:

  • limit the interest deduction to interest that would have been payable on the operating currency, had the taxpayer borrowed directly in that currency;
  • deduct the disallowed interest expense from the realized foreign exchange gain or loss; and
  • treat any related foreign exchange gain or loss on repayment of the debt or associated hedge on income account.

These proposed rules will apply only when the proceeds from the weak currency borrowings are converted into another currency and used in that other currency by the taxpayer. Furthermore, the rules will apply only if the interest rate on the weak currency borrowing is more than two percentage points over the rate of an equivalent borrowing of the other currency and the principal amount of the debt exceeds $500,000. This proposal will apply from July 1, 2000 onward in respect of indebtedness incurred after February 27, 2000. This measure will not apply to corporations whose principal business is the borrowing of money.


The budget proposes two significant amendments previously recommended in the 1998 Mintz Committee Report that affect inbound investment into Canada by multi-national corporations.

Thin Capitalization

For taxation years beginning after 2000:

  • the thin capital debt-to-equity ratio will be reduced from 3:1 to 2:1;
  • debt, paid-up capital and contributed surplus will be computed based on monthly average balances, as follows:

- debt will equal the average of the highest monthly amount payable to specified non-residents;

- paid-up capital and contributed surplus attributable to specified non-residents will equal the average of the opening monthly balances; and

- retained earnings will continue as the opening annual balance;

  • third-party debt guaranteed by a specified non-resident that was previously excluded debt will now be included debt; and
  • aircraft manufacturers will no longer be exempt.

Further study, subject to consultation, will be given to extending the thin capitalization rules to certain partnerships and trusts; and to Canadian branches of non-resident companies carrying on business in Canada. The use-of-debt substitutes (e.g. leases) will also be studied.

These proposed amendments are viewed as more closely matching actual current Canadian industry borrowing conditions.

Non-resident owned investment corporations (NRO)

NRO status will be denied for NRO elections made after February 27, 2000. Existing NROs may be continued until the end of their taxation year that begins before 2003, at which time they will lose their NRO status. Existing NROs will not be allowed to issue new shares or increase debt levels to finance new investments unless arrangements were entered into in writing before February 28, 2000.

This amendment, which will prevent the establishment of new NROs and the expansion of existing NRO activities, responds to perceived erosion of the Canadian tax base. Examples of tax leakage cited include interest deductions at full rates by a Canadian affiliate with the relevant interest income taxed at only a 25% refundable tax to the receiving NRO. A further abuse noted was the possibility of two interest deductions in respect of interest incurred on funds borrowed by non-resident shareholders of the NRO.

Industry-Specific Tax Measures

Oil and gas and mining

Several new restrictions are introduced in respect of foreign exploration and development expenses (FEDE) incurred by Canadian oil and gas and mining entities:

  • FEDE incurred after February 27, 2000 will be restricted to ensure that only those expenditures in respect of properties owned or to be owned by the person incurring the FEDE will qualify for deduction;
  • post-2000 FEDE will be placed in separate pools on a country-by-country basis. These FEDE claims will be limited to 30% of the FEDE balance in respect of a country as matched to the foreign resource income from that country. An overall FEDE claim will be allowed to the extent of at least 10% of the total FEDE balances, up to the lesser of 30% of total FEDE balances and total foreign resource income;
  • for taxpayers ceasing Canadian residence in a year, FEDE deductions will be limited to the departing taxpayer’s foreign resource income in the year with ongoing annual deduction availability of up to 10% of the taxpayer’s FEDE balance against Canadian-source taxable income;
  • for foreign tax credit purposes, FEDE deductions claimed for taxation years beginning after December 31, 1999 (or at such earlier date that the taxpayer has selected to have the below-noted new production sharing agreement rules apply) must be allocated on a specific country basis when the FEDE deduction relates to a pre-2001 FEDE balance;
  • taxpayers will no longer be allowed to generate FEDE additions (section 79.1 of the Income Tax Act) upon closing on a debt owing to them by a foreign entity.

Proposed amendments are intended to clarify foreign tax credit eligibility of certain payments made in respect of an oil and gas business carried on by a Canadian resident in a foreign country to a foreign government on account of levies imposed in connection with production sharing agreements. Such payments will qualify only if they are computed by reference to net income calculated after recognition of relevant costs; they cannot be a royalty or similar payment. The maximum foreign tax credit will be limited to 40%of the taxpayer’s income from the business for the year with existing foreign tax credit rules applying. These rules will apply for taxation years beginning after the earlier of December 31, 1999 and such earlier date selected by the taxpayer (but in no case earlier than December 31,1994).

Financial institutions

The 12% capital tax surcharge imposed on the capital tax payable by large financial institutions (excluding life insurers) is extended to October 31, 2001. This marks the fifth one-year extension of this "temporary tax."

Manufacturing and processing (M&P) credit on income from sale of steam

The February 16, 1999 budget extended the 7% M&P tax credit to corporations that produce, for sale, electrical energy or steam used in generating electricity. This budget will extend the credit to corporations that produce, for sale, steam for uses other than generating electricity. However, the credit will be phased in beginning January 1, 2000 at 3%, and increased 2 percentage points in each of the two following years, when it will be completely phased in at 7% in 2002.

GST/HST Changes

Residential rental property rebate

A newly proposed rebate will alleviate the federal sales tax cost to landlords purchasing or constructing new buildings intended for long-term rental accommodation. Applicable to any building resulting from construction, substantial renovation or conversion commencing after February 27, 2000, a rebate of 2.5% of the tax will be payable to the landlord, subject to a number of tests. The full rebate is payable in respect of individual units valued up to $350,000, with the rebate being gradually phased out for units valued up to $450,000. Above that value there will be no rebate. Modified rebates will also be available in the case of leased residential land, duplexes and co-operative housing corporations. When builders or landlords first lease the unit or a residence but intend to sell that unit, a rebate will still be payable, but may, under certain circumstances be subject to recapture if the unit is sold within one year of first occupation. This new rebate effectively reduces the sales tax cost of constructing, altering or purchasing buildings for the purpose of rental.

Export distribution centre program

A new "Export Distribution Centre Program" is proposed, effective January 1, 2001. The new program, details which will be refined during consultation, targets distribution and export focused businesses. Eligible businesses will use a certificate to acquire or import goods or services on a tax-free basis, thereby avoiding the GST/HST cash flow costs. Excluded are:

  • current customs bonded warehouse activities; and
  • transactions of less than $1,000.

Import/export relieving measures

Tax relief on goods imported for warranty repair has been extended to include goods that are destroyed, and the accompanying warranty discharged by exporting a replacement. Storage and distribution services will now be rolled into the relieving measures relating to "drop shipments" on behalf of unregistered non-resident persons and the Exporters of Processing Services Program. Also, to take account of industry practice, the drop shipment rules as applied to railway rolling stock sold for export will allow that stock to be "used" in the course of its export (i.e. the sale for export will still be zero-rated even if the car carries cargo on its export journey). A number of proposed changes to the duty deferral program will lower compliance costs through a number of measures including improved information access, more co-ordinated verification efforts by the Canada Customs and Revenue Agency (CCRA - formerly Revenue Canada) and selective relaxation of the security requirements for the bonded warehouse program.

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 PricewaterhouseCoopers LLP professional. Should you have any questions concerning the information provided herein or require specific advice, please contact your PricewaterhouseCoopers LLP advisor.

PricewaterhouseCoopers refers to the Canadian firm of PricewaterhouseCoopers LLP and other members of the worldwide PricewaterhouseCoopers organization.

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    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.

    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.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    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.

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