December 20, 2007

Archived - Government of Canada Announces Technical Amendments to Clarify the Specified Investment Flow-Through Entity Tax Rules

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The Honourable Jim Flaherty, Minister of Finance, today announced proposed technical amendments to further clarify the tax rules that apply to specified investment flow-through entities (SIFTs).

The SIFT rules, enacted in June 2007, were part of the Government's October 31, 2006 Tax Fairness Plan. The Plan restored balance and fairness to the income tax system by reducing the tax differential between income trusts and corporations.

"Today's announcement will further clarify specific aspects of our Tax Fairness Plan and ensure the rules are applied properly" said Minister Flaherty. "These technical changes take into account constructive comments received from the public, helping to ensure that only the structures targeted by the Plan will be subject to the SIFT regime."

Among the proposed amendments is the removal of the distinction between Canadian and foreign real and immovable properties in determining whether a trust is a real estate investment trust (REIT). This will improve the international competitiveness of Canadian REITs.

Other SIFT taxation rules will be clarified through a number of technical amendments which in general terms will:

  • make it easier for SIFTs, REITs and taxable Canadian corporations to own trust and partnership interests without causing those trusts and partnerships to be SIFTs;
  • allow debt issued by a trust or partnership to be publicly-traded without causing the issuer to be a SIFT;
  • allow a trust or partnership to hold a diversified portfolio of investments through one or more "portfolio investment entities" without causing the trust or partnership to be a SIFT;
  • treat the equity securities of taxable entities that hold Canadian real, immovable or resource properties the same way as other equities;
  • allow rent revenue of a subsidiary trust of a REIT to be qualified REIT revenue;
  • clarify the acceptable short term investments of a REIT; and
  • allow more flexibility in the use of REIT subsidiaries to hold properties.

The attached backgrounder describes the proposed amendments in detail. The proposed amendments will, as is the case with the existing rules, apply to taxation years that end after 2006 (with a delayed application, generally to 2011, for trusts and partnerships that existed on October 31, 2006). By announcing the amendments now, the Government is giving additional certainty to taxpayers who seek to apply the rules for the current taxation year.

The Minister also indicated that the Government remains committed to working with affected taxpayers to ensure that existing SIFTs can convert to taxable Canadian corporations without any undue tax consequences to investors, or the SIFTs themselves, on the conversion.

It is intended that the income tax legislation needed to give effect to today's announced amendments, and those that may be required for conversions, will be brought forward at the earliest opportunity in 2008.

This release was issued following the close of financial markets today.

For further information, media may contact:

Chisholm Pothier
Press Secretary
Office of the Minister of Finance
David Gamble
Media Relations
Department of Finance

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