Ottawa, July 11, 2013

Archived - Department of Finance Announces Proposed Technical Changes to the Transitional Rules for the Economic Action Plan 2013 Character Conversion Measure

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The Department of Finance today announced proposed changes to the transitional rules for the character conversion measure announced in Economic Action Plan 2013.

The character conversion measure prevents taxpayers (often investment funds) from converting fully taxable ordinary income to capital gains by purchasing or selling capital properties under a derivative forward agreement.

Generally, the proposed changes, which are detailed in the attached backgrounder, would:

  • Provide that derivative forward agreements entered into before March 21, 2013 be excluded from the application of the character conversion measure (i.e., that they qualify for transitional relief) until the end of 2014. This would provide affected taxpayers with additional time to transition away from their derivative forward agreement structures.
  • Address situations where certain investment funds use a series of short-term derivative forward agreements (e.g., so-called “rolling” 30-day agreements) and longer-term derivative forward agreements that end before 2015.
  • Stipulate that transitional relief not be available for purchases and sales that occur after March 21, 2018 under a derivative forward agreement. This change is consistent with the intent of the character conversion measure to limit such relief to a reasonable period.
  • Specify that transitional relief be unavailable for derivative forward agreements if their size is increased beyond certain limits after March 20, 2013.

For further information, media may contact:

Kathleen Perchaluk
Press Secretary
Office of the Minister of Finance

Jack Aubry
Media Relations
Department of Finance

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