Ottawa, December 18, 2009

Archived - Government of Canada Releases Draft Foreign Affiliate Regulations

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The Honourable Jim Flaherty, Minister of Finance, today released for consultation a package of draft Income Tax Regulations, as well as other draft legislation, relating to the taxation of Canadian multinational corporations with foreign affiliates. Among other things, the package includes the Income Tax Regulations that are consequential to the Budget 2007 foreign affiliate changes to the Income Tax Act.

“Our government is committed to enhancing the fairness and competitiveness of Canada’s international tax rules,” said Minister Flaherty. “The proposals I am announcing today will improve the tax system and assist Canadian businesses in complying with the tax law.”

Bill C-28, the second Budget 2007 implementation bill, provided substantial tax relief for Canadian businesses, including the historic corporate income tax rate reductions announced in the 2007 Economic Statement. In addition, the bill, which received Royal Assent on December 14, 2007, implemented a number of amendments to the Income Tax Act relating to foreign affiliates.

Included in Bill C-28 were provisions allowing taxpayers to elect retroactive application of some of its foreign affiliate amendments. In response to concerns that the deadline for filing those elections was too early, the Government announced in June 2008 an 18-month extension of that deadline—the new deadline for a corporation having a taxation year coinciding with the calendar year is December 31, 2009. The package being released today contains all of the proposed changes to the Income Tax Regulations that are relevant in determining whether or not to make any of the retroactive elections provided for in Bill C-28. Furthermore, all seven of these retroactive elections are being made revocable. Thus, for example, calendar year corporations will have until June 30, 2011 to decide whether or not to cancel any such election.  

The attached Annex outlines all of the measures being proposed in this package. Explanatory notes providing additional details are also being released.

References to “announcement date” in the draft legislation and explanatory notes released today should be read as referring to today’s date.

Minister Flaherty indicated that the Government will be accepting comments from stakeholders until February 15, 2010 and will proceed with legislation at an early opportunity to implement the proposed amendments, taking into account any comments received.

For further information, media may contact:

Annette Robertson
Press Secretary
Office of the Minister of Finance

Jack Aubry
Media Relations
Department of Finance

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The following provides the highlights of the income tax proposals relating to foreign affiliates that were announced by the Honourable Jim Flaherty, Minister of Finance, on December 18, 2009.

  • Minor amendments to the Income Tax Act (Act) that are necessary to provide authority to enact certain aspects of the Income Tax Regulations (Regulations) noted below.
  • Amendments to 2007 Bill C-28 to:
    • implement the 18-month extension of the foreign affiliate election deadlines, and
    • extend the ability to revoke one of the foreign affiliate elections in Bill C-28 to the other six foreign affiliate elections in that Bill.
  • Amendments to the Regulations to:
    • implement consequential changes to the Regulations that flow from the amendments to the foreign affiliate provisions of the Act contained in Bill C-28 and, to a lesser extent, Budget Implementation Act, 2009;
    • implement measures first announced in March 2001 relating to
      • foreign accrual property losses, and
      • partnerships;
    • implement measures first announced in December 2002 relating to
      • foreign oil and gas levies,
      • exempt surplus reductions following certain winding-up transactions, and
      • foreign tax consolidation; and
    • implement a rule to replace a component of the outstanding February 2004 foreign affiliate proposals relating to surplus consolidation.