Ottawa, March 16, 2011

Archived - Department of Finance Releases Draft Income Tax Proposals

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The Department of Finance today announced draft legislative proposals relating to the Income Tax Act and Income Tax Regulations concerning the deductibility by a taxpayer of contingent amounts, the withholding tax that applies to interest payments made to non-residents, and the tax treatment of a life insurance corporation’s reserves in respect of its segregated fund policies.

These proposals are in response to three Federal Court of Appeal decisions (Collins v. The Queen, 2010 FCA 12, Lehigh Cement Limited v. The Queen, 2010 FCA 124 and The Queen v. National Life Assurance Company of Canada, 2008 FCA 14).

The draft legislative proposals would clarify:

  • that a taxpayer who has a right to reduce an amount in respect of an expenditure is to be given recognition for tax purposes for only that reduced amount;
  • that withholding tax under Part XIII of the Income Tax Act will apply (subject to the application of Canada’s tax treaties) to interest paid or credited by a person who is resident in Canada (the payer) to any non-resident person in respect of a debt that is owed to a non-resident person who does not deal at arm’s length with the payer; and
  • the rules for computing a life insurance corporation’s segregated fund policy reserves.

Today’s release includes the draft legislative proposals and explanatory notes to implement these changes for public consultation. References in these documents to “Announcement Date” are to be read as references to today’s date.

Interested parties are invited to send comments on these proposals by April 15, 2011 to

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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