On February 4, 2022, the federal government released a package of draft legislation relating to Budget 2021 tax measures, as well as previously announced tax proposals. Tax measures that are of particular interest to CALU members and their clients include:
- Interest deductibility rules – Budget 2021 proposed tax measures that are intended to limit the deduction of excessive interest and financing expenses by corporations and certain other business entities. There were concerns that these proposals could extend to limit the interest expense deductions of Canadian-controlled private corporations (CCPC). However, there are two carve-outs in the legislation that will result in most CCPCs not being impacted by this legislation. The new rules will generally apply to taxation years beginning after 2022.
- Mandatory disclosure rules – Budget 2021 announced proposals that would expand the mandatory disclosure rules currently in the Income Tax Act (Act) to apply to a greater range of tax-motivated transactions. The new legislation closely follows the budget proposals, and the new rules will apply to taxation years, and transactions occurring in taxation years that begin after 2021. A future INFOexchange article will provide more details on these new rules.
- Trust beneficiary reporting – The expanded reporting rules for trusts, announced in Budget 2018, were to be generally effective for the 2021 taxation year. However, with delays in finalizing and enacting these rules, the new trust filing and reporting requirements will become effective for tax years commencing after 2021. These reporting rules now also extend to bare trusts, which are currently not required to file T3 returns.
It is important to note that these proposals will be subject to further public consultation which could modify the scope and application of these rules.
For more information on these tax proposals, please contact Kevin Wark, Tax Advisor, CALU at kwark@calu.com
