Bill C-13, which contains the 2011 federal budget measures, became law on December 15, 2011. The most significant corporate tax measure enacted as part of Bill C-13 is the elimination of the deferral of tax on partnership income allocated to corporate partners with significant partnership interests discussed below.
2011 saw the release of a number of legislative proposals. The March 2011 proposed amendments, released in response to certain court decisions, include an amendment imposing Canadian non-resident withholding tax on interest paid to an arm’s-length non-resident in respect of a debt or other obligation to pay an amount to a person with whom the payer does not deal at arm’s length. Proposed amendments were announced in July 2011 to address certain structures involving stapled securities perceived to frustrate the policy objectives of the Specified Investment Flow-Through (SIFT) rules. The October 31, 2011 technical amendments include amendments to the shareholder benefit rules and, in response to certain Department of Finance comfort letters, the rule that deems non-residents not to be carrying on business in Canadian solely because of provision of certain services by a Canadian service provider.
The significant package of proposed amendments to the rules governing foreign affiliates of Canadian taxpayers released on August 19, 2011 (the 2011 FA Proposals) include certain long-awaited rules governing acquisitions, dispositions and reorganizations of foreign affiliates, as well as more surprising changes, such as the introduction of the new “hybrid surplus” regime to encompass a foreign affiliate’s gains and losses from the disposition of other foreign affiliate shares, new rules to simplify the characterization of distributions from foreign affiliates, and the new upstream loan rules discussed below.
A large number of proposed amendments announced prior to 2011 have not yet been introduced into Parliament. These include the changes to the rules governing non-resident trusts and offshore investment funds, the proposed rules targeting “foreign tax credit generator” schemes, certain technical amendments to the foreign affiliate rules first released in 2009 and updated in 2010, the largely relieving December 2010 amendments to rules concerning real estate investment trusts, and numerous previously announced technical amendments. It is likely that 2012 will see many of the outstanding proposed amendments enacted into law.