On December 18, 2009, Canada’s Minister of Finance released for public consultation a package of draft amendments to the Income Tax Act (Canada) and the Income Tax Regulations relating to the taxation of Canadian multinationals with foreign affiliates. This release follows upon the Auditor General’s November 2009 Report to Parliament in which it criticized the government’s backlog of technical amendments and recommended improvements which were agreed upon by the government.

The proposed legislative measures include:

  • Amendments to the Bill C-28 (2007 federal budget) changes to the foreign affiliate rules to ensure the revocability of all six foreign affiliate elections, and to extend the deadline for the elections to 18 months after the taxpayer’s filing-due date for its taxation year that includes December 14, 2007;
  • Consequential changes to the Regulations flowing from the Bill C-28 and 2009 budget amendments to the foreign affiliate rules;
  • Implementation of measures first announced in 2001 relating to foreign accrual property losses and partnerships;
  • Amendments, some of which relate to measures first announced in 2002, in respect of foreign oil and gas levies, exempt surplus reductions following certain winding-up transactions, foreign tax consolidation and eligible capital property gains; and
  • Introduction of a new rule to replace three significant features of the outstanding February 2004 foreign affiliate proposals relating to deficit levitation, interest push-down and surplus consolidation.
  • Introduction of a comprehensive definition of the term “permanent establishment” which is intended to apply for all purposes of the foreign affiliate rules.

To view the legislative proposals and explanatory notes, please click here.