Budget 2010 announced proposed amendments aimed at denying the benefits potentially associated with so-called “foreign tax credit generator” schemes. These schemes, which the Government suggests is the economic equivalent of a Canadian taxpayer making a simple loan to a foreign special purpose vehicle (“FSPV”), are structured so that the Canadian taxpayer can claim foreign tax credits or deductions on foreign taxes in its Canadian income tax returns even though an offsetting reduction in respect of the foreign taxes is generated within the relevant foreign group.
The Government indicates in Budget 2010 that it believes that these schemes can be successfully challenged under existing laws. Nevertheless, for greater assurance, Budget 2010 proposes measures that will deny claims for foreign tax credits and deductions in circumstances in which the income tax law of the jurisdiction levying the foreign income tax, or another relevant jurisdiction, considers the Canadian taxpayer to have a lesser direct or indirect interest in the FSPV than the Canadian taxpayer is considered to have for Canadian income tax purposes. This measure is intended to put the Canadian taxpayer in the same tax position as if it had made a simple loan to the FSPV.