Department of Finance consulting on draft tax proposals

February 4, 2022 - Ottawa, Ontario - Department of Finance Canada

Canada’s strong and essential social safety net is built on a robust national tax base. 

The Department of Finance Canada today released for public comment a set of draft legislative proposals to implement previously announced and other tax measures.

Specifically, the proposals would implement Budget 2021 measures to:

• Allow for the immediate expensing of up to $1.5 million of eligible investments by Canadian-controlled private corporations, sole proprietors and certain partnerships to help businesses invest in new technologies and move forward with capital projects, as further detailed in the backgrounder Expansion of the Eligibility for Tax Support for Business Investments;
• Reduce—by 50 per cent—the general corporate and small business income tax rates for businesses that manufacture zero-emission technologies;
• Expand access to the accelerated capital cost allowance for certain clean energy equipment and implement certain restrictions;
• Improve access to the Disability Tax Credit;
• Include postdoctoral fellowship income in “earned income” for Registered Retirement Savings Plan (RRSP) purposes;
• Enhance Canada’s income tax mandatory disclosure rules, as further detailed in the backgrounders Mandatory Disclosure Rules and Income Tax Mandatory Disclosure Rules Consultation: Sample Notifiable Transactions;
• Increase flexibility for plan administrators of defined contribution pension plans to correct for both under-contributions and over-contributions;
• Improve the fairness of certain taxes applicable to Registered Investments;
• Improve administration of, and compliance with, electronic filing and certification of tax and information returns;
• Temporarily extend certain timelines for the Canadian Film or Video Production Tax Credit (CPTC) and the Film or Video Production Services Tax Credit (PSTC);
• Combat the avoidance of tax debts through complex transactions that attempt to circumvent the tax debt collection avoidance rule;
• Ensure that the Canada Revenue Agency (CRA) has the authority it needs to conduct audits and undertake other compliance activities; and
• Limit the amount of interest and other financing expenses that businesses may deduct for income tax purposes based on a proportion of earnings. 

The draft proposals would also implement measures announced in previous budgets to:

• Enhance the tax reporting requirements for trusts in order to improve the collection of beneficial ownership information; and
• Update rules that address tax planning relating to allocations to redeeming fund unit holders in the mutual fund industry.

Draft proposals would address an error in the current law for the COVID-19 GST Credit Top-up so that it is consistent with the original intent of the measure as announced in March 2020 by the Government of Canada and how it has been administered by the CRA. In addition, draft proposals would ensure the proper functioning of the revocation tax with respect to organizations that have their registration as a charity revoked due to being listed as a terrorist entity.

To clarify the GST/HST treatment of crypto asset mining, draft proposals would specify that crypto asset mining would generally not be considered a “supply” for GST/HST purposes. This would mean that the GST/HST would not apply to the provision of crypto asset mining and input tax credits would not be available to the person providing the mining. 

Note that references to "Announcement Date" in the draft proposals, and the accompanying explanatory notes, refer to February 4, 2022. In addition to draft legislative proposals, sample notifiable transactions are detailed in the backgrounder Income Tax Mandatory Disclosure Rules Consultation: Sample Notifiable Transactions for the measure relating to mandatory disclosure rules.

Canadians are invited to provide comments on these draft proposals and the sample notifiable transactions. Please send your comments to Consultation-Legislation@fin.gc.ca.

Submissions on the following measures should be received by April 5, 2022: 

• Taxes applicable to Registered Investments;
• Mandatory Disclosure Rules;
• Avoidance of Tax Debts;
• Audit Authorities;
• Reporting Requirements for Trusts;
• Mutual Funds: Allocation to Redeemers; and
• Crypto Asset Mining.

Submissions specifically relating to the Interest Deductibility Limitation measure will be accepted until May 5, 2022.

Submissions on all other measures should be received by March 7, 2022.