Tax Memo: Alert for Corporations: Draft Legislation Makes Previously Announced Changes

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On October 2, 2007, the federal Minister of Finance, the Honourable Jim Flaherty, released an omnibus package of draft tax legislation that contains many personal and corporate changes. Comment by the public is invited until October 23.

Key corporate tax changes:

• introduce measures to curtail tax benefits derived from using:
  • double-dip (interest) financing arrangements; or
  • entities located in so-called tax haven countries;
• reintroduce the less controversial relieving and tightening changes to the Canadian foreign affiliate and the foreign accrual property income regimes;
• permit a corporation to choose a foreign currency as its functional currency for computing profit and gains for Canadian federal income tax purposes;
• remove the withholding tax obligation for interest payments on loans (even with a term under five years) from arm’s length foreign lenders; and
• force private foundations to dilute their shareholder ownership percentage in a corporation.

These were announced in the 2007 federal budget and in earlier versions of draft tax legislation.