Tax memo: August 14, 2012 - Legislative proposals: Important international tax changes

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Memo No. 2012-31

On August 14, 2012, the Department of Finance released for consultation draft legislative proposals implementing measures included in the March 29, 2012 federal budget. For more on the 2012 budget, see our Tax memo2012 Federal budget: Continued tightening.”

While the August 14, 2012 legislative proposals generally mirror the measures included in the 2012 budget, they include some significant changes to the proposed foreign affiliate debt dumping rules. The August 14, 2012 proposals also include proposed amendments to the shareholder loan rules in subsection 15(2) of the Income Tax Act (the Act) that were not previously announced. These changes would allow, on an elective basis, an imputation of interest on certain loans that would otherwise have given rise to a deemed dividend pursuant to the combined operation of subsections 15(2) and 214(3) of the Act.

This Tax memo describes the key August 14, 2012 proposals that affect Canadian subsidiaries of foreign multinationals and provides PwC’s insights on the implications of these proposals.