Tax memo: Comprehensive income tax package released

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Long-awaited foreign affiliate amendments included

Memo No. 2012-40

On October 24, 2012, Canada’s Department of Finance (Finance) released a Notice of Ways and Means Motion (NWMM). This “comprehensive package of technical income tax legislation” implements a variety of outstanding technical tax amendments, including legislative proposals relating to the taxation of Canadian multinational corporations with foreign affiliates. In many ways the NWMM is the culmination of legislative developments that started almost ten years ago.

On December 20, 2002, Finance released almost 40 amendments to the Canadian foreign affiliate and foreign accrual property income regime. Unfortunately, the legislative package that followed on February 27, 2004, to address the anomalies and issues in the 2002 proposals only created even more anomalies and issues.

The 2004 draft rules were overhauled and replaced with a third set of draft proposals released on December 18, 2009, some of which were refined by draft legislation issued on August 27, 2010. The fifth release – on August 19, 2011 , modified certain areas of the 2004 draft legislation that had not been addressed in the 2010 proposals and introduced new proposals (such as the upstream loan rules).

The October 24, 2012, NWMM consolidates and amends many of these foreign affiliate proposals introduced in the last few years. Given that these proposals have been released as a NWMM, final foreign affiliate legislation can now be expected sometime in 2012 or 2013, which would provide taxpayers and their advisers some stability in this area for the first time in a decade.