Budget Implementation Act, 2016, No. 2 (S.C. 2016, c. 12)

• Published date: 16 March 2017
• Section: Part III - Acts of Parliament
• Gazette Issue: 2 - [object Object]

S.C. 2016, c. 12

Assented to 2016-12-15

A second Act to implement certain provisions of the budget tabled in Parliament on March 22, 2016 and other measures

RECOMMENDATION

His Excellency the Governor General recommends to the House of Commons the appropriation of public revenue under the circumstances, in the manner and for the purposes set out in a measure entitled “A second Act to implement certain provisions of the budget tabled in Parliament on March 22, 2016 and other measures”.

SUMMARY

Part 1 implements certain income tax measures proposed in the March 22, 2016 budget by

• (a) eliminating the eligible capital property rules and introducing a new class of depreciable property;

• (b) introducing rules to prevent the avoidance of the shareholder loan rules using back-to-back arrangements;

• (c) excluding derivatives from the application of the inventory valuation rules;

• (d) ensuring that the return on a linked note retains the same character whether it is earned at maturity or reflected in a secondary market sale;

• (e) clarifying the tax treatment of emissions allowances and eliminating the double taxation of certain free emissions allowances;

• (f) introducing rules so that any accrued foreign exchange gains on a foreign currency debt will be realized when the debt becomes a parked obligation;

• (g) ensuring that amounts are not inappropriately received tax-free by a policyholder as a result of a disposition of an interest in a life insurance policy;

• (h) preventing the misuse of an exception in the anti-avoidance rules in the Income Tax Act for cross-border surplus-stripping transactions;

• (i) indexing to inflation the maximum benefit amounts and the phase-out thresholds under the Canada child benefit, beginning in the 2020–21 benefit year;

• (j) amending the anti-avoidance rules in the Income Tax Act that prevent the multiplication of access to the small business deduction and the avoidance of the business limit and the taxable capital limit;

• (k) ensuring that an exchange of shares of a mutual fund corporation or investment corporation that results in the investor switching between funds will be considered for tax purposes to be a disposition at fair market value;

• (l) implementing the country-by-country reporting standards recommended by the Organisation for Economic Co-operation and Development;

• (m) clarifying the application of anti-avoidance rules in the Income Tax Act for back-to-back loans to multiple intermediary structures and character substitution; and

• (n) introducing rules to prevent the avoidance of withholding tax on rents, royalties and similar payments using back-to-back arrangements.

Part 1 implements other income tax measures confirmed in the March 22, 2016 budget by

• (a) allowing greater flexibility for recognizing charitable donations made by an individual’s former graduated rate estate;

• (b) clarifying what types of investment funds are excluded from the loss restriction event rules that otherwise limit a trust’s use of certain tax attributes;

• (c) ensuring that income arising in certain trusts on the death of the trust’s primary beneficiary is taxed in the trust and not in the hands of that beneficiary, subject to a joint election for certain testamentary trusts to report the income in that beneficiary’s final tax return;

• (d) clarifying that the Canada Revenue Agency and the courts may increase or adjust an amount included in an assessment that is under objection or appeal at any time, provided the total amount of the assessment does not increase; and

• (e) implementing the common reporting standard recommended by the Organisation for Economic Co-operation and Development for the automatic exchange of financial account information between tax authorities.

Part 1 also amends the Employment Insurance Act and various regulations to replace the term “child tax benefit” with “Canada child benefit”.

Part 2 implements certain goods and services tax and harmonized sales tax (GST/HST) measures proposed or confirmed in the March 22, 2016 budget by

• (a) adding certain exported call centre services to the list of GST/HST zero-rated exports;

• (b) strengthening the test for determining whether two corporations, or a partnership and a corporation, can be considered closely related;

• (c) ensuring that the application of the GST/HST is unaffected by income tax amendments that convert eligible capital property into a new class of depreciable property; and

• (d) clarifying that the Canada Revenue Agency and the courts may increase or adjust an amount included in an assessment that is under objection or appeal at any time, provided the total amount of the assessment does not increase.

Part 3 implements an excise measure confirmed in the March 22, 2016 budget by clarifying that the Canada Revenue Agency and the courts may increase or adjust an amount included in an assessment that is under objection or appeal at any time, provided the total amount of the assessment does not increase.

Division 1 of Part 4 amends the Employment Insurance Act to specify what does not constitute suitable employment for the purposes of certain provisions of the Act.

Division 2 of Part 4 amends the Old Age Security Act to provide that, in the case of low-income couples who have to live apart for reasons not attributable to either of them, the amount of the allowance is to be based on the income of the allowance recipient only.

Division 3 of Part 4 amends the Canada Education Savings Act to replace the term “child tax benefit” with “Canada child benefit”. It also amends that Act to change the manner in which the eligibility for the Canada Learning Bond is established, including by eliminating the national child benefit supplement as an eligibility criterion and by adding an eligibility formula based on income and number of children.

Division 4 of Part 4 amends the Canada Disability Savings Act to replace the term “child tax benefit” with “Canada child benefit”. It also amends the definition phase-out income.

Division 5 of Part 4 amends the Royal Canadian Mint Act to enable the Royal Canadian Mint to anticipate profit with respect to the provision of goods or services, to clarify the powers of the Royal Canadian Mint, to confirm the current and legal tender status of all non-circulation $350 coins dated between 1999 and 2006 and to remove the requirement that the directors of the Royal Canadian Mint have experience in respect of metal fabrication or production, industrial relations or a related field.

Division 6 of Part 4 amends the Financial Administration Act, the Bank of Canada Act and the Canada Mortgage and Housing Corporation Act to clarify certain powers of the Minister of Finance in relation to the sound and efficient management of federal funds and the operation of Crown corporations. It amends the Financial Administration Act to provide that the Minister of Finance may lend, by way of auction, excess funds out of the Consolidated Revenue Fund and, with the authorization of the Governor in Council, may enter into contracts and agreements of a financial nature for the purpose of managing risks related to the financial position of the Government of Canada. It also amends the Bank of Canada Act to provide that the Minister of Finance may delegate to the Bank of Canada the management of the lending of money to agent corporations. Finally, it amends the Canada Mortgage and Housing Corporation Act to provide that the Bank of Canada may act as a custodian of the financial assets of the Canada Mortgage and Housing Corporation.

Her Majesty, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows:

Short Title

Marginal note:Short title

1 This Act may be cited as the Budget Implementation Act, 2016, No. 2.

PART 1Amendments to the Income Tax Act and to Related Legislation R.S., c. 1 (5th Supp.)Income Tax Act

• 2 (1) Section 10 of the Income Tax Act is amended by adding the following after subsection (14):

  • Marginal note:Derivatives

    (15) For the purposes of this section, property of a taxpayer that is a swap agreement, a forward purchase or sale agreement, a forward rate agreement, a futures agreement, an option agreement, or any similar agreement is deemed not to be inventory of the taxpayer.

• (2) Subsection (1) applies to agreements entered into after March 21, 2016.

• 3 (1) The portion of paragraph 13(4.3)(d) of the Act before subparagraph (ii) is replaced by the following:

  • (d) any amount that would, if this Act were read without reference to this subsection, be included in the cost of a property of the transferor included in Class 14.1 of Schedule II to the Income Tax Regulations (including a deemed acquisition under subsection (35)) or included in the proceeds of disposition of a property of the transferee included in that Class (including a deemed disposition under subsection (37)) in respect of the disposition or termination of the former property by the transferor is deemed to be

    • (i) neither included in the cost nor the proceeds of disposition of property included in that Class,

• (2) Section 13 of the Act is amended by adding the following after subsection (7.4):

  • Marginal note:Deemed capital cost

    (7.41) Subsection (38) applies in respect of an amount repaid after 2016 as if that amount was repaid immediately before 2017, if

    • (a) the amount is repaid by the taxpayer under a legal obligation to repay all or part of an amount the taxpayer received or was entitled to receive that was assistance from a government, municipality or other public authority (whether as a grant, subsidy, forgivable loan, deduction from tax, investment allowance or as any other form of assistance) in respect of, or for the acquisition of, property the cost of which was an eligible capital expenditure of the taxpayer in respect of the business;

    • (b) the amount of an eligible capital expenditure of the taxpayer in respect of the business was reduced by paragraph 14(10)(c) because of the assistance referred to in paragraph (a); and

    • (c) paragraph 20(1)(hh.1) does not apply in respect of the amount...