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Keeping track of changes and developments in GST/HST, Quebec sales tax and other provincial sales taxes across Canada, can be a full-time job. The consequences for failing to adequately manage your organization’s sales tax obligations can be significant - from assessments, to forgone recoveries and cash flow implications, to customer or reputational risk.
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In an increasingly flexible world, moving across the border may be more viable for Canadians and Americans; however, relocating may also have complex tax implications.
While there is great opportunity for businesses looking to expand globally, organizations are under increasing tax scrutiny. Regardless of your company’s size and level of international involvement—whether you’re working abroad, investing, buying and selling, borrowing or manufacturing—doing business beyond Canada’s borders comes with its fair share of tax risks.
Transfer pricing is a complex area of corporate taxation that is concerned with the intra-group pricing of goods, services, intangibles, and financial instruments. Transfer pricing has become a critical governance issue for companies, tax authorities and policy makers, and represents a principal risk area for multinationals.
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Oil & gas
The oil and gas industry is facing many complex challenges, beyond the price of oil. These include environmental issues, access to markets, growing competition from alternative energy sources and international markets, and a rapidly changing regulatory landscape, to name but a few.
Bill C-47, which was introduced on April 20, 2023, includes a wide range of tax measures such as the expanded mandatory disclosure rules. This bill also includes certain measures from Budget 2023 that aim to provide inflationary relief to Canadians and other previously proposed measures.
What are the key measures in Bill C-47?
Expanded mandatory disclosure rules
Bill C-47 includes the new mandatory disclosure rules which are expected to increase the compliance burden for taxpayers, advisors, and promoters (and certain other parties), where the rules apply. These new mandatory disclosure rules expand the definition of “reportable transaction” and introduce new reporting requirements for “notifiable transactions” and “uncertain tax treatments”. The bill also introduces significant new penalties and extended reassessment periods for non-compliance.
Further, Bill C-47 includes notable changes from previous draft legislation to:
- increase the filing deadline to 90 days (from 45 days) of the earlier of when the taxpayer (or anyone acting on behalf of the taxpayer) enters into a reportable or notifiable transaction or becomes contractually obligated to enter the transaction; however, the proposed filing deadline to report uncertain tax treatments remains six months after the taxation year-end
- add a carve-out so that a taxpayer isn’t subject to new reporting requirements as a result of paying a contingent fee for the preparation of a Scientific Research & Experimental Development (SR&ED) claim
- prevent certain insurance or other protections integral to an arm’s length agreement for the sale of a business from resulting in a reportable transaction, provided it’s needed to ensure the purchase price accounts for any liabilities of the business immediately prior to the sale, and primarily not to achieve a tax benefit
- remove joint and several liability for penalties under the reportable transactions and notifiable transactions rules (which is a welcome change as many parties may have a reporting requirement for the same transaction)
The new rules for reportable and notifiable transactions are proposed to be effective for transactions entered into after the date Bill C-47 receives Royal Assent. The uncertain tax treatment reporting rules are proposed to apply to taxation years beginning after 2022, but penalties won’t apply to taxation years beginning before the date on which Bill C-47 receives Royal Assent. The CRA hasn’t yet published new reporting forms at the time this article was last updated.
The proposed new mandatory rules are complex, reporting deadlines are short, and the non-compliance penalties are high, so it is important to understand when they may apply. For more details on these proposals and how they may impact you, please refer to our tax alert.
Residential property flipping rule extends to assignment sales
Bill C-47 expands the existing anti-flipping rule, which deems gains from a “flipped residential property” as business income, to include gains on certain assignment sales. Specifically, the bill expands the rule so that individuals who hold the rights to a pre-construction residential property (e.g., a condominium unit) and sell those rights for a gain within 12 months would be deemed to have received business income for tax purposes. The expanded rule applies to assignment sales of residential properties for dispositions that occur on or after January 1, 2023.
Refer to our tax alert for more details on the residential property flipping rules.
New reporting requirements for digital platform operators
Bill C-47 includes the new reporting requirements for certain digital platform operators, which require digital platform operators to complete certain due diligence procedures and disclose information in respect of certain reportable sellers and their activities. The new rules are proposed to take effect on January 1, 2024.
Other business measures
Other notable business measures in Bill C-47 include changes to:
- Shareholder loans: Tightens the ordinary lending business exception to shareholder loan rules by adding a 90% arm’s-length loan threshold, which applies to loans made after 2022 and to the portion of any pre-2023 shareholder loans outstanding as of January 1, 2023 (which is treated as a separate loan as of that date).
- Hedging and short selling by Canadian financial institutions: Prevents financial institutions from using hedging and short selling arrangements to generate artificial tax deductions. Specifically, the bill denies a taxpayer a deduction for a dividend received and allows the payor to take a full deduction (rather than two-thirds) in certain circumstances. The measure applies to dividends and related compensation paid on or after April 7, 2022 (or after September 2022 if the hedging transaction was entered into before April 7, 2022).
- Eligible capital property disposition payments: Introduces a new election for certain historical arm’s-length eligible capital property (ECP) dispositions to permit the gain to be treated as business income, similar to how it would’ve been treated before the repeal of the ECP rules, rather than a capital gain for tax purposes. The ECP disposition must have been made before March 22, 2016, where any portion of the proceeds was receivable after 2016 and prior to 2024 as a result of a condition in the purchase and sale agreement which the parties (as of the end of 2016) didn’t know whether the condition would be met. The deadline to make this election is the filing due date of the taxpayer’s first taxation year ending after August 9, 2022.
- Functional currency reporting: Adds the Japanese yen as a qualifying currency for functional currency reporting applicable for tax years beginning after 2019.
Other personal measures
Bill C-47 also includes other personal tax measures including changes to:
- Canada workers benefit (CWB): Automatically provides advance CWB payments to individuals who qualified for the CWB in the prior year for 2023 and onwards.
- Registered education savings plan (RESP): Permits divorced or separated parents to open a joint RESP account for their children. Also, the bill increases educational assistance payments withdrawal limits. See our Budget 2023 [ 1526 kb ] tax alert for further details.
- Registered disability savings plan (RDSP): Extends the temporary measure to allow a qualifying family member to open a RDSP and act as the plan holder for an adult who is mentally incapable of entering into a contract to December 31, 2026 (from December 31, 2023). Also, the bill expands the definition of a qualifying family member for the purposes of this measure to include adult siblings, effective the date of Royal Assent.
- Deduction for tradesperson’s tools expenses: Doubles the maximum deduction for the tradespeople’s tools expense to $1,000 (from $500), effective for 2023 and onwards.
- Canadian dental care plan information sharing: Enables the CRA to share taxpayer information with Health Canada or Employment and Social Development Canada to determine eligibility under the Canadian Dental Care Plan.
Sales tax measures
Bill C-47 includes a number of sales tax measures previously announced in Budget 2023 [ 1526 kb ], including changes to:
- Alcohol excise duty rate: Temporarily caps the indexed excise duty rate increase for beer, wine and spirits at 2% for one year, effective April 1, 2023.
- Air travellers security charge (ATSC): Increases the ATSC by 32.85% for passenger flights, effective for air transportation services that include a chargeable flight segment on or after May 1, 2024 where the payment is also made after that date.
- Payment card clearing services: Excludes payment card clearing services from the definition of “financial services” to clarify that these services are subject to GST/HST.
Tax administration changes
Bill C-47 proposes several administrative changes which will require many taxpayers and tax preparers to increase their use of CRA’s electronic services. The bill includes changes to:
- Electronic payments: Requires taxpayers to make payments over $10,000 to the CRA electronically, effective January 1, 2024, except for remitters or payors who can’t “reasonably” remit the payment electronically. A $100 penalty would apply to each failure to comply.
- Electronic filing thresholds for corporate income tax returns: Requires all corporations to file their income tax returns electronically, starting with tax years beginning after 2023 by eliminating the $1 million gross revenue threshold. A $1,000 penalty would apply for failing to comply.
- Electronic filing thresholds for tax preparers: Reduces mandatory electronic filing thresholds for professional tax preparers to five (from 10) for corporate and personal income tax returns per year and introduces a mandatory electronic filing threshold of five returns per year for trust returns, effective January 1, 2024.
- Electronic filing thresholds for information returns: Reduces the mandatory electronic filing threshold for information returns to five slips (from 50) of a particular type, effective for certain information returns filed after 2023. For example, a T4 return with five or more T4 slips must be filed electronically if filed in 2024 or onwards. The penalties for failing to file an information return electronically when required range from $125 to $2,500 depending on the number of slips.
- Electronic signatures: Permits electronic signatures for T183 forms and Form T2200, “Declaration of Conditions of Employment”. The CRA previously indicated they accept electronic signatures on these forms as a temporary administrative measure.
- Electronic correspondence: Allows the CRA to send notices of assessment and other correspondence to businesses electronically through My Business Account by default, unless paper correspondence is requested at least 30 days in advance. This measure is effective upon Royal Assent.
Bill C-47 includes a variety of measures which may impact you or your business. If you need help navigating these tax measures or have any questions, our advisors are here to help you—reach out to us here.
The information contained herein is general in nature and is based on proposals that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice or an opinion provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, specific circumstances or needs and may require consideration of other factors not described herein.
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