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3 September 2012

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Draft legislative proposals introduced

The Department of Finance released two sets of draft legislative proposals on 25 July 2012.

The first set of proposals would implement measures announced on 20 July 2011 relating to the taxation of:

  specified investment flow-through entities (SIFTs);
  real estate investment trusts (REITs); and
  publicly-traded corporations.

In brief, the SIFT rules, first announced as part of the government's Tax Fairness Plan on 31 October 2006, are intended to restore balance and fairness to the income tax system by levelling the playing field between publicly-traded trusts and partnerships and public corporations. The proposed amendments also include adjustments to the SIFT rules that are of a more technical nature.

The second set of proposals are in response to the Tax Court of Canada decision in Richard Lewin Re: The J.J. Herbert Family Trust #1 v. The Queen, 2011 TCC 476. Without the amendments, the decision would make it more difficult to enforce the withholding tax rule that applies to payments from Canadian resident trusts to non-resident beneficiaries in circumstances where a trust emigrates from Canada. These proposals address situations in which a Canadian resident trust makes an amount payable to a non-resident beneficiary of the trust but only actually pays or credits the amount in the beneficiary's favour at some later time after the trust has ceased to be resident in Canada. In these circumstances, the amount will be deemed to have been paid or credited before the trust became non-resident.

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