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11 August 2008

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Legislative proposals released regarding remaining Budget 2008 tax measures

On 14 July 2008, the Minister of Finance released draft legislative proposals to implement the remaining tax measures from Budget 2008 along with several previously announced tax initiatives for consultation.

The proposals include draft legislation to:

-   clarify the application of the excess corporate holdings rules for private foundations;
-   increase the amount that corporations will be able in future to pay as "eligible dividends", to reflect lower corporate income tax rates and in keeping with the Budget 2008 modification of the dividend tax credit;
-   reduce the paper burden on businesses by allowing a larger number of government entities to share business number-related information in connection with government programs and services;
-   enact several regulatory amendments that complement and complete measures enacted in the Budget Implementation Act, 2008; and
-   introduce minor adjustments to the Tax Free Savings Account rules and the scientific research and experimental development investment tax credit rules, further to post-Budget consultation with affected taxpayers.

The draft legislative proposals also include other previously announced measures including:

-   new income tax rules to facilitate the conversion of specified investment flow through (SIFT) trusts (often referred to as "income trusts") into corporations. The rules reflect the government's commitment to ensure that existing SIFTs can choose to reorganize as corporations without undue tax effects;
-   revised draft amendments to take into account financial institution accounting changes;
-   the extension of the general treatment of capital gains and losses on an acquisition of control of a corporation to gains and losses that result from fluctuations in foreign exchange rates in respect of debt denominated in foreign currency;
-   an enhanced carry-forward for investment tax credits;
-   updated prescribed amounts for automobile expenses and benefits;
-   revised draft amendments relating to the computation of income, gains and losses of a foreign affiliate; and
-   revised draft regulations that modify the tax treatment of foreign affiliate active business income earned in a jurisdiction with which Canada has concluded a tax information exchange agreement.

For simplicity, these draft proposals assume that all other pending legislative proposals, including those that are currently before Parliament, will have been enacted as proposed before the measures in this release are themselves enacted. While it is expected that the draft amendments will form part of a bill to be introduced into Parliament later this year, that bill may also include other items.

Interested parties are invited to provide comments on the draft legislative proposals by 15 September 2008.

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