Q Accounting status

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1 Corporate Tax Rates and Legislation / 2016 Issue 3/ October 5, 2016 From Tax Management and Accounting Services Q Accounting status This quarterly update discusses developments related to the accounting for income taxes in Canada. This edition includes: Legislative changes July 1, 2016, to September 30, 2016 Accounting updates July 1, 2016, to September 30, 2016 Federal and provincial/territorial bills tabled or received royal assent in 2016 Corporate income tax rates accounting status (January 1, 2013, to September 30, 2016) PwC contacts Legislative changes July 1 to September 30, 2016 Legislative developments from July 1 to September 30, 2016, that affect income taxes are outlined below. July 29, 2016 draft tax legislative proposals (2016 federal budget measures) On July 29, 2016, the Department of Finance released draft tax legislative proposals to implement key 2016 federal budget proposals. Comments were due by September 27,

2 Key draft tax legislative proposals: repeal the eligible capital property regime and replace it with a new capital cost allowance pool, starting January 1, 2017 amend the debt-parking rules to realize any accrued foreign exchange gains on a foreign currency debt when the debt becomes a parked obligation, generally for debt that becomes a parked obligation after March 21, 2016 amend an exception to the anti-surplus-stripping rules in subsection 212.1(4) of the Income Tax Act, for dispositions occurring after March 21, 2016, to ensure the exception does not apply when a non-resident corporation: owns, directly or indirectly, shares of the Canadian purchaser corporation, and does not deal at arm s length with the Canadian purchaser corporation expand the back-to-back loan rules, by: extending the rules to cross-border payments of rents, royalties or similar payments made after 2016 adding character substitution rules that apply when there is a substitution of an economically similar arrangement between the intermediary and another non-resident person, for interest and royalty payments made after 2016 amending the shareholder loan rules to include rules similar to the back-toback loan rules, except that the proposed rules will apply to debts owing to Canadian-resident corporations rather than debts owing by Canadian-resident taxpayers, for back-to-back shareholder loan arrangements as of March 22, 2016 clarifying the application of these rules to back-to-back arrangements involving multiple intermediaries, for interest and royalty payments made after 2016, and for shareholder debts as of January 1, 2017 For more information, see our Tax Insights 2016 Federal budget: A new era with a majority Liberal government at Status: As of September 30, 2016, the July 29, 2016 proposals had not been tabled in the House of Commons, and therefore are not substantively enacted or enacted. September 16, 2016 draft tax legislative and regulatory proposals On September 16, 2016, the Department of Finance released draft tax legislative and regulatory proposals relating to technical amendments to the Income Tax Act and related legislation that: improve the accuracy and consistency of the income tax legislation and regulations extend the types of reverse takeover transactions to which the corporate acquisition of control rules apply improve the consistency of rules that apply to scientific research and experimental development expenditures introduce rules to ensure that the taxable income of federal credit unions will be allocated among provinces and territories using the same allocation formula that applies to the taxable income of banks ensure that Canada s international tax rules are applied appropriately, including: making relieving changes to the upstream loan rules (and related transitional relieving rules) re-introducing previously proposed rules to ensure an appropriate stub-year foreign accrual property income (FAPI) inclusion on dispositions of foreign affiliate shares introducing an elective rule that provides tax-deferred treatment for dispositions of taxable Canadian property on a foreign merger 2 PwC

3 making generally relieving changes to the shareholder benefit rules that apply to foreign corporate reorganizations clarifying the taxation of dispositions of taxable Canadian property resulting from a negative adjusted cost base in a property For more information, see our Tax Insights September 16, 2016 Draft proposals: What they mean for international transactions at Status: As of September 30, 2016, the September 16, 2016 proposals had not been tabled in the House of Commons, and therefore are not substantively enacted or enacted. Accounting updates July 1 to September 30, 2016 Financial Accounting Standards Board (FASB) issues proposed Accounting Standards Update on income tax disclosures On July 26, 2016, the FASB issued a proposed Accounting Standards Update (ASU) Disclosure Framework Changes to the Disclosure Requirements for Income Taxes. The proposed ASU is part of an overall FASB disclosure framework project. It proposes new disclosures and modifies or eliminates some existing disclosures on income taxes for all entities. Comments were due by September 30, See our Tax Insights FASB issues proposed Accounting Standards Update ( ASU ) impacting income tax disclosures at International Accounting Standards (IAS) 12, Income Taxes Draft Interpretation: Uncertainty over Income Tax Treatments On October 21, 2015, the International Accounting Standards Board s IFRS Interpretations Committee (IFRIC) released a draft Interpretation Uncertainty over Income Tax Treatments on how to measure current and deferred tax assets and liabilities arising from uncertain tax positions. In September 2016, IFRIC: revised the draft Interpretation (after reviewing stakeholder comments), and commented that it will consider whether it has completed the necessary steps to issue an Interpretation at a future IFRIC meeting For more information, see our publication, Uncertainty over Income Tax Treatments: Client action plan at PwC 3

4 Federal and provincial/territorial bills Table 1 lists key bills that include income tax rate changes or other income tax changes (e.g. for research and development) that were: tabled or received royal assent during 2016, or tabled before 2016, but did not receive royal assent before 2016 There were no changes in status from July 1 to September 30, Table 1: Federal and provincial/territorial bills Federal Legislation Recognized for accounting purposes Bill # Bill name Canada US GAAP C-2 1 An Act to amend the Income Tax Act December 9/15 C-15 An Act to implement certain provisions of the budget tabled in Parliament on March 22, 2016 and other measures Not as of September 30/16 April 20/16 June 22/16 British Columbia 10 Budget Measures Implementation Act, 2016 February 16/16 March 10/16 Manitoba 11 The Budget Implementation and Tax Statutes Amendment Act, 2016 June 15/16 June 30/16 New Brunswick 18 An Act Respecting Fiscal Measures February 3/16 June 28/16 Newfoundland and Labrador Ontario An Act to Amend the Income Tax Act, 2000 No An Act to Amend the Income Tax Act, 2000 No. 4 May 19/16 17 An Act to Amend the Income Tax Act, 2000 No. 5 June 6/16 An Act to implement Budget measures and to enact or amend various statutes June 7/16 February 25/16 April 19/16 1. Bill C-2 implements measures that were in the December 7, 2015 Notice of Ways and Means Motion. See our Tax Insights Alert for private corporations: Some tax rates to increase at 4 PwC

5 Corporate income tax rates accounting status (January 1, 2013, to September 30, 2016) The following information excludes Canadian-controlled private corporation small business rates and thresholds. There were no changes in status from July 1 to September 30, Table 2: Corporate income tax rates accounting status Federal Alberta Effective date Rate Recognized for accounting purposes Canada US GAAP and manufacturing and 15% processing (M&P) Provincial SIFT tax factor/rate 1 Varies 1 and M&P Bill # Before July 1/15 10% July 1/15 12% June 18/15 June 29/15 2 British Columbia and M&P Before April 1/13 10% April 1/13 11% June 27/13 July 25/13 2 Manitoba and M&P 12% Before July 1/13 10% New Brunswick Newfoundland and Labrador and M&P M&P July 1/13 12% May 22/13 June 21/13 51 April 1/16 14% February 3/16 June 28/16 18 Before January 1/16 14% January 1/16 15% May 19/16 June 7/16 15 Before January 1/16 5% January 1/16 15% June 6/16 June 7/16 17 Northwest Territories and M&P 11.5% Nova Scotia and M&P 16% Nunavut and M&P 12% Ontario Prince Edward Island Quebec Saskatchewan Yukon 11.5% M&P 10% Corporate Minimum 2.7% Tax (CMT) and M&P 16% and M&P Before January 1/ % January 1/ % January 1/ % January 1/ % January 1/ % Not as of September 30/16 SIFT Distribution Tax 11.9% 12% M&P 10% 15% M&P 2.5% None 1. Except for Quebec, the provincial Specified Investment Flow-Through (SIFT) tax rate is: based on the general provincial corporate income tax rate for each province in which the SIFT has a permanent establishment 10% for SIFTs that do not have a permanent establishment in a province PwC 5

6 Let s talk For a deeper discussion of how the accounting status of tax rates and legislation might affect your business, please contact: John Gotts, Greater Toronto Area Tax Management and Accounting Services (TMAS) Leader john.gotts@pwc.com Spence McDonnell, Greater Toronto Area Tax Accounting Services (TAS) Leader spence.n.mcdonnell@pwc.com Christine Girouard, Montreal christine.girouard@pwc.com Genevieve Groulx, Calgary genevieve.groulx@pwc.com 2016 PricewaterhouseCoopers LLP, an Ontario limited liability partnership. All rights reserved. PwC refers to the Canadian member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisers.