Thank you, Mr. Chair.
I'm going to provide a brief overview of the items in part 1 of the bill, each of which relates to proposed income tax amendments.
Part 1 includes a number of amendments that were announced as part of the 2017 federal budget. These include removing the classification as Canadian exploration expenses of costs incurred in respect of a drilling well. They would instead, unless they're proven to be unsuccessful, be classified as Canadian development expenses. If unsuccessful, they would continue to be Canadian exploration expenses.
They would eliminate, for qualifying small oil and gas companies, the ability to re-characterize up to $1 million of expenses, which would otherwise qualify as Canadian development expenses, as Canadian exploration expenses. The difference being that Canadian development expenses are deductible at a rate of 30% per year, whereas Canadian exploration expenses are fully deductible in the year incurred.
They would revise the anti-avoidance rules for registered education savings plans and registered disability savings plans, aligning them with the current rules that apply in respect of registered retirement savings plans, registered retirement income funds, and tax-free savings accounts.
They would eliminate the ability of designated professionals to use the billed-basis accounting system. They would instead be required to use the general rules applicable to other taxpayers in the Income Tax Act for their tax accounting purposes.
They provide enhanced tax treatment in respect of eligible geothermal energy equipment. The enhanced treatment consists of accelerated capital cost allowance rates at 50% in class 43.2, as well as the ability to classify certain expenses in respect of qualifying geothermal projects as Canadian renewable conservation expenses, which can be deducted in the year incurred, or transferred to investors in flow-through shares.
It would extend the currently existing base for erosion rules that apply to foreign affiliates of Canadian taxpayers, and prevent them from inappropriately shifting income in respect of the insurance of Canadian risks offshore to a foreign affiliate. It would extend those rules to foreign branches of Canadian life insurers, which, for many purposes of the tax system, are treated in a manner similar to foreign affiliates of a Canadian corporation, including their, in very general terms, exemption from Canadian tax on their active business income.
It would clarify who has factual or de facto control of a corporation for Canadian tax purposes. This is intended to return the state of the law to what it was before a recent court decision, and requires that all relevant factors are to be taken into consideration in determining whether a person has factual control of the corporation.
It introduces an election that would allow taxpayers who hold eligible derivatives as income properties to be able to treat them as market-to-market properties, which would allow changes in the value of the derivatives to be realized for tax purposes on an annual basis. Otherwise, the default rule would be taxation on the realization basis.
It would introduce a specific anti-avoidance rule in respect of so-called straddle transactions. These are transactions that use somewhat complex derivative instruments, offsetting derivative instruments to achieve an inappropriate deferral of taxation from one year to the next.
It would allow mutual fund corporations, that are organized as switch corporations, but would now be more appropriately called multi-class mutual fund corporations, where each class of share of a corporation is a separate investment fund. It would allow them to effectively, on a tax-deferred basis, merge or split up into a number of mutual fund trusts. Each of those mutual fund trusts would constitute its own investment fund.
It would also improve the tax treatment of segregated funds. These are insurance products that in many ways, including through their tax treatment, are intended to be similar to ordinary investment funds. There are some minor differences. This bill would extend the ability for segregated funds to merge on a tax-deferred basis and as such achieve economies of scale. It also would allow the carry-forward of non-capital losses from one year to the next. Both of those can currently be achieved by an ordinary mutual fund operating through a trust. That would be extended to segregated funds of insurance companies.
On the measures announced in the budget, finally, there are enhancements to the protections afforded to gifts of ecologically sensitive land. It also implements a number of other income tax measures in part 1 by closing loopholes surrounding capital gains exemptions on the sale of a principal residence. These were released for public consultation in October 2016, and were mentioned as previously announced measures in the budget text in “Tax Measures: Supplementary Information”.
It extends a measure, announced as part of budget 2017, to provide additional authority for nurse practitioners—for many Canadians, they are the primary point of contact in the medical system—so that nurse practitioners can certify things for a number of purposes beyond the disability tax credit, which was announced in budget 2016.
It would also, following on a measure from budget 2016, provide that sales by farmers and fishers of their farming products and fishing catches to qualifying co-operatives would be exempted from the measures announced as part of budget 2016 that would prohibit the multiplication of the small business deduction, allowing each such farmer or fisher to have full access to the small business deduction.
It would also introduce a number of proposed technical amendments that were released for public consultation in September of 2016 and were also mentioned in “Tax Measures: Supplementary Information”, which accompanied the budget. These include measures that would extend the types of reverse takeover transactions to which the corporate acquisition of control rules apply and make a number of tweaks and improvements to the scientific research and experimental development rules. It would provide rules for the allocation of income for federal credit unions between provinces and territories that completely mirror the rules that currently apply to banks. It would make a number of changes to improve the operation of Canada's international tax rules.
Finally, it contains a number of measures that are technical in nature to improve the accuracy and consistency of the income tax legislation and regulations. These are technical amendments that are announced for consultation and included in bills from time to time to ensure the proper ongoing operation of the income tax system.
That's a summary of the measures in part 1 of the bill.
