Government of Canada Eases Tax
Compliance Burden for Internationally-Engaged Canadian Businesses
The Honourable Jim Flaherty, Minister of Finance, proposed changes to the
Income Tax Act for Canadian businesses with foreign affiliates and those that
report earnings in a foreign currency.
"Our government is committed to creating a corporate tax system that is both
fair and internationally competitive," said Minister Flaherty. "The proposals I
am announcing will improve the tax system and will assist Canadian businesses in
complying with the tax law."
Foreign Affiliates Bill C-28, the second Budget 2007 implementation bill,
provided substantial tax relief for Canadian businesses, including the historic
corporate income tax rate reductions announced in the 2007 Economic Statement.
In addition, the bill, which received Royal Assent on December 14, 2007,
implemented a number of amendments to the Income Tax Act relating to foreign
affiliates. Included in the bill were provisions which allow taxpayers to elect
retroactive application of some of these foreign affiliate amendments. However,
in response to concerns that the deadline for filing these elections is too
tight—for example, a taxpayer with a December 31, 2007 year-end must file these
elections by June 30, 2008—the Government is proposing to extend the filing
deadline for these elections by 18 months.
These proposals are set out in more detail in the attached annex. Functional
Currency Tax Reporting Bill C-28 also included amendments to the Act that
implemented the Budget 2006 proposal to introduce functional currency tax
reporting rules. In response to representations from stakeholders concerning the
amended rules, the Government is proposing several technical revisions.
The revisions, which are described in detail in the attached annex, include:
Extending the deadline to elect functional currency tax reporting to October 31,
2008; Amending the definition of "functional currency" to address concerns about
its practical application to the situations of certain taxpayers; and
Introducing symmetry in foreign exchange rate calculations used in the reporting
of assets and debt obligations.