Finance has released new draft legislation for consultation that includes outstanding 2023 federal budget measures, technical amendments and revised draft legislation for certain previously announced measures. Finance’s release includes 365 pages of draft legislation (with almost 450 pages of explanatory notes) that includes many significant outstanding tax measures, including a draft Global Minimum Tax Act (Pillar Two), a revised draft Digital Services Tax Act and revised excessive interest and financing expenses limitation (EIFEL) rules. The draft legislation also includes changes to the alternative minimum tax for high-income individuals (AMT), several green tax credits, changes to the General Anti-Avoidance Rule (GAAR), luxury tax regulation amendments and more.
Finance has invited comments on these draft legislative proposals by September 8, 2023, except for submissions regarding the Global Minimum Tax Act, which will remain open until September 29, 2023. Finance notes that references to “Announcement Date” in the draft legislation and the accompanying explanatory notes refer to August 4, 2023.
Global Minimum Tax (Pillar Two)
Finance released 147 pages of draft legislation for comment on the new Global Minimum Tax Act, which it says will be updated as necessary to reflect elements of the guidance recently released by the OECD/G20 Inclusive Framework (including on the treatment of transferable and other tax credits). Finance has also published a 10-page “Table of Concordance” that cross-references certain provisions of the draft legislation with the OECD source documents on which they are based.
Other business tax measures
Finance also released new or revised draft legislation that includes 2023 federal budget and other previously announced business tax measures related to:
- EIFEL rules
- Tax on repurchases of equity, including share buybacks
- Carbon Capture, Utilization and Storage (CCUS) Investment Tax Credit
- Clean Technology Investment Tax Credit
- Labour requirements related to certain investment tax credits
- Enhancing the reduced tax rates for zero-emission technology manufacturers
- Flow-through shares and the Critical Mineral Exploration Tax Credit – lithium from brines
- Employee ownership trusts
- Registered compensation arrangements
- The income tax treatment of credit unions
- Changes to the GAAR.
For more information on the previous draft EIFEL legislation released on November 3, 2022, see TaxNewsFlash-Canada 2022-53, "Finance Revises Interest Expense Limitation Proposals". For more information on the 2023 federal budget proposals, see TaxNewsFlash-Canada 2023-17, "2023 Federal Budget Highlights".
Personal tax measures
The draft legislation includes personal tax measures announced in the 2023 federal budget related to:
- Changes to the AMT for high-income individuals
- Strengthening the intergenerational business transfer framework (Bill C-208 amendments).
DST and other indirect tax measures
Finance released 69 pages of revised draft legislation (and 138 pages of explanatory notes) for the draft Digital Services Tax Act. Finance had originally released draft legislation for the DST for comment in December 2021 (see TaxNewsFlash-Canada 2021-64, "Canada Lays Out Digital Tax Proposals for Businesses”).
Finance also released draft legislation on several other previously announced indirect tax measures, including changes related to:
- The GST/HST treatment of credit unions
- Technical amendments to the GST/HST rules for financial institutions. including exceptions to the new paragraph of the definition of “financial service” of the Excise Tax Act added in the 2023 federal budget related to certain debit and credit card fees
- Revised luxury tax draft regulations
- Enhancements to the vaping product taxation framework
- Remittance options for licensed cannabis producers
- Tax-exempt sales of motive fuels for export.
Technical amendments
In addition to the measures noted above, Finance released 25 pages of income tax technical amendments covering a broad range of personal, business and international tax measures, among others.
Update on other select outstanding measures
In a related news release, Finance notes that it will soon publish details on the Clean Hydrogen Investment Tax Credit. Finance says that the cleanest forms of blue hydrogen (hydrogen produced from natural gas where emissions are abated using CCUS) are intended to be eligible for the investment tax credit.
Finance also says it continues to invite stakeholder feedback on the Substantive Canadian-Controlled Private Corporation (CCPC) proposals announced in the 2022 federal budget. These proposals would amend the Income Tax Act to apply the same relevant tax factor in respect of certain amounts earned and distributed by foreign affiliates of individuals, CCPCs, and substantive CCPCs for taxation years beginning on or after April 7, 2022. For further details, see TaxNewsFlash-Canada 2022-24, "2022 Federal Budget Highlights”.
For more information, contact your KPMG adviser.
Information is current to August 8, 2023. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500
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