Canada: Draft hybrid mismatch legislation

Draft hybrid mismatch legislation for public consultation was released

Draft hybrid mismatch legislation for public consultation was released

The government on 29 April 2022 released draft hybrid mismatch legislation for public consultation.

Feedback from stakeholders will be accepted until 30 June 2022.

The draft legislation is intended to neutralize tax benefits associated with hybrid cross-border arrangements that otherwise result in mismatches in the tax treatment of entities or financial instruments across jurisdictions. Generally, these mismatches can result in more than one deduction or a deduction without a corresponding income inclusion for a single economic expense.

The draft legislation addresses the treatment of payments under “hybrid financial instrument arrangements,” “hybrid transfer arrangements” and “substitute payment arrangements,” and also includes new rules to restrict the deduction from taxable income of certain dividends received from foreign affiliates.

The proposed hybrid mismatch arrangement rules will generally apply to payments that arise on or after 1 July 2022, including payments under arrangements entered into before that date.

The government also noted that it intends to release a second package of hybrid mismatch legislation at a later date, which may address payments under other types of arrangements and would apply no earlier than 2023.

Read a May 2022 report [PDF 206 KB] prepared by the KPMG member firm in Canada


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