Canada: Draft legislation includes Pillar Two rules and revised DST and EIFEL rules

The draft legislation also includes changes to AMT, GAAR, and luxury tax amendments.

14 August 2023

The Department of Finance on 4 August 2023 released new draft legislation for consultation that includes outstanding 2023 federal budget measures, technical amendments, and revised draft legislation for certain previously announced measures, including Pillar Two global minimum tax rules and revised digital services tax (DST) and excessive interest and financing expenses limitation (EIFEL) rules.

The draft legislation also includes changes to the alternative minimum tax (AMT) for high-income individuals, changes to the general anti-avoidance rule (GAAR), and luxury tax regulation amendments.

Comments on the draft legislative proposals are due by 8 September 2023, except for comments on the Pillar Two rules which are due by 29 September 2023.

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:

Tax on repurchases of equity, including share buybacks
Carbon capture, utilization and storage (CCUS) investment tax credit
Clean technology investment tax credit
Labor 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
Income tax treatment of credit unions

Other indirect tax measures

Finance also released draft legislation on several other previously announced indirect tax measures, including changes related to:

GST/HST* treatment of credit unions
Technical amendments to the GST/HST rules for financial institutions
Enhancements to the vaping product taxation framework
Remittance options for licensed cannabis producers
Tax-exempt sales of motive fuels for export

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 tax years beginning on or after 7 April 2022.

Read an August 2023 report prepared by the KPMG member firm in Canada

_{*GST/HST = goods and services tax / harmonized sales tax}

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor 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 on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 3712, 1801 K Street NW, Washington, DC 20006.