Canada: First reading of second 2023 federal budget bill includes EIFEL, hybrid mismatch, and DST rules

Bill C-59 received first reading in the House of Commons on 30 November 2023

Bill C-59 received first reading in the House of Commons on 30 November 2023

Bill C-59, which includes certain outstanding 2023 federal budget measures, 2023 federal economic update measures and other previously announced changes and technical amendments, received first reading in the House of Commons on 30 November 2023.

Business tax measures

The bill includes many previously announced tax measures from the 2023 and earlier federal budgets and the 2023 federal economic update, including measures related to:

  • Excessive interest and financing expenses limitation (EIFEL) rules
  • Hybrid mismatch arrangements (first tranche)
  • New substantive Canadian controlled private corporation (CCPC) rules (but does not yet include related measures to eliminate deferral for CCPCs (and substantive CCPCs) earning certain income through foreign affiliates)
  • Expansion of eligible minerals for critical mineral exploration tax credit (CMETC) to include lithium from brines
  • Carbon capture, utilization and storage (CCUS) investment tax credit (including labour conditions)
  • Clean technology investment tax credit (including labour conditions)
  • Expanded eligible activities for corporate income tax rate reduction for zero-emission technology manufacturing to include certain nuclear manufacturing and processing activities, and three-year extension for the availability of the rate reduction
  • 2% tax on the net value of equity repurchases by certain publicly listed entities
  • Changes to the general anti-avoidance rule (GAAR)
  • Dividend received deduction by financial institutions
  • Removing the requirement that credit unions derive no more than 10% of their revenue from sources other than certain specified sources
  • Technical changes to existing rules for the first home savings account
  • Exemption of certain fees from the refundable tax applicable to contributions under retirement compensation arrangements.

Individual (personal) tax changes

The bill also includes previously announced personal tax measures related to:

  • Intergenerational business transfers
  • Employee ownership trusts (but does not yet include the proposed temporary exemption for the first $10 million* of capital gains realized on the sale of a business to an employee ownership trust, subject to certain conditions, announced in the 2023 Federal Fall Economic Update)
  • Allowable successors of a holder of a registered disability savings plan
  • An increase in the rural top-up on the pollution price rebate to 20% (from 10%) of the base amount

Indirect tax changes

Among other indirect tax changes, the bill includes the Digital Services Tax Act, which is proposed to come into force on the day that is fixed by Order of the Governor in Council, but not earlier than 1 January 2024.

Notably the bill does not include proposed changes to the alternative minimum tax (AMT) or deferral for CCPCs (and substantive CCPCs) earning certain income through foreign affiliates (as Finance is continuing to work on these measures), the Global Minimum Tax Act, or legislation for the clean hydrogen, clean electricity, or clean technology manufacturing investment tax credits. 

Read a December 2023 report prepared by the KPMG member firm in Canada

*$=Canadian dollar

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