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Bill C-22

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RECOMMENDATION

Her Excellency the Governor General recommends to the House of Commons the appropriation of public revenue under the circumstances, in the manner and for the purposes set out in a measure entitled ``An Act to amend the Income Tax Act, the Income Tax Application Rules, certain Acts related to the Income Tax Act, the Canada Pension Plan, the Customs Act, the Excise Tax Act, the Modernization of Benefits and Obligations Act and another Act related to the Excise Tax Act''.

SUMMARY

These amendments implement income tax measures announced in the February 2000 budget and the October 2000 Economic Statement and Budget Update, as well as a variety of amendments to the Income Tax Act and related statutes most of which were originally included in Bill C-43 (first reading in September 2000) or otherwise previously announced. The measures of greater significance are summarized below.

(1) Government's Five-Year Tax Reduction Plan: provides $100 billion in tax relief by 2004-2005, reducing the federal income tax paid by individuals resident in Canada by 21% on average. Families with children will receive an even larger tax cut - about 27% on average. Measures included will

    (a) reduce tax rates at all income levels;

    (b) eliminate the 5% deficit reduction surtax;

    (c) increase support for families with children through the Canada Child Tax Benefit;

    (d) reduce the capital gains inclusion rate;

    (e) provide a tax-deferred capital gains rollover for investments in shares of certain small- and medium-sized active business corporations;

    (f) provide a tax-deferred rollover for shares received on certain foreign spin-offs;

    (g) reduce the 28% general corporate tax rate to 21%; and

    (h) defer the taxation of certain stock option benefits, increase the stock option deduction and allow an additional deduction for certain stock option shares donated to charity.

(2) Child Care Expense Deduction: increases the maximum annual amount deductible for child care expenses for each eligible child in respect of whom the disability tax credit may be claimed to $10,000 from $7,000.

(3) Disability Tax Credit: extends the disability tax credit to individuals who, but for extensive therapy, would be markedly restricted in their activities of daily living; provides a supplement for disabled children under the age of 18 years; extends the transferability of the credit to most relatives of a disabled person; and, starting in 2001, increases the amounts on which the credit and the new supplement are calculated to $6,000 and $3,500 from $4,293 and $2,941, respectively.

(4) Caregiver and Infirm Dependant Tax Credits: increases the amount on which each of these credits is calculated to $3,500 from $2,446.

(5) Medical Expense Tax Credit: includes reasonable incremental costs relating to the construction of the principal place of residence of an individual who lacks normal physical development or has a severe and prolonged ability impairment to enable the individual to gain access to, or to be mobile within, the residence.

(6) Donations of Ecological Gifts: halves the normal capital gains inclusion for an ecological gift the value of which has been certified by the Minister of the Environment; and clarifies rules for calculating any capital gain or loss realized as a result of such a gift.

(7) Scholarships, Fellowships and Bursaries: increases by $2,500 the exemption for scholarships, fellowships and bursaries received by a taxpayer in connection with the taxpayer's enrolment in a program in respect of which the taxpayer may claim the education tax credit.

(8) Education Tax Credit: doubles the monthly amounts on which the credit allowed to full-time and part-time students is based to $400 and $120, respectively.

(9) Clergy Residence Deduction: provides clearer rules for determining the amount deductible in respect of a clergy's residence.

(10) CPP/QPP Contributions on Self-Employed Earnings: introduces a deduction from business income for one-half of CPP/QPP contributions on self-employed earnings, with the other half of the contributions remaining eligible for the CPP/QPP tax credit.

(11) Thin Capitalization: amends the provisions to have the debt-to-equity ratio calculated on an averaged basis, reduces the acceptable debt-to-equity ratio to 2:1 from 3:1 and repeals the exemption for manufacturers of aircraft and aircraft components.

(12) Non-Resident-Owned Investment Corporations: phases out, over a three-year period, the special income tax regime for this type of corporation.

(13) Weak Currency Debt: limits the deductibility of interest expenses and adjusts foreign exchange gains and losses in respect of weak currency debts and associated hedging transactions.

(14) Government Assistance - SR & ED: categorizes as government assistance provincial deductions for SR&ED that exceed the amount of the SR&ED expenditures.

(15) Foreign Tax Credits - Oil and Gas Production Sharing Agreements: clarifies the eligibility for a business foreign tax credit of certain payments made by Canadian resident taxpayers to foreign governments on account of levies imposed in connection with production sharing agreements.

(16) Foreign Exploration and Development Expenses (FEDE): amends the rules to require that the FEDE of a claimant must relate to either foreign resource property acquired by the claimant or be made for the purpose of enhancing the value of foreign resource property owned, or to be owned, by the claimant; ensures appropriate treatment of FEDE in computing foreign tax credits, and imposes a 30% restriction for the annual deduction of new FEDE balances.

(17) Flow-Through Share Investment Tax Credit: introduces a temporary 15% investment tax credit for certain ``grass roots'' mineral exploration.

(18) Foreign Branch Banking: provides amendments to the Income Tax Act to accommodate branches of foreign banks operating in Canada.

(19) Capital Dividend Account: permits amounts distributed to a corporation from a trust in respect of capital gains or capital dividends realized or received by the trust to be included in the corporation's capital dividend account.

(20) Taxpayer Migration: enhances Canada's ability to tax the gains accrued by emigrants while they were resident in Canada.

(21) Trusts: addresses the tax treatment of property distributed from a Canadian trust to a non-resident beneficiary and introduces new measures dealing with the tax treatment of bare, protective and similar trusts as well as mutual fund trusts, health and welfare trusts and trusts governed by registered retirement savings plans and registered retirement income funds.

(22) Advertising Expenses: implements the income tax aspects of the June 1999 agreement between Canada and the United States concerning periodicals.

(23) Simultaneous Control: confirms that, in a chain of corporations, a corporation is controlled by its immediate parent even where the parent is itself controlled by a third corporation.

(24) Foreign Affiliates Held by Partnerships: ensures that Canadian corporations that are members of a partnership that holds shares of non-resident corporations are provided relief from double taxation on the income derived from those shares and receive the same tax treatment in respect of the disposition of those shares as if they held the shares directly.

(25) Foreign Affiliate Losses: provides that foreign accrual property losses of a foreign affiliate may be carried back three years and forward seven years for the purpose of determining the affiliate's foreign accrual property income for a particular taxation year.

(26) Capital Tax: extends to the end of 2000 the additional capital tax on life insurance corporations.

(27) Stop-Loss Rule: extends the rule that suspends recognition of a loss when a corporation, trust or partnership transfers depreciable property to transferors who are affiliated persons (including individuals).

(28) Types of Property: amends the corporate divisive reorganization rules to no longer require that each transferee corporation receive its pro-rata share of each type of property in the case of certain public corporate divisive reorganizations.

(29) Replacement Property Rules: provides that the replacement property rules do not apply to shares of the capital stock of corporations.

(30) Limited Liability Partnerships: ensures that a member of a ``limited liability partnership'' (under provincial law) is not automatically a ``limited partner'' for the purposes of the Income Tax Act.

(31) Non-Resident Film and Video Actors: applies a new 23% withholding tax on payments to non-resident film and video actors and their corporations, with an option to have the actor and corporation pay regular Part I tax on the net earnings instead.

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