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Federal Government releases proposals related to mutual fund corporations, synthetic equity arrangements, and qualified investments for registered plans

On April 16, 2024, Canada’s Deputy Prime Minister and Minister of Finance, Chrystia Freeland, delivered the Liberal Government’s federal budget, Fairness for Every Generation (Budget 2024). The most notable tax measure in Budget 2024 is the proposal to increase the capital gains inclusion rate from one-half to two-thirds, for capital gains realized on or after June 25, 2024. This measure will apply to all capital gains realized by corporations and trusts, but only will apply to individuals in respect of the portion of capital gains realized in the year that exceeds $250,000.

Additionally, and among other things, Budget 2024 proposes to introduce amendments that would:

  • deny the tax benefits of “mutual fund corporation” status to a corporation that is controlled by or for the benefit of a corporate group (including a group that consists of any combination of non-arm’s length persons or partnerships); and
  • remove the ‘no-tax indifferent investor’ exception and ‘exchange-traded’ exclusion from the inter-corporate dividend denial rule in respect of synthetic equity arrangements.

Budget 2024 also launches a consultation process on the modernization of the qualified investment rules, which invites stakeholders to provide comments on the harmonization of the qualified investment rules with investments in small businesses, the qualified investment status of certain annuities, the qualifying conditions imposed on certain pooled investment products, and possibilities for using the qualified investment rules to promote Canadian-based investment.

For a discussion of these tax measures and others in Budget 2024, please see McCarthy Tétrault’s Budget 2024 Commentary.



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