Federal Government releases Fall Economic Statement 2022
Authored by the McCarthy Tétrault National Tax Group
On November 3, 2022, Deputy Prime Minister and Finance Minister Chrystia Freeland presented the Fall Economic Statement 2022 (the “Fall Economic Statement”) in the House of Commons. In tandem with the Fall Economic Statement, the federal government (the “Government”) also released a series of draft legislative proposals for public consultation on a variety of previously announced tax measures (“Draft Legislation”). On November 4, 2022, the Government introduced in the House of Commons Bill C-32, the Fall Economic Statement Implementation Act (“Bill C-32”). The Fall Economic Statement can be found here and the news release containing links to the Draft Legislation can be found here. Bill C-32 can be found here and the Government’s news release describing Bill C-32 can be found here.
Certain key tax developments from the Fall Economic Statement, the Draft Legislation and Bill C-32 most relevant to businesses are briefly described below:
- Revised EIFEL Rules: The Draft Legislation includes revisions to the excessive interest and financing expenses limitation (“EIFEL”) rules that are, according to the Government, intended to address stakeholder comments and other issues identified. Significantly, the coming into force of the EIFEL rules has been deferred from taxation years beginning on or after January 1, 2023 (as originally contemplated) to taxation years beginning on or after October 1, 2023. The revised EIFEL rules remain open for consultation until January 6, 2023.
- Mandatory Disclosure Rules: While the Draft Legislation does not contain any revisions to the mandatory disclosure rules, the Government stated that it intends to delay the coming into force date of the amended reporting requirements for reportable transactions and new reporting requirements for notifiable transactions until the date on which a bill implementing such legislation receives Royal Assent. Previously, these rules were to apply to transactions entered into after 2022, with penalties only applying after Royal Assent. The implementation date for the new mandatory disclosure rules in respect of uncertain tax treatments, however, remains as previously contemplated (i.e., taxation years beginning after 2022, with penalties only applying after Royal Assent). Bill C-32 proposes to delay the coming into force of the enhanced reporting requirements for trusts (including bare trusts) by one year from taxation years ending after December 30, 2022 (as previously contemplated) to taxation years ending after December 30, 2023.
- Reporting Rules for Digital Platform Operators: The Draft Legislation includes provisions intended to implement the OECD model rules for income reporting by digital platforms. These rules will require digital platform operators to provide certain information to the Canada Revenue Agency and follow due diligence procedures. The Government is inviting comments on the Draft Legislation until January 6, 2023, with such rules scheduled to come into force on January 1, 2024.
- Investment Tax Credit for Clean Technologies and Hydrogen: In response to tax incentives introduced under the Inflation Reduction Act in the United States, the Fall Economic Statement includes a proposal for new refundable investment tax credits of up to 30% for investments in clean technologies and at least 40% for investments in clean hydrogen production. The Government also announced that it will launch a consultation on how to implement the refundable investment tax credit for clean hydrogen. These investment tax credits will be available for eligible investments made as of the day of Budget 2023.
- Tax on Share Buybacks: The Government intends to introduce a 2 percent tax on Canadian public corporations that undertake share buybacks, with additional details of the tax to be included in Budget 2023. The tax is stated to come into force on January 1, 2024.
- BEPS 2.0 – Pillars One and Two: The Government confirmed its commitment to Pillar One (Reallocation of Taxing Rights) and Pillar Two (Global Minimum Tax). The Fall Economic Statement notes that the Inclusive Framework intends to complete multilateral negotiations so that a treaty to implement Pillar One can be signed in the first half of 2023, with a view to it entering into force in 2024. No timing update is included in respect of Pillar Two.
- Previously Announced Measures: The Government also confirmed in the Fall Economic Statement its intention to proceed with certain previously announced tax and related measures, “as modified to take into account consultations and deliberations since their release”. The list of enumerated measures includes, inter alia: (i) the Canada Recovery Dividend and Additional Tax on Banks and Life Insurers; (ii) the application of the GAAR to tax attributes; (iii) substantive CCPCs; (iv) interest coupon stripping; (v) mandatory disclosure rules and enhanced reporting requirements for trusts; (vi) legislative proposals relating to hybrid mismatch arrangements; (vii) transfer pricing consultation; and (viii) GAAR consultation. Bill C-32 contains, inter alia, legislation that, if enacted, would implement certain of these measures, including (i) the Canada Recovery Dividend and Additional Tax on Banks and Life Insurers, (ii) enhanced reporting requirements for trusts, and (iii) the application of the GAAR to tax attributes.
For further information or assistance, please contact any member of the Tax Group.
tax Fall Economic Statement