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Capital gains associated with donations of ecologically sensitive land are exempt from tax 38(a.2) and are not subject to the 75% of income restriction. Fmv and quality ( ecologically sensitive land ) must be certified by the Minister of the Environment and be given to eligible recipient. Affected provisions of the ITA: 110.1(1)(d)(iii) and total ecological gifts in 118.1(1) 3
Pre-budget 2014: Donation made by will deemed to be made in year of death and donation credit can only be used on terminal return and in prior year. Similarly, donation made by designation deemed to be made in year of death and can only be used on terminal return and prior year. If the donation is made by the estate (this will occur when the estate trustees have a discretion to make a gift) donation credit can be used only by estate, and normal 5-year carry forward applies. Budget 2014 changes these rules. Affected provisions of the ITA; 38(a.1)(ii), (a.2)(ii), 39(1)(a)(1.1) and 118.1) 4
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Capital gains associated with donation of certified cultural property are exempt from tax 39(1)(a)(i.1). Object must be certified by Canadian Cultural Property Export Review Board under 29(3)(b) and (c) of the Cultural Property Export and Import Act. Donation must be made to designated institution under 32(2) of that Act. Affected provisions of the ITA: 248(37)(c). Gifting arrangement is defined in 237.1(1). 248(35) deems the fmv of a gift that is part of a gifting arrangement to be lesser of cost and fmv. The exemption for cultural property from these rules in 248(37)(c) is repealed. 6
149(1)(l) has been in ITA with only a few changes since 1917. In recent years, CRA has been issuing technical interpretations that are considered by many to be quite restrictive. CRA recently conducted a study (random audit of 1337 NPOs) of the NPO sector and published its findings Non-Profit Organization Risk Identification Project Report (February, 2014). See Stevens and Kravetz Current Developments in the Application of 149(1)(l) of the ITA (2003) Vol. 25, No.3 The Philanthropist. 7
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Pre-Budget 2014: Persons who were newly resident in Canada could establish nonresident trusts during their first 60 months of residence and these trusts were not subject to deemed resident rules in s.94. Budget 2014 changes these rules. Policy rationale was to facilitate/encourage non-residents to immigrate to Canada and to facilitate temporary migration of multi-national employees. Affected ITA provisions: the definitions of resident contributor and resident beneficiary in 94(1) are amended to eliminate the 60-month exemption. 9
Finance published a consultation paper on June 3, 2013. The deadline for submissions was December 2, 2013. STEP made a submission arguing for more coherent tax treatment for trusts where accumulating income is desirable from a planning perspective. To some extent, Budget 2014 responds to this suggestion with continued graduated rate treatment for testamentary trusts for the benefit of disabled individuals. 10
Affected Provisions of ITA: There are multiple affected provisions of ITA. See NWMM resolutions 14 to 27. In particular, (1) 248(1) graduated rate estate defined, (2) 249(4.1) is added to transition to December 31 year ends after 2015, (3) 122(1) amended to exclude only graduated rate estates from high flat rate, (4) 122(2) repealed to remove exemption in favour of pre-1971 trusts re high flat rate taxation (therefore, tainting transactions for pre-1971 trusts no longer relevant), (5) 104(23)(e) re tax instalments, (6), 127.53 re AMT, (7) 210(2) Re Part XII.2 tax, (8) 248(1) personal trust, (9) 127(7) re ITCs. 11
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Tax or split income applies highest marginal rate (29%) on split income. Split income includes (1) taxable dividends and shareholder benefits received directly, or indirectly through a partnership or a trust, in respect of unlisted shares; (2) capital gains from the disposition of such shares to persons NAL with minor (added in Budget 2011); (3) income from partnership or trust that is derived from providing property or services to or in support of a business carried on by a person related to the minor or in which the related person participates. 16
Affected provisions of ITA: 120.4 17
ECE is a capital expenditure to acquire rights of an intangible nature, other than a depreciable property eligible for CCA. ECP includes goodwill, customer lists, licenses, farm quotas, etc. EC Receipt is corresponding receipt. Recapture and capital gains-like treatment is available, but subject to somewhat complicated rules. 18
Transition rules will be complicated. They will be simplified for small business corporations. Query: Will the proceeds from the sale of assets/business be taxed at CCPC investment income rate and not as income from business eligible for sbd or reduced corporate rate? 19
Bill C-60 Change to the gross-up and credit for non-eligible dividends 82(1)(b)(i), 121 Temporary stretch credit for donors who have not claimed a credit since 2008 118.1 Requirement to pay half the amount in dispute in charity tax shelter appeals (3.1)(3.2) Bill C-48 Non-resident trust rules and offshore investment fund rules, finally - 94, 94.1 and 94.2 Foreign affiliate surplus rules and re-organization rules, finally 20
Bill C - 4 Capital gains exemption raised to $800,000 (effective March 21, 2013 and indexed after 2014) 110.6(2)(31)(32) 117.1(1) Acquisition of control rules amended to include rules governing trusts 251.2 Acquisition of interest in corporation representing 75% fmv deemed to be a loss restriction event - 256.1 Leveraged life insurance annuity arrangements - 20(1) (e.2), 248(1) 10/8 rules - 20(1)(e.2), 148(5), 248(1) Reassessment period extended where T1135 or tax-shelter form not filed or improperly completed - (152(4), (4.01) (4.1)) modified 75(2) trust rules apply to NRT 94(8.1)(8.2) Synthetic dispositions arrangement rules - 80.6, 112(8)(9), 126(4.5)(4.16), 248(1) Character conversion rules 12(1)(z.7), 20(1)(xx), 248(1) Thin capitalization rules - 18(4) (7) 21
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For the CRA positions see: TI#2004-0087761E May 24, 2005 IT 302R3 paragraph 10, various conferences: CTF-2005, CTF-2007, STEP-2007, STEP 2011 Acquisition or control results in: (1) deemed year end (249(4)); (2) realization of capital losses and termination of net capital loss carry forward, (111(4)); (3) loss streaming rules (111(5)); (4) inventory write down (10(11)); (5) restrictions on use of resource pools (66.7(10)); (6) SRED streaming (37(6.1)) 24
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New loss restriction event rules enacted in 251.2. An acquisition or control of a corporation is a LRE. A trust has a LRE when a person becomes a majority interest beneficiary or a group of persons become a majority interest group of beneficiaries. LRE concept used in ITA to prevent losstrading involving trusts. See next slide. 26
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HMRC Guidance revised notes released in February 28, 2014. These may be helpful for Model 1 IGA countries, such as Canada. See www.hmrc.gov.uk/drafts/uk-usfatca-guidance-notes.pdf May be some issue with Canadian FIs operating outside Canada. Whenever Canadian NFFEs operate in foreign jurisdictions the foreign account holder will have to review their W-8BEN-E and may question their characterization for FATCA purposes. This is because the IGA does not treat compliant FIs as compliant in jurisdictions other than Canada. For example, trusts are NFFEs under the IGA, but FFIs under Treasury Regulations and other IGAs. To open an account outside of Canada, the trust will have to engage an exception process. See B. Caruso and P. Millen Tax Analysts Dec 2014-6956 issue number 69, 19 March, 2014. 29
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Revised T1135 issued February 26, 2014 permits use of transitional reporting method and deadline extended to July 31, 2014. TRM replaces property-byproperty reporting with account reporting where account is held by a Canadian registered securities dealer under ITA subsection 248(1). TRM is not available after 2013. T3/T5 exception from increased disclosure is available even if T3 or T5 received after T1135 file deadline. T3s and T5s issued on a calendar year basis, but corporate taxpayers will have non-calendar year ends. Income must be reported on T3/T5 for this excepiton to be available. 50
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