Budget Implementation Act, 2017, No. 2 (S.C. 2017, c. 33)
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Assented to 2017-12-14
Budget Implementation Act, 2017, No. 2
S.C. 2017, c. 33
Assented to 2017-12-14
A second Act to implement certain provisions of the budget tabled in Parliament on March 22, 2017 and other measures
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 “A second Act to implement certain provisions of the budget tabled in Parliament on March 22, 2017 and other measures”.
SUMMARY
Part 1 implements certain income tax measures proposed in the March 22, 2017 budget by
(a) removing the classification of the costs of drilling a discovery well as “Canadian exploration expenses”;
(b) eliminating the ability for small oil and gas companies to reclassify up to $1 million of “Canadian development expenses” as “Canadian exploration expenses”;
(c) revising the anti-avoidance rules for registered education savings plans and registered disability savings plans;
(d) eliminating the use of billed-basis accounting by designated professionals;
(e) providing enhanced tax treatment for eligible geothermal energy equipment;
(f) extending the base erosion rules to foreign branches of Canadian insurers;
(g) clarifying who has factual control of a corporation for income tax purposes;
(h) introducing an election that would allow taxpayers to mark to market their eligible derivatives;
(i) introducing a specific anti-avoidance rule that targets straddle transactions;
(j) allowing tax-deferred mergers of switch corporations into multiple mutual fund trusts and allowing tax-deferred mergers of segregated funds; and
(k) enhancing the protection of ecologically sensitive land donated to conservation charities and broadening the types of donations permitted.
It also implements other income tax measures by
(a) closing loopholes surrounding the capital gains exemption on the sale of a principal residence;
(b) providing additional authority for certain tax purposes to nurse practitioners;
(c) ensuring that qualifying farmers and fishers selling to agricultural and fisheries cooperatives are eligible for the small business deduction;
(d) extending the types of reverse takeover transactions to which the corporate acquisition of control rules apply;
(e) improving the consistency of rules applicable for expenditures in respect of scientific research and experimental development;
(f) ensuring that the taxable income of federal credit unions is allocated among provinces and territories using the same allocation formula as applicable to the taxable income of banks;
(g) ensuring the appropriate application of Canada’s international tax rules; and
(h) improving the accuracy and consistency of the income tax legislation and regulations.
Part 2 implements certain goods and services tax/harmonized sales tax (GST/HST) measures confirmed in the March 22, 2017 budget by
(a) introducing clarifications and technical improvements to the GST/HST rules applicable to certain pension plans and financial institutions;
(b) revising the GST/HST rules applicable to pension plans so that they apply to pension plans that use master trusts or master corporations;
(c) revising and modernizing the GST/HST drop shipment rules to enhance the effectiveness of these rules and introduce technical improvements;
(d) clarifying the application of the GST/HST to supplies of municipal transit services to accommodate the modern ways in which those services are provided and paid for; and
(e) introducing housekeeping amendments to improve the accuracy and consistency of the GST/HST legislation.
It also implements a GST/HST measure announced on September 8, 2017 by revising the timing requirements for GST/HST rebate applications by public service bodies.
Part 3 amends the Excise Act to ensure that beer made from concentrate on the premises where it is consumed is taxed in a manner that is consistent with other beer products.
Part 4 amends the Federal-Provincial Fiscal Arrangements Act to allow the Minister of Finance on behalf of the Government of Canada, with the approval of the Governor in Council, to enter into coordinated cannabis taxation agreements with provincial governments. It also amends that Act to make related amendments.
Part 5 enacts and amends several Acts in order to implement various measures.
Division 1 of Part 5 amends the Bretton Woods and Related Agreements Act to update and clarify certain powers of the Minister of Finance in relation to the Bretton Woods institutions.
Division 2 of Part 5 enacts the Asian Infrastructure Investment Bank Agreement Act which provides the required authority for Canada to become a member of the Asian Infrastructure Investment Bank.
Division 3 of Part 5 provides for the transfer from the Minister of Finance to the Minister of Foreign Affairs of the responsibility for three international development financing agreements entered into between Her Majesty in Right of Canada and the International Finance Corporation.
Division 4 of Part 5 amends the Canada Deposit Insurance Corporation Act to clarify the treatment of, and protections for, eligible financial contracts in a bank resolution process. It also makes consequential amendments to the Payment Clearing and Settlement Act.
Division 5 of Part 5 amends the Bank of Canada Act to specify that the Bank of Canada may make loans or advances to members of the Canadian Payments Association that are secured by real property or immovables situated in Canada and to allow such loans and advances to be secured by way of an assignment or transfer of a right, title or interest in real property or immovables situated in Canada. It also amends the Canada Deposit Insurance Corporation Act to specify that the Bank of Canada and the Canada Deposit Insurance Corporation are exempt from stays even where obligations are secured by real property or immovables.
Division 6 of Part 5 amends the Payment Clearing and Settlement Act in order to expand and enhance the oversight powers of the Bank of Canada by further strengthening the Bank’s ability to identify and respond to risks to financial market infrastructures in a proactive and timely manner.
Division 7 of Part 5 amends the Northern Pipeline Act to permit the Northern Pipeline Agency to annually recover from any company with a certificate of public convenience and necessity issued under that Act an amount equal to the costs incurred by that Agency with respect to that company.
Division 8 of Part 5 amends the Canada Labour Code in order to, among other things,
(a) provide employees with a right to request flexible work arrangements from their employers;
(b) provide employees with a family responsibility leave for a maximum of three days, a leave for victims of family violence for a maximum of ten days and a leave for traditional Aboriginal practices for a maximum of five days; and
(c) modify certain provisions related to work schedules, overtime, annual vacation, general holidays and bereavement leave, in order to provide greater flexibility in work arrangements.
Division 9 of Part 5 amends the Economic Action Plan 2015 Act, No. 1 to repeal the paragraph 167(1.2)(b) of the Canada Labour Code that it enacts, and to amend the related regulation-making provisions accordingly.
Division 10 of Part 5 approves and implements the Canadian Free Trade Agreement entered into by the Government of Canada and the governments of each province and territory to reduce or eliminate barriers to the free movement of persons, goods, services and investments. It also makes related amendments to the Energy Efficiency Act in order to facilitate, with respect to energy-using products or classes of energy-using products, the harmonization of requirements set out in regulations with those of a jurisdiction. Finally, it makes consequential amendments to the Financial Administration Act, the Department of Public Works and Government Services Act and the Procurement Ombudsman Regulations and it repeals the Timber Marking Act and the Agreement on Internal Trade Implementation Act.
Division 11 of Part 5 amends the Judges Act
(a) to allow for the payment of annuities, in certain circumstances, to judges and their survivors and children, other than by way of grant of the Governor in Council;
(b) to authorize the payment of salaries to the new Associate Chief Justice of the Court of Queen’s Bench of Alberta; and
(c) to change the title of “senior judge” to “chief justice” for the superior trial courts of the territories.
It also makes consequential amendments to other Acts.
Division 12 of Part 5 amends the Business Development Bank of Canada Act to increase the maximum amount of the paid-in capital of the Business Development Bank of Canada.
Division 13 of Part 5 amends the Financial Administration Act to authorize, in an increased number of cases, the entering into of contracts or other arrangements that provide for a payment if there is a sufficient balance to discharge any debt that will be due under them during the fiscal year in which they are entered into.
Her Majesty, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows:
Short Title
Marginal note:Short title
1 This Act may be cited as the Budget Implementation Act, 2017, No. 2.
PART 1Amendments to the Income Tax Act and to Related Legislation
R.S., c. 1 (5th Supp.)Income Tax Act
2 (1) Subsection 10(14) of the Income Tax Act is repealed.
(2) Section 10 of the Act is amended by adding the following before subsection (15):
Marginal note:Work in progress — transitional
(14.1) If paragraph 34(a) applies in computing a taxpayer’s income from a business for the last taxation year of the taxpayer that begins before March 22, 2017, then
(a) for the purpose of computing the income of the taxpayer from the business, at the end of the first taxation year that begins after March 21, 2017,
(i) the amount of the cost of the taxpayer’s work in progress is deemed to be one-fifth of the amount of its cost determined without reference to this paragraph, and
(ii) the amount of the fair market value of the taxpayer’s work in progress is deemed to be one-fifth of the amount of its fair market value determined without reference to this paragraph;
(b) for the purpose of computing the income of the taxpayer from the business, at the end of the second taxation year that begins after March 21, 2017,
(i) the amount of the cost of the taxpayer’s work in progress is deemed to be two-fifths of the amount of its cost determined without reference to this paragraph, and
(ii) the amount of the fair market value of the taxpayer’s work in progress is deemed to be two-fifths of the amount of its fair market value determined without reference to this paragraph;
(c) for the purpose of computing the income of the taxpayer from the business, at the end of the third taxation year that begins after March 21, 2017,
(i) the amount of the cost of the taxpayer’s work in progress is deemed to be three-fifths of the amount of its cost determined without reference to this paragraph, and
(ii) the amount of the fair market value of the taxpayer’s work in progress is deemed to be three-fifths of the amount of its fair market value determined without reference to this paragraph; and
(d) for the purpose of computing the income of the taxpayer from the business, at the end of the fourth taxation year that begins after March 21, 2017,
(i) the amount of the cost of the taxpayer’s work in progress is deemed to be four-fifths of the amount of its cost determined without reference to this paragraph, and
(ii) the amount of the fair market value of the taxpayer’s work in progress is deemed to be four-fifths of the amount of its fair market value determined without reference to this paragraph.
(3) Subsection 10(14.1) of the Act, as enacted by subsection (2), is repealed.
(4) Subsections (1) and (3) come into force on January 1, 2024.
(5) Subsection (2) applies to taxation years ending after March 21, 2017.
3 (1) The Act is amended by adding the following after section 10:
Marginal note:Mark-to-market election
10.1 (1) Subsection (4) applies to a taxpayer in respect of a taxation year and subsequent taxation years if the taxpayer elects to have subsection (4) apply to the taxpayer and has filed that election in prescribed form on or before its filing-due date for the taxation year.
Marginal note:Revocation
(2) The Minister may, on application by the taxpayer in prescribed form, grant permission to the taxpayer to revoke its election under subsection (1). The revocation applies to each taxation year of the taxpayer that begins after the day on which the taxpayer is notified in writing that the Minister concurs with the revocation, on such terms and conditions as are specified by the Minister.
Marginal note:Subsequent election
(3) Notwithstanding subsection (1), if a taxpayer has, under subsection (2), revoked an election, any subsequent election under subsection (1) shall result in subsection (4) applying to the taxpayer in respect of each taxation year that begins after the day on which the prescribed form in respect of the subsequent election is filed by the taxpayer.
Marginal note:Application
(4) If this subsection applies to a taxpayer in respect of a taxation year,
(a) if the taxpayer is a financial institution (as defined in subsection 142.2(1)) in the taxation year, each eligible derivative held by the taxpayer at any time in the taxation year is, for the purpose of applying the provisions of this Act and with such modifications as the context requires, deemed to be mark-to-market property (as defined in subsection 142.2(1)) of the taxpayer for the taxation year; and
(b) in any other case, subsection (6) applies to the taxpayer in respect of each eligible derivative held by the taxpayer at the end of the taxation year.
Marginal note:Definition of eligible derivative
(5) For the purposes of this section, an eligible derivative, of a taxpayer for a taxation year, means a swap agreement, a forward purchase or sale agreement, a forward rate agreement, a futures agreement, an option agreement or a similar agreement, held at any time in the taxation year by the taxpayer, if
(a) the agreement is not a capital property, a Canadian resource property, a foreign resource property or an obligation on account of capital of the taxpayer;
(b) either
(i) the taxpayer has produced audited financial statements prepared in accordance with generally accepted accounting principles in respect of the taxation year, or
(ii) if the taxpayer has not produced audited financial statements described in subparagraph (i), the agreement has a readily ascertainable fair market value; and
(c) where the agreement is held by a financial institution (as defined in subsection 142.2(1)), the agreement is not a tracking property (as defined in subsection 142.2(1)), other than an excluded property (as defined in subsection 142.2(1)), of the financial institution.
Marginal note:Deemed disposition
(6) If this subsection applies to a taxpayer in respect of each eligible derivative held by the taxpayer at the end of a taxation year, for each eligible derivative held by the taxpayer at the end of the taxation year, the taxpayer is deemed
(a) to have disposed of the eligible derivative immediately before the end of the year and received proceeds or paid an amount, as the case may be, equal to its fair market value at the time of disposition; and
(b) to have reacquired, or reissued or renewed, the eligible derivative at the end of the year at an amount equal to the proceeds or the amount, as the case may be, determined under paragraph (a).
Marginal note:Election year — gains and losses
(7) If a taxpayer holds, at the beginning of its first taxation year in respect of which an election referred to in subsection (1) applies (in this subsection referred to as the “election year”), an eligible derivative and, in the taxation year immediately preceding the election year, the taxpayer did not compute its profit or loss in respect of that eligible derivative in accordance with a method of profit computation that produces a substantially similar effect to subsection (6), then
(a) the taxpayer is deemed
(i) to have disposed of the eligible derivative immediately before the beginning of the election year and received proceeds or paid an amount, as the case may be, equal to its fair market value at that time, and
(ii) to have reacquired, or reissued or renewed, the eligible derivative at the beginning of the election year at an amount equal to the proceeds or the amount, as the case may be, determined under subparagraph (i);
(b) the profit or loss that would arise (determined without reference to this paragraph) on the deemed disposition in subparagraph (a)(i)
(c) for the purpose of applying subsection 18(15) in respect of the disposition of the eligible derivative referred to in subparagraph (b)(ii), the profit or loss deemed to arise because of that subparagraph is included in determining the amount of the transferor’s loss, if any, from the disposition.
Marginal note:Default realization method
(8) If subsection (4) does not apply to a taxpayer referred to in paragraph (4)(b) in respect of a taxation year, a method of profit computation that produces a substantially similar effect to subsection (6) shall not be used for the purpose of computing the taxpayer’s income from a business or property in respect of a swap agreement, a forward purchase or sale agreement, a forward rate agreement, a futures agreement, an option agreement or a similar agreement for the taxation year.
Marginal note:Interpretation
(9) For the purposes of subsections (4) to (7), if an agreement that is an eligible derivative of a taxpayer is not a property of the taxpayer, the taxpayer is deemed
(2) Subsection (1) applies to taxation years that begin after March 21, 2017.
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