Vol. 146, No. 26 — December 19, 2012

Registration

SOR/2012-270 December 7, 2012

INCOME TAX ACT

Regulations Amending the Income Tax Regulations (Part XLIX – Qualified Investments)

P.C. 2012-1629 December 6, 2012

His Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to section 221 of the Income Tax Act, makes the annexed Regulations Amending the Income Tax Regulations (Part XLIX – Qualified Investments).

REGULATIONS AMENDING THE INCOME TAX REGULATIONS
(PART XLIX – QUALIFIED INVESTMENTS)

AMENDMENT

1. Subsection 4900(1) of the Income Tax Regulations is amended by adding the following after paragraph ( i.12 ):

  • (i.13) a share of the capital stock of a Canadian corporation that is registered under section 2 of the Community Development Equity Tax Credit Act, chapter C-13.01 of the Revised Statutes of Prince Edward Island, 1988, the registration of which has not been revoked under that Act;

COMING INTO FORCE

2. Section 1 is deemed to have come into force on September 1, 2011.

REGULATORY IMPACT
ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues and objectives

Part XLIX of the Income Tax Regulations lists a number of qualified investments which are types of property that trusts governed by registered retirement savings plans and other tax-assisted plans, including tax-free savings accounts, are permitted to hold. Generally, the qualified investment rules provide individuals with the flexibility to choose investments suited to their own personal investment objectives and risk tolerances while ensuring that tax assistance for savings is provided at a reasonable cost to other taxpayers.

The Prince Edward Island Community Development Equity Tax Credit is a feature of the provincial government’s Community Economic Development Business program, introduced on August 23, 2011, as part of the Prince Edward Island Rural Action Plan. The program is intended to facilitate local investment in local businesses. Under the program, approved community economic-development businesses raise capital by issuing shares to individuals and, in turn, invest that capital in eligible local businesses.

The Government of Prince Edward Island requested that the list of qualified investments be expanded by adding shares of a Canadian corporation that is registered as a community economic-development business under Prince Edward Island’s Community Development Equity Tax Credit Act in order to provide greater investment flexibility to Prince Edward Island investors and encourage local investment and economic development. Currently, Part XLIX prescribes similar investments (including, in particular under subsection 4900(1), similar shares under Nova Scotia’s Equity Tax Credit Act) as qualified investments for the purposes of registered retirement savings plans and other tax-assisted plans.

In order to ensure consistent treatment under the Income Tax Act, an amendment to subsection 4900(1) is needed.

Description

The Regulations Amending the Income Tax Regulations (Part XLIX – Qualified Investments) [the amendment] modify subsection 4900(1) of the Income Tax Regulations to include shares of a Canadian corporation that is registered as a community economic-development business under Prince Edward Island’s Community Economic Development Equity Tax Credit Act. This amendment is effective as of September 1, 2011.

Consultation

The amendment was requested by the Prince Edward Island Minister of Finance, and was developed in consultation with officials of the Prince Edward Island Ministry of Finance. Key stakeholders are aware that the Government of Prince Edward Island had requested the amendment, and are supportive.

“One-for-One” Rule

These Regulations address tax or tax administration and are carved out from the “One-for-One” Rule.

Small business lens

The small business lens does not apply, as the amendment does not impose administrative or compliance costs on business.

Rationale

Eligible investments under the amendment are similar to investments under Nova Scotia’s Equity Tax Credit Act, which are currently prescribed under the Income Tax Regulations for the purposes of registered retirement savings plans and other tax-assisted savings plans. The amendment provides greater investment flexibility to Prince Edward Island investors and encourages local investment and economic development. It is anticipated that the amendment will have a positive impact on the local community and economy through the active economic participation of local residents.

It is anticipated that this amendment will be of minimal cost to the federal government in terms of foregone revenues.

Implementation, enforcement and service standards

The newly prescribed investments enabled by the amendment will be subject to the existing reporting and compliance mechanisms available to the Minister of National Revenue under the Income Tax Act. These mechanisms allow the Minister of National Revenue to assess and reassess tax payable, conduct audits and seize relevant records and documents.

Contact

Priceela Pursun
Tax Legislation Division
Department of Finance
140 O’Connor Street
Ottawa, Ontario
K1A 0G5
Telephone: 613-996-5155