Vol. 149, No. 13 — July 1, 2015
SOR/2015-170 June 19, 2015
INCOME TAX ACT
Regulations Amending the Income Tax Regulations
P.C. 2015-862 June 18, 2015
His Excellency the Governor General in Council, on the recommendation of the Minister of National Revenue, pursuant to section 221 (see footnote a) of the Income Tax Act (see footnote b), makes the annexed Regulations Amending the Income Tax Regulations.
REGULATIONS AMENDING THE INCOME TAX REGULATIONS
1. (1) Subsection 200(2) of the Income Tax Regulations (see footnote 1) is amended by adding the following after paragraph (b):
- (b.1) an amount that is required by paragraph 56(1)(n.1) of the Act to be included in computing a taxpayer’s income,
(2) Section 200 of the Regulations is amended by adding the following after subsection (5):
(6) Every person who makes a payment as or on account of an amount that is required by subsection 56(6) of the Act to be included in computing a taxpayer’s income shall make an information return in prescribed form in respect of that payment.
2. Subsection 205(3) of the Regulations is amended by adding the following in alphabetical order:
- International Electronic Funds Transfer Report
- International Exchange of Information on Financial Accounts Information Return (Part XVIII of the Act)
3. Section 5600 of the Regulations is amended by striking out “and” at the end of paragraph (e) and by adding the following after paragraph (f):
- (g) the distribution by Tyco International Ltd. of Switzerland, on September 28, 2012 to its common shareholders, of common shares of Pentair Ltd. of Switzerland;
- (h) the distribution by Siemens AG, on July 5, 2013 to its common shareholders, of common shares of OSRAM Licht AG; and
- (i) the distribution by Brambles Limited, on December 18, 2013 to its common shareholders, of common shares of Recall Holdings Limited.
4. (1) Section 1 of Schedule VIII to the Regulations is amended by deleting the following:
- Augsburg College, Minneapolis, Minnesota
- Beloit College, Beloit, Wisconsin
- Bennington College, Bennington, Vermont
- Bethel College, Mishawaka, Indiana
- Bethel College, North Newton, Kansas
- Bethel College and Seminary, St. Paul, Minnesota
- Boston College, Chestnut Hill, Massachusetts
(2) Section 1 of Schedule VIII to the Regulations is amended by adding the following in alphabetical order:
- American Film Institute, Los Angeles, California
- Brigham Young University — Idaho, Rexburg, Idaho
- California College of the Arts, San Francisco, California
- Concordia University, Mequon, Wisconsin
- Fairleigh Dickinson University, Teaneck, New Jersey
- Haverford College, Haverford, Pennsylvania
- Marian University, Fond du Lac, Wisconsin
- Rensselaer Polytechnic Institute, Troy, New York
- Rockefeller University, New York, New York
- Saint Louis University, St. Louis, Missouri
- Syracuse University, Syracuse, New York
- Texas Woman’s University, Denton, Texas
- University of Louisville, Louisville, Kentucky
- University of Maryland, College Park, Maryland
- University of Oregon, Eugene, Oregon
- University of Texas at Arlington, Arlington, Texas
- Utah Valley University, Orem, Utah
(3) Section 1 of Schedule VIII to the Regulations is amended by adding the following in alphabetical order:
- Rio Grande Bible Institute, Edinburg, Texas
(4) Section 1 of Schedule VIII to the Regulations is amended by adding the following in alphabetical order:
- Howard University, Washington, District of Columbia
(5) Section 1 of Schedule VIII to the Regulations is amended by adding the following in alphabetical order:
- Bemidji State University, Bemidji, Minnesota
- Embry-Riddle Aeronautical University, Daytona Beach, Florida
- Hobart and William Smith Colleges, Geneva, New York
- Olivet Nazarene University, Bourbonnais, Illinois
5. (1) Section 2 of Schedule VIII to the Regulations is amended by adding the following in alphabetical order:
- City University London, London, England
- London School of Hygiene & Tropical Medicine, London, England
- University of Buckingham, The, Buckingham, England
(2) Section 2 of Schedule VIII to the Regulations is amended by adding the following in alphabetical order:
- Swansea University, Swansea, Wales
COMING INTO FORCE
6. (1) Subject to subsections (2) to (5), these Regulations come into force on the day on which they are published in the Canada Gazette, Part II.
(2) Subsection 4(3) is deemed to have come into force on January 1, 2009.
(3) Subsection 4(4) is deemed to have come into force on January 1, 2011.
(4) Subsections 4(5) and 5(2) are deemed to have come into force on January 1, 2013.
(5) Subsections 4(2) and 5(1) are deemed to have come into force on January 1, 2014.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
These amendments to the Income Tax Regulations (the Regulations) pertain to four distinct issues. Specifically,
- — Part 1 adds new reporting requirements in respect of payments from the Apprenticeship Incentive Grant program, the Apprentice Completion Grant program and the Universal Child Care Benefit program;
- — Part 2 prescribes two additional information returns for purposes of the graduated late filing penalty in the Income Tax Act (the Act);
- — Part 3 prescribes the distribution of shares in three distinct scenarios for purposes of the foreign spin-off tax deferral rules; and
- — Part 4 amends the list of foreign universities to which a Canadian may donate and receive tax relief in respect of that donation.
Part 1 — Amendments to section 200 of the Income Tax Regulations
The Act and the Regulations impose various reporting obligations including the requirement for issuers of certain payments to issue an information return (such as T4A’s) to the recipient of the payment and to file a copy with the Canada Revenue Agency (CRA). Taxpayers use information returns to report the correct amounts on their income tax returns, support claims for various deductions and get credit for amounts withheld at source. The Act requires recipients of payments under the Apprenticeship Incentive Grant program, the Apprentice Completion Grant program and the Universal Child Care Benefit program to include amounts received in their income. Employment and Social Development Canada is responsible for the administration of the Apprenticeship Incentive Grant program and the Apprentice Completion Grant program. The CRA is responsible for the processing and distribution of monthly Universal Child Care Benefit payments. Prior to these amendments, issuers of payments under each of the three programs were not required to issue information returns. However, all three programs were issuing information returns to the recipients.
The objective of these amendments is to add new reporting requirements regarding
- (a) payments made in respect of the Apprenticeship Incentive Grant program or the Apprentice Completion Grant program; and
- (b) payments made in respect of the Universal Child Care Benefit program.
This amendment to section 200 of the Regulations adds a new requirement for issuers of payments under the Apprenticeship Incentive Grant program, the Apprenticeship Completion Grant program, and the Universal Child Care Benefit program to prepare information returns.
Part 2 — Amendments to section 205 of the Income Tax Regulations
Section 205 of the Regulations lists the information returns that are subject to the graduated late filing penalty requirement in the Act. As new reporting requirements are added to the Act, the list must be updated in order for the graduated late filing penalty to apply. Two such new reporting requirements were added to the Act in 2014.
- (a) Reporting of international electronic funds transfers
Budget 2014 added a new requirement that certain financial intermediaries report international electronic funds transfers of $10,000 or more to the CRA. These requirements apply to the same financial intermediaries that are currently required to report international electronic funds transfers to the Financial Transactions and Reports Analysis Center of Canada (FINTRAC) under the Proceeds of the Crime (Money Laundering) and Terrorist Financing Act. This includes banks, credit unions, caisses populaires, trust and loan companies, money services businesses and casinos. These reports must be made to the CRA in prescribed form no later than five working days after the day of the transfer and the financial intermediaries must provide information on the person conducting the transaction, on the receiver of the funds, on the transaction itself and on the financial intermediaries facilitating the transaction.
- (b) Reporting of information on financial accounts held by residents and citizens of the United States
Further to the recent enactment of Part XVIII of the Act, financial institutions in Canada are required to report relevant information on accounts held by residents and citizens of the United States (including those who are residents or citizens of Canada) to the CRA. The CRA will then exchange the information with the United States Internal Revenue Service through the existing provisions and safeguards of the Convention between Canada and the United States of America with Respect to Taxes on Income and on Capital.
The objective of this amendment is to update the list and to ensure that the graduated late filing penalty provisions apply to the correct list of information returns.
The list of information returns in subsection 205(3) of the Regulations is amended to add the “International Electronic Funds Transfer Report” and the “International Exchange of Information on Financial Accounts Information Return (Part XVIII of the Act)” to the list in alphabetical order.
Part 3 — Amendments to section 5600 of the Income Tax Regulations
“Spin-offs” involve the separation of a subsidiary corporate entity from its parent corporation. This particular form of corporate divisive transactions is typically achieved by the parent transferring its ownership interest (i.e. shares) in the subsidiary directly to its shareholders on a pro-rata basis. Without the benefit of a tax deferral, the fair market value of the distributed shares is taxable as dividends to the recipient shareholders as a dividend in the year received. The Act provides for such a tax deferral in respect of spin-off distributions that qualify as “eligible distributions.”
The Act requires that various conditions be met before a spin-off distribution is considered to be an “eligible distribution.” The various conditions ensure, among other things, that Canadian shareholders of a foreign corporation are not treated more favourably with respect to a distribution than Canadian shareholders receiving a similar distribution from a Canadian corporation. The rules apply to certain types of spin-offs only and distinguish between United States (U.S.) and non-U.S. spin-off transactions. This provision applies to eligible distributions received after 1997.
Under the Act, Canadian shareholders of a non-U.S. foreign corporation that distributes — or “spins off”— shares of a subsidiary to the corporation’s shareholders qualify for a tax deferral in respect of the distribution if, among other technical conditions, the spin-off distribution qualifies for an equivalent tax deferral under U.S. income tax rules. The process is relatively streamlined for U.S. spin-offs, on the basis that the U.S. income tax rules related to spin-off distributions are consistent with the Canadian approach from a tax policy perspective. However, there is not the same familiarity with the way in which foreign countries — other than the United States — approach the taxation of spin-off transactions, thus resulting in this additional requirement in the Act that a non-U.S. spin-off transaction be “prescribed.”
Tyco International Ltd., Siemens AG, and Brambles Limited are non-U.S. foreign corporations that have each undertaken a spin-off distribution of shares and have requested that these distributions be prescribed.
The amendment to section 5600 of the Regulations ensures that Canadian shareholders of foreign-owned companies receive fair tax treatment.
The Regulations are amended to prescribe three distributions of shares for the purpose of the tax-deferral rules for foreign spin-off transactions. The prescription is for
- a distribution undertaken by Tyco International Ltd., to its common shareholders, of common shares of Pentair Ltd. on September 28, 2012;
- a distribution undertaken by Siemens AG, to its common shareholders, of common shares of OSRAM Licht AG on July 5, 2013; and
- a distribution undertaken by Brambles Limited, to its common shareholders, of common shares of Recall Holdings Limited on December 18, 2013.
Part 4 — Amendments to Schedule VIII to the Income Tax Regulations
Foreign universities for which a taxpayer may receive tax relief in respect of a donation are listed in Schedule VIII to the Regulations (referred to as prescribed foreign universities). More specifically, a corporation may, for the purposes of computing its taxable income, deduct certain gifts made to a prescribed foreign university while an individual or trust may claim a non-refundable tax credit in respect of donations made to a prescribed foreign university.
To be eligible to be listed as a foreign educational institution, a university must meet all of the following conditions:
- it maintains an academic entrance requirement of at least secondary school matriculation standing;
- it is organized for teaching, study and research in the higher branches of learning;
- it is empowered, in its own right, to confer degrees of at least the baccalaureate level (Bachelor or equivalent), according to academic standards and statutory definitions prevailing in the country in which the university is situated; and
- it ordinarily includes Canadian students in their student body.
The list in Schedule VIII is regularly updated to include newly qualified universities, remove those universities that no longer qualify to be on the list, and amend the name and/or address of the listed universities.
The objective of this amendment is to update the list of prescribed foreign universities.
Schedule VIII to the Regulations is amended to
- add the names of certain foreign universities located in the United States and the United Kingdom that applied to be listed on Schedule VIII and which meet all the eligibility criteria for inclusion; and
- remove the names of certain foreign universities located in the United States that no longer meet the eligibility criteria necessary for inclusion.
None of the amendments are expected to impose new administrative or compliance costs on business. Therefore, the “One-for-One” Rule does not apply.
Small business lens
The small business lens does not apply, as there are no additional costs imposed on business by any of the amendments.
Adding new reporting requirements for issuers of payments in respect of the Apprenticeship Incentive Grant program, the Apprenticeship Completion Grant program and the Universal Child Care Benefit program will ensure that the CRA continues to have the information it needs to administer these programs and that recipients have the information they need to calculate their income. These new reporting requirements are consistent with other reporting obligations in the Act and in the Regulations for similar types of payments.
The addition of the two new information returns to the list of returns that are subject to the graduated late filing penalty will help ensure that these returns are filed on time and that filers benefit from the lower graduated penalty.
The updates to the list of prescribed distributions of shares for the purpose of the tax-deferral rules for foreign spin-off transactions and the list of prescribed foreign universities is necessary in order to reflect new developments.
In relation to foreign universities, the amendments are made in accordance with the above mentioned eligibility criteria and ensures integrity of the tax relief provided in relation to donations made to a foreign university. The universities which have been removed from the list no longer meet the conditions for prescribed status, while those that have been added have proven they do meet the eligibility criteria.
Implementation, enforcement and service standards
These amendments are subject to the existing reporting and compliance mechanisms available to the Minister of National Revenue under the Act. These mechanisms allow the Minister of National Revenue to assess and reassess tax payable, conduct audits and seize relevant records and documents.
Cornelis (Kees) Rystenbil
Legislative Amendments Division
Legislative Policy Directorate
Legislative Policy and Regulatory Affairs Branch
Canada Revenue Agency
320 Queen Street, Tower A