Vol. 145, No. 21 — October 12, 2011

Registration

SOR/2011-188 September 22, 2011

INCOME TAX ACT

Regulations Amending the Income Tax Regulations (Omnibus, No. 3)

P.C. 2011-936 September 22, 2011

His Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to subsection 147.1(18) (see footnote a) and section 221 (see footnote b) of the Income Tax Act (see footnote c), hereby makes the annexed Regulations Amending the Income Tax Regulations (Omnibus, No. 3).

REGULATIONS AMENDING THE INCOME
TAX REGULATIONS (OMNIBUS, NO. 3)

AMENDMENTS

1. Subsection 200(1) of the French version of the Income Tax Regulations (see footnote 1) is replaced by the following:

200. (1) Toute personne qui effectue un paiement visé au paragraphe 153(1) de la Loi, sauf un paiement de rente relatif à un intérêt dans un contrat de rente auquel s’applique le paragraphe 201(5), doit remplir une déclaration de renseignements selon le formulaire prescrit à l’égard de tout paiement ainsi effectué, à moins qu’une telle déclaration n’ait été remplie en application des articles 202, 214, 237 ou 238.

2. (1) The portion of subsection 202(1) of the Regulations before paragraph (a) is replaced by the following:

202. (1) In addition to any other return required by the Act or these Regulations, every person resident in Canada shall make an information return in prescribed form in respect of any amount that the person pays or credits, or is deemed under Part Ⅰ, XIII or XIII.2 of the Act to pay or credit, to a non-resident person as, on account or in lieu of payment of, or in satisfaction of,

(2) Subsection 202(1) of the Regulations is amended by adding the following after paragraph (e):

(f) an assessable distribution, as defined in subsection 218.3(1) of the Act;

(3) Paragraph 202(1)(g) of the French version of the Regulations is replaced by the following:

(g) d’un dividende, y compris une ristourne au sens de l’alinéa 212(1)g) de la Loi;

(4) The portion of subsection 202(1) of the Regulations after paragraph (h) is repealed.

3. Section 210 of the Regulations is replaced by the following:

210. Every person who makes a payment described in section 153 of the Act, or who pays or credits, or is deemed by any of Part Ⅰ, XIII and XIII.2 of the Act to have paid or credited, an amount described in that section, Part XIII or XIII.2 of the Act, shall, on demand by registered letter from the Minister, make an information return in prescribed form containing the information required in the return and shall file the return with the Minister within such reasonable time as is stipulated in the registered letter.

4. The definition “life insurance policy” in subsection 217(1) of the Regulations is repealed.

5. Section 231 of the Regulations and the heading before it are repealed.

6. (1) The portion of subsection 300(2) of the Regulations before paragraph (a) is replaced by the following:

(2) For the purposes of this section,

(2) Paragraph 300(2)(b) of the Regulations is replaced by the following:

(b) subject to subsections (3) and (4), “adjusted purchase price” of a taxpayer’s interest in an annuity contract at a particular time means the amount that would be determined at that time in respect of that interest under the definition “adjusted cost basis” in subsection 148(9) of the Act if the formula in that definition were read without reference to variable K;

(3) Subparagraph 300(3)(b)(iv) of the French version of the Regulations is replaced by the following:

(iv) avant le dernier en date du 1^er janvier 1970 et du jour anniversaire d’imposition du contrat de rente,

(4) Subsection 300(4) of the French version of the Regulations is replaced by the following:

(4) Dans le cas où un contrat de rente serait visé à l’alinéa (3)b) si le passage « avant le dernier », au sous-alinéa (iv) de cet alinéa, était remplacé par « après la veille du dernier », le prix d’achat rajusté de l’intérêt que détient un contribuable dans le contrat de rente à un moment donné est égal à la plus élevée des sommes suivantes :

a) le total des sommes suivantes:
1. (i) la somme qui serait déterminée à l’égard de cet intérêt en vertu des alinéas (3)c), d) ou e), si la date mentionnée à chacun de ces alinéas correspondait au jour anniversaire d’imposition du contrat et non à la date où commencent les versements de rente,
2. (ii) le prix d’achat rajusté qui serait déterminé à l’égard de cet intérêt si le passage « avant ce moment » aux éléments A, B, C, D et H de la formule figurant à la définition « coût de base rajusté » au paragraphe 148(9) de la Loi était remplacé par « avant ce moment et après le jour anniversaire d’imposition »;
b) le montant déterminé selon l’alinéa (2)b) à l’égard de cet intérêt.

(5) Subparagraph 300(4)(a)(ii) of the English version of the Regulations is replaced by the following:

(ii) the adjusted purchase price that would be determined in respect of that interest if the expression “before that time” in the descriptions of A, B, C, D and H in the definition “adjusted cost basis” in subsection 148(9) of the Act were read as “before that time and after the tax anniversary date”; and

7. (1) Subsection 301(1) of the Regulations is replaced by the following:

301. (1) For the purposes of this Part and section 148 of the Act, “life annuity contract” means a contract under which a person authorized under the laws of Canada or of a province to carry on in Canada an annuities business agrees to make annuity payments to one person or partnership (in this section referred to as “the annuitant”) or jointly to two or more annuitants, which annuity payments are, under the terms of the contract,

(a) to be paid annually or at more frequent periodic intervals;
(b) to commence on a specified day; and
(c) to continue throughout the lifetime of one or more individuals (each of whom is referred to in this section as “the identified individual”).

(2) Paragraphs 301(2)(b) to (d) of the Regulations are replaced by the following:

(b) the contract provides for annuity payments to be made for a period ending on the death of the identified individual or for a specified period of not less than 10 years, whichever is the lesser;
(c) the contract provides for annuity payments to be made for a specified period or throughout the lifetime of the identified individual, whichever is longer, to the annuitant and, if the specified period is longer, to a specified person after that period;
(d) the contract provides, in addition to the annuity payments to be made throughout the lifetime of the identified individual, for a payment to be made on the death of the identified individual;

8. The portion of subsection 304(1) of the Regulations before paragraph (a) is replaced by the following:

304. (1) For the purposes of this Part and of subsections 12.2(1) and 20(20) and paragraph 148(2)(b) of the Act, “prescribed annuity contract”, for a taxation year, means

9. Section 305 of the Regulations and the heading before it are repealed.

10. (1) The portion of subsection 307(1) of the Regulations before paragraph (a) is replaced by the following:

307. (1) For the purposes of this Part and sections 12.2 and 148 of the Act, “accumulating fund”, at any particular time, means,

(2) The portion of subsection 307(5) of the French version of the Regulations before paragraph (b) is replaced by the following:

(5) Pour l’application du présent article, toute somme déterminée par rapport à l’article 1401 est calculée :

a) compte non tenu de l’article 1402;

(3) Paragraph 307(5)(b) of the Regulations is replaced by the following:

(b) as if each reference to “policy loan” in section 1401 were read as a reference to “policy loan, as defined in subsection 148(9) of the Act,”; and

(4) Paragraph 307(5)(c) of the French version of the Regulations is replaced by the following:

c) compte non tenu du passage « ou à l’égard des intérêts sur cette avance qui se sont accumulés au profit de l’assureur à la fin de l’année » aux divisions 1401(1)c)(i)(B) et (ii)(C).

11. (1) Subsections 308(2) and (3) of the Regulations are replaced by the following:

(2) Subject to subsection (4), for the purposes of this section and of the description of G in the definition “adjusted cost basis” in subsection 148(9) of the Act, a “mortality gain” immediately before the end of any calendar year after 1982 in respect of a taxpayer’s interest in a life annuity contract means such reasonable amount in respect of the taxpayer’s interest in the life annuity contract at that time that the life insurer determines to be the increase to the accumulating fund in respect of the interest that occurred during that year as a consequence of the survival to the end of the year of one or more of the annuitants under the life annuity contract.

(3) Subject to subsection (4), for the purposes of this section and of paragraph (c) of the description of L in the definition “adjusted cost basis” in subsection 148(9) of the Act, a “mortality loss” immediately before a particular time after 1982 in respect of an interest in a life annuity contract disposed of immediately after that particular time as a consequence of the death of an annuitant under the life annuity contract means such reasonable amount that the life insurer determines to be the decrease, as a consequence of the death, in the accumulating fund in respect of the interest assuming that, in determining such decrease, the accumulating fund immediately after the death is determined in the manner described in subparagraph 307(1)(b)(i).

(2) Subsection 308(4) of the French version of the Regulations is replaced by the following :

(4) Dans le calcul d’un montant visé aux paragraphes (2) ou (3) pour une année relativement à un intérêt dans un contrat de rente viagère, la valeur prévue des gains de mortalité relatifs à l’intérêt pour l’année doit être égale à la valeur prévue des pertes de mortalité relatives à l’intérêt pour l’année, et les taux de mortalité utilisés pour l’année dans le calcul de ces valeurs prévues doivent être ceux qui seraient appropriés à l’intérêt et qui sont spécifiés aux alinéas 1403(1)c), d) ou e), selon le cas.

12. The heading before section 309 of the French version of the Regulations is replaced by the following:

PRIMES ET AUGMENTATIONS

13. (1) The portion of subsection 309(1) of the Regulations before paragraph (a) is replaced by the following:

309. (1) For the purposes of this section and section 306, and of subsection 89(2) of the Act, a premium at any time under a life insurance policy is a “prescribed premium” if the total amount of one or more premiums paid at that time under the policy exceeds the amount of premium that, under the policy, was scheduled to be paid at that time and that was fixed and determined on or before December 1, 1982, adjusted for such of the following transactions and events that have occurred after that date in respect of the policy:

(2) The portion of paragraph 309(1)(e) of the Regulations before subparagraph (i) is replaced by the following:

(e) a change arising from the provision of an additional benefit on death under a participating life insurance policy, as defined in subsection 138(12) of the Act, as, on account or in lieu of payment of, or in satisfaction of

(3) Paragraph 309(1)(f) of the Regulations is replaced by the following:

(f) redating lapsed policies, if the policy was reinstated not later than 60 days after the end of the calendar year in which the lapse occurred, or redating for policy loan indebtedness;

(4) Paragraph 309(1)(i) of the Regulations is replaced by the following:

(i) the payment of interest described in paragraph (a) of the definition “premium” in subsection 148(9) of the Act.

14. Section 310 of the Regulations is replaced by the following:

310. The following definitions apply for the purposes of this section and sections 300, 301 and 304 to 309.

“amount payable”
« montant payable »

“amount payable” has the same meaning as in subsection 138(12) of the Act.

“benefit on death”
« prestation de décès »

“benefit on death” does not include policy dividends, or any interest on a policy dividend, held on deposit by an insurer or any additional amount payable as a result of accidental death.

“cash surrender value”
« valeur de rachat »

“cash surrender value” has the same meaning as in subsection 148(9) of the Act.

“policy anniversary”
« anniversaire de la police »

“policy anniversary” includes, in the case of a life insurance policy that is in existence throughout a calendar year and that would not otherwise have a policy anniversary for the calendar year, the end of the calendar year.

“policy loan”
« avance sur police »

“policy loan” has the same meaning as in subsection 148(9) of the Act.

“proceeds of the disposition”
« produit de la disposition »

“proceeds of the disposition” has the same meaning as in subsection 148(9) of the Act.

“tax anniversary date”
« jour anniversaire d’imposition »

“tax anniversary date”, in relation to an annuity contract, means the second anniversary date of the contract to occur after October 22, 1968.

15. Subparagraph 2400(6)(b)(i) of the Regulations is replaced by the following:

(i) goodwill, or

16. The Regulations are amended by adding the following after Part XXX:

PART XXXI

TAX SHELTER

Prescribed benefits

3100. (1) For the purposes of paragraph (b) of the definition “tax shelter” in subsection 237.1(1) of the Act, “prescribed benefit”, in respect of an interest in a property, means any amount that may reasonably be expected, having regard to statements or representations made in respect of the interest, to be received or enjoyed by a person (in this subsection referred to as “the purchaser”) who acquires the interest, or a person with whom the purchaser does not deal at arm’s length, which receipt or enjoyment would have the effect of reducing the impact of any loss that the purchaser may sustain in respect of the interest, and includes such an amount

(a) that is, either immediately or in the future, owed to any other person by the purchaser or a person with whom the purchaser does not deal at arm’s length, to the extent that
1. (i) liability to pay that amount is contingent,
2. (ii) payment of that amount is or will be guaranteed by, security is or will be provided by, or an agreement to indemnify the other person to whom the amount is owed is or will be entered into by
  - (A) a promoter in respect of the interest,
  - (B) a person with whom the promoter does not deal at arm’s length, or
  - (C) a person who is to receive a payment (other than a payment made by the purchaser) in respect of the guarantee, security or agreement to indemnify,
3. (iii) the rights of that other person against the purchaser, or against a person with whom the purchaser does not deal at arm’s length, in respect of the collection of all or part of the purchase price are limited to a maximum amount, are enforceable only against certain property, or are otherwise limited by agreement, or
4. (iv) payment of that amount is to be made in a foreign currency or is to be determined by reference to its value in a foreign currency and it may reasonably be considered, having regard to the history of the exchange rate between the foreign currency and Canadian currency, that the total of all such payments, when converted to Canadian currency at the exchange rate expected to prevail at the date on which each such payment would be required to be made, will be substantially less than that total would be if each such payment was converted to Canadian currency at the time that each such payment became owing;
(b) that the purchaser or a person with whom the purchaser does not deal at arm’s length is entitled at any time to, directly or indirectly, receive or have available
1. (i) as a form of assistance from a government, municipality or other public authority, whether as a grant, a subsidy, a forgivable loan, a deduction from tax (other than an amount described in clause (b)(i)(B) of the definition “tax shelter” in subsection 237.1(1) of the Act) or an investment allowance, or as any other form of assistance, or
2. (ii) by reason of a revenue guarantee or other agreement in respect of which revenue may be earned by the purchaser or a person with whom the purchaser does not deal at arm’s length, to the extent that the revenue guarantee or other agreement may reasonably be considered to ensure that the purchaser or person will receive a return of all or a portion of the purchaser’s outlays in respect of the interest;
(c) that is the proceeds of disposition to which the purchaser may be entitled by way of an agreement or other arrangement under which the purchaser has a right, either absolutely or contingently, to dispose of the interest (otherwise than as a consequence of the purchaser’s death), including the fair market value of any property that the agreement or arrangement provides for the acquisition of in exchange for all or any part of the interest; and
(d) that is owed to a promoter, or a person with whom the promoter does not deal at arm’s length, by the purchaser or a person with whom the purchaser does not deal at arm’s length in respect of the interest.

(2) Notwithstanding subsection (1), for the purpose of paragraph (b) of the definition “tax shelter” in subsection 237.1(1) of the Act, “prescribed benefit”, in respect of an interest in a property, does not, except as otherwise provided in subparagraph (1)(b)(ii), include profits earned in respect of the interest.

(3) For the purpose of paragraph (b) of the definition “tax shelter” in subsection 237.1(1) of the Act, “prescribed benefit”, in respect of an interest in a property, includes an amount that is a limited-recourse amount because of subsection 143.2(1), (7) or (13) of the Act, but does not include an amount of indebtedness that is a limited-recourse amount

(a) solely because it is not required to be repaid within 10 years from the time the indebtedness arose where the debtor would, if the interest were acquired by the debtor immediately after that time, be
1. (i) a partnership
  - (A) at least 90% of the fair market value of the property of which is attributable to the partnership’s tangible capital property located in Canada, and
  - (B) at least 90% of the value of all interests in which are held by limited partners (within the meaning assigned by subsection 96(2.4) of the Act) of the partnership,
2. except where it is reasonable to conclude that one of the main reasons for the acquisition of one or more properties by the partnership, or for the acquisition of one or more interests in the partnership by limited partners, is to avoid the application of this subsection, or
3. (ii) a member of a partnership having fewer than six members, except where
  - (A) the partnership is a member of another partnership,
  - (B) there is a limited partner (within the meaning assigned by subsection 96(2.4) of the Act) of the partnership,
  - (C) less than 90% of the fair market value of the partnership’s property is attributable to the partnership’s tangible capital property located in Canada, or
  - (D) it is reasonable to conclude that one of the main reasons for the existence of one of two or more partnerships, one of which is the partnership, or the acquisition of one or more properties by the partnership, is to avoid the application of this section to the member’s indebtedness,
(b) of a partnership
1. (i) where
  - (A) the indebtedness is secured by and used to acquire the partnership’s tangible capital property located in Canada (other than rental property, within the meaning assigned by subsection 1100(14), leasing property, within the meaning assigned by subsection 1100(17), or specified energy property, within the meaning assigned by subsection 1100(25)), and
  - (B) the person to whom the indebtedness is repayable is a member of the Canadian Payments Association, and
2. (ii) throughout the period during which any amount is outstanding in respect of the indebtedness,
  - (A) at least 90% of the fair market value of the property of which is attributable to tangible capital property located in Canada of the partnership,
  - (B) at least 90% of the value of all interests in which are held by limited partners (within the meaning assigned by subsection 96(2.4) of the Act) that are corporations, and
  - (C) the principal business of each such limited partner is related to the principal business of the partnership,
3. except where it is reasonable to conclude that one of the main reasons for the acquisition of one or more properties by the partnership, or for the acquisition of one or more interests in the partnership by limited partners, is to avoid the application of this subsection, or
(c) of a corporation where the amount is a bona fide business loan made to the corporation for the purpose of financing a business that the corporation operates and the loan is made under a loan program of the Government of Canada or of a province the purpose of which is to extend financing to small- and medium-sized Canadian businesses.

Prescribed property

3101. For the purpose of paragraph (b) of the definition “tax shelter” in subsection 237.1(1) of the Act, “prescribed property”, in relation to a tax shelter, means property that is a registered pension plan, a registered retirement savings plan, a deferred profit sharing plan, a registered retirement income fund, a registered education savings plan or a property in respect of which paragraph 40(2)(i) of the Act applies.

17. (1) Part XXXII of the Regulations is replaced by the following:

PART XXXII

PRESCRIBED PAYMENTS

Patronage dividends

3200. For the purpose of subsection 135(1.1) of the Act, a payment is prescribed if it is made by Western Co-operative Fertilizers Limited,

(a) after March 22, 2004 and before March 31, 2005, to Saskatchewan Wheat Pool;
(b) after March 22, 2004 and before November 1, 2007, to United Grain Growers Limited;
(c) after March 30, 2005 and before March 13, 2008, to Saskatchewan Wheat Pool Inc.; and
(d) after March 12, 2008 and before October 29, 2008, to Viterra Inc.

(2) Part XXXII of the Regulations, as enacted by subsection (1), is repealed.

18. (1) Subsection 4802(1) of the Regulations is amended by adding the following after paragraph (c.1):

(c.2) the Public Sector Pension Investment Board;

(2) The portion of subsection 4802(1.1) of the Regulations before paragraph (a) is replaced by the following:

(1.1) For the purposes of subparagraph 127.55(f)(iii) and paragraph 149(1)(o.4) of the Act, a trust is prescribed at any particular time if, at all times after its creation and before the particular time,

19. (1) The portion of the definition “insider of a corporation” in subsection 4803(1) of the Regulations before paragraph (a) is replaced by the following:

“insider of a corporation” has the meaning that would be assigned by section 100 of the Canada Corporations Act, as it read on June 22, 2009, if the references in that section to “insider of a company”, “public company” and “equity shares” were read as references to “insider of a corporation”, “corporation” and “shares” respectively, and includes a person who is an employee of the corporation, or of a person who does not deal at arm’s length with the corporation, and whose right to sell or transfer any share of the capital stock of the corporation, or to exercise the voting rights, if any, attaching to the share, is restricted by

(2) The portion of the definition “insider of a corporation” in subsection 4803(1) of the Regulations after paragraph (b) is repealed.

20. (1) Paragraph 4900(2)(b) of the Regulations is replaced by the following:

(b) DBRS Limited;

(2) Paragraph 4900(2)(e) of the Regulations is replaced by the following:

(e) Standard & Poor’s Financial Services LLC.

21. Part LIV of the Regulations is repealed.

22. Section 5600 of the Regulations is amended by striking out “and” at the end of paragraph (a), by adding “and” at the end of paragraph (b) and by adding the following after paragraph (b):

23. Section 6700 of the Regulations is amended by striking out “or” at the end of paragraph (e) and by adding the following after paragraph (e):

(e.1) the corporation established by An Act constituting Capital régional et coopératif Desjardins, R.S.Q., c. C-6.1; or

24. Section 6704 of the Regulations is amended by striking out “or” at the end of paragraph (c), by adding “or” at the end of paragraph (d) and by adding the following after paragraph (d):

(e) an investment in an eligible entity described in sections 17 and 18 of An Act constituting Capital régional et coopératif Desjardins, R.S.Q., c. C-6.1.

25. Clause (A) in the description of C in paragraph 8303(5)(f) of the Regulations is replaced by the following:

(A) if the value of the fixed rate was last increased or established in the calendar year that includes the time of the increase, the average wage for that year, or

26. Subparagraph 8502(b)(vii) of the Regulations is replaced by the following:

(vii) the portion of each contribution that is made by Her Majesty in right of Canada or of a province, or by a person described in paragraph 4802(1)(d), in respect of a defined benefit provision of the plan and that can reasonably be considered to be made with respect to one or more employees or former employees of another person is deemed to be a contribution made by that other person;

27. (1) The portion of subsection 8515(3) of the Regulations after paragraph (c) is repealed.

(2) Section 8515 of the Regulations is amended by adding the following after subsection (3):

(3.1) If a designated plan has more than nine active members, the Minister may waive the application of any provision of this Part or Part LXXXIII that would otherwise apply to the designated plan because of its status as a designated plan.

28. (1) Subparagraph 8700(a)(ii) of the Regulations is replaced by the following:

(ii) that represents, in an official language of Canada, a community of artists from one or more of the following sectors of activity in the arts community, that is, theatre, opera, music, dance, painting, sculpture, drawing, crafts, de-sign, photography, the literary arts, film, sound recording and other audio-visual arts,

(2) Subparagraph 8700(a)(iv) of the Regulations is replaced by the following:

(iv) all of the resources of which are devoted to the activities and objects described in its application for its last designation by the Minister of Canadian Heritage pursuant to paragraph 149.1(6.4)(a) of the Act,

(3) The portion of paragraph 8700(b) of the Regulations that is before subparagraph (i) is replaced by the following:

(b) the activities of the organization (which may include collective bargaining on behalf of its sector of activity under the Status of the Artist Act, provided it is not the organization’s primary activity) are confined to one or more of

APPLICATION

29. (1) Sections 1 to 4, subsection 11(2) and section 19 apply after February 18, 2011..

(2) Sections 5 and 16 apply after February 18, 2003.

(3) Subsection 6(1), section 9 and subsection 10(1) apply with respect to annuity contracts and life insurance policies last acquired after 1989.

(4) Subsections 6(2) to (5), 10(2) to (4) and 11(1), section 12, subsections 13(2) to (4) and section 14 apply after February 1994.

(5) Section 7 applies to taxation years that end after 1996, and for those taxation years the adjusted cost basis of a policy holder’s interest in a life insurance policy is to be determined as if section 7 also applied to taxation years that begin after 1980.

(6) Section 8 applies after February 18, 2011, except that the replacement of the references to subsections 12.2(1), (3) and (4) in subsection 304(1) the Regulations with the reference to subsection 12.2(1) that results from the enactment of section 8 applies to life insurance policies last acquired after 1989.

(7) Subsection 13(1) applies with respect to life insurance policies last acquired after 1989.

(8) Section 15 applies to taxation years that begin after the day on which this text is published in the Canada Gazette , Part Ⅱ, and, where a taxpayer so elects and notifies the Minister of National Revenue in writing with the taxpayer’s return of income under Part Ⅰ of the Act for the taxation year that includes that day, subsection 2400(6) of the Regulations, as enacted by section 15, applies in respect of the taxpayer to the 2005 and subsequent taxation years.

(9) Subsection 17(1) applies to taxation years that end after March 22, 2003.

(10) Subsection 17(2) applies to taxation years that begin after October 28, 2008.

(11) Subsection 18(1) applies after September 2003.

(12) Subsection 18(2) applies to the 1992 and subsequent taxation years, except that in its application before June 29, 2005, the portion of subsection 4802(1.1) of the Regulations before paragraph ( a ), as enacted by subsection 18(2), is to be read without reference to “subparagraph 127.55( f )(iii) and”.

(13) Sections 20, 27 and 28 apply after February 19, 2011.

(14) Section 21 applies to any obligation that is settled or extinguished in taxation years that end after February 21, 1984 and that is not exempt from the application of subsection 27(1) of An Act to amend the Income Tax Act, the Income Tax Application Rules and related Acts , S.C. 1995, c. 21, by virtue of paragraph 27(2)(a) of that Act.

(15) Section 22 applies after June 11, 2006.

(16) Sections 23 and 24 apply to the 2001 and subsequent taxation years.

(17) Section 25 applies to past service events that occur after February 18, 2011.

(18) Section 26 applies after 2004.

REGULATORY IMPACT
ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issue and objectives

These amendments make technical refinements to the Income Tax Regulations (the Regulations). They make relatively minor changes that are necessary to ensure the proper administration and enforcement of the Regulations. The amendments do not change the policy underlying the Income Tax Act (the Act) or the Regulations.

All of these amendments were pre-published in the Canada Gazette, Part Ⅰ, on February 19, 2011, for a 30-day consultation period. All references in this document to pre-publication in the Canada Gazette, Part Ⅰ, are to that pre-publication.

Some measures have been identified for recommendation in letters issued by the Department of Finance, which are regularly released to commercial publishers as part of the Access to Information process (see measures described in parts (c), (d), (e), (f) and (i) below). Several of the other measures are derived from or consequential to announcements made by way of a news release or in previous budgets (see measures described in parts (a), (b) and (j) below). A number of the measures are being administered by the Canada Revenue Agency (CRA). Therefore, these amendments are intended only to give full effect and certainty to the prior announcements and/or recommendations.

Several amendments are consequential to changes to the Act and other legislation that render certain provisions of the Regulations inaccurate or no longer relevant (see parts (b), (c), (e), (f) and (h) below). Lastly, the package contains amendments that were released for the first time with pre-publication in the Canada Gazette, Part Ⅰ (see parts (c), (g), (k), (l) and (m) below). Amendments of this nature generally are made to clarify the Regulations, or to improve the drafting style or the concordance between the English and French versions of the Regulations.

With respect to the amendments to the Regulations that are consequential to previously enacted amendments to the Act, any potential costs, savings and tax revenue implications related to those amendments would have been previously contemplated by Parliament at that time. With respect to the balance of the amendments, the fiscal impact is expected to be minimal.

Description and rationale

(a) Information return in respect of Part XIII.2 tax

Part XIII.2 of the Act was enacted by S.C. 2005, c. 19, pursuant to Budget 2004. It applies, as a tax on capital gains, to certain otherwise tax-free distributions made after 2004 by Canadian mutual funds to their non-resident investors. The amount of this tax may be used by the non-resident investor in computing the amount of any foreign tax credit allowed under the income tax laws of the country in which the non-resident investor is resident or, in certain cases, can be refunded if the non-resident investor realizes a Canadian property mutual fund loss within the three years following the year in which the tax was paid.

An information return and the related information slip are provided to the non-resident investor in order to provide the non-resident investor with proof of the Canadian tax paid and to facilitate the administration of the Act. Sections 202 and 210 of the Regulations provide rules setting out the circumstances under which information returns are required in connection with payments to non-residents. When Part XIII.2 of the Act was enacted, the explanatory notes that accompanied its enactment announced that sections 202 and 210 of the Regulations would be amended to make reference to the Part XIII.2 tax.

The amendments to these sections ensure that a mutual fund trust that withholds tax on behalf of a non-resident investor under Part XIII.2 of the Act completes an information return in respect of such amounts.

The amendments apply to distributions made after 2004 to ensure that the non-resident investor has proof of all amounts of Part XIII.2 tax withheld on his or her behalf. The detailed measures giving effect to this change to the Regulations were released for the first time with pre-publication in the Canada Gazette, Part Ⅰ. These amendments give effect to the Budget 2004 announcement and ensure the ongoing proper administration of the income tax provisions in respect of Part XIII.2 tax. However, it is understood that most, if not all, mutual fund trusts have been providing the related information on a voluntary basis to affected taxpayers and the CRA since 2004. Therefore, these amendments would not be expected to result in a significant change in the administration of the Act.

(b) Part Ⅱ: Definition of “tax shelter”

The tax shelter rules in the Act require promoters of tax shelters to register them with the CRA. This facilitates the audit of these arrangements by the CRA. Certain other rules in the Act are also consequential on the definition “tax shelter” in subsection 237.1(1) of the Act. These other rules reduce or defer the tax benefits associated with a deduction from income or tax (for example by not permitting capital cost allowance on a tax shelter investment financed by long-term debt until such time as the amount financed is paid). In doing so, the tax shelter rules mitigate the provision of government support (unintended and not authorized by Parliament) that would otherwise be provided through the tax system.

Subsection 237.1(1) of the Act requires that the promoter of a “tax shelter” obtain an identification number in advance of promoting the product to potential purchasers. No person may claim a deduction in respect of a tax shelter until the identification number has been obtained. This also facilitates the audit of tax shelter arrangements by the CRA. Generally, a tax shelter is any property in respect of which it is represented that a potential purchaser would be able to claim, within four years, deductions from income or taxable income or tax credits that in aggregate equal or exceed the net cost of the property to the purchaser.

In this regard, for the purpose of determining whether a property is a tax shelter, benefits prescribed under subsection 231(6) of the Regulations are deducted from the cost of the property by the purchaser. They include tax credits and other forms of government assistance, revenue guarantees, contingent liabilities, limited-recourse debt and rights of exchange or conversion.

The definition “tax shelter” in subsection 237.1(1) of the Act was amended by Budget 2003 (as described at page 339 of the 2003 Budget Plan) to apply to property (including property acquired under a gifting arrangement) in respect of which it is represented that the acquisition of the property (or the acquisition and donation or contribution of the property under a gifting arrangement) would generate any combination of tax credits or deductions that in total would equal or exceed the cost of acquiring the property, net of any prescribed benefits.

Budget 2003 stated that in order to avoid a double counting of tax credits in determining if a property or an arrangement is a tax shelter, the definition “prescribed benefits” in subsection 231(6) of the Regulations would be amended to provide that deductions from the cost of the property to a purchaser would exclude from prescribed benefits any federal tax credit already taken into account in the definition “tax shelter”. This relieving amendment fulfills that aspect of the Budget 2003 measures.

Also included are amendments to move the contents of section 231 of the Regulations to sections 3100 and 3101. This is because Part Ⅱ of the Regulations concerns “information returns”, to which the description of a prescribed benefit no longer relates since the repeal of subsection 231(2) of the Regulations and the related introduction of subsection 237.1(7.1) of the Act regarding the time for filing an information return in respect of a tax shelter.

In addition, the amendments make other minor drafting style changes (including the repeal of the definitions “promoter” and “tax shelter” in subsection 231(1) of the Regulations because those terms are now defined in the Act).

These amendments apply after February 18, 2003.

(c) Parts Ⅱ and III: Life insurance policies and prescribed annuity contracts

In addition to the specific amendments described below, amendments to Parts Ⅱ and III of the Regulations update references in the Regulations to the Act and make other minor drafting style changes. Some of the amendments also improve the concordance between the French and English versions of the Regulations.

Information returns

Part Ⅱ of the Regulations prescribes conditions and other rules regarding information returns that are required to be filed with the Minister. Section 217 of the Regulations imposes a filing obligation on insurers to make an information filing in respect of certain dispositions of an interest in a life insurance policy. The amendment to section 217 repeals the definition “life insurance policy”, which is now defined in subsection 248(1) of the Act. This amendment to the Regulations does not implement policy changes. The amendment applies upon publication in the Canada Gazette, Part Ⅱ.

Annuities and life insurance policies

Part Ⅲ of the Regulations prescribes conditions and other rules for annuities and life insurance policies to become or remain exempt from Part Ⅰ tax in the hands of their policy holders.

Several consequential changes are made because of re-numbering or repeals of provisions of the Act that are referred to in these Regulations. Other amendments update the drafting style or terminology used in the provision affected. Changes are also made to ensure concordance between the French and English versions. In particular, these amendments move text currently in paragraph 307(5)(a) to the beginning of the subsection, and amend the text of paragraphs 307(5)(a) and (c) to ensure concordance between the French and English versions. The heading of Regulation 309 is amended to ensure that the same meaning is conveyed in both languages. These amendments to the Regulations do not implement policy changes.

Regulation 301 defines the types of life annuity contracts that are exempt from tax under section 148 of the Act. Further amendments to Part Ⅲ provide for certain third parties to be named as beneficiaries of life insurance policies in order to ensure that the existing regime operates as intended. An additional amendment expands the definition “life annuity contract” in subsection 301(1) of the Regulations to exempt from tax under section 148 of the Act life annuity contracts under which the annuitant is a partnership or a person as well as life annuity contracts under which the annuity payments are based on the life of an individual who is not the annuitant. These amendments implement measures that were identified for recommendation in a departmental letter dated September 12, 2002. The text of these amendments was released for the first time with pre-publication in the Canada Gazette, Part Ⅰ. These amendments apply to taxation years that end after 1996. However, in calculating the adjusted cost basis to a policyholder of the policyholder’s interest in a life insurance policy for taxation years that end after 1996, the amendments are applicable, for the purposes of applying the definition “adjusted cost basis” in subsection 148(9) of the Act, to taxation years that end after 1980.

(d) Part XXIV: Insurers — Canadian investment fund

Part XXIV of the Regulations provides rules for determining the property of an insurer that is used or held by it in the year in the course of carrying on an insurance business in Canada. Canadian resident life insurers and all non-resident insurers are taxable on their profits derived from insurance businesses carried on in Canada. Income from foreign insurance businesses is generally not subject to tax in Canada. This system has been in place since life insurers were first made taxable on their income. The difficulties associated with a factual determination of the Canadian insurance business component of insurers’ investment income and assets have led to the development of a proxy for measuring their Canadian insurance business investment assets and income. This proxy is set out in Part XXIV of the Regulations.

The amendment to Part XXIV ensures that the intended operation of the rules governing the calculation of an insurer’s investment income and the underlying tax policy are accurately expressed. Under subsection 2400(6) of the Regulations, certain assets of an insurer are, for the purpose of clause (a)(ii)(B) of the definition “Canadian investment fund” in subsection 2400(1) of the Regulations, deemed not to have been used or held by the insurer in the taxation year in the course of carrying on an insurance business. Such assets include goodwill that arose as a result of an amalgamation or a winding-up of an affiliated financial institution or on the assumption by the insurer of certain obligations of another insurer with which the insurer deals at arm’s length.

The amendment to this subsection deems all goodwill reported on an insurer’s balance sheet to be an asset that was not used or held by the insurer in the taxation year in the course of carrying on an insurance business. The amendment applies to taxation years that begin after the day on which this text is published in the Canada Gazette, Part Ⅱ, and, where a taxpayer so elects and notifies the Minister of National Revenue in writing with the taxpayer’s return of income under Part Ⅰ of the Act for the taxation year that includes that day, also applies in respect of the taxpayer for the 2005 and subsequent taxation years.

The text of the amendment was released for the first time with pre-publication in the Canada Gazette, Part Ⅰ. However, certain aspects of this amendment were identified for recommendation in a departmental letter dated June 30, 2006.

(e) Part XXXII: Prescribed payments

The Act generally allows a corporation or other person that pays patronage dividends to deduct them in computing income. Patronage dividends are amounts computed at a rate in proportion to the amount of business done with a member or customer. Cooperatives and credit unions, for example, may pay amounts to their members or customers in the form of patronage dividends. Patronage dividends received by a customer or member, with the exception of those with respect to certain consumer goods or services, are included in computing the recipient’s income. Ordinary taxable dividends, on the other hand, are not deductible by the payer-corporation in computing its income.

Subsection 135(1.1) of the Act limits the deduction of patronage dividends paid after March 22, 2004, when the amount is payable to a customer with whom the payer does not deal at arm’s length unless the payer is a cooperative corporation described in subsection 136(2) of the Act or a credit union, or the payment is prescribed by regulation. This amendment prescribes payments for this purpose.

Annex 9 to Budget 2004 and the explanatory notes that accompanied the enactment of subsection 135(1.1), by S.C. 2005, c. 19, explain that the concept of a prescribed payment was introduced in order to accommodate cooperative structures that would, but for non-substantive technical reasons, satisfy the definition of a cooperative corporation.

Both before and after its amalgamation with 136294 Canada Ltd., Western Co-operative Fertilizers Limited had an organizational structure that, but for non-substantive technical reasons, would satisfy the definition “cooperative corporation” in subsection 136(2) of the Act. Since the payments made by Western Co-operative Fertilizers Limited to its customers with whom it does not deal at arm’s length meet the criteria set out in the explanatory notes, these payments are prescribed for the purpose of subsection 135(1.1) of the Act. The amendment applies to various payments made after March 22, 2004, and before October 29, 2008, to ensure that none of the payments made by Western Co-operative Fertilizers Limited to its customers are subject to the limitation in subsection 135(1.1) of the Act. As a result of a subsequent reorganization of Western Co-operative Fertilizers Limited in 2008, no further amounts that would otherwise be subject to subsection 135(1.1) of the Act were paid by Western Co-operative Fertilizers Limited after 2008. This amendment was first identified for recommendation in a departmental letter dated December 6, 2004.

Section 3202 of the Regulations is also repealed, as it no longer has application for the purpose of the Act since section 47.1 of the Act, which provided for its effect, was repealed by S.C. 1986, c. 6, as of January 1, 1986.

(f) Part XLVIII: Status of corporations and trusts

Part XLVIII of the Regulations prescribes conditions and other rules that are relevant in determining the status of corporations and trusts for specified provisions of the Act. A number of amendments to Part XLVIII are being made. The detailed measures relating to these changes to Part XLVIII were released for the first time with pre-publication in the Canada Gazette, Part Ⅰ.

Pension investment corporations

Paragraph 149(1)(o.2) of the Act exempts certain types of pension investment corporations from tax if all the shares and rights to acquire shares of the corporation are owned by one or more registered pension plans or specified persons. Specified persons include those prescribed under subsection 4802(1) of the Regulations. Paragraphs 4802(1)(c) and (c.1) list, respectively, a trust or corporation established by provincial legislation the principal activities of which are to administer, manage or invest the monies of a pension fund established pursuant to such legislation, and the Canada Pension Plan Investment Board.

New paragraph 4802(1)(c.2) expands the list of permissible shareholders for tax-exempt pension investment corporations by adding the Public Service Pension Investment Board, which invests the funds of the pension plans established under the Canadian Forces Superannuation Act, the Public Service Superannuation Act and the Royal Canadian Mounted Police Superannuation Act.

This amendment was first identified for recommendation in a departmental letter dated October 16, 2003, and applies after September 2003.

Master trusts

Subsection 4802(1.1) of the Regulations prescribes trusts for the purpose of paragraph 149(1)(o.4) of the Act. Paragraph 149(1)(o.4) of the Act exempts from tax any trust that is so prescribed and makes an election under that paragraph. Such an election will be valid if a trust fulfills a number of conditions that place restrictions on its activities, and on who may qualify as a beneficiary of the trust. One of the conditions is that each of its beneficiaries must be a registered pension plan or a deferred profit sharing plan.

The amendment to subsection 4802(1.1) ensures that the prescription also applies for the purpose of subparagraph 127.55(f)(iii) of the Act. The amendment ensures that a trust prescribed for purposes of paragraph 149(1)(o.4) of the Act is also exempt from the alternative minimum tax set out in section 127.5 of the Act. This amendment was first identified for recommendation in a departmental letter dated May 7, 2007, and applies to the 1992 and subsequent taxation years.

Insiderof a corporation

Subsection 4803(1) of the Regulations defines the term “insider of a corporation” for the purpose of determining whether a corporation is eligible to make an election (or the Minister of National Revenue is entitled to designate the corporation) to either be or not be a public corporation (as defined in subsection 89(1) of the Act). Under the current law, the definition applies by reference to an external definition; namely, the definition “insider of a company” in the Canada Corporations Act. The recent repeal of the relevant provision of the Canada Corporations Act (effected by S.C. 2009, c. 23) has given rise to a potential deficiency in the application of the income tax provisions.

The amendment ensures that the definition “insider of a corporation” applies as it did before the repeal of the definition “insider of a company” in the Canada Corporations Act. To provide for this result, the reference contained in subsection 4803(1) to the Canada Corporations Act is modified to expressly refer to that statute as it read before the repeal effected by S.C. 2009, c. 23.

(g) Part XLIX: Qualified investments, deferred income plans

The Act permits deferred income plans such as registered retirement savings plans (RRSPs), registered education savings plans (RESPs) and tax-free savings accounts (TFSAs) to hold certain debt instruments provided they have an investment grade rating. Part XLIX of the Regulations establishes the framework for qualified investments for the purposes of deferred income plans.

Only prescribed credit rating agencies may assign an investment grade rating to a debt instrument. Subsection 4900(2) of the Regulations prescribes credit rating agencies in relation to investment grade debt under paragraph (c.1) of the definition “qualified investment” in section 204 of the Act. Paragraphs 4900(2)(b) and (e) are replaced in order to appropriately reflect the new names of Dominion Bond Rating Services Limited (now DBRS Limited) and the Standard & Poor’s Division of the McGraw-Hill Companies, Inc. (now Standard & Poor’s Financial Services LLC).

(h) Part LIV: Debtor’s gains on settlement debts

Part LIV of the Regulations was relevant for former subsection 80(1) of the Act concerning a debtor’s gain on settlement of a debt (debt forgiveness). In 1995, the rules for debt forgiveness in the Act were rewritten to be contained in sections 80 to 80.04. The rules contained in Part LIV of the Regulations have been replaced by subsections 80(5) and (6) of the Act. As a consequence, Part LIV is no longer relevant and is therefore repealed. This amendment was released for the first time with pre-publication in the Canada Gazette, Part Ⅰ.

(i) Part LVI: Prescribed distributions

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 the spin-off distribution satisfies various technical requirements in section 86.1 of the Act and the distribution is prescribed in the Regulations.

Section 86.1 of the Act was enacted by Parliament in 2001, and provides Canadian shareholders with a tax deferral in respect of certain distributions made by a foreign corporation of shares it owns in another foreign corporation. This change to the income tax law is applicable to “eligible distributions” received after 1997.

Section 86.1 of the Act requires that various conditions be met before the 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. In doing so, the rules apply to certain types of spin-offs only and distinguish between U.S. and non-U.S. spin-off transactions.

In particular, certain spin-off transactions under the United States’ Internal Revenue Code were considered acceptable without the need for prescription, and this result is provided for in subsection 86.1(2) of the Act. 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 the additional requirement in section 86.1 that a non-U.S. spin-off transaction be “prescribed.”

The amendment to the Regulations prescribes a distribution of shares for the purpose of the tax-deferral rules for foreign spin-off transactions in section 86.1 of the Act. The prescription concerns a distribution undertaken by Electrolux AB of Husqvarna AB shares on June 12, 2006. As a result of this amendment, Canadian shareholders of Electrolux AB are eligible for a tax deferral in respect of the distribution.

This measure was first identified for recommendation in a departmental letter dated September 11, 2007.

(j) Part LXVII: “Prescribed venture capital corporations” and “prescribed qualifying corporations”

Tax assistance provided for the purchase of shares of a “prescribed venture capital corporation,” prescribed by section 6700 of the Regulations, is generally ignored for income tax purposes, i.e. there is generally no cost base adjustment or income inclusion for the amount of the assistance. Section 6704 of the Regulations ensures that a “prescribed qualifying corporation” does not lose its status as a small business corporation or a private corporation due to investments made by a prescribed venture capital corporation. These provisions also ensure that certain special taxes on inter-corporate dividends do not apply to dividends paid by a prescribed qualifying corporation to a prescribed venture capital corporation.

The Province of Quebec has enacted legislation creating an investment fund (in the form of a corporation) in order to foster investment in resource regions of Quebec and to meet the capital needs of cooperatives. The Province of Quebec provides a tax credit to investors in the fund and the fund is required to invest a portion of the funds raised in eligible investments. Eligible investments generally include active businesses that are resident in Quebec and eligible cooperatives.

The objective of this amendment is to extend the income tax rules applicable to similar investment funds in other provinces to the investment fund incorporated under the above-noted legislation in Quebec.

These amendments were released in draft form by the Department of Finance on December 20, 2002.

The amendments to the Regulations add

“corporations established by AnAct constituting Capital régional et coopératif Desjardins” to the definition “prescribed venture capital corporation” in section 6700 of the Regulations; and
“an investment in an eligible entity described in sections 17 and 18 of An Act constituting Capital régional et coopératif Desjardins” to the definition “prescribed qualifying corporation” in section 6704 of the Regulations.

The regulatory action is necessary for three reasons. First, the amendments ensure that the tax credit provided by the Quebec government to investors in shares of the fund is not treated as government assistance. Second, the amendments ensure that the corporations that qualify as eligible investments for the fund do not lose their status as small businesses corporations as a result of being invested in by the fund. Third, the amendments ensure that certain special taxes on dividends under Part ⅠV and Part VI.1 of the Act do not apply to dividends received by the fund from its eligible investments.

The amendments are effective for the 2001 and subsequent taxation years.

(k) Part LXXXIII: Past service pension adjustments

Part LXXXIII of the Regulations provides rules for calculating pension adjustments (“PAs”), past service pension adjustments (“PSPAs”), pension adjustment reversals and prescribed amounts, each of which is relevant to the calculation of an individual’s registered retirement savings plan (“RRSP”) deduction room.

PSPAs

Section 8303 of the Regulations provides rules for determining the PSPA of an individual for a year. A PSPA arises when benefits are provided to an individual under a defined benefit provision of a registered pension plan (“RPP”) on a past service basis, such as by upgrading existing benefits or by crediting additional years of pensionable service. PSPAs reduce an individual’s RRSP deduction room. Certain benefit increases are expressly excluded in determining an individual’s PSPA, thus reducing the PSPA otherwise determined. Where the benefit formula in the RPP includes a flat benefit component (for example, a $50 monthly pension for each year of pensionable service), paragraph 8303(5)(f) excludes benefits arising from an increase in the flat benefit rate to the extent of the percentage increase in the average wage from the preceding year to the current year. It applies only to the first flat benefit rate increase each year.

The amendment to paragraph 8303(5)(f) modifies the paragraph so that the exclusion applies only if the rate increase occurs after the year in which the rate was established. This ensures that the relief is not available for a flat benefit rate increase that occurs in the year in which a plan is established (or, as is currently the case, for a second or subsequent rate increase in a year).

Example

A new defined benefit pension plan is established in January 2010 with a flat benefit of $2,300 annual pension per year of pensionable service. The sole member’s earnings are high enough to support a maximum (defined benefit limit) pension, but the plan restricts the pension benefit to the $2,300 flat rate. The plan credits 10 years of past pensionable service for the sole member’s employment prior to 2010. (Note that the purchase of 10 years of past service is a PSPA event.)

The plan is subsequently amended to increase the flat benefit rate to $2,350 effective April 1, 2010, and to $2,400 effective July 1, 2010, and to increase to the defined benefit limit ($2,494.44 for year 2010) effective October 1, 2010. Since those flat rate increases occurred in the same year the plan was established, no portion of those increases is an excluded benefit for PSPA purposes. That is, the full amount of each of the rate increases is required to be included in the PSPA calculations.

The amendment codifies an administrative practice currently being applied by the CRA under the authority of section 8310 of the Regulations.

The amendment was released for the first time with pre-publication in the Canada Gazette, Part Ⅰ.

(l) Part LXXXV: Registered Pension Plans

Part LXXXV of the Regulations sets out conditions that must be satisfied in order for a pension plan to be registered under the Act, and provides related rules that apply to RPPs.

Permissible contributions

Paragraph 8502(b) of the Regulations lists the contributions that are permitted to be made to an RPP. That list includes contributions made to an RPP by the federal government or a provincial government, but does not explicitly accommodate contributions made by a provincial worker’s compensation board.

The amendment to paragraph 8502(b) allows greater flexibility in the source of contributions to the pension plan on behalf of a disabled member. Specifically, subparagraph 8502(b)(vii) permits contributions to an RPP, on behalf of disabled members, by a worker’s compensation scheme or program that is established by an act of a province.

Special rules for designated plans

Section 8515 of the Regulations determines whether an RPP is a “designated plan,” and it sets out funding restrictions applicable to designated plans. Designated plans are certain RPPs that are primarily for the benefit of employee-shareholders or highly compensated employees. They are subject to additional restrictions under the Regulations.

Under the existing rules, if the Minister of National Revenue applies his or her discretion under subsection 8515(3) of the Regulations to waive an RPP’s designated plan status, this waiver is intended to apply to waive the funding restrictions of subsections 8515(5) to (9) of the Regulations.

In recent years, several new rules have been introduced in Parts LXXXIII and LXXXV that expressly exclude designated plans from their application. Those new regulations include PSPA relief pursuant to paragraphs 8303(5)(f.1) and (f.2), phased retirement provisions pursuant to subsections 8503(17) and (19), and special provisions for Quebec member-funded pension plans pursuant to subsection 8510(9) of the Regulations. The Minister’s waiver of designated plan status should not necessarily extend to non-funding-related provisions in the Regulations. Under current rules, the status is waived or not for all purposes.

Subsection 8515(3) is amended, and a new subsection 8515(3.1) is introduced, to provide the Minister with the flexibility to decide if a plan that would otherwise be a designated plan pursuant to subsections 8515(1) and (2) of the Regulations would be exempt from the application of any one or more of the provisions in Parts LXXXIII and LXXXV that would otherwise apply to a designated plan. It is expected that, in many cases, the Minister would waive the application of the funding restrictions but would consider the RPP to be a designated plan for all other purposes of Parts LXXXIII and LXXXV.

These changes were released for the first time with pre-publication in the Canada Gazette, Part Ⅰ.

(m) Part LXXXVII: National Arts Service Organizations

The policy rationale for subsection 149.1(6.4) of the Act is to enable the Minister of National Revenue to register certain organizations designed exclusively for the promotion of arts in Canada. If an organization is registered, it would receive the same tax treatment as a registered charity or charitable organization. Part LXXXVII of the Regulations prescribes conditions that an organization must comply with in order for the Minister of National Revenue to register it.

The prescribed conditions in section 8700 of the Regulations are amended so that the conditions are more inclusive for National Arts Service Organizations (“NASOs”).

The first amendment ensures that organizations representing artists of diverse cultural backgrounds, which otherwise meet all the requirements of a NASO, are not impeded in obtaining preferred tax status. This amendment changes the wording of subparagraph 8700(a)(ii) of the Regulations from “that represents, in an official language of Canada, the community of artists…” to “that represents, in an official language of Canada, a community of artists…” [emphasis added]. Also, because NASOs are limited to certain activities in order to maintain their preferred status for the purposes of the Act, the second amendment adds to the list of “eligible activities” as described at paragraph 8700(b) of the Regulations. Specifically, the amendment allows NASOs to undertake collective bargaining with groups of artists to the extent permitted by the Status of the Artist Act without losing their status for income tax purposes.

The amendment to subparagraph 8700(a)(ii) of the Regulations limits its application to those artistic sectors that are listed in the Regulations. The amendment to subparagraph 8700(a)(iv) of the Regulations also updates the reference to the Minister of Communications to the Minister of Canadian Heritage.

These amendments were released for the first time with pre-publication in the Canada Gazette, Part Ⅰ.

Consultation (applies to all measures)

With pre-publication in the Canada Gazette, Part Ⅰ, all of these measures are in the public domain and affected stakeholders have been given an opportunity to comment. In addition, some of these measures have been developed in consultation with other government departments, including the CRA and, in the case of the NASO-related regulations, the Department of Canadian Heritage. The CRA has also been consulted on draft regulations relating to all of the amendments discussed herein. Some of these measures were released for the first time with pre-publication in the Canada Gazette, Part Ⅰ.

No representations concerning these measures were made to the Department of Finance during the 30 days after their pre-publication in the Canada Gazette, Part Ⅰ. Accordingly, no substantive changes were made to the measures following that pre-publication.

Compliance and enforcement

The Act generally provides the necessary compliance mechanisms for these measures. These mechanisms, which are found primarily in Part XV of the Act, allow officials of the CRA, under the authority of the Minister of National Revenue, to assess and reassess tax payable, conduct audits and review relevant records and documents.

Contact

Christian Charron
Tax Legislation Division
Department of Finance
L’Esplanade Laurier Building, East Tower, 17th Floor
140 O’Connor Street
Ottawa, Ontario
K1A 0G5
Telephone: 613-992-5853

Footnote a
S.C. 1998, c. 19, s. 39

Footnote b
S.C. 2007, c. 35, s. 62

Footnote c
R.S., c. 1 (5th Supp.)

Footnote 1
C.R.C., c. 945

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