Finance Canada Drops Draft Legislation August 15

Evelyn Jacks

All professional tax practitioners, financial advisors should take note of an important mid-summer release of draft legislation to implement some of the proposals from the November 2024 Fall Economic Statement, the April 2024 Budget, the EIFEL rules announced on August 12, 2024, and rules relating to passive income of foreign affiliates announced in the 2022 federal budget.  This draft legislation also introduces more modifications to new trust filing requirements. Brief highlights appear below;  technical details will be discussed in the September 17 and November 5 CE Summits and Knowledge Bureau’s certificate course on T3 Filings. 

Highlights:

Non-Compliance with Information Requests.  The government is moving forward with increasing the powers of the CRA (an “authorized person”) and the requirement for taxpayers to comply with requests for information, at a more onerous standard.  This has caused considerable consternation with the accounting and legal community.  Some highlights to note:

Non-residents protected by treaty are required to comply.  The requirements to comply with the new rules apply for any purpose related to the administration or enforcement of the Act includes the collection of any amount payable under the Act by any person.

Reasonable time to submit information.  An authorized person may require a taxpayer or any other person to provide and deliver any information or additional information including a return of income or a supplementary return, or any document. The authorized person may require a taxpayer or any other person to provide this additional information in a reasonable manner and within a reasonable period of time.

Oath taking and Affidavits. Coming into force on Royal Assent, this is important new from the proposals:  “New section 231.41 permits the Minister to require that answers to questions, information or documents, be provided orally under oath or affirmation, or by affidavit. New section 231.41 applies in conjunction with existing subsection 220(5) of the Act, which provides that any officer or servant employed in connection with the administration or enforcement of the Act, who is designated by the Minister, may administer oaths and take and receive affidavits, declarations and affirmations for the purposes of or incidental to the administration or enforcement of the Act or any regulations made under the Act.

Also of note:  “Every officer or servant designated by the Minister has for those purposes all the powers of a commissioner for administering oaths or taking affidavits.”

Notice of compliance.  New section 231.9, provides an alternative means of enforcing compliance with sections 231.1, 231.2 and 231.6, permitting the Minister to issue a notice of non-compliance to any person who has failed to meet their obligations under these sections.  This will occur if the Minister determines that they have not met their obligations, in full or in part, with respect to a requirement or notice to provide information, foreign-based information, returns, documents or reasonable assistance under these sections.

Trust Taxation Rules Tweaked Again.  This package of materials clarified trust filing requirements including more clarifications around bare trust and listed trust filings, to begin for trusts with taxation years ending December 31, 2025.

Specifically, for the purpose of section 150, the draft legislation explains that a trust includes an arrangement under which a trust can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust's property.

Subsection 150(1.3) is being amended to more clearly define the beneficial ownership arrangements subject to the reporting rules. Subject to the exceptions in subsection 150(1.31), certain beneficial ownership arrangements that would not otherwise constitute a trust for the purposes of the Act, will be deemed to be a trust for the purposes of the beneficial ownership reporting rules (Schedule 15 to accompany the T3 return). 

Further, subsection 104(1) is amended to remove the reference to section 150.  The effect of this change will be that beneficial ownership arrangements which are not otherwise treated as trusts under the ITA will only be subject to the beneficial ownership reporting requirements, if they are deemed to be trusts under new subsection 150(1.3).

This amendment will apply for taxation years that end after December 30, 2024.  The draft legislation goes into detail on these rules.

Changes to Income Tax Regulations.  Further, the ITRs subsection 204.2(1) sets out the exceptions to trusts  required to file a return of income to provide additional information on Schedule 15; those trusts specifically listed in paragraphs 150(1.2)(a) to (r) of the Act.

However, this list includes new subparagraphs 150(1.2)(q) and (r) of the Act and they each have different timelines, described below.  

New paragraph 150(1.2)(q) - This paragraph is intended to provide greater certainty for bankruptcy trustees or provincial guardians.  The relevant statute does not need to require that property be held in trust in order for the trust to qualify for the filing exemption.

New paragraph 150(1.2)(r) provides an exemption from the beneficial ownership reporting requirements for a trust that is an employee ownership trust. This amendment applies to taxation years that end after December 30, 2025.

Solicitor-client privilege. One important modification to the previously released proposals on trust filings is that additional information requirements will not include information subject to solicitor-client privilege.

Knowledge Bureau’s T3 Course is currently being updated to incorporate these proposed changes, and students taking the program will also be provided with this information.  To register:

This topic and filing requirements will also be discussed in detail at two  CE Summits:  September 17 and November 5 with special guest instructors Kim Moody and Anna Malazhavaya. Register online today!

Capital Gains Rollover Rules (Subsection 41.1).  The definitions of qualifying shares of an eligible small business corporation for a capital gains deferral in situations where there is a replacement (new shares of another active business are acquired) have changed, together with the timelines for doing so. 

Specifically, the definition "qualifying disposition" is amended for dispositions occurring after January 1, 2025, to remove the requirement that the share be a common share throughout the time it was owned by the individual.

The definition "replacement share" for the purposes of the "permitted deferral" is a share of an eligible small business corporation that was designated by the individual in the individual's return of income to be a replacement share acquired by the individual in the year the qualifying disposition was made or any time in the year in which the qualifying disposition is made or within the following calendar year.  This is an extension from the previous 120 days.

The effect of these rules is that the individual's eligibility to claim a permitted deferral on the capital gain arising on a disposition of the exchanged shares is rolled over to new shares.

GST/HST News.  Changes proposed to the Excise Tax Act would allow input tax credits for redeemed coupons to be available only for payments made exclusively in the course of commercial activities and would apply effective August 16, 2025 for ITCs for payment mot already claimed in a return filed on or before August 15, 2025.  This is in response to a recent Federal Court of Appeal decision.

Other News. The August 15 draft legislation also provides important detailed information describing the following significant changes to our taxation system, listed below. 

Crypto-Asset Reporting Framework and the Common Reporting Standard (ITA 270(1))

The Scientific Research and Experimental Development Tax Incentive Program (Section 37)

Changes to Refundable Investment Tax Credits (Section 127)

Reporting by Non-Profit Corporations (Subsection 149(12) 

Employee Ownership Trust Tax Exemption (Paragraph 110.61(1)(a) )

Excessive Interest and Financing Expenses Limitation Rules

Many of these topics of concerns to SMEs in particular, will be discussed at the September 17 and November 5 Ce Summits.  Register now!

Commentary by September 12.  The Finance Department is seeking commentary on the proposals by this date.  If you wish to do so, the comments are to be emailed to consultation-legislation@fin.gc.ca by September 12, 2025.