Message from the Executive Director

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July 2021

Hello to all CTF members—

Summer has arrived, and with it the prospect of a somewhat slower pace. This year has been exceptionally busy for most in the tax community. I hope that many of you will be able to find the opportunity to relax over the next couple of months and enjoy our all-too-brief Canadian summer.

For those of you in search of an alternative to beach reading, there is no shortage of recent tax developments demanding your attention. The spring federal budget was voluminous and included promises of several consultations to follow. In response to one of those consultations, we at the Foundation are hosting a symposium, on July 15, dedicated to a critique and analysis of the general anti-avoidance rule (GAAR). It promises to be a most interesting day, with a series of panel discussions incorporating perspectives from government, academia, industry, and private practice. Our goal is to provide constructive input to Finance on the important topic of GAAR.

The outset of summer saw two other notable changes, one domestic and the other international.

On the domestic front, Bill C-208, a private member’s bill, passed through Parliament and the Senate and received royal assent on June 29. This bill was directed at providing more tax-advantageous treatment to intergenerational transfers of family businesses, farms, and fishing operations, in particular through amendments to sections 84.1 and 55. Previously, third-party sales were frequently subject to less tax than intergenerational transfers, in large part due to concerns about surplus stripping. I do not propose to get into the technical details of this situation, but a few comments are warranted, as this story is now set to continue.

It is highly unusual for a private member’s bill to proceed in this manner and even more unusual for amendments to the Income Tax Act to result. It is not surprising, given the complexity of the provisions in question, that Bill C-208 contains some drafting peculiarities, including cross-references to other provisions, that make its interpretation difficult. More significant still, however, are the previously stated concerns of Finance regarding surplus stripping. Bill C-208 opened the door wide. It therefore seemed inevitable that a response would be forthcoming.

And, indeed, that is exactly what happened—also on June 30, via a news release in which Finance noted that while the amendments to the Income Tax Act passed both Houses of Parliament and received royal assent, Bill C-208 does not include an application date. The release further noted that the federal government is “committed to facilitating genuine intergenerational share transfers, while preventing tax avoidance that undermines the equity of Canada’s tax system.” Finally, it was stated that legislation would be introduced to clarify that the amendments will come into effect on January 1, 2022.

This saga is now set to continue, with legislative amendments forthcoming that must strike a difficult balance between supporting legitimate family business succession and protecting the integrity of the tax system. Quebec has devised a solution—an imperfect one, perhaps, but a precedent of sorts as we await the federal response.

The next day saw a major development on the international tax front. On July 1, the OECD announced that 130 of the 139 members of the Inclusive Framework have agreed to the new two-pillar plan to reform the international taxation of multinational enterprises. The remaining elements, including the implementation plan, will be finalized in October. Pillar One is directed to the reallocation of some taxing rights from home countries to market jurisdictions, regardless of whether firms have a physical presence in those jurisdictions. Pillar Two proposes to introduce a global minimum corporate tax rate, likely at 15 percent.

This work has been ongoing for the last decade. At many points in the process, it was not clear that consensus would be reached. It now seems more likely than not that the reforms will proceed, although the press release did include the following caution: “Participants in the negotiation have set an ambitious timeline for conclusion of the negotiations. This includes an October 2021 deadline for finalising the remaining technical work on the two-pillar approach, as well as a plan for effective implementation in 2023.”

It appears clear that the balance of 2021 will be busy on a few fronts!

See you next month.


Heather L. Evans,
Executive Director and CEO