June 28, 2017
A recent article in Bloomberg BNA looks at proposed tax changes that are part of Bill C-44, legislation that was introduced on April 11 to implement the federal government's budget for fiscal 2017-2018. The omnibus legislation includes a proposed anti-avoidance rule on straddle transactions and the extension of mutual fund merger rules on tax deferrals to switch corporations. The amendments also introduce a new elective mark-to-market regime for derivatives held on income account.
According to the article, the bill would normally have been passed into law by now, but it was held up by the Senate. Author Peter Menyasz reports that the Senate wanted to “split off the bill's controversial provisions to establish a new federal infrastructure ‘bank’."
Timothy Hughes, a partner in Osler’s Taxation Practice Group, tells Bloomberg BNA that the new straddle rule shouldn't have a huge negative impact, as it's aimed at relatively narrow tax avoidance circumstances. “They are unlikely to affect ordinary course commercial transactions that lie beyond their intended scope,” says Timothy.
However, Timothy states that the proposal to extend mutual fund merger rules for tax deferral to switch corporation is a problem. The proposed rule is “a ‘blunt instrument’ that requires all share classes of a switch corporation to be merged into separate mutual fund trusts at the same time,” explains Timothy.
“The necessary result of such a merger is that the switch corporation would cease to exist,” he says. “It would have been more useful to have a flexible rule that permitted the selective merger of particular share classes of a switch corporation into mutual fund trusts, leaving the remaining switch corporation intact.”
According to the article, Bill C-44 was sent to the Senate on June 20 for a final vote; the Senate is scheduled to sit June 27-30 before adjourning for the summer.
If you subscribe to Bloomberg BNA online, you can read Peter Menyasz’s entire article “Canadian lawyers pan proposed tax rule changes.”