2014 Federal
Budget Highlights

February 11, 2014
kpmg.ca/budget2014
Tax Highlights
 Tax changes once again focused on “closing loopholes”
 Trusts and estates
 Insurance companies and fina...
Trust and Estate Tax Changes
 Elimination of graduated tax rates for testamentary trusts
 More flexibility provided for ...
Personal Tax Changes
 Targeted personal tax amendments
 Tax on split income (“kiddie tax”)
 Minimal tax credit enhancem...
New Consultation Proposals
 NPOs
 Review of whether income tax exemption properly targeted
 Sufficiency of reporting al...
OECD Base Erosion & Profit Shifting (BEPS) Initiative
 July 19, 2013 – OECD presents BEPS 15-point Action Plan to G20
fin...
Canada’s BEPS Action Plan
 Budget proposes 120-day consultation period on issues relating to
international tax planning b...
Treaty Shopping Proposals
 Finance’s commentary period on treaty shopping consultation paper
ended December 2013
 In res...
Examples – Domestic Treaty Shopping Rule

Non-Treaty
Parent
Royalty
income
subject
to 25%
w/h tax

Non-Treaty
Parent

Roya...
Examples – Domestic Treaty Shopping Rule

Non-Treaty
Parent

Dividend
income
subject
to low
w/h tax
rate

Non-Treaty
Paren...
Other International Tax Measures
 Captive insurance companies
 FAPI rules to be extended to include insurance of foreign...
For more information,
please visit:
kpmg.ca/budget2014

Marlene Cepparo
Partner-in-Charge, National Tax
KPMG LLP
E. mceppa...
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KPMG’s 2014 Federal Budget Webcast

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KPMG Canada delivered highlights from the 2014 Federal Budget minutes after the budget was released on February 11, 2014. kpmg.ca/budget2014

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KPMG’s 2014 Federal Budget Webcast

  1. 1. 2014 Federal Budget Highlights February 11, 2014 kpmg.ca/budget2014
  2. 2. Tax Highlights  Tax changes once again focused on “closing loopholes”  Trusts and estates  Insurance companies and financial institutions operating offshore  Back-to-back loan arrangements with non-residents  No tax rate changes, no broad-based personal tax changes  Canada’s response to OECD’s 15-point action plan on base erosion and profit shifting highlighted © 2014 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 1
  3. 3. Trust and Estate Tax Changes  Elimination of graduated tax rates for testamentary trusts  More flexibility provided for donation tax credits for gifts made under a will  Immigration trusts eliminated © 2014 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 2
  4. 4. Personal Tax Changes  Targeted personal tax amendments  Tax on split income (“kiddie tax”)  Minimal tax credit enhancements © 2014 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 3
  5. 5. New Consultation Proposals  NPOs  Review of whether income tax exemption properly targeted  Sufficiency of reporting also to be reviewed  Eligible capital property (ECP)  Review of ECP regime and potential repeal in place of CCA proposals © 2014 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 4
  6. 6. OECD Base Erosion & Profit Shifting (BEPS) Initiative  July 19, 2013 – OECD presents BEPS 15-point Action Plan to G20 finance ministers  Action Plan encompasses 4 categories of focus  Structural rule changes  Aggressive tax planning and abuse of system  Transfer pricing  Methodology  September 2014 – first major deadline for expected outputs © 2014 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 5
  7. 7. Canada’s BEPS Action Plan  Budget proposes 120-day consultation period on issues relating to international tax planning by multinational enterprises  Specific questions posed by Finance  Impact of such planning on other taxpayers  Prioritization of15 OECD recommendations  Determination of approach to respond to issues © 2014 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 6
  8. 8. Treaty Shopping Proposals  Finance’s commentary period on treaty shopping consultation paper ended December 2013  In response, budget outlines proposed domestic rule to address treaty shopping  Main purpose test  Conduit presumption  Safe harbours  Rule to be included in Income Tax Conventions Interpretation Act  60-day consultation period © 2014 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 7
  9. 9. Examples – Domestic Treaty Shopping Rule Non-Treaty Parent Royalty income subject to 25% w/h tax Non-Treaty Parent Royalty income subject to 0% w/h tax Canco Assignment of royalty license Treaty Sub Canco Facts supporting conduit presumption: Treaty Sub remits 80% of royalties to Non-Treaty Parent within 30 days of receipt © 2014 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 8
  10. 10. Examples – Domestic Treaty Shopping Rule Non-Treaty Parent Dividend income subject to low w/h tax rate Non-Treaty Parent Treaty Sub Canco Facts supporting conduit presumption: Treaty Sub required to distribute entire dividend to Non-Treaty Parents immediately after receipt © 2014 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 9
  11. 11. Other International Tax Measures  Captive insurance companies  FAPI rules to be extended to include insurance of foreign risks swapped for Canadian risks  Regulated banks  FAPI rules to be extended to entities that are not true financial institutions  Thin cap back-to-back rules  New anti-abuse measures aimed at loans made through an arm’s length intermediary to avoid thin capitalization rules  Thin cap rules and withholding tax to apply to interest as if loan made by related non-resident © 2014 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL. 10
  12. 12. For more information, please visit: kpmg.ca/budget2014 Marlene Cepparo Partner-in-Charge, National Tax KPMG LLP E. mcepparo@kpmg.ca T. 416.777.8250 Heather O’Hagan Partner, International Tax KPMG LLP E. hohagan@kpmg.ca T. 416.777.8095 KPMG CONFIDENTIAL The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2014 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Greg Bell Partner, KPMG Enterprise and M&A Tax KPMG LLP E. gregorybell@kpmg.ca T. 613.212.2800
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