The Canadian budget proposals for 2013 were announced on March 21, 2013. The proposals include measures to combat tax evasion and to provide some help for companies in the manufacturing and mining sectors. There is no change to the corporate tax rate but a number of other corporate tax measures are proposed.

The Canadian Revenue Agency (CRA) is launching a Stop International Tax Evasion Program that offers rewards to individuals who provide information about international tax non-compliance. The reward is payable if the information leads to an assessment of more than CAD 100,000 in federal tax. The reward will amount to 15% of the federal tax collected.

The normal time limits for reassessment will be extended in the case of a taxpayer who does not report income from a foreign property on the annual income tax return or if the Foreign Income Verification Statement (Form T1135) is incomplete or filed late. Form T1135 is to be amended to request further details about each specified foreign property. Filing instructions for this form will be clarified and the government is developing a system to allow electronic filing of the form.

Other announcements related to international tax include:

• the thin capitalization rules are to be extended to cover Canadian resident trusts and non-resident corporations and non-resident trusts operating in Canada;
• from 2015 some financial intermediaries will be required to report to the CRA any international electronic fund transfers that amount to more than CAD 10,000; and
• the government is to begin a consultation on measures to protect the integrity of double tax treaties and prevent treaty shopping.

Further measures are being introduced with effect from January 1, 2014 (or the date of royal assent of the legislation) to help the CRA to check claims made by taxpayers under the Scientific Research and Experimental Development Program (SR&ED). SR&ED claim forms will require details of the tax preparers making the claim and their arrangements for billing. If third parties have been involved in preparing the claim their business numbers and billing arrangements must be disclosed (giving details for example about any contingency fee arrangements). If no third parties were involved in making the claim, this must be certified by the claimant. If the details about third parties and billing arrangements are not disclosed a CAD 1,000 penalty will apply for each claim.

Accelerated capital cost allowances (CCAs) currently available for manufacturing and processing machinery and equipment are to be extended for a further two year period. Purchases of this type of machinery will therefore be eligible for a 50% straight line rate of CCAs. Also, the 50% deductions currently available on a declining balance basis for clean energy generation and conservation equipment will be extended to cover certain biogas production equipment and those types of cleaning and upgrading equipment that are used to obtain biomethane from certain gases produced from waste.

A review of the possibilities for taxation of corporate groups has been completed and the government has announced that the introduction of a system of corporate group taxation is not currently being treated as a priority.

Personal tax

There is no change to individual income tax rates, however the rate of dividend tax credit received by individuals is to be reduced where a non-eligible dividend is received. A non-eligible dividend is a dividend that is not eligible for the enhanced dividend tax credit, but is taxable on a grossed-up amount with a double tax credit deducted. For taxation years beginning after 2013 the gross-up factor applied to the non-eligible dividend will be reduced from 25% to 18%. The double tax credit on the dividend will be adjusted from two-thirds of the grossed-up amount to 13/18 of that amount. This will have the effect of increasing the federal income tax payable on non-eligible dividends by up to 1.6%.

The Lifetime Capital Gains Exemption (LCGE) that applies to capital gains realized by an individual on qualified property is to increase from CAD 750,000 to CAD 800,000 from 2014. The amount of LCGE will be increased in line with inflation from 2014.

The eligibility for the Mineral Exploration Tax Credit is to be extended for one year. The Mineral Exploration Tax Credit is available to individuals who invest in flow-through shares and the credit amounts to 15% of the particular mineral investigation expenses incurred in Canada that are renounced to the flow-through share investors.

The normal tax reassessment period is to be extended in the case of a participant in a tax shelter or reportable transaction who does not file the relevant information return on time. The reassessment period will be extended to three years after the date the relevant return is filed.