Tax Insights: Finance releases draft legislative proposals

Issue 2023-21

In brief

On August 4, 2023, the Department of Finance released an extensive package of draft legislative proposals, many of which have been outstanding for some time, to implement numerous new and previously announced tax measures. This Tax Insights highlights the income‑tax‑related proposals included in this release. Upcoming Tax Insights, which will be available at www.pwc.com/ca/taxinsights, will discuss a number of the proposals in more depth.

The federal government has launched public consultations on the proposals, with comments to be submitted by September 8, 2023 (or by September 29, 2023 for submissions on the Global Minimum Tax).

In detail

The August 4, 2023 release contains draft legislative proposals for the following measures.

2023 federal budget and other proposals

• the refundable investment tax credit (ITC) for clean technology equipment
• the carbon capture, utilization, and storage (CCUS) ITC
• labour requirements for the CCUS and clean technology ITCs
• reduced tax rates for zero-emission technology manufacturing and processing income
• lithium from brines as a mineral resource for purposes of flow-through shares and application of the critical mineral exploration tax credit to this resource
• amendments to the alternative minimum tax (AMT)
• amendments to the rules that facilitate certain intergenerational business transfers
• rules to define and facilitate the use of Employee Ownership Trusts
• amendments to the Retirement Compensation Arrangement trust rules
• amendment of the definition “credit union” to eliminate the current revenue test
• amendments to the general anti-avoidance rule (GAAR)
• a tax on share repurchases by public corporations

For details of these proposed measures, see our Tax Insights “2023 Federal budget: Supporting a clean economy.” 

Legislative proposals related to the Organisation for Economic Co-operation and Development (OECD)/G20’s two-pillar plan

• implementation of a Global Minimum Tax in Canada (Pillar Two) – the draft legislation would introduce the Global Minimum Tax Act, which contains an income inclusion rule, a domestic minimum top-up tax and a placeholder for a UTPR
• updated proposals to impose a Digital Services Tax (DST) in Canada, in the absence of a multilateral convention to allocate taxing rights between countries (Pillar One)

For further details of these topics, see our Tax Insights:

• “The new international tax framework and Canada’s digital services tax”
• “Digital Services Tax (DST): Will the DST’s potential implementation affect your business?” (July 13, 2023 update)

and Tax policy bulletins at www.pwc.com/gx/en/services/tax/publications/tax-policy-bulletin.html.

Other legislative proposals, including previously announced measures

• updated proposals to introduce an excessive interest and financing expenses limitation (EIFEL) regime (for details of previously released draft EIFEL legislative proposals, see our Tax Insights “Updated legislation: Excessive interest and financing expenses limitation (EIFEL) regime” 
• technical amendments to the Income Tax Act and regulations

In its August 4, 2023 news release, the government also:

• states its intention to soon provide details on the clean hydrogen ITC announced in the 2023 federal budget
• invites stakeholders to submit comments regarding the substantive Canadian-controlled private corporation measure proposed in the 2022 federal budget (see our Tax Insights “2022 Federal budget: Encouraging affordable housing and sustainability” for further details); such comments would have to be based on the draft legislation released on August 9, 2022, because no revised draft legislation is included in this release   

Also notably absent from this release, among others, is revised legislation for the hybrid mismatch proposals, the last draft of which was released on April 29, 2022. This is concerning, given that the rules are to apply as of July 1, 2022.

The takeaway

These draft legislative proposals cover a wide variety of tax measures and many have been long awaited by taxpayers and tax practitioners alike. We look forward to discussing them with you to facilitate your understanding, and encourage interested parties to submit their comments to the Department of Finance by the September 8, 2023  deadline (or by September 29, 2023 for the Global Minimum Tax).