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TAX BULLETIN - ARCHIVES 2006
  • Extracts from the web site of Department of Finance of Canada in connection with 2007 Automobile Deduction Limits and Expense Benefit Rates for Business:
    • The ceiling on the capital cost of passenger vehicles for capital cost allowance (CCA) purposes will remain at $30,000 (plus applicable federal and provincial sales taxes) for purchases after 2006.
    • The limit on the deduction of tax-exempt allowances paid by employers to employees using their personal vehicle for business purposes for 2007 will remain at 50 cents per kilometre for the first 5,000 kilometres driven and 44 cents for each additional kilometre.
       
  • Extract from  Canada Revenue Agency web site in connection with interest rates for the first calendar quarter of 2007:
    The interest rate used to calculate taxable benefits for employees and shareholders from interest-free and low-interest loans will be 5%.
     
  • Extracts of document General Information Concerning the QST and the GST/HST annotated to account for the new GST rate effective July 1, 2006:
    • ALLOWANCE: Employers may claim an ITC to recover the GST paid on expenses that would have been recoverable in the form of an ITC had the expenses been incurred directly by them. The ITC is equal to 7/107 1 of the allowance paid (…) Likewise, QST registrants may claim an ITR equal to 7.5/107.5 of the allowance paid (…)
    • REIMBURSEMENTS: They may choose either of the following methods to determine the ITC and ITR to which they are entitled with respect to a reimbursement of expenses incurred in Canada (or in Québec, for QST purposes):
      • First method. They may claim an ITC equal to 6/106 2 of the total amount reimbursed and an ITR equal to 7/107 of this amount, provided at least 90% of the expenses reimbursed are taxable (excluding zero-rated expenses) and the expenses were incurred in Canada (or in Québec, for QST purposes). It should be noted that, under the QST system, the rate applicable to large businesses is 4.1% of total expenses reimbursed by means of an expense account.
      • Second method. Alternatively, they may calculate the actual amount of GST and QST paid on expenses that they reimbursed
    • TAXABLE BENEFITS: The amounts of tax payable by the employer on a benefit unrelated to automobile operating costs are 6/106 3 (for GST) and 7.5/107.5 (for QST) of the total value of the benefit. Where the benefit is related to automobile operating costs, the amounts of tax payable by the employer are equal to the prescribed percentages of 5% 4 for GST and 5.7%  for QST.
     1 Changed to 6/106 from July 1st 2006.
    2 Changed to 5/105 from July 1st 2006.
    3 Changed to 5.5/105.5 from July 1st 2006 and to 5/105 from January 1st 2007.
    4 Changed to 4,5% from July 1st 2006 and to 4% from January 1st 2007.
  • Extract from the Statement by the Honourable Jim Flaherty, Minister of Finance of October 31, 2006:
    First of all, the government is proposing to apply a Distribution Tax on distributions from publicly traded income trusts. This will level the playing field between trusts and corporations. For income trusts that begin trading after today, these measures will apply beginning with their 2007 taxation year. For existing income trusts the government is proposing to provide a four-year transition period. They will not be subject to the new measures until their 2011 taxation year. Secondly, as part of our Tax Fairness Plan we will be reducing the general corporate income tax rate one-half percentage point as of January 1, 2011. As a result of this measure, there will not be more government revenue generated from the corporate sector.

    Extract from the Backgrounder of October 31, 2006:
    Specifically, certain distributions of FTEs’ income will be subject to tax at corporate income tax rates. Those distributions will – like the dividends that corporations pay – not be deductible by an FTE that is a trust, and will be taxed in the hands of an FTE that is a partnership. The investors in the FTE will be taxed as though the distributions were dividends. The FTEs that will be subject to these new rules will be fully defined in the legislation to implement these measures. As a practical matter, however, it can be assumed that the rules will apply to any publicly-traded "income trust" (or publicly-traded partnership), other than one that only holds passive real estate investments.
     
  • Extract from the web site of Canada Revenue Agency in connection with interest rates for the fourth calendar quarter:
    The interest rate used to calculate taxable benefits for employees and shareholders from interest-free and low-interest loans will be 5%.
     
  • Extract from the web site of Canada Revenue Agency in connection with interest rates for the third calendar quarter:
    The interest rate used to calculate taxable benefits for employees and shareholders from interest-free and low-interest loans will be 4%.
     
  • Taking into account the recent decision in Carreau c. La Reine allowing Revenue Quebec to challenge the status of self-employed workers, here is an extract from a Canada Revenue Agency publication titled Employee or Self-employed (see also RC4110 and IN-301 by Revenue Quebec):
    (...)We address the central question “Is the person performing services as a person in business on his or her own account, or as an employee?” by considering the following factors:
    • the level of control the payer has over the worker;
    • whether or not the worker provides the tools and equipment;
    • whether the worker can subcontract the work or hire assistants;
    • the degree of financial risk taken by the worker;
    • the degree of responsibility for investment and management held by the worker;
    • the worker’s opportunity for profit; and
    • other relevant factors, such as contracts.

  • Extracts from 2006-2007 federal budget:
    • The Budget in Brief 2006:
      • The goods and services tax (GST) will be reduced by 1 percentage point as of July 1, 2006.
      • Reducing the general corporate income tax rate to 19 per cent from 21 per cent by 2010.
      • Eliminating the corporate surtax for all corporations as of January 1, 2008.
      • Eliminating the federal capital tax as of January 1, 2006, two years ahead of schedule.
      • Increase the amount of small business income eligible for the 12-per-cent tax rate to $400,000 from $300,000 as of January 1, 2007.
      • Reduce the 12-per-cent tax rate applying to qualifying small business income to 11.5 per cent in 2008 and 11 per cent in 2009.
    • The Budget Plan 2006:
      • Generally, dividends paid after 2005 by large Canadian corporations will be eligible for an enhanced gross-up and DTC. Specifically, shareholders will include 145 per cent of the eligible dividend amount in income (that is, a 45 per-cent gross-up), and the federal DTC with respect to eligible dividends will be approximately 19 per cent of that grossed-up amount, reflecting the 19-per-cent general corporate tax rate that will apply beginning in 2010.
         
  • Extracts from 2006-2007 Quebec budget:
    • Budget in Brief:
      • A new reduction in the tax rate of SMEs is announced: it will decrease from 8.5% to 8.0% as of the day after the Budget.
    • Budget Plan:
      • Moreover, as under the federal taxation system, the Québec dividend tax credit will be adjusted depending on whether the dividend is paid by a small or large corporation. Thus, the rate of the dividend tax credit will be raised from 10.83% to 11.9%, in the case of dividends paid by a large corporation (i.e. the tax rate of large corporations announced for 2009) and decreased from 10.83% to 8.0%, in the case of dividends paid by a small corporation i.e. the tax rate of small corporations applicable after the day of the 2006-2007 Budget Speech (...) They will apply to dividends paid after the day of the 2006-2007 Budget Speech.
         
  • Extract from the web site of Canada Revenue Agency in connection with interest rates for the second calendar quarter of 2006:
    The interest rate used to calculate taxable benefits for employees and shareholders from interest-free and low-interest loans will be 4%.