As the Honourable Jim Flaherty is set to announce Budget 2012 in Parliament in the coming months, we would like to provide some insight as to what may be included. It is expected that the government will focus its budget measures on creating jobs and growth and returning to fiscal balance. The budget will be one more phase, in a series of phases, of development by the government of Canada’s Economic Action Plan. As we all know, the only thing that is constant is evolution. Budget time is evolution time.
When a loan that has previously been included in income under 90(4) is repaid, a deduction is available under 90(9) provided the repayment is not part of a series of loans and repayments. This raises an interesting issue as to what happens when an existing loan matures and is refinanced with a second loan. The answer will depend on whether the second loan is treated as a continuation of the first loan or a new loan.
To illustrate, assume that i) in Year1 CFA (Controlled Foreign Affiliate) lends $100 to Canco, at a time when CFA has $100 of exempt and net surplus, ii) in Year4 the loan is repaid, and CFA uses the funds to make a new $100 loan to Canco; at that time CFA has $60 of exempt and net surplus (the balance is reduced from $100 due to losses generated by CFA in the intervening years).
Taxation of Capital Gains from sale of Shares of Foreign Affiliates
In my last post (Part 4), I discussed the Canadian taxation of capital gains arising on the sale of foreign active business assets owned directly by Canadian corporate taxpayers and indirectly through foreign affiliates. I proposed that Canada adopt a territorial approach, similar to what I proposed for foreign active business income earned directly or indirectly by such taxpayers.
Time now to look at the taxation of capital gains arising on the sale of shares of a foreign affiliate.
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