Pending Canadian income tax issues: December 7, 2005.

On December 7, 2005, Tax Executives Institute held its annual liaison meeting with officials of the Canadian Department of Finance on pending income tax issues. Reprinted below is the agenda for the meeting, which was prepared under the aegis of TEI's Canadian Income Tax Committee, whose chair is David V. Daubaras of General Electric Canada.

Tax Executives Institute welcomes the opportunity to present the following comments on income tax issues, which will be discussed with representatives of the Department of Finance during TEI's December 7, 2005, liaison meeting. If you have any questions about these comments, please do not hesitate to call either Monika M. Siegmund, TEI's Vice President for Canadian Affairs, at 403.691.3210, or David V. Daubaras, Chair of the Institute's Canadian Income Tax Committee, at 905.858.5309.

Background

Tax Executives Institute is the pre-eminent professional organization of business executives who are responsible--in an executive, administrative, or managerial capacity--for the tax affairs of the corporations and other businesses by which they are employed. TEI's 5,400 members represent more than 2,800 of the leading corporations in Canada, the United States, Europe, and Asia.

Canadians make up approximately 10 percent of TEI's membership, with our Canadian members belonging to chapters in Calgary, Montreal, Toronto, and Vancouver, which together make up one of our nine geographic regions. In addition, a substantial number of our U.S., European, and Asian members work for companies with significant Canadian operations. In sum, TEI's membership includes representatives from most major industries, including manufacturing, distributing, wholesaling, and retailing; real estate; transportation; financial; telecommunications; and natural resources (including timber and integrated oil companies). The comments set forth in this submission reflect the views of the Institute as a whole, but more particularly those of our Canadian constituency.

1. Late Elections

   The Department has released draft legislation that would permit the late filing of a subsection 13(29) election; TEI welcomes its addition to the list of elections eligible for late filing. In the agenda for the 2003 liaison meeting with the Department, TEI suggested that the election under subsection 12(2.2) should also be made eligible for late filing in order to accord taxpayers the ability to net the refund of non-deductible interest expense against taxable income (on the assumption that CRA continues to assess taxpayers on the basis that a refund of a previously non-deductible item must be included in income). As an alternative, TEI recommended the Department consider an amendment to paragraph 12(1)(x) of the Act to exclude amounts "that were not previously deducted or deductible by a taxpayer." We invite the Department's reaction to the alternative proposals.

2. Deferred Capital Cost Allowance

   Section 13 of the Act includes a two-year rolling-start rule that defers the deduction of capital cost allowance claims for assets that require a long construction or development period. The rule was adopted in 1991 during a period of substantial government deficits in order to defer the fiscal effect of taxpayers' capital investments. Even though the government collects substantial revenues from the taxes levied on the salaries of employees and profits of contractors during the construction or development of the assets, the recovery of the capital costs invested by the taxpayers whose payments are, in effect, funding those salaries and profits is deferred...