Ottawa, December 21, 2006
2006-086

Archived - Canada's New Government Releases Draft Legislative Proposals to Implement the Distribution Tax on Income Trusts and Partnerships

Related documents:

• Legislative Proposals Concerning Specified Investment Flow-Through Trusts and Partnerships
• Explanatory Notes to Legislative Proposals Concerning Specified Investment Flow-Through Trusts and Partnerships

The Honourable Jim Flaherty, Minister of Finance, today released draft legislative proposals to implement those aspects of the Government's Tax Fairness Plan dealing with income trusts and other flow-through entities.

The Tax Fairness Plan responds to the tax imbalance created by publicly-traded trusts and partnerships, while also providing meaningful tax relief to Canadian pensioners, seniors and businesses in Canada.

The key elements of the Plan as it relates to income trusts and other flow-through entities are:

• A distribution tax to be applied on certain distributions and allocations from publicly-traded trusts and partnerships as set out in the Notice of Ways and Means Motion adopted with a strong majority in the House of Commons on November 7, 2006.
• For trusts and partnerships that begin trading after October 31, 2006, the tax will apply beginning with their 2007 taxation year.
• Existing publicly-traded trusts and partnerships will not be subject to the new measure until their 2011 taxation year (assuming those trusts and partnerships adhere to the guidelines on "normal growth" set out in the guidelines distributed by the Department of Finance on December 15, 2006).

"Canada's New Government is taking these important steps to restore balance and fairness to Canada's tax system," said Minister Flaherty. "If corporations don't pay their share of taxes, this tax burden will be shifted onto the shoulders of hard-working individuals and families. This draft legislation conforms with the announcement I made on October 31st, and we intend to proceed with our Tax Fairness Plan as presented."

The Government is seeking constructive commentary on the technical aspects of the draft legislative proposals to implement the Tax Fairness Plan as presented and conforming with the Notice of Ways and Means Motion adopted on November 7, 2006.

Interested parties are invited to provide comments on the draft legislative proposals regarding the distribution tax by January 31, 2007. Following this comment period, the Government intends to introduce legislation to implement all components of the Tax Fairness Plan, including the $1,000 increase to the age credit amount for seniors, pension income splitting, which will enable Canadian residents to split up to one-half of certain pension income with their resident spouse or common-law partner, and a further reduction in the general corporate income tax rate to 18.5 per cent in 2011.

Please send your comments to:

Tax Policy Branch
Department of Finance
140 O'Connor Street
Ottawa, Ontario
K1A 0G5

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