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Economic Action Plan 2013 Act, No. 2 (S.C. 2013, c. 40)

Assented to 2013-12-12

Economic Action Plan 2013 Act, No. 2

S.C. 2013, c. 40

Assented to 2013-12-12

A second act to implement certain provisions of the budget tabled in Parliament on March 21, 2013 and other measures

SUMMARY

Part 1 implements certain income tax measures proposed in the March 21, 2013 budget. Most notably, it

  • (a) increases the lifetime capital gains exemption to $800,000 and indexes the new limit to inflation;

  • (b) streamlines the process for pension plan administrators to refund a contribution made to a Registered Pension Plan as a result of a reasonable error;

  • (c) extends the reassessment period for reportable tax avoidance transactions and tax shelters when information returns are not filed properly and on time;

  • (d) phases out the federal Labour-Sponsored Venture Capital Corporations tax credit;

  • (e) ensures that derivative transactions cannot be used to convert fully taxable ordinary income into capital gains taxed at a lower rate;

  • (f) ensures that the tax consequences of disposing of a property cannot be avoided by entering into transactions that are economically equivalent to a disposition of the property;

  • (g) ensures that the tax attributes of trusts cannot be inappropriately transferred among arm’s length persons;

  • (h) responds to the Sommerer decision to restore the intended tax treatment with respect to non-resident trusts;

  • (i) expands eligibility for the accelerated capital cost allowance for clean energy generation equipment to include a broader range of biogas production equipment and equipment used to treat gases from waste;

  • (j) imposes a penalty in instances where information on tax preparers and billing arrangements is missing, incomplete or inaccurate on Scientific Research and Experimental Development tax incentive program claim forms;

  • (k) phases out the accelerated capital cost allowance for capital assets used in new mines and certain mine expansions, and reduces the deduction rate for pre-production mine development expenses;

  • (l) adjusts the five-year phase-out of the additional deduction for credit unions;

  • (m) eliminates unintended tax benefits in respect of two types of leveraged life insurance arrangements;

  • (n) clarifies the restricted farm loss rules and increases the restricted farm loss deduction limit;

  • (o) enhances corporate anti-loss trading rules to address planning that avoids those rules;

  • (p) extends, in certain circumstances, the reassessment period for taxpayers who have failed to correctly report income from a specified foreign property on their annual income tax return;

  • (q) extends the application of Canada’s thin capitalization rules to Canadian resident trusts and non-resident entities; and

  • (r) introduces new administrative monetary penalties and criminal offences to deter the use, possession, sale and development of electronic suppression of sales software that is designed to falsify records for the purpose of tax evasion.

Part 1 also implements other selected income tax measures. Most notably, it

  • (a) implements measures announced on July 25, 2012, including measures that

    • (i) relate to the taxation of specified investment flow-through entities, real estate investment trusts and publicly-traded corporations, and

    • (ii) respond to the Lewin decision;

  • (b) implements measures announced on December 21, 2012, including measures that relate to

    • (i) the computation of adjusted taxable income for the purposes of the alternative minimum tax,

    • (ii) the prohibited investment and advantage rules for registered plans, and

    • (iii) the corporate reorganization rules; and

  • (c) clarifies that information may be provided to the Department of Employment and Social Development for a program for temporary foreign workers.

Part 2 implements certain goods and services tax and harmonized sales tax (GST/HST) measures proposed in the March 21, 2013 budget by

  • (a) introducing new administrative monetary penalties and criminal offences to deter the use, possession, sale and development of electronic suppression of sales software that is designed to falsify records for the purpose of tax evasion; and

  • (b) clarifying that the GST/HST provision, exempting supplies by a public sector body (PSB) of a property or a service if all or substantially all of the supplies of the property or service by the PSB are made for free, does not apply to supplies of paid parking.

Part 3 enacts and amends several Acts in order to implement various measures.

Division 1 of Part 3 amends the Employment Insurance Act to extend and expand a temporary measure to refund a portion of employer premiums for small businesses. It also amends that Act to modify the Employment Insurance premium rate-setting mechanism, including setting the 2015 and 2016 rates and requiring that the rate be set on a seven-year break-even basis by the Canada Employment Insurance Commission beginning with the 2017 rate. The Division repeals the Canada Employment Insurance Financing Board Act and related provisions of other Acts. Lastly, it makes technical amendments to the Employment Insurance (Fishing) Regulations.

Division 2 of Part 3 amends the Trust and Loan Companies Act, the Bank Act and the Insurance Companies Act to remove the prohibition against federal and provincial Crown agents and federal and provincial government employees being directors of a federally regulated financial institution. It also amends the Office of the Superintendent of Financial Institutions Act and the Financial Consumer Agency of Canada Act to remove the obligation of certain persons to give the Minister of Finance notice of their intent to borrow money from a federally regulated financial institution or from a corporation that has deposit insurance under the Canada Deposit Insurance Corporation Act.

Division 3 of Part 3 amends the Trust and Loan Companies Act, the Bank Act, the Insurance Companies Act and the Cooperative Credit Associations Act to clarify the rules for certain indirect acquisitions of foreign financial institutions.

Division 4 of Part 3 amends the Criminal Code to update the definition “passport” in subsection 57(5) and also amends the Department of Foreign Affairs, Trade and Development Act to update the reference to the Minister in paragraph 11(1)(a).

Division 5 of Part 3 amends the Canada Labour Code to amend the definition of “danger” in subsection 122(1), to modify the refusal to work process, to remove all references to health and safety officers and to confer on the Minister of Labour their powers, duties and functions. It also makes consequential amendments to the National Energy Board Act, the Hazardous Materials Information Review Act and the Non-smokers’ Health Act.

Division 6 of Part 3 amends the Department of Human Resources and Skills Development Act to change the name of the Department to the Department of Employment and Social Development and to reflect that name change in the title of that Act and of its responsible Minister. In addition, the Division amends Part 6 of that Act to extend that Minister’s powers with respect to certain Acts, programs and activities and to allow the Minister of Labour to administer or enforce electronically the Canada Labour Code. The Division also adds the title of a Minister to the Salaries Act. Finally, it makes consequential amendments to several other Acts to reflect the name change.

Division 7 of Part 3 authorizes Her Majesty in right of Canada to hold, dispose of or otherwise deal with the Dominion Coal Blocks in any manner.

Division 8 of Part 3 authorizes the amalgamation of four Crown corporations that own or operate international bridges and gives the resulting amalgamated corporation certain powers. It also makes consequential amendments and repeals certain Acts.

Division 9 of Part 3 amends the Financial Administration Act to provide that agent corporations designated by the Minister of Finance may, subject to any terms and conditions of the designation, pledge any securities or cash that they hold, or give deposits, as security for the payment or performance of obligations arising out of derivatives that they enter into or guarantee for the management of financial risks.

Division 10 of Part 3 amends the National Research Council Act to reduce the number of members of the National Research Council of Canada and to create the position of Chairperson of the Council.

Division 11 of Part 3 amends the Veterans Review and Appeal Board Act to reduce the permanent number of members of the Veterans Review and Appeal Board.

Division 12 of Part 3 amends the Canada Pension Plan Investment Board Act to allow for the appointment of up to three directors who are not residents of Canada.

Division 13 of Part 3 amends the Proceeds of Crime (Money Laundering) and Terrorist Financing Act to extend to the whole Act the protection for communications that are subject to solicitor-client privilege and to provide that information disclosed by the Financial Transactions and Reports Analysis Centre of Canada under subsection 65(1) of that Act may be used by a law enforcement agency referred to in that subsection only as evidence of a contravention of Part 1 of that Act.

Division 14 of Part 3 enacts the Mackenzie Gas Project Impacts Fund Act, which establishes the Mackenzie Gas Project Impacts Fund. The Division also repeals the Mackenzie Gas Project Impacts Act.

Division 15 of Part 3 amends the Conflict of Interest Act to allow the Governor in Council to designate a person or class of persons as public office holders and to designate a person who is a public office holder or a class of persons who are public office holders as reporting public office holders, for the purposes of that Act.

Division 16 of Part 3 amends the Immigration and Refugee Protection Act to establish a new regime that provides that a foreign national who wishes to apply for permanent residence as a member of a certain economic class may do so only if they have submitted an expression of interest to the Minister and have subsequently been issued an invitation to apply.

Division 17 of Part 3 modernizes the collective bargaining and recourse systems provided by the Public Service Labour Relations Act regime. It amends the dispute resolution process for collective bargaining by removing the choice of dispute resolution method and substituting conciliation, which involves the possibility of the use of a strike as the method by which the parties may resolve impasses. In those cases where 80% or more of the positions in a bargaining unit are considered necessary for providing an essential service, the dispute resolution mechanism is to be arbitration. The collective bargaining process is further streamlined through amendments to the provision dealing with essential services. The employer has the exclusive right to determine that a service is essential and the numbers of positions that will be required to provide that service. Bargaining agents are to be consulted as part of the essential services process. The collective bargaining process is also amended by extending the timeframe within which a notice to bargain collectively may be given before the expiry of a collective agreement or arbitral award.

In addition, the Division amends the factors that arbitration boards and public interest commissions must take into account when making awards or reports, respectively. It also amends the processes for the making of those awards and reports and removes the compensation analysis and research function from the mandate of the Public Service Labour Relations Board.

The Division streamlines the recourse process set out for grievances and complaints in Part 2 of the Public Service Labour Relations Act and for staffing complaints under the Public Service Employment Act.

The Division also establishes a single forum for employees to challenge decisions relating to discrimination in the public service. Grievances and complaints are to be heard by the Public Service Labour Relations Board under the grievance process set out in the Public Service Labour Relations Act. The process for the review of those grievances or complaints is to be the same as the one that currently exists under the Canadian Human Rights Act. However, grievances and complaints related specifically to staffing complaints are to be heard by the Public Service Staffing Tribunal. Grievances relating to discrimination are required to be submitted within one year or any longer period that the Public Service Labour Relations Board considers appropriate, to reflect what currently exists under the Canadian Human Rights Act.

Furthermore, the Division amends the grievance recourse process in several ways. With the sole exception of grievances relating to issues of discrimination, employees included in a bargaining unit may only present or refer an individual grievance to adjudication if they have the approval of and are represented by their bargaining agent. Also, the process as it relates to policy grievances is streamlined, including by defining more clearly an adjudicator’s remedial power when dealing with a policy grievance.

In addition, the Division provides for a clearer apportionment of the expenses of adjudication relating to the interpretation of a collective agreement. They are to be borne in equal parts by the employer and the bargaining agent. If a grievance relates to a deputy head’s direct authority, such as with respect to discipline, termination of employment or demotion, the expenses are to be borne in equal parts by the deputy head and the bargaining agent. The expenses of adjudication for employees who are not represented by a bargaining agent are to be borne by the Public Service Labour Relations Board.

Finally, the Division amends the recourse process for staffing complaints under the Public Service Employment Act by ensuring that the right to complain is triggered only in situations when more than one employee participates in an exercise to select employees that are to be laid off. And, candidates who are found not to meet the qualifications set by a deputy head may only complain with respect to their own assessment.

Division 18 of Part 3 establishes the Public Service Labour Relations and Employment Board to replace the Public Service Labour Relations Board and the Public Service Staffing Tribunal. The new Board will deal with matters that were previously dealt with by those former Boards under the Public Service Labour Relations Act and the Public Service Employment Act, respectively, which will permit proceedings under those Acts to be consolidated.

Division 19 of Part 3 adds declaratory provisions to the Supreme Court Act, respecting the criteria for appointing judges to the Supreme Court of Canada.

Her Majesty, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows:

SHORT TITLE

Marginal note:Short title

1. This Act may be cited as the Economic Action Plan 2013 Act, No. 2.

PART 1MEASURES RELATING TO INCOME TAX

R.S., c. 1 (5th Supp.)Income Tax Act

  • 2. (1) Subsections 10(10) and (11) of the Income Tax Act are replaced by the following:

    • Marginal note:Loss restriction event

      (10) Notwithstanding subsection (1.01), property described in an inventory of a taxpayer’s business that is an adventure or concern in the nature of trade at the end of the taxpayer’s taxation year that ends immediately before the time at which the taxpayer is subject to a loss restriction event is to be valued at the cost at which the taxpayer acquired the property, or its fair market value at the end of the year, whichever is lower, and after that time the cost at which the taxpayer acquired the property is, subject to a subsequent application of this subsection, deemed to be that lower amount.

    • Marginal note:Loss restriction event

      (11) For the purposes of subsections 88(1.1) and 111(5), a taxpayer’s business that is at any time an adventure or concern in the nature of trade is deemed to be a business carried on at that time by the taxpayer.

  • (2) Subsection (1) is deemed to have come into force on March 21, 2013.

  • 3. (1) Subsection 11(1) of the Act is replaced by the following:

    Marginal note:Proprietor of business

    • 11. (1) Subject to section 34.1, if an individual is a proprietor of a business, the individual’s income from the business for a taxation year is deemed to be the individual’s income from the business for the fiscal periods of the business that end in the year.

  • (2) Subsection (1) applies to taxation years that end after March 22, 2011.

  • 4. (1) Subsection 12(1) of the Act is amended by striking out “and” at the end of paragraph (z.5), by adding “and” at the end of paragraph (z.6) and by adding the following after paragraph (z.6):

    • Marginal note:Derivative forward agreement

      (z.7) the total of all amounts each of which is

      • (i) if the taxpayer acquires a property under a derivative forward agreement in the year, the amount by which the fair market value of the property at the time it is acquired by the taxpayer exceeds the cost to the taxpayer of the property, or

      • (ii) if the taxpayer disposes of a property under a derivative forward agreement in the year, the amount by which the proceeds of disposition (within the meaning assigned by subdivision c) of the property exceeds the fair market value of the property at the time the agreement is entered into by the taxpayer.

  • (2) Section 12 of the Act is amended by adding the following after subsection (2.01):

    • Marginal note:Source of income

      (2.02) For the purposes of this Act, if an amount is included in computing the income of a taxpayer for a taxation year because of paragraph (1)(l.1) and the amount is in respect of interest that is deductible by a partnership in computing its income from a particular source or from sources in a particular place, the amount is deemed to be from the particular source or from sources in the particular place, as the case may be.

  • (3) Subsection (1) applies to acquisitions and dispositions of property by a taxpayer that occur

    • (a) under a derivative forward agreement entered into after March 20, 2013 unless

      • (i) the agreement is part of a series of agreements and the series

        • (A) includes a derivative forward agreement entered into after March 20, 2013 and before July 11, 2013, and

        • (B) has a term of 180 days or less (determined without reference to agreements entered into before March 21, 2013), or

      • (ii) the agreement is entered into after the final settlement of another derivative forward agreement (in this paragraph referred to as the “prior agreement”) and

        • (A) having regard to the source of the funds used to purchase the property to be sold under the agreement, it is reasonable to conclude that the agreement is a continuation of the prior agreement,

        • (B) the terms of the agreement and the prior agreement are substantially similar,

        • (C) the final settlement date under the agreement is before 2015,

        • (D) subsection (1) would not apply to any acquisitions or dispositions under the prior agreement if this subsection were read without reference to subparagraph (i), and

        • (E) the notional amount of the agreement is at all times less than or equal to the amount determined by the formula

          (A + B + C + D + E) – (F + G)

          where

          A
          is the notional amount of the agreement when it is entered into,
          B
          is the total of all amounts each of which is an increase in the notional amount of the agreement, at or before that time, that is attributable to the underlying interest,
          C
          is the amount of the taxpayer’s cash on hand immediately before March 21, 2013 that was committed, before March 21, 2013, to be invested under the agreement,
          D
          is the total of all amounts each of which is an increase, at or before that time, in the notional amount of the agreement that is attributable to the final settlement of another derivative forward agreement (in this description referred to as the “terminated agreement”) if subsection (1) would not apply to any acquisitions or dispositions under the terminated agreement if this subsection were read without reference to subparagraph (i),
          E
          is the lesser of

          • (I) either

            • 1. if the prior agreement was entered into before March 21, 2013, the amount, if any, by which the amount determined under clause (A) of the description of F in subparagraph (b)(ii) for the prior agreement immediately before it was finally settled exceeds the total determined under clause (B) of the description of F in subparagraph (b)(ii) for the prior agreement immediately before it was finally settled, or

            • 2. in any other case, the amount, if any, by which the amount determined under this subclause for the prior agreement immediately before it was finally settled exceeds the total determined under subclause (II) for the prior agreement immediately before it was finally settled, and

          • (II) the total of all amounts each of which is an increase in the notional amount of the agreement before July 11, 2013 that is not otherwise described in this formula,

          F
          is the total of all amounts each of which is a decrease in the notional amount of the agreement, at or before that time, that is attributable to the underlying interest, and
          G
          is the total of all amounts each of which is the amount of a partial settlement of the agreement, at or before that time, to the extent that it is not reinvested in the agreement;

    • (b) after March 20, 2013 and before March 22, 2018 under a derivative forward agreement entered into before March 21, 2013, if

      • (i) after March 20, 2013, the term of the agreement is extended beyond 2014, or

      • (ii) at any time after March 20, 2013, the notional amount of the agreement exceeds the amount determined by the formula

        (A + B + C + D + E + F) – (G + H)

        where

        A
        is the notional amount of the agreement immediately before March 21, 2013,
        B
        is the total of all amounts each of which is an increase in the notional amount of the agreement, after March 20, 2013 and at or before that time, that is attributable to the underlying interest,
        C
        is the amount of the taxpayer’s cash on hand immediately before March 21, 2013 that was committed, before March 21, 2013, to be invested under the agreement,
        D
        is the amount, if any, of an increase, after March 20, 2013 and at or before that time, in the notional amount of the agreement as a consequence of the exercise of an over-allotment option granted before March 21, 2013,
        E
        is the total of all amounts each of which is an increase, after March 20, 2013 and at or before that time, in the notional amount of the agreement that is attributable to the final settlement of another derivative forward agreement (in this description referred to as the “terminated agreement”) if

        • (A) the final settlement date under the agreement is

          • (I) before 2015, or

          • (II) on or before the date on which the terminated agreement, as it read immediately before March 21, 2013, was to be finally settled, and

        • (B) subsection (1) would not apply to any acquisitions or dispositions under the terminated agreement if this subsection were read without reference to subparagraph (a)(i),

        F
        is the lesser of

        • (A) 5% of the notional amount of the agreement immediately before March 21, 2013, and

        • (B) the total of all amounts each of which is an increase in the notional amount of the agreement after March 20, 2013 and before July 11, 2013 that is not otherwise described in this formula,

        G
        is the total of all amounts each of which is a decrease in the notional amount of the agreement, after March 20, 2013 and at or before that time, that is attributable to the underlying interest, and
        H
        is the total of all amounts each of which is the amount of a partial settlement of the agreement, after March 20, 2013 and at or before that time, to the extent that it is not reinvested in the agreement; or

    • (c) after March 21, 2018.

  • (4) For the purposes of subsection (3), the notional amount of a derivative forward agreement at any time is

    • (a) in the case of a purchase agreement, the fair market value at that time of the property that would be acquired under the agreement if the agreement were finally settled at that time; or

    • (b) in the case of a sale agreement, the sale price of the property that would be sold under the agreement if the agreement were finally settled at that time.

  • (5) Subsection (2) applies to taxation years that begin after 2013.

  • 5. (1) The Act is amended by adding the following after section 12.5:

    Marginal note:Definitions

    • 12.6 (1) The definitions in section 18.3 apply in this section.

    • Marginal note:Where subsection (3) applies

      (2) Subsection (3) applies for a taxation year of an entity in respect of a security of the entity if

      • (a) the security becomes, at a particular time in the year, a stapled security of the entity and, as a consequence, amounts described in paragraphs 18.3(3)(a) and (b) are not deductible because of subsection 18.3(3);

      • (b) the security (or any security for which the security was substituted) ceased, at an earlier time, to be a stapled security of any entity and, as a consequence, subsection 18.3(3) ceased to apply to deny the deductibility of amounts that would be described in paragraphs 18.3(3)(a) and (b) if the security were a stapled security; and

      • (c) throughout the period that began immediately after the most recent time referred to in paragraph (b) and that ends at the particular time, the security (or any security for which the security was substituted) was not a stapled security of any entity.

    • Marginal note:Income inclusion

      (3) If this subsection applies for a taxation year of an entity in respect of a security of the entity, the entity shall include in computing its income for the year each amount that

      • (a) was deducted by the entity (or by another entity that issued a security for which the security was substituted) in computing its income for a taxation year that includes any part of the period described in paragraph (2)(c); and

      • (b) would not have been deductible if subsection 18.3(3) had applied in respect of the amount.

    • Marginal note:Deemed excess

      (4) For the purposes of subsection 161(1), if an amount described in paragraph (3)(a) is included in the income of an entity for a taxation year under subsection (3), the entity is deemed to have an excess immediately after the entity’s balance-due day for the year computed as if

      • (a) the entity were resident in Canada throughout the year;

      • (b) the entity’s tax payable for the year were equal to the tax payable by the entity on its taxable income for the year;

      • (c) the amount were the entity’s only taxable income for the year;

      • (d) the entity claimed no deductions under Division E for the year;

      • (e) the entity had not paid any amounts on account of its tax payable for the year; and

      • (f) the tax payable determined under paragraph (b) had been outstanding throughout the period that begins immediately after the end of the taxation year for which the amount was deducted and that ends on the entity’s balance-due day for the year.

  • (2) Subsection (1) is deemed to have come into force on July 20, 2011.

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