Update: On March 27, 2023, the Minister of National Revenue announced transitional relief to affected owners who may have filing or payment obligations under the Underused Housing Tax Act (UHTA). The filing and payment deadline for the 2022 calendar year remains April 30, 2023 but the application of penalties and interest under the UHTA for the 2022 calendar year will be waived for any late-filed underused housing tax (UHT) return and for any late-paid UHT payable, provided the return is filed or the UHT is paid by October 31, 2023.Continue reading
Recent Draft Legislation – Limitation on Excessive Interest and Financing Expenses
This updated is intended for those seeking additional insights into the revised draft legislative proposals regarding the proposed excessive interest and financing expenses limitation regime released in November 2022.Continue reading
New Reporting Rules for Digital Platform Operators
On November 3, 2022, the Department of Finance introduced draft legislation to implement the reporting and due diligence standards of the Model Rules for Reporting by Platform Operators (the “Model Rules”) developed by the Organisation for Economic Co-operation and Development.
The draft legislation proposes to implement these Model Rules as part of the new Part XX of the Income Tax Act (Canada) (the “ITA”). Under the new Part XX, certain platform operators (“reporting platform operators”) would be required to determine the jurisdiction of residence of certain of the sellers on their platforms (“reportable sellers”) and to report certain information in respect of these reportable sellers and their activities subject to certain due diligence standards. These measures were initially announced as part of the 2022 Federal Budget. New Part XX of the ITA is proposed to come into force on January 1, 2024. A public consultation period for the draft legislation will run until January 6, 2023.
Reporting Platform Operators
Reporting platform operators are platform operators that are:
- resident in Canada;
- resident or incorporated or managed in a partner jurisdiction and who facilitates the provision of relevant activities by sellers resident in Canada or with respect to rental of immovable property located in Canada and elects to be a reporting platform operator; or
- not resident in Canada or a partner jurisdiction, and who facilitates the provision of relevant activities by sellers resident in Canada or with respect to rental of immovable property located in Canada.
A platform operator is an entity that contracts directly or indirectly with sellers to make a software platform available for the sellers to be connected to other users for the (i) provision of relevant services including the rental of either immovable property or a means of transport or personal services, or (ii) the sale of goods. A platform also includes operations to collect compensation from users for the relevant activities (e.g. sale of goods, personal services, real property rentals) facilitated through the platform. Reporting platform operators are subject to the information reporting obligations under new Part XX unless they are an “excluded platform operator”.
Platform operators are excluded from the rules in Part XX if they can demonstrate that the platform’s underlying business model is such that sellers cannot derive a profit from compensation in connection with relevant activities through the platform, or that facilitate relevant activities through the platform only for sellers that are not reportable sellers.
There are further exemptions with respect to software platforms that exclusively facilitates the processing of compensation in relation to relevant activities; the mere listing or advertising of relevant activities; and the transfer of users to another platform, provided, in each case, that there is no further intervention in the provision of relevant activities.
Reportable sellers will generally be active users (other than “excluded sellers”) that are determined by the reportable platform operator to:
- be resident in a reportable jurisdiction;
- have provided relevant services for the rental of immovable property located in a reportable jurisdiction; or
- have been paid or credited consideration in connection with relevant services for the rental of immovable property located in a reportable jurisdiction.
A reportable jurisdiction is Canada or one of the partner jurisdictions with which there is an agreement in place to collect and share information in accordance with the Model Rules.
Specific exemptions will be provided for “excluded sellers” who generally include sellers of more than 2,000 relevant services for the rental of immovable property (i.e. large-scale hotels), governmental entities, certain public companies, and sellers with very low volume (less than 30 sales per year) and low value sales (not exceed €2,000 per year).
Reporting platform operators would need to complete due diligence procedures to identify reportable sellers and their jurisdiction of residence including collection and verification of each reportable seller’s name, primary address, date of birth, tax identification number (“TIN”), the jurisdiction in which the TIN was issued, business registration number for entities, and the address of each property listed on the platform.
With respect to each reportable seller that provided relevant services, rented out a means of transportation or sold goods, the reporting platform operator is also required to report: (i) financial account identifiers to the extent available, (ii), the name of the holder of the financial account to which the consideration is paid or credited if such name is different from the name of the reportable seller, (iii) each jurisdiction in which the reportable seller is resident, (iv) the total consideration paid or credited during each quarter of the reportable period and the number of such relevant activities or relevant services in respect of which it was paid or credited, and (v) any fees, commissions or taxes withheld or charged by the reporting platform operator during each quarter of the reportable period.
With respect to each reportable seller that provided relevant services for the rental of immovable property, the reporting platform operator is also required to report the address of each property listing and, if available, the land registration number and where available, the number of days each property listing was rented during the reportable period and the type of each property listing.
The reporting platform operator is also required to determine whether the information collected is reliable, using all records available to the reporting platform operator, as well as any publicly available electronic interface to ascertain the validity of the TIN.
The reporting platform operator would be required to report to the Canada Revenue Agency such information on reportable sellers by January 31 of the year following the calendar year for which a seller is identified as a reportable seller. Reporting platform operators would also be required to provide the information relating to each reportable seller to that seller by the same date.
There is an anti-avoidance rule which provides that where a person enters into an arrangement or engages in a practice, the primary purpose of which is to avoid an obligation under new Part XX, the person is subject to the obligation as if the person had not entered into the arrangement or engaged in the practice.
Written by: Kevin Yip and Puyang Zhao
Selected Tax Measures in Canada’s 2022 Fall Economic Statement
This update is intended for those seeking additional insights into the Fall Economic Statement 2022 including its impact on both domestic and multinational enterprises.Continue reading
Incorporating an Ontario Corporation: Bill 213 Amendments and Tax Considerations
On December 8, 2020, Bill 213, Better for People, Smarter for Business Act, 2020 received royal assent. The bill includes significant amendments to the Business Corporation Act (Ontario) (the “OBCA”). The amendments to the OBCA in Bill 213 were proclaimed into force on July 5, 2021.
Bill 213 eliminates the requirement that 25% of the directors of an Ontario corporation must be resident Canadians. This means that non-residents may incorporate an Ontario corporation without necessarily retaining a Canadian resident as a director of the corporation (as already permissible in other jurisdictions).
In light of the new changes, many non-residents will likely consider incorporating an Ontario subsidiary to facilitate acquisitions, tax planning, and investment-related activities. This article highlights some of the (new) corporate and tax advantages of incorporating an Ontario subsidiary by such persons.Continue reading