FEDERAL BUDGET SUMMARY – 2017
unintended tax advantages under these plans. These anti-avoidance rules do not
currently apply to Registered Education Savings Plans (“RESPs”) or Registered
Disability Savings Plans (“RDSPs”).
Budget 2017 proposes to extend the following anti-avoidance rules to apply with
respect to RESPs and RDSPs:
• The Advantage Rules – These rules prevent the exploitation of the tax
attributes of a registered plan;
• The Prohibited Investment Rules – These rules ensure that investments
held by a registered plan are arm’s length portfolio investments (i.e. not
closely connected private company shares); and
• The Non-Qualified Investment Rules – These rules restrict the classes of
investments that can be held by a registered plan.
C. International Tax Measures
EXTENDING THE BASE EROSION RULES TO FOREIGN BRANCHES OF LIFE INSURERS
The income earned by an unincorporated foreign branch of a life insurance
company is not included in the Canadian company’s income. In this way, foreign
branches of Canadian life insurance companies are taxed in a similar fashion to
foreign corporate subsidiaries (“foreign affiliates”). The Income Tax Act contains
measures to prevent shifting income to foreign affiliates in low tax jurisdictions
through the foreign affiliate property income (FAPI) regime. The FAPI rules
generally apply to passive or property income or income that is specifically treated
as passive income, including the insurance of Canadian risks. Previously, the FAPI
regime did not apply to foreign branches of life insurance companies. The Budget
proposes that Canadian insurers will be taxed currently in Canada on their foreign
branches’ income from the insurance of Canadian risks. The rule will apply where
10% or more of the gross premium income (net of reinsurance ceded) earned by
the foreign branch is from the insurance of Canadian risks.
Previous budgets introduced anti avoidance measures to prevent the insurance of
Canadian risk where these risks were swapped for foreign risk. These and other
anti-avoidance measures will also apply to the proposed rules for foreign
branches.
D. Indirect Tax Measures
OPIOID OVERDOSE TREATMENT DRUG – NALOXONE
The government proposes to provide relief from GST / HST on Naloxone (and its
salts). Naloxone (and its salts) is used to treat opioid overdose and as of March 22,
2016, was not required to be prescribed in order to treat such life threatening
conditions. As a result of the changes by Health Canada on March 22, 2016, the
supply of Naloxone became subject to GST / HST. To zero-rate Naloxone, Budget
2017 proposes to add the drug (and its salts) to the list of GST / HST-free non-prescription drugs.
