Issue
The current approach to taxation of corporate groups in Canada ignores the commonality of ownership principles and requires that owners undertake costly and complicated planning to allow for consolidation or transfers of losses and/or credits between members of a common corporate group.
Several countries in the Organization for Economic Co-operation and Development (OECD) allow for taxation of corporate groups on a consolidated basis and it is past time for Canada to join its peers in this practice.
Background
“Every man is entitled, if he can, to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be.”
- The Duke of Westminster (1936)
As aptly put by the Duke, owners of corporations are, within the bounds of the legislation of the Income Tax Act, Canada, allowed to order their affairs to minimize the income tax that they would otherwise pay in the absence of planning for the resulting liability. Where closely held groups of companies are concerned, this often requires that the shareholders undertake complex loss consolidation transactions through financing arrangements, reorganizations, and transfers of property on a tax-deferred basis which will attract additional professional fees (legal and accounting) and may also attract additional costs associated with seeking specific rulings from the Department of Finance. From the Duke’s perspective, the ability to arrange one’s affairs exists, but achieving the goal of tax minimization is much more cumbersome than it needs to be.
Recommendations
The Alberta Chambers of Commerce recommends that the Government of Canada and Department of Finance:
1. Immediately review the existing provisions within the Income Tax Act, Canada related to the taxation of Canadian corporate groups; and
2. Introduce legislation to allow income and loss transfers within associated corporate
Topic
Year
2024
Contact
If you have any questions, contact Dana Severson at dseverson@abchamber.ca or (780) 425-4180 ext. 2.