Publication
title
Ontario and Federal Government Sign Agreement for Combined Ontario Corporate Tax Administration - A Blessing and A Curse?
DATE
October 10, 2006
EXPERTISE
On October 6, 2006 the federal and Ontario Ministers of Finance signed an agreement under which the federal government will collect and administer Ontario's corporate income tax. This agreement is a step toward implementation of the combination of the two corporate tax systems first announced in 2005.
When implemented, Ontario corporations will be required to file a single income tax return, rather than both federal and Ontario returns. The Canada Revenue Agency ("CRA") will collect both the federal and Ontario income taxes and will administer Ontario capital tax. Other steps will be taken to reduce or eliminate inconsistencies between the Ontario and federal income tax regimes.
It is anticipated that Ontario corporate taxpayers will begin making combined federal and Ontario corporate tax instalment payments starting in 2008, and beginning in 2009 will file a combined tax return for taxation years ending after December 31, 2008.
The materials released by the federal and Ontario governments state that the federal government will be working with all the provinces and territories to implement certain other changes, including:
- changes to the definition of "permanent establishment" in Part IV of the Regulations to the Income Tax Act (Canada), which is relevant to the allocation of income to a province, to provide that a corporation with no other permanent establishment would have a permanent establishment in the place designated in its charter or by-laws as being its head office or registered office;
- changes to the Income Tax Act (Canada) to extend the time for assessments that are consequential to assessment actions carried out by another taxing authority.
The CRA has also committed to develop and implement a national initiative that will review inter-provincial tax planning strategies. The CRA will specifically focus on enhancing audits of inter-provincial allocations of income and will "target inter-provincial tax avoidance by corporations".
The combination of Ontario and federal income tax administration and collection will provide some relief from the administrative burden on Ontario corporate taxpayers. It appears, though, that the integration of the tax systems will be used by the tax authorities to increase scrutiny of inter-provincial tax planning.
The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault LLP or any member of the firm on the points of law discussed.
© Ogilvy Renault LLP 2006 - All Rights Reserved
Contacts
Adrienne F. Oliver
Toronto
416.216.1854
aoliver@ogilvyrenault.com
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Jules Charette
Montréal
514.847.4450
jcharette@ogilvyrenault.com
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Jacques Côté
Québec
418.640.5041
jcote@ogilvyrenault.com
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