Bill C-45

RECOMMENDATION

His Excellency the Governor General recommends to the House of Commons the appropriation of public revenue under the circumstances, in the manner and for the purposes set out in a measure entitled “A second Act to implement certain provisions of the budget tabled in Parliament on March 29, 2012 and other measures”.

SUMMARY

Part 1 implements certain income tax measures and related measures proposed in the March 29, 2012 budget. Most notably, it

(a) amends the rules relating to Registered Disability Savings Plans (RDSPs) by

(i) replacing the 10-year repayment rule applying to withdrawals with a proportional repayment rule,

(ii) allowing investment income earned in a Registered Education Savings Plan (RESP) to be transferred on a tax-free basis to the RESP beneficiary’s RDSP,

(iii) extending the period that RDSPs of beneficiaries who cease to qualify for the Disability Tax Credit may remain open in certain circumstances,

(iv) amending the rules relating to maximum and minimum withdrawals, and

(v) amending certain RDSP administrative rules;

(b) includes an employer’s contributions to a group sickness or accident insurance plan in an employee’s income in certain circumstances;

(c) amends the rules applicable to retirement compensation arrangements;

(d) amends the rules applicable to Employees Profit Sharing Plans;

(e) expands the eligibility for the accelerated capital cost allowance for clean energy generation equipment to include a broader range of bioenergy equipment;

(f) phases out the Corporate Mineral Exploration and Development Tax Credit;

(g) phases out the Atlantic Investment Tax Credit for activities related to the oil and gas and mining sectors;

(h) provides that qualified property for the purposes of the Atlantic Investment Tax Credit will include certain electricity generation equipment and clean energy generation equipment used primarily in an eligible activity;

(i) amends the Scientific Research and Experimental Development (SR&ED) investment tax credit by

(i) reducing the general SR&ED investment tax credit rate from 20% to 15%,

(ii) reducing the prescribed proxy amount, which taxpayers use to claim SR&ED overhead expenditures, from 65% to 55% of the salaries and wages of employees who are engaged in SR&ED activities,

(iii) removing the profit element from arm’s length third-party contracts for the purpose of the calculation of SR&ED tax credits, and

(iv) removing capital from the base of eligible expenditures for the purpose of the calculation of SR&ED tax incentives;

(j) introduces rules to prevent the avoidance of corporate income tax through the use of partnerships to convert income gains into capital gains;

(k) clarifies that transfer pricing secondary adjustments are treated as dividends for the purposes of withholding tax imposed under Part XIII of the Income Tax Act;

(l) amends the thin capitalization rules by

(i) reducing the debt-to-equity ratio from 2:1 to 1.5:1,

(ii) extending the scope of the thin capitalization rules to debts of partnerships of which a Canadian-resident corporation is a member,

(iii) treating disallowed interest expense under the thin capitalization rules as dividends for the purposes of withholding tax imposed under Part XIII of the Income Tax Act, and

(iv) preventing double taxation in certain circumstances when a Canadian resident corporation borrows money from its controlled foreign affiliate;

(m) imposes, in certain circumstances, withholding tax under Part XIII of the Income Tax Act when a foreign-based multinational corporation transfers a foreign affiliate to its Canadian subsidiary, while preserving the ability of the Canadian subsidiary to undertake expansion of its Canadian business; and

(n) phases out the Overseas Employment Tax Credit.

Part 1 also implements other selected income tax measures. Most notably, it introduces tax rules to accommodate Pooled Registered Pension Plans and provides that income received from a retirement compensation arrangement is eligible for pension income splitting in certain circumstances.

Part 2 amends the Excise Tax Act and the Jobs and Economic Growth Act to implement rules applicable to the financial services sector in respect of the goods and services tax and harmonized sales tax (GST/HST). They include rules that allow certain financial institutions to obtain pre-approval from the Minister of National Revenue of methods used to determine their liability in respect of the provincial component of the HST, that require certain financial institutions to have fiscal years that are calendar years, that require group registration of financial institutions in certain cases and that provide for changes to a rebate of the provincial component of the HST to certain financial institutions that render services to clients that are outside the HST provinces. This Part also confirms the authority under which certain GST/HST regulations relating to financial institutions are made.

Part 3 amends the Federal-Provincial Fiscal Arrangements Act to provide the legislative authority to share with provinces and territories taxes in respect of specified investment flow-through (SIFT) entities — trusts or partnerships — under section 122.1 and Part IX.1 of the Income Tax Act, consistent with the federal government’s proposal on the introduction of those taxes. It also provides the legislative authority to share with provinces and territories the tax on excess EPSP amounts imposed under Part XI.4 of the Income Tax Act, consistent with the measures proposed in the March 29, 2012 budget. It also allows the Minister of Finance to request from the Minister of National Revenue information that is necessary for the administration of the sharing of taxes with the provinces and territories.

Part 4 enacts and amends several Acts in order to implement various measures.

Division 1 of Part 4 amends the Trust and Loan Companies Act, the Bank Act, the Insurance Companies Act and the Jobs and Economic Growth Act as a result of amendments introduced in the Jobs, Growth and Long-term Prosperity Act to allow certain public sector investment pools to directly invest in a federally regulated financial institution.

Division 2 of Part 4 amends the Canada Shipping Act, 2001 to permit the incorporation by reference into regulations of all Canadian modifications to an international convention or industry standard that are also incorporated by reference into the regulations, by means of a mechanism similar to that used by many other maritime nations. It also provides for third parties acting on the Minister of Transport’s behalf to set fees for certain services that they provide in accordance with an agreement with that Minister.

Division 3 of Part 4 amends the Canada Deposit Insurance Corporation Act to, among other things, provide for a limited, automatic stay in respect of certain eligible financial contracts when a bridge institution is established. It also amends the Payment Clearing and Settlement Act to facilitate central clearing of standardized over-the-counter derivatives.

Division 4 of Part 4 amends the Fisheries Act to amend the prohibition against obstructing the passage of fish and to provide that certain amounts are to be paid into the Environmental Damages Fund. It also amends the Jobs, Growth and Long-term Prosperity Act to amend the definition of Aboriginal fishery and another prohibition relating to the passage of fish. Finally, it provides transitional provisions relating to authorizations issued under the Fisheries Act before certain amendments to that Act come into force.

Division 5 of Part 4 enacts the Bridge To Strengthen Trade Act, which excludes the application of certain Acts to the construction of a bridge that spans the Detroit River and other works and to their initial operator. That Act also establishes ancillary measures. It also amends the International Bridges and Tunnels Act.

Division 6 of Part 4 amends Schedule I to the Bretton Woods and Related Agreements Act to reflect changes made to the Articles of Agreement of the International Monetary Fund as a result of the 2010 Quota and Governance Reforms. The amendments pertain to the rules and regulations of the Fund’s Executive Board and complete the updating of that Act to reflect those reforms.

Division 7 of Part 4 amends the Canada Pension Plan to implement the results of the 2010-12 triennial review, most notably, to clarify that contributions for certain benefits must be made during the contributory period, to clarify how certain deductions are to be determined for the purpose of calculating average monthly pensionable earnings, to determine the minimum qualifying period for certain late applicants for a disability pension and to enhance the authority of the Review Tribunal and the Pension Appeals Board. It also amends the Department of Human Resources and Skills Development Act to enhance the authority of the Social Security Tribunal.

Division 8 of Part 4 amends the Indian Act to modify the voting and approval procedures in relation to proposed land designations.

Division 9 of Part 4 amends the Judges Act to implement the Government of Canada’s response to the report of the fourth Judicial Compensation and Benefits Commission regarding salary and benefits for federally appointed judges. It also amends that Act to shorten the period in which the Government of Canada must respond to a report of the Commission.

Division 10 of Part 4 amends the Canada Labour Code to

(a) simplify the calculation of holiday pay;

(b) set out the timelines for making certain complaints under Part III of that Act and the circumstances in which an inspector may suspend or reject such complaints;

(c) set limits on the period that may be covered by payment orders; and

(d) provide for a review mechanism for payment orders and notices of unfounded complaint.

Division 11 of Part 4 amends the Merchant Seamen Compensation Act to transfer the powers and duties of the Merchant Seamen Compensation Board to the Minister of Labour and to repeal provisions that are related to the Board. It also makes consequential amendments to other Acts.

Division 12 of Part 4 amends the Customs Act to strengthen and streamline procedures related to arrivals in Canada, to clarify the obligations of owners or operators of international transport installations to maintain port of entry facilities and to allow the Minister of Public Safety and Emergency Preparedness to require prescribed information about any person who is or is expected to be on board a conveyance.

Division 13 of Part 4 amends the Hazardous Materials Information Review Act to transfer the powers and functions of the Hazardous Materials Information Review Commission to the Minister of Health and to repeal provisions of that Act that are related to the Commission. It also makes consequential amendments to other Acts.

Division 14 of Part 4 amends the Agreement on Internal Trade Implementation Act to reflect changes made to Chapter 17 of the Agreement on Internal Trade. It provides primarily for the enforceability of orders to pay tariff costs and monetary penalties made under Chapter 17. It also repeals subsection 28(3) of the Crown Liability and Proceedings Act.

Division 15 of Part 4 amends the Employment Insurance Act to provide a temporary measure to refund a portion of employer premiums for small businesses. An employer whose premiums were $10,000 or less in 2011 will be refunded the increase in 2012 premiums over those paid in 2011, to a maximum of $1,000.

Division 16 of Part 4 amends the Immigration and Refugee Protection Act to provide for an electronic travel authorization and to provide that the User Fees Act does not apply to a fee for the provision of services in relation to an application for an electronic travel authorization.

Division 17 of Part 4 amends the Canada Mortgage and Housing Corporation Act to remove the age limit for persons from outside the federal public administration being appointed or continuing as President or as a director of the Corporation.

Division 18 of Part 4 amends the Navigable Waters Protection Act to limit that Act’s application to works in certain navigable waters that are set out in its schedule. It also amends that Act so that it can be deemed to apply to certain works in other navigable waters, with the approval of the Minister of Transport. In particular, it amends that Act to provide for an assessment process for certain works and to provide that works that are assessed as likely to substantially interfere with navigation require the Minister’s approval. It also amends that Act to provide for administrative monetary penalties and additional offences. Finally, it makes consequential and related amendments to other Acts.

Division 19 of Part 4 amends the Canada Grain Act to

(a) combine terminal elevators and transfer elevators into a single class of elevators called terminal elevators;

(b) replace the requirement that the operator of a licensed terminal elevator receiving grain cause that grain to be officially weighed and officially inspected by a requirement that the operator either weigh and inspect that grain or cause that grain to be weighed and inspected by a third party;

(c) provide for recourse if an operator does not weigh or inspect the grain, or cause it to be weighed or inspected;

(d) repeal the grain appeal tribunals;

(e) repeal the requirement for weigh-overs; and

(f) provide the Canadian Grain Commission with the power to make regulations or orders with respect to weighing and inspecting grain and the security that is to be obtained and maintained by licensees.

It also amends An Act to amend the Canada Grain Act and the Agriculture and Agri-Food Administrative Monetary Penalties Act and to Repeal the Grain Futures Act as well as other Acts, and includes transitional provisions.

Division 20 of Part 4 amends the International Interests in Mobile Equipment (aircraft equipment) Act and other Acts to modify the manner in which certain international obligations are implemented.

Division 21 of Part 4 makes technical amendments to the Canadian Environmental Assessment Act, 2012 and amends one of its transitional provisions to make that Act applicable to designated projects, as defined in that Act, for which an environmental assessment would have been required under the former Act.

Division 22 of Part 4 provides for the temporary suspension of the Canada Employment Insurance Financing Board Act and the dissolution of the Canada Employment Insurance Financing Board. Consequently, it enacts an interim Employment Insurance premium rate-setting regime under the Employment Insurance Act and makes amendments to the Canada Employment Insurance Financing Board Act, the Department of Human Resources and Skills Development Act, the Jobs, Growth and Long-term Prosperity Act and Schedule III to the Financial Administration Act.

Division 23 of Part 4 amends the Canadian Forces Superannuation Act, the Public Service Superannuation Act and the Royal Canadian Mounted Police Superannuation Act and makes consequential amendments to other Acts.

The Canadian Forces Superannuation Act is amended to change the limitations that apply in respect of the contribution rates at which contributors are required to pay as a result of amendments to the Public Service Superannuation Act.

The Public Service Superannuation Act is amended to provide that contributors pay no more than 50% of the current service cost of the pension plan. In addition, the pensionable age is raised from 60 to 65 in relation to persons who become contributors on or after January 1, 2013.

The Royal Canadian Mounted Police Superannuation Act is amended to change the limitations that apply in respect of the contribution rates at which contributors are required to pay as a result of amendments to the Public Service Superannuation Act.

Division 24 of Part 4 amends the Canada Revenue Agency Act to make section 112 of the Public Service Labour Relations Act applicable to the Canada Revenue Agency. That section makes entering into a collective agreement subject to the Governor in Council’s approval. The Division also amends the Canada Revenue Agency Act to require that the Agency have its negotiating mandate approved by the President of the Treasury Board and to require that it consult the President of the Treasury Board before determining certain other terms and conditions of employment for its employees.