Canadian immigration laws and procedures. Guide for foreign and Canadian immigration law.

Significant changes include the following:

Small Business Deduction Limit

The 2003 Budget proposed to increase the small business limit of a CCCP from $200,000 to $300,000 over a period of four years to January 1, 2006. The 2004 Budget proposes to accelerate the increase to $300,000 by one year (January 1, 2004: $250,000; January 1, 2005: $300,000).

Carry-Forward Period for Business Losses and Credits

The loss carry-forward period for non-capital losses, unused foreign tax credits and certain losses of life insurers, which arise in taxation years that end after March 22, 2004, will be extended from seven to ten years.

Fines and Penalties

Fines and penalties imposed after March 22, 2004, will not be deductible if they are imposed by a government agency, regulator, court or other tribunal, or any other person having statutory authority to levy the fine or penalty. Deductibility of fines or penalties under private contract and penalty interest under the Excise Act, Air Travellers Security Charge Act and the GST/HST portions of the Excise Tax Act will not be restricted by this new measure.

Mutual Funds

Before March 23, 2004, non-residents who invested in Canada through Canadian mutual funds were generally not subject to tax on Canadian source gains realized by those funds and distributed to them. Nor was the mutual fund taxed on the gain, if the gain was distributed. Distributions of gains realized on taxable Canadian property after March 22, 2004, will now be subject to non-resident withholding tax. A tax of 15% will also be withheld as a final tax on otherwise tax-free redistributions to non-residents made by Canadian mutual funds listed on prescribed Canadian or foreign stock exchanges, if the value of the mutual fund units is attributable primarily to Canadian real estate or resource or timber properties. Some relief will apply for losses a non-resident investor may realize on the disposition of units of such mutual funds.

Mutual fund trust status under the Act is required primarily in order for trusts to be exempt from Part XII.2 tax and for their units to be qualified property, not treated as foreign properties. Although not announced in the 2004 Budget, based on the September 16, 2004, draft legislation, trusts may now lose their mutual fund trust status if 50% or more of the fair market value of the units of the trusts are held by non-residents. Prior to the proposed measures, to be considered a mutual fund trust, the trust could not be established and maintained primarily for the benefit of non-resident persons, having regard to all the circumstances. Consequently, when non-resident ownership might have temporarily exceeded 50%, the Canada Revenue Agency ("CRA") would not consider the trust to have been established for the benefit of non-resident persons, where efficient mechanisms were in place to monitor and correct the situation. With the proposed measures, the mutual fund trust status may be lost permanently, even if the ownership requirements are not met for only a short period of time. Because from a practical perspective it is virtually impossible to comply with these measures, we expect, once again, significant and forceful representations from the investment community.