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Canada: Tax topics for tough times
This paper identifies the most important issues businesses face under the Income Tax Act (Canada) (“ITA”) in the context of a challenging economic environment.
Economic uncertainty produces various challenges for businesses, some of which are more obvious and urgent than others. Whether or not arising as part of a court-based process under the Bankruptcy and Insolvency Act or the Companies’ Creditors Arrangement Act, tax pitfalls arising from situations of financial distress (e.g., debt restructuring, cancelling contracts, reducing headcount) are not always easy to spot, and as with most things, to be forewarned is to be forearmed. This paper identifies the most important issues businesses face under the Income Tax Act (Canada) (“ITA”) in the context of a challenging economic environment.
To begin with, it is important to note that times of depressed asset values may offer opportunities. One of the principal impediments to transferring assets is the potential taxation of accrued gains on them. A reduction or even elimination of such accrued gains due to adverse economic circumstances may allow an asset transfer that would not otherwise be possible, which can be helpful in various different scenarios. Moreover, one form of tax-advantaged financing (“distress preferred shares”) is actually restricted to cases of debtor financial distress and so may be an opportunity not previously considered.
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Canada | Real Estate Tax | Tax Disputes | TP & Business Restructuring | Transfer Pricing