An analysis by Borden Ladner Gervais, Taxand Canada
In the recent Canadian budget, significant changes were introduced under the Income Tax Act that will impact Canadian-Controlled Private Corporations (CCPCs) engaged in foreign real estate businesses through foreign affiliates. These changes are set to take effect retrospectively in the 2023 taxation year for taxpayers with a December 31 year-end.
These amendments aim to address tax deferral issues related to passive income earned in low-income jurisdictions by controlled foreign affiliates. Specifically, CCPC-owned foreign real estate businesses operating may face a tax rate in the range of 50 percent, unless they have a minimum of six full-time employees working outside of Canada.
To navigate these changes, affected CCPCs have several potential solutions. They can consider increasing their foreign workforce to meet the six-employee requirement or restructure their foreign real estate operations into branch structures or partnerships. However, each of these options comes with its own set of challenges and tax implications.
Jennifer Hanna and Greg Rafter, from our Canadian partner firm, Borden Ladner Gervais, provide further insights here.
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