Tax Changes in Budget Still Alive

National Post

2011-03-28


With the defeat of the Harper government as a result of a non-confidence motion and a May election on the horizon, what is the status of the various tax proposals introduced in Tuesday's federal budget?

Canadians may have thought they have caught a lucky break and a window of opportunity has been opened up to take advantage of various tax planning opportunities that were supposed to have been shut down as of Tuesday's budget effective date.

A case in point is the donation of flow through shares to charity. As I wrote about earlier this week, Canadians who wished to donate significant amounts to charity have been using flow-through shares as a means of funding their charitable giving at minimal cost.

That's because when an investor combined the deduction for the amount paid with a charitable receipt for the amount donated and the exemption from capital gains tax associated with such an "in-kind" charitable gift, the cost of such a donation could be reduced significantly.

Structured deals, which were registered as tax shelters, had appeared on the market, which used liquidity providers to guarantee, in advance, the proceeds of the flow through shares to the charity and provide the donor with a cost of donation as low as 17 cents on the dollar, with no market risk.

So, with the government defeated and the Budget formally dead, are these deals back on the table?

Unlikely.

Regardless of which party or coalition forms the next government, while some of the spending measures and new credits announced in the budget may be tweaked or even eliminated, absent any severe political lobbying, the various anti-avoidance measures and the closing of various perceived loopholes would surely be reintroduced with a retroactive date of March 22, 2011, the effective date of many of the budget measures.

Can they do this? You bet.

The most recent example of this is earlier this month when the government issued a press release, accompanied by draft legislation, which was aimed at responding to three recent Federal Court of Appeal tax decisions in which the government didn't like the results.

While the draft legislative proposals to change the law have been circulated for public consultation, two of the three proposals would be effective as of the press release date, regardless of when the final legislation is formally introduced in Parliament and passed, which could be months or even years later.

Items in Tuesday's budget that are expected to survive and be retroactively effective include: various anti-avoidance rules associated with RRSPs, the elimination of the capital gains exemption on the donation of flow through shares purchased on or after March 22, 2011 and the proposed changes to Individual Pension Plans in respect of contributing for past service.