The federal government has released draft legislative proposals to implement amendments to the functional currency tax reporting rules.

“The proposals I am announcing today will improve the tax system and provide an environment in which Canadian businesses can operate more effectively,” said Finance Minister Jim Flaherty in a release.

Bill C-28, the second Budget 2007 implementation bill, included amendments to the Income Tax Act to implement the Budget 2006 proposal to introduce functional currency tax reporting rules.

In response to representations from stakeholders concerning these amendments, in June 2008 (2008-048) the government proposed several technical revisions including:

> amending the definition of “functional currency” to address concerns about its practical application to the situations of certain taxpayers; and

> introducing symmetry in foreign exchange rate calculations used in the reporting of assets and debt obligations.

In light of these significant revisions, the government also extended, at that time, the deadline for certain functional currency tax reporting elections to Oct. 31.

The proposals released today include draft legislation to incorporate the revisions announced in June 2008 and to provide for the Dec. 15, election deadline.

As well, the proposals contain additional improvements to the functional currency rules, including provisions to:

> clarify how the functional currency regime will apply where the corporate taxpayer is a member of a partnership;

> ensure that all taxpayers are treated consistently in terms of when they must file the functional currency election;

> ensure that, while income tax payable is based on the taxpayer’s elected functional currency, all instalments and other payments of taxes, interest and penalties are payable in Canadian dollars; and

> deal comprehensively with corporate reorganizations.

Interested parties are invited to provide comments on the draft legislative proposals by Nov. 30.

IE

http://www.fin.gc.ca/news08/08-089e.html