(October 3 – 17:10 ET) – The Finance ministry has rejected a request from the Investment Funds Institute of Canada to move the effective date for changes to the capital gains inclusion rate as announced in the 2000 budget. Instead, Finance has proposed a couple of alternative solutions.
On February 27, the the federal government reduced the capital gains inclusion rate from 75% to 66 2/3% for capital gains received after February 27, 2000. IFIC wrote to Finance requesting that the effective date be moved to either January 1, 2000 or December 16, 1999, because of the difficulty in determining when capital gains and losses are actually realized.
Finance has rejected this request; the change will remain effective February 27. Instead, Finance has proposed two options for the fund industry in calculating the timing of gains. Under the first option, the inclusion rate could be calculated based on factual determinations of gains and losses from dispositions of property in the pre- and post- budget periods in the year. Under the second option, the rate would be determined based on the assumption that a fund’s net capital gains are earned evenly throughout the year, so gains would be pro rated into pre- and post- budget calculation periods.
Gains allocated to unitholders during a year would be divided into pre- and post- budget amounts in proportion to the fund’s calculation method. Mutual funds will be required to report these segmented gains to unitholders on their information slips.
Finance Minister Paul Martin has apparently approved these suggestions and they will be proposed in forthcoming tax legislation.
-IE Staff