Finance Canada has released draft legislative proposals to implement those aspects of the Conservative government’s Tax Fairness Plan dealing with income trusts and other flow-through entities.

The key elements of the Plan as it relates to income trusts and other flow-through entities are:


  • A distribution tax to be applied on certain distributions and allocations from publicly-traded trusts and partnerships as set out in the Notice of Ways and Means Motion adopted with a strong majority in the House of Commons on Nov. 7, 2006.
  • For trusts and partnerships that begin trading after Oct. 31, 2006, the tax will apply beginning with their 2007 taxation year.
  • Existing publicly traded trusts and partnerships will not be subject to the new measure until their 2011 taxation year (assuming those trusts and partnerships adhere to the guidelines on “normal growth” set out in the guidelines distributed by the Department of Finance on Dec. 15, 2006).



Finance minister Jim Flaherty says the governemtn is taking these steps “to restore balance and fairness to Canada’s tax system. If corporations don’t pay their share of taxes, this tax burden will be shifted onto the shoulders of hard-working individuals and families.”

The government is seeking commentary on the technical aspects of the draft legislative proposals to implement the Tax Fairness Plan.

Interested parties are invited to provide comments on the draft legislative proposals regarding the distribution tax by Jan. 31, 2007.

Following this comment period, the Government intends to introduce legislation to implement all components of the Tax Fairness Plan, including the $1,000 increase to the age credit amount for seniors, pension income splitting, which will enable Canadian residents to split up to one-half of certain pension income with their resident spouse or common-law partner, and a further reduction in the general corporate income tax rate to 18.5% in 2011.

Please send your comments to:

Tax Policy Branch
Department of Finance
140 O’Connor Street
Ottawa, Ontario
K1A 0G5