Insurers to start paying distribution tax on income from publicly traded income trusts

Insurers will have to pay a distribution tax on income from publicly traded income trusts and partnerships for the 2011 taxation year, a report from PricewaterhouseCoopers says.

Insurance Industry: Key Tax Rates and Updates, PwC highlighted tax changes, rates and deadlines affecting the Canadian insurance sector. A distribution tax is being imposed on ‘specified investment flow-through entities.’ A SIFT is a type of income trust that holds publicly traded investments.

Canadian government decided in 2006 that the tax advantages businesses had by using SIFT trusts as opposed to corporate structures were “not appropriate.” As a result, the government enacted a tax fairness plan that included a provision for taxing distributions on publicly traded income trusts. The provisions came into effect in 2011 for pre-existing income trusts.

The tax rate equals the general federal corporate income tax rate, plus a provincial component. The provincial component is based on the general provincial corporate income tax rate of each province in which the SIFT has a permanent establishment, but is 10% for income not allocated to a province, the PwC report says.

The rate is nil for taxable distributions allocated to Quebec because Quebec imposes its own distribution tax, which equals the Quebec corporate income tax rate that would apply if the SIFT were a corporation,” it continues.

Insurance News