Canadian captive insurance vehicles may be in for a rough ride in the wake of the majority government’s budget.
The budget, delivered by federal minister of finance for Canada Jim Flaherty, has revealed that certain planning involving captive insurance affiliates and captive offshore banks is being curtailed.
While the budget does not affect personal or corporate tax rates, the reinforced foreign accrual property income (FAPI) rules are expected to prevent taxpayers from shifting certain Canadian sourced income, or passive types of income, to lower tax rate jurisdictions.
Although the government is addressing some of these avoidance methods through the general anti-avoidance rule (GAAR), the amended FAPI rules could effectively shut down captive insurance arrangements in the country altogether.
The new rules will apply for taxation years that begin on or after 11 February 2014.
