The Canadian Minister of Finance on Oct. 24 tabled a specific amendment to the Income Tax Act (Canada), which applies to securities lending arrangements in Canada.
The changes to section 260 were originally announced back in 2002 and 2007 but were never enacted, largely because of federal elections and changes to the Canadian Government. The amendment will greatly expand the types of listed securities that will be considered qualified securities for securities lending arrangements for Canadian tax purposes.
The original 2002 technical amendments proposed to add “qualified trust unit” to the definition of “qualified security” for securities lending arrangements under section 260. Under the original proposals, a qualified trust unit means a mutual fund trust unit that is listed on a prescribed stock exchange.
This amendment means that any trust (whether Canadian resident or not) that has units listed on a stock exchange will be a qualified trust unit and therefore will be a qualified security for purposes of securities lending arrangements under section 260. This will include non-Canadian ETF units, U.S. REITs and other foreign trust units listed on a stock exchange. The new amendment to the definition of “qualified trust unit” when enacted will be effective from Oct. 24, 2012.
In the cross-border context, where a Canadian resident borrower of qualified trust units makes compensation payments to a non-resident lender in respect of distributions on the underlying foreign trust units, generally there will be no Canadian non-resident withholding tax payable.
(JDC)