Fear and Loathing on Bay Street: The End?

It looks as though Jim Flaherty’s strange journey around the tax-deductibility of interest on loans to finance foreign affiliates is about to end badly. The following story seems to confirm that, under pressure from big business and the Liberals, he is set for “a complete reversal of the budget announcement”:

Flaherty retreats from tax deduction on foreign investment loans

Eric Beauchesne
CanWest News Service
Wednesday, May 09, 2007


OTTAWA — Finance Minister Jim Flaherty is retreating from a controversial budget tax measure that would have prevented Canadian companies from deducting the interest costs on loans to finance foreign takeovers or expansions. Companies will still be allowed to deduct the interest costs, but only once, Flaherty said Tuesday, claiming the measure was not aimed at eliminating the deduction but at corporations who were using offshore tax havens to claim the deduction twice — in Canada and in a foreign country.

“We are going to make illegal the use of double deductions and tax havens,” he told reporters. “They will have the benefit of a single deduction.”

However, the March 19 budget proposal was to “eliminate the deductibility of interest incurred to invest in business operations.”

“It’s basically a complete reversal of the budget announcement,” said Trent Henry, leader of the international tax practice with Ernst and Young.

For the whole article, click here.

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