Canada's 2022 federal budget proposes to deter the shifting of Canadian-controlled private corporations (CCPCs) to foreign jurisdictions to avoid tax on investment income.

Department of Finance Canada says that some business owners are manipulating their CCPC status to avoid paying the additional refundable corporate income tax that they would otherwise pay on investment income earned in the businesses. This is done either by moving a corporation into a foreign low-tax jurisdiction, by using foreign shell companies or by moving passive portfolios to an offshore corporation.

Budget 2022 therefore includes a measure to impose the ordinary CPCC tax regime on investment income earned and distributed by private corporations that have used these stratagems, thereby nullifying the tax advantage of offshoring. The clause will take effect for tax years ending on or after 7 April 2022 and is expected to generate extra tax revenues of CAD4.2 billion over five years.

The budget also proposes to...