Flaherty Retreats on Interest Deductibility

As foreshadowed last week and reported below, Flaherty has narrowed non-deductibility to apply only to interest already deducted abroad and delayed its implementation for five years. In other words, corporations will generally be allowed to deduct foreign-affiliate interest costs in Canada even though they generally do not pay Canadian tax on their foreign-affiliate income.

Flaherty retreats on tax measure, but not enough for some

Eric Beauchesne
CanWest News Service
Monday, May 14, 2007

OTTAWA – Finance Minister Jim Flaherty Monday watered down and delayed implementation of a controversial budget proposal that would have prevented corporations from deducting interest costs on foreign investment loans.

Tax experts said the retreat will be welcomed by the business community, but does not completely resolve the issue because the Conservative government, in its attack on so-called double-dipping, will still hurt the international competitiveness of Canadian companies and not save Canadian taxpayers’ money.

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