
			Canadian Tax Letter

			  Federal Budget

			  March 6, 1996

     Budget Highlights
     Deficits and Debt - Are We on Target?
     How Will the Budget Affect You?
     How Will the Budget Affect Your Business?
     Upcoming Studies and Consultations
     GST - Changes Coming Soon
     We Can Help

     Budget Highlights

        * No personal or corporate tax rate increases
        * Government hits the mark on its 1995-96 deficit reduction
          targets
        * RRSP maturity age lowered to 69 (down from 71)
        * New rgime for the taxation of child support payments
        * Deduction limits for charitale donations raised to 50% of
          net income (up from 20%)
        * Maximum RRSP contribution limit frozen at $13,500 until
          2004; unused contribution room can now be carried forward
          indefinitely

     Deficits & Debt - Are We On Target?
     In the 1996 federal budget delivered on March 6, 1996, the
     government says it will meet or better its deficit reduction
     target of $32.7 billion (4.2% of the gross domestic product) for
     the 1995-96 fiscal year. The government also expects to hit the
     mark on its deficit reduction goals of $24.3 billion (3% of GDP)
     for 1996-97 and $17 billion (2% of GDP) for 1997-98. No target
     date has been set for eliminating the deficit or for tackling the
     nation's debt - which now stands at $578 billion.



     To help meet these goals, the government announced that the
     exercise of program review will be extended, with further
     spending cuts of $368 million for 1997-98, and over $1.9 billion
     for 1998-99.

     Holding the line on taxes
     Like last year, the government has held off on any personal or
     corporate tax increases as a means of raising cash to fight the
     deficit. Even fuel and tobacco taxes are untouched. However, a
     volley of other changes to the tax rules in a number of areas
     could increase the tax burden for some taxpayers.

     How Will the Budget Affect You?

     Child support payments
     In this year's budget, the federal government has acted on its
     promise to reform the taxation of child support payments. Under
     the new system, child support and spousal support payments will
     be treated differently. The taxation of spousal support payments
     remains unchanged.

     Custodial parents will no longer have to pay tax on child support
     payments and the supporting parent will not be entitled to a tax
     deduction. The new rules apply to agreements or court orders made
     after April 30, 1997. Child support arrangements in place before
     May 1, 1997 are not affected unless the parties vary their
     agreement or court order or they both sign and file a form with
     Revenue Canada agreeing that the new rules will apply to them
     from May 1, 1997 forward.

     Other, non-tax measures included as part of this package include
     new guidelines for determining fairer and more consistent levels
     of child support; and a doubling of the Working Income
     Supplement, designed to help low-income parents meet extra
     job-related costs, from $500 annually to $750 in 1997 and $1,000
     in 1998. Measures to beef up the enforcement of child support
     arrangements will include permission to search Revenue Canada's
     database to locate "dead-beat" ex-spouses.

     Single parents will also benefit from the budget's extension of
     the child care expense deduction to single parents attending
     secondary or post-secondary school full-time, and the increase of
     the maximum age of children for whom the child care expense
     deduction may be claimed to 16 from 14 years.

     Retirement Income & Savings

     RRSP contributions
     Once again, the RRSP contribution limit has been frozen at
     $13,500 - now supposedly until 2004. Corresponding changes have
     been made to the contribution limits for money purchase
     registered pension plans ("RPP's") and deferred profit sharing
     plans ("DPSP's").

     RRSP carryovers
     To increase flexibility for individuals saving for retirement,
     unused RRSP contribution room can now be carried forward
     indefinitely, since the seven-year carry forward cap has been
     lifted.

     Age Limit for RRSP's, RPP's & DPSP's
     The age limit for maturity of RRSP's, RPP's and DPSP's has been
     lowered from 71 to 69. Individuals can no longer contribute to
     retirement plans after the end of the year in which they turn 69
     and, by the end of that year, they must either start receiving
     retirement income or roll the retirement savings into a
     registered retirement income fund ("RRIF").

     RRSP & RRIF fees
     RRSP and RRIF administration fees paid outside the plan on or
     after March 6, 1996 are no longer deductible for tax purposes.

     Charitable Donations
     Starting in 1996, the general limit on the deduction of
     charitable donations will be increased from 20% to 50% of net
     income, while the limit for donations in year of death and the
     preceding year (including bequests or legacies in the deceased's
     will) rises to 100% of net income. For donations of appreciated
     property which trigger a capital gain, the charitable donation
     deduction limit will be 100% of the 75% of the capital gain that
     is taxable.

     New Seniors Benefit
     The government is proposing to replace the current OAS, GIS,
     pension income credit and age credit in 2001. Current seniors
     (including anyone 60 and over at the end of 1995 and their
     spouses, regardless of age) are guaranteed that their income
     under the new system will be at least what they get in pension
     payments now. The new benefit will be tax-free, fully indexed to
     inflation, and based on the combined income of spouses.

     The government claims that 75% of seniors will receive the same
     or higher benefits as under the current system. Low-income
     seniors will get an additional $120 annually. Those with incomes
     above $45,000 will receive lower benefits and higher-income
     seniors earning $52,000, or $78,000 combined will lose the
     benefit completely.

     Labour-sponsored venture capital corporations
     New measures to limit the tax benefits for individuals investing
     in shares of LSVCCs include:

        * reducing the current 20% federal tax credit to 15% for LSVCC
          shares purchased on or after March 6, 1996;
        * limiting the rate of the federal tax credit for 1997 and
          later to the lesser of 15% and the applicable provincial tax
          credit; a minimum federal credit floor of 10% will apply;
        * reducing the maximum annual LSVCC investment eligible for
          the federal tax credit to $3,500 (down from $5,000) for
          LSVCC shares purchased on or after March 6, 1996; and
        * increasing the holding period for LSVCC shares to 8 years
          (up from 5).

     Tax credit for infirm dependants
     The maximum tax credit for support of infirm dependants will be
     increased to $400 (up from $270) and the dependant's income
     threshold for phase-out of the credit will increase to $4,103 (up
     from $2,690).

     Students - Education credit & RESPs
     As of 1996, the base amount for the education tax credit will be
     increased from $80 to $100 per month. The maximum amount of
     tuition and education credits transferable to a spouse, parent or
     grandparent supporting a student is also increased to $850 per
     year (up from $680).

     The contribution limits for registered education savings plans
     ("RESP") will also be increased in 1996 from $1,500 to $2,000 per
     year. The lifetime limit on RESP contributions will rise from to
     $42,000 per beneficiary (from $31,500).

     Fighting the "underground" economy
     The budget proposes increased tax audits for unincorporated
     businesses and self-employed individuals. Eight hundred
     additional Revenue Canada auditors are expected to generate
     increased tax revenues of $150 million annually.

     How Will the Budget Affect Your Business?

     Research & development tax incentives
     The existing eligibility rules for qualifying information
     technology research and development ("R&D") will be clarified and
     applied consistently for all taxpayers. Since Revenue Canada's
     view is that much of the information technology R&D work
     performed by financial institutions does not meet the existing
     eligibility criteria, the previously announced proposal to
     legislate differential treatment for financial institutions has
     been abandoned.

     For purposes of the R&D rules, the deduction of remuneration to
     "specified employees" (i.e. who do not deal at arm's length with
     the employer or own 10% or more of the employer's shares) will be
     restricted for tax years starting on or after March 6, 1996. The
     limit will be five times the year's maximum pensionable earnings
     for CPP purposes, or about $180,000 for 1996.

     Expenses related to the rental of buildings after 1987 were not
     eligible for the R&D benefits unless under an old transitional
     rule the lease was entered into prior to June 18, 1987. This old
     rule is being removed for taxation years beginning on or after
     March 6, 1996.

     Bridge financing secured by R&D & film production credits
     Overturning a recent court decision, R&D refund claimants will be
     allowed to be assign their R&D claims as security for loans on or
     March 5, 1996 to facilitate bridge financing. The same will apply
     for claims for the Canadian Film and Video Production Tax Credit
     proposed in the 1995 budget.

     Measures affecting the resource sector
     As promised in the 1995 budget, the government has completed its
     consultative review of the 25% resource allowance system. In
     general, it has decided to keep the main features of the existing
     mechanism, subject to the following changes to take effect
     December 31, 1996:

        * Resource losses in a year will apparently be offset against
          subsequent years' resource profits.
        * The definition of resource profits will be expanded to
          include income from most natural gas processing activities.
        * Net profits interest royalty payments must now be deducted
          in resource profits.

     Other technical changes are contained in a package of draft
     amendments released with the budget. Notably the regulations
     clarify that, after July 23, 1992, all expenses deducted to
     determine income (other than CEE, CDE, COGPE, FEDE, earned
     depletion and interest) must be deducted in computing resource
     profits. Contrary to Finance's January 31, 1996 trial balloon,
     interest expense will not be deducted in computing resource
     profits.

     The budget also introduces measures to focus the tax incentives
     for flow-through shares so that they assist smaller corporations
     and are used to finance riskier expenditures such as exploration
     and development costs. As a result, COGPE and CDE relating to the
     cost of acquiring mining properties will not be eligible for
     flow-through treatment. Further, the ability to reclassify CDE to
     CEE for purposes of flow-through treatment has been reduced from
     $2 million to $1 million and will be restricted to corporations
     with taxable capital less than $15 million.

     As well, the budget will deny flow-through treatment to
     "off-the-shelf" seismic costs, effective today but subject to
     certain transitional rules. However, after 1996, the 60 day look
     back rule for renounced expenditures has been extended to 12
     months, subject to an interest charge until the expenses are
     incurred in the additional 10 months.

     The Joint Exploration Corporation rules will be terminated
     effective March 6, 1996, subject to certain transitional rules.
     The government has concluded the rules were being used primarily
     to dispose of resource properties in a tax-advantageous manner.

     Capital cost allowance
     Mining and renewable energy property - The existing accelerated
     CCA rules for qualifying expenditures for new mines and major
     mine expansion, in Canada and including tar sands, are being
     relaxed and redefined. The rules restricting the CCA on certain
     renewable energy and energy conservation equipment are being
     relaxed to allow the CCA on such property to be claimed as a
     deduction against income from all sources. These rules will apply
     for equipment acquired after March 6, 1996.

     A new category of expenditures - Canadian Renewable and
     Conservation Expenses ("CRCE") - will be created for intangible
     costs with respect to the non-renewable energy sector. These
     expenditures will be eligible to be renounced under the
     flow-through rules. The CRCE category will take effect only after
     consultation with Natural Resources Canada. Roads and other
     properties not owned by a taxpayer - A new CCA class is proposed
     for costs related to the building or use of roads or similar
     properties that represent capital property where the taxpayer
     does not actually acquire ownership of the property. These rules
     apply for expenditures on or after March 6, 1996.

     Financial institutions
     Life insurance companies - For 1996 and later tax years, after
     consultation with the industry, a number of changes will be
     introduced affecting the calculation of life insurers' reserves
     and the Canadian component of the income of multinational
     insurers. As a result, most reserves for post-1995 life insurance
     policies will be equal to the financial statement reserves.
     Pre-1996 policies will continue to be subject to the current
     rules. Also, the method of measuring Canadian income will be
     subject to a full balance sheet approach. The existing additional
     capital tax levied on life insurance companies will be extended
     for another 3 years.

     Large deposit-taking institutions
     The temporary capital tax surcharge on large deposit-taking
     institutions scheduled to expire October 31, 1996 has been
     extended to October 31, 1997.

     Upcoming Studies & Consultations
     Looking ahead, the government also announced that it will be
     undertaking the following studies and consultations that could
     result in future tax policy changes:

        * A technical committee on business taxation will be formed to
          study ways to simplify the taxation of business income to
          "facilitate compliance" by taxpayers; to identify and
          suggest solutions to job creation obstacles contained in the
          current tax system; and to study ways to improve fairness in
          the tax system by ensuring that all businesses are
          contributing their share of government revenues. This
          committee will also look into the interaction between the
          taxes paid by businesses (i.e., income, capital and payroll
          taxes) and taxes paid by individuals on their investment
          income.
        * The government will strike a new Canada Revenue Commission
          to serve as a national revenue agency to facilitate revenue
          administration in cooperation with the provinces.Tax
          measures affecting people with disabilities will be
          reviewed.
        * The government will consult with the charitable sector with
          an eye toward ways of encouraging charitable giving and
          activities.

     GST - Changes Coming Soon
     To make good on its 1993 election promise, the federal government
     is still seeking provincial agreement to replacement of the goods
     and services tax ("GST") with a harmonized federal/provincial
     sales tax. No changes were announced in the budget but steps may
     be taken sometime soon to streamline and simplify the GST - a
     significant package of technical changes to the GST is expected
     to be released in the very near future.

     We Can Help
     Your KPMG advisor can help you to assess the effect of any tax
     changes in this year's budget on your personal finances or
     business affairs, and perhaps point out ways to ease their
     impact. We can also keep you abreast of the progress of these
     proposals as they make their way into law and perhaps help you
     bring any concerns you may have to the attention of the
     Department of Finance or the new committee on business taxation.


Note to users: All information provided is of a general nature. Although we
endeavor to ensure its accuracy and timeliness, no one should act upon it
without appropriate professional advice after a thorough examination of the
facts of the particular situation.
