federal travel act healthcare

The Travel Act in Federal Health Care Fraud Prosecutions

The Anti-Kickback Statute (AKS) criminalizes bribes and kickbacks designed to encourage patient referrals or the purchasing, ordering, or leasing of any item or service paid for by a federal health care program. Historically, arrangements between providers and commercial health care payors fell outside of the AKS’s reach. But recent federal prosecutions in Dallas, New Jersey, and California, invoking the seldom used Travel Act, have upended the conventional thinking that commercial health plans are entirely outside of Department of Justice’s (DOJ) enforcement reach for kickback-like conduct that does not involve a federal health care program.

The Travel Act was passed in 1961 at the behest of Attorney General Robert F. Kennedy to combat the prevalence of organized crime and racketeering syndicates. The House of Representatives report on the day of the introduction of the Travel Act stated that “[t]he interstate tentacles of this octopus known as ‘organized crime’ . . . can only be cut by making it a Federal offense to use the facilities of interstate commerce in the carrying on of nefarious activities.” H.R. Rep. No. 87–966 (1961).

The Travel Act, 18 U.S.C. § 1952(a)(3), makes it a federal crime to use facilities of interstate commerce to promote, manage, establish, or carry on specific, statutorily defined "unlawful activity."  Under § 1952(b), "unlawful activity" are offenses that would otherwise have been state law violations, including any “business enterprise involving gambling, liquor on which the Federal excise tax has not been paid, narcotics or controlled substances," "prostitution offenses in violation of the laws of the State in which they are committed or of the United States," and state law violations of extortion, bribery, or arson.

The definition of a “facility” of interstate commerce makes the Travel Act attractive because of its relatively low threshold for federal jurisdiction. All that’s needed to implicate DOJ enforcement authority is an interstate call, use of a cell phone, any use of the United States mails, the deposit of a check or wire transfer into a bank account, a credit card charge, or traveling from one state to another.

Private Insurance Prosecutions

In the health care context, this means that DOJ prosecutors can charge defendants with bribery under state law if a facility of interstate commerce, like the mails or a cell phone, were used to carry on the crime. DOJ's enforcement efforts are a federalization of state law. While the trial occurs in federal court, juries will be instructed on the elements of the state crime to determine federal criminal guilt.

This scenario is precisely what Dallas federal prosecutors did in a massive, multi-defendant conspiracy case involving approximately $40 million in bribes and kickbacks. Forest Park Medical Center (FPMC) was a physician-owned hospital in Dallas, Texas. FPMC was an out-of-network hospital that set its prices for services and was generally reimbursed at substantially higher rates than in-network providers.

FPMC employees used shell companies to funnel bribes and kickbacks to surgeons in exchange for patient referrals. According to the indictment, two surgeons received $4,595,000 and $3,400,000, respectively, in bribes and kickbacks in exchange for referring their patients to FPMC. As part of the conspiracy, certain co-conspirators also paid bribes and kickbacks of $500 per month to approximately 40 primary care physicians and practices to refer patients to the hospital or surgeons associated with the hospital. In addition to paying surgeons and primary care physicians, certain co-conspirators also paid a host of others, including workers' compensation preauthorization specialists, lawyers, businesses, and chiropractors.

The bribes and kickbacks resulted in victim plans and programs being billed  over half of a billion dollars, including more than $10 million to the Department of Defense healthcare program TRICARE, more than $25 million to the Department of Labor's Federal Employees' Compensation Act (FECA) healthcare program, and more than $60 million to the federal employees’ and retirees’ OPM FEHBP healthcare program. FPMC collected more than $200 million in tainted and unlawful claims.

Ten defendants pleaded guilty, and seven were convicted at trial. FPMC's managing partner was found guilty on, inter alia, six counts of commercial bribery in violation of the Travel Act, as was one doctor. Four defendants were acquitted of Travel Act charges.

This is not the first time federal prosecutors have put the Travel Act to creative use – in 2004, the government indicted two HealthSouth executives under the Travel Act in a Foreign Corrupt Practices Act ("FCPA") investigation in Alabama. The defendants were charged with a Travel Act violation for using facilities of interstate commerce to promote alleged bribery under Alabama law of the director of a Saudi Arabian foundation to secure an agreement to provide staffing and management services for a 450-bed hospital in Saudi Arabia. According to the indictment, the Saudi Arabian foundation’s director general solicited a $1 million payment from HealthSouth, ostensibly as a “finder’s fee.” The two HealthSouth executives were acquitted in 2005 at trial.

In June of 2018, the U.S. Attorney in New Jersey charged executives from the New Jersey-based Biodiagnostic Laboratory Services LLC (“BLS”) for a conspiracy in which millions of dollars in bribes were paid to physicians for blood sample referrals worth more than $100 million to the company. Each defendant had previously pleaded guilty to an information charging one count of conspiracy to violate the Anti-Kickback Statute and the Travel Act and one count of money laundering.

The investigation resulted in the convictions of 53 defendants – 38 of them of doctors – in connection with the bribery scheme, which its organizers have admitted involved millions of dollars in bribes and resulted in more than $100 million in payments to BLS from Medicare and various private insurance companies.

Lastly, in September 2019, a California anesthesiologist was charged for his alleged participation in a conspiracy to commit honest services mail and wire fraud and Travel Act violations involving approximately $800,000 in kickbacks for compounded pharmaceutical drugs.

Looking Ahead

Here are four key takeaways:

• Private insurance is on the table in federal prosecution. The sixty-year-old Travel Act is a repurposed tool in the health care context that the federal government may continue to use to target kickback schemes involving private insurance.
• At issue in FPMC was its practice of paying for surgeons' marketing costs in exchange for patient referrals. Good faith referral programs and other arrangements should be rigorously examined at all levels, particularly when it comes to incentives. Marketing agreements, consulting agreements, medical directorships, and office leasing arrangements should also be scrutinized moving forward.
• The Travel Act lessens predictability and makes the rules of the road less clear. Compliance programs and advice will have to be more comprehensive and prescient than ever before and include not only the federal regulatory health care framework, but applicable state laws as well
• The Travel Act may not be the secret weapon that the federal government believes it is as shown by the acquittal of four FPMC defendants on the Travel Act counts.

For more information on the Travel Act in the context of health care matters, please contact:

• Mark Bina: (312) 715-5051 / mark.bina@quarles.com

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Introduction

Healthcare fraud convictions are news. When the convicted parties are physicians, investors and staff of a physician-owned surgical hospital who now face up to sixty-five years in a federal penitentiary, that is big news. And when some of those convictions were based, in part, on a relatively obscure federal law that appears to expand the reach of federal prosecutors to include commercial and private-pay business that many assumed would fall outside of federal jurisdiction, that really has the industry buzzing.

The case in point, involving Forest Park Medical Center ("FPMC"), is not as earth-shattering as some make it out to be, however. To be sure, this case is a wake-up call for providers who believe that they can avoid liability under federal fraud and abuse laws if they do not accept Medicare or Medicaid patients or otherwise carve out federal program beneficiaries. But it also serves as a reminder that sham arrangements that are intended to compensate physicians to steer patient referrals invariably place the participants at risk of prosecution. This  Legal Update  explores the background to the  Forest Park  case and the state and federal statutes upon which the prosecutors relied, and then discusses key implications and takeaways for reviewing existing contractual relationships and internal compliance programs in response to these developments.

The  Forest Park  Case

FPMC is a physician-owned surgical hospital established in 2009 in Dallas, Texas. In December 2016, the United States Department of Justice announced the unsealing of an indictment 1  of twenty-one FPMC founders and investors, other hospital executives, and physicians, surgeons and others affiliated with the hospital in a case called  United States vs. Beauchamp, et al . (referred to in this  Legal Update  as  Forest Park ). 2  DOJ asserted a three-pronged conspiracy designed to: (1) maximize reimbursement by refusing to join insurance plan networks, (2) maximize patient volume by paying bribes and kickbacks to physicians in exchange for referrals to the hospital, and (3) hide the scheme by laundering the kickback/bribe money through sham business ventures. The indictment specifically alleged as follows:

• To maximize reimbursement, FPMC refused to join networks of insurance plans for a period of time after opening. Because it was out-of-network, FPMC was able to set its own prices for services and receive substantially higher reimbursement rates from commercial payors (UnitedHealthcare, Aetna, and Cigna).
• To maximize patient volume, FPMC paid kickbacks and bribes to induce surgeons to use FPMC to perform services. Throughout the life of the scheme, FPMC paid approximately $40 million not only to other physicians but also to chiropractors, lawyers, and workers' compensation preauthorization specialists in exchange for referrals of patients to FPMC. Some referred patients had out-of-network private insurance benefits, while others had benefits under federally-funded programs. In addition to paying for referrals, FPMC induced patients to use FPMC by waiving copays and paying for travel and lodging. FMPC also attempted to sell Medicare and Medicaid beneficiaries, as well as other patients with lower-reimbursing insurance coverage, to other facilities for cash.
• To hide the scheme, these kickbacks and bribes were funneled through various shell entities to disguise the payments. The payments were made pursuant to a sham "Management Support and Marketing Agreement" and other marketing service agreements. The payments were substantial, generally 10% of FMPC's expected collections for the referred procedures. For example, one spinal surgeon received a total of $7 million and two bariatric surgeons who were investors in FPMC received payments totaling over $4.5 million and $3.4 million. In addition to payments for referrals, surgeons were paid bribes and kickbacks in exchange for performing medical procedures, including surgeries, at FPMC.

Ten defendants pled guilty before the case went to trial. On April 10 of this year, following a federal trial and four days of deliberation, the  Forest Park  jury found seven individuals guilty of various charges related to the scheme 3 :

• Forest Park's managing partner was found guilty of conspiracy, paying kickbacks, commercial bribery in violation of the Travel Act, and money laundering. He faces up to 65 years in federal prison.
• The owner of the shell companies through which some of the bribes were routed was found guilty of conspiracy and paying kickbacks. He faces up to 20 years in federal prison.
• A spinal surgeon was found guilty of conspiracy and faces up to 5 years in federal prison.
• Another spinal surgeon was found guilty of conspiracy and receiving kickbacks, and faces up to 15 years in federal prison.
• A spinal surgeon who invested in FMPC was found guilty of conspiracy, commercial bribery and money laundering. He faces up to 30 years in federal prison.
• A pain management doctor was found guilty of conspiracy, paying kickbacks, and commercial bribery. He faces up to 20 years in federal prison.
• A nurse who recruited and preauthorized worker's compensation requests was convicted of conspiracy and paying kickbacks. She faces up to 10 years in federal prison.

Applicable Laws

Forest Park  is significant insofar as it involved the Travel Act, a law that prosecutors have used to "federalize" state law crimes. While the Travel Act is over sixty years old, it is a relatively new weapon in federal prosecutors' arsenal for fighting healthcare fraud that supplements the more commonly used federal fraud and abuse laws such as the Anti-Kickback Statute ("AKS"), the Physician Self-Referral Law ("Stark") and the False Claims Act ("FCA").

The Anti-Kickback Statute

The principal federal fraud and abuse law underpinning the  Forest Park  prosecution was the AKS, 4  which makes it unlawful to offer, pay, solicit or receive anything of value to induce or reward the referral of services that are reimbursable under a federal health care program; the AKS does not reach services paid by private insurance, however. These kickbacks include anything of value and can take the form of cash or other remuneration. The AKS has several statutory and regulatory safe harbors upon which providers may rely to avoid liability. Referral arrangements that do not fit squarely within a safe harbor can expose the parties to civil and criminal liability.

Travel Act and Commercial Bribery Laws

The Travel Act 5  was originally intended to fight racketeering and corruption from organized crime. While the legislative history of the Travel Act reflects that initial purpose, courts have consistently found that it is not limited to that end. Under the Travel Act, it is illegal to travel or "use mail or any facility" in interstate or foreign commerce with the intent to (1) distribute the proceeds of unlawful activity, (2) commit violent crime in furtherance of unlawful activity, or (3) "otherwise promote, manage, establish, carry on, or facilitate the promotion, management, establishment, or carrying on, of any unlawful activity." The definition of "unlawful activity" under the Act includes extortion, bribery, or arson in violation of state or federal law. Because of this definition, the Travel Act effectively "federalizes" state law violations, providing federal jurisdiction where there is bribery under state law. In this way, federal prosecutors have been able to secure criminal convictions by using state commercial bribery statutes where federal criminal law might not otherwise be implicated. Many states, including Wisconsin, 6  have enacted commercial bribery statutes, effectively extending the reach of the Travel Act.

For example, the Travel Act has previously been used as an adjunct to prosecutions under the Foreign Corrupt Practices Act ("FCPA"). 7  In that context, commercial bribery refers to an offer or payment of something of value to induce  a private party  to provide an improper  commercial  benefit as opposed to bribery of  public  officials. In  United States v. Carson , 8  federal prosecutors targeted a company for bribes paid both to foreign government officials and to employees of a foreign private company. Although the FCPA only applies to the payments to the foreign government officials, the prosecutors were able to bring charges involving commercial bribery under the Travel Act based in part on California's anti-bribery statute.

Similarly, in  United States v. Welch , 9  the court upheld an indictment under the Travel Act predicated on the Utah state bribery statute in connection with 2002 Olympic Games in Salt Lake City; the indictment also included federal conspiracy and wire fraud claims. As to the Travel Act claims, the court held that the underlying bribery charges need not involve organized crime. Also, the court held the lack of state prosecution for the state bribery offense was irrelevant to the Travel Act charges. To violate the Travel Act, the court explained, an individual need only use "interstate facilities with the requisite intent to promote such unlawful activity."

Significant but Not Unprecedented

Although the  Forest Park  verdict has the healthcare industry buzzing regarding the Travel Act's extension to healthcare cases,  Forest Park  is not quite as unprecedented as it may seem. As indicated above, courts have already taken a broad reading of the Travel Act and allowed prosecutors to supplement federal prosecution using state commercial bribery laws. Further, Forest Park is not the first time the Travel Act has been used in health care fraud prosecutions. In  United States v. Greenspan , 10  for example, a family practice physician was convicted under the Travel Act and the AKS of accepting bribes to refer patients to a laboratory. As in  Forest Park ,  Greenspan  involved not only direct cash payments but also payments for advertising services. Finally, although the use of the Texas commercial bribery law was allegedly untested ( Forest Park  defendants reportedly argued that Texas commercial bribery statute had not previously been used by Texas prosecutors), the  Welch  case above shows that prosecutors need not prove the underlying state bribery charge to successfully assert a Travel Act charge.

Implications

Forest Park  and  Greenspan  undeniably reflect an expansion on the types of healthcare fraud schemes that are subject to potential federal prosecution, but their significance should not be overstated. At their core, each case did involve healthcare fraud – these were not innocent arrangements with parties who found themselves ensnared in an overzealous prosecution. Before the  Forest Park  jury could convict under the Travel Act, it first had to conclude that a defendant had the requisite intent to promote unlawful commercial bribery under Texas law. While much of the reaction to the  Forest Park convictions has focused on that  federal  prosecution using a  state  law and involving  private  insurance benefits, it is important to note that the indictments also asserted violations of federal law involving bribes and kickbacks, conspiracy and money laundering impacting federally-funded programs including Medicare, Texas Medicaid (which is jointly funded by the State of Texas and the federal government), the Federal Employee Compensation Act, TRICARE, and the Federal Employees Health Benefits Program. Each of the individuals who were convicted under the Travel Act were also prosecuted for and convicted of separate federal crimes. In this regard  Forest Park  is similar to the  Carson  case mentioned above, where the Travel Act charges involving commercial bribery of foreign businesses supplemented the main charges under the FCPA for bribery of foreign government officials.

This is not to say that the addition of state law commercial bribery claims in a federal healthcare fraud prosecution is much ado about nothing. While prosecutors had to prove an intent to promote unlawful commercial bribery, prosecutors did not have to prove that the defendants actually violated Texas law, making it somewhat easier to get a conviction. The addition of counts under the Travel Act made it easier for prosecutors to charge defendants with conspiracy, since some alleged co-conspirators might have violated the federal AKS (or in the case of  Carson , the FCPA) while others violated state commercial bribery laws, but all could be swept into the same "conspiracy." The inclusion of commercial bribery claims under the Travel Act will also have a significant impact on sentencing: each violation of the Travel Act carries with it the potential of up to five years' prison time, and the additional improper benefits obtained by the defendants from commercial payors significantly increases offense level calculations under federal sentencing guidelines. But while some industry commentators predict that  Forest Park  is a harbinger of future prosecutions involving commercial insurance payors, the question remains as to whether the government would have prosecuted the FPMC actors under the Travel Act if their activities involved  only  private insurance and no federally-funded healthcare programs.

Nevertheless, it is to be expected that federal prosecutors will continue to employ more aggressive methods in their fight against healthcare fraud. Today's news focuses on the Travel Act. Tomorrow could bring healthcare fraud indictments based on federal mail and wire fraud statutes in efforts to combat crime of a local commercial nature, so long as the scheme involves an instrumentality of interstate commerce. The government is already using those tools to supplement FCPA prosecutions, similar to its use of the Travel Act.

The Travel Act is not new, nor is the obligation to ensure that physician compensation arrangements are not artifices for improperly influencing referral patterns. Wisconsin has long had a statutory prohibition on commercial bribery that is comparable to the Texas law in  Forest Park , and we are surrounded by states with similar laws. Viewed in that light,  Forest Park  essentially provides one more reason for healthcare providers to do what they should have been doing all along. There are certain steps that the industry should be taking in response to this case, however.

First, providers should immediately review any compensation arrangements that have been designed to carve out federal program business, such as those that limit their scope to services provided to commercial payors, self-funded employer plans, or cash-paying patients. There may be legitimate reasons for such carve-out arrangements. Nevertheless, the business rationales for these arrangements should be reviewed to confirm that they do not constitute a kickback or bribery scheme under  either  federal  or state law. In the marketing arrangements at issue in  Forest Park , for example, FPMC paid advertising costs even though the ads were designed to promote the referring physicians' private practices and contained little if any reference to the hospital; if those physicians were making referrals of designated health services under the federal Stark law, those arrangements clearly would have run afoul of Stark.

Second, corporate counsel and compliance officers should review existing compliance policies to ensure that they address concerns regarding commercial bribery as well as situations involving public officials and federally-funded healthcare programs. These policies may include not only corporate code of conduct/anti-corruption policies but also policies regarding gifts and entertainment. While gifts and entertainment may be perfectly legal, it is important to review these policies and their interplay with state commercial bribery laws to ensure that the policies clearly prohibit giving anything of value for the purpose of improperly influencing referral patterns or other activities.

Policy reviews should then be supplemented by a review of the internal controls that are in place to monitor compliance with those policies, again with an eye toward compliance with state commercial bribery laws. There were many red flags at FPMC that should have triggered further inquiry and analysis, such as by the nurse who preauthorized workers' compensation requests – instead, she now faces up to ten years in federal prison resulting from her convictions for conspiracy and paying kickbacks.

Finally, the  Forest Park  and  Greenspan  cases offer many real-life lessons that can be incorporated into providers' employee training materials. Training typically includes descriptions of what is allowed and prohibited under healthcare fraud regulatory schemes such as Stark, AKS and FCA. These training programs likely need to be updated to address conduct under state commercial bribery laws and the federal Travel Act, with reference to the factual patterns (and painful lessons) from these cases.

1 Forest Park Medical Center indictment:  https://www.vonbriesen.com/ uploads/Indictment-USv. Beauchamp.pdf . 2 FPMC settled with the government prior to the indictment. It should also be noted that there were other physician-investors who did not participate in the bribery scheme and were not indicted. 3 Jury findings are taken from a press release by the Northern District of Texas U.S. Attorney's Office (Apr. 10, 2019) available here:  https://www.justice.gov/usao- ndtx/pr/seven-guilty-forest- park-healthcare-fraud-trial  (last visited Apr. 19, 2019). 4 42 U.S.C. § 1320a-7b(b). 5 18 U.S.C. § 1952. 6 See  134.05 Wis. Stat., which makes it illegal to "corruptly" give, offer or promise any gift or gratuity to an agent, employee or servant with the intent to influence the recipient's action in relation to the business of the recipient's principal, employer or master. 7 15 U.S.C. §§ 78dd-1,  et seq . 8 2011 WL 5101701, No. 09-cr-77 (C.D. Cal. May 18, 2011). 9 327 F.3d 1081 (10th Cir. 2003). 10 2016 WL 4402822, Cr. No. 16-114 (D.N.J. Aug. 16, 2016).

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Using the Travel Act to Prosecute Health Care Fraud

The U.S. Department of Justice (DOJ) recently invoked the federal Travel Act to bring bribery charges against owners and managers of the now-defunct, physician-owned Texas Forest Park Medical Center (FPMC). 

Almost all federal health care fraud prosecutions involve Medicare, Medicaid or other government insurance programs. In the case of FPMC, the DOJ used the Travel Act to prosecute kickbacks that did not involve federal health care programs, because only patients with private insurance benefits were affected by the fraud.

A. The Travel Act

The Travel Act was signed into law in 1961 by President John F. Kennedy to expand the federal government’s ability to prosecute organized crime that crossed state lines.

It allows the DOJ to pursue cases that otherwise would fall within the exclusive jurisdiction of state and local law enforcement. Specifically, when facilities of interstate commerce are used, such as the mail, email or bank wires, the DOJ can invoke the Travel Act to pursue activities that are unlawful under state law.

B. The Case

In the case of FPMC, the DOJ alleged, and a jury found, that owners and managers of FPMC engaged in activity that was unlawful under Texas commercial bribery laws. FPMC allegedly paid approximately $40 million in bribes and kickbacks to surgeons, primary care physicians, workers’ compensation specialists and others in exchange for referring commercial insurance patients to FPMC. 

FPMC was also found to have uploaded data from checks in Texas to a server in Georgia, and certain owners and managers used email to send instructions across state lines.  Accordingly, FPMC was found to have violated Texas commercial bribery laws and, in doing so, used facilities of interstate commerce, primarily interstate wire transfers and email, allowing the DOJ to invoke the Travel Act.

C. Conclusion

It is not yet known whether the DOJ’s use of the Travel Act in the FPMC case indicates a heightened interest in utilizing the Travel Act to pursue health care fraud and abuse or whether, because the facts of the FPMC case are particularly egregious, the use of the Travel Act in the FPMC case is an aberration. 

Regardless, providers should be aware that the federal government can prosecute unlawful activity involving commercial, non-governmental health care programs. In other words, even arrangements that exclude government health care programs are not free from federal prosecutors’ scrutiny and should, therefore, be structured to comply with applicable law.

Barry Rosen 410-576-4224 • [email protected]

A version of this article titled “ Using the Travel Act to prosecute health care fraud ” was published online by The Daily Record on April 2, 2020, and in print April 3, 2020.

December 26, 2019

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Rosen, Barry F.

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Protecting Patients and Health Care Providers

The federal government may bring criminal charges under the Freedom of Access to Clinic Entrances Act  ("FACE" ) (which prohibits threats of force, obstruction and property damage intended to interfere with reproductive health care services), or other federal criminal statutes where arson, firearms, and threats were also used. The FACE Act is not about abortions. The statute protects all patients, providers, and facilities that provide reproductive health services, including pro-life pregnancy counseling services and any other pregnancy support facility providing reproductive health care. Where state statutes and local ordinances also prohibit certain types of conduct directed at health care providers, federal, state and local authorities work together to determine what charges are appropriate to bring. Federal or state civil actions, in certain circumstances, can also be filed by either the government or private individuals to obtain remedies not available through a criminal prosecution.

Federal Criminal Laws

Freedom of access to clinic entrances act (face).

In 1994, in response to an increase in violence toward providers and patients of reproductive health services, Congress enacted the Freedom of Access to Clinic Entrances Act, commonly referred to as "FACE" or the "Access Act." FACE prohibits violent, threatening, damaging and obstructive conduct intended to injure, intimidate, or interfere with the right to seek, obtain or provide reproductive health services.

The statute creates federal jurisdiction and penalties for a person who:

• By force or threat of force or by physical obstruction, intentionally injures, intimidates or interferes with or attempts to injure, intimidate or interfere with any person because that person is or has been, or in order to intimidate such person or any other person or any class of persons from, obtaining or providing reproductive health services;
• Intentionally damages or destroys the property of a facility, or attempts to do so, because such facility provides reproductive health services.

Statutory Definitions

" interfere with " means to restrict a person's freedom of movement. 18 U.S.C. § 248(e)(2)

• " intimidate " means to place a person in reasonable apprehension of bodily harm to him or herself or to another. 18 U.S.C. § 248(e)(3)
• " physical obstruction " means rendering impassable ingress to or egress from a facility or rendering passage to or from such a facility unreasonably difficult or hazardous. 18 U.S.C. § 248(e)(4)
• a hospital,
• physician's office, or
• counseling, or
• referral services relating to the human reproductive system (including services relating to pregnancy or the termination of a pregnancy). 18 U.S.C. § 248(e)(5)

Courts have held that the Act's protections extend not only to physicians but also to clerical workers and escorts at reproductive health facilities.

Meaning of Terms

FACE contains fairly straightforward offense language -- requiring an intentional threat of force, use of force, obstruction or damage to property. What is unique about the statute, however, is the motive requirement. In addition to showing that an individual engaged in the offense conduct knowingly, the government (or a private plaintiff in some civil FACE cases) must show that an individual engaged in the offense conduct for the purpose of injuring, intimidating or interfering with persons seeking or providing reproductive health services. This type of intent evidence often is garnered through circumstantial evidence from individuals who know a subject or from the subject's conduct in advance of an incident. A subject's comments or conduct with respect to reproductive health services providers or recipients at the specific site of an offense or at other sites might be relevant to a determination of intent.

Conduct found illegal under FACE includes:

• physical attacks on clinic employees and patient escorts;
• attempted arson of clinic facilities;
• blockades of clinic entrances by persons or vehicles; and
• threats of bodily harm communicated to providers or recipients of services.

The penalty provisions of FACE are as follows:

• In the case of a first offense, [a person shall] be fined in accordance with this title, or imprisoned not more than one year, or both; and
• In the case of a second or subsequent offense after a prior conviction under this section, [a person shall] be fined in accordance with this title, or imprisoned not more than 3 years, or both;

except that for an offense involving exclusively a nonviolent physical obstruction, the fine shall be not more than $10,000 and the length of imprisonment shall be not more than six months, or both, for the first offense; and the fine shall . . . be not more than $25,000 and the length of imprisonment shall be not more than 18 months, or both, for a subsequent offense; and except that if bodily injury results, the length of imprisonment shall be not more than 10 years, and if death results, it shall be for any term of years or for life.

• Civil Remedy

The statute also provides for civil remedies for violations that meet the above-mentioned elements of a FACE  case. These remedies are available to aggrieved private parties, the federal government, or state governments. Courts may impose temporary or permanent injunctive relief, compensatory and punitive damages, certain additional penalties where the government brings the action, and legal fees where a private plaintiff brings suit. The civil aspects of FACE will be discussed more fully below.

• Constitutionality

A number of federal cases brought under FACE have raised constitutional challenges on the basis of the First Amendment and the commerce clause, but federal courts consistently have upheld FACE  against these constitutional challenges.

Other Applicable Federal Statutes

Damage or destruction of property used in interstate commerce, 18 u.s.c. § 844(i).

Section 844(i) of Title 18 establishes a federal criminal offense where an individual "maliciously damages or destroys, or attempts to damage or destroy, by means of fire or an explosive, any building, vehicle, or other real or personal property used in interstate or foreign commerce . . . ." Since many reproductive health services clinic serve patients from other states and order medical supplies from other states, clinics may constitute property used in interstate commerce. Charges under § 844(i) frequently have been brought in cases of arson or bombing of reproductive health services clinics. The charge carries a penalty of 5 to 20 years absent physical injury and 7 to 40 years if injury results. Where death results from a violation of this statute, the offender is eligible for imposition of the federal death penalty.

Use of a Firearm in the Commission of a Felony, 18 U.S.C. § 924(c)

Section 924(c) prohibits the use of a firearm in the commission of a felony. Penalties for violations are mandatory prison sentences: 5 years for possession of a firearm; 7 years if the firearm is brandished during the offense, and 10 years if it is discharged. Penalties for subsequent offenses are significantly increased, as are penalties for the use of certain illegal and proscribed firearms and silencers. The use of a firearm in the commission of a felony offense related to a clinic might warrant prosecution under § 924(c). Where death results from a violation of this statute, the offender is eligible for imposition of the federal death penalty.

Use of the Mails or Commerce for Bomb or Fire Threats, 18 U.S.C. § 844(e)

Section 844(e) proscribes the use of the U.S. Mail, phone, or other instrument of interstate commerce to communicate a threat or to convey false information concerning a threat. Cases brought under § 844(e) generally involve bomb or arson threats. This offense carries a penalty of up to 10 years imprisonment.

Threats Made by Use of Interstate or Foreign Commerce,18 U.S.C. §§ 875 and 876

These statutes prohibit the use of interstate or foreign commerce, generally telephones and the mails, to convey threats to kidnap or injure another. Increased penalties are provided where the threat is made with the intent to extort a "thing of value." Courts have found that actions taken for the purpose of harming a business (including a clinic) may constitute an intent to extort a thing of value. The Department of Justice recently used § 875 in charging a case involving computer-generated threats made by electronic mail to, among others, reproductive health care provider organizations. Violations of this statute carry a penalty of up to 20 years in prison.

Interference With Commerce by Threats or Violence, 18 U.S.C. § 1951

Section 1951, more commonly referred to as the "Hobbs Act," provides for penalties of up to 20 years for conduct that obstructs, delays or affects commerce by means of robbery or extortion. The statute also covers attempts to commit these acts, conspiracy to commit the acts, and any threats made to cause injury or damage to a person or property in order to commit these acts. Attempts to coerce a reproductive health care provider to limit or halt operations may constitute a violation of this statute.

Interstate or Foreign Travel or Transportation to Aid in Racketeering Enterprises, 18 U.S.C. § 1952

More commonly referred to as the "Travel Act," section 1952 sets a penalty of up to 5 years for persons who either travel in interstate or foreign commerce, or use the mails or other facility in interstate or foreign commerce, to commit any crime of violence in furtherance of some unlawful activity, or to promote, manage, establish, carry on or facilitate the promotion, management, establishment or carrying on of any unlawful activity. In sum, this statute makes it illegal to travel between states, or between another country and the U.S., in order to commit illegal acts. Traveling across state lines to perpetrate a crime of violence against a reproductive health care provider might warrant prosecution under § 1952.

In addition to the specific statutes outlined above, other federal statutes may apply to other instances of illegal criminal behavior directed at reproductive health care providers.

Concurrent Jurisdiction with State and Local Authorities

Many criminal activities that affect reproductive health care providers constitute crimes at the federal, state, and local level. Many jurisdictions have local ordinances for trespassing, disorderly conduct, and stalking, for example, that may overlap with coverage of that same conduct by a federal statute. Some states have adopted statutes almost identical to FACE, providing for concurrent jurisdiction in many cases.

Charging decisions involving offenses related to reproductive health care providers generally are made by the United States Attorney in cooperation with state and local authorities.

Civil Remedies

In addition to criminal penalties that may arise in relation to conduct affecting reproductive health care providers, federal law provides for civil remedies where private parties or the federal or state governments bring suit.

Civil actions under FACE  may be brought by an aggrieved private party (such a health care provider), the United States Attorney General, or the Attorney General for any state. As a general matter, establishing a civil violation under FACE requires proof of the same elements outlined in the criminal discussion of the statute. The central difference is that in a civil case, the private or public plaintiff need not prove the case beyond a reasonable doubt but only by a preponderance of the evidence, a considerably weaker standard. In addition, the remedies available in the civil context differ. Civil remedies may include injunctive relief, civil penalties, actual or statutory damages, punitive damages, and attorney fees for actions which are not brought by a government.

The U.S. Department of Justice has secured a number of important decisions using the civil remedies of FACE to win permanent injunctive relief against persons who violated the Act in the context of blockades, "lock-and-blocks", threats, and other obstructive conduct. The government has secured judgments that bar specific defendants from entering the property of certain clinics, and the government has secured rulings requiring "buffer zones" around clinics in order to balance the interests of legitimate and protected protest and the rights of clinics to operate their legal businesses.

For more information regarding the civil aspects of the Freedom of Access to Clinic Entrances Act, visit the  Special Litigation Home Page .

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Government’s Use of the Travel Act to Combat Bribery in Healthcare Fraud Cases

By Sarah Q. Wirskye - On August 1, 2018

Healthcare fraud continues to be a government priority.  And right now the government is focusing on cases with healthcare business referrals in exchange for something of value.

The government usually prosecutes these cases under the federal anti-kickback statute, 42 U.S.C. §1320a-7b(b). The anti-kickback statute criminalizes the offering, paying, soliciting or receiving anything of value to induce or reward referrals of items or services paid in whole or in part under a federal healthcare program.  Based on the “federal healthcare program” limitation in the anti-kickback statute, many practitioners believed or were even advised, that as long as they did not accept federal funds, arrangements that could run afoul of the anti-kickback statute were not a concern to them. [1]

In order to combat these types of relationships, the government has begun using the Travel Act to target healthcare providers who do not accept federal money.  In these cases, the federal government has indicted healthcare providers under the Federal Travel Act predicated on violations of state commercial bribery statutes, even when there are little or no federal funds involved.

The Travel Act, 18 U.S.C. §1952

The Travel Act is not a new statute.  It was enacted in 1961 as part of Kennedy’s focus on organized crime.  The Travel Act criminalizes traveling in interstate or foreign commerce or using the mail or interstate or foreign commerce with intent to:

(1) distribute the proceeds of any unlawful activity; or

(2) commit any crime of violence to further any unlawful activity;

(3) otherwise promote, manage, establish, carry on, or facilitate the promotion, management, establishment, or carrying on, of any unlawful activity….

“Unlawful Activity” is defined as (1) any business enterprise involving gambling or liquor on which the federal excise tax has not been paid, narcotics or controlled substances or prostitution offenses in violation of state or federal law, (2) extortion, bribery , or arson in violation of state or federal law, or (3) any act which is indictable under 31 U.S.C. Chapter 53, regarding certain financial transaction, money laundering, gambling, and money laundering, under18 U.S.C. §§1956 or 1957. 18 U.S.C. §1952(a) and (b) (emphasis added).

Recent Prosecutions

What is new, however, is the use of the bribery language in the Travel Act to target healthcare providers.  Specifically, there have been a few, recent prosecutions in California, New Jersey, Florida and Texas in which the federal government has utilized this strategy.  The government has indicted defendants under the Travel Act based upon a violation of the corresponding states’ commercial bribery statutes.

Because most of these prosecutions have resulted in guilty pleas, the cases generally provide little guidance. For example, in United States v. Aponte , Case No. 13-cr-00464 (D. N.J.), three doctors were indicted for accepting bribes in exchange for sending blood samples to Biodiagnostic Laboratory Services.  The doctors plead guilty to Travel Act violations which were predicated on the use of the New Jersey commercial bribery statute, NJSA 2C:21-10.

In December 2016, in United States v. Beauchamp , Case No. 16-cr-016 (N.D. TX.), 21 individuals were indicted in for an alleged kickback scheme under the Travel Act and other statutes.  The Travel Act violations were predicted upon the Texas commercial bribery statute, Tex. Pen. Code §32.43. The indictment focused on Forest Park Medical Center’s payments for advertising services benefiting physicians and others who allegedly referred patients to the hospital in exchange for these payments.

Several of the defendants in United States v. Beauchamp unsuccessfully challenged the government’s use of the Travel Act in motions to dismiss.  The motions to dismiss asserted that (1) the Texas commercial bribery statute is preempted by the federal anti-kickback statute; (2) the Texas commercial bribery statute conflicts with the later-enacted Texas patient solicitation act, which, unlike the Texas commercial bribery statute, incorporates the federal safe harbors; (3) the Texas commercial bribery statute is unconstitutionally vague as applied because it fails to provide adequate notice of what conduct it prohibits and encourages arbitrary and discriminatory enforcement; and (4) application of the Travel Act violates principles of federalism because Texas has never prosecuted healthcare providers under the Texas commercial bribery statute. In denying the motions, the Court held the following regarding the challenges to the Travel Act: (1) the Texas commercial bribery statute was not preempted under federal law; (2) the anti-kickback statute and Texas commercial bribery statute address different conduct so they are not irreconcilable; (3) the Texas commercial bribery statute is valid and was not superseded by the Texas patient solicitation act; and (4) the Texas commercial bribery statute is not unconstitutionally vague.

In addition to the issues raised in the United States v. Beauchamp motions to dismiss, there are other concerns with using the Travel Act in healthcare fraud cases predicated on state commercial bribery statutes.  First, the statutes of limitations under state commercial bribery statutes are generally shorter than the Travel Act.  Consequently, the Travel Act allows the government to bring charges that are arguably time barred.  Second, the penalties under the two statutes also usually differ significantly.  For example, the Texas commercial bribery statute is a state jail felony, with a maximum term of imprisonment of two years.  On the other hand, the penalty for violation the Travel Act is usually five years imprisonment. Finally, depending on differing state commercial bribery statutes, conduct that is legal in one state may run afoul of the Travel Act in another state.  This could be difficult to navigate for a healthcare provider with a multi-state presence.

The government, white collar criminal practitioners and healthcare providers will be closely watching United States v. Beauchamp , which is tentatively scheduled for trial in October 2018.  The result of this case may impact the government’s willingness to use the Travel Act in future healthcare fraud prosecutions. Regardless, based on the recent Travel Act cases, healthcare providers and those doing business with them need to remember that not taking government funds is not a shield from the government bringing a bribery case against them.

Sarah Wirskye is the founding shareholder of the Wirskye Law Firm and represents one of the defendants in United States v. Beauchamp .

[1] It is important to note that many state statutes, including the Texas Patient Solicitation Act, which criminalize healthcare referrals in exchange for benefits are not limited to government pay. See Tex. Occ. Code §102.001. Similarly, many federal healthcare fraud statues are not limited to providers who accept government funds. See e.g. Health Care Fraud, 18 U.S.C. §1347.

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Insights: Alerts Health Care's Expanding Landscape of Criminal Anti-Bribery Enforcement

Two months ago, in federal district court in Ft. Lauderdale, Jonathan and Daniel Markovich were sentenced to respective terms of imprisonment of 188 months and 97 months. The brothers had been convicted by a jury in late 2021 in a case arising out of a variety of billing, prescribing, and referral practices tied to two Florida substance-abuse treatment facilities. According to the charging documents in the case, at least three different types of bribes or kickbacks occurred related to those health care facilities: (1) bribes paid to patients, including money, gift cards, controlled substances, and airline tickets, for the purpose of gaining patients for the facilities; (2) bribes paid to patient recruiters, for the same purpose; and (3) a bribe received by Jonathan Markovich, identified as the CEO of both health care facilities, in exchange for referring patient urine samples to an outside laboratory for testing. 1

Despite these features of the government’s case, the government did not seek or obtain a conviction under the best-known anti-bribery statute concerning health care, the Anti-Kickback Statute. The Anti-Kickback Statute was presumably disregarded because the health care services at issue had generally been paid for by private insurers, rather than by a government health program such as Medicaid; the Anti-Kickback Statute only addresses bribery harming a “Federal health care program.” 2

Federal prosecutors were nonetheless able to charge and convict the Markovich brothers in connection with this bribery activity. To do so, the government used a criminal statute that had only been put on the books in 2018, the Eliminating Kickbacks in Recovery Act (“EKRA”). The government’s successful use of EKRA in the Markovich case highlights how criminal anti-bribery enforcement in health care looks different now than it did even five years ago. Below, we discuss four key federal criminal statutes directed at anti-bribery that have been used to police corrupt payments in the provision of health care services and goods. We also provide examples of cases, like the Markovich case, where these tools have been successfully used by federal prosecutors. As a conclusion, we describe steps companies and executives in this sector can take now to avoid a face-to-face encounter with these statutes as a criminal defendant.

A.      The Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b))

Section 1320a-7b(b) of Title 42, also known as the Anti-Kickback Statute or “AKS”, which became law in 1972, prohibits the payment or receipt of “any remuneration” in exchange for the referral of a patient to a health care provider or for the purchase of a health care good or service. 3 Each criminal charge under the statute carries a potential penalty of 10 years’ imprisonment, and a potential fine of $250,000 for an individual defendant and $500,000 for a corporate one. 4 However, as noted above, the scope of the Anti-Kickback Statute is limited to health care that is paid for by a “Federal health care program.” Thus, prosecutors’ application of the AKS generally requires that federal health care dollars have been at risk. 5

The AKS is unusual among federal criminal statutes in that it incorporates a series of detailed exceptions or “safe harbors,” each of which describes a type of conduct considered lawful for purposes of the statute. Several of these exceptions are found in the statute itself. For example, there is an exception in the statute for “any amount paid by an employer to an employee . . . for employment in the provision of covered [health care] items or services.” 6 Thus, providers may provide their bona fide employees with compensation, even incentive-based compensation, without running afoul of the AKS. 7 The statute itself contains 11 different safe harbors, and 37 safe harbors, plus sub-parts, are found in the accompanying regulation. 8

In the health care context, the AKS is by far the best-known of the statutes discussed here, and continues to play an important role in criminal prosecutions. For example, in December 2021, a jury found Vincent Marchetti, Jr. guilty of conspiring to violate the AKS. 9 Marchetti and others had been charged for their roles in a scheme in which “distributors” were paid for referring genetic testing to laboratories in California. 10 The laboratories then billed Medicare (as well as private insurance companies) for the tests. 11 According to the government, over $28 million in bribes were exchanged by the participants. 12

B.    The Eliminating Kickbacks in Recovery Act (18 U.S.C. § 220)\

Used in the Markovich case, EKRA is the latest criminal statute designed to target bribery in the health care sector. Passed in 2018, EKRA prohibits the payment or receipt of “any remuneration” in exchange for referring “a patient or patronage” to any of three specific types of health care providers: (1) a substance abuse recovery home; (2) a substance abuse clinical treatment center; or (3) a clinical testing laboratory. 13 The potential criminal penalties are the same as those for the AKS, including a potential 10-year sentence for each charge.

The two most notable aspects of EKRA’s statutory language involve the scope of health care funding the statute protects, and the statute’s broad application to referrals to clinical labs. Unlike the AKS, the scope of EKRA is not limited to services covered by Federal health care programs. Instead, EKRA applies to protect services covered by any “health care benefit program,” a term that is defined to include practically every contractual arrangement for the provision of and payment for health care. 14 Also, while EKRA targets “patient brokering” practices related to substance abuse treatment facilities, it includes corrupt payments for referrals to labs in its scope regardless of whether the referral has any connection to substance abuse treatment. In this way, EKRA likely operates as an all-purpose anti-bribery statute where private-pay lab testing is concerned.

EKRA contains seven statutory safe harbors, but, to date, no regulatory ones. As demonstrated in the Markovich case, EKRA is a new and viable option for prosecutors attacking bribery activity around substance abuse treatment, including payments in exchange for the referral of lab testing. Based on its statutory language, it is also a new tool for prosecuting bribery beyond the context of substance abuse treatment, at least where lab testing is concerned.

C.    The Federal Travel Act (18 U.S.C. § 1952) & State Commercial Bribery Laws

At first glance, Section 1952 of United States Code Title 18 would seem to have little application to bribery related to the provision of health care. The criminal statute is titled “Interstate and foreign travel or transportation in aid of racketeering enterprises,” and is referred to as the “Travel Act” for short. However, like the Racketeer Influenced and Corrupt Organizations law (“RICO”), the Travel Act is written in a way that permits surprising flexibility in its application.

In the health care context, the most important point is that the Travel Act in essence includes a federal commercial bribery statute. Other than a constitutionally required interstate nexus, a violation of the criminal statute hinges on a finding of an “unlawful activity,” a term the statute defines to include “bribery . . . in violation of the laws of the State in which committed . . . .” 15 The U.S. Supreme Court has ruled that “unlawful activity” under the Travel Act therefore includes commercial bribery under state law. 16

Many state commercial bribery statutes are broad and therefore prosecutor-friendly in that they punish anyone who gives or receives a bribe as part of an effort to influence an employee’s performance of his or her duties. 17 Thus, they do not require that government dollars be at risk (like the AKS does), and often do not include limitations involving particular business sectors or specific services within those sectors (like the AKS and EKRA do). On the other hand, state commercial bribery laws are generally under-utilized at the state level, likely because they often carry insufficient potential punishment to justify the resources needed to investigate and prosecute cases. 18

However, once a state commercial bribery statute is incorporated in a federal Travel Act charge, the picture changes. A federal Travel Act charge is a felony carrying a potential prison term of five years, and a potential fine of $250,000 for an individual defendant and $500,000 for a corporate one. 19 The combination of broad statutory language from the state side and significant penalties from the federal side creates another powerful anti-bribery tool where health care is concerned.

The criminal case United States v. Beauchamp is a good example of a health care bribery prosecution employing the Travel Act. In Beauchamp , the government successfully prosecuted a multi-million-dollar patient referral scheme involving a physician-owned surgical hospital in Dallas. The government alleged that the hospital had paid millions in kickbacks to health care providers in exchange for referrals. 20

The government brought charges against numerous physicians and other individuals under both the AKS and the Travel Act. The AKS charges were based on referral payments for patients with federal health coverage, while the Travel Act charges, which incorporated Texas’s commercial bribery statute, were presumably based mainly on referral payments for a second category of patients – those with “high-reimbursing out-of-network private insurance benefits.” 21 By definition, and like the government’s use of EKRA in the Markovich case, the Travel Act allowed the government in Beauchamp to charge a category of bribery conduct beyond that falling within the AKS.

Pre-trial, several of the defendants in Beauchamp moved to dismiss the Travel Act counts against them, asserting among other things that: (1) Texas’ commercial bribery statute had been preempted by the AKS and its safe harbors; (2) Texas’ commercial bribery statute was unconstitutionally vague; and (3) the federal prosecutors’ use of Texas’ commercial bribery statute via the Travel Act violated the principle of federalism because Texas itself had never used the state statute to prosecute health care providers.

The district court rejected each of these arguments. In rejecting the defendants’ preemption argument, the district court endorsed the use of the Travel Act and state commercial bribery statutes in the health care setting, noting:

Nothing in the federal Anti-Kickback statute or its regulations indicates that Congress intended the federal Anti-Kickback statute to be the exclusive means of prosecuting health care fraud – indeed, the long coexistence of the federal statute with parallel state statutes suggests the opposite. 22

The court also explained that the defendants’ federalism argument lacked merit because the Travel Act had been specifically designed to incorporate state laws. The court quoted the U.S. Supreme Court in United States v. Perrin for the proposition that “[b]ecause [Travel Act] offenses are defined by reference to existing state as well as federal law, it is clear beyond doubt that Congress intended to add a second layer of enforcement supplementing what it found to be inadequate state authority and state enforcement.” 23

The U.S. Department of Justice announced in March of last year that in total 18 people had been convicted in the Beauchamp case. In its press release, DOJ highlighted bribes totaling over $40 million, and noted they had been disguised as “consulting fees” or “marketing money.” 24 Numerous substantial terms of imprisonment were ordered in the case, including at least eight terms of five years or more, and restitution in the total amount of $82.9 million was ordered as well. DOJ also made the point that the case was “one of the first cases in the nation to use the federal Travel Act to prosecute healthcare fraud.” 25

D.    Health Care Anti-Bribery Abroad: The Foreign Corrupt Practices Act (15 U.S.C. § 78dd-1 et seq.)

The AKS, EKRA, and the Travel Act all play prominent roles in current federal anti-bribery efforts pertaining to U.S. health care. A fourth federal anti-bribery statute – the Foreign Corrupt Practices Act – also has a role, a unique one, arising out of its focus on bribery overseas. The FCPA generally prohibits business entities with sufficient ties to the U.S., and associated individuals, from bribing or attempting to bribe foreign officials. 26 A separate FCPA provision requires companies traded publicly in the U.S. to maintain accurate books and records and sufficient internal accounting controls. 27 Fines under the bribery provision can reach $2 million for organizations and $250,000 for individuals, and terms of imprisonment of up to five years per charge for individuals. 28

The FCPA’s application to bribery involving health care was evident in DOJ’s simultaneous settlements in 2020 with two subsidiaries of the pharmaceutical company Novartis AG. In the first settlement, DOJ alleged that a subsidiary based in Greece had entered a conspiracy to bribe individuals who were health care providers at state-owned and state-controlled hospitals and clinics in Greece, in violation of the FCPA. 29 Importantly, DOJ deemed a health care provider at one of these facilities a “foreign official” for purposes of the FCPA. 30

The purpose of the bribery conspiracy, according to DOJ, was to increase sales in Greece of a specific Novartis-branded prescription drug. 31 The bribes took the form of travel expenses to medical conventions, as well as payments disguised as compensation for participating in a patient study. 32

In the second settlement, DOJ alleged that a former Novartis affiliate had conspired to violate the books and records provision of the FCPA. According to DOJ, the affiliate concealed an arrangement by which a distributor based in Vietnam made corrupt payments to doctors and nurses in Vietnam, many of whom were employees of state-owned and state-controlled hospitals and clinics and therefore also considered “foreign officials.” This “consultancy program” rewarded health care providers who had purchased surgical equipment and devices sold by the Novartis affiliate. The Novartis affiliate then partially reimbursed the distributor for the corrupt payments, and concealed these reimbursements on the Novartis affiliate’s books and records as “consultancy fees” and as inflated marketing, human resources, or margin reconciliation costs. 33

Both entities entered into deferred prosecution agreements with DOJ and agreed to pay a combined total of over $233 million in criminal monetary penalties. 34

E. Conclusion: The Expanding Anti-Bribery Landscape and How to Respond

The above discussion paints an important picture of the expanding anti-bribery enforcement landscape for health care. The last five years have seen the birth of a new criminal anti-bribery statute focused on specific parts of the health care sector (EKRA), along with new and expanded applications of existing anti-bribery statutes (Travel Act, FCPA) to that sector. Further, anti-bribery enforcement using these tools has not replaced, but rather has expanded on, enforcement under the Anti-Kickback Statute. For health care businesses and their employees, what can be done now?

The Department of Justice provides an important answer with its public guidance regarding corporate compliance programs. While intended to apply generally across different types of businesses (unlike HHS OIG guidance), the principles expressed by DOJ are excellent guideposts. In a case of potential misconduct, the health of a company’s compliance program is of utmost importance to DOJ, and a healthy compliance program can be credited by DOJ even if bribery-related misconduct has occurred. 35 DOJ assesses the health of a corporate compliance program by asking three broad questions: 

• Is the program well-designed?
• Is it being applied earnestly and in good faith?
• Does it work? 36  

DOJ’s methodology suggests specific steps that can be taken now in light of the expanding landscape of criminal anti-bribery enforcement where health care is concerned. Here are three basic first steps:

First , make sure the risk assessment driving your compliance program includes a recognition of these anti-bribery statutes and the boundaries of each. This includes, for example, recognizing the extent to which your services and/or products are covered by federal health care programs, understanding the commercial bribery statutes in the states in which you operate, and highlighting for further attention all direct or indirect contact overseas with anyone who might be deemed a “foreign official.”

Second , take a close look at the channels in your organization through which suspected misconduct, including bribery-related misconduct, can be reported. This includes ensuring that your whistleblower system is well-publicized and is functioning properly.

Third , evaluate the extent to which your compliance program has been adapted, improved, and re-tested based on internal lessons-learned or external events. DOJ emphasizes that “[o]ne hallmark of an effective compliance program is its capacity to improve and evolve.” 37

These are just some of the specific actions that can be taken now in light of health care’s expanding anti-bribery landscape. There is little doubt efforts like these are sound investments, especially when the risks associated with complacency are considered.

1 See, e.g. , Indictment, United States of America v. Markovich, et al. , Case No. 21-cr-60020-WPD (S.D. Fla.). The terms “bribe” and “kickback” are broad, and their definitions often overlap, so for the purposes of this discussion we use the term “bribe” here to mean any corrupt quid pro quo payment, including what would commonly be referred to a kickback. 2 42 U.S.C. § 1320a-7b(b). The statute generally defines a “Federal health care program” as a plan or program providing health benefits and that is either funded directly by the U.S. government or indirectly by the U.S. government via a state. 42 U.S.C. § 1320a-7b(f).  3 42 U.S.C. § 1320a-7b(b). 4 42 U.S.C. § 1320a-7b(b)(1) & (b)(2); 18 U.S.C. § 3571. A defendant can alternatively receive a fine of “not more than the greater of twice the [defendant’s] gross gain or twice the gross loss [to victims].” 18 U.S.C. § 3571. Also, an AKS conviction can lead to exclusion from the Federal health care program. See 42 U.S.C. § 1320a-7. 5 It is important to note that a violation of the Anti-Kickback Statute will almost certainly also result in a false or fraudulent claim under the civil False Claims Act, see 42 U.S.C. § 1320a-7b(g), and that the False Claim Act includes significant financial incentives for whistleblowers or qui tam plaintiffs to bring civil cases under that statute, see 31 U.S.C. § 3730(d). 6 42 U.S.C. § 1320a-7b(b)(3)(B). There is a corresponding federal regulation. See 42 C.F.R. § 1001.952(i). 7 See Carrel v. AIDS Healthcare Foundation , 898 F.3d 1267, 1272-75 (11th Cir. 2018). 8 42 C.F.R. § 1001.952. 9 See California Man Convicted of Federal Violations in Health Care Kickback Scheme (Dec. 16, 2021), https://www.justice.gov/usao-edtx/pr/california-man-convicted-federal-violations-health-care-kickback-scheme (last accessed May 6, 2022). Mr. Marchetti is currently awaiting sentencing. 10 See First Superseding Indictment, United States of America v. Lamb, et al. , Case No. 5:19-cr-00025-RWS (E.D. Tex.).  11 See id . 12 See California Man Convicted of Federal Violations in Health Care Kickback Scheme (Dec. 16, 2021), https://www.justice.gov/usao-edtx/pr/california-man-convicted-federal-violations-health-care-kickback-scheme (last accessed May 6, 2022). 13 See 18 U.S.C. § 220(a) & (e); 42 U.S.C. § 263a.   14 18 U.S.C. § 24(b). Importantly, however, EKRA states that it “does not apply to conduct that is prohibited” by the AKS. 18 U.S.C. § 220(d). 15 18 U.S.C. § 1952(b). 16 Perrin v. United States , 444 U.S. 37, 50 (1979). 17 See, e.g. , N.C. Gen. Stat. § 14-353. 18 For example, North Carolina’s commercial bribery law, N.C. Gen. Stat. § 14-353, is a Class 2 misdemeanor, punishable by 1 to 60 days in jail. See Misdemeanor Punishment Chart, https://www.nccourts.gov/assets/documents/publications/MisdChart_12_01_95.pdf?hxAOyi0UCOiivXKQWTTHXYwx.9oTaERW (last accessed May 6, 2022). 19 42 U.S.C. § 1320a-7b(b)(1) & (b)(2); 18 U.S.C. § 3571. A defendant can alternatively receive a fine of “not more than the greater of twice the [defendant’s] gross gain or twice the gross loss [to victims].” 18 U.S.C. § 3571. Also, an AKS conviction can lead to exclusion from the Federal health care program. See 42 U.S.C. § 1320a-7. 20 See Superseding Indictment, ¶ 2, United States of America v. Beauchamp, et al. , Case No. 3:16-cr-00516-JJZ (N.D. Tex.).  21 Id . 22 Memorandum Opinion and Order dated September 20, 2017, Case No. 3:16-cr-00516-JJZ, at 25. 23 Id . at 37. 24 14 Defendants Sentenced to 74+ Years in Forest Park Healthcare Fraud (Mar. 19, 2021), https://www.justice.gov/usao-ndtx/pr/14-defendants-sentenced-74-years-forest-park-healthcare-fraud (last accessed May 6, 2022). 25 Id . 26 See 15 U.S.C. § 78dd-1.  27 15 U.S.C. § 78m(b). 28 15 U.S.C. § 78ff(c)(2)(A). 29 See Criminal Information filed June 25, 2020, United States of America v. Novartis Hellas S.A.C.I. , Case No. 2:20-cr-00538 (D. N.J.). 30 See id . 31 See id . 32 See id . 33 See Criminal Information filed June 25, 2020, United States of America v. Alcon PTE Ltd , Case No. 2:20-cr-00539 (D. N.J.). 34 See Novartis AG and Subsidiaries to Pay $345 Million to Resolve Foreign Corrupt Practices Act Cases (Jun. 25, 2020), https://www.justice.gov/usao-nj/pr/novartis-ag-and-subsidiaries-pay-345-million-resolve-foreign-corrupt-practices-act-cases  (last accessed May 6, 2022).  35 See United States Department of Justice, Evaluation of Corporate Compliance Programs at 14 (June 2020) (“[T]he existence of misconduct does not, by itself, mean that a compliance program did not work or was ineffective at the time of the offense.”), https://www.justice.gov/criminal-fraud/page/file/937501/download . 36 See Evaluation of Corporate Compliance Programs at 2. 37 Id . at 15.

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Health Care's Expanding Landscape of Criminal Anti-Bribery Enforcement

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• National Media Release

CBP Releases March 2024 Monthly Update

WASHINGTON — U.S. Customs and Border Protection (CBP) released operational statistics today for March 2024. CBP monthly reporting can be viewed on CBP’s Stats and Summaries webpage .

“CBP - in coordination with our partners across the Federal government as well as foreign partners - continues to take significant actions to disrupt criminal networks amidst unprecedented hemispheric migration activity,” said Troy A. Miller, Senior Official Performing the Duties of the Commissioner. “Encounters at our southern border are lower right now, but we remain prepared for changes, continually managing operations to respond to ever-shifting transnational criminal activities and migration patterns.”

CBP continues to work closely with U.S. Immigration and Customs Enforcement (ICE) and U.S. Citizenship and Immigration Services (USCIS) to quickly process individuals encountered at the border and remove those who do not establish a legal basis to remain in the United States, delivering strengthened consequences promulgated by the Circumvention of Lawful Pathways rule and its associated measures. From May 12, 2023 to April 3, 2024, DHS has removed or returned over 660,000 individuals, the vast majority of whom crossed the southwest border, including more than 102,000 individual family members. The majority of all individuals encountered at the southwest border over the past three years have been removed, returned, or expelled. Total removals and returns since mid-May exceed removals and returns in every full fiscal year since 2011. 

Below are key operational statistics for CBP’s primary mission areas in March 2024. View all CBP statistics online. 

Ensuring Border Security and Managing Migration 

CBP continues to expeditiously process and remove individuals who do not have a legal basis to remain in the country. We are working together with our domestic and foreign partners to jointly disrupt irregular migration across the region, offering safe, orderly, and lawful pathways for intending migrants and taking action against ruthless smugglers who continue to spread falsehoods and show disregard for the safety and well-being of vulnerable migrants. We are also working alongside U.S. government partners to target transnational criminal organizations and smugglers who take advantage of and profit from migrants and taking new measures to stop individuals from exploiting traditional travel methods for migration.

In March 2024, the U.S. Border Patrol recorded 137,480 encounters between ports of entry along the southwest border.  In March, encounters between ports of entry along the southwest border were 45% lower than in December 2023 and 16% lower than March 2023.

CBP had a total of 189,372 encounters along the southwest border in March 2024, including U.S. Border Patrol encounters between ports of entry, as well as individuals who presented themselves at ports of entry (including those with CBP One™ appointments, detailed further below).

CBP continually analyzes and responds to changes in migration patterns, particularly irregular migration outside of lawful pathways and border crossings. We work with our federal and international partners to combat human smuggling. The fact remains: the United States continues to enforce immigration law, and those without a legal basis to remain will be removed. Migrants attempting to enter without authorization are subject to removal under Title 8 authorities.

The U.S. Border Patrol has undertaken significant efforts in recent years to expand capacity to aid and rescue individuals in distress. To prevent the loss of life, CBP initiated a Missing Migrant Program in 2017 that locates noncitizens reported missing, rescues individuals in distress, and reunifies decedents’ remains with their families in the border region. In March, the U.S. Border Patrol conducted 439 rescues, a 77% increase from January 2024. This brings the FY 2024 total rescues to 2,488 . 

View more migration statistics and rescues statistics .  

CBP One™ App   

The CBP One™ mobile application remains a key component of DHS’s efforts to incentivize noncitizens to use lawful, safe, humane, and orderly pathways and processes. Generally, noncitizens who cross between the ports of entry or who present themselves at a port of entry without making a CBP One™ appointment are subject to the Circumvention of Lawful Pathways rule. This rule presumes asylum ineligibility for those who fail to use lawful processes, with certain exceptions. DHS encourages migrants to utilize lawful processes, rather than having migrants take the dangerous journey to cross unlawfully between the ports of entry, which also carries consequences under Title 8.

The CBP One™ app allows noncitizens throughout central or northern Mexico who lack documents sufficient for admission to the United States to schedule an appointment and remain in place until presenting at a preferred port of entry for their appointment, reducing migrants’ need to crowd into immediate border areas. Use of the CBP One™ app to schedule appointments at ports of entry has increased CBP’s capacity to process migrants more efficiently and orderly while cutting out unscrupulous smugglers who endanger and profit from vulnerable migrants.

In March, CBP processed 44,000 individuals through appointments at ports of entry utilizing advanced information submitted in CBP One™. Since the appointment scheduling function in CBP One™ was introduced in January 2023 through the end of March 2024, more than 547,000 individuals have successfully scheduled appointments to present at ports of entry using CBP One™ instead of risking their lives in the hands of smugglers. The top nationalities who have been processed are Venezuelan, Haitian, and Mexican.

A percentage of daily available appointments are allocated to the earliest registered CBP One™ profiles, so noncitizens who have been trying to obtain appointments for the longest time are prioritized. CBP is continually monitoring and evaluating the application to ensure its functionality and guard against bad actors. 

CHNV Parole Processes

On January 5, 2023, DHS announced processes providing certain Cubans, Haitians, and Nicaraguans, who have a supporter in the United States, undergo and clear robust security vetting, and meet other eligibility criteria, to come to the United States in a safe, orderly, and lawful way. These processes were built on the success of the process for Venezuelans established in October 2022; they are publicly available online, and DHS has been providing regular updates on their use to the public. This is part of the Administration’s strategy to combine expanded lawful pathways with stronger consequences to reduce irregular migration and have kept hundreds of thousands of people from migrating irregularly.

Through the end of March 2024, 404,000 Cubans, Haitians, Nicaraguans, and Venezuelans arrived lawfully on commercial flights and were granted parole under these processes. Specifically, 86,000 Cubans, 168,000 Haitians, 77,000 Nicaraguans, 102,000 Venezuelans were vetted and authorized for travel; and 84,000 Cubans, 154,000 Haitians, 69,000 Nicaraguans, and 95,000 Venezuelans arrived lawfully and were granted parole.

Safeguarding Communities by Interdicting Narcotics and Dangerous Drugs

As the largest law enforcement agency in the United States, CBP is uniquely positioned to detect, identify, and seize illicit drugs before they enter our communities. CBP’s combination of interdiction and intelligence capabilities, complemented by its border search authorities, scientific services, non-intrusive inspection equipment, and canine detection teams, places it at the forefront of the U.S. government’s efforts to combat illicit fentanyl and other dangerous drugs.

CBP continues to conduct operations, including Operation Apollo, which target the smuggling of illicit fentanyl and other dangerous drugs. These operations leverage intelligence and investigative information to target drug traffickers’ supply chains and interdict items required in the production of illicit fentanyl, including precursor chemicals, pill presses and parts, movement of finished product, and illicit proceeds.

Nationwide in March, fentanyl seizures increased by 16.1% compared to February and heroin seizures by 19.6% .

To date in FY 2024 through the end of March, CBP has seized 10,026 pounds of fentanyl. CBP has stopped more fentanyl in the last two years than in the previous five years combined, and we continue to optimize our intelligence and field operations to stop these deadly substances from reaching American communities. 

Additional CBP drug seizure statistics can be found on the Drug Seizure Statistics webpage .

Facilitating Lawful Trade and Travel 

 As international travel continues to increase, CBP is leveraging technology to streamline efficiency and increase security at air and land ports of entry. Travelers are encouraged to utilize CBP’s mobile apps to enhance their travel experience, including the Global Entry Mobile Application and Mobile Passport Control , as well as new Global Entry Touchless Portals at nearly all international airports across the United States, which protect passenger privacy and expedite arrival processing by eliminating paper receipts.

Travelers arriving by air into the United States increased 13.9% from March 2023 to March 2024, passenger vehicles processed at ports of entry increased by 2.9% , and pedestrians arriving by land at ports of entry increased 10.8% over the same period.  

CBP works diligently with the trade community and port operators to ensure that merchandise is cleared as efficiently as possible and to strengthen international supply chains and improve border security. In March 2024, CBP processed more than 2.8 million entry summaries valued at more than $275 billion , identifying estimated duties of nearly $6.2 billion to be collected by the U.S. government. In March, trade via the ocean environment accounted for 39.67% of the total import value, followed by air, truck, and rail.

View more travel statistics , and trade statistics . 

Protecting Consumers, Eradicating Forced Labor from Supply Chains, and Promoting Economic Security     

CBP continues to lead U.S. government efforts to eliminate goods from the supply chain made with forced labor from the Xinjiang Uyghur Autonomous Region of China. In March, CBP stopped 749 shipments valued at more than $32 million for further examination based on the suspected use of forced labor.

Intellectual property rights violations continue to put America’s innovation economy at risk. Counterfeit and pirated goods threaten the competitiveness of U.S. businesses, the livelihoods of American workers, and the health and safety of consumers.

Consumers are encouraged to be alert to the dangers of counterfeit goods especially when shopping online as they support criminal activity, hurt American businesses, and often have materials or ingredients that can pose serious health and safety risks. Every year CBP seizes millions of counterfeit products worth billions of dollars had they been genuine. In March, CBP seized 1,633 shipments that contained counterfeit goods valued at more than $384 million . More information about CBP’s intellectual property rights enforcement is available at https://www.cbp.gov/trade .

CBP is on the frontline of textiles and trade agreements enforcement, combating textile imports that are not compliant with U.S. trade laws. Protecting the domestic textile industry and American consumers is vital to U.S. national security, health care, and economic priorities. Toward this end, CBP is intensifying its targeting and enforcement efforts to increase and expedite the prosecution of illegal customs practices. CBP’s efforts include de minimis compliance, forced labor enforcement, cargo compliance, regulatory audits, and public awareness. This month DHS announced an enhanced strategy to combat illicit trade and level the playing field for the American textile industry, which accounts for over 500,000 U.S. jobs and is critical for our national security. The plan details the actions CBP and Homeland Security Investigations will take to hold perpetrators accountable for customs violations, and safeguard the American textile industry.

View more UFLPA enforcement statistics , and intellectual property rights enforcement statistics. 

Defending our Nation’s Agricultural System  

 Through targeting, detection, and interception, CBP agriculture specialists work to prevent threats from entering the United States.  

CBP issued 7,105 emergency action notifications for restricted and prohibited plant and animal products entering the United States in March 2024. CBP conducted 106,410 positive passenger inspections and issued 841 civil penalties and/or violations to the traveling public for failing to declare prohibited agriculture items.   

View more agricultural enforcement statistics . 

U.S. Customs and Border Protection is the unified border agency within the Department of Homeland Security charged with the comprehensive management, control, and protection of our nation’s borders, combining customs, immigration, border security, and agricultural protection at and between official ports of entry.

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An Open Comparative Study of the Effectiveness and Incomparable Study of the Immunogenicity and Safety of the Vaccine (CoviVac) for Adults Aged 60 Years and Older

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SARS-CoV-2 infection • A case of established COVID-19 disease confirmed by PCR and/or ELISA in the last 6 months.

Diseases or medical conditions

• Serious post-vaccination reaction (temperature above 40 C, hyperemia or edema more than 8 cm in diameter) or complication (collapse or shock-like condition that developed within 48 hours after vaccination; convulsions, accompanied or not accompanied by a feverish state) to any previous vaccination.
• Burdened allergic history (anaphylactic shock, Quincke's edema, polymorphic exudative eczema, serum sickness in the anamnesis, hypersensitivity or allergic reactions to the introduction of any vaccines in the anamnesis, known allergic reactions to vaccine components, etc.).
• Guillain-Barre syndrome (acute polyradiculitis) in the anamnesis.
• The axillary temperature at the time of vaccination is more than 37.0 ° C.
• Acute infectious diseases (recovery earlier than 4 weeks before vaccination) according to anamnesis.
• Donation of blood or plasma (in the amount of 450 ml or more) less than 2 months before inclusion in the study.
• Severe and/or uncontrolled diseases of the cardiovascular, bronchopulmonary, neuroendocrine systems, gastrointestinal tract, liver, kidneys, hematopoietic, immune systems.
• Is registered at the dispensary for tuberculosis, leukemia, oncological diseases, autoimmune diseases.
• Any confirmed or suspected immunosuppressive or immunodeficiency condition in the anamnesis.
• Splenectomy in the anamnesis.
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• Anorexia according to anamnesis.

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Tax Measures: Supplementary Information

Tax Measures: Supplementary Information ( PDF , 1.91 MB )

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Lifetime capital gains exemption, canadian entrepreneurs' incentive, capital gains inclusion rate, volunteer firefighters and search and rescue volunteers tax credits, mineral exploration tax credit, alternative minimum tax, canada child benefit, disability supports deduction, employee ownership trust tax exemption, charities and qualified donees, home buyers' plan, qualified investments for registered plans, deduction for tradespeople's travel expenses, indigenous child and family services settlement, clean electricity investment tax credit, polymetallic extraction and processing, accelerated capital cost allowance, canada carbon rebate for small businesses, interest deductibility limits – purpose-built rental housing, non-compliance with information requests, avoidance of tax debts, reportable and notifiable transactions penalty, mutual fund corporations, synthetic equity arrangements, manipulation of bankrupt status, crypto-asset reporting framework and the common reporting standard, withholding for non-resident service providers, extending gst relief to student residences, gst/hst on face masks and face shields, tobacco and vaping product taxation, fuel, alcohol, cannabis, and tobacco sales tax framework, previously announced measures, related documents.

• Notice of Ways and Means Motion to amend the Income Tax Act and the Income Tax Regulations
• Notice of Ways and Means Motion to amend the Excise Tax Act and Other Legislation
• Notice of Ways and Means Motion to amend the Excise Act , 2001 and Other Related Texts

This annex provides detailed information on tax measures proposed in the Budget.

Table 1 lists these measures and provides estimates of their fiscal impact.

The annex also provides Notices of Ways and Means Motions to amend the Income Tax Act , the Excise Tax Act , the Excise Act, 2001 , the Air Travellers Security Charge Act, the Select Luxury Items Tax Act, the Underused Housing Tax Act and draft amendments to various regulations.

In this annex, all references to "Budget Day" are to be read as references to the day on which this Budget is presented.

Personal Income Tax Measures

The income tax system provides an individual with a lifetime tax exemption for capital gains realized on the disposition of qualified small business corporation shares and qualified farm or fishing property. The amount of the Lifetime Capital Gains Exemption (LCGE) is $1,016,836 in 2024 and is indexed to inflation.

Budget 2024 proposes to increase the LCGE to apply to up to $1.25 million of eligible capital gains. This measure would apply to dispositions that occur on or after June 25, 2024. Indexation of the LCGE would resume in 2026.

Budget 2024 proposes to introduce the Canadian Entrepreneurs' Incentive. This incentive would reduce the tax rate on capital gains on the disposition of qualifying shares by an eligible individual. Specifically, this incentive would provide for a capital gains inclusion rate that is one half the prevailing inclusion rate, on up to $2 million in capital gains per individual over their lifetime.

The lifetime limit would be phased in by increments of $200,000 per year, beginning on January 1, 2025, before ultimately reaching a value of $2 million by January 1, 2034.

Under the two-thirds capital gains inclusion rate proposed in Budget 2024, this measure would result in an inclusion rate of one third for qualifying dispositions. This measure would apply in addition to any available capital gains exemption.

A share of a corporation would be a qualifying share if certain conditions are met, including all the following conditions:

• At the time of sale, it was a share of the capital stock of a small business corporation (for the purposes of the Income Tax Act ) owned directly by the claimant.
• used principally in an active business carried on primarily in Canada by the Canadian-Controlled Private Corporation, or by a related corporation,
• certain shares or debts of connected corporations, or
• a combination of these two types of assets.
• The claimant was a founding investor at the time the corporation was initially capitalized and held the share for a minimum of five years prior to disposition.
• At all times since the initial share subscription until the time that is immediately before the sale of the shares, the claimant directly owned shares amounting to more than 10 per cent of the fair market value of the issued and outstanding capital stock of the corporation and giving the individual more than 10 per cent of the votes that could be cast at an annual meeting of the shareholders of the corporation.
• Throughout the five-year period immediately before the disposition of the share, the claimant must have been actively engaged on a regular, continuous, and substantial basis in the activities of the business.
• operating in the financial, insurance, real estate, food and accommodation, arts, recreation, or entertainment sector; or
• providing consulting or personal care services.
• The share must have been obtained for fair market value consideration.

Coming Into Force

This measure would apply to dispositions that occur on or after January 1, 2025.

One half of a capital gain is included in computing a taxpayer's income. This is referred to as the capital gains inclusion rate. The current one-half inclusion rate also applies to capital losses.

Budget 2024 proposes to increase the capital gains inclusion rate from one half to two thirds for corporations and trusts, and from one half to two thirds on the portion of capital gains realized in the year that exceed $250,000 for individuals, for capital gains realized on or after June 25, 2024.

The $250,000 threshold would effectively apply to capital gains realized by an individual, either directly or indirectly via a partnership or trust, net of any:

• current-year capital losses;
• capital losses of other years applied to reduce current-year capital gains; and
• capital gains in respect of which the Lifetime Capital Gains Exemption, the proposed Employee Ownership Trust Exemption or the proposed Canadian Entrepreneurs' Incentive is claimed.

Claimants of the employee stock option deduction would be provided a one-third deduction of the taxable benefit to reflect the new capital gains inclusion rate, but would be entitled to a deduction of one half the taxable benefit up to a combined limit of $250,000 for both employee stock options and capital gains.

Net capital losses of prior years would continue to be deductible against taxable capital gains in the current year by adjusting their value to reflect the inclusion rate of the capital gains being offset. This means that a capital loss realized prior to the rate change would fully offset an equivalent capital gain realized after the rate change.

For tax years that begin before and end on or after June 25, 2024, two different inclusion rates would apply. As a result, transitional rules would be required to separately identify capital gains and losses realized before the effective date (Period 1) and those realized on or after the effective date (Period 2). For example, taxpayers would be subject to the higher inclusion rate in respect of the portion of their net gains arising in Period 2 that exceed the $250,000 threshold, to the extent that these net gains are not offset by a net loss incurred in Period 1 or any other taxation years.

The annual $250,000 threshold for individuals would be fully available in 2024 (i.e., it would not be prorated) and would apply only in respect of net capital gains realized in Period 2.

Other consequential amendments would also be made to reflect the new inclusion rate. Additional design details will be released in the coming months.

The Volunteer Firefighters Tax Credit and the Search and Rescue Volunteers Tax Credit allow individuals who performed at least 200 hours of combined volunteer service during the year as a volunteer firefighter or a search and rescue volunteer to claim a 15-per-cent non-refundable tax credit based on an amount of $3,000.

Budget 2024 proposes to double the credit amount for the Volunteer Firefighters Tax Credit and the Search and Rescue Volunteers Tax Credit to $6,000. This would increase the maximum tax relief to $900. This enhancement would apply to the 2024 and subsequent taxation years.

Flow-through shares allow resource companies to renounce or "flow through" tax expenses associated with their Canadian exploration activities to investors, who can deduct the expenses in calculating their own taxable income. The Mineral Exploration Tax Credit provides an additional income tax benefit for individuals who invest in mining flow-through shares, which augments the tax benefits associated with the amounts that are flowed through. This tax credit provides support to junior mining companies engaged in certain grassroots mineral exploration. The tax credit is equal to 15 per cent of the specified mineral exploration expenses incurred in Canada and renounced to flow-through share investors. The Mineral Exploration Tax Credit is legislated to expire on March 31, 2024.

As announced on March 28, the government proposes to extend eligibility for the Mineral Exploration Tax Credit for one year, to flow-through share agreements entered into on or before March 31, 2025.

Strategic Environmental Assessment Statement

Mineral exploration, as well as new mining and related processing activities that could follow from successful exploration efforts, can be associated with a variety of environmental impacts to soil, water and air and, as a result, could have an impact on the targets and actions in the Federal Sustainable Development Strategy. All such activity, however, is subject to applicable federal and provincial environmental regulations, including project-specific environmental assessments where required.

The Alternative Minimum Tax (AMT) is a parallel tax calculation that allows fewer tax credits, deductions, and exemptions than under the ordinary personal income tax rules. Taxpayers pay either regular tax or AMT, whichever is highest.

Budget 2023 announced amendments to the Income Tax Act that would change the AMT calculation. Draft legislative proposals to implement these changes were published for consultation in the summer of 2023.

Budget 2024 proposes to make further changes to the AMT proposals, as described below.

Changes to the Tax Treatment of Charitable Donations

Budget 2024 proposes that the tax treatment of charitable donations be revised to allow individuals to claim 80 per cent (instead of the previously proposed 50 per cent) of the Charitable Donation Tax Credit when calculating AMT.

Additional Amendments

Budget 2024 proposes several additional amendments to the AMT proposals. These amendments would:

• fully allow deductions for the Guaranteed Income Supplement, social assistance, and workers' compensation payments;
• allow individuals to fully claim the federal logging tax credit under the AMT;
• fully exempt Employee Ownership Trusts from the AMT; and
• allow certain disallowed credits under the AMT to be eligible for the AMT carry-forward (i.e., the federal political contribution tax credit, investment tax credits, and labour-sponsored funds tax credit).

Budget 2024 also proposes several technical amendments to the AMT legislative proposals.

Proposed Exemption for Certain Trusts for the Benefit of Indigenous Groups

Budget 2024 proposes to provide an exemption from the AMT for trusts established under:

• a law of Canada or a province if the trust is for the benefit of an Indigenous group, community, or people that holds rights recognized and affirmed by section 35 of the Constitution Act, 1982 , or
• a treaty or a settlement agreement between His Majesty in right of Canada, or His Majesty in right of a province, and an Indigenous group, community, or people recognized and affirmed by section 35 of the Constitution Act, 1982 ,

provided that all or substantially all of the contributions to the trust before the end of the year are amounts paid under the law, treaty, or settlement agreement described in paragraph (a) or (b), or are reasonably traceable to those amounts.

An exemption from the AMT would also be provided for trusts where the beneficiaries are any combination of the following persons or entities:

• all of the members of a recognized Indigenous group, community or people that holds rights recognized and affirmed by section 35 of the Constitution Act, 1982 ; 
• a public body performing a function of government in Canada (within the meaning of the Income Tax Act ) in relation to an Indigenous group, community, or people that holds rights recognized and affirmed by section 35 of the Constitution Act , 1982;
• a registered charity or a non-profit organization that is organized and operated primarily for health, education, social welfare, or community improvement for the benefit of the members of an Indigenous group, community, or people that holds rights recognized and affirmed by section 35 of the Constitution Act , 1982;
• a corporation, all of the shares or capital of which are owned by any combination of persons or entities described in paragraph (b) or (c) above, a Settlement Trust, or another corporation meeting this definition; or
• a Settlement Trust.

The government is interested in stakeholders' views on these proposed exemptions for Indigenous settlement and community trusts. Interested parties are invited to send written representations to the Department of Finance Canada, Tax Policy Branch at [email protected] by June 28, 2024.

These amendments would apply to taxation years that begin on or after January 1, 2024 (i.e., the same day as the broader AMT amendments).

The Canada Child Benefit (CCB) is an income-tested benefit that is paid monthly and provides support for eligible families with children under the age of 18. 

A CCB recipient becomes ineligible for the CCB in respect of a child the month following the child's death. To ensure benefit amounts reflect up-to-date information on family circumstances, a CCB recipient is required to notify the Canada Revenue Agency (CRA) before the end of the month following the month of their child's death. Notifications of a child's death are also provided to the CRA by provincial/territorial vital statistics agencies.

Delays in receiving notification of a child's death can result in the clawing back of CCB payments in respect of the deceased child for a few months after their death.

Budget 2024 proposes to amend the Income Tax Act to extend eligibility for the CCB in respect of a child for six months after the child's death (the "extended period"), if the individual would have otherwise been eligible for the CCB in respect of that particular child.

• For example, if a child dies in July, the child's primary caregiver would be eligible to receive the CCB in respect of this child for August through January under the proposed change, provided all eligibility criteria are met.

The CCB entitlement for each month during the extended period would be based on the age of the child in that particular month as if the child were still alive and would reflect the other family circumstances that apply in that month (e.g., marital status). CCB overpayments unrelated to the death of a child would still need to be repaid.

A CCB recipient would still be required to notify the CRA of their child's death before the end of the month following the month of their child's death to ensure that there are no overpayments after the new extended period of six months ends.

The extended period would also apply to the Child Disability Benefit, which is paid with the CCB in respect of a child eligible for the Disability Tax Credit.

This measure would be effective for deaths that occur after 2024.

The Disability Supports Deduction allows individuals who have an impairment in physical or mental functions to deduct certain expenses that enable them to earn business or employment income or to attend school.

In order for an expense to qualify, it must be specified in the Income Tax Act and a medical practitioner must either prescribe the expense or otherwise certify in writing that the expense is required.

Budget 2024 proposes to expand the list of expenses recognized under the Disability Supports Deduction, subject to the specified conditions:

• the cost of an ergonomic work chair, including related amounts paid for an ergonomic assessment to a person engaged in the business of providing such services;
• the cost of a bed positioning device, including related amounts paid for an ergonomic assessment to a person engaged in the business of providing such services; and
• the cost of purchasing a mobile computer cart.
• the cost of purchasing an alternative input device to allow the individual to use a computer; and
• the cost of purchasing a digital pen device to allow the individual to use a computer.
• Where an individual has a vision impairment, the cost of purchasing a navigation device for low vision.
• Where an individual has an impairment in mental functions, the cost of purchasing memory or organizational aids.

Budget 2024 also proposes that expenses for service animals, as defined under the Medical Expense Tax Credit rules in the Income Tax Act, be recognized under the Disability Supports Deduction. Taxpayers would be able to choose to claim an expense under either the Medical Expense Tax Credit or the Disability Supports Deduction.

This measure would apply to the 2024 and subsequent taxation years.

Budget 2023 proposed tax rules to facilitate the creation of employee ownership trusts (EOTs). These legislative proposals are currently before Parliament in Bill C-59. The 2023 Fall Economic Statement proposed to exempt the first $10 million in capital gains realized on the sale of a business to an EOT from taxation, subject to certain conditions.

Budget 2024 provides further details on the proposed exemption and conditions. 

Qualifying Conditions

The exemption would be available to an individual (other than a trust) on the sale of shares to an EOT where the following conditions are met:

• The individual, a personal trust of which the individual is a beneficiary, or a partnership in which the individual is a member, disposes of shares of a corporation that is not a professional corporation.
• The transaction is a qualifying business transfer (as defined in the proposed rules for EOTs) in which the trust acquiring the shares is not already an EOT or a similar trust with employee beneficiaries.
• the transferred shares were exclusively owned by the individual claiming the exemption, a related person, or a partnership in which the individual is a member; and
• over 50 per cent of the fair market value of the corporation's assets were used principally in an active business.
• At any time prior to the qualifying business transfer, the individual (or their spouse or common-law partner) has been actively engaged in the qualifying business on a regular and continuous basis for a minimum period of 24 months.
• Immediately after the qualifying business transfer, at least 90 per cent of the beneficiaries of the EOT must be resident in Canada.

If the above conditions are satisfied, the individual would be able to claim an exemption for up to $10 million in capital gains from the sale.

If multiple individuals disposed of shares to an EOT as part of a qualifying business transfer and met the conditions described above, they may each claim the exemption, but the total exemption in respect of the qualifying business transfer cannot exceed $10 million. The individuals would be required to agree on how to allocate the exemption.

Disqualifying Events

If a disqualifying event occurs within 36 months of the qualifying business transfer, the exemption would not be available. Where the individual has already claimed the exemption, it would be retroactively denied.

A disqualifying event would occur if an EOT loses its status as an EOT or if less than 50 per cent of the fair market value of the qualifying business' shares is attributable to assets used principally in an active business at the beginning of two consecutive taxation years of the corporation.

If the disqualifying event occurs more than 36 months after a qualifying business transfer, the EOT would be deemed to realize a capital gain equal to the total amount of exempt capital gains.  

Capital gains exempted through this measure would be subject to an inclusion rate of 30 per cent for the purposes of the alternative minimum tax, similar to the treatment for gains eligible for the lifetime capital gains exemption.

Administration

In order for an individual to claim an exemption on the sale to an EOT, the EOT (and any corporation owned by the EOT that acquired the transferred shares) and the individual would need to elect to be jointly and severally, or solidarily, liable for any tax payable by the individual as a result of the exemption being denied due to a disqualifying event within the first 36 months after a qualifying business transfer. As discussed above, following the 36-month period, the trust would be solely liable for tax realized on the deemed capital gain arising on a disqualifying event.

The normal reassessment period of an individual for a taxation year in respect of this exemption is proposed to be extended by three years.

Worker Cooperatives

Budget 2024 also proposes to expand qualifying business transfers to include the sale of shares to a worker cooperative corporation. The worker cooperative would generally need to meet the definition set out under the Canada Cooperatives Act .

Provided the relevant requirements are met, this would allow an individual to claim an exemption on selling a business to a worker cooperative.

A qualifying business transfer to a worker cooperative would also be eligible for the 10-year capital gains reserve and the 15-year exception to the shareholder loan and interest benefit rules announced in Budget 2023. 

Additional details on this aspect of the exemption will be released in the coming months.

Coming into Force

This measure would apply to qualifying dispositions of shares that occur between January 1, 2024 and December 31, 2026.

Budget 2024 proposes to amend the Income Tax Act and Income Tax Regulations to improve the operation of the rules related to registered charities and other qualified donees.

Foreign Charities Registered as Qualified Donees

The Income Tax Act allows a foreign charity to be registered as a qualified donee for a temporary 24-month period. To be eligible for registration, a foreign charity must have received a gift from His Majesty in right of Canada, and be pursuing activities relating to urgent humanitarian aid, disaster relief, or activities in the national interest of Canada.

Budget 2024 proposes to extend the period for which qualifying foreign charities are granted status as a qualified donee from 24 months to 36 months. In addition, foreign charities would be required to submit an annual information return to the Canada Revenue Agency (CRA) that includes the total amount of receipts issued to Canadian donors, the total amount of gifts received from qualified donees, and information on how those funds were used. This information would be made publicly available.

Modernizing Service

Budget 2024 proposes various amendments to the Income Tax Act to help simplify and modernize the way in which the CRA provides services and communicates information relating to registered charities and other qualified donees.

Budget 2024 proposes to permit the CRA to communicate certain official notices digitally, where the charity has opted to receive information from the CRA electronically. Registered charities that have not opted to receive information electronically would receive official notices, other than compliance-related notices, by regular mail. Those charities would continue to receive compliance-related notices, including notices of intention to revoke, annul, or suspend a charity's registration, by registered mail.

Currently, the revocation of the registration of a charity or other qualified donee is effective upon publication in the Canada Gazette. Budget 2024 proposes to remove this requirement. Instead, the revocation of registration would become effective upon the publication of an official notice of revocation on a government webpage.

Budget 2024 also proposes to remove the requirement that certain objections be addressed directly to the Assistant Commissioner of the CRA's Appeals Branch.

Donation Receipts

Registered charities and qualified donees can issue official donation receipts for gifts that they receive. The Income Tax Act and the Income Tax Regulations set out the minimum requirements for a receipt to be valid and the processes that must be followed when issuing receipts.

Budget 2024 proposes a number of changes to simplify the issuance of official donation receipts and to align the process for issuing receipts with modern practices of charities. 

Budget 2024 proposes to remove the requirement that official donation receipts contain:

• the place of issuance of the receipt;
• the name and address of the appraiser, if an appraisal of the donated property has been done; and
• the middle initial of the donor.

Budget 2024 also proposes to allow charities to mark a donation receipt as "void", as an alternative to the term "cancelled", where a receipt has been spoiled, as well as removing the requirement that it be stored with a duplicate copy.

Budget 2024 also proposes to update the regulations to expressly permit charities to issue official donation receipts electronically, provided that they contain all required information, they are issued in a secure and non-editable format, and the charity maintains an electronic copy of the receipts.

Measures relating to the extension of the registration period for foreign charities would apply to foreign charities registered after Budget Day. New reporting requirements for foreign charities would apply to taxation years beginning after Budget Day.

All remaining measures would apply upon royal assent.

The home buyers' plan (HBP) helps eligible home buyers save for a down payment by allowing them to withdraw up to $35,000 from a registered retirement savings plan (RRSP) to purchase or build their first home, or a home for a specified disabled individual, without having to pay tax on the withdrawal. Eligible home buyers purchasing a home jointly may each withdraw up to $35,000 from their own RRSP under the HBP.

Amounts withdrawn under the HBP must be repaid to an RRSP over a period not exceeding 15 years, starting the second year following the year in which a first withdrawal was made. Otherwise, amounts due for repayment within a specific year are taxable as income for that year.

Increasing the withdrawal limit

Budget 2024 proposes to increase the withdrawal limit from $35,000 to $60,000. This increase would also apply to withdrawals made for the benefit of a disabled individual.

This measure would apply to the 2024 and subsequent calendar years in respect of withdrawals made after Budget Day.

Temporary repayment relief

Budget 2024 proposes to temporarily defer the start of the 15-year repayment period by an additional three years for participants making a first withdrawal between January 1, 2022, and December 31, 2025. Accordingly, the 15-year repayment period would start the fifth year following the year in which a first withdrawal was made.

Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), Tax-Free Savings Accounts (TFSAs), Registered Education Savings Plans (RESPs), Registered Disability Savings Plans (RDSPs), First Home Savings Accounts (FHSAs), and Deferred Profit Sharing Plans (DPSPs) can invest only in qualified investments for those plans. A broad range of assets are qualified investments, including mutual funds, publicly traded securities, government and corporate bonds, and guaranteed investment certificates.

Introduced in 1966, the qualified investment rules have been incrementally expanded to include more than 40 types of assets and to reflect the introduction of new types of registered plans (including TFSAs in 2009 and FHSAs in 2023). However, this incremental approach has resulted in qualified investment rules that can be inconsistent or difficult to understand in some cases. For example:

• Different registered plans have slightly different rules for making investments in small businesses.
• Certain types of annuities are qualified investments only for RRSPs, RRIFs, and RDSPs.
• Certain pooled investment products are qualified investments only if they are registered with the Canada Revenue Agency (known as "registered investments").

Budget 2024 invites stakeholders to provide suggestions on how the qualified investment rules could be modernized on a prospective basis to improve the clarity and coherence of the registered plans regime. Specific issues under consideration include: 

• Whether and how the rules relating to investments in small businesses could be harmonized to apply consistently to all registered savings plans.
• Whether annuities that are qualified investments only for RRSPs, RRIFs, and RDSPs should continue to be qualified investments.
• Whether the conditions that certain pooled investment products must meet to be a qualified investment are appropriate, including the ongoing value of maintaining a formal registration process for registered investments.
• Whether and how qualified investment rules could promote an increase in Canadian-based investments.
• Whether crypto-backed assets are appropriate as qualified investments for registered savings plans.

Stakeholders are invited to submit comments to [email protected] by July 15, 2024.

Eligible tradespeople and apprentices in the construction industry are currently able to deduct up to $4,000 in eligible travel and relocation expenses per year by claiming the Labour Mobility Deduction for Tradespeople. A private member's bill was introduced in the 44th Parliament (Bill C-241) to enact an alternative deduction for certain travel expenses of tradespeople in the construction industry, with no cap on expenses, retroactive to the 2022 taxation year.  

Budget 2024 announces that the government will consider bringing forward amendments to the Income Tax Act to provide for a single, harmonized deduction for tradespeople's travel that respects the intent of Bill C-241.

In the First Nations Child and Family Services, Jordan's Principle, and Trout Class Settlement Agreement, approved by the Federal Court on October 24, 2023, the government committed to make best efforts to exempt the income of the trusts established under the settlement agreement from federal taxation. The government also committed to make best efforts to ensure that a class member's receipt of payments would not be considered taxable income and to ensure that federal social benefits and social assistance benefits for class members would not be negatively impacted by payments received pursuant to the settlement agreement. 

Budget 2024 proposes to amend the Income Tax Act to exclude the income of the trusts established under the First Nations Child and Family Services, Jordan's Principle, and Trout Class Settlement Agreement from taxation. This would also ensure that payments received by class members as beneficiaries of the trusts would not be included when computing income for federal income tax purposes.

Business Income Tax Measures

Budget 2023 announced a refundable Clean Electricity investment tax credit equal to 15 per cent of the capital cost of eligible property, with some additional changes announced in the 2023 Fall Economic Statement . Budget 2024 provides the design and implementation details of the tax credit.

Eligible Entities

The Clean Electricity investment tax credit would be available only to Canadian corporations. Eligible corporations would be:

• taxable Canadian corporations;
• provincial and territorial Crown corporations, subject to additional requirements (see section "Proposed Application to Provincial and Territorial Crown Corporations");
• corporations owned by municipalities;
• corporations owned by Indigenous communities; and
• pension investment corporations.

In order to receive the tax credit, corporations with a claim to immunity or exemption from tax would be required to agree to be subject to the provisions of the Income Tax Act related to the tax credit, including provisions related to audit, penalties and collections, and agree not to assert any immunity or exemption in respect of the tax credit.

Where eligible property is owned by a partnership, any partners that are corporations eligible for the credit would be allowed to claim their share of the partnership's Clean Electricity investment tax credit, subject to partnership rules generally consistent with those proposed for the Clean Technology investment tax credit currently before Parliament in Bill C-59. In cases where a property is eligible for both the Clean Electricity and Clean Technology investment tax credits, partners could claim their reasonable share of either credit for which they qualified (but could not claim both credits in respect of the same property).

Eligible Property

The following types of equipment would be eligible for the Clean Electricity investment tax credit:

• equipment used to generate electricity from solar, wind, or water energy that is described under subparagraphs (d)(ii), (iii.1), (v), (vi), or (xiv) of capital cost allowance Class 43.1 of Schedule II of the Income Tax Regulations , but hydro-electric installations would not be subject to a capacity limit as is the case for Class 43.1;
• concentrated solar energy equipment, as defined for the purposes of the proposed Clean Technology investment tax credit, but limited to equipment used to generate electricity;
• equipment used to generate electricity, or both electricity and heat, from nuclear fission, as defined for the purposes of the proposed Clean Technology investment tax credit, but without generating capacity limits or a requirement to be comprised of modules that are factory-assembled and transported pre-built to the installation site;
• equipment used for the purpose of generating electricity, or both electricity and heat, solely from geothermal energy, as described in subparagraph (d)(vii) of Class 43.1, if it is used exclusively for that purpose, but excluding any equipment that is part of a system that extracts fossil fuel for sale;
• equipment that is part of a system used to generate electricity, or both electricity and heat, from specified waste materials, as described in the 2023 Fall Economic Statement ;
• stationary electricity storage equipment that is described under subparagraph (d)(xviii) of Class 43.1 and equipment used for pumped hydroelectric energy storage that is described under subparagraph (d)(xix) of Class 43.1, but excluding equipment that uses any fossil fuel in operation;
• equipment that is part of an eligible natural gas energy system (as described below); and
• equipment and structures used for the transmission of electricity between provinces and territories (as described below).

Qualifying expenditures could include capital expenditures to refurbish existing facilities.

Electricity Generation and Cogeneration from Natural Gas with Carbon Capture

Eligible natural gas energy systems would be those that use fuel all or substantially all of which is natural gas solely to generate electricity, or both electricity and heat, and use a carbon capture system to limit emissions.

Eligible systems would be required to attain an emissions intensity no greater than 65 tonnes of carbon dioxide per gigawatt hour of energy produced, and the captured carbon dioxide would have to be stored appropriately. The proposed emissions intensity limit may not reflect the final emissions performance standard of the Clean Electricity Regulations .

When part of an integrated eligible system, eligible property would include:

• equipment that generates both electrical and heat energy (e.g., gas turbine generators);
• heat recovery equipment (e.g., heat recovery steam generators);
• electrical generating equipment (e.g., steam turbine generators);
• heat generating equipment used primarily for the purpose of producing heat energy to operate the electrical generating equipment (e.g., steam boilers used to produce steam to operate steam turbine generators); and
• carbon capture equipment, including equipment that prepares or compresses captured carbon for transportation.

Eligible property would not include buildings or other structures, heat rejection equipment (e.g., cooling towers), electrical transmission and distribution equipment, fuel handling equipment, or equipment used for carbon dioxide transportation, storage, or use.

Emissions intensity measures the average quantity of carbon dioxide emissions associated with each unit of energy output (i.e., electricity and useful heat) by dividing total carbon dioxide released into the atmosphere by total energy produced over a fixed period of time. As noted above, for a system to be eligible, the maximum allowable emissions intensity would be 65 tonnes of carbon dioxide per gigawatt hour of energy produced. The formula to calculate a system's emissions intensity for the purposes of the Clean Electricity investment tax credit would be a modified version of that used in the Regulations Limiting Carbon Dioxide Emissions from Natural Gas-fired Generation of Electricity under the Canadian Environmental Protection Act . Modifications would include:

• emissions attributable to the combustion of biomass, as defined under the Regulations Limiting Carbon Dioxide Emissions from Natural Gas-fired Generation of Electricity , would be included in the total emissions calculation; and
• emissions that are captured and stored in dedicated geological storage would be removed from the total emissions calculation. Emissions captured and used for enhanced oil recovery or other storage or use would not be removed.

Requirements for dedicated geological storage would be aligned with those proposed for the Carbon Capture, Utilization, and Storage investment tax credit currently before Parliament in Bill C-59. As a result, the geological formation for storage would need to be located in a jurisdiction with sufficient environmental laws and enforcement to ensure that carbon dioxide is permanently stored. Eligible jurisdictions for dedicated geological storage are currently proposed to include Alberta, British Columbia, and Saskatchewan.  

Natural Resources Canada would review project plans to determine equipment and system eligibility before a Clean Electricity investment tax credit claim could be made. Project plans would be required to reflect a front-end engineering design study and any other information required by the Minister of Energy and Natural Resources. Only eligible property in an integrated system with estimated emissions intensity not exceeding the maximum allowable limit would qualify.

Equipment eligibility would also need to be verified by Natural Resources Canada once the expenditures are incurred and before a claim is submitted to the Canada Revenue Agency.

Transmission of Electricity Between Provinces and Territories

Eligible interprovincial and territorial electrical transmission property would be property that is used to transmit or manage electrical energy that primarily originates in, or is destined for, another province or territory. This could include property located exclusively within a province or territory, if the property is used primarily for the purpose of interprovincial transmission. For example, transmission property installed in a province could be eligible if it became operational and began exporting electricity to another province after the completion of connected transmission property that crosses the border.

Eligible property would include:

• electrical transmission equipment (e.g., cables and switches);
• electrical transmission structures (e.g., towers and lattices); and
• related equipment used for managing traded electricity (e.g., transformers, electric power conditioning equipment, and control equipment).

Eligible property would not include buildings, electrical distribution equipment, or electrical transmission equipment rated for voltages less than 69 kilovolts.

Labour Requirements

In order to qualify for the 15-per-cent Clean Electricity investment tax credit, the proposed labour requirements currently before Parliament in Bill C-59 for prevailing wages and apprenticeships would need to be met. A 5-per-cent credit rate would be available if the labour requirements are not met.

Compliance and Recovery

Ongoing compliance with eligibility criteria.

Under the current rules for certain properties described in Class 43.1 or 43.2, all the conditions for inclusion in the Class must be satisfied on an annual basis. There is a limited exception in the  Income Tax Regulations  for property that is part of an eligible system that was previously operated in a qualifying manner. Such property is considered to be operated in the required manner during a period of deficiency, failure or shutdown of the system that is beyond the taxpayer's control if the taxpayer makes all reasonable efforts to rectify the problem within a reasonable time according to the circumstances.

As proposed in the 2023 Fall Economic Statement , similar rules would apply to the Clean Electricity investment tax credit with respect to systems that generate electricity, or both electricity and heat, from specified waste material. This would be extended to include systems that generate electricity, or both electricity and heat, from natural gas with carbon capture equipment.

Potential Repayment Obligations

The Clean Electricity investment tax credit would be subject to potential repayment obligations similar to the recapture rules proposed for the Clean Technology investment tax credit. In general, this means that over a ten-year period (or a 20-year period in the case of eligible natural gas energy systems) from the date of acquiring a particular eligible property, the tax credit could be repayable in proportion to the fair market value of the particular property when it has been converted to an ineligible use, exported from Canada, or disposed of.

Special Rules for Eligible Natural Gas Energy Systems

Systems that generate electricity, or both electricity and heat, from natural gas with carbon capture systems would be subject to a one-time verification of emissions intensity, based on a five-year compliance period.

Over the course of the five-year period, there would be a requirement to report on the emissions intensity of the energy that is produced annually by the system. At the end of the period, compliance would be assessed based on the weighted-average emissions intensity over the entire compliance period. The contribution of annual emissions intensity to the final emissions intensity would be weighted by the electricity and useful heat produced in each year.

Third-party emissions intensity verification reports would need to be submitted to Natural Resources Canada. The reports would have to be prepared by a Canadian engineering firm with an engineering certificate of authorization, appropriate insurance coverage, and expertise in auditing continuous emissions monitoring systems.

An average emissions intensity more than 5 per cent above the limit of 65 tonnes of carbon dioxide per gigawatt hour of energy produced would lead to a full recovery of the Clean Electricity investment tax credit.

After the five-year compliance period ends, there would be a requirement to continue producing emissions intensity reports annually for an additional 15 years. Over this period, an annual emissions intensity above the limit would be considered an ineligible use of the system, in accordance with the general repayment rules for this tax credit (described above under the heading Potential Repayment Obligations).

Interactions with Other Federal Tax Credits

Eligible corporations would be able to claim only one of the Clean Electricity investment tax credit, the Clean Technology investment tax credit, the Carbon Capture, Utilization, and Storage investment tax credit, the Clean Hydrogen investment tax credit, the Clean Technology Manufacturing investment tax credit and the Electric Vehicle Supply Chain investment tax credit, if a particular expenditure is eligible for more than one of these tax credits. However, multiple tax credits could be available for the same project, to the extent that the project includes expenditures eligible for different tax credits. For systems that generate electricity, or both electricity and heat, from natural gas with carbon capture, a project could not claim the Clean Electricity investment tax credit on the energy generation equipment and the Carbon Capture, Utilization, and Storage investment tax credit on the carbon capture equipment.

Eligible corporations would be able to fully benefit from both the Clean Electricity investment tax credit and the Atlantic investment tax credit with respect to the same expenditure, if the expenditure is eligible for both.

Proposed Application to Provincial and Territorial Crown Corporations

The Clean Electricity investment tax credit would be available to provincial and territorial Crown corporations only for investments made in eligible property situated in designated jurisdictions.

The federal Minister of Finance would designate a province or a territory, provided that the Minister was satisfied that the provincial or territorial government has:

• Work towards a net-zero electricity grid by 2035; and
• Provincial and territorial Crown corporations passing through the value of the Clean Electricity investment tax credit to electricity ratepayers in their province or territory to reduce ratepayers' bills.
• Directed provincial and territorial Crown corporations claiming the tax credit to publicly report annually on how the tax credit has improved ratepayers' bills.

Should a provincial or territorial Crown corporation claiming the tax credit not report annually on how the tax credit has improved ratepayers' bills, a penalty would be charged to that Crown corporation.

A provincial or territorial government would need to demonstrate that it has satisfied all of the above conditions, in order for provincial and territorial Crown corporations investing in that jurisdiction to gain access to the Clean Electricity investment tax credit. The federal Minister of Finance would then determine whether the conditions have been satisfied and, if so, would designate the province or territory.

The Department of Finance will consult with provinces and territories on the details of these conditions.

The Clean Electricity investment tax credit would apply to eligible property that is:

• acquired and becomes available for use on or after Budget Day and before 2035, provided it has not been used for any purpose before its acquisition; and
• not part of a project that began construction before March 28, 2023. For this purpose, construction would not include obtaining permits or regulatory approval, conducting environmental assessments, community consultations or impact assessment studies, or similar activities.

Similar rules would apply for eligible property acquired by provincial and territorial Crown corporations, with the following modifications:

• If a province or territorial government has satisfied all the conditions by March 31, 2025 and subsequently been designated by the Minister of Finance, then provincial and territorial Crown corporations investing in that jurisdiction would be able to access the Clean Electricity investment tax credit for property that is acquired and becomes available for use on or after Budget Day for projects that did not begin construction before March 28, 2023.
• If a provincial or territorial government has not satisfied all the conditions by March 31, 2025, then provincial and territorial Crown corporations investing in that jurisdiction would not be able to access the Clean Electricity investment tax credit until the province or territory is designated. The Clean Electricity investment tax credit would apply to property that is acquired and becomes available for use from the date when the province or territory is designated by the Minister of Finance, for projects that did not begin construction before March 28, 2023.

This measure is expected to have a positive environmental impact by encouraging investment in projects that would generally be expected to help reduce emissions of greenhouse gases and air pollutants, in support of Canada's targets set out in the Federal Sustainable Development Strategy. The measure would be expected to help Canada reach its goal of reducing greenhouse gas emissions by 40 to 45 per cent below 2005 levels by 2030 and achieving net-zero greenhouse gas emissions by 2050. It would also be expected to help Canada achieve its target of generating 90 per cent of electricity from renewable and non-emitting sources by 2030 and 100 per cent in the long term.

Positive environmental impacts could be partly offset to the extent that certain supported technologies release greenhouse gases as a result of fuel combustion, as well as particulate matter and other air pollutants that impact the environment and human health. In addition, upstream activities related to natural gas energy systems (e.g., natural gas extraction) can have negative environmental impacts, such as increased greenhouse gas emissions. However, the emissions intensity requirement of the investment tax credit ensures that only natural gas energy systems using carbon capture technology of the highest performance will be incentivized, ensuring that emissions are maximally reduced. Additionally, the combustion of waste biomass is generally viewed as carbon neutral on a lifecycle basis, and potentially carbon-negative when combined with carbon capture, utilization, and storage.

Budget 2023 proposed the Clean Technology Manufacturing investment tax credit, which would provide a refundable tax credit equal to 30 per cent of the cost of investments in eligible property used all or substantially all for eligible activities. Draft legislative proposals to implement the tax credit were released in December 2023.

As specified in the draft legislative proposals, eligible activities for the tax credit would include qualifying mineral activities producing all or substantially all qualifying materials (i.e., copper, nickel, cobalt, lithium, graphite, and rare earth elements). Qualifying mineral activities would consist of extraction; certain processing activities at mine or well sites, tailing ponds, mills, smelters, or refineries; certain recycling activities; and certain graphite activities.

Recognizing that the production of qualifying materials may occur at polymetallic projects (i.e., projects engaged in the production of multiple metals), Budget 2024 proposes adjustments to the Clean Technology Manufacturing investment tax credit to provide greater support and clarity to businesses engaged in these activities.

Use of Values

Budget 2024 proposes to clarify that the value of qualifying materials would be used as the appropriate output metric when assessing the extent to which property is used or is expected to be used for qualifying mineral activities producing qualifying materials.

"Primarily" Test for Property at Mine or Well Sites

Budget 2024 proposes to modify eligible expenditures to include investments in eligible property used in qualifying mineral activities that are expected to produce primarily qualifying materials at mine or well sites, including tailing ponds and mills located at these sites. The "primarily" test would generally mean that eligible property must be used or be expected to be used for activities in which 50 per cent or more of the financial value of the output comes from qualifying materials.

To support this expectation and a claim for the tax credit, businesses would be required to submit an attestation from an arm's-length qualified engineer or geoscientist to the Canada Revenue Agency for each relevant mine or well site.

Recapture and Safe Harbour Rule

As specified in the draft legislative proposals, where a property benefits from the tax credit and, within a ten-year period following its acquisition, is converted to a use in a non-qualifying activity (e.g., is no longer sufficiently used in qualifying mineral activities producing qualifying materials), the tax credit could be subject to recapture. For example, this could apply where the value of the materials extracted from a mine site is not primarily from qualifying materials.

To mitigate against the effects of mineral price volatility on the potential recapture of the tax credit, Budget 2024 also proposes to provide a safe harbour rule applicable to the recapture rule. Under the safe harbour rule, if the calculation of the expected production from the eligible property when claiming the tax credit is done using specified five-year historical average mineral prices, then the same specified mineral prices would be used to calculate the ratio of qualifying materials produced from the property over the ten-year recapture period. Details in respect to the design of the safe harbour rule will be provided at a later date.

The safe harbour rule would apply in respect of all qualifying mineral activities.

These changes would apply for property that is acquired and becomes available for use on or after January 1, 2024 (i.e., the same application date as the other aspects of the Clean Technology Manufacturing investment tax credit).

Increased investment in extraction and processing related to key critical minerals used in clean technologies can lead to lower prices of these minerals and technologies, which would encourage greater adoption of clean technologies in Canada, contributing to reductions in emissions of greenhouse gases and air particulates. This would help Canada meet its 2030 target of reducing total greenhouse gas emissions by 40 per cent to 45 per cent relative to 2005 levels.

However, increased extraction and mineral processing activities in Canada could negatively impact local habitats through increased soil erosion and mine runoff, increase emissions of greenhouse gases and air particulates, and increase production of industrial waste. This could offset some of the positive environmental impacts of the proposal. Also, environmental benefits in Canada could be reduced to the extent that key critical minerals and their associated technologies are exported outside of Canada.

The capital cost allowance (CCA) system determines the deductions that a business may claim each year for income tax purposes in respect of the capital cost of its depreciable property. Depreciable property is generally divided into CCA classes with each having its own rate in Schedule II to the Income Tax Regulations .

Purpose-Built Rental Housing

Currently, purpose-built rental buildings are eligible for a CCA rate of four per cent under Class 1.

Budget 2024 proposes to provide an accelerated CCA of ten per cent for new eligible purpose-built rental projects that begin construction on or after Budget Day and before January 1, 2031, and are available for use before January 1, 2036.

Consistent with eligibility under the temporary enhancement to the Goods and Services Tax (GST) New Residential Rental Property Rebate, eligible property would be new purpose-built rental housing that is a residential complex:

• with at least four private apartment units (i.e., a unit with a private kitchen, bathroom, and living areas), or 10 private rooms or suites; and
• in which at least 90 per cent of residential units are held for long-term rental.

Projects that convert existing non-residential real estate, such as an office building, into a residential complex would be eligible if the conditions above are met. The accelerated CCA would not apply to renovations of existing residential complexes. However, the cost of a new addition to an existing structure would be eligible, provided that addition meets the conditions above.

Interaction with the Accelerated Investment Incentive

Investments eligible for this measure would continue to benefit from the Accelerated Investment Incentive, which currently suspends the half-year rule, providing a CCA deduction at the full rate for eligible property put in use before 2028.

After 2027, the half-year rule would apply, which limits the CCA allowance in the year an asset is acquired to one-half of the full CCA deduction.

Productivity-Enhancing Assets

Currently, assets included in Class 44 (patents or the rights to use patented information for a limited or unlimited period), Class 46 (data network infrastructure equipment and related systems software), and Class 50 (general-purpose electronic data-processing equipment and systems software) are prescribed CCA rates of 25 per cent, 30 per cent, and 55 per cent, respectively.

Budget 2024 proposes to provide immediate expensing for new additions of property in respect of these three classes, if the property is acquired on or after Budget Day and becomes available for use before January 1, 2027. The enhanced allowance would provide a 100-per-cent first-year deduction and would be available only for the year in which the property becomes available for use.

Property that becomes available for use after 2026 and before 2028 would continue to benefit from the Accelerated Investment Incentive.

Restrictions

Property that has been used, or acquired for use, for any purpose before it is acquired by the taxpayer would be eligible for the accelerated CCA only if both of the following conditions are met:

• neither the taxpayer nor a non-arm's-length person previously owned the property; and
• the property has not been transferred to the taxpayer on a tax-deferred "rollover" basis.

Short taxation year

Under the short taxation-year rule, the amount of CCA that can be claimed in a taxation year must generally be prorated when the taxation year is less than 12 months. When this rule applies, the accelerated CCA would apply in respect of an eligible property on the same prorated basis and would not be available in the following taxation year in respect of the property.

Currently, the federal backstop pollution pricing fuel charge applies in the provinces of Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador. In each of these provinces, the federal government returns more than 90 per cent of direct proceeds from the fuel charge to individuals through the Canada Carbon Rebate. Proceeds relating specifically to the use of natural gas and propane by farmers are returned to farmers via a refundable tax credit. The government has committed to return the remainder of fuel charge proceeds to Indigenous governments and small and medium-sized businesses. All direct proceeds collected are returned in their province of origin.

In respect of the government's commitment to small and medium-sized businesses, Budget 2024 proposes to return a portion of fuel charge proceeds from a province via the new Canada Carbon Rebate for Small Businesses, an automatic, refundable tax credit directly for eligible businesses, sized in proportion to the number of persons they employ in the province.

Eligible Businesses

With respect to the 2019-20 to 2023-24 fuel charge years, the tax credit would be available to a Canadian-controlled private corporation that files a tax return for its 2023 taxation year by July 15, 2024. Additionally, to be eligible for a credit in respect of an applicable fuel charge year, the corporation would need to have had no more than 499 employees throughout Canada in the calendar year in which the fuel charge year begins.

For instance, eligibility for receiving a payment in respect of the 2022-23 fuel charge year would be based on the number of persons employed by the eligible corporation for the 2022 calendar year.

Automatic Payments

Corporations would not have to apply for this tax credit. The Canada Revenue Agency would automatically determine the tax credit amount for an eligible corporation and pay the amount to the eligible corporation through the new Canada Carbon Rebate for Small Businesses.

Credit Determination

The tax credit amount in respect of an eligible corporation for an applicable fuel charge year would be determined for each applicable province in which the eligible corporation had employees in the calendar year in which the fuel charge year begins. The tax credit amount would be equal to the number of persons employed by the eligible corporation in the province in that calendar year multiplied by a payment rate specified by the Minister of Finance for the province for the corresponding fuel charge year.

The Minister of Finance will specify payment rates for the 2019-20 to 2023-24 fuel charge years once sufficient information is available from the 2023 taxation year.

The tax credit would return proceeds for future fuel charge years, including 2024-25, in a similar manner. That is, a payment rate would be specified for each applicable province for a particular fuel charge year, and a payment made to an eligible corporation that has filed a tax return for a taxation year ending in the calendar year in which the fuel charge year begins.

In response to the recommendations under Action 4 of the OECD/G20 Base Erosion and Profit Shifting (BEPS) Project, Budget 2021 announced an earnings stripping measure that limits the amount of net interest and financing expenses that may be deducted by certain taxpayers in computing taxable income. Legislative proposals to implement this measure (the excessive interest and financing expenses limitation (EIFEL) rules) are currently before Parliament in Bill C-59.

The EIFEL rules provide an exemption for interest and financing expenses incurred in respect of arm's length financing for certain public-private partnership infrastructure projects.

Budget 2024 proposes expanding this exemption to also include an elective exemption for certain interest and financing expenses incurred before January 1, 2036, in respect of arm's length financing used to build or acquire eligible purpose-built rental housing in Canada. 

Consistent with eligibility under the temporary enhancement to the Goods and Services Tax (GST) New Residential Rental Property Rebate and the proposed Accelerated Capital Cost Allowance for Purpose-Built Rental Housing included in Budget 2024, eligible purpose-built rental housing would be a residential complex:

This change would apply to taxation years that begin on or after October 1, 2023 (i.e., consistent with broader EIFEL amendments).

Limits to existing information gathering powers provided to the Canada Revenue Agency (CRA) under the Income Tax Act impede the effectiveness of the CRA's compliance and enforcement actions. The 2018 Report of the Office of the Auditor General noted that the provision of information by some taxpayers lagged for months or even years, making it more difficult for the CRA to collect tax owing.

Budget 2024 proposes several amendments to the information gathering provisions in the Income Tax Act . These proposed amendments are intended to enhance the efficiency and effectiveness of tax audits and facilitate the collection of tax revenues on a timelier basis. Analogous amendments are also proposed to other federal tax statutes administered by the CRA. Budget 2024 also proposes certain technical amendments to ensure the rules meet their policy objectives.

Notice of Non-Compliance

Budget 2024 proposes to amend the Income Tax Act toallow the CRA to issue a new type of notice (referred to as a "notice of non-compliance") to a person that has not complied with a requirement or notice to provide assistance or information issued by the CRA. The issuance of a notice of non-compliance would be reviewable by the CRA on request of the person. After reconsideration, the notice of non-compliance would be vacated if the CRA determines that it was unreasonable to issue the notice of non-compliance or that the person had reasonably complied, at the time the notice of non-compliance was issued, with the initial requirement or notice. There would be a further statutory right of review by a judge of the Federal Court.

Where a notice of non-compliance related to a taxpayer has been issued to the taxpayer or a person that does not deal at arm's length with the taxpayer, the normal reassessment period for any taxation year of the taxpayer to which the notice of non-compliance relates would be extended by the period of time the notice of non-compliance is outstanding.

To further improve compliance with information requests, Budget 2024 proposes to impose a penalty on a person that has been issued a notice of non-compliance of $50 for each day that the notice is outstanding, to a maximum of $25,000. This penalty would not apply if a notice of non-compliance is ultimately vacated by the CRA or a court.

Questioning Under Oath

Budget 2024 proposes to amend the Income Tax Act to allow the CRA to include in a requirement or notice that any required information (oral or written) or documents be provided under oath or affirmation.

Compliance Orders

Currently, the CRA can obtain a compliance order from a court that directs a non-compliant taxpayer to comply with the CRA's information requests. However, the use of compliance orders has generally not been effective in compelling compliance. This is because the primary consequence for not complying is a contempt order, which is time consuming to obtain and does not generally impose a material financial cost on the taxpayer.

Budget 2024 proposes to amend the Income Tax Act to impose a penalty when the CRA obtains a compliance order against a taxpayer. The penalty would be equal to 10 per cent of the aggregate tax payable by the taxpayer in respect of the taxation year or years to which the compliance order relates. The proposed penalty, which would apply when the CRA is successful in obtaining a compliance order, would create an incentive for taxpayers to comply with the original request for information or assistance. The penalty would only be applied if the tax owing in respect of one of the taxation years to which the compliance order relates exceeds $50,000.

Budget 2024 further proposes an amendment to allow the CRA to seek a compliance order when a person has failed to comply with a requirement to provide foreign-based information or documents.

Stopping the Reassessment Limitation Clock

Under existing rules, a taxpayer may seek judicial review of a requirement or notice issued to the taxpayer by the CRA. In these circumstances, the reassessment period is extended by the amount of time it takes to dispose of the judicial review. An analogous rule applies in respect of a compliance order. These rules are intended to ensure that the CRA has the time to properly review any information obtained before expiry of the statutory reassessment period fixed by the Income Tax Act . These "stop the clock" rules currently do not apply to all situations where a taxpayer does not comply with a requirement or notice issued by the CRA.

Budget 2024 proposes to amend the stop the clock rules to provide that they apply when a taxpayer seeks judicial review of any requirement or notice issued to the taxpayer by the CRA in relation to the audit and enforcement process or during any period that a notice of non-compliance is outstanding. Analogous rules would apply where a requirement or notice has been issued to a person that does not deal at arm's length with the taxpayer.

Other Tax Statutes Administered by the CRA

Budget 2024 proposes that other tax statutes administered by the CRA, which have provisions similar to the Income Tax Act , also be amended, as needed, to address the issues discussed above. Those statutes include the Excise Tax Act (e.g., GST/HST, fuel excise tax), Air Travellers Security Charge Act , Excise Act, 2001 (alcohol, tobacco, cannabis, and vaping duties), the Underused Housing Tax Act , and the Select Luxury Items Tax Act .

These amendments would come into force on royal assent of the enacting legislation.

The Income Tax Act includes an anti-avoidance rule that is intended to prevent taxpayers from avoiding paying their tax liabilities by transferring their assets to non-arm's length persons. The effect of this tax debt avoidance rule is to make the transferee jointly and severally, or solidarily, liable with the transferor for the transferor's tax debts, to the extent that the value of the property transferred exceeds the amount of consideration given by the transferee for the property.

The Income Tax Act contains a number of rules that address various planning techniques employed by taxpayers in an attempt to circumvent the tax debt avoidance rule, as well as a penalty for those who engage in, participate in, assent to, or acquiesce in planning activity that they know, or would reasonably be expected to know, is tax debt avoidance planning.

Some taxpayers continue to engage in planning that is intended to circumvent the tax debt avoidance rule, often with the assistance of a planner who receives a significant fee that is effectively funded by a portion of the avoided tax debt.

Although this planning can be challenged by the government based on existing rules in the Income Tax Act , these challenges can be both time-consuming and costly. As a result, the government is proposing a specific legislative measure.

Budget 2024 proposes to introduce a supplementary rule to strengthen the tax debt anti-avoidance rule. This rule would apply in the following circumstances:

• there has been a transfer of property from a tax debtor to another person;
• as part of the same transaction or series of transactions, there has been a separate transfer of property from a person other than the tax debtor to a transferee that does not deal at arm's length with the tax debtor; and
• one of the purposes of the transaction or series is to avoid joint and several, or solidary, liability.

Where these conditions are met, the property transferred by the tax debtor would be deemed to have been transferred to the transferee for the purposes of the tax debt avoidance rule. This would ensure that the tax debt avoidance rule applies in situations where property has been transferred from a tax debtor to a person and, as part of the same transaction or series, property has been received by a non-arm's length person. 

The Income Tax Act contains a penalty for those who engage in, participate in, assent to, or acquiesce in planning activity that they know, or would reasonably be expected to know, is tax debt avoidance planning. The penalty is equal to the lesser of:

• 50 per cent of the tax that is attempted to be avoided; and
• $100,000 plus any amount the person, or a related person, is entitled to receive or obtain in respect of the planning activity.

Budget 2024 proposes to extend this penalty to tax debt avoidance planning that is subject to the proposed supplementary rule.

Expanded Joint and Several, or Solidary, Liability

As noted above, in many cases tax debt avoidance planning is facilitated by a planner who receives a significant fee that is effectively funded by a portion of the avoided tax debt. The courts have held that a taxpayer who engages in tax debt avoidance planning is normally not jointly and severally, or solidarily, liable for the portion of the tax debt that has effectively been retained by the planner as a fee. This remains the case even where the amount retained by the planner is moved offshore and out of the reach of the Canada Revenue Agency.

To further enhance the effectiveness of the tax debt anti-avoidance rule, Budget 2024 proposes that taxpayers who participate in tax debt avoidance planning be jointly and severally, or solidarily, liable for the full amount of the avoided tax debt, including any portion that has effectively been retained by the planner.

Similar Statutes

Similar amendments would be made to comparable provisions in other federal statutes (e.g., the Excise Tax Act , the Excise Act, 2001 , the Select Luxury Items Tax Act , and the Underused Housing Tax Act ).

These measures would apply to transactions or series of transactions that occur on or after Budget Day.

The Income Tax Act includes a general provision that provides that a person who fails to file or make a return or comply with certain specified rules is guilty of an offence, and liable to penalties up to $25,000 and imprisonment up to a year. The mandatory disclosure rules in the Income Tax Act also include specific penalties that apply in these circumstances, making the application of this general penalty provision unnecessary.

Budget 2024 announces the government's intention to remove from the scope of this general penalty provision the failure to file an information return in respect of a reportable or notifiable transaction under the mandatory disclosure rules.

This amendment would be deemed to have come into force on June 22, 2023.

A mutual fund is a type of investment vehicle that allows investors to pool their money and invest in a portfolio of investments without purchasing the investments directly. A mutual fund corporation is a mutual fund organized as a corporation that meets certain conditions set out in the Income Tax Act.

The Income Tax Act includes special rules for mutual fund corporations that facilitate conduit treatment for investors (shareholders). For example, these rules generally allow capital gains realized by a mutual fund corporation to be treated as capital gains realized by its investors. In addition, a mutual fund corporation is not subject to mark-to-market taxation and can elect capital gains treatment on the disposition of Canadian securities.

To qualify as a mutual fund corporation under the Income Tax Act , a corporation must satisfy several conditions, including that the corporation is a "public corporation", which may be satisfied where a class of shares of the corporation is listed on a designated stock exchange in Canada. These conditions are premised on the idea of a mutual fund corporation being widely held. However, a corporation controlled by a corporate group may qualify as a mutual fund corporation even though it is not widely held.

A corporation can qualify as a mutual fund corporation under the Income Tax Act if a class of its shares is listed on a designated stock exchange in Canada, even if all other shares of the corporation are held by a corporate group and those shares represent all or substantially all of the fair market value of the issued shares of the corporation. This could allow a corporate group to use a mutual fund corporation to benefit from the special rules available to these corporations in an unintended manner .

Although using a mutual fund corporation to defer or avoid income taxes by a corporate group can be challenged by the government based on existing rules in the Income Tax Act , these challenges can be both time-consuming and costly.

Budget 2024 proposes amendments to the Income Tax Act to preclude a corporation from qualifying as a mutual fund corporation where it is controlled by or for the benefit of a corporate group (including a corporate group that consists of any combination of corporations, individuals, trusts, and partnerships that do not deal with each other at arm's length). Exceptions would be provided to ensure that the measure does not adversely affect mutual fund corporations that are widely held pooled investment vehicles.

This measure would apply to taxation years that begin after 2024.

The  Income Tax Act  allows a corporation to deduct the amount of any dividends received on a share of a corporation resident in Canada, subject to certain limitations.

One of these limitations is an anti-avoidance rule that denies the dividend received deduction in respect of synthetic equity arrangements. Synthetic equity arrangements include agreements that provide all or substantially all of the risk of loss and opportunity for gain or profit (the "economic exposure") in respect of a share to another person.

Where a taxpayer enters into a synthetic equity arrangement in respect of a share, the taxpayer is generally obligated to compensate the other person for the amount of any dividends paid on the share. This compensation payment may result in a tax deduction for the taxpayer in addition to the dividend received deduction. Unless the anti-avoidance rule applies to deny the dividend received deduction, a tax loss would generally arise as a result of the two deductions.

The anti-avoidance rule incorporates certain exceptions, including where the taxpayer establishes that no tax-indifferent investor has all or substantially all of the economic exposure in respect of the share. An associated exception is also available for synthetic equity arrangements traded on a derivatives exchange. 

Budget 2024 proposes to remove the tax-indifferent investor exception (including the exchange traded exception) to the anti-avoidance rule. This measure would simplify the anti-avoidance rule and prevent taxpayers from claiming the dividend received deduction for dividends received on a share in respect of which there is a synthetic equity arrangement.

This measure would apply to dividends received on or after January 1, 2025.

Under the Income Tax Act , losses and other tax attributes that arise from expenditures for which a taxpayer did not ultimately bear the cost are generally not recognized. The Income Tax Act contains a set of debt forgiveness rules that apply where a commercial debt is settled for less than its principal amount. These rules generally reduce tax attributes by the amount of debt that is forgiven and, where tax attributes have been fully reduced, the rules cause an income inclusion equal to half of the remaining forgiven amount. The Act also contains a rule that entitles an insolvent corporation to a corresponding deduction to offset all or part of an income inclusion from the debt forgiveness rules.

Bankrupt taxpayers are generally excluded from these debt forgiveness rules. Instead, a separate loss restriction rule applies to extinguish the losses of bankrupt corporations that have received an absolute order of discharge.   

Some taxpayers have sought to manipulate the bankrupt status of an insolvent corporation, with a view to benefiting from the exception in the debt forgiveness rules while also avoiding the loss restriction rule applicable to bankrupt corporations. This planning seeks to preserve the losses and other tax attributes of the insolvent corporation (which would otherwise be eliminated upon the forgiveness of its debts) for their acquisition and use in avoiding corporate income tax by a profitable corporation.

Although the manipulation of bankrupt status can be challenged by the government based on existing rules in the Income Tax Act , these challenges can be both time-consuming and costly. As a result, the government is proposing a specific legislative measure.

Budget 2024 proposes to repeal the exception to the debt forgiveness rules for bankrupt corporations and the loss restriction rule applicable to bankrupt corporations. This change would subject bankrupt corporations to the general rules that apply to other corporations whose commercial debts are forgiven. The bankruptcy exception to the debt forgiveness rules would remain in place for individuals. While bankrupt corporations would be subject to the reduction of their loss carryforward balances and other tax attributes upon debt forgiveness, as insolvent corporations they could qualify for relief from the debt forgiveness income inclusion rule provided under the existing deduction for insolvent corporations.

These proposals would apply to bankruptcy proceedings that are commenced on or after Budget Day.

International Tax Measures

Exchange of tax information between national revenue agencies is an important tool for combating offshore tax evasion. The Common Reporting Standard (CRS) is the global standard developed and endorsed by the Organization for Economic Cooperation and Development (OECD) for the automatic exchange of financial information for tax purposes. Under Canada's implementation of the CRS in the Income Tax Act , Canadian financial institutions report to the Canada Revenue Agency information on financial accounts held in Canada by non-residents. The Canada Revenue Agency shares this information with foreign tax authorities. In exchange, Canada receives information on financial accounts held by Canadian residents outside of Canada.

Crypto-Asset Reporting Framework

Since the implementation of the CRS, financial markets have continued to evolve. One major development is the emergence of crypto-assets (including stablecoins, derivatives issued in the form of a crypto-asset, and certain non-fungible tokens), which can be transferred or held without interacting with traditional financial intermediaries and do not need to be reported under the CRS. To ensure appropriate reporting, the OECD has developed a new framework (referred to as the Crypto-Asset Reporting Framework, or CARF) that provides for the automatic exchange of tax information in relation to transactions in crypto-assets.

Budget 2024 proposes to implement the CARF in Canada. The measure would impose a new annual reporting requirement in the Income Tax Act on entities and individuals (referred to as crypto-asset service providers) that are resident in Canada, or that carry on business in Canada, and that provide business services effectuating exchange transactions in crypto-assets. This would include crypto exchanges, crypto-asset brokers and dealers, and operators of crypto-asset automated teller machines.

Crypto-asset service providers would be required to report to the Canada Revenue Agency, in respect of each customer and in respect of each crypto-asset, the annual value of:

• exchanges between the crypto-asset and fiat currencies;
• exchanges for other crypto-assets; and
• transfers of the crypto-asset, including the requirement to report information in respect of a customer of a merchant where the crypto-asset service provider processes payments on behalf of the merchant and the customer has transferred crypto-assets to the merchant in exchange for goods or services with a value exceeding US$50,000.

Reportable crypto-assets would exclude central bank digital currencies and specified electronic money products (e.g., digital representations of fiat currencies), which would be reportable under the amendments to the CRS described below.

In addition to information on crypto-asset transactions, crypto-asset service providers would be required to obtain and report information on each of their customers, including name, address, date of birth, jurisdiction(s) of residence, and taxpayer identification numbers for each jurisdiction of residence. If a customer is a corporation or other legal entity, the same information would need to be collected and reported in respect of the natural persons who exercise control over the entity. Reporting would be required with respect to both Canadian resident and non-resident customers.

Common Reporting Standard

Budget 2024 also proposes to implement amendments to the CRS that have been endorsed by the OECD in connection with the CARF. The changes would broaden the scope of the CRS to include specified electronic money products and central bank digital currencies which are not covered by the CARF. The amendments would also ensure effective coordination between the CRS and the CARF and limit instances of duplicative reporting between the two frameworks. Other changes would require that additional information be reported in respect of financial accounts and account holders and would strengthen the due diligence procedures financial institutions are required to follow.

In response to recommendations of the Global Forum on Transparency and Exchange of Information for Tax Purposes, Budget 2024 proposes two other changes to the CRS.

• First, the CRS would be amended to remove Labour-Sponsored Venture Capital Corporations (LSVCCs) from the list of non-reporting financial institutions and treat a non-registered account held in an LSVCC as an excluded account provided that annual contributions to the account do not exceed US$50,000. This would generally extend the same treatment to non-registered accounts currently available to registered accounts, e.g., Registered Retirement Savings Plans, which already qualify as excluded accounts. Due diligence and reporting requirements do not apply in respect of excluded accounts.
• Second, the anti-avoidance provision of the CRS would be amended to clarify that it applies when an individual or any entity enters into an arrangement or engages in a practice, if it can reasonably be considered that the primary purpose is to avoid an obligation of any person under the CRS.

These measures would apply to the 2026 and subsequent calendar years. This would allow the first reporting and exchange of information under the CARF and amended CRS to take place in 2027 with respect to the 2026 calendar year.

Existing income tax rules require a person who pays a non-resident for services provided in Canada to withhold 15 per cent of the payment and remit it to the Canada Revenue Agency (CRA). This acts as a pre-payment of any Canadian tax that the non-resident may ultimately owe. Canada generally taxes non-residents on their income from carrying on business in Canada. However, many non-resident service providers do not ultimately owe Canadian tax either because they do not have a permanent establishment in Canada under an applicable tax treaty, or because the service is international shipping or operating an aircraft in international traffic, both of which are generally exempt from Canadian tax.

Non-resident service providers with no Canadian tax liability may apply to the CRA for an advance waiver of the withholding requirement for a specific planned transaction. Alternatively, they may apply for a refund of the withheld amounts. However, many non-resident service providers instead pass the cost of the withholding requirement on to the payors. This increases costs for Canadians.

Budget 2024 proposes to provide the CRA with the legislative authority to waive the withholding requirement, over a specified period, for payments to a non-resident service provider if either of the following conditions are met:

• the non-resident would not be subject to Canadian income tax in respect of the payments because of a tax treaty between its country of residence and Canada; or
• the income from providing the services is exempt income from international shipping or from operating an aircraft in international traffic.

This proposal would allow the CRA to waive the withholding requirement on multiple transactions with a single waiver, subject to any conditions and information requirements necessary to reduce compliance risks.

This measure would come into force on royal assent of the enacting legislation.

Sales and Excise Tax Measures

On September 14, 2023, the government announced that it would temporarily remove the Goods and Services Tax (GST) from new purpose-built rental housing projects, such as apartment buildings, student housing, and senior residences built specifically for long-term rental accommodation.

The removal of the GST is being implemented through an Enhanced (100-per-cent) GST Rental Rebate for new qualifying purpose-built rental housing projects.

Qualifying purpose-built rental housing units include those that are part of a residential complex

• that contains at least four private apartment units or at least 10 private rooms or suites; and
• in which all or substantially all of the residential units meet the conditions for the existing GST Rental Rebate.

The Enhanced GST Rental Rebate applies to projects that begin construction after September 13, 2023 and before 2031, and that complete construction before 2036.

Universities, Public Colleges, and School Authorities

Under the existing GST/Harmonized Sales Tax (HST) rules in the Excise Tax Act , universities, public colleges, and school authorities are not eligible for a GST Rental Rebate in respect of new student housing they provide. This is due to the often temporary nature of student residences and the special GST/HST rules that apply to these entities.

Rental Rebate Conditions

One of the main eligibility conditions for a GST Rental Rebate is that the unit is for long-term rental. In this regard, the Excise Tax Act generally requires that the unit's first use be as the primary place of residence for an individual under a lease for a period of at least 12 months. However, many universities, public colleges, and school authorities would likely not meet this condition in respect of traditional student residences due to the more temporary nature of the housing.

Special GST Rules

When universities, public colleges, and school authorities build a new residence for their students, they are not subject to the normal GST/HST rules for builders, which require tax to be paid on the final value of a newly constructed residential complex. Instead, they are subject to a special set of relieving GST/HST rules under which they only incur GST/HST on their construction inputs. However, because of this, there is no final tax amount, which is the amount on which the GST Rental Rebates are based.

Proposed Modifications

To ensure that universities, public colleges, and school authorities can claim the Enhanced (100-per-cent) GST Rental Rebate, Budget 2024 proposes to modify the Excise Tax Act to allow them to apply the normal GST/HST rules that apply to other builders (i.e., paying GST/HST on the final value of the building) in respect of new student housing projects.

Additionally, Budget 2024 proposes to amend the Excise Tax Act and its regulations to relax the rebate conditions for new student housing provided by universities, public colleges, and school authorities that operate on a not-for-profit basis. These are generally educational institutions that would currently qualify for the Public Service Body rebates under the GST/HST.

The relaxed rebate conditions would allow these entities to claim the 100-per-cent rebate in respect of any new student residence that they acquire or construct provided it is primarily for the purpose of providing a place of residence for their students. That is, it would no longer be necessary that the first use of a unit in the student housing project be as a primary place of residence of an individual under a lease for a period of at least 12 months.

The relaxed rebate conditions would not be extended to universities, public colleges, and school authorities that operate on a for-profit basis.

The proposed measures would apply to student residences that begin construction after September 13, 2023 and before 2031, and that complete construction before 2036.

Budget 2024 proposes to amend the Excise Tax Act to repeal the temporary zero-rating of certain face masks or respirators and certain face shields under the GST/HST. The temporary relief announced in the 2020 Fall Economic Statement was proposed to be in effect until the use of face coverings was no longer broadly recommended by public health officials for the COVID-19 pandemic.

This measure would apply to supplies made on or after May 1, 2024.

Excise Duty on Tobacco

Budget 2024 announces the Government's intention to increase the tobacco excise duty rate by $4 per carton of 200 cigarettes (i.e., for a total of $5.49 including the automatic inflationary adjustment of $1.49 per carton of 200 cigarettes that took effect on April 1, 2024), along with corresponding increases to the excise duty rates for other tobacco products outlined in Table 2.

Inventories of cigarettes held by certain manufacturers, importers, wholesalers and retailers at the beginning of the day after Budget Day would be subject to an inventory tax of $0.02 per cigarette (subject to certain exemptions) to account for the $4 increase. Taxpayers would have until June 30, 2024 to file a return and pay the cigarette inventory tax.

This measure would come into force on the day after Budget Day.

Importation Limit for Packaged Raw Leaf Tobacco for Personal Use

Currently under the Excise Act, 2001 , no one is allowed to possess or import unstamped tobacco products unless an exemption applies. One of the exemptions is that the products are imported for personal use in quantities not in excess of prescribed limits (e.g., five cartons of cigarettes). There is currently no limit on importation of packaged raw leaf tobacco for personal use.

Budget 2024 proposes to provide a new prescribed limit of up to 2500 grams of packaged raw leaf tobacco for importation for personal use. Consequential to the imposition of the new importation limit, Budget 2024 also proposes to amend the definition of "packaged" for raw leaf tobacco to ensure the proper enforcement of the new limit for importation, and to better reflect current business practices.

This measure would come into force on the first day of the month following royal assent to the enabling legislation.

Process for Prescribing Tobacco Products

Brands of tobacco products that are destined for the export market must be prescribed by regulation before the products can be exported without markings and the imposition of a special excise duty. Applications need to be made to the Canada Revenue Agency for eligibility assessments, and the Canada Revenue Agency would in turn recommend qualifying brands for prescription through the regulatory process.

To improve the administration of the current process, Budget 2024 proposes to replace the prescription through the regulatory process with an authorization for the Minister of National Revenue to specify the brands of tobacco products for export that are exempted from the special excise duty and marking requirement.

Requiring Information Returns from Tobacco Prescribed Persons

Persons that are prescribed by regulation (i.e., "prescribed persons") may be issued excise stamps for either tobacco products or vaping products, stamps they may then provide to overseas manufacturers of those products to allow the eventual importation of stamped products into Canada. Generally, prescribed persons do not manufacture tobacco or vaping products in Canada, and excise duties are paid once the products are imported into Canada.

Prescribed persons that are issued vaping excise stamps are currently required to file information returns each month, but the same requirement does not apply to prescribed persons that are issued tobacco excise stamps.

To improve controls and accountability for tobacco excise stamps, Budget 2024 proposes to require tobacco prescribed persons to file information returns for tobacco excise stamps.

Excise Duty on Vaping Products

Budget 2024 announces the Government's intention to increase the vaping product excise duty rate as outlined in Table 3.

This proposed increase would also apply to the additional duty imposed in respect of participating jurisdictions under the coordinated vaping product taxation framework. This measure would come into force on July 1, 2024; i.e., the same day as the effective date for the introduction of the coordinated vaping product taxation regime for Ontario, Quebec, the Northwest Territories, and Nunavut.

Sharing of Confidential Information

Currently, under the Excise Act, 2001 , the Canada Revenue Agency is allowed to share confidential information for the purposes of administration or enforcement of the Cannabis Act .

To enhance collaboration between the Canada Revenue Agency and Health Canada in their respective responsibilities with regard to tobacco and vaping products, Budget 2024 proposes to amend the Excise Act, 2001 to allow the Canada Revenue Agency to share confidential information for the purposes of the administration or enforcement of the Tobacco and Vaping Products Act .

This measure would come into force upon royal assent to the enabling legislation.

Other Tax Measures

The First Nations Goods and Services Tax Act provides a legislative framework for interested Indigenous governments to levy broad-based value-added taxes, referred to as the First Nations Goods and Services Tax (FNGST), that are fully harmonized with the federal Goods and Services Tax (GST) or federal component of Harmonized Sales Tax (HST), including applying at the same rate (five per cent).

Budget 2024 proposes to amend the First Nations Goods and Services Tax Act to provide additional flexibility to Indigenous governments seeking to exercise tax jurisdiction on their lands. Specifically, the amendments would enable Indigenous governments to enact a value-added sales tax, under their own laws, on fuel, alcohol, cannabis, tobacco, and vaping (FACT) products within their reserves or settlement lands. The FACT sales tax would be analogous to the FNGST, including applying at the same five per cent GST rate, but would be limited to fuel, alcohol, cannabis, tobacco, and vaping products.

Indigenous governments would have the choice to levy FACT sales taxes and would have the flexibility to choose which FACT product(s) to tax. These taxes would be implemented through negotiated tax administration agreements between the federal government and interested Indigenous governments. FACT sales taxes would apply to all persons buying the taxed FACT products sold on the lands of an opt-in Indigenous government. On products for which an Indigenous FACT sales tax applies, the federal GST, or federal component of HST, would not apply.

Among other administrative matters, tax administration agreements would include provisions for the appropriate sharing of tax room between Indigenous governments and Canada in circumstances where Indigenous government FACT revenues are generated primarily from persons who would otherwise pay the federal GST or federal component of HST.

The government intends to propose amendments to the First Nations Goods and Services Tax Act to enable FACT sales taxes and streamline administration of taxes under that Act. Additional engagement and negotiation of tax administration agreements would be required prior to implementation of value-added FACT taxes by interested Indigenous governments.

Budget 2024 confirms the government's intention to proceed with the following previously announced tax and related measures, as modified to take into account consultations, deliberations, and legislative developments, since their release.

• Legislative proposals released on March 9, 2024, to extend by two years the two per cent cap on the inflation adjustment on beer, spirit, and wine excise duties, and to cut by half for two years the excise duty rate on the first 15,000 hectolitres of beer brewed in Canada.
• The Clean Hydrogen investment tax credit;
• The Clean Technology Manufacturing investment tax credit;
• Concessional Loans;
• Short-Term Rentals;
• Vaping Excise Duties; and
• International Shipping.
• The Canadian journalism labour tax credit;
• Proposed expansion of eligibility for the Clean Technology and Clean Electricity investments tax credits to support generation of electricity and heat from waste biomass;
• The addition of psychotherapists and counselling therapists to the list of health care practitioners whose professional services rendered to individuals are exempt from the Goods and Services Tax/Harmonized Sales Tax (GST/HST);
• Proposals relating to the GST/HST joint venture election rules;
• The application of the enhanced (100-per-cent) GST Rental Rebate to qualifying co-operative housing corporations; and
• Proposals relating to the Underused Housing Tax.
• Regulatory proposals released on November 3, 2023, to temporarily pause the federal fuel charge on deliveries of heating oil.
• Legislative and regulatory amendments to implement the enhanced (100-per-cent) GST Rental Rebate for purpose-built rental housing announced on September 14, 2023.
• The Carbon Capture, Utilization, and Storage investment tax credit;
• The Clean Technology investment tax credit;
• Labour Requirements Related to Certain investment tax credits;
• Enhancing the Reduced Tax Rates for Zero-Emission Technology Manufacturers;
• Flow-Through Shares and the Critical Mineral Exploration Tax Credit – Lithium from Brines;
• Employee Ownership Trusts;
• Retirement Compensation Arrangements;
• Strengthening the Intergenerational Business Transfer Framework;
• The Income Tax and GST/HST Treatment of Credit Unions;
• The Alternative Minimum Tax for High-Income Individuals;
• A Tax on Repurchases of Equity;
• Modernizing the General Anti-Avoidance Rule;
• Global Minimum Tax (Pillar Two);
• Digital Services Tax;
• Technical amendments to GST/HST rules for financial institutions;
• Providing relief in relation to the GST/HST treatment of payment card clearing services;
• Enhancements to the vaping product taxation framework;
• Tax-exempt sales of motive fuels for export;
• Excessive Interest and Financing Expenses Limitations;
• Extending the quarterly duty remittance option to all licensed cannabis producers;
• Revised Luxury Tax draft regulations to provide greater clarity on the tax treatment of luxury items; and
• Technical tax amendments to the  Income Tax Act  and the  Income Tax Regulations .
• Legislative amendments to implement changes discussed in the transfer pricing consultation paper released on June 6, 2023.
• Tax measures announced in Budget 2023, including the Dividend Received Deduction by Financial Institutions.
• Substantive Canadian-Controlled Private Corporations;
• Technical amendments to the  Income Tax Act  and  Income Tax Regulations ; and
• Remaining legislative and regulatory proposals relating to the GST/HST, excise levies and other taxes and charges announced in the August 9, 2022 release.
• Legislative amendments to implement the Hybrid Mismatch Arrangements rules announced in Budget 2021.
• Legislative proposals released in Budget 2021 with respect to the Rebate of Excise Tax for Goods Purchased by Provinces.
• Regulatory proposals released in Budget 2021 related to information requirements to support input tax credit claims under the GST/HST.
• The income tax measure announced on December 20, 2019, to extend the maturation period of amateur athlete trusts maturing in 2019 by one year, from eight years to nine years.

Budget 2024 also reaffirms the government's commitment to move forward as required with other technical amendments to improve the certainty and integrity of the tax system.

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New rules for Pregnant Workers Fairness Act include divisive accommodations for abortion

FILE - An exam room is seen inside Planned Parenthood on March 10, 2023, in Fairview Heights, Ill. Workers are entitled to workplace accommodations for abortions and some pregnancy-related conditions under the Pregnant Workers Fairness Act, according to federal regulations published Monday, April 15, 2024. (AP Photo/Jeff Roberson)

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NEW YORK (AP) — Workers are entitled to time off and other job accommodations for abortions — along with pregnancy-related medical conditions like miscarriage, stillbirth and lactation — under the Pregnant Workers Fairness Act, according to finalized federal regulations published Monday.

The regulations provide guidance for employers and workers on how to implement the law, which passed with robust bipartisan Congressional support in December 2022 but sparked controversy last year when the Equal Employment Opportunity Commission included abortions in its draft rules. The language means that workers can ask for time off to obtain an abortion and recover from the procedure.

The EEOC says its decision to keep the abortion provisions in its final rules, despite criticism from some conservatives, is consistent with its own longstanding interpretation of Title VII, as well as court rulings. The federal agency added that the new law does not obligate employers or employer-sponsored health plans to cover abortion-related costs, and that the type of accommodation that most likely will be sought under the Pregnant Workers Fairness Act regarding an abortion is time off to attend a medical appointment or for recovery, which does not have to be paid.

The act requires most employers with 15 or more employees to provide “reasonable accommodations” for a worker’s known limitations related to pregnancy, childbirth, or related medical conditions — including fertility and infertility treatments in some cases — unless the accommodation will cause the employer an undue hardship. The EEOC’s regulations will go into effect on June 18.

Labor advocates hailed the new law as especially important for women of color who are most likely to work in low-wage, physically demanding jobs but are often denied accommodations for everything from time off for medical appointments to the ability to sit or stand on the job. Major business groups also supported the law, citing the need for clarity about the accommodations that employers are required to give pregnant workers.

“No one should have to risk their job for their health just because they are pregnant, recovering from childbirth, or dealing with a related medical condition,” said EEOC Chair Charlotte A. Burrows on Monday.

But Republican lawmakers and anti-abortion activists denounced the EEOC’s inclusion of abortion after the agency first released its proposed rule in August for a monthslong public commentary period. Abortion rights proponents, meanwhile, applauded the provision as critical at time when abortion rights have been curtailed in many states following the U.S. Supreme Court’s 2022 decision to overturn Roe v. Wade. The EEOC is composed of three Democratic commissioners and two Republican commissioners.

Sen. Bill Cassidy of Louisiana, the lead Republican sponsor of the Pregnant Workers Fairness Law, accused the Biden administration on Monday of “shocking and illegal” disregard of the legislative process to promote a political agenda. The Alliance Defending Freedom, a conservative Christian legal organization, said the Biden administration was trying to “smuggle an abortion mandate” into the law.

But in comments submitted to the EEOC, the American Civil Liberties Union applauded the agency for “recognizing that abortion has for decades been approved under the law as a ‘related medical condition’ to pregnancy that entitles workers to reasonable accommodations, including time off to obtain abortion care.”

The EEOC said it had received 54,000 comments urging the commission to exclude abortion from its definition of medical condition related to pregnancy, but it also received 40,000 comments supporting its inclusion. While the commission said it understood that both sides were expressing “sincere, deeply held convictions,” it cited numerous federal cases that it said supported its interpretation that abortion is a pregnancy-related condition deserving of protection.

The new rules include extensive details on the types of accommodations that pregnant workers can request, from temporary exemption from jobs duties like heavy lifting to considerations for morning sickness.

Women’s right advocates had campaigned for years for the law, arguing that the 1978 Pregnancy Discrimination Act offered inadequate protection for pregnant workers. The 1978 law, which amended Title VII of the Civil Rights Act of 1964, prohibited discrimination on the basis of pregnancy and marked a major shift for gender equality at time when pregnant women were routinely denied or pushed out of jobs.

But in order to receive workplace accommodations, pregnant women had to demonstrate that co-workers had received similar benefits for comparable needs, since the act stated only that pregnant workers must be treated similarly to other employees, not that they deserved special consideration. That put a burden of proof that many women found impossible to meet, forcing them to work in unsafe conditions or quit their jobs, according to A Better Balance , one of the most vocal advocates for the Pregnant Workers Fairness Act.

The new law makes clear that that pregnant workers are entitled to accommodations to keep doing their jobs, mirroring the process for workers with disabilities. It places the burden on employers to prove “undue hardship” if they deny requests for modifications.

The EEOC typically handles between 2,000 and 4,000 pregnancy discrimination charges a year, many involving denial of workplace accommodations. A study conducted by A Better Balance found that in two-thirds of pregnancy discrimination cases that followed the 2015 Supreme Court ruling, courts determined the employers were allowed to deny accommodations under the Pregnancy Discrimination Act.

In a prepared statement, A Better Balance Co-President Dina Bakst applauded the EEOC “for issuing robust final regulations that appropriately recognize the broad scope of the Pregnant Workers Fairness Act.”

The Associated Press’ women in the workforce and state government coverage receives financial support from Pivotal Ventures. AP is solely responsible for all content. Find AP’s standards for working with philanthropies, a list of supporters and funded coverage areas at AP.org .

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