Eastern Daylight Saving Time, June 18, 1987, the share is deemed to have been issued at the particular time and the guarantee agreement is deemed to have been given as part of a series of transactions that included the issuance of the share; and
(b)specified personhas the meaning assigned by paragraph (h) of the definitiontaxable preferred sharein subsection 248(1).
Marginal note:Where no deduction permitted
(2.3)No deduction may be made under subsection (1) or (2) or 138(6) in computing the taxable income of a particular corporation in respect of a dividend received on a share of the capital stock of a corporation where there is, in respect of the share, a dividend rental arrangement of the particular corporation, a partnership of which the particular corporation is directly or indirectly a member or a trust under which the particular corporation is a beneficiary.
Marginal note:Dividend rental arrangements — exception
(2.31)Subsection (2.3) does not apply to a dividend received on a share where there is, in respect of the share, a dividend rental arrangement of a person or partnership (referred to in this subsection and subsection (2.32) as thetaxpayer) throughout a particular period during which the synthetic equity arrangement referred to in paragraph (c) of the definitiondividend rental arrangementin subsection 248(1) is in effect if
(a)the dividend rental arrangement is a dividend rental arrangement because of that paragraph; and
(b)the taxpayer establishes that, throughout the particular period, no tax-indifferent investor or group of tax-indifferent investors, each member of which is affiliated with every other member, has all or substantially all of the risk of loss and opportunity for gain or profit in respect of the share.
Marginal note:Representations
(2.32)A taxpayer is considered to have satisfied the condition described in paragraph (2.31)(b) in respect of a share if
(a)the taxpayer or the connected person referred to in paragraph (a) of the definitionsynthetic equity arrangementin subsection 248(1) (either of which is referred to in this subsection as thesynthetic equity arrangement party) obtains accurate representations in writing from its counterparty, or from each member of a group comprised of all its counterparties each of which is affiliated with each other (each member of this group of counterparties is referred to in this subsection as anaffiliated counterparty), with respect to the synthetic equity arrangement, as appropriate, that
(i)it is not a tax-indifferent investor and it does not reasonably expect to become a tax-indifferent investor during the particular period referred to in subsection (2.31), and
(ii)all or substantially all of its risk of loss and opportunity for gain or profit in respect of the share during the particular period referred to in subsection (2.31) has not been eliminated and cannot reasonably be expected by it to be eliminated;
(b)the synthetic equity arrangement party obtains accurate representations in writing from its counterparty, or from each affiliated counterparty, with respect to the synthetic equity arrangement that the counterparty, or each affiliated counterparty, as appropriate
(i)is not a tax-indifferent investor and does not reasonably expect to become a tax-indifferent investor during the particular period referred to in subsection (2.31),
(ii)has entered into one or more specified synthetic equity arrangements that have the effect of eliminating all or substantially all of its risk of loss and opportunity for gain or profit, in respect of the share, in one of the following circumstances:
(A)in the case of a counterparty, that counterparty
(I)has entered into a specified synthetic equity arrangement with its own counterparty (a counterparty of a counterparty or of an affiliated counterparty is referred to in this subsection as aspecified counterparty), or
(II)has entered into a specified synthetic equity arrangement with each member of a group of its own counterparties each member of which is affiliated with each other member (each member of this group of counterparties is referred to in this subsection as anaffiliated specified counterparty), or
(B)in the case of an affiliated counterparty, each affiliated counterparty
(I)has entered into a specified synthetic equity arrangement with the same specified counterparty, or
(II)has entered into a specified synthetic equity arrangement with an affiliated specified counterparty that is part of the same group of affiliated specified counterparties, and
(iii)has obtained accurate representations in writing from each of its specified counterparties, or from each member of the group of affiliated specified counterparties referred to in subclause (A)(II) or (B)(II), as appropriate, that
(A)it is not a tax-indifferent investor and it does not reasonably expect to become a tax-indifferent investor during the particular period referred to in subsection (2.31), and
(B)all or substantially all of its risk of loss and opportunity for gain or profit in respect of the share during the particular period referred to in subsection (2.31) has not been eliminated and cannot reasonably be expected by it to be eliminated;
(c)the synthetic equity arrangement party obtains accurate representations in writing from its counterparty, or from each affiliated counterparty, with respect to the synthetic equity arrangement that the counterparty, or each affiliated counterparty, as appropriate
(i)is not a tax-indifferent investor and does not reasonably expect to become a tax-indifferent investor during the particular period referred to in subsection (2.31),
(ii)has entered into specified synthetic equity arrangements
(A)that have the effect of eliminating all or substantially all of its risk of loss and opportunity for gain or profit in respect of the share,
(B)where no single specified counterparty or group of affiliated specified counterparties has been provided with all or substantially all of the risk of loss and opportunity for gain or profit in respect of the share, and
(C)where each specified counterparty or affiliated specified counterparty deals at arm’s length with each other (other than in the case of affiliated specified counterparties, within the same group, of affiliated specified counterparties), and
(iii)has obtained accurate representations in writing from each of its specified counterparties, or from each of its affiliated specified counterparties, that
(A)it is a person resident in Canada and it does not reasonably expect to cease to be resident in Canada during the particular period referred to in subsection (2.31), and
(B)all or substantially all of its risk of loss and opportunity for gain or profit in respect of the share during the particular period referred to in subsection (2.31) has not been eliminated and cannot reasonably be expected by it to be eliminated; or
(d)where a person or partnership is a party to a synthetic equity arrangement chain in respect of the share, the person or partnership
(i)has obtained all or substantially all of the risk of loss and opportunity for gain or profit in respect of the share under the synthetic equity arrangement chain,
(ii)has entered into one or more specified synthetic equity arrangements that have the effect of eliminating all or substantially all of its risk of loss and opportunity for gain or profit in respect of the share, and
(iii)obtains accurate representations in writing of the type described in paragraph (a), (b) or (c), as if it were a synthetic equity arrangement party, from each of its counterparties where each such counterparty deals at arm’s length with that person or partnership.
Marginal note:End of particular period
(2.33)If, at a time during a particular period referred to in subsection (2.31), a counterparty, specified counterparty, affiliated counterparty or affiliated specified counterparty reasonably expects to become a tax-indifferent investor or — if it has provided a representation described by subparagraph (2.32)(a)(ii) or clause (2.32)(b)(iii)(B) or (c)(iii)(B) in respect of a share — that all or substantially all of its risk of loss and opportunity for gain or profit in respect of the share will be eliminated, the particular period for which it has provided a representation in respect of the share is deemed to end at that time.
Marginal note:Interpretation
(2.34)For greater certainty, each reference in subsection (2.32) to a “counterparty”, a “specified counterparty”, an “affiliated counterparty” or an “affiliated specified counterparty” is to be read as referring only to a person or partnership that obtains all or any portion of the risk of loss or opportunity for gain or profit in respect of the share.
Marginal note:Where no deduction permitted
(2.4)No deduction may be made under subsection 112(1) or 112(2) or subsection 138(6) in computing the taxable income of a particular corporation in respect of a dividend received on a share (in this subsection referred to as the “subject share”), other than an exempt share, of the capital stock of another corporation where
(a)any person or partnership was obligated, either absolutely or contingently, to effect an undertaking, including any guarantee, covenant or agreement to purchase or repurchase the subject share, under which an investor is entitled, either immediately or in the future, to receive or obtain any amount or benefit for the purpose of reducing the impact, in whole or in part, of any loss that an investor may sustain by virtue of the ownership, holding or disposition of the subject share, and any property is used, in whole or in part, either directly or indirectly in any manner whatever, to secure the undertaking; or
(b)the consideration for which the subject share was issued or any other property received, either directly or indirectly, by an issuer from an investor, or any property substituted therefor, is or includes
(i)an obligation of an investor to make payments that are required to be included, in whole or in part, in computing the income of the issuer, other than an obligation of a corporation that, immediately before the subject share was issued, would be related to the corporation that issued the subject share if this Act were read without reference to paragraph 251(5)(b), or
(ii)any right to receive payments that are required to be included, in whole or in part, in computing the income of the issuer where that right is held on condition that it or property substituted therefor may revert or pass to an investor or a person or partnership to be determined by an investor,
where that obligation or right was acquired by the issuer as part of a transaction or event or a series of transactions or events that included the issuance or acquisition of the subject share, or a share for which the subject share was substituted.
Marginal note:Application of s. (2.4)
(2.5)Subsection 112(2.4) applies only in respect of a dividend on a share where, having regard to all the circumstances, it may reasonably be considered that the share was issued or acquired as part of a transaction or event or a series of transactions or events that enabled any corporation to earn investment income, or any income substituted therefor, and, as a result, the amount of its taxes payable under this Act for a taxation year is less than the amount that its taxes payable under this Act would be for the year if that investment income were the only income of the corporation for the year and all other taxation years and no amount were deductible under subsections 127(5) and 127.2(1) in computing its taxes payable under this Act.
Marginal note:Definitions
(2.6)For the purposes of this subsection and subsection 112(2.4),
exempt sharemeans
(a)a prescribed share,
(b)a share of the capital stock of a corporation issued before 5:00 p.m