II, s. 66]
(b)where the corporation is, by virtue of subsection 84(2), deemed to have paid at the particular time a dividend (in this paragraph referred to as the “winding-up dividend”) on shares of any class of its capital stock, the following rules apply:
(i)such portion of the winding-up dividend as does not exceed the corporation’s capital dividend account immediately before that time or capital gains dividend account immediately before that time, as the case may be, shall be deemed, for the purposes of an election in respect thereof under subsection 83(2), 131(1) (as that subsection applies for the purposes of section 130) or 133(7.1), as the case may be, and where the corporation has so elected, for all other purposes, to be the full amount of a separate dividend,
(ii)the portion of the winding-up dividend equal to the lesser of the corporation’s pre-1972 capital surplus on hand immediately before that time and the amount by which the winding-up dividend exceeds
(A)the portion thereof in respect of which the corporation has made an election under subsection 83(2), or
(B)the portion thereof in respect of which the corporation has made an election under subsection 133(7.1),
as the case may be, shall be deemed not to be a dividend,
(iii)notwithstanding the definitiontaxable dividendin subsection 89(1), the winding-up dividend, to the extent that it exceeds the total of the portion thereof deemed by subparagraph 88(2)(b)(i) to be a separate dividend for all purposes and the portion deemed by subparagraph 88(2)(b)(ii) not to be a dividend, shall be deemed to be a separate dividend that is a taxable dividend, and
(iv)each person who held any of the issued shares of that class at the particular time shall be deemed to have received that proportion of any separate dividend determined under subparagraph 88(2)(b)(i) or 88(2)(b)(iii) that the number of shares of that class held by the person immediately before the particular time is of the number of issued shares of that class outstanding immediately before that time, and
(c)for the purpose of computing the income of the corporation for its taxation year that includes the particular time, paragraph 12(1)(t) shall be read as follows:
“12(1)(t)the amount deducted under subsection 127(5) or 127(6) in computing the taxpayer’s tax payable for the year or a preceding taxation year to the extent that it was not included under this paragraph in computing the taxpayer’s income for a preceding taxation year or is not included in an amount determined under paragraph 13(7.1)(e) or 37(1)(e) or subparagraph 53(2)(c)(vi) or 53(2)(h)(ii) or the amount determined for I in the definitionundepreciated capital costin subsection 13(21) or L in the definitioncumulative Canadian exploration expensein subsection 66.1(6);”.
Definition ofpre-1972 capital surplus on hand
(2.1)For the purposes of subsection 88(2),pre-1972 capital surplus on handof a particular corporation at a particular time means the amount, if any, by which the total of
(a)the corporation’s 1971 capital surplus on hand on December 31, 1978 within the meaning of theIncome Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as it read on that date,
(b)the total of all amounts each of which is an amount in respect of a capital property of the corporation owned by it on December 31, 1971 and disposed of by it after 1978 and before the particular time, equal to the amount, if any, by which the lesser of its fair market value on valuation day (within the meaning assigned by section 24 of theIncome Tax Application Rules) and the corporation’s proceeds of disposition of that capital property exceeds its actual cost to the corporation determined without reference to theIncome Tax Application Rulesother than subsections 26(15), (17) and (21) to (27) of that Act,
(c)where before the particular time a subsidiary (to the winding-up of which the rules in subsection 88(1) applied) of the particular corporation has been wound up after 1978, an amount equal to the pre-1972 capital surplus on hand of the subsidiary immediately before the commencement of the winding-up, and
(d)where the particular corporation is a new corporation formed as a result of an amalgamation (within the meaning of section 87) after 1978 and before the particular time, the total of all amounts each of which is an amount in respect of a predecessor corporation, equal to the predecessor corporation’s pre-1972 capital surplus on hand immediately before the amalgamation
exceeds
(e)the total of all amounts each of which is an amount in respect of a capital property (other than depreciable property) of the corporation owned by it on December 31, 1971 and disposed of by it after 1978 and before the particular time equal to the amount, if any, by which its actual cost to the corporation determined without reference to theIncome Tax Application Rules, other than subsections 26(15), (17) and (21) to (27) of that Act, exceeds the greater of the fair market value of the property on valuation day (within the meaning assigned by section 24 of that Act) and the corporation’s proceeds of disposition of the property.
Marginal note:Determination of pre-1972 capital surplus on hand
(2.2)For the purposes of determining the pre-1972 capital surplus on hand of any corporation at a particular time after 1978, the following rules apply:
(a)an amount referred to in paragraphs 88(2.1)(b) and 88(2.1)(e) in respect of the corporation shall be deemed to be nil, where the property disposed of is
(i)a share of the capital stock of a subsidiary, within the meaning of subsection 88(1), that was disposed of on the winding-up of the subsidiary where that winding-up commenced after 1978,
(ii)a share of the capital stock of another Canadian corporation that was controlled, within the meaning assigned by subsection 186(2), by the corporation immediately before the disposition and that was disposed of by the corporation after 1978 to a person with whom the corporation was not dealing at arm’s length immediately after the disposition, other than by a disposition referred to in paragraph 88(2.2)(b), or
(iii)subject to subsection 26(21) of theIncome Tax Application Rules, a share of the capital stock of a particular corporation that was disposed of by the corporation after 1978, on an amalgamation, within the meaning assigned by subsection 87(1), where the corporation controlled, within the meaning assigned by subsection 186(2), both the particular corporation immediately before the amalgamation and the new corporation immediately after the amalgamation; and
(b)where another corporation that is a Canadian corporation owned a capital property on December 31, 1971 and subsequently disposed of it to the corporation in a transaction to which section 85 applied, the other corporation shall be deemed not to have disposed of that property in the transaction and the corporation shall be deemed to have owned that property on December 31, 1971 and to have acquired it at an actual cost equal to the actual cost of that property to the other corporation.
Marginal note:Actual cost of certain depreciable property
(2.3)For the purpose of subsection 88(2.1), the actual cost of the depreciable property that was acquired by a corporation before the commencement of its 1949 taxation year that is capital property referred to in that subsection shall be deemed to be the capital cost of that property to the corporation (within the meaning assigned by section 144 of theIncome Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as it read in its application to the 1971 taxation year).
Marginal note:Liquidation and dissolution of foreign affiliate
(3)Notwithstanding subsection 69(5), if at any time a taxpayer receives a property (referred to in this subsection as the “distributed property”) from a foreign affiliate (referred to in this subsection as the “disposing affiliate”) of the taxpayer on a liquidation and dissolution of the disposing affiliate and the distributed property is received in respect of shares of the capital stock of the disposing affiliate that are disposed of on the liquidation and dissolution,
(a)subject to subsections (3.3) and (3.5), the distributed property is deemed to have been disposed of at that time by the disposing affiliate to the taxpayer for proceeds of disposition equal to the relevant cost base (within the meaning assigned by subsection 95(4)) to the disposing affiliate of the distributed property in respect of the taxpayer, immediately before that time, if
(i)the liquidation and dissolution is a qualifying liquidation and dissolution of the disposing affiliate, or
(ii)the distributed property is a share of the capital stock of another foreign affiliate of the taxpayer that was, immediately before that time, excluded property (within the meaning assigned by subsection 95(1)) of the disposing affiliate;
(b)if paragraph (a) does not apply to the distributed property, the distributed property is deemed to have been disposed of at that time by the disposing affiliate to the taxpayer for proceeds of disposition equal to the distributed property’s fair market value at that time;
(c)the distributed property is deemed to have been acquired, at that time, by the taxpayer at a cost equal to the amount determined under paragraph (a) or (b) to be the disposing affiliate’s proceeds of disposition of the distributed property;
(d)each share (referred to in paragraph (e) and subsections (3.3) and (3.4) as a “disposed share”) of a class of the capital stock of the disposing affiliate that is disposed of by the taxpayer on the liquidation and dissolution is deemed to be disposed of for proceeds of disposition equal to the amount determined by the formula
A/B
where
(e)if the liquidation and dissolution is a qualifying liquidation and dissolution of the disposing affiliate, any loss of the taxpayer in respect of the disposition of a disposed share is deemed to be nil.
Marginal note:Qualifying liquidation and dissolution
(3.1)For the purposes of subsections (3), (3.3) and (3.5), aqualifying liquidation and dissolutionof a foreign affiliate (referred to in this subsection as the “disposing affiliate”) of a taxpayer means a liquidation and dissolution of the disposing affiliate in respect of which the taxpayer elects in accordance with prescribed rules and
(a)the taxpayer owns not less than 90% of the issued and outstanding shares of each class of the capital stock of the disposing affiliate throughout the liquidation and dissolution; or
(b)both
(i)the percentage determined by the following formula is greater than or equal to 90%:
A/B
where
(A)the total of all amounts each of which is the fair market value, at the time at which it is distributed, of a property that is distributed by the disposing affiliate to the taxpayer in the course of the liquidation and dissolution in respect of shares of the capital stock of the disposing affiliate
exceeds
(B)the total of all amounts each of which is an amount owing (other than an unpaid dividend) by, or an obligation of, the disposing affiliate that was assumed or cancelled by the taxpayer in consideration for a property referred to in clause (A), and
(A)the total of all amounts each of which is the fair market value, at the time at which it is distributed, of a property that is distributed by the disposing affiliate to a shareholder of the disposing affiliate in the course of the liquidation and dissolution in respect of shares of the capital stock of the disposing affiliate
exceeds
(B)the total of all amounts each of which is an amount owing (other than an unpaid dividend) by, or an obligation of, the disposing affiliate that was assumed or cancelled by a shareholder of the disposing affiliate in consideration for a property referred to in clause (A), and
(ii)at the time of each distribution of property by the disposing affiliate in the course of the liquidation and dissolution in respect of shares of the capital stock of the disposing affiliate, the taxpayer holds shares of that capital stock that would, if an annual general meeting of the shareholders of the disposing affiliate were held at that time, entitle it to 90% or more of the votes that could be cast under all circumstances at the meeting.
Marginal note:Net distribution amount
(3.2)For the purposes of the description of A in paragraph (3)(d),net distribution amountin respect of a distribution of distributed property means the amount determined by the formula
A – B
where
Marginal note:Suppression election
(3.3)For the purposes of paragraph (3)(a), if the liquidation and dissolution is a qualifying liquidation and dissolution of the disposing affiliate and the taxpayer would, in the absence of this subsection and, for greater certainty, after taking into account any election under subsection 93(1), realize a capital gain (the amount of which is referred to in subsection (3.4) as the “capital gain amount”) from the disposition of a disposed share, the taxpayer may elect, in accordance with prescribed rules, that distributed property that was, immediately before the disposition, capital property of the disposing affiliate be deemed to have been disposed of by the disposing affiliate to the taxpayer for proceeds of disposition equal to the amount claimed (referred to in subsection (3.4) as the “claimed amount”) by the taxpayer in the election.
Marginal note:Conditions for subsection (3.3) election
(3.4)An election under subsection (3.3) in respect of distributed property disposed of in the course of the liquidation and dissolution is not valid unless
(a)the claimed amount in respect of each distributed property does not exceed the amount that would, in the absence of subsection (3.3), be determined under paragraph (3)(a) in respect of the distributed property; and
(b)the amount determined by the following formula does not exceed the total of all amounts each of which is the capital gain amount in respect of a disposed share:
A – B
where
Marginal note:Taxable Canadian property
(3.5)For the purposes of paragraph (3)(a), the distributed property is deemed to have been disposed of by the disposing affiliate to the taxpayer for proceeds of disposition equal to the adjusted cost base of the distributed property to the disposing affiliate immediately before the time of its disposition, if
(a)the liquidation and dissolution is a qualifying liquidation and dissolution of the disposing affiliate;
(b)the distributed property is, at the time of its disposition, taxable Canadian property (other than treaty-protected property) of the disposing affiliate that is a share of the capital stock of a corporation resident in Canada; and
(c)the taxpayer and the disposing affiliate have jointly elected in accordance with prescribed rules.
Marginal note:Amalgamation deemed not to be acquisition of control
(4)For the purposes of paragraphs (1)(c), (c.2), (d) and (d.2) and, for greater certainty, paragraphs (c.3) to (c.8) and (d.3),
(a)subject to paragraph 88(4)(c), control of any corporation shall be deemed not to have been acquired because of an amalgamation;
(b)any corporation formed as a result of an amalgamation shall be deemed to be the same corporation as, and a continuation of, each predecessor corporation; and
(c)in the case of an amalgamation described in subsection 87(9), control of a predecessor corporation that was not controlled by the parent before the amalgamation shall be deemed to have been acquired by the parent immediately before the amalgamation.
Marginal note:Application
88.1(1)Subsection (2) applies to a trust’s distribution of property to a taxpayer if
(a)the distribution is a SIFT trust wind-up event;
(b)the trust is
(i)a SIFT wind-up entity whose only beneficiary, at all times at which the trust makes a distribution that is a SIFT trust wind-up event, is a taxable Canadian corporation, or
(ii)a trust whose only beneficiary, at all times at which the trust makes a distribution that is a SIFT trust wind-up event, is another trust described by subparagraph (i);
(c)where the trust is a SIFT wind-up entity, the distribution occurs no more than 60 days after the earlier of
(i)the first SIFT trust wind-up event of the trust, and
(ii)the first distribution to the trust that is a SIFT trust wind-up event of another trust; and
(d)if the property is shares of the capital stock of a taxable Canadian corporation,
(i)the property was not acquired by the trust on a distribution to which subsection 107(3.1) applies, and
(ii)the trust elects in writing, filed with the Minister on or before the trust’s filing-due date for its taxation year that includes the time of the distribution, that this section apply to the distribution.
Marginal note:SIFT trust wind-up event
(2)If this subsection applies to a trust’s distribution of property to a taxpayer, subsections 88(1) to (1.7), and section 87 and paragraphs 256(7)(a) to (e) as they apply for the purposes of those subsections, apply, with any modifications that the circumstances require, as if
(a)the trust were a taxable Canadian corporation (in this subsection referred to as the “subsidiary”) that is not a private corporation;
(b)where the taxpayer is a SIFT wind-up entity, the taxpayer were a taxable Canadian corporation that is not a private corporation;
(c)the distribution were a winding-up of the subsidiary;
(d)the taxpayer’s interest as a beneficiary under the trust were shares of a single class of shares of the capital stock of the subsidiary owned by the taxpayer;
(e)paragraph 88(1)(b) deemed the taxpayer’s proceeds of disposition of the shares described in paragraph (d) and owned by the taxpayer immediately before the distribution to be equal to the adjusted cost base to the taxpayer of the taxpayer’s interest as a beneficiary under the trust immediately before the distribution;
(f)each trust, a majority-interest beneficiary (in this subsection, within the meaning assigned by section 251.1) of which is another trust that is by operation of this subsection treated as if it were a corporation, were a corporation; and
(g)except for the purposes of subsections 88(1.1) and (1.2), the taxpayer last acquired control of the subsidiary and of each corporation (including a trust that is by operation of this subsection treated as if it were a corporation) controlled by the subsidiary at the time, if any, at which the taxpayer last became a majority-interest beneficiary of the trust.
Marginal note:Definitions
89(1)In this Subdivision,
adjusted taxable incomeof a corporation for a taxation year is the amount determined by the formula
A – B – C
where
(a)unless paragraph (b) applies, the corporation’s taxable income for the taxation year, and
(b)if the corporation is a deposit insurance corporation in the taxation year, nil,
(a)if the corporation is a Canadian-controlled private corporation in the taxation year, the lesser of the corporation’s aggregate investment income for the taxation year and the corporation’s taxable income for the taxation year, and
(b)in any other case, nil; (revenu imposable rajusté)
Canadian corporationat any time means a corporation that is resident in Canada at that time and was
(a)incorporated in Canada, or
(b)resident in Canada throughout the period that began on June 18, 1971 and that ends at that time,
and for greater certainty, a corporation formed at any particular time by the amalgamation or merger of, or by a plan of arrangement or other corporate reorganization in respect of, 2 or more corporations (otherwise than as a result of the acquisition of property of one corporation by another corporation, pursuant to the purchase of the property by the other corporation or as a result of the distribution of the property to the other corporation on the winding-up of the corporation) is a Canadian corporation because of paragraph (a) only if
(c)that reorganization took place under the laws of Canada or a province, and
(d)each of those corporations was, immediately before the particular time, a Canadian corporation; (société canadienne)
capital dividend accountof a corporation at any particular time means the amount, if any, by which the total of
(a)the amount, if any, by which the total of
(i)the total of all amounts each of which is the amount if any, by which
(A)the amount of the corporation’s capital gain — computed without reference to subclause 52(3)(a)(ii)(A)(II) and subparagraph 53(1)(b)(ii) — from the disposition (other than a disposition under paragraph 40(3.1)(a) or subsection 40(12) or a disposition that is the making of a gift after December 8, 1997 that is not a gift described in subsection 110.1(1)) of a property in the period beginning at the beginning of its first taxation year that began after the corporation last became a private corporation and that ended after 1971 and ending immediately before the particular time (in this definition referred to as theperiod)
exceeds the total of
(B)the portion of the capital gain referred to in clause (A) that is the corporation’s taxable capital gain,
(B.1)the corporation’s taxable capital gain from a disposition in the period under subsection 40(12), and
(C)the portion of the amount, if any, by which the amount determined under clause (A) exceeds the amount determined under clause (B) from the disposition by it of a property that can reasonably be regarded as having accrued while the property, or a property for which it was substituted,
(I)except in the case of a disposition of a designated property, was a property of a corporation (other than a private corporation, an investment corporation, a mortgage investment corporation or a mutual fund corporation),
(II)where, after November 26, 1987, the property became a property of a Canadian-controlled private corporation (otherwise than by reason of a change in the residence of one or more shareholders of the corporation), was a property of a corporation controlled directly or indirectly in any manner whatever by one or more non-resident persons, or
(III)where, after November 26, 1987, the property became a property of a private corporation that was not exempt from tax under this Part on its taxable income, was a property of a corporation exempt from tax under this Part on its taxable income, and
(i.1)all amounts each of which is an amount in respect of a distribution made, in the period and after September 15, 2016, by a trust to the corporation in respect of capital gains of the trust equal to the lesser of
(A)the amount, if any, by which
(I)the amount of the distribution
exceeds
(II)the amount designated under subsection 104(21) by the trust in respect of the net taxable capital gains of the trust attributable to those capital gains, and
(B)the amount determined by the formula
A × B
where
exceeds
(ii)the total of all amounts each of which is the amount, if any, by which
(A)the amount of the corporation’s capital loss — computed without reference to subclause 52(3)(a)(ii)(A)(II) and subparagraph 53(1)(b)(ii) — from the disposition (other than a disposition under subsection 40(3.12) or a disposition that is the making of a gift after December 8, 1997 that is not a gift described in subsection 110.1(1)) of a property in the period
exceeds the total of
(B)the part of the capital loss referred to in clause (A) that is the corporation’s allowable capital loss, and
(C)the portion of the amount, if any, by which the amount determined under clause (A) exceeds the amount determined under clause (B) from the disposition by it of a property that can reasonably be regarded as having accrued while the property, or a property for which it was substituted,
(I)except in the case of a disposition of a designated property, was a property of a corporation (other than a private corporation, an investment corporation, a mortgage investment corporation or a mutual fund corporation),
(II)where, after November 26, 1987, the property became a property of a Canadian-controlled private corporation (otherwise than by reason of a change in the residence of one or more shareholders of the corporation), was a property of a corporation controlled directly or indirectly in any manner whatever by one or more non-resident persons, or
(III)where, after November 26, 1987, the property became a property of a private corporation that was not exempt from tax under this Part on its taxable income, was a property of a corporation exempt from tax under this Part on its taxable income,
(b)all amounts each of which is an amount in respect of a dividend received by the corporation on a share of the capital stock of another corporation in the period, which amount was, by virtue of subsection 83(2), not included in computing the income of the corporation,
(c)the total of all amounts each of which is an amount required to have been included under this paragraph as it read in its application to a taxation year that ended before February 28, 2000,
(c.1)the amount, if any, by which
(i)1/2 of the total of all amounts each of which is an amount required by paragraph 14(1)(b) (as it read before 2017) to be included in computing the corporation’s income in respect of a business carried on by the corporation for a taxation year that is included in the period and that ended after February 27, 2000 and before October 18, 2000,
exceeds
(ii)where the corporation has deducted an amount under subsection 20(4.2) in respect of a debt established by it to have become a bad debt in a taxation year that is included in the period and that ended after February 27, 2000 and before October 18, 2000, or has an allowable capital loss for such a year because of the application of subsection 20(4.3), the amount determined by the formula
V + W
where
(iii)in any other case, nil,
(c.2)the amount, if any, by which
(i)the total of all amounts each of which is an amount required by paragraph 14(1)(b) (as it read before 2017) or subparagraph 13(38)(d)(iii) to be included in computing the corporation’s income in respect of a business carried on by the corporation for a taxation year that is included in the period and that ends after October 17, 2000,
exceeds
(ii)where the corporation has deducted an amount under subsection 20(4.2) in respect of a debt established by it to have become a bad debt in a taxation year that is included in the period and that ends after October 17, 2000, or has an allowable capital loss for such a year because of the application of subsection 20(4.3), the amount determined by the formula
X + Y
where
(iii)in any other case, nil,
(d)the amount, if any, by which the total of
(i)all amounts each of which is the proceeds of a life insurance policy of which the corporation was a beneficiary on or before June 28, 1982 received by the corporation in the period and after 1971 in consequence of the death of any person, and
(ii)all amounts each of which is the proceeds of a life insurance policy (other than an LIA policy) of which the corporation was not a beneficiary on or before June 28, 1982 received by the corporation in the period and after May 23, 1985 in consequence of the death of any person
exceeds the total of all amounts each of which is
(iii)theadjusted cost basis(in this paragraph as defined in subsection 148(9)), immediately before the death, of
(A)if the death occurs before March 22, 2016, a policy referred to in subparagraph (i) or (ii) to the corporation, and
(B)if the death occurs after March 21, 2016, a policyholder’s interest in a policy referred to in subparagraph (i) or (ii),
(iv)if the policy is a 10/8 policy immediately before the death and the death occurs after 2013, the amount outstanding, immediately before the death, of the borrowing that is described in subparagraph (a)(i) of the definition10/8 policyin subsection 248(1) in respect of the policy,
(v)if the death occurs after March 21, 2016, an interest in the policy was disposed of by a policyholder (other than a taxable Canadian corporation) after 1999 and before March 22, 2016 and subsection 148(7) applied to the disposition, the total of
(A)the amount, if any, by which the fair market value of consideration given in respect of the disposition exceeds the total of
(I)the greater of the amount determined under subparagraph 148(7)(a)(i) in respect of the disposition and the adjusted cost basis to the policyholder of the interest immediately before the disposition, and
(II)the amount by which the paid-up capital of any class of the capital stock of a corporation resulting from the disposition is reduced at the beginning of March 22, 2016 because of the application of paragraphs 148(7)(c) and (f) in respect of the disposition, and
(B)if the paid-up capital in respect of a class of shares of the capital stock of a corporation was increased before March 22, 2016 as described in subparagraph 148(7)(f)(iii) in respect of the disposition, the amount, if any, by which the total reduction in the paid-up capital in respect of that class — not exceeding the amount of that increase — after that increase and before March 22, 2016 (except to the extent that the amount of the reduction was deemed by subsection 84(4) or (4.1) to be a dividend received by a taxpayer) exceeds the amount determined under subparagraph 148(7)(a)(i) in respect of the disposition, or
(vi)if the death occurs after March 21, 2016, an interest in the policy was disposed of by a policyholder (other than a taxable Canadian corporation) after 1999 and before March 22, 2016 and subsection 148(7) applied to the disposition, the amount, if any, determined by the formula
A − B
where
(e)the amount of the corporation’s life insurance capital dividend account immediately before May 24, 1985, and
(f)all amounts each of which is an amount in respect of a distribution made, in the period and before September 16, 2016, by a trust to the corporation in respect of capital gains of the trust equal to the lesser of
(i)the amount, if any, by which
(A)the amount of the distribution
exceeds
(B)the amount designated under subsection 104(21) by the trust (other than a designation to which subsection 104(21.4), as it read in its application to the corporation’s last taxation year that began before November 2011, applied) in respect of the net taxable capital gains of the trust attributable to those capital gains, and
(ii)the amount determined by the formula
A × B
where
(g)all amounts each of which is an amount in respect of a distribution made by a trust to the corporation in the period in respect of a dividend (other than a taxable dividend) paid on a share of the capital stock of another corporation resident in Canada to the trust during a taxation year of the trust throughout which the trust was resident in Canada equal to the lesser of
(i)the amount of the distribution, and
(ii)the amount designated under subsection 104(20) by the trust in respect of the corporation in respect of that dividend,
exceeds the total of all capital dividends that became payable by the corporation after the commencement of the period and before the particular time; (compte de dividendes en capital)
designated propertymeans
(a)any property of a private corporation that last became a private corporation before November 13, 1981 and that was acquired by it
(i)before November 13, 1981, or
(ii)after November 12, 1981 pursuant to an agreement in writing entered into on or before that date,
(b)any property of a private corporation that was acquired by it from another private corporation with which the private corporation was not dealing at arm’s length (otherwise than by virtue of a right referred to in paragraph 251(5)(b)) at the time the property was acquired, where the property was a designated property of the other private corporation,
(c)a share acquired by a private corporation in a transaction to which section 51, subsection 85(1) or section 85.1, 86 or 87 applied in exchange for another share that was a designated property of the corporation, or
(d)a replacement property (within the meaning assigned by section 44) for a designated property disposed of by virtue of an event referred to in paragraph (b), (c) or (d) of the definitionproceeds of dispositionin section 54; (bien désigné)
eligible dividendmeans
(a)an amount that is equal to the portion of a taxable dividend that is received by a person resident in Canada, paid by a corporation resident in Canada and designated under subsection (14) to be an eligible dividend, and
(b)in respect of a person resident in Canada, an amount that is deemed by subsection 96(1.11) or 104(16) to be a taxable dividend that is received by the person; (dividende déterminé)
excessive eligible dividend designation, made by a corporation in respect of an eligible dividend paid by the corporation at any time in a taxation year, means
(a)unless paragraph (c) applies to the dividend, if the corporation is in the taxation year a Canadian-controlled private corporation or a deposit insurance corporation, the amount, if any, determined by the formula
(A - B) × C/A
where
(b)unless paragraph (c) applies to the dividend, if the corporation is not a corporation described in paragraph (a), the amount, if any, determined by the formula
A × B/C
where
(i)the total of all amounts each of which is an eligible dividend paid by the corporation at that time, and
(ii)the corporation’s low rate income pool at that time,
(c)an amount equal to the amount of the eligible dividend, if it is reasonable to consider that the eligible dividend was paid in a transaction, or as part of a series of transactions, one of the main purposes of which was to artificially maintain or increase the corporation’s general rate income pool, or to artificially maintain or decrease the corporation’s low rate income pool; (désignation excessive de dividende déterminé)
general rate factorof a corporation for a taxation year is the total of
(a)that proportion of 0.68 that the number of days in the taxation year that are before 2010 is of the number of days in the taxation year,
(b)that proportion of 0.69 that the number of days in the taxation year that are in 2010 is of the number of days in the taxation year,
(c)that proportion of 0.70 that the number of days in the taxation year that are in 2011 is of the number of days in the taxation year, and
(d)that proportion of 0.72 that the number of days in the taxation year that are after 2011 is of the number of days in the taxation year; (facteur du taux géneral)
general rate income poolat the end of a particular taxation year, of a taxable Canadian corporation that is a Canadian-controlled private corporation or a deposit insurance corporation in the particular taxation year, is the positive or negative amount determined by the formula
A – B
where
C + D + E + F – G
where
(a)an eligible dividend received by the corporation in the particular taxation year, or
(b)an amount deductible under section 113 in computing the taxable income of the corporation for the particular taxation year,
(a)unless paragraph (b) applies, the amount, if any, by which
(i)the total of all amounts each of which is the amount of an eligible dividend paid by the corporation in its preceding taxation year
exceeds
(ii)the total of all amounts each of which is an excessive eligible dividend designation made by the corporation in its preceding taxation year, or
(b)if subsection (4) applies to the corporation in the particular taxation year, nil, and
H × (I – J)
where
low rate income pool, at any particular time in a particular taxation year, of a corporation (in this definition referred to as the “non-CCPC”) that is resident in Canada and is in the particular taxation year neither a Canadian-controlled private corporation nor a deposit insurance corporation, is the amount determined by the formula
(A + B + C + D + E + F) - (G + H)
where
(a)if the non-CCPC would, but for paragraph (d) of the definitionCanadian-controlled private corporationin subsection 125(7), be a Canadian-controlled private corporation in its preceding taxation year, 80% of its aggregate investment income for its preceding taxation year, and
(b)in any other case, nil,
(a)if the non-CCPC was not a Canadian-controlled private corporation in its preceding taxation year, 80% of the amount determined by multiplying the amount, if any, deducted by the corporation under subsection 125(1) for that preceding taxation year by the quotient obtained by dividing 100 by the rate of the deduction provided under that subsection for that preceding taxation year, and
(b)in any other case, nil,
(a)if the non-CCPC was an investment corporation in its preceding taxation year, four times the amount, if any, deducted by it under subsection 130(1) for its preceding taxation year, and
(b)in any other case, nil,
paid-up capitalat any particular time means,
(a)in respect of a share of any class of the capital stock of a corporation, an amount equal to the paid-up capital at that time, in respect of the class of shares of the capital stock of the corporation to which that share belongs, divided by the number of issued shares of that class outstanding at that time,
(b)in respect of a class of shares of the capital stock of a corporation,
(i)where the particular time is before May 7, 1974, an amount equal to the paid-up capital in respect of that class of shares at the particular time, computed without reference to the provisions of this Act,
(ii)where the particular time is after May 6, 1974, and before April 1, 1977, an amount equal to the paid-up capital in respect of that class of shares at the particular time, computed in accordance with theIncome Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as it read on March 31, 1977, and
(iii)if the particular time is after March 31, 1977, an amount equal to the paid-up capital in respect of that class of shares at the particular time, computed without reference to the provisions of this Act except subsections 51(3) and 66.3(2) and (4), sections 84.1 and 84.2, subsections 85(2.1), 85.1(2.1) and (8), 86(2.1), 87(3) and (9), paragraph 128.1(1)(c.3), subsections 128.1(2) and (3), section 135.2, subsections 138(11.7), 139.1(6) and (7), 148(7), 192(4.1) and 194(4.1) and sections 212.1 and 212.3,
except that, where the corporation is a cooperative corporation (within the meaning assigned by subsection 136(2)) or a credit union and the statute by or under which it was incorporated does not provide for paid-up capital in respect of a class of shares, the paid-up capital in respect of that class of shares at the particular time, computed without reference to the provisions of this Act, shall be deemed to be the amount, if any, by which
(iv)the total of the amounts received by the corporation in respect of shares of that class issued and outstanding at that time
exceeds
(v)the total of all amounts each of which is an amount or part thereof described in subparagraph (iv) repaid by the corporation to persons who held any of the issued shares of that class before that time, and
(c)in respect of all the shares of the capital stock of a corporation, an amount equal to the total of all amounts each of which is an amount equal to the paid-up capital in respect of any class of shares of the capital stock of the corporation at the particular time; (capital versé)
private corporationat any particular time means a corporation that, at the particular time, is resident in Canada, is not a public corporation and is not controlled by one or more public corporations (other than prescribed venture capital corporations) or prescribed federal Crown corporations or by any combination thereof and, for greater certainty, for the purposes of determining at any particular time when a corporation last became a private corporation,
(a)a corporation that was a private corporation at the commencement of its 1972 taxation year and thereafter without interruption until the particular time shall be deemed to have last become a private corporation at the end of its 1971 taxation year, and
(b)a corporation incorporated after 1971 that was a private corporation at the time of its incorporation and thereafter without interruption until the particular time shall be deemed to have last become a private corporation immediately before the time of its incorporation; (société privée)
public corporationat any particular time means
(a)a corporation that is resident in Canada at the particular time if at that time a class of shares of the capital stock of the corporation is listed on a designated stock exchange in Canada,
(b)a corporation (other than a prescribed labour-sponsored venture capital corporation) that is resident in Canada at the particular time if at any time after June 18, 1971 and
(i)before the particular time, it elected in prescribed manner to be a public corporation, and at the time of the election it complied with prescribed conditions relating to the number of its shareholders, the dispersal of ownership of its shares and the public trading of its shares, or
(ii)before the day that is 30 days before the day that includes the particular time it was, by notice in writing to the corporation, designated by the Minister to be a public corporation and at the time it was so designated it complied with the conditions referred to in subparagraph (i),
unless after the election or designation, as the case may be, was made and before the particular time, it ceased to be a public corporation because of an election or designation under paragraph (c), or
(c)a corporation (other than a prescribed labour-sponsored venture capital corporation) that is resident in Canada at the particular time if, at any time after June 18, 1971 and before the particular time it was a public corporation, unless after the time it last became a public corporation and
(i)before the particular time, it elected in prescribed manner not to be a public corporation, and at the time it so elected it complied with prescribed conditions relating to the number of its shareholders, the dispersal of ownership of its shares and the public trading of its shares, or
(ii)before the day that is 30 days before the day that includes the particular time, it was, by notice in writing to the corporation, designated by the Minister not to be a public corporation and at the time it was so designated it complied with the conditions referred to in subparagraph (i),
and where a corporation has, on or before its filing-due date for its first taxation year, become a public corporation, it is, if it so elects in its return of income for the year, deemed to have been a public corporation from the beginning of the year until the time when it so became a public corporation; (société publique)
taxable Canadian corporationmeans a corporation that, at the time the expression is relevant,
(a)was a Canadian corporation, and
(b)was not, by reason of a statutory provision, exempt from tax under this Part; (société canadienne imposable)
taxable dividendmeans a dividend other than
(a)a dividend in respect of which the corporation paying the dividend has elected in accordance with subsection 83(1) as it read prior to 1979 or in accordance with subsection 83(2), and
(b)a qualifying dividend paid by a public corporation to shareholders of a prescribed class of tax-deferred preferred shares of the corporation within the meaning of subsection 83(1). (dividende imposable)
Marginal note:Application of s. 138(12)
(1.01)The definitions in subsection 138(12) apply to this section.
Marginal note:Capital dividend account where control acquired
(1.1)Where at any particular time after March 31, 1977 a corporation that was, at a previous time, a private corporation controlled directly or indirectly in any manner whatever by one or more non-resident persons becomes a Canadian-controlled private corporation (otherwise than by reason of a change in the residence of one or more of its shareholders), in computing the corporation’s capital dividend account at and after the particular time there shall be deducted the amount of the corporation’s capital dividend account immediately before the particular time.
Marginal note:Capital dividend account of tax-exempt corporation
(1.2)Where at any particular time after November 26, 1987 a corporation ceases to be exempt from tax under this Part on its taxable income, in computing the corporation’s capital dividend account at and after the particular time there shall be deducted the amount of the corporation’s capital dividend account (computed without reference to this subsection) immediately after the particular time.
Marginal note:Where corporation is beneficiary
(2)For the purposes of this section,
(a)where a corporation was a beneficiary under a life insurance policy on June 28, 1982, it shall be deemed not to have been a beneficiary under such a policy on or before June 28, 1982 where at any time after December 1, 1982 a prescribed premium has been paid under the policy or there has been a prescribed increase in any benefit on death under the policy; and
(b)where a corporation becomes a beneficiary under a life insurance policy by virtue of an amalgamation or a winding-up to which subsection 87(1) or 88(1) applies, it shall be deemed to have been a beneficiary under the policy throughout the period during which its predecessor or subsidiary, as the case may be, was a beneficiary under the policy.
Marginal note:Simultaneous dividends
(3)Where a dividend becomes payable at the same time on more than one class of shares of the capital stock of a corporation, for the purposes of sections 83, 84 and 88, the dividend on any such class of shares shall be deemed to become payable at a different time than the dividend on the other class or classes of shares and to become payable in the order designated
(a)by the corporation on or before the day on or before which its return of income for its taxation year in which such dividends become payable is required to be filed; or
(b)in any other case, by the Minister.
Marginal note:GRIP addition — becoming CCPC
(4)If, in a particular taxation year, a corporation is a Canadian-controlled private corporation or a deposit insurance corporation but was, in its preceding taxation year, a corporation resident in Canada other than a Canadian-controlled private corporation or a deposit insurance corporation, there may be included in computing the corporation’s general rate income pool at the end of the particular taxation year, the amount determined by the formula
A + B + C - D - E - F - G - H
where
(a)the total of all amounts that, if the corporation had had unlimited income for its preceding taxation year from each business carried on, and from each property held, by it in that preceding taxation year and had realized an unlimited amount of capital gains for that preceding taxation year, would have been deductible under subsection 111(1) in computing its taxable income for that preceding taxation year
exceeds
(b)the total of all amounts deducted under subsection 111(1) in computing the corporation’s taxable income for that preceding taxation year;
Marginal note:GRIP addition — post-amalgama­tion
(5)If a Canadian-controlled private corporation or a deposit insurance corporation (in this subsection referred to as the “new corporation”) is formed as a result of an amalgamation (within the meaning assigned by subsection 87(1)), there shall be included in computing the new corporation’s general rate income pool at the end of its first taxation year the total of all amounts each of which is
(a)in respect of a predecessor corporation that was, in its taxation year that ended immediately before the amalgamation (in this paragraph referred to as its “last taxation year”), a Canadian-controlled private corporation or a deposit insurance corporation, the positive or negative amount determined in respect of the predecessor corporation by the formula
A - B
where
(i)the total of all amounts each of which is an eligible dividend paid by the predecessor corporation in its last taxation year
exceeds
(ii)the total of all amounts each of which is an excessive eligible dividend designation made by the predecessor corporation in its last taxation year; or
(b)in respect of a predecessor corporation (in this paragraph referred to as the “non-CCPC predecessor”) that was, in its taxation year that ended immediately before the amalgamation (in this paragraph referred to as its “last taxation year”), not a Canadian-controlled private corporation or a deposit insurance corporation, the amount determined by the formula
A + B + C - D - E - F - G - H
where
(i)the total of all amounts that, if the non-CCPC predecessor had had unlimited income for its last taxation year from each business carried on, and from each property held, by it in that last taxation year and had realized an unlimited amount of capital gains for that last taxation year, would have been deductible under subsection 111(1) in computing its taxable income for that last taxation year
exceeds
(ii)the total of all amounts deducted under subsection 111(1) in computing the non-CCPC predecessor’s taxable income for its last taxation year,
Marginal note:GRIP addition — post-winding-up
(6)If subsection 88(1) applies to the winding-up of a subsidiary into a parent (within the meanings assigned by that subsection) that is a Canadian-controlled private corporation or a deposit insurance corporation, there shall be included in computing the parent’s general rate income pool at the end of its taxation year that immediately follows the taxation year during which it receives the assets of the subsidiary on the winding-up
(a)if the subsidiary was, in its taxation year during which its assets were distributed to the parent on the winding-up (in this paragraph referred to as its “last taxation year”), a Canadian-controlled private corporation or a deposit insurance corporation, the positive or negative amount determined by the formula
A - B
where
(i)the total of all amounts each of which is an eligible dividend paid by the subsidiary in its last taxation year
exceeds
(ii)the total of all amounts each of which is an excessive eligible dividend designation made by the subsidiary in its last taxation year; and
(b)in any other case, the amount determined by the formula
A + B + C - D - E - F - G - H
where
(i)the total of all amounts that, if the subsidiary had had unlimited income for its last taxation year from each business carried on, and from each property held, by it in that last taxation year and had realized an unlimited amount of capital gains for that last taxation year, would have been deductible under subsection 111(1) in computing its taxable income for that last taxation year
exceeds
(ii)the total of all amounts deducted under subsection 111(1) in computing the subsidiary’s taxable income for its last taxation year,
Marginal note:GRIP addition for 2006
(7)If a corporation was (or, but for an election under subsection (11), would have been), throughout its first taxation year that includes any part of January 1, 2006, a Canadian-controlled private corporation, its general rate income pool at the end of its immediately preceding taxation year is deemed to be the greater of nil and the amount determined by the formula
A - B
where
(a)63% of the total of all amounts each of which is the corporation’s full rate taxable income (as defined in subsection 123.4(1)), for a taxation year of the corporation that ended after 2000 and before 2004, determined before taking into consideration the specified future tax consequences for that taxation year,
(b)63% of the total of all amounts each of which is the corporation’s full rate taxable income (as would be defined in subsection 123.4(1), if that definition were read without reference to its subparagraphs (a)(i) and (ii)), for a taxation year of the corporation that ended after 2003 and before 2006, determined before taking into consideration the specified future tax consequences for that taxation year, and
(c)all amounts each of which was deductible under subsection 112(1) in computing the corporation’s taxable income for a taxation year of the corporation (in this paragraph referred to as the “particular corporation”) that ended after 2000 and before 2006, and is in respect of a dividend received from a corporation (in this paragraph referred to as the “payer corporation”) that was, at the time it paid the dividend, connected (within the meaning assigned by subsection 186(4)) with the particular corporation, to the extent that it is reasonable to consider, having regard to all the circumstances (including but not limited to other shareholders having received dividends from the payer corporation), that the dividend was attributable to an amount that is, or if this subsection applied to the payer corporation would be, described in this paragraph or in paragraph (a) or (b) in respect of the payer corporation; and
Marginal note:LRIP addition — ceasing to be CCPC
(8)If, in a particular taxation year, a corporation is neither a Canadian-controlled private corporation nor a deposit insurance corporation but was, in its preceding taxation year, a Canadian-controlled private corporation or a deposit insurance corporation, there shall be included in computing the corporation’s low rate income pool at any time in the particular taxation year the amount determined by the formula
A + B + C - D - E - F - G - H
where
(a)the total of all amounts that, if the corporation had had unlimited income for its preceding taxation year from each business carried on, and from each property held, by it in that preceding taxation year and had realized an unlimited amount of capital gains for that preceding taxation year, would have been deductible under subsection 111(1) in computing its taxable income for that preceding taxation year
exceeds
(b)the total of all amounts deducted under subsection 111(1) in computing the corporation’s taxable income for its preceding taxation year;
(a)if the corporation is not a private corporation in the particular taxation year, the corporation’s capital dividend account, if any, immediately before the end of its preceding taxation year, and
(b)in any other case, nil; and
I - J
where
(a)the total of all amounts each of which is an eligible dividend paid by the corporation in its preceding taxation year
exceeds
(b)the total of all amounts each of which is an excessive eligible dividend designation made by the corporation in its preceding taxation year.
Marginal note:LRIP addition — amalgamation
(9)If a corporation that is resident in Canada and that is neither a Canadian-controlled private corporation nor a deposit insurance corporation (in this subsection referred to as the “new corporation”) is formed as a result of the amalgamation or merger of two or more corporations one or more of which is a taxable Canadian corporation, there shall be included in computing the new corporation’s low rate income pool at any time in its first taxation year the total of all amounts each of which is
(a)in respect of a predecessor corporation that was, in its taxation year that ended immediately before the amalgamation, neither a Canadian-controlled private corporation nor a deposit insurance corporation, the predecessor corporation’s low rate income pool at the end of that taxation year; and
(b)in respect of a predecessor corporation (in this paragraph referred to as the “CCPC predecessor”) that was, throughout its taxation year that ended immediately before the amalgamation (in this paragraph referred to as its “last taxation year”), a Canadian-controlled private corporation or a deposit insurance corporation, the amount determined by the formula
A + B + C - D - E - F - G - H
where
(i)the total of all amounts that, if the CCPC predecessor had had unlimited income for its last taxation year from each business carried on, and from each property held, by it in that last taxation year and had realized an unlimited amount of capital gains for that last taxation year, would have been deductible under subsection 111(1) in computing its taxable income for that last taxation year
exceeds
(ii)the total of all amounts deducted under subsection 111(1) in computing the CCPC predecessor’s taxable income for its last taxation year,
(i)if the new corporation is not a private corporation in its first taxation year, the CCPC predecessor’s capital dividend account, if any, immediately before the end of its last taxation year, and
(ii)in any other case, nil, and
I - J
where
(i)the total of all amounts each of which is an eligible dividend paid by the CCPC predecessor in its last taxation year
exceeds
(ii)the total of all amounts each of which is an excessive eligible dividend designation made by the CCPC predecessor in its last taxation year.
Marginal note:LRIP addition — winding-up
(10)If, in a particular taxation year, a corporation (in this subsection referred to as the “parent”) is neither a Canadian-controlled private corporation nor a deposit insurance corporation and in the particular taxation year all or substantially all of the assets of another corporation (in this subsection referred to as the “subsidiary”) were distributed to the parent on a dissolution or winding-up of the subsidiary, there shall be included in computing the parent’s low rate income pool at any time in the particular taxation year that is at or after the end of the subsidiary’s taxation year (in this subsection referred to as the subsidiary’s “last taxation year”) during which its assets were distributed to the parent on the winding-up,
(a)if the subsidiary was, in its last taxation year, neither a Canadian-controlled private corporation nor a deposit insurance corporation, the subsidiary’s low rate income pool immediately before the end of that taxation year; and
(b)in any other case, the amount determined by the formula
A + B + C - D - E - F - G - H
where
(i)the total of all amounts that, if the subsidiary had had unlimited income for its last taxation year from each business carried on, and from each property held, by it in that last taxation year and had realized an unlimited amount of capital gains for that last taxation year, would have been deductible under subsection 111(1) in computing its taxable income for that last taxation year
exceeds
(ii)the total of all amounts deducted under subsection 111(1) in computing the subsidiary’s taxable income for its last taxation year,
(i)if the parent is not a private corporation in the particular taxation year, the subsidiary’s capital dividend account, if any, immediately before the end of its last taxation year, and
(ii)in any other case, nil, and
I - J
where
(i)the total of all amounts each of which is an eligible dividend paid by the subsidiary in its last taxation year
exceeds
(ii)the total of all amounts each of which is an excessive eligible dividend designation made by the subsidiary in its last taxation year.
Marginal note:Election: non-CCPC
(11)Subject to subsection (12), a corporation that files with the Minister on or before its filing-due date for a particular taxation year an election in prescribed form to have this subsection apply is deemed for the purposes described in paragraph (d) of the definitionCanadian-controlled private corporationin subsection 125(7) not to be a Canadian-controlled private corporation at any time in or after the particular taxation year.
Marginal note:Revoking election
(12)If a corporation files with the Minister on or before its filing-due date for a particular taxation year a notice in prescribed form revoking, as of the end of the particular taxation year, an election described in subsection (11), the election ceases to apply to the corporation at the end of the particular taxation year.
Marginal note:Repeated elections — consent required
(13)If a corporation has, under subsection (12), revoked an election, any subsequent election under subsection (11) or subsequent revocation under subsection (12) is invalid unless
(a)the Minister consents in writing to the subsequent election or the subsequent revocation, as the case may be; and
(b)the corporation complies with any conditions imposed by the Minister.
Marginal note:Dividend designation
(14)A corporation designates a portion of a dividend it pays at any time to be an eligible dividend by notifying in writing at that time each person or partnership to whom the dividend is paid that the portion of the dividend is an eligible dividend.
Marginal note:Late designation
(14.1)If, in the opinion of the Minister, the circumstances are such that it would be just and equitable to permit a designation under subsection (14) to be made before the day that is three years after the day on which the designation was required to be made, the designation is deemed to have been made at the time the designation was required to be made.
Meaning of expressiondeposit insurance corporation
(15)For the purposes of paragraphs 87(2)(vv) and (ww) (including, for greater certainty, in applying those paragraphs as provided under paragraph 88(1)(e.2)), the definitionsexcessive eligible dividend designation,general rate income pool, andlow rate income poolin subsection (1) and subsections (4) to (6) and (8) to (10), a corporation is a deposit insurance corporation if it would be a deposit insurance corporation as defined in the definitiondeposit insurance corporationin subsection 137.1(5) were that definition read without reference to its paragraph (b) and were this Act read without reference to subsection 137.1(5.1).
Marginal note:Dividend from non-resident corporation
90(1)In computing the income for a taxation year of a taxpayer resident in Canada, there is to be included any amount received by the taxpayer at any time in the year as, on account or in lieu of payment of, or in satisfaction of, a dividend on a share owned by the taxpayer of the capital stock of a non-resident corporation.
Marginal note:Dividend from foreign affiliate
(2)For the purposes of this Act, an amount is deemed to be a dividend paid or received, as the case may be, at any time on a share of a class of the capital stock of a non-resident corporation that is a foreign affiliate of a taxpayer if the amount is the share’s portion of a pro rata distribution (other than a distribution made in the course of a liquidation and dissolution of the corporation, on a redemption, acquisition or cancellation of the share by the corporation, or on a qualifying return of capital in respect of the share) made at that time by the corporation in respect of all the shares of that class.
Marginal note:Qualifying return of capital
(3)For the purposes of subsection (2), a distribution made at any time by a foreign affiliate of a taxpayer in respect of a share of the capital stock of the affiliate that is a reduction of the paid-up capital of the affiliate in respect of the share and that would, in the absence of this subsection, be deemed under subsection (2) to be a dividend paid or received, at that time, on the share is a qualifying return of capital, at that time, in respect of the share if an election is made under this subsection, in respect of the distribution and in accordance with prescribed rules,
(a)by the taxpayer, where there is no person or partnership that meets the conditions in subparagraphs (b)(i) and (ii); or
(b)jointly by the taxpayer and each person or partnership that is, at that time,
(i)a connected person or partnership in respect of the taxpayer, and
(ii)a person or partnership of which the affiliate would, at that time, be a foreign affiliate if paragraph (b) of the definitionequity percentagein subsection 95(4) were read as if the reference in that paragraph to “any corporation” were a reference to “any corporation other than a corporation resident in Canada”.
Marginal note:Connected person or partnership
(4)For the purposes of subsection (3), aconnected person or partnershipin respect of a taxpayer, at any time, is
(a)a person that is, at that time, related to the taxpayer, and
(b)a partnership a member of which is, at that time,
(i)the taxpayer, or
(ii)a person that is related to the taxpayer.
Marginal note:Exclusion
(5)No amount paid or received at any time is, for the purposes of this Act, a dividend paid or received on a share of the capital stock of a non-resident corporation that is a foreign affiliate of a taxpayer unless it is so deemed under this Part.
Marginal note:Loan from foreign affiliate
(6)Except where subsection 15(2) applies, if a person or partnership receives at any time a loan from, or becomes at that time indebted to, a creditor that is at that time a foreign affiliate (referred to in subsections (9), (11) and (15) as the “creditor affiliate”) of a taxpayer resident in Canada or that is at that time a partnership (referred to in subsections (9), (11) and (15) as the “creditor partnership”) of which such an affiliate is a member and the person or partnership is at that time a specified debtor in respect of the taxpayer, then the specified amount in respect of the loan or indebtedness is to be included in computing the income of the taxpayer for the taxpayer’s taxation year that includes that time.
Marginal note:Upstream loan continuity — reorganizations
(6.1)Subsection (6.11) applies at any time if
(a)immediately before that time, a person or partnership (referred to in this subsection and subsection (6.11) as the “original debtor”) owes an amount in respect of a loan or indebtedness (referred to in this subsection and subsection (6.11) as the “pre-transaction loan”) to another person or partnership (referred to in this subsection and subsection (6.11) as the “original creditor”);
(b)the pre-transaction loan was, at the time it was made or entered into, a loan or indebtedness that is described in subsection (6); and
(c)in the course of an amalgamation, a merger, a winding-up or a liquidation and dissolution,
(i)the amount owing in respect of the pre-transaction loan becomes owing at that time by another person or partnership (the amount owing after that time and the other person or partnership are referred to in subsection (6.11) as the “post-transaction loan payable” and the “new debtor”, respectively),
(ii)the amount owing in respect of the pre-transaction loan becomes owing at that time to another person or partnership (the amount owing after that time and the other person or partnership are referred to in subsection (6.11) as the “post-transaction loan receivable” and the “new creditor”, respectively), or
(iii)the taxpayer in respect of which the original debtor was a specified debtor at the time referred to in paragraph (b)
(A)ceases to exist, or
(B)merges with one or more corporations to form one corporate entity (referred to in subsection (6.11) as the “new corporation”).
Marginal note:Upstream loan continuity — reorganizations
(6.11)If this subsection applies at any time, for the purposes of subsections (6) and (7) to (15) and 39(2.1) and (2.2) and paragraph 95(2)(g.04),
(a)if the condition in subparagraph (6.1)(c)(i) is met,
(i)the post-transaction loan payable is deemed to be the same loan or indebtedness as the pre-transaction loan, and
(ii)the new debtor is deemed to be same debtor as, and a continuation of, the original debtor;
(b)if the condition in subparagraph (6.1)(c)(ii) is met,
(i)the post-transaction loan receivable is deemed to be the same loan or indebtedness as the pre-transaction loan, and
(ii)the new creditor is deemed to be same creditor as, and a continuation of, the original creditor;
(c)if the condition in clause (6.1)(c)(iii)(A) is met,
(i)subject to subparagraph (ii), each entity that held an equity interest in the taxpayer immediately before the winding-up (referred to in this paragraph as a “successor entity”) is deemed to be the same entity as, and a continuation of, the taxpayer, and
(ii)for the purposes of applying subsection (13) and the description of A in subsection (14), an amount is deemed, in respect of a loan or indebtedness, to have been included under subsection (6) in computing the income of each successor entity equal to
(A)if the taxpayer is a partnership, the amount that may reasonably be considered to be the successor entity’s share (determined in a manner consistent with the determination of the successor entity’s share of the income of the partnership under subsection 96(1) for the taxpayer’s final fiscal period) of the specified amount that was required to be included in computing the income of the taxpayer under subsection (6) in respect of the loan or indebtedness, and
(B)in any other case, the proportion of the specified amount included in computing the taxpayer’s income under subsection (6), in respect of the loan or indebtedness, that the fair market value of the successor entity’s equity interest in the taxpayer, immediately before the distribution of the taxpayer’s assets on the winding-up, is of the total fair market value of all equity interests in the taxpayer at that time; and
(d)if the condition in clause (6.1)(c)(iii)(B) is met, the new corporation is deemed to be the same corporation as, and a continuation of, the taxpayer.
Marginal note:Back-to-back loans
(7)For the purposes of this subsection and subsections (6), (8) to (15) and 39(2.1) and (2.2) and paragraph 95(2)(g.04), if at any time a person or partnership (referred to in this subsection as the “intermediate lender”) makes a loan to another person or partnership (in this subsection referred to as the “intended borrower”) because the intermediate lender received a loan from another person or partnership (in this subsection referred to as the “initial lender”)
(a)the loan made by the intermediate lender to the intended borrower is deemed, at that time, to have been made by the initial lender to the intended borrower (to the extent of the lesser of the amount of the loan made by the initial lender to the intermediate lender and the amount of the loan made by the intermediate lender to the intended borrower) under the same terms and conditions and at the same time as it was made by the intermediate lender; and
(b)the loan made by the initial lender to the intermediate lender and the loan made by the intermediate lender to the intended borrower are deemed not to have been made to the extent of the amount of the loan deemed to have been made under paragraph (a).
Marginal note:Exceptions to subsection (6)
(8)Subsection (6) does not apply to
(a)a loan or indebtedness that is repaid, other than as part of a series of loans or other transactions and repayments, within two years of the day the loan was made or the indebtedness arose;
(b)indebtedness that arose in the ordinary course of the business of the creditor or a loan made in the ordinary course of the creditor’s ordinary business of lending money if, at the time the indebtedness arose or the loan was made,bona fidearrangements were made for repayment of the indebtedness or loan within a reasonable time;
(c)a loan that was made, or indebtedness that arose, in the ordinary course of carrying on a life insurance business outside Canada if
(i)the loan or indebtedness is owed by the taxpayer or by a subsidiary wholly-owned corporation of the taxpayer,
(ii)the taxpayer, or the subsidiary wholly-owned corporation, as the case may be, is a life insurance corporation resident in Canada,
(iii)the loan or indebtedness directly relates to a business of the taxpayer, or of the subsidiary wholly-owned corporation, that is carried on outside Canada, and
(iv)the interest on the loan or indebtedness is, or would be if it were otherwise income from property, included in the active business income of the creditor, or if the creditor is a partnership, a member of the partnership, under clause 95(2)(a)(ii)(A); and
(d)subject to subsection (8.1), an upstream deposit owing to an eligible bank affiliate.
Marginal note:Upstream deposit  — eligible bank affiliate
(8.1)For the purposes of this section, if a taxpayer is an eligible Canadian bank and an eligible bank affiliate of the taxpayer is owed, at any time in a particular taxation year of the affiliate or the immediately preceding taxation year, an upstream deposit,
(a)the affiliate is deemed to make a loan to the taxpayer immediately before the end of the particular year equal to the amount determined by the following formula, where all amounts referred to in the formula are to be determined using Canadian currency:
A – B – C
where
(i)the amount, if any, by which the affiliate’s excess liquidity for the particular year exceeds the average of all amounts each of which is, in respect of a calendar month that ends in the particular year, the greatest total amount at any time in the month of eligible Canadian indebtedness owing to the affiliate, and
(ii)the amount determined for A, and
(b)if the formula in paragraph (a) would, in the absence of section 257, result in a negative amount for the particular year,
(i)the taxpayer is deemed to repay immediately before the end of the particular year — in an amount equal to the absolute value of the negative amount and in the order in which they arose — loans made by the affiliate under paragraph (a) in a prior taxation year and not previously repaid, and
(ii)the repayment is deemed to not be part of a series of loans or other transactions and repayments.
Marginal note:Corporations: deduction for amounts included under subsection (6) or (12)
(9)There may be deducted in computing the income for a taxation year of a corporation resident in Canada a particular amount, in respect of a specified amount included under subsection (6), or an amount included under subsection (12), in computing the corporation’s income for the taxation year in respect of a particular loan or indebtedness, if
(a)the corporation demonstrates that the particular amount is the total of all amounts (not to exceed the amount so included) each of which would — if the specified amount in respect of the particular loan or indebtedness were, at the time (referred to in subparagraph (i) and subsection (11) as the “lending time”) the particular loan was made or the particular indebtedness was incurred, instead paid by the creditor affiliate, or the creditor partnership, as the case may be, to the corporation directly as part of one dividend, or indirectly as part of one or more dividends and, if applicable, partnership distributions — reasonably be considered to have been deductible, in respect of the payment, for the corporation’s taxation year in which the specified amount was included in its income under subsection (6), in computing
(i)the taxable income of the corporation under any of
(A)paragraph 113(1)(a), in respect of the exempt surplus — at the lending time, in respect of the corporation — of a foreign affiliate of the corporation,
(B)paragraph 113(1)(a.1), in respect of the hybrid surplus — at the lending time, in respect of the corporation — of a foreign affiliate of the corporation, if the amount of that hybrid surplus is less than or equal to the amount determined by the formula
[A × (B – 0.5)] + (C × 0.5)
where
(C)paragraph 113(1)(b), in respect of the taxable surplus — at the lending time, in respect of the corporation — of a foreign affiliate of the corporation, and
(D)paragraph 113(1)(d), in respect of the pre-acquisition surplus — at the lending time, in respect of the corporation — of a foreign affiliate of the corporation to the extent of the adjusted cost base to the corporation, at the lending time, of the shares of the capital stock of the affiliate, and except if the specified debtor is
(I)a non-resident person with which the corporation does not deal at arm’s length, or
(II)a partnership any member of which is a person described in subclause (I), or
(ii)the income of the corporation under subsection 91(5), in respect of the taxable surplus of a foreign affiliate of the corporation, unless the specified debtor is a person or partnership described in subclause (i)(D)(I) or (II);
(b)that exempt surplus, hybrid surplus, taxable surplus, or adjusted cost base is not relevant in applying this subsection in respect of any other loan made or indebtedness incurred, or in respect of any deduction claimed under subsection 91(5) or 113(1) in respect of a dividend paid, during the period in which the particular loan or indebtedness is outstanding; and
(c)that adjusted cost base is not relevant in determining the taxability of any other distribution made during the period in which the particular loan or indebtedness is outstanding.
Marginal note:Corporate partners: application of subsection (9)
(10)In applying subsection (9) to a corporation resident in Canada that is a member of a partnership at the end of a fiscal period of the partnership,
(a)each amount that may reasonably be considered to be the corporation’s share (determined in a manner consistent with the determination of the corporation’s share of the income of the partnership under subsection 96(1)) of each specified amount that is required to be included in computing the income of the partnership for that fiscal period under subsection (6), in respect of a particular loan or indebtedness, is deemed to be a specified amount in respect of the particular loan or indebtedness that was included in the corporation’s income, for its taxation year that includes the last day of that fiscal period, under subsection (6);
(b)subparagraph (9)(a)(i) is to be read without reference to its clause (D);
(c)subparagraph (9)(a)(ii) is to be read as follows:
(ii)the income of the partnership, referred to in subsection (10), under subsection 91(5), in respect of the taxable surplus of a foreign affiliate of the partnership, to the extent of the amount that may reasonably be considered to be the corporation’s share of that deduction (determined in a manner consistent with the determination of the corporation’s share of the income of the partnership under subsection 96(1));
(d)paragraph (9)(b) is to be read as follows:
(b)that exempt surplus, hybrid surplus, or taxable surplus is not relevant in applying this subsection in respect of any other loan made or indebtedness incurred, or in respect of any deduction claimed under subsection 91(5) or 113(1) in respect of a dividend paid, during the period in which the particular loan or indebtedness is outstanding; and
(e)subsection (9) is to be read without reference to its paragraph (c).
Marginal note:Downstream surplus
(11)For the purposes of subparagraph (9)(a)(i), the amounts of exempt surplus or exempt deficit, hybrid surplus or hybrid deficit, hybrid underlying tax, taxable surplus or taxable deficit, and underlying foreign tax of the creditor affiliate, or of each foreign affiliate of the corporation that is a member of the creditor partnership, as the case may be, in respect of the corporation, at the lending time are deemed to be the amounts that would be determined, at the lending time, under subparagraph 5902(1)(a)(i) of theIncome Tax Regulationsif that subparagraph were applicable at the lending time and the references in that subparagraph to “the dividend time” were references to the lending time.
Marginal note:Add-back for subsection (9) deduction
(12)There is to be included in computing the income of a corporation resident in Canada for a particular taxation year any amount deducted by the corporation under subsection (9) in computing the corporation’s income for the taxation year that immediately precedes the particular year.
Marginal note:No double deduction
(13)A corporation may not claim a deduction for a taxation year under subsection (9) in respect of the same portion of the specified amount in respect of a loan or indebtedness for which a deduction is claimed for that year or a preceding year by the corporation, or by a partnership of which the corporation is a member, under subsection (14).
Marginal note:Repayment of loan
(14)There may be deducted in computing the income of a taxpayer for a particular taxation year the amount determined by the formula
A × B/C
where
Marginal note:Definitions
(15)The following definitions apply in this section.
eligible bank affiliatehas the same meaning as in subsection 95(2.43). (filiale bancaire admissible)
eligible Canadian bankhas the same meaning as in subsection 95(2.43). (banque canadienne admissible)
eligible Canadian indebtednesshas the same meaning as in subsection 95(2.43). (dettes canadiennes admissibles)
excess liquidityhas the same meaning as in subsection 95(2.43). (liquidités excédentaires)
specified amount, in respect of a loan or indebtedness that is required by subsection (6) to be included in computing the income of a taxpayer for a taxation year, means the amount determined by the formula
A × (B – C)
where
(a)a creditor affiliate of the taxpayer, the percentage that is or would be, if the taxpayer referred to in subsection (6) were a corporation resident in Canada, the taxpayer’s surplus entitlement percentage (in this definition determined without reference to subsection 5908(1) of theIncome Tax Regulations) in respect of the creditor affiliate at the time (referred to in this definition as the “determination time”) referred to in subsection (6), or
(b)a creditor partnership of which a foreign affiliate of the taxpayer is a member, the total of each percentage determined, in respect of a member (referred to in this paragraph as a “member affiliate”) of the creditor partnership that is a foreign affiliate of the taxpayer, by the formula
D × E/F
where
(a)if the debtor under the loan or indebtedness is
(i)another foreign affiliate of the taxpayer, the percentage that is or would be, if the taxpayer were a corporation resident in Canada, the taxpayer’s surplus entitlement percentage in respect of the other affiliate at the determination time, or
(ii)a partnership (referred to in this paragraph as the “borrower partnership”) of which one or more other foreign affiliates of the taxpayer are members, the total of each percentage that is determined by the following formula in respect of each such member
G × H/I
where
(b)in any other case, nil. (montant déterminé)
specified debtor, in respect of a taxpayer resident in Canada, at any time, means
(a)the taxpayer;
(b)a person with which the taxpayer does not, at that time, deal at arm’s length, other than
(i)a non-resident corporation that is at that time acontrolled foreign affiliate, within the meaning assigned by section 17, of the taxpayer, or
(ii)a non-resident corporation (other than a corporation that is described in subparagraph (i)) that is, at that time, a foreign affiliate of the taxpayer, if each share of the capital stock of the affiliate is owned at that time by any of
(A)the taxpayer,
(B)persons resident in Canada,
(C)non-resident persons that deal at arm’s length with the taxpayer,
(D)persons described in subparagraph (i),
(E)partnerships, each member of which is described in any of clauses (A) to (F), and
(F)a corporation each shareholder of which is described in any of clauses (A) to (F);
(c)a partnership a member of which is at that time a person or partnership that is a specified debtor in respect of the taxpayer because of paragraph (a) or (b); and
(d)if the taxpayer is a partnership,
(i)any member of the partnership that is a corporation resident in Canada if the creditor affiliate, or member of the creditor partnership, as the case may be, is, at that time, a foreign affiliate of the corporation,
(ii)a person with which a corporation referred to in subparagraph (i) does not, at that time, deal at arm’s length, other than a controlled foreign affiliate, within the meaning assigned by section 17, of the partnership or of a member of the partnership that owns, directly or indirectly, an interest in the partnership representing at least 90% of the fair market value of all such interests, or
(iii)a partnership a member of which is at that time a person that is a specified debtor in respect of the taxpayer because of subparagraph (i) or (ii). (débiteur déterminé)
upstream deposithas the same meaning as in subsection 95(2.43). (dépôt en amont)
Marginal note:Amounts to be included in respect of share of foreign affiliate
91(1)In computing the income for a taxation year of a taxpayer resident in Canada, there shall be included, in respect of each share owned by the taxpayer of the capital stock of a controlled foreign affiliate of the taxpayer, as income from the share, the percentage of the foreign accrual property income of any controlled foreign affiliate of the taxpayer, for each taxation year of the affiliate ending in the taxation year of the taxpayer, equal to that share’s participating percentage in respect of the affiliate, determined at the end of each such taxation year of the affiliate.
Marginal note:Conditions for application of subsection (1.2)
(1.1)Subsection (1.2) applies at a particular time in respect of a particular foreign affiliate of a taxpayer resident in Canada if
(a)an amount would be included under subsection (1) in computing the income of the taxpayer, in respect of a share of the particular affiliate or another foreign affiliate of the taxpayer that has anequity percentage(as defined in subsection 95(4)) in the particular affiliate, for the taxation year of the particular affiliate (determined without reference to subsection (1.2)) that includes the particular time (referred to in this subsection and subsection (1.3) as the “ordinary taxation year” of the particular affiliate), if the ordinary taxation year of the particular affiliate ended at the particular time;
(b)immediately after the particular time, there is
(i)an acquisition of control of the taxpayer, or
(ii)a triggering event that can reasonably be considered to result in a change in the aggregate participating percentage of the taxpayer in respect of the particular affiliate for the ordinary taxation year of the particular affiliate;
(c)if subparagraph (b)(i) applies, all or a portion of an amount described in paragraph 95(2)(f) that accrued to the particular affiliate during the portion of the ordinary taxation year of the particular affiliate before the particular time is excluded in computing the income of another taxpayer because paragraph 95(2)(f.1) applies as a result of the taxpayer being, at a time before the acquisition of control, a designated acquired corporation of the other taxpayer; and
(d)if subparagraph (b)(ii) applies, none of the following is the case:
(i)the change referred to in that subparagraph
(A)is a decrease, and
(B)is equal to the total of all amounts each of which is the increase — that can reasonably be considered to result from the triggering event — in the aggregate participating percentage of another taxpayer, in respect of the particular affiliate for the ordinary taxation year of the particular affiliate, if the other taxpayer
(I)is a person resident in Canada, other than a person that is — or a trust, any of the beneficiaries under which is — by reason of a statutory provision, exempt from tax under this Part, and
(II)is related to the taxpayer,
1if the triggering event results from a winding-up of the taxpayer to which subsection 88(1) applies, at the particular time, and
2in any other case, immediately after the particular time,
(ii)the triggering event is on anamalgamationas defined in subsection 87(1),
(iii)the triggering event is an excluded acquisition or disposition, in respect of the ordinary taxation year of the particular affiliate, and
(iv)if one or more triggering events — all of which are described in subparagraph (b)(ii) and in respect of which none of the conditions in subparagraphs (i) to (iii) are satisfied — occur in the ordinary taxation year of the particular affiliate, the percentage determined by the following formula is not greater than 5%:
A — B
where
Marginal note:Deemed year-end
(1.2)If this subsection applies at a particular time in respect of a foreign affiliate of a particular taxpayer resident in Canada, then for the purposes of this section and section 92,
(a)in respect of the particular taxpayer and each connected person, or connected partnership, in respect of the particular taxpayer, the affiliate’s taxation year that would, in the absence of this subsection, have included the particular time is deemed to have ended at the time (referred to in this section as the “stub-period end time”) that is immediately before the particular time;
(b)if the affiliate is, immediately after the particular time, a foreign affiliate of the particular taxpayer or a connected person, or connected partnership, in respect of the particular taxpayer, the affiliate’s next taxation year after the stub-period end time is deemed, in respect of the particular taxpayer or the connected person or connected partnership, as the case may be, to begin immediately after the particular time; and
(c)in determining the foreign accrual property income of the affiliate for the taxation year referred to in paragraph (a) in respect of the particular taxpayer or a connected person or connected partnership, in respect of the particular taxpayer, all transactions or events that occur at the particular time are deemed to occur at the stub-period end time.
Marginal note:Definitions
(1.3)The following definitions apply in this subsection and subsections (1.1) and (1.2).
aggregate participating percentage, of a taxpayer in respect of a foreign affiliate of the taxpayer for a taxation year of the affiliate, means the total of all amounts, each of which is the participating percentage, in respect of the affiliate, of a share of the capital stock of a corporation that is owned by the taxpayer at the end of the taxation year. (pourcentage de participation total)
connected person, in respect of a particular taxpayer, means a person that — at or immediately after the particular time at which subsection (1.2) applies in respect of a foreign affiliate of the particular taxpayer — is resident in Canada and
(a)does not deal at arm’s length with the particular taxpayer; or
(b)deals at arm’s length with the particular taxpayer, if
(i)the foreign affiliate is a foreign affiliate of the person at the particular time, and
(ii)the aggregate participating percentage of the person in respect of the foreign affiliate for the affiliate’s ordinary taxation year may reasonably be considered to have increased as a result of the triggering event that gave rise to the application of subsection (1.2). (personne rattachée)
connected partnership, in respect of a particular taxpayer, means a partnership if, at or immediately after the particular time at which subsection (1.2) applies in respect of a foreign affiliate of the particular taxpayer,
(a)the particular taxpayer or a connected person in respect of the particular taxpayer is, directly or indirectly through one or more partnerships, a member of the partnership; or
(b)if paragraph (a) does not apply,
(i)the foreign affiliate is a foreign affiliate of the partnership at the particular time, and
(ii)the aggregate participating percentage of the partnership in respect of the foreign affiliate for the affiliate’s ordinary taxation year may reasonably be considered to have increased as a result of the triggering event that gave rise to the application of subsection (1.2). (société de personnes rattachée)
excluded acquisition or disposition, in respect of a taxation year of a foreign affiliate of a taxpayer, means an acquisition or disposition of an equity interest in a corporation, partnership or trust that can reasonably be considered to result in a change in the aggregate participating percentage of the taxpayer in respect of the affiliate for the taxation year of the affiliate, if
(a)the change is less than 1%; and
(b)it cannot reasonably be considered that one of the main reasons the acquisition or disposition occurs as a separate acquisition or disposition from one or more other acquisitions or dispositions is to avoid the application of subsection (1.2). (acquisition ou disposition exclue)
triggering eventmeans
(a)an acquisition or disposition of an equity interest in a corporation, partnership or trust;
(b)a change in the terms or conditions of a share of the capital stock of a corporation or the rights as a member of a partnership or as a beneficiary under a trust; and
(c)a disposition or change of a right referred to in paragraph 95(6)(a). (événement déclencheur)
Marginal note:Election for application of subsection (1.2)
(1.4)If the conditions in subsection (1.1) are not met at a particular time in respect of a particular foreign affiliate of a taxpayer resident in Canada, subsection (1.2) applies in respect of the particular affiliate at that time if
(a)the conditions in paragraph (1.1)(a) are met in respect of the particular affiliate at the particular time;
(b)immediately after the particular time there is a disposition of shares of the capital stock of the particular affiliate or another foreign affiliate of the taxpayer that had anequity percentage(as defined in subsection 95(4)) in the particular affiliate by
(i)the taxpayer, or
(ii)a controlled foreign affiliate of the taxpayer; and
(c)the taxpayer and all specified corporations jointly elect in writing to apply subsection (1.2) in respect of the disposition and file the election with the Minister on or before the day that is the earliest filing-due date for all taxpayers making the election in respect of the taxation year in which the transaction to which the election relates occurred, and for this purpose, aspecified corporationmeans a corporation that at or immediately after the particular time meets the following conditions:
(i)the corporation is resident in Canada,
(ii)the corporation does not deal at arm’s length with the taxpayer, and
(iii)the particular affiliate is a foreign affiliate of the corporation, or of a partnership of which the corporation is, directly or indirectly through one or more partnerships, a member.
(1.5)[Repealed, 2017, c. 33, s. 28]
Marginal note:Reserve where foreign exchange restriction
(2)Where an amount in respect of a share has been included in computing the income of a taxpayer for a taxation year by virtue of subsection 91(1) or 91(3) and the Minister is satisfied that, by reason of the operation of monetary or exchange restrictions of a country other than Canada, the inclusion of the whole amount with no deduction for a reserve in respect thereof would impose undue hardship on the taxpayer, there may be deducted in computing the taxpayer’s income for the year such amount as a reserve in respect of the amount so included as the Minister deems reasonable in the circumstances.
Marginal note:Reserve for preceding year to be included
(3)In computing the income of a taxpayer for a taxation year, there shall be included each amount in respect of a share that was deducted by virtue of subsection 91(2) in computing the taxpayer’s income for the immediately preceding year.
Marginal note:Amounts deductible in respect of foreign taxes
(4)Where, by virtue of subsection 91(1), an amount in respect of a share has been included in computing the income of a taxpayer for a taxation year or for any of the 5 immediately preceding taxation years (in this subsection referred to as the “income amount”), there may be deducted in computing the taxpayer’s income for the year the lesser of
(a)the product obtained when
(i)the portion of the foreign accrual tax applicable to the income amount that was not deductible under this subsection in any previous year
is multiplied by
(ii)the taxpayer’s relevant tax factor for the year, and
(b)the amount, if any, by which the income amount exceeds the total of the amounts in respect of that share deductible under this subsection in any of the 5 immediately preceding taxation years in respect of the income amount.
Marginal note:Denial of foreign accrual tax
(4.1)For the purposes of the definitionforeign accrual taxin subsection 95(1), foreign accrual tax applicable to a particular amount included in computing a taxpayer’s income under subsection (1) for a taxation year of the taxpayer in respect of a particular foreign affiliate of the taxpayer is not to include the amount that would, in the absence of this subsection, be foreign accrual tax applicable to the particular amount if, at any time in the taxation year (referred to in this subsection as the “affiliate year”) of the particular affiliate that ends in the taxation year of the taxpayer,
(a)a specified owner in respect of the taxpayer is considered,
(i)under the income tax laws (referred to in subsections (4.5) and (4.6) as the “relevant foreign tax law”) of any country other than Canada under the laws of which any income of a particular corporation — that is, at any time in the affiliate year, a pertinent person or partnership in respect of the particular affiliate — is subject to income taxation, to own less than all of the shares of the capital stock of the particular corporation that are considered to be owned by the specified owner for the purposes of this Act, or
(ii)under the income tax laws (referred to in subsections (4.5) and (4.6) as the “relevant foreign tax law”) of any country other than Canada under the laws of which any income of a particular partnership — that is, at any time in the affiliate year, a pertinent person or partnership in respect of the particular affiliate — is subject to income taxation, to have a lesser direct or indirect share of the income of the particular partnership than the specified owner is considered to have for the purposes of this Act; or
(b)where the taxpayer is a partnership, the direct or indirect share of the income of the partnership of any member of the partnership that is, at any time in the affiliate year, a person resident in Canada or a foreign affiliate of such a person is, under the income tax laws (referred to in subsection (4.6) as the “relevant foreign tax law”) of any country other than Canada under the laws of which any income of the partnership is subject to income taxation, less than the member’s direct or indirect share of that income for the purposes of this Act.
Marginal note:Specified owner
(4.2)For the purposes of subsections (4.1) and (4.5), aspecified owner, at any time, in respect of a taxpayer means the taxpayer or a person or partnership that is, at that time,
(a)a partnership of which the taxpayer is a member;
(b)a foreign affiliate of the taxpayer;
(c)a partnership a member of which is a foreign affiliate of the taxpayer; or
(d)a person or partnership referred to in any of subparagraphs (4.4)(a)(i) to (iii).
Marginal note:Pertinent person or partnership
(4.3)For the purposes of this subsection and subsection (4.1), apertinent person or partnership, at any time, in respect of a particular foreign affiliate of a taxpayer means the particular affiliate or a person or partnership that is, at that time,
(a)another foreign affiliate of the taxpayer
(i)in which the particular affiliate has an equity percentage, or
(ii)that has an equity percentage in the particular affiliate;
(b)a partnership a member of which is at that time a pertinent person or partnership in respect of the particular affiliate under this subsection; or
(c)a person or partnership referred to in any of subparagraphs (4.4)(b)(i) to (iii).
Marginal note:Series of transactions
(4.4)For the purposes of subsections (4.2) and (4.3), if, as part of a series of transactions or events that includes the earning of the foreign accrual property income that gave rise to the particular amount referred to in subsection (4.1), a foreign affiliate (referred to in this subsection as the “funding affiliate”) of the taxpayer or of a person (referred to in this subsection as the “related person”) resident in Canada that is related to the taxpayer, or a partnership (referred to in this subsection as the “funding partnership”) of which such an affiliate is a member, directly or indirectly provided funding to the particular affiliate, or a partnership of which the particular affiliate is a member, otherwise than by way of loans or other indebtedness that are subject to terms or conditions made or imposed, in respect of the loans or other indebtedness, that do not differ from those that would be made or imposed between persons dealing at arm’s length or by way of an acquisition of shares of the capital stock of any corporation, then
(a)if the funding affiliate is, or the funding partnership has a member that is, a foreign affiliate of the related person, the following persons and partnerships are deemed, at all times during which the foreign accrual property income is earned by the particular affiliate, to be specified owners in respect of the taxpayer:
(i)the related person,
(ii)each foreign affiliate of the related person, and
(iii)each partnership a member of which is a person referred to in subparagraph (i) or (ii); and
(b)the following persons and partnerships are deemed, at all times during which the foreign accrual property income is earned by the particular affiliate, to be pertinent persons or partnerships in respect of the particular affiliate:
(i)the funding affiliate or the funding partnership,
(ii)a non-resident corporation
(A)in which the funding affiliate has an equity percentage, or
(B)that has an equity percentage in the funding affiliate, and
(iii)a partnership a member of which is a person or partnership referred to in subparagraph (i) or (ii).
Marginal note:Exception — hybrid entities
(4.5)For the purposes of subparagraph (4.1)(a)(i), a specified owner in respect of the taxpayer is not to be considered, under the relevant foreign tax law, to own less than all of the shares of the capital stock of a corporation that are considered to be owned for the purposes of this Act solely because the specified owner or the corporation is not treated as a corporation under the relevant foreign tax law.
Marginal note:Exceptions — partnerships
(4.6)For the purposes of subparagraph (4.1)(a)(ii) and paragraph (4.1)(b), a member of a partnership is not to be considered to have a lesser direct or indirect share of the income of the partnership under the relevant foreign tax law than for the purposes of this Act solely because of one or more of the following:
(a)a difference between the relevant foreign tax law and this Act in the manner of
(i)computing the income of the partnership, or
(ii)allocating the income of the partnership because of the admission to, or withdrawal from, the partnership of any of its members;
(b)the treatment of the partnership as a corporation under the relevant foreign tax law; or
(c)the fact that the member is not treated as a corporation under the relevant foreign tax law.
Marginal note:Deemed ownership
(4.7)For the purposes of subsection (4.1), if a specified owner owns, for the purposes of this Act, shares of the capital stock of a corporation and the dividends, or similar amounts, in respect of those shares are treated under the income tax laws of any country other than Canada under the laws of which any income of the corporation is subject to income taxation as interest or another form of deductible payment, the specified owner is deemed to be considered, under those tax laws, to own less than all of the shares of the capital stock of the corporation that are considered to be owned by the specified owner for the purposes of this Act.
Marginal note:Amounts deductible in respect of dividends received
(5)Where in a taxation year a taxpayer resident in Canada has received a dividend on a share of the capital stock of a corporation that was at any time a controlled foreign affiliate of the taxpayer, there may be deducted, in respect of such portion of the dividend as is prescribed to have been paid out of the taxable surplus of the affiliate, in computing the taxpayer’s income for the year, the lesser of
(a)the amount by which that portion of the dividend exceeds the amount, if any, deductible in respect thereof under paragraph 113(1)(b), and
(b)the amount, if any, by which
(i)the total of all amounts required by paragraph 92(1)(a) to be added in computing the adjusted cost base to the taxpayer of the share before the dividend was so received by the taxpayer
exceeds
(ii)the total of all amounts required by paragraph 92(1)(b) to be deducted in computing the adjusted cost base to the taxpayer of the share before the dividend was so received by the taxpayer.
(5.1) to (5.3)[Repealed, 2009, c. 2, s. 23]
Marginal note:Idem
(6)Where a share of the capital stock of a foreign affiliate of a taxpayer that is a taxable Canadian corporation is acquired by the taxpayer from another corporation resident in Canada with which the taxpayer is not dealing at arm’s length, for the purpose of subsection 91(5), any amount required by section 92 to be added or deducted, as the case may be, in computing the adjusted cost base to the other corporation of the share shall be deemed to have been so required to be added or deducted, as the case may be, in computing the adjusted cost base to the taxpayer of the share.
Marginal note:Shares acquired from a partnership
(7)For the purpose of subsection (5), where a taxpayer resident in Canada acquires a share of the capital stock of a corporation that is immediately after the acquisition a foreign affiliate of the taxpayer from a partnership of which the taxpayer, or a corporation resident in Canada with which the taxpayer was not dealing at arm’s length at the time the share was acquired, was a member (each such person referred to in this subsection as the “member”) at any time during any fiscal period of the partnership that began before the acquisition,
(a)that portion of any amount required by subsection 92(1) to be added to the adjusted cost base to the partnership of the share of the capital stock of the foreign affiliate equal to the amount included in the income of the member because of subsection 96(1) in respect of the amount that was included in the income of the partnership because of subsection (1) or (3) in respect of the foreign affiliate and added to that adjusted cost base, and
(b)that portion of any amount required by subsection 92(1) to be deducted from the adjusted cost base to the partnership of the share of the capital stock of the foreign affiliate equal to the amount by which the income of the member from the partnership under subsection 96(1) was reduced because of the amount deducted in computing the income of the partnership under subsection (2), (4) or (5) and deducted from that adjusted cost base
is deemed to be an amount required by subsection 92(1) to be added or deducted, as the case may be, in computing the adjusted cost base to the taxpayer of the share.
Marginal note:Adjusted cost base of share of foreign affiliate
92(1)In computing, at any time in a taxation year, the adjusted cost base to a taxpayer resident in Canada of any share owned by the taxpayer of the capital stock of a foreign affiliate of the taxpayer,
(a)there shall be added in respect of that share any amount included in respect of that share under subsection 91(1) or (3) in computing the taxpayer’s income for the year or any preceding taxation year (or that would have been required to have been so included in computing the taxpayer’s income but for subsection 56(4.1) and sections 74.1 to 75 of this Act and section 74 of theIncome Tax Act, chapter 148 of the Revised Statutes of Canada, 1952); and
(b)there shall be deducted in respect of that share
(i)any amount deducted by the taxpayer under subsection 91(2) or (4), and
(ii)any dividend received by the taxpayer before that time, to the extent of the amount deducted by the taxpayer, in respect of the dividend, under subsection 91(5)
in computing the taxpayer’s income for the year or any preceding taxation year (or that would have been deductible by the taxpayer but for subsection 56(4.1) and sections 74.1 to 75 of this Act and section 74 of theIncome Tax Act, chapter 148 of the Revised Statutes of Canada, 1952).
Marginal note:Adjustment for prescribed amount
(1.1)The prescribed amount shall be added in computing the adjusted cost base of a share of the capital stock of a foreign affiliate of a corporation resident in Canada to
(a)another foreign affiliate of the corporation; or
(b)a partnership of which another foreign affiliate of the corporation is a member.
Marginal note:Adjustment re adjusted cost base
(1.2)There is to be added in computing the adjusted cost base to a taxpayer of a share of the capital stock of a foreign affiliate of the taxpayer any amount required by paragraph 93(4)(b) to be so added.
Marginal note:Deduction in computing adjusted cost base
(2)In computing, at any time in a taxation year,
(a)the adjusted cost base to a corporation resident in Canada (in this subsection referred to as an “owner”) of any share of the capital stock of a foreign affiliate of the corporation, or
(b)the adjusted cost base to a foreign affiliate (in this subsection referred to as an “owner”) of a person resident in Canada of any share of the capital stock of another foreign affiliate of that person,
there shall be deducted, in respect of any dividend received on the share before that time by the owner of the share, an amount equal to the amount, if any, by which
(c)such portion of the amount of the dividend so received as was deductible by virtue of paragraph 113(1)(d) from the income of the owner for the year in computing the owner’s taxable income for the year or as would have been so deductible if the owner had been a corporation resident in Canada,
exceeds
(d)such portion of any income or profits tax paid by the owner to the government of a country other than Canada as may reasonably be regarded as having been paid in respect of the portion described in paragraph 92(2)(c).
Marginal note:Idem
(3)In computing, at any time in a taxation year, the adjusted cost base to a corporation resident in Canada of any share of the capital stock of a foreign affiliate of the corporation, there shall be deducted an amount in respect of any dividend received on the share by the corporation before that time equal to such portion of the amount so received as was deducted under subsection 113(2) from the income of the corporation for the year or any preceding year in computing its taxable income.
Marginal note:Disposition of a partnership interest
(4)Where a corporation resident in Canada or a foreign affiliate of a corporation resident in Canada has at any time disposed of all or a portion of an interest in a partnership of which it was a member, there shall be added, in computing the proceeds of disposition of that interest, the amount determined by the formula
(A - B) × (C/D)
where
(a)the total of all amounts each of which is an amount that was deductible under paragraph 113(1)(d) by the member from its income in computing its taxable income for any taxation year of the member that began before that time in respect of any portion of a dividend received by the partnership, or would have been so deductible if the member were a corporation resident in Canada,
exceeds
(b)the total of all amounts each of which is the portion of any income or profits tax paid by the partnership or the member of the partnership to a government of a country other than Canada that can reasonably be considered as having been paid in respect of the member’s share of the dividend described in paragraph (a);
(a)the total of all amounts each of which was an amount added under this subsection in computing the member’s proceeds of a disposition before that time of another interest in the partnership, and
(b)the total of all amounts each of which was an amount deemed by subsection (5) to be a gain of the member from a disposition before that time of a share by the partnership;
Marginal note:Deemed gain from the disposition of a share
(5)Where a partnership has, at any time in a fiscal period of the partnership at the end of which a corporation resident in Canada or a foreign affiliate of a corporation resident in Canada was a member, disposed of a share of the capital stock of a corporation, the amount determined under subsection (6) in respect of such a member is deemed to be a gain of the member from the disposition of the share by the partnership for the member’s taxation year in which the fiscal period of the partnership ends.
Marginal note:Formula
(6)The amount determined for the purposes of subsection (5) is the amount determined by the formula
A - B
where
(a)the total of all amounts each of which is an amount that was deductible under paragraph 113(1)(d) by the member from its income in computing its taxable income for a taxation year in respect of any portion of a dividend received by the partnership on the share in a fiscal period of the partnership that began before the time referred to in subsection (5) and ends in the member’s taxation year, or would have been so deductible if the member were a corporation resident in Canada,
exceeds
(b)the total of all amounts each of which is the portion of any income or profits tax paid by the partnership or the member to a government of a country other than Canada that can reasonably be considered as having been paid in respect of the member’s share of the dividend described in paragraph (a); and
Marginal note:Election re disposition of share of foreign affiliate
93(1)For the purposes of this Act, if a corporation resident in Canada elects, in accordance with prescribed rules, in respect of any share of the capital stock of a particular foreign affiliate of the corporation that is disposed of, at any time, by the corporation (referred to in this subsection as the “disposing corporation”) or by another foreign affiliate (referred to in this subsection as the “disposing affiliate”) of the corporation,
(a)the amount (referred to in this subsection as the “elected amount”) designated by the corporation in its election not exceeding the amount that would, in the absence of this subsection, be the gain of the disposing corporation or disposing affiliate, as the case may be, from the disposition of the share, is deemed
(i)to have been a dividend received on the share from the particular affiliate by the disposing corporation or disposing affiliate, as the case may be, immediately before that time, and
(ii)not to have been received by the disposing corporation or disposing affiliate, as the case may be, as proceeds of disposition in respect of the disposition of the share; and
(b)if subsection 40(3) applies to the disposing corporation or disposing affiliate, as the case may be, in respect of the share, the amount deemed by that subsection to be the gain of the disposing corporation or disposing affiliate, as the case may be, from the disposition of the share is, except for the purposes of paragraph 53(1)(a), deemed to be equal to the amount, if any, by which
(i)the amount deemed by that subsection to be the gain from the disposition of the share determined without reference to this paragraph
exceeds
(ii)the elected amount.
Marginal note:Application of subsection (1.11)
(1.1)Subsection (1.11) applies if
(a)a particular foreign affiliate of a corporation resident in Canada disposes at any time of a share (referred to in this paragraph and subsection (1.11) as the “disposed share”) of the capital stock of another foreign affiliate of the corporation and the particular affiliate would, in the absence of subsections (1) and (1.11), have a capital gain from the disposition of the disposed share; or
(b)a corporation resident in Canada would, in the absence of subsections (1) and (1.11), be deemed under subsection 40(3), because of an election under subsection 90(3) or subparagraph 5901(2)(b)(i) of theIncome Tax Regulations, to have realized a gain from a disposition at any time of a share (referred to in subsection (1.11) as the “disposed share”) of the capital stock of a foreign affiliate of the corporation.
Marginal note:Deemed election
(1.11)If this subsection applies, the corporation resident in Canada referred to in subsection (1.1) is deemed
(a)to have made an election, at the time referred to in subsection (1.1), under subsection (1) in respect of the disposition of the disposed share; and
(b)to have designated, in the election, the prescribed amount in respect of the disposition of the disposed share.
Marginal note:Disposition of shares of a foreign affiliate held by a partnership
(1.2)Where a particular corporation resident in Canada or a foreign affiliate of the particular corporation (each of which is referred to in this subsection as the “disposing corporation”) would, but for this subsection, have a taxable capital gain from a disposition by a partnership, at any time, of shares of a class of the capital stock of a foreign affiliate of the particular corporation and the particular corporation so elects in prescribed manner in respect of the disposition,
(a)twice
(i)the amount designated by the particular corporation (which amount shall not exceed the amount that is equal to the proportion of the taxable capital gain of the partnership that the number of shares of that class of the capital stock of the foreign affiliate, determined as the amount, if any, by which the number of those shares that were deemed to have been owned by the disposing corporation for the purposes of subsection 93.1(1) immediately before the disposition exceeds the number of those shares that were deemed to have been owned for those purposes by the disposing corporation immediately after the disposition, is of the number of those shares of the foreign affiliate that were owned by the partnership immediately before the disposition), or
(ii)if subsection (1.3) applies, the prescribed amount
in respect of those shares is deemed to have been a dividend received immediately before that time on the number of those shares of the foreign affiliate which shall be determined as the amount, if any, by which the number of those shares that the disposing corporation was deemed to own for the purpose of subsection 93.1(1) immediately before the disposition exceeds the number of those shares of the foreign affiliate that the disposing corporation was deemed to own for the purposes of subsection 93.1 (1) immediately after the disposition;
(b)notwithstanding section 96, the disposing corporation’s taxable capital gain from the disposition of those shares is deemed to be the amount, if any, by which the disposing corporation’s taxable capital gain from the disposition of the shares otherwise determined exceeds the amount designated by the particular corporation in respect of the shares;
(c)for the purpose of any regulation made under this subsection, the disposing corporation is deemed to have disposed of the number of those shares of the foreign affiliate which shall be determined as the amount, if any, by which the number of those shares that the disposing corporation was deemed to own for the purposes of subsection 93.1(1) immediately before the disposition exceeds the number of those shares that the disposing corporation was deemed to own for those purposes immediately after the disposition;
(d)for the purposes of section 113 in respect of the dividend referred to in paragraph (a), the disposing corporation is deemed to have owned the shares on which that dividend was received; and
(e)where the disposing corporation has a taxable capital gain from the partnership because of the application of subsection 40(3) to the partnership in respect of those shares, for the purposes of this subsection, the shares are deemed to have been disposed of by the partnership.
Marginal note:Deemed election
(1.3)Where a foreign affiliate of a particular corporation resident in Canada has a gain from the disposition by a partnership at any time of shares of a class of the capital stock of a foreign affiliate of the particular corporation that are excluded property, the particular corporation is deemed to have made an election under subsection (1.2) in respect of the number of shares of the foreign affiliate which shall be determined as the amount, if any, by which the number of those shares that the disposing corporation was deemed to own for the purposes of subsection 93.1(1) immediately before the disposition exceeds the number of those shares that the disposing corporation was deemed to own for those purposes immediately after the disposition.
Marginal note:Application of subsection (2.01)
(2)Subsection (2.01) applies if
(a)a particular corporation (referred to in subparagraph (2.01)(b)(ii) as the “vendor”, as the context requires) resident in Canada has a particular loss, determined without reference to this section, from the disposition by it at any time (referred to in subsection (2.01) as the “disposition time”) of a share (referred to in subsection (2.01) as the “affiliate share”) of the capital stock of a foreign affiliate of the particular corporation; or
(b)a foreign affiliate (referred to in subparagraph (2.01)(b)(ii) as the “vendor”) of a particular corporation resident in Canada has a particular loss, determined without reference to this section, from the disposition by it at any time (referred to in subsection (2.01) as the “disposition time”) of a share (referred to in subsection (2.01) as the “affiliate share”) of the capital stock of another foreign affiliate of the particular corporation that is not excluded property.
Marginal note:Loss limitation on disposition of share of foreign affiliate
(2.01)If this subsection applies, the amount of the particular loss referred to in paragraph (2)(a) or (b) is deemed to be the greater of
(a)the amount determined by the formula
A – (B – C)
where
(i)the particular corporation referred to in subsection (2),
(ii)another corporation that is related to the particular corporation,
(iii)a foreign affiliate of the particular corporation, or
(iv)a foreign affiliate of another corporation that is related to the particular corporation, and
(i)the total of all amounts each of which is the amount by which a loss (determined without reference to this section), from a previous disposition by a corporation, or a foreign affiliate described in the description of B, of the affiliate share or a share for which the affiliate share was substituted, was reduced under this paragraph in respect of the exempt dividends referred to in the description of B,
(ii)the total of all amounts each of which is twice the amount by which an allowable capital loss (determined without reference to this section), of a corporation or a foreign affiliate described in the description of B, from a previous disposition by a partnership of the affiliate share or a share for which the affiliate share was substituted, was reduced under paragraph (2.11)(a) in respect of the exempt dividends referred to in the description of B,
(iii)the total of all amounts each of which is the amount by which a loss (determined without reference to this section), from a previous disposition by a corporation, or a foreign affiliate described in the description of B, of an interest in a partnership, was reduced under paragraph (2.21)(a) in respect of the exempt dividends referred to in the description of B, and
(iv)the total of all amounts each of which is twice the amount by which an allowable capital loss (determined without reference to this section), of a corporation, or a foreign affiliate described in the description of B, from a previous disposition by a partnership of an interest in another partnership, was reduced under paragraph (2.31)(a) in respect of the exempt dividends referred to in the description of B, and
(b)the lesser of
(i)the portion of the particular loss, determined without reference to this section, that can reasonably be considered to be attributable to a fluctuation in the value of a currency other than Canadian currency relative to Canadian currency, and
(ii)the amount determined in respect of the vendor that is
(A)if the particular loss is a capital loss, the amount of a gain (other than a specified gain) that
(I)was made within 30 days before or after the disposition time by the vendor and that
1is deemed under subsection 39(2) to be a capital gain of the vendor for the taxation year that includes the time the gain was made from the disposition of currency other than Canadian currency, and
2is in respect of the settlement or extinguishment of a foreign currency debt that was issued or incurred by the vendor within 30 days before or after the acquisition of the affiliate share by the vendor and that was, at all times at which it was a debt obligation of the vendor owing to a person or partnership that dealt, at all times during which the foreign currency debt was outstanding, at arm’s length with the particular corporation and can reasonably be considered to have been issued or incurred in relation to the acquisition of the affiliate share, or
(II)is a capital gain realized within 30 days before or after the disposition time by the vendor under an agreement that
1was entered into by the vendor within 30 days before or after the acquisition of the affiliate share by the vendor with a person or partnership that dealt, at all times during which the agreement was in force, at arm’s length with the particular corporation,
2provides for the purchase, sale or exchange of currency, and
3can reasonably be considered to have been entered into by the vendor for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the affiliate share, or
(B)in any other case, the amount of a gain (other than a specified gain or a capital gain) that was realized within 30 days before or after the disposition time by the vendor that is included in computing the income of the vendor for the taxation year that includes the time the gain was realized and
(I)that is in respect of the settlement or extinguishment of a foreign currency debt that
1was issued or incurred by the vendor within 30 days before or after the acquisition of the affiliate share by the vendor,
2was, at all times at which it was a debt obligation of the vendor owing to a person or partnership that dealt, at all times during which the foreign currency debt was outstanding, at arm’s length with the particular corporation, and
3can reasonably be considered to have been issued or incurred in relation to the acquisition of the affiliate share, or
(II)under an agreement that
1was entered into by the vendor within 30 days before or after the acquisition of the affiliate share by the vendor with a person or partnership that dealt, at all times during which the agreement was in force, at arm’s length with the particular corporation,
2provides for the purchase, sale or exchange of currency, and
3can reasonably be considered to have been entered into by the vendor for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the affiliate share.
Marginal note:Specified gain
(2.02)For the purposes of clauses (2.01)(b)(ii)(A) and (B), aspecified gainmeans a gain in respect of the settlement or extinguishment of a foreign currency debt referred to in sub-subclause (2.01)(b)(ii)(A)(I)2 or subclause (2.01)(b)(ii)(B)(I), as the case may be, or that arises under a particular agreement referred to in subclause (2.01)(b)(ii)(A)(II) or (B)(II), if the particular corporation, or any person or partnership with which the particular corporation was not — at any time during which the foreign currency debt was outstanding or the particular agreement was in force, as the case may be — dealing at arm’s length, entered into an agreement that may reasonably be considered to have been entered into for the principal purpose of hedging any foreign exchange exposure arising in connection with the foreign currency debt or the particular agreement.
Marginal note:Application of subsection (2.11)
(2.1)Subsection (2.11) applies if
(a)a particular corporation resident in Canada has a particular allowable capital loss, determined without reference to this section, from the disposition at any time (referred to in subsection (2.11) as the “disposition time”) by a partnership (referred to in subsections (2.11) and (2.12) as the “disposing partnership”) of a share (referred to in subsection (2.11) as the “affiliate share”) of the capital stock of a foreign affiliate of the particular corporation; or
(b)a foreign affiliate of a particular corporation resident in Canada has a particular allowable capital loss, determined without reference to this section, from the disposition at any time (referred to in subsection (2.11) as the “disposition time”) by a partnership (referred to in subsections (2.11) and (2.12) as the “disposing partnership”) of a share (referred to in subsection (2.11) as the “affiliate share”) of the capital stock of another foreign affiliate of the particular corporation that would not be excluded property of the affiliate if the affiliate had owned the share immediately before the disposition time.
Marginal note:Loss limitation on disposition of foreign affiliate share by a partnership
(2.11)If this subsection applies, the amount of the particular allowable capital loss referred to in paragraph (2.1)(a) or (b) is deemed to be the greater of
(a)the amount determined by the formula
A – (B – C)
where
(i)the particular corporation referred to in subsection (2.1),
(ii)another corporation that is related to the particular corporation,
(iii)a foreign affiliate of the particular corporation, or
(iv)a foreign affiliate of another corporation that is related to the particular corporation, and
(i)the total of all amounts each of which is ½ of the amount by which a loss (determined without reference to this section), from a previous disposition by a corporation, or a foreign affiliate described in the description of B, of the affiliate share or a share for which the affiliate share was substituted, was reduced under paragraph (2.01)(a) in respect of the exempt dividends referred to in the description of B,
(ii)the total of all amounts each of which is the amount by which an allowable capital loss (determined without reference to this section), of a corporation or a foreign affiliate described in the description of B, from a previous disposition by a partnership of the affiliate share or a share for which the affiliate share was substituted, was reduced under this paragraph in respect of the exempt dividends referred to in the description of B,
(iii)the total of all amounts each of which is ½ of the amount by which a loss (determined without reference to this section), from a previous disposition by a corporation, or a foreign affiliate described in the description of B, of an interest in a partnership, was reduced under paragraph (2.21)(a) in respect of the exempt dividends referred to in the description of B, and
(iv)the total of all amounts each of which is the amount by which an allowable capital loss (determined without reference to this section), of a corporation, or a foreign affiliate described in the description of B, from a previous disposition by a partnership of an interest in another partnership, was reduced under paragraph (2.31)(a) in respect of the exempt dividends referred to in the description of B, and
(b)the lesser of
(i)the portion of the particular allowable capital loss, determined without reference to this section, that can reasonably be considered to be attributable to a fluctuation in the value of a currency other than Canadian currency relative to Canadian currency, and
(ii)½ of the amount determined in respect of the particular corporation, or the foreign affiliate (that is referred to in paragraph (2.1)(b)) of the particular corporation, that is the amount of a gain (other than a specified gain) that
(A)was made within 30 days before or after the disposition time by the disposing partnership to the extent that the gain is reasonably attributable to the particular corporation or the foreign affiliate, as the case may be, and that
(I)is deemed under subsection 39(2) to be a capital gain of the disposing partnership for the taxation year that includes the time the gain was made from the disposition of currency other than Canadian currency, and
(II)is in respect of the settlement or extinguishment of a foreign currency debt that
1was issued or incurred by the disposing partnership within 30 days before or after the acquisition of the affiliate share by the disposing partnership,
2was, at all times at which it was a debt obligation of the disposing partnership, owing to a person or partnership that dealt, at all times during which the foreign currency debt was outstanding, at arm’s length with the particular corporation, and
3can reasonably be considered to have been issued or incurred in relation to the acquisition of the affiliate share, or
(B)is a capital gain (to the extent that the capital gain is reasonably attributable to the particular corporation or the foreign affiliate, as the case may be) realized within 30 days before or after the disposition time by the disposing partnership under an agreement that
(I)was entered into by the disposing partnership, within 30 days before or after the acquisition of the affiliate share by the disposing partnership, with a person or partnership that dealt, at all times during which the agreement was in force, at arm’s length with the particular corporation,
(II)provides for the purchase, sale or exchange of currency, and
(III)can reasonably be considered to have been entered into by the disposing partnership for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the affiliate share.
Marginal note:Specified gain
(2.12)For the purposes of subparagraph (2.11)(b)(ii), aspecified gainmeans a gain in respect of the settlement or extinguishment of a foreign currency debt referred to in subclause (2.11)(b)(ii)(A)(II), or that arises under a particular agreement referred to in clause (2.11)(b)(ii)(B), if the disposing partnership, or any person or partnership with which the particular corporation was not — at any time during which the foreign currency debt was outstanding or the particular agreement was in force, as the case may be — dealing at arm’s length, entered into an agreement that may reasonably be considered to have been entered into for the principal purpose of hedging any foreign exchange exposure arising in connection with the foreign currency debt or the particular agreement.
Marginal note:Application of subsection (2.21)
(2.2)Subsection (2.21) applies if
(a)a particular corporation (referred to in subparagraph (2.21)(b)(ii) as the “vendor”, as the context requires) resident in Canada has a particular loss, determined without reference to this section, from the disposition by it at any time (referred to in subsection (2.21) as the “disposition time”) of an interest (referred to in subsection (2.21) as the “partnership interest”) in a partnership that has a direct or indirect interest, or, for civil law, a direct or indirect right, in shares (referred to in subsection (2.21) as the “affiliate shares”) of the capital stock of a foreign affiliate of the particular corporation; or
(b)a foreign affiliate (referred to in subparagraph (2.21)(b)(ii) as the “vendor”) of a particular corporation resident in Canada has a particular loss, determined without reference to this section, from the disposition by it at any time (referred to in subsection (2.21) as the “disposition time”) of an interest (referred to in subsection (2.21) as the “partnership interest”) in a partnership that has a direct or indirect interest, or, for civil law, a direct or indirect right, in shares (referred to in subsection (2.21) as the “affiliate shares”) of the capital stock of another foreign affiliate of the particular corporation that would not be excluded property of the affiliate if the affiliate had owned the shares immediately before the disposition time.
Marginal note:Loss limitation on disposition of partnership that has foreign affiliate shares
(2.21)If this subsection applies, the amount of the particular loss referred to in paragraph (2.2)(a) or (b) is deemed to be the greater of
(a)the amount determined by the formula
A – (B – C)
where
(i)the particular corporation referred to in subsection (2.2),
(ii)another corporation that is related to the particular corporation,
(iii)a foreign affiliate of the particular corporation, or
(iv)a foreign affiliate of another corporation that is related to the particular corporation, and
(i)the total of all amounts each of which is the amount by which a loss (determined without reference to this section), from a previous disposition by a corporation, or a foreign affiliate described in the description of B, of the affiliate shares or shares for which the affiliate shares were substituted, was reduced under paragraph (2.01)(a) in respect of the exempt dividends referred to in the description of B,
(ii)the total of all amounts each of which is twice the amount by which an allowable capital loss (determined without reference to this section), of a corporation or a foreign affiliate described in the description of B, from a previous disposition by a partnership of the affiliate shares or shares for which the affiliate shares were substituted, was reduced under paragraph (2.11)(a) in respect of the exempt dividends referred to in the description of B,
(iii)the total of all amounts each of which is the amount by which a loss (determined without reference to this section), from a previous disposition by a corporation, or a foreign affiliate described in the description of B, of an interest in a partnership, was reduced under this paragraph in respect of the exempt dividends referred to in the description of B, and
(iv)the total of all amounts each of which is twice the amount by which an allowable capital loss (determined without reference to this section), of a corporation, or a foreign affiliate described in the description of B, from a previous disposition by a partnership of an interest in another partnership, was reduced under paragraph (2.31)(a) in respect of the exempt dividends referred to in the description of B, and
(b)the lesser of
(i)the portion of the particular loss, determined without reference to this section, that can reasonably be considered to be attributable to a fluctuation in the value of a currency other than Canadian currency relative to Canadian currency, and
(ii)the amount determined in respect of the vendor that is
(A)if the particular loss is a capital loss, the amount of a gain (other than a specified gain) that
(I)was made within 30 days before or after the disposition time by the vendor and that
1is deemed under subsection 39(2) to be a capital gain of the vendor for the taxation year that includes the time the gain was made from the disposition of currency other than Canadian currency, and
2is in respect of the settlement or extinguishment of a foreign currency debt that was issued or incurred by the vendor within 30 days before or after the acquisition of the partnership interest by the vendor and that was, at all times at which it was a debt obligation of the vendor owing to a person or partnership that dealt, at all times during which the foreign currency debt was outstanding, at arm’s length with the particular corporation and can reasonably be considered to have been issued or incurred in relation to the acquisition of the partnership interest, or
(II)is a capital gain realized within 30 days before or after the disposition time by the vendor under an agreement that
1was entered into by the vendor within 30 days before or after the acquisition of the partnership interest by the vendor with a person or partnership that dealt, at all times during which the agreement was in force, at arm’s length with the particular corporation,
2provides for the purchase, sale or exchange of currency, and
3can reasonably be considered to have been entered into by the vendor for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the partnership interest, or
(B)in any other case, the amount of a gain (other than a specified gain or a capital gain) that was realized within 30 days before or after the disposition time by the vendor that is included in computing the income of the vendor for the taxation year that includes the time the gain was realized and
(I)that is in respect of the settlement or extinguishment of a foreign currency debt that
1was issued or incurred by the vendor within 30 days before or after the acquisition of the partnership interest by the vendor,
2was, at all times at which it was a debt obligation of the vendor owing to a person or partnership that dealt, at all times during which the foreign currency debt was outstanding, at arm’s length with the particular corporation, and
3can reasonably be considered to have been issued or incurred in relation to the acquisition of the partnership interest, or
(II)under an agreement that
1was entered into by the vendor within 30 days before or after the acquisition of the partnership interest by the vendor with a person or partnership that dealt, at all times during which the agreement was in force, at arm’s length with the particular corporation,
2provides for the purchase, sale or exchange of currency, and
3can reasonably be considered to have been entered into by the vendor for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the partnership interest.
Marginal note:Specified gain
(2.22)For the purposes of clauses (2.21)(b)(ii)(A) and (B), aspecified gainmeans a gain in respect of the settlement or extinguishment of a foreign currency debt referred to in sub-subclause (2.21)(b)(ii)(A)(I)2 or subclause (2.21)(b)(ii)(B)(I), as the case may be, or that arises under a particular agreement referred to in subclause (2.21)(b)(ii)(A)(II) or (B)(II), if the particular corporation, or any person or partnership with which the particular corporation was not — at any time during which the foreign currency debt was outstanding or the particular agreement was in force, as the case may be — dealing at arm’s length, entered into an agreement that may reasonably be considered to have been entered into for the principal purpose of hedging any foreign exchange exposure arising in connection with the foreign currency debt or the particular agreement.
Marginal note:Application of subsection (2.31)
(2.3)Subsection (2.31) applies if
(a)a particular corporation resident in Canada has a particular allowable capital loss, determined without reference to this section, from the disposition at any time (referred to in subsection (2.31) as the “disposition time”) by a particular partnership of an interest (referred to in subsection (2.31) as the “partnership interest”) in another partnership that has a direct or indirect interest, or, for civil law, a direct or indirect right, in shares (referred to in subsection (2.31) as the “affiliate shares”) of the capital stock of a foreign affiliate of the particular corporation; or
(b)a foreign affiliate of a particular corporation resident in Canada has a particular allowable capital loss, determined without reference to this section, from the disposition at any time (referred to in subsection (2.31) as the “disposition time”) by a particular partnership of an interest (referred to in subsection (2.31) as the “partnership interest”) in another partnership that has a direct or indirect interest, or, for civil law, a direct or indirect right, in shares (referred to in subsection (2.31) as the “affiliate shares”) of the capital stock of a foreign affiliate of the particular corporation that would not be excluded property of the affiliate if the affiliate had owned the shares immediately before the disposition time.
Marginal note:Loss limitation on disposition by a partnership of an indirect interest in foreign affiliate shares
(2.31)If this subsection applies, the amount of the particular allowable capital loss referred to in paragraph (2.3)(a) or (b) is deemed to be the greater of
(a)the amount determined by the formula
A – (B – C)
where
(i)the particular corporation referred to in subsection (2.3),
(ii)another corporation that is related to the particular corporation,
(iii)a foreign affiliate of the particular corporation, or
(iv)a foreign affiliate of another corporation that is related to the particular corporation, and
(i)the total of all amounts each of which is ½ of the amount by which a loss (determined without reference to this section), from a previous disposition by a corporation, or a foreign affiliate described in the description of B, of the affiliate shares or shares for which the affiliate shares were substituted, was reduced under paragraph (2.01)(a) in respect of the exempt dividends referred to in the description of B,
(ii)the total of all amounts each of which is the amount by which an allowable capital loss (determined without reference to this section), of a corporation or a foreign affiliate described in the description of B, from a previous disposition by a partnership of the affiliate shares or shares for which the affiliate shares were substituted, was reduced under paragraph (2.11)(a) in respect of the exempt dividends referred to in the description of B,
(iii)the total of all amounts each of which is ½ of the amount by which a loss (determined without reference to this section), from a previous disposition by a corporation, or a foreign affiliate described in the description of B, of an interest in a partnership, was reduced under paragraph (2.21)(a) in respect of the exempt dividends referred to in the description of B, and
(iv)the total of all amounts each of which is the amount by which an allowable capital loss (determined without reference to this section), of a corporation, or a foreign affiliate described in the description of B, from a previous disposition by a partnership of an interest in another partnership, was reduced under this paragraph in respect of the exempt dividends referred to in the description of B, and
(b)the lesser of
(i)the portion of the particular allowable capital loss, determined without reference to this section, that can reasonably be considered to be attributable to a fluctuation in the value of a currency other than Canadian currency relative to Canadian currency, and
(ii)½ of the amount determined in respect of the particular corporation, or the foreign affiliate (that is referred to in paragraph (2.3)(b)), of the particular corporation, that is the amount of a gain (other than a specified gain) that
(A)was made within 30 days before or after the disposition time by the particular partnership to the extent that the gain is reasonably attributable to the particular corporation or the foreign affiliate, as the case may be, and that
(I)is deemed under subsection 39(2) to be a capital gain of the particular partnership for the taxation year that includes the time the gain was made from the disposition of currency other than Canadian currency, and
(II)is in respect of the settlement or extinguishment of a foreign currency debt that
1was issued or incurred by the particular partnership within 30 days before or after the acquisition of the partnership interest by the particular partnership,
2was, at all times at which it was a debt obligation of the particular partnership, owing to a person or partnership that dealt, at all times during which the foreign currency debt was outstanding, at arm’s length with the particular corporation, and
3can reasonably be considered to have been issued or incurred in relation to the acquisition of the partnership interest, or
(B)is a capital gain (to the extent that the capital gain is reasonably attributable to the particular corporation or the foreign affiliate, as the case may be) realized within 30 days before or after the disposition time by the particular partnership under an agreement that
(I)was entered into by the particular partnership, within 30 days before or after the acquisition of the partnership interest by the particular partnership, with a person or partnership that dealt, at all times during which the agreement was in force, at arm’s length with the particular corporation,
(II)provides for the purchase, sale or exchange of currency, and
(III)can reasonably be considered to have been entered into by the particular partnership for the principal purpose of hedging the foreign exchange exposure arising in connection with the acquisition of the partnership interest.
Marginal note:Specified gain
(2.32)For the purposes of subparagraph (2.31)(b)(ii), aspecified gainmeans a gain in respect of the settlement or extinguishment of a foreign currency debt referred to in subclause (2.31)(b)(ii)(A)(II), or that arises under a particular agreement referred to in clause (2.31)(b)(ii)(B), if the particular partnership, or any person or partnership with which the particular corporation was not — at any time during which the foreign currency debt was outstanding or the particular agreement was in force, as the case may be — dealing at arm’s length, entered into an agreement that may reasonably be considered to have been entered into for the principal purpose of hedging any foreign exchange exposure arising in connection with the foreign currency debt or the particular agreement.
Marginal note:Exempt dividends
(3)For the purposes of subsections (2.01), (2.11), (2.21) and (2.31),
(a)a dividend received by a corporation resident in Canada is an exempt dividend to the extent of the amount in respect of the dividend that is deductible from the income of the corporation for the purpose of computing the taxable income of the corporation because of any of paragraphs 113(1)(a) to (c); and
(b)a dividend received by a particular foreign affiliate of a corporation resident in Canada from another foreign affiliate of the corporation is an exempt dividend to the extent of the amount, if any, by which the portion of the dividend that was not prescribed to have been paid out of the pre-acquisition surplus of the other affiliate exceeds the total of such portion of the income or profits tax that can reasonably be considered to have been paid in respect of that portion of the dividend by the particular affiliate or by a partnership in which the particular affiliate had, at the time of the payment of the income or profits tax, a partnership interest, either directly or indirectly; and
(c)the prescribed amount is deemed to be an amount that is received, at the adjustment time referred to in subsection 5905(7.7) of theIncome Tax Regulations,by a particular foreign affiliate of a corporation resident in Canada from another foreign affiliate of the corporation and that is in respect of an exempt dividend on a share of the capital stock of the other affiliate.
Marginal note:Loss on disposition of shares of foreign affiliate
(4)If a taxpayer resident in Canada or a foreign affiliate (which taxpayer or foreign affiliate is referred to in this subsection as the “transferee”) of the taxpayer has acquired shares of the capital stock of one or more foreign affiliates (each referred to in this subsection as an “acquired affiliate”) of the taxpayer on a disposition of shares (such shares disposed of being referred to in this subsection as the “disposed shares”) of the capital stock of any other foreign affiliate of the taxpayer (other than, where the transferee is a foreign affiliate of the taxpayer, a disposition of shares that are, immediately before the acquisition, excluded property of the transferee or a disposition to which subsection 40(3.4) applies), the following rules apply:
(a)the capital loss, if any, of the transferee from the disposition, is deemed to be nil; and
(b)in computing the adjusted cost base to the transferee of a share of a particular class of the capital stock of an acquired affiliate that is owned by the transferee immediately after the disposition, there is to be added the amount determined by the formula
[(A – B) × C/D]/E
where
(i)the total of all amounts each of which is the proceeds of disposition of a disposed share, and
(ii)the total of all amounts in respect of the computation of losses of the transferee from the dispositions of the disposed shares, each of which is, in respect of the disposition of a disposed share, the amount by which the amount for A in the formula in paragraph (2.01)(a) exceeds the amount determined by that formula,
Marginal note:Late filed elections
(5)Where the election referred to in subsection 93(1) was not made on or before the day on or before which the election was required by that subsection to be made, the election shall be deemed to have been made on that day if, on or before the day that is 3 years after that day,
(a)the election is made in prescribed manner; and
(b)an estimate of the penalty in respect of that election is paid by the corporation when that election is made.
Marginal note:Special cases
(5.1)Where, in the opinion of the Minister, the circumstances of a case are such that it would be just and equitable
(a)to permit an election under subsection 93(1) to be made after the day that is 3 years after the day on or before which the election was required by that subsection to be made, or
(b)to permit an election made under subsection 93(1) to be amended,
the election or amended election shall be deemed to have been made on the day on or before which the election was so required to be made if
(c)the election or amended election is made in prescribed form, and
(d)an estimate of the penalty in respect of the election or amended election is paid by the corporation when the election or amended election is made,
and where this subsection applies to the amendment of an election, that election shall be deemed not to have been effective.
Marginal note:Amended election
(5.2)An election (referred to in this subsection as the “amended election”) by a taxpayer under subsection (1) in respect of a disposition of shares of the capital stock of a foreign affiliate of the taxpayer is deemed to have been made on the day on or before which the election was required to be made and any previous election (referred to in this subsection as the “old election”) under subsection (1) in respect of that disposition is deemed not to have been made if
(a)the taxpayer has not elected under section 51 of theTechnical Tax Amendments Act, 2012;
(b)the taxpayer made the old election on or before December 18, 2009;
(c)in the opinion of the Minister, the circumstances are such that it would be just and equitable to permit the old election to be amended; and
(d)the amended election is made in prescribed form on or before December 31, 2013.
Marginal note:Penalty for late filed election
(6)For the purposes of this section, the penalty in respect of an election or amended election referred to in paragraph 93(5)(a) or 93(5.1)(c) is an amount equal to the lesser of
(a)1/4 of 1% of the amount designated in the election or amended election for each month or part of a month during the period commencing with the day on or before which the election is required by subsection 93(1) to be made and ending on the day the election is made, and
(b)an amount, not exceeding $8,000, equal to the product obtained by multiplying $100 by the number of months each of which is a month all or part of which is during the period referred to in paragraph 93(6)(a).
Marginal note:Unpaid balance of penalty
(7)The Minister shall, with all due dispatch, examine each election and amended election referred to in paragraph 93(5)(a) or 93(5.1)(c), assess the penalty payable and send a notice of assessment to the corporation, and the corporation shall pay forthwith to the Receiver General the amount, if any, by which the penalty so assessed exceeds the total of all amounts previously paid on account of that penalty.
Marginal note:Shares held by partnership
93.1(1)For the purpose of determining whether a non-resident corporation is a foreign affiliate of a corporation resident in Canada for the purposes of a specified provision, if, based on the assumptions contained in paragraph 96(1)(c), at any time shares of a class of the capital stock of a corporation are owned by a partnership or are deemed under this subsection to be owned by a partnership, then each member of the partnership is deemed to own at that time the number of those shares that is equal to the proportion of all those shares that
(a)the fair market value of the member’s interest in the partnership at that time
is of
(b)the fair market value of all members’ interests in the partnership at that time.
Marginal note:Specified provisions for subsection (1)
(1.1)For the purposes of subsection (1), the specified provisions are
(a)subsections (2), (5), 20(12) and 39(2.1), sections 90, 93, 93.3 and 113, paragraphs 128.1(1)(c.3) and (d), section 212.3, subsection 219.1(2) and section 233.4;
(b)section 95 to the extent that section is applied for the purposes of the provisions referred to in paragraph (a);
(c)any regulations made for the purposes of the provisions referred to in paragraph (a); and
(d)paragraph 95(2)(g.04), subsections 95(2.2) and (8) to (12) and section 126.
Marginal note:Where dividends received by a partnership
(2)Where, based on the assumptions contained in paragraph 96(1)(c), at any time shares of a class of the capital stock of a foreign affiliate of a corporation resident in Canada (in this subsection referred to as “affiliate shares”) are owned by a partnership and at that time the affiliate pays a dividend on affiliate shares to the partnership (in this subsection referred to as the “partnership dividend”),
(a)for the purposes of sections 93 and 113 and any regulations made for the purposes of those sections, each member of the partnership (other than another partnership) is deemed to have received the proportion of the partnership dividend that
(i)the fair market value of the member’s interest held, directly or indirectly through one or more other partnerships, in the partnership at that time
is of
(ii)the fair market value of all the interests in the partnership held directly by members of the partnership at that time;
(b)for the purposes of sections 93 and 113 and any regulations made for the purposes of those sections, the proportion of the partnership dividend deemed by paragraph (a) to have been received by a member of the partnership at that time is deemed to have been received by the member in equal proportions on each affiliate share that is property of the partnership at that time;
(c)for the purpose of applying section 113, in respect of the dividend referred to in paragraph (a), each affiliate share referred to in paragraph (b) is deemed to be owned by each member of the partnership; and
(d)notwithstanding paragraphs (a) to (c),
(i)where the corporation resident in Canada is a member of the partnership, the amount deductible by it under section 113 in respect of the dividend referred to in paragraph (a) shall not exceed the portion of the amount of the dividend included in its income pursuant to subsection 96(1), and
(ii)where another foreign affiliate of the corporation resident in Canada is a member of the partnership, the amount included in that other affiliate’s income in respect of the dividend referred to in paragraph (a) shall not exceed the amount that would be included in its income pursuant to subsection 96(1) in respect of the partnership dividend received by the partnership if the value for H in the definitionforeign accrual property incomein subsection 95(1) were nil and this Act were read without reference to this subsection.
Marginal note:Tiered partnerships
(3)A person or partnership that is (or is deemed by this subsection to be) a member of a particular partnership that is a member of another partnership is deemed to be a member of the other partnership, and the person or partnership is deemed to have, directly, rights to the income or capital of the other partnership to the extent of the person or partnership’s direct and indirect rights to that income or capital, for the purposes of applying
(a)except to the extent that the context otherwise requires, a provision of this Subdivision;
(b)any of paragraphs 13(21.2)(a), 14(12)(a), 18(13)(a), 40(2)(e.1), (e.3) and (g) and (3.3)(a); and
(c)subsections 39(2.1), 40(3.6) and 87(8.3).
Marginal note:Partnership deemed to be corporation
(4)For the purpose of applying clause 95(2)(a)(ii)(D) in respect of an amount paid or payable by a partnership to a foreign affiliate, of a taxpayer, that is a member of the partnership or to another foreign affiliate of the taxpayer,
(a)if, at any time, all the members (in this subsection referred to as “member affiliates”) of the partnership are foreign affiliates of the taxpayer,
(i)the partnership is deemed to be, at that time in respect of the taxpayer and the member affiliates, a non-resident corporation without share capital, and
(ii)all the membership interests in the partnership are deemed to be, at that time, equity interests in the corporation held by the member affiliates; and
(b)if, at any time, all the member affiliates are resident in a particular country and the partnership does not carry on business outside the particular country, the partnership is deemed to be, at that time, resident in the particular country.
Marginal note:Computing FAPI in respect of partnership
(5)For the purpose of applying a relevant provision in respect of a foreign affiliate of a taxpayer resident in Canada, if at any time the taxpayer is a partnership of which a particular corporation resident in Canada, or a foreign affiliate of the particular corporation, is a member and if, based on the relevant assumptions, the particular corporation and the taxpayer would be related, then
(a)a non-resident corporation that is, at that time, a foreign affiliate of the particular corporation is deemed to be, at that time, a foreign affiliate of the taxpayer; and
(b)the taxpayer is deemed to have, at that time, a qualifying interest in respect of that foreign affiliate if the particular corporation has, at that time, a qualifying interest in respect of the non-resident corporation.
Marginal note:Relevant provisions and assumptions
(6)For the purposes of subsection (5),
(a)the relevant provisions are
(i)paragraph (b) of the description of A in the definitionforeign accrual property incomein subsection 95(1),
(ii)in determining whether a property of a foreign affiliate of a taxpayer is excluded property of the affiliate, the description of B in the definitionforeign accrual property incomein subsection 95(1),
(iii)paragraphs 95(2)(a) and (g), and
(iv)subsections 95(2.2) and (2.21); and
(b)the relevant assumptions are that
(i)the partnership is a non-resident corporation having capital stock of a single class divided into 100 issued shares that each have full voting rights, and
(ii)each member of the partnership (other than another partnership) owns, at any time, the proportion of the issued shares of that class that
(A)the fair market value of the member’s interest held, directly or indirectly through one or more partnerships, in the partnership at that time
is of
(B)the fair market value of all the interests in the partnership held directly by members of the partnership at that time.
Marginal note:Definitions
93.2(1)The definitions in this subsection apply in this section.
equity interest, in a non-resident corporation without share capital, means any right, whether absolute or contingent, conferred by the non-resident corporation to receive, either immediately or in the future, an amount that can reasonably be regarded as all or any part of the capital, revenue or income of the non-resident corporation, but does not include a right as creditor.  (participation)
non-resident corporation without share capitalmeans a non-resident corporation that, determined without reference to this section, does not have capital divided into shares. (société non-résidente sans capital-actions)
Marginal note:Non-resident corporation without share capital
(2)For the purposes of this Act,
(a)equity interests in a non-resident corporation without share capital that have identical rights and obligations, determined without reference to proportionate differences in all of those rights and obligations, are deemed to be shares of a separate class of the capital stock of the corporation;
(b)the corporation is deemed to have 100 issued and outstanding shares of each class of its capital stock;
(c)each person or partnership that holds, at any time, an equity interest in a particular class of the capital stock of the corporation is deemed to own, at that time, that number of shares of the particular class that is equal to the proportion of 100 that
(i)the fair market value, at that time, of all the equity interests of the particular class held by the person or partnership
is of
(ii)the fair market value, at that time, of all the equity interests of the particular class; and
(d)shares of a particular class of the capital stock of the corporation are deemed to have rights and obligations that are the same as those of the corresponding equity interests.
Marginal note:Non-resident corporation without share capital
(3)For the purposes of section 51, subsection 85.1(3), section 86 and paragraph 95(2)(c),
(a)subject to paragraph (b), if at any time a taxpayer resident in Canada or a foreign affiliate of the taxpayer (in this subsection referred to as the “vendor”) disposes of capital property that is shares of the capital stock of a foreign affiliate of the taxpayer, or a debt obligation owing to the taxpayer by the affiliate, to — or exchanges the shares or debt for shares of the capital stock of — a non-resident corporation without share capital, that is immediately after that time a foreign affiliate of the taxpayer, in a manner that increases the fair market value of a class of shares of the capital stock of the non-resident corporation, the non-resident corporation is deemed to have issued, and the vendor is deemed to have received, new shares of the class as consideration in respect of the disposition or exchange; and
(b)if the taxpayer elects under this paragraph and files the election in writing with the Minister on or before its filing-due date for the taxation year that includes the day on which the disposition or exchange occurs, paragraph (a) does not apply to the disposition or exchange.
Definition ofAustralian trust
93.3(1)In this section,Australian trust, at any time, means a trust in respect of which the following apply at that time:
(a)in the absence of subsection (3), the trust would be described in paragraph (h) of the definitionexempt foreign trustin subsection 94(1);
(b)the trust is resident in Australia;
(c)the interest of each beneficiary under the trust is described by reference to units of the trust; and
(d)the liability of each beneficiary under the trust is limited by the operation of any law governing the trust.
Marginal note:Conditions for subsection (3)
(2)Subsection (3) applies at any time to a taxpayer resident in Canada in respect of a trust if
(a)a non-resident corporation is at that time beneficially interested in the trust;
(b)the non-resident corporation is at that time a foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest;
(c)the trust is at that time an Australian trust;
(d)the total fair market value at that time of all fixed interests (in this section as defined in subsection 94(1)) of a class in the trust held by the non-resident corporation, or persons or partnerships that do not deal at arm’s length with the non-resident corporation, is at least 10% of the total fair market value at that time of all fixed interests of the class; and
(e)unless the non-resident corporation first acquires a beneficial interest in the trust at that time, immediately before that time (referred to in this paragraph as the “preceding time”) subsection (3) applied
(i)to the taxpayer in respect of the trust, or
(ii)to a corporation resident in Canada, that at the preceding time did not deal at arm’s length with the taxpayer, in respect of the trust.
Marginal note:Australian trusts
(3)If this subsection applies at any time to a taxpayer resident in Canada in respect of a trust, the following rules apply at that time for the specified purposes:
(a)the trust is deemed to be a non-resident corporation that is resident in Australia and not to be a trust;
(b)each particular class of fixed interests in the trust is deemed to be a separate class of 100 issued shares, of the capital stock of the non-resident corporation, that have the same attributes as the interests of the particular class;
(c)each beneficiary under the trust is deemed to hold the number of shares of each separate class described in paragraph (b) equal to the proportion of 100 that the fair market value at that time of that beneficiary’s fixed interests in the corresponding particular class of fixed interests in the trust is of the fair market value at that time of all fixed interests in the particular class;
(d)the non-resident corporation is deemed to be controlled by the taxpayer resident in Canada  — a foreign affiliate of which is referred to in paragraph (2)(b) and is beneficially interested in the trust  —  that has the greatest equity percentage in the non-resident corporation;
(e)a particular foreign affiliate of the taxpayer in which the taxpayer has a direct equity percentage (as defined in subsection 95(4)) at a particular time, and that is not a controlled foreign affiliate of the taxpayer at that time, is deemed to be a controlled foreign affiliate of the taxpayer at that time if, at that time,
(i)the particular affiliate has an equity percentage (as defined in subsection 95(4)) in the foreign affiliate referred to in paragraph (2)(b), or
(ii)the particular affiliate is the foreign affiliate referred to in paragraph (2)(b); and
(f)section 94.2 does not apply to the taxpayer in respect of the trust.
Marginal note:Specified purposes
(4)For the purposes of subsection (3), the specified purposes are
(a)the determination, in respect of an interest in an Australian trust, of the Canadian tax results (as defined in subsection 261(1)) of the taxpayer resident in Canada referred to in subsection (3) for a taxation year in respect of shares of the capital stock of a foreign affiliate of the taxpayer;
(b)the filing obligations of the taxpayer under section 233.4; and
(c)if the taxpayer is a corporation resident in Canada, the application of section 212.3 in respect of an investment (as defined in subsection 212.3(10)) by the taxpayer.
Marginal note:Mergers
(5)For the purposes of this section,
(a)if there has been an amalgamation to which subsection 87(1) applies, the new corporation referred to in that subsection is deemed to be the same corporation as, and a continuation of, each predecessor corporation referred to in that subsection; and
(b)if there has been a winding-up to which subsection 88(1) applies, the parent referred to in that subsection is deemed to be the same corporation as, and a continuation of, the subsidiary referred to in that subsection.
Marginal note:Definitions
94(1)The following definitions apply in this section and section 94.2.
arm’s length transfer, at any time by a person or partnership (referred to in this definition as the “transferor”) means a transfer or loan (which transfer or loan is referred to in this definition as the “transfer”) of property (other than restricted property) that is made at that time (referred to in this definition as the “transfer time”) by the transferor to a particular person or partnership (referred to in this definition as the “recipient”) if
(a)it is reasonable to conclude that none of the reasons (determined by reference to all the circumstances including the terms of a trust, an intention, the laws of a country or the existence of an agreement, a memorandum, a letter of wishes or any other arrangement) for the transfer is the acquisition at any time by any person or partnership of an interest as a beneficiary under a non-resident trust; and
(b)the transfer is
(i)a payment of interest, of a dividend, of rent, of a royalty or of any other return on investment, or any substitute for such a return on investment, in respect of a particular property held by the recipient, if the amount of the payment is not more than the amount that the transferor would have paid if the transferor dealt at arm’s length with the recipient,
(ii)a payment made by a corporation on a reduction of the paid-up capital in respect of shares of a class of its capital stock held by the recipient, if the amount of the payment is not more than the lesser of the amount of the reduction in the paid-up capital and the consideration for which the shares were issued,
(iii)a transfer in exchange for which the recipient transfers or loans property to the transferor, or becomes obligated to transfer or loan property to the transferor, and for which it is reasonable to conclude
(A)having regard only to the transfer and the exchange, that the transferor would have been willing to make the transfer if the transferor dealt at arm’s length with the recipient, and
(B)that the terms and conditions, and circumstances, under which the transfer was made would have been acceptable to the transferor if the transferor dealt at arm’s length with the recipient,
(iv)a transfer made in satisfaction of an obligation referred to in subparagraph (iii) and for which it is reasonable to conclude
(A)having regard only to the transfer and the obligation, that the transferor would have been willing to make the transfer if the transferor dealt at arm’s length with the recipient, and
(B)that the terms and conditions, and circumstances, under which the transfer was made would have been acceptable to the transferor if the transferor dealt at arm’s length with the recipient,
(v)a payment of an amount owing by the transferor under a written agreement the terms and conditions of which, when entered into, were terms and conditions that, having regard only to the amount owing and the agreement, would have been acceptable to the transferor if the transferor dealt at arm’s length with the recipient of the payment,
(vi)a payment made before 2002 to a trust, to a corporation controlled by a trust or to a partnership of which a trust is a majority-interest partner in repayment of or otherwise in respect of a loan made by a trust, corporation or partnership to the transferor, or
(vii)a payment made after 2001 to a trust, to a corporation controlled by the trust or to a partnership of which the trust is a majority-interest partner, in repayment of or otherwise in respect of a particular loan made by the trust, corporation or partnership to the transferor and either
(A)the payment is made before 2011 and they would have been willing to enter into the particular loan if they dealt at arm’s length with each other, or
(B)the payment is made before 2005 in accordance with fixed repayment terms agreed to before June 23, 2000. (transfert sans lien de dépendance)
beneficiaryunder a trust includes
(a)a person or partnership that is beneficially interested in the trust; and
(b)a person or partnership that would be beneficially interested in the trust if the reference in subparagraph 248(25)(b)(ii) to
(i)“any arrangement in respect of the particular trust” were read as a reference to “any arrangement (including, for greater certainty, the terms or conditions of a share, or any arrangement in respect of a share, of the capital stock of a corporation that is beneficially interested in the particular trust) in respect of the particular trust”, and
(ii)“the particular person or partnership might” were read as a reference to “the particular person or partnership becomes (or could become on the exercise of any discretion by any person or partnership), directly or indirectly, entitled to any amount derived, directly or indirectly, from the income or capital of the particular trust or might”. (bénéficiaire)
closely held corporationat any time means a corporation, other than a corporation in respect of which
(a)there is at least one class of shares of its capital stock that includes shares prescribed for the purpose of paragraph 110(1)(d);
(b)it is reasonable to conclude that at that time, in respect of each class of shares described in paragraph (a), shares of the class are held by at least 150 shareholders each of whom holds shares of the class that have a total fair market value of at least $500; and
(c)it is reasonable to conclude that at that time in no case does a particular shareholder (or particular shareholder together with any other shareholder with whom the particular shareholder does not deal at arm’s length) hold shares of the corporation
(i)that would give the particular shareholder (or the particular shareholder together with those other shareholders referred to in this paragraph) 10% or more of the votes that could be cast under any circumstance at an annual meeting of shareholders of the corporation if the meeting were held at that time, or
(ii)that have a fair market value of 10% or more of the fair market value of all of the issued and outstanding shares of the corporation. (société à peu d’actionnaires)
connected contributor, to a trust at a particular time, means a contributor to the trust at the particular time, other than a person all of whose contributions to the trust made at or before the particular time were made at a non-resident time of the person. (contribuant rattaché)
contributionto a trust by a particular person or partnership means
(a)a transfer or loan (other than an arm’s length transfer) of property to the trust by the particular person or partnership;
(b)if a particular transfer or loan (other than an arm’s length transfer) of property is made by the particular person or partnership as part of a series of transactions that includes another transfer or loan (other than an arm’s length transfer) of property to the trust by another person or partnership, that other transfer or loan to the extent that it can reasonably be considered to have been made in respect of the particular transfer or loan; and
(c)if the particular person or partnership becomes obligated to make a particular transfer or loan (other than a transfer or loan that would, if it were made, be an arm’s length transfer) of property as part of a series of transactions that includes another transfer or loan (other than an arm’s length transfer) of property to the trust by another person or partnership, that other transfer or loan to the extent that it can reasonably be considered to have been made in respect of the obligation. (apport)
contributorto a trust at any time means a person (other than an exempt person but including a person that has ceased to exist) that, at or before that time, has made a contribution to the trust. (contribuant)
electing contributorat any time in respect of a trust means a resident contributor, to the trust, who has elected to have subsection (16) apply in respect of the contributor and the trust for a taxation year of the contributor that includes that time or that ends before that time and for all subsequent taxation years, if
(a)the election was in writing filed with the Minister on or before the contributor’s filing-due date for the first taxation year of the contributor for which the election was to take effect (referred to in this definition as the “initial year”); and
(b)the election included both the trust’s account number as assigned by the Minister and evidence that the contributor notified, no later than 30 days after the end of the trust’s taxation year that ends in the initial year, the trust that the election would be made. (contribuant déterminé)
electing trustin respect of a trust’s particular taxation year means the trust, if the trust
(a)holds at any time in the particular taxation year, or in a prior taxation year of the trust throughout which it was deemed by subsection (3) to be resident in Canada for the purpose of computing its income, property that is at that time part of its non-resident portion;
(b)elects to have paragraph (3)(f) apply to it for
(i)its first taxation year
(A)throughout which it is deemed by subsection (3) to be resident in Canada for the purpose of computing its income, and
(B)in which it holds property that is at a time in the year part of its non-resident portion, and
(ii)all of its taxation years that end after its taxation year described in subparagraph (i); and
(c)files the election described in paragraph (b) in writing filed with the Minister with the trust’s return of income for its taxation year described in subparagraph (b)(i). (fiducie déterminée)
exempt amountin respect of a trust’s particular taxation year means an amount that is
(a)paid or credited (in this definition within the meaning assigned by Part XIII) by the trust before 2004;
(b)paid or credited by the trust and referred to in paragraph 104(7.01)(b) in respect of the trust for the particular taxation year; or
(c)paid in the particular taxation year (or within 60 days after the end of the particular taxation year) by the trust directly to a beneficiary (determined without reference to subsection 248(25)) under the trust if
(i)the beneficiary is a natural person none of whose interests as a beneficiary under the trust was ever acquired for consideration,
(ii)the amount is described in subparagraph 212(1)(c)(i) and is not included in computing an exempt amount in respect of any other taxation year of the trust,
(iii)the trust was created before October 30, 2003, and
(iv)no contribution has been made to the trust on or after July 18, 2005. (somme exclue)
exempt foreign trustat a particular time means
(a)a non-resident trust if
(i)each beneficiary under the trust at the particular time is
(A)an individual who, at the time that the trust was created, was, because of mental or physical infirmity, dependent on an individual who is a contributor to the trust or on an individual related to such a contributor (which beneficiary is referred to in this paragraph as an “infirm beneficiary”), or
(B)a person who is entitled, only after the particular time, to receive or otherwise obtain the use of any of the trust’s income or capital,
(ii)at the particular time there is at least one infirm beneficiary who suffers from a mental or physical infirmity that causes the beneficiary to be dependent on a person,
(iii)each infirm beneficiary is, at all times that the infirm beneficiary is a beneficiary under the trust during the trust’s taxation year that includes the particular time, non-resident, and
(iv)each contribution to the trust made at or before the particular time can reasonably be considered to have been, at the time that the contribution was made, made to provide for the maintenance of an infirm beneficiary during the expected period of the beneficiary’s infirmity;
(b)a non-resident trust if
(i)the trust was created as a consequence of the breakdown of a marriage or common-law partnership of two particular individuals to provide for the maintenance of a beneficiary under the trust who was, during that marriage or common-law partnership,
(A)a child of both of those particular individuals (which beneficiary is referred to in this paragraph as a “child beneficiary”), or
(B)one of those particular individuals (which beneficiary is referred to in this paragraph as the “adult beneficiary”),
(ii)each beneficiary under the trust at the particular time is
(A)a child beneficiary under 21 years of age,
(B)a child beneficiary under 31 years of age who is enrolled at any time in the trust’s taxation year that includes the particular time at an educational institution that is described in subclause (iv)(B)(I) or (II),
(C)the adult beneficiary, or
(D)a person who is entitled, only after the particular time, to receive or otherwise obtain the use of any of the trust’s income or capital,
(iii)each beneficiary described in any of clauses (ii)(A) to (C) is, at all times that the beneficiary is a beneficiary under the trust during the trust’s taxation year that includes the particular time, non-resident, and
(iv)each contribution to the trust, at the time that the contribution was made, was
(A)an amount paid by the particular individual other than the adult beneficiary that would be a support amount as defined in subsection 56.1(4) if it had been paid by that particular individual directly to the adult beneficiary, or
(B)made by one of those particular individuals or a person related to one of those particular individuals to provide for the maintenance of a child beneficiary while the child was either under 21 years of age or was under 31 years of age and enrolled at an educational institution located outside Canada that is
(I)a university, college or other educational institution that provides courses at a post-secondary school level, or
(II)an educational institution that provides courses designed to furnish a person with skills for, or improve a person’s skills in, an occupation;
(c)a non-resident trust if
(i)at the particular time the trust is an agency of the United Nations,
(ii)at the particular time the trust owns and administers a university described in subparagraph (a)(iv) of the definitionqualified doneein subsection 149.1(1),
(iii)at any time in the trust’s taxation year that includes the particular time or at any time in the preceding calendar year Her Majesty in right of Canada has made a gift to the trust, or
(iv)the trust is established under theInternational Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, 1992, or any protocol to it that has been ratified by the Government of Canada;
(d)a non-resident trust
(i)that throughout the particular period that began at the time it was created and ends at the particular time would be non-resident if this Act were read without reference to subsection (1) as that subsection read in its application to taxation years that include December 31, 2000,
(ii)that was created exclusively for charitable purposes and has been operated throughout the particular period exclusively for charitable purposes,
(iii)if the particular time is more than 24 months after the day on which the trust was created, in respect of which, there are at the particular time at least 20 persons (other than trusts) each of whom at the particular time
(A)is a contributor to the trust,
(B)exists, and
(C)deals at arm’s length with at least 19 other contributors to the trust,
(iv)the income of which (determined in accordance with the laws described in subparagraph (v)) for each of its taxation years that ends at or before the particular time would, if the income were not distributed and the laws described in subparagraph (v) did not apply, be subject to an income or profits tax in the country in which it was resident in each of those taxation years, and
(v)that was, for each of its taxation years that ends at or before the particular time, exempt under the laws of the country in which it was resident from the payment of income or profits tax to the government of that country in recognition of the charitable purposes for which the trust is operated;
(e)a non-resident trust that throughout the trust’s taxation year that includes the particular time is a trust governed by an employees profit sharing plan, a retirement compensation arrangement or a foreign retirement arrangement;
(f)a non-resident trust if
(i)throughout the particular period that began when it was created and ends at the particular time it has been operated exclusively for the purpose of administering or providing employee benefits in respect of employees or former employees, and
(ii)throughout the trust’s taxation year that includes the particular time
(A)the trust is a trust governed by an employee benefit plan or is a trust described in paragraph (a.1) of the definitiontrustin subsection 108(1),
(B)the trust is maintained for the benefit of natural persons the majority of whom are non-resident, and
(C)no benefits are provided under the trust other than benefits in respect of qualifying services;
(g)a non-resident trust (other than a prescribed trust or a trust described in paragraph (a.1) of the definitiontrustin subsection 108(1)) that throughout the particular period that began when it was created and ends at the particular time
(i)has been resident in a particular country (other than Canada) the laws of which have, throughout the particular period,
(A)imposed an income or profits tax, and
(B)exempted the trust from the payment of all income tax, and all profits tax, to the government of that particular country in recognition of the purposes for which the trust is operated, and
(ii)has been operated exclusively for the purpose of administering or providing superannuation or pension benefits that are primarily in respect of services rendered in the particular country by natural persons who were non-resident at the time those services were rendered;
(h)a non-resident trust (other than a trust that elects, in writing filed with the Minister on or before the trust’s filing-due date for the trust’s taxation year that includes the particular time, not to be an exempt foreign trust under this paragraph for the taxation year in which the election is made and for each subsequent taxation year), if at the particular time
(i)the only beneficiaries who may for any reason receive, at or after the particular time and directly from the trust, any of the income or capital of the trust are beneficiaries that hold fixed interests in the trust, and
(ii)any of the following applies:
(A)there are at least 150 beneficiaries described in subparagraph (i) under the trust each of whose fixed interests in the trust have at the particular time a total fair market value of at least $500,
(B)all fixed interests in the trust are listed on a designated stock exchange and in the 30 days immediately preceding the particular time fixed interests in the trust were traded on a designated stock exchange on at least 10 days,
(C)each outstanding fixed interest in the trust
(I)was issued by the trust in exchange for consideration that was not less than 90% of the interest’s proportionate share of the net asset value of the trust’s property at the time of its issuance, or
(II)was acquired in exchange for consideration equal to the fair market value of the interest at the time of its acquisition, or
(D)the trust is governed by
(I)a Roth IRA, within the meaning of section 408A of theInternal Revenue Codeof the United States, or
(II)a plan or arrangement that was created after September 21, 2007, that is subject to that Code and that the Minister agrees is substantially similar to a Roth IRA; or
(i)a trust that is at the particular time a prescribed trust. (fiducie étrangère exempte)
exempt personat any time means
(a)Her Majesty in right of Canada or a province;
(b)a person whose taxable income for the taxation year that includes that time is exempt from tax under this Part because of subsection 149(1);
(c)a trust resident in Canada or a Canadian corporation
(i)that was established by or arises under an Act of Parliament or of the legislature of a province, and
(ii)the principal activities of which at that time are to administer, manage or invest the monies of one or more pension funds or plans established under an Act of Parliament or of the legislature of a province;
(d)a trust or corporation established by or arising by reason of an Act of Parliament or the legislature of a province in connection with a scheme or program for the compensation of workers injured in an accident arising out of or in the course of their employment;
(e)a trust resident in Canada all the beneficiaries under which are at that time exempt persons;
(f)a Canadian corporation all the shares, or rights to shares, of which are held at that time by exempt persons;
(g)a Canadian corporation without share capital all the property of which is held at that time exclusively for the benefit of exempt persons;
(h)a partnership all the members of which are at that time exempt persons; and
(i)a trust or corporation that is at that time a mutual fund. (personne exemptée)
exempt servicemeans a service rendered at any time by a person or partnership (referred to in this definition as the “service provider”) to, for or on behalf of, another person or partnership (referred to in this definition as the “recipient”) if
(a)the recipient is a trust and the service relates to the administration of the trust; or
(b)the following conditions apply in respect of the service, namely,
(i)the service is rendered in the service provider’s capacity at that time as an employee or agent of the recipient,
(ii)in exchange for the service, the recipient transfers or loans property or becomes obligated to transfer or loan property, and
(iii)it is reasonable to conclude
(A)having regard only to the service and the exchange, that the service provider would be willing to carry out the service if the service provider were dealing at arm’s length with the recipient, and
(B)that the terms, conditions and circumstances under which the service is provided would be acceptable to the service provider if the service provider were dealing at arm’s length with the recipient. (service exempté)
fixed interestat any time of a person or partnership in a trust means an interest of the person or partnership as a beneficiary (in this definition, determined without reference to subsection 248(25)) under the trust provided that no amount of the income or capital of the trust to be distributed at any time in respect of any interest in the trust depends on the exercise by any person or partnership of, or the failure by any person or partnership to exercise, any discretionary power, other than a power in respect of which it is reasonable to conclude that
(a)the power is consistent with normal commercial practice;
(b)the power is consistent with terms that would be acceptable to the beneficiaries under the trust if the beneficiaries were dealing with each other at arm’s length; and
(c)the exercise of, or failure to exercise, the power will not materially affect the value of an interest as a beneficiary under the trust relative to the value of other such interests under the trust. (participation fixe)
joint contributorat any time in respect of a contribution to a trust means, if more than one contributor has made the contribution, each of those contributors that is at that time a resident contributor to the trust. (contribuant conjoint)
mutual fundat a particular time means a mutual fund trust or mutual fund corporation (referred to in this definition as the “fund”), but does not include a fund in respect of which statements or representations have been made at or before the particular time — by the fund, or by a promoter or other representative of the fund, in respect of the acquisition or offering of an interest in the fund — that the taxes, if any, under this Part on the income, profit or gains for any particular year — in respect of property that is held by the fund and that is, or derives its value from, an interest in a trust — are less than, or are expected to be less than, the tax that would have been applicable under this Part if the income, profits or gains from the property had been earned directly by a person who acquires an interest in the fund. (fonds commun de placement)
non-resident portionof a trust at any time means all property held by the trust to the extent that it is not at that time part of the resident portion of the trust. (partie non-résidente)
non-resident timeof a person in respect of a contribution to a trust and a particular time means a time (referred to in this definition as the “contribution time”) at which the person made a contribution to a trust that is before the particular time and at which the person was non-resident (or, if the person is not in existence at the contribution time, the person was non-resident throughout the 18 months before ceasing to exist), if the person was non-resident or not in existence throughout the period that began 60 months before the contribution time (or, if the person is an individual and the trust arose on and as a consequence of the death of the individual, 18 months before the contribution time) and ends at the earlier of
(a)the time that is 60 months after the contribution time, and
(b)the particular time. (moment de non-résidence)
promoterof a trust or corporation at any time means
(a)a person or partnership that at or before that time establishes, organizes or substantially reorganizes the undertakings of the trust or corporation, as the case may be; and
(b)for the purposes of the definitionmutual fundin this subsection, a person or partnership described by paragraph (a) and a person or partnership who in the course of a business
(i)sells or issues, or promotes the sale, issuance or acquisition of, an interest in a mutual fund corporation or mutual fund trust,
(ii)acts as an agent or advisor in respect of the sale or issuance, or the promotion of the sale, issuance or acquisition of, an interest in a mutual fund corporation or mutual fund trust, or
(iii)accepts, whether as a principal or agent, consideration in respect of an interest in a mutual fund corporation or mutual fund trust. (promoteur)
qualifying servicesmeans services that are
(a)rendered to an employer by an employee of the employer, which employee was non-resident throughout the period during which the services were rendered;
(b)rendered to an employer by an employee of the employer, other than services that were
(i)rendered primarily in Canada,
(ii)rendered primarily in connection with a business carried on by the employer in Canada, or
(iii)a combination of services described in subparagraphs (i) and (ii);
(c)rendered in a particular calendar month to an employer by an employee of the employer, which employee
(i)was resident in Canada throughout no more than 60 months during the 72-month period that ends at the end of the particular month, and
(ii)became a member of, or a beneficiary under, the plan or trust under which benefits in respect of the services may be provided (or a similar plan or trust for which the plan or the trust was substituted) before the end of the calendar month following the month in which the employee became resident in Canada; or
(d)any combination of services that are qualifying services determined without reference to this paragraph. (services admissibles)
resident beneficiaryunder a trust at any time means a person (other than a person that is at that time a successor beneficiary under the trust or an exempt person) that is, at that time, a beneficiary under the trust if, at that time,
(a)the person is resident in Canada; and
(b)there is a connected contributor to the trust. (bénéficiaire résident)
resident contributor, to a trust at any time, means a person that is, at that time, resident in Canada and a contributor to the trust, but — if the trust was created before 1960 by a person who was non-resident when the trust was created — does not include an individual (other than a trust) who has not, after 1959, made a contribution to the trust. (contribuant résident)
resident portionof a trust at a particular time means all of the trust’s property that is
(a)property in respect of which a contribution has been made at or before the particular time to the trust by a contributor that is at the particular time a resident contributor, or if there is at the particular time a resident beneficiary under the trust a connected contributor, to the trust and, for the purposes of this paragraph,
(i)if a property is held by a contributor in common or in partnership immediately before the property is contributed to the trust, it is contributed by the contributor only to the extent that the contributor so held the property, and
(ii)if the contribution is a transfer described by any of paragraphs (2)(a), (c), (d) or (f), the property in respect of which the contribution has been made is deemed to be
(A)in respect of a transfer under paragraph (2)(a), property
(I)if clause (2)(a)(ii)(A) applies, the fair market value of which has increased because of a transfer or loan described by subparagraph (2)(a)(i), or
(II)if clause (2)(a)(ii)(B) applies, that would not otherwise be included in the resident portion of the trust, that is selected by the trust (or, failing which, is selected by the Minister) and that has a fair market value at least equal to the absolute value of a decrease in a liability or potential liability of the trust that arose because of a transfer or loan described by subparagraph (2)(a)(i),
(B)in respect of a transfer under paragraph (2)(c), property described by subparagraph (2)(c)(ii),
(C)in respect of a transfer under paragraph (2)(d), property acquired as a result of any undertaking including a guarantee, covenant or agreement given by a person or partnership other than the trust to ensure the repayment, in whole or in part, of a loan or other indebtedness incurred by the trust as described by paragraph (2)(d), and
(D)in respect of a transfer under paragraph (2)(f), property selected by the trust (or, failing which, is selected by the Minister) that has a fair market value at least equal to the fair market value of property deemed to be transferred to the trust as described by paragraph (2)(f);
(b)property that is acquired, at or before the particular time, by way of indebtedness incurred by the trust (referred to in this paragraph as the “subject property”), if
(i)all or part of the indebtedness is secured on property (other than the subject property) that is held in the trust’s resident portion,
(ii)it was reasonable to conclude, at the time that the indebtedness was incurred, that the indebtedness would be repaid with recourse to any property (other than the subject property) held at any time in the trust’s resident portion, or
(iii)a person resident in Canada or partnership of which a person resident in Canada is a member has become obligated, either absolutely or contingently, to effect any undertaking including a guarantee, covenant or agreement given to ensure the repayment, in whole or in part, of the indebtedness, or provided any other financial assistance in respect of the indebtedness;
(c)property to the extent that it is derived, directly or indirectly, in any manner whatever, from property described by any of paragraphs (a), (b) and (d), and, without limiting the generality of the foregoing, including property derived from the income (computed without reference to paragraph (16)(f) and subsections 104(6) and (12)) of the trust for a taxation year of the trust that ends at or before the particular time and property in respect of which an amount would be described at the particular time in respect of the trust by the definitioncapital dividend accountin subsection 89(1) if the trust were at the particular time a corporation; and
(d)property to the extent that it is at the particular time substituted for a property described by any of paragraphs (a) to (c). (partie résidente)
restricted propertyof a person or partnership means property that the person or partnership holds and that is
(a)a share (or a right to acquire a share) of the capital stock of a closely held corporation if the share or right, or a property for which the share or right was substituted, was at any time acquired by the person or partnership as part of a transaction or series of transactions under which
(i)a specified share of the capital stock of a closely held corporation was acquired by any person or partnership in exchange for, as consideration for or upon the conversion of any property and the cost of the specified share to the person who acquired it was less than the fair market value of the specified share at the time of the acquisition, or
(ii)a share (other than a specified share) of the capital stock of a closely held corporation becomes a specified share of the capital stock of the corporation;
(b)an indebtedness or other obligation, or a right to acquire an indebtedness or other obligation, of a closely held corporation if
(i)the indebtedness, obligation or right, or property for which the indebtedness, obligation or right was substituted, became property of the person or partnership as part of a transaction or series of transactions under which
(A)a specified share of the capital stock of a closely held corporation was acquired by any person or partnership in exchange for, as consideration for or upon the conversion of any property and the cost of the specified share to the person who acquired it was less than the fair market value of the specified share at the time of the acquisition, or
(B)a share (other than a specified share) of a closely held corporation becomes a specified share of the capital stock of the corporation, and
(ii)the amount of any payment under the indebtedness, obligation or right (whether the right to the amount is immediate or future, absolute or contingent or conditional on or subject to the exercise of any discretion by any person or partnership) is, directly or indirectly, determined primarily by one or more of the following criteria:
(A)the fair market value of, production from or use of any of the property of the closely held corporation,
(B)gains or profits from the disposition of any of the property of the closely held corporation,
(C)income, profits, revenue or cash flow of the closely held corporation, or
(D)any other criterion similar to a criterion referred to in any of clauses (A) to (C); and
(c)property
(i)that the person or partnership acquired as part of a series of transactions described in paragraph (a) or (b) in respect of another property, and
(ii)the fair market value of which is derived in whole or in part, directly or indirectly, from that other property. (bien d’exception)
specified partyin respect of a particular person at any time means
(a)the particular person’s spouse or common-law partner at that time;
(b)a corporation that at that time
(i)is a controlled foreign affiliate of the particular person or their spouse or common-law partner, or
(ii)would be a controlled foreign affiliate of a partnership, of which the particular person is a majority-interest partner, if the partnership were a person resident in Canada at that time;
(c)a person, or a partnership of which the particular person is a majority-interest partner, for which it is reasonable to conclude that the benefit referred to in subparagraph (8)(a)(iv) was conferred
(i)in contemplation of the person becoming after that time a corporation described by paragraph (b), or
(ii)to avoid or minimize a liability that arose, or that would otherwise have arisen, under this Part with respect to the particular person; or
(d)a corporation in which the particular person, or partnership of which the particular person is a majority-interest partner, is a shareholder if
(i)the corporation is at or before that time a beneficiary under a trust, and
(ii)the particular person or the partnership is a beneficiary under the trust solely because of the application of paragraph (b) of the definitionbeneficiaryin this subsection to the particular person or the partnership in respect of the corporation. (tiers déterminé)
specified sharemeans a share of the capital stock of a corporation other than a share that is a prescribed share for the purpose of paragraph 110(1)(d). (action déterminée)
specified timein respect of a trust for a taxation year of the trust means
(a)if the trust exists at the end of the taxation year, the time that is the end of that taxation year; and
(b)in any other case, the time in that taxation year that is immediately before the time at which the trust ceases to exist. (moment déterminé)
successor beneficiaryat any time under a trust means a person that is a beneficiary under the trust solely because of a right of the person to receive any of the trust’s income or capital, if under that right the person may so receive that income or capital only on or after the death after that time of an individual who, at that time, is alive and
(a)is a contributor to the trust;
(b)is related to (in this definition including an uncle, aunt, niece or nephew of) a contributor to the trust; or
(c)would have been related to a contributor to the trust if every individual who was alive before that time were alive at that time. (bénéficiaire remplaçant)
transactionincludes an arrangement or event. (opération)
trustincludes, for greater certainty, an estate. (fiducie)
Marginal note:Rules of application
(2)In this section and section 94.2,
(a)a person or partnership is deemed to have transferred, at any time, a property to a trust if
(i)at that time the person or partnership transfers or loans property (other than by way of an arm’s length transfer) to another person or partnership, and
(ii)because of that transfer or loan
(A)the fair market value of one or more properties held by the trust increases at that time, or
(B)a liability or potential liability of the trust decreases at that time;
(b)the fair market value, at any time, of a property deemed by paragraph (a) to be transferred at that time by a person or partnership is deemed to be the amount of the absolute value of the increase or decrease, as the case may be, referred to in subparagraph (a)(ii) in respect of the property, and if that time is after August 27, 2010, and the property that the person or partnership transfers or loans at that time is restricted property of the person or partnership, the property deemed by paragraph (a) to be transferred at that time to a trust is deemed to be restricted property transferred at that time to the trust;
(c)a person or partnership is deemed to have transferred, at any time, property to a trust if
(i)at that time the person or partnership transfers restricted property, or loans property other than by way of an arm’s length transfer, to another person (referred to in this paragraph and paragraph (c.1) as the “intermediary”),
(ii)at or after that time, the trust holds property (other than property described by paragraph (14)(b)) the fair market value of which is derived in whole or in part, directly or indirectly, from property held by the intermediary, and
(iii)it is reasonable to conclude that one of the reasons the transfer or loan is made is to avoid or minimize a liability under this Part;
(c.1)the fair market value, at any time, of a property deemed by paragraph (c) to be transferred at that time by a person or partnership is deemed to be the fair market value of the property referred to in subparagraph (c)(i), and if that time is after October 24, 2012 and the property that the person or partnership transfers or loans to the intermediary is restricted property of the intermediary, the property deemed by paragraph (c) to be transferred at that time by the person or partnership to a trust is deemed to be restricted property transferred at that time to the trust throughout the period in which the intermediary holds the restricted property;
(d)if, at any time, a particular person or partnership becomes obligated, either absolutely or contingently, to effect any undertaking including a guarantee, covenant or agreement given to ensure the repayment, in whole or in part, of a loan or other indebtedness incurred by another person or partnership, or has provided any other financial assistance to another person or partnership,
(i)the particular person or partnership is deemed to have transferred, at that time, property to that other person or partnership, and
(ii)the property, if any, transferred to the particular person or partnership from the other person or partnership in exchange for the guarantee or other financial assistance is deemed to have been transferred to the particular person or partnership in exchange for the property deemed by subparagraph (i) to have been transferred;
(e)the fair market value at any time of a property deemed by subparagraph (d)(i) to have been transferred at that time to another person or partnership is deemed to be the amount at that time of the loan or indebtedness incurred by the other person or partnership to which the property relates;
(f)if, at any time after June 22, 2000, a particular person or partnership renders any service (other than an exempt service) to, for or on behalf of another person or partnership,
(i)the particular person or partnership is deemed to have transferred, at that time, property to that other person or partnership, and
(ii)the property, if any, transferred to the particular person or partnership from the other person or partnership in exchange for the service is deemed to have been transferred to the particular person or partnership in exchange for the property deemed by subparagraph (i) to have been transferred;
(g)each of the following acquisitions of property by a particular person or partnership is deemed to be a transfer of the property, at the time of the acquisition of the property, to the particular person or partnership from the person or partnership from which the property was acquired, namely, the acquisition by the particular person or partnership of
(i)a share of a corporation from the corporation,
(ii)an interest as a beneficiary under a trust (otherwise than from a beneficiary under the trust),
(iii)an interest in a partnership (otherwise than from a member of the partnership),
(iv)a debt owing by a person or partnership from the person or partnership, and
(v)a right (granted after June 22, 2000, by the person or partnership from which the right was acquired) to acquire or to be loaned property;
(h)the fair market value at any time of a property deemed by subparagraph (f)(i) to have been transferred at that time is deemed to be the fair market value at that time of the service to which the property relates;
(i)a person or partnership that at any time becomes obligated to do an act that would, if done, constitute the transfer or loan of a property to another person or partnership is deemed to have become obligated at that time to transfer or loan, as the case may be, property to that other person or partnership;
(j)in applying at any time the definitionnon-resident timein subsection (1), if a trust acquires property of an individual as a consequence of the death of the individual and the individual was immediately before death resident in Canada, the individual is deemed to have transferred the property to the trust immediately before the individual’s death;
(k)a transfer or loan of property at any time is deemed to be made at that time jointly by a particular person or partnership and a second person or partnership (referred to in this paragraph as the “specified person”) if
(i)the particular person or partnership transfers or loans property at that time to another person or partnership,
(ii)the transfer or loan is made at the direction, or with the acquiescence, of the specified person, and
(iii)it is reasonable to conclude that one of the reasons the transfer or loan is made is to avoid or minimize the liability, of any person or partnership, under this Part that arose, or that would otherwise have arisen, because of the application of this section;
(k.1)a transfer or loan of property made at any time on or after November 9, 2006, is deemed to be made at that time jointly by a particular person or partnership and a second person or partnership (referred to in this paragraph as the “specified person”) if
(i)the particular person or partnership transfers or loans property at that time to another person or partnership, and
(ii)a purpose or effect of the transfer or loan may reasonably be considered to be to provide benefits in respect of services rendered by a person as an employee of the specified person (whether the provision of the benefits is because of a right that is immediate or future, absolute or contingent, or conditional on or subject to the exercise of any discretion by any person or partnership);
(l)a transfer or loan of property at any time is deemed to be made at that time jointly by a corporation and a person or partnership (referred to in this paragraph as the “specified person”) if
(i)the corporation transfers or loans property at that time to another person or partnership,
(ii)the transfer or loan is made at the direction, or with the acquiescence, of the specified person,
(iii)that time is not, or would not be if the transfer or loan were a contribution of the specified person,
(A)a non-resident time of the specified person, or
(B)if the specified person is a partnership, a non-resident time of one or more members of the partnership, and
(iv)either
(A)the corporation is, at that time, a controlled foreign affiliate of the specified person, or would at that time be a controlled foreign affiliate of the specified person if the specified person were at that time resident in Canada, or
(B)it is reasonable to conclude that the transfer or loan was made in contemplation of the corporation becoming after that time a corporation described in clause (A);
(m)a particular person or partnership is deemed to have transferred, at a particular time, a particular property or particular part of it, as the case may be, to a corporation described in subparagraph (i) or a second person or partnership described in subparagraph (ii) if
(i)the particular property is a share of the capital stock of a corporation held at the particular time by the particular person or partnership, and as consideration for the disposition at or before the particular time of the share, the particular person or partnership received at the particular time (or became entitled at the particular time to receive) from the corporation a share of the capital stock of the corporation, or
(ii)the particular property (or property for which the particular property is substituted) was acquired, before the particular time, from the second person or partnership by any person or partnership, in circumstances that are described by any of subparagraphs (g)(i) to (v) (or would be so described if it applied at the time of that acquisition) and at the particular time,
(A)the terms or conditions of the particular property change,
(B)the second person or partnership redeems, acquires or cancels the particular property or the particular part of it,
(C)if the particular property is a debt owing by the second person or partnership, the debt or the particular part of it is settled or cancelled, or
(D)if the particular property is a right to acquire or to be loaned property, the particular person or partnership exercises the right;
(n)a contribution made at any time by a particular trust to another trust is deemed to have been made at that time jointly by the particular trust and by each person or partnership that is at that time a contributor to the particular trust;
(o)a contribution made at any time by a particular partnership to a trust is deemed to have been made at that time jointly by the particular partnership and by each person or partnership that is at that time a member of the particular partnership;
(p)subject to paragraph (q) and subsection (9), the amount of a contribution to a trust at the time it was made is deemed to be the fair market value, at that time, of the property that was the subject of the contribution;
(q)a person or partnership that at any time acquires a fixed interest in a trust (or a right, issued by the trust, to acquire a fixed interest in the trust) from another person or partnership (other than from the trust that issued the interest or the right) is deemed to have made at that time a contribution to the trust and the amount of the contribution is deemed to be equal to the fair market value at that time of the interest or right, as the case may be;
(r)a particular person or partnership that has acquired a fixed interest in a trust as a consequence of making a contribution to the trust — or that has made a contribution to the trust as a consequence of having acquired a fixed interest in the trust or a right described in paragraph (q) — is, for the purpose of applying this section at any time after the time that the particular person or partnership transfers the fixed interest or the right, as the case may be, to another person or partnership (which transfer is referred to in this paragraph as the “sale”), deemed not to have made the contribution in respect of the fixed interest, or right, that is the subject of the sale if
(i)in exchange for the sale, the other person or partnership transfers or loans, or becomes obligated to transfer or loan, property (which property is referred to in subparagraph (ii) as the “consideration”) to the particular person or partnership, and
(ii)it is reasonable to conclude
(A)having regard only to the sale and the consideration that the particular person or partnership would be willing to make the sale if the particular person or partnership were dealing at arm’s length with the other person or partnership, and
(B)that the terms and conditions made or imposed in respect of the exchange would be acceptable to the particular person or partnership if the particular person or partnership were dealing at arm’s length with the other person or partnership;
(s)a transfer to a trust by a particular person or partnership is deemed not to be, at a particular time, a contribution to the trust if
(i)the particular person or partnership has transferred, at or before the particular time and in the ordinary course of business of the particular person or partnership, property to the trust,
(ii)the transfer is not an arm’s length transfer, but would be an arm’s length transfer if the definitionarm’s length transferin subsection (1) were read without reference to paragraph (a) and subparagraphs (b)(i), (ii) and (iv) to (vii) of that definition,
(iii)it is reasonable to conclude that the particular person or partnership was the only person or partnership that acquired, in respect of the transfer, an interest as a beneficiary under the trust,
(iv)the particular person or partnership was required, under the securities law of a country or of a political subdivision of the country in respect of the issuance by the trust of interests as a beneficiary under the trust, to acquire an interest because of the particular person or partnership’s status at the time of the transfer as a manager or promoter of the trust,
(v)at the particular time the trust is not an exempt foreign trust, but would be at that time an exempt foreign trust if it had not made an election under paragraph (h) of the definitionexempt foreign trustin subsection (1), and
(vi)the particular time is before the earliest of
(A)the first time at which the trust becomes an exempt foreign trust,
(B)the first time at which the particular person or partnership ceases to be a manager or promoter of the trust, and
(C)the time that is 24 months after the first time at which the total fair market value of consideration received by the trust in exchange for interests as a beneficiary (other than the particular person or partnership’s interest referred to in subparagraph (iii)) under the trust is greater than $500,000;
(t)a transfer, by a Canadian corporation of particular property, that is at a particular time a contribution by the Canadian corporation to a trust, is deemed not to be, after the particular time, a contribution by the Canadian corporation to the trust if
(i)the trust acquired the property before the particular time from the Canadian corporation in circumstances described in subparagraph (g)(i) or (iv),
(ii)as a result of a transfer (which transfer is referred to in this paragraph as the “sale”) at the particular time by any person or partnership (referred to in this paragraph as the “seller”) to another person or partnership (referred to in this paragraph as the “buyer”) the trust
(A)no longer holds any property that is shares of the capital stock of, or debt issued by, the Canadian corporation, and
(B)no longer holds any property that is property the fair market value of which is derived in whole or in part, directly or indirectly, from shares of the capital stock of, or debt issued by, the Canadian corporation,
(iii)the buyer deals at arm’s length immediately before the particular time with the Canadian corporation, the trust and the seller,
(iv)in exchange for the sale, the buyer transfers or becomes obligated to transfer property (which property is referred to in this paragraph as the “consideration”) to the seller, and
(v)it is reasonable to conclude
(A)having regard only to the sale and the consideration that the seller would be willing to make the sale if the seller were dealing at arm’s length with the buyer,
(B)that the terms and conditions made or imposed in respect of the exchange would be acceptable to the seller if the seller were dealing at arm’s length with the buyer, and
(C)that the value of the consideration is not, at or after the particular time, determined in whole or in part, directly or indirectly, by reference to shares of the capital stock of, or debt issued by, the Canadian corporation;
(u)a transfer, before October 11, 2002, to a personal trust by an individual (other than a trust) of particular property is deemed not to be a contribution of the particular property by the individual to the trust if
(i)the individual identifies the trust in prescribed form filed with the Minister on or before the individual’s filing-due date for the individual’s 2003 taxation year (or a later date that is acceptable to the Minister), and
(ii)the Minister is satisfied that
(A)the individual (and any person or partnership not dealing at any time at arm’s length with the individual) has never loaned or transferred, directly or indirectly, restricted property to the trust,
(B)in respect of each contribution (determined without reference to this paragraph) made before October 11, 2002, by the individual to the trust, none of the reasons (determined by reference to all the circumstances including the terms of the trust, an intention, the laws of a country or the existence of an agreement, a memorandum, a letter of wishes or any other arrangement) for the contribution was to permit or facilitate, directly or indirectly, the conferral at any time of a benefit (for greater certainty, including an interest as a beneficiary under the trust) on
(I)the individual,
(II)a descendant of the individual, or
(III)any person or partnership with whom the individual or descendant does not, at any time, deal at arm’s length, and
(C)the total of all amounts each of which is the amount of a contribution (determined without reference to this paragraph) made before October 11, 2002, by the individual to the trust does not exceed the greater of
(I)1% of the total of all amounts each of which is the amount of a contribution (determined without reference to this paragraph) made to the trust before October 11, 2002, and
(II)$500; and
(v)a loan made by a particular specified financial institution to a trust is deemed not to be a contribution to the trust if
(i)the loan is made on terms and conditions that would have been agreed to by persons dealing at arm’s length, and
(ii)the loan is made by the specified financial institution in the ordinary course of the business carried on by it.
Marginal note:Liabilities of non-resident trusts and others
(3)If at a specified time in a trust’s particular taxation year (other than a trust that is, at that time, an exempt foreign trust) the trust is non-resident (determined without reference to this subsection) and, at that time, there is a resident contributor to the trust or a resident beneficiary under the trust,
(a)the trust is deemed to be resident in Canada throughout the particular taxation year for the purposes of
(i)section 2,
(ii)computing the trust’s income for the particular taxation year,
(iii)applying subsections 104(13.1) to (28) and 107(2.1), in respect of the trust and a beneficiary under the trust,
(iv)applying clause 53(2)(h)(i.1)(B), the definitionnon-resident entityin subsection 94.1(2), subsection 107(2.002) and section 115, in respect of a beneficiary under the trust,
(v)paragraph (c) and subsection 111(9),
(vi)determining an obligation of the trust to file a return under section 233.3 or 233.4,
(vii)determining the rights and obligations of the trust under Divisions I and J,
(viii)determining the liability of the trust for tax under Part I, and under Part XIII on amounts paid or credited (in this paragraph having the meaning assigned by Part XIII) to the trust,
(ix)applying Part XIII in respect of an amount (other than an exempt amount) paid or credited by the trust to any person, and
(x)determining whether a foreign affiliate of a taxpayer (other than the trust) is a controlled foreign affiliate of the taxpayer;
(b)no deduction shall be made under subsection 20(11) by the trust in computing its income for the particular taxation year, and for the purposes of applying subsection 20(12) and section 126 to the trust for the particular taxation year
(i)in determining the non-business-income tax (in this paragraph as defined by subsection 126(7)) paid by the trust for the particular taxation year, paragraph (b) of the definitionnon-business-income taxdoes not apply, and
(ii)if, at that specified time, the trust is resident in a country other than Canada,
(A)the trust’s income for the particular taxation year (other than income — not including dividends or interest — from sources in Canada) is deemed to be from sources in that country and not to be from any other source, and
(B)the business-income tax (in this paragraph as defined by subsection 126(7)), and the non-business-income tax, paid by the trust for the particular taxation year are deemed to have been paid by the trust to the government of that country and not to any other government;
(c)if the trust was non-resident throughout its taxation year (referred to in this paragraph as the “preceding year”) immediately preceding the particular taxation year, the trust is deemed to have
(i)immediately before the end of the preceding year, disposed of each property (other than property described in any of subparagraphs 128.1(1)(b)(i) to (iv)) held by the trust at that time for proceeds of disposition equal to its fair market value at that time, and
(ii)at the beginning of the particular taxation year, acquired each of those properties so disposed of at a cost equal to its proceeds of disposition;
(d)each person that at any time in the particular taxation year is a resident contributor to the trust (other than an electing contributor in respect of the trust at the specified time) or a resident beneficiary under the trust
(i)has jointly and severally, or solidarily, with the trust and with each other such person, the rights and obligations of the trust in respect of the particular taxation year under Divisions I and J, and
(ii)is subject to Part XV in respect of those rights and obligations;
(e)each person that at any time in the particular taxation year is a beneficiary under the trust and was a person from whom an amount would be recoverable at the end of the trust’s 2006 taxation year under subsection (2) (as it read in its application to taxation years that end before 2007) in respect of the trust if the person had received before the trust’s 2007 taxation year amounts described under paragraph (2)(a) or (b) in respect of the trust (as those paragraphs read in their application to taxation years that end before 2007)
(i)has, to the extent of the person’s recovery limit for the year, jointly and severally, or solidarily, with the trust and with each other such person, the rights and obligations of the trust in respect of the taxation years, of the trust, that end before 2007 under Divisions I and J, and
(ii)is, to the extent of the person’s recovery limit for the year, subject to Part XV in respect of those rights and obligations;
(f)if the trust (referred to in this paragraph as the “particular trust”) is an electing trust in respect of the particular taxation year,
(i)aninter vivostrust (in this paragraph referred to as the “non-resident portion trust”) is deemed for the purposes of this Act (other than for the purposes of subsection 104(2))
(A)to be created at the first time at which the particular trust exists in its first taxation year in respect of which the particular trust is an electing trust, and
(B)to continue in existence until the earliest of
(I)the time at which the particular trust ceases to be resident in Canada because of subsection (5) or (5.1),
(II)the time at which the particular trust ceases to exist, and
(III)the time at which the particular trust becomes resident in Canada otherwise than because of this subsection,
(ii)all of the particular trust’s property that is part of the particular trust’s non-resident portion is deemed to be the property of the non-resident portion trust and not to be, except for the purposes of this paragraph and the definitionelecting trustin subsection (1), the particular trust’s property,
(iii)the terms and conditions of, and rights and obligations of beneficiaries under, the particular trust (determined by reference to all the circumstances including the terms of a trust, an intention, the laws of a country or the existence of an agreement, a memorandum, a letter of wishes or any other arrangement) are deemed to be the terms and conditions of, and rights and obligations of beneficiaries under, the non-resident portion trust,
(iv)for greater certainty
(A)the trustees of the particular trust are deemed to be the trustees of the non-resident portion trust,
(B)the beneficiaries under the particular trust are deemed to be the beneficiaries under the non-resident portion trust, and
(C)the non-resident portion trust is deemed not to have a resident contributor or connected contributor to it,
(v)the non-resident portion trust is deemed to be, without affecting the liability of its trustees for their own income tax, in respect of its property an individual,
(vi)if all or part of a property becomes at a particular time part of the particular trust’s non-resident portion and immediately before that time the property or that part, as the case may be, was part of its resident portion, the particular trust is deemed to have transferred at the particular time the property or that part, as the case may be, to the non-resident portion trust,
(vii)if all or part of a property becomes at a particular time part of the particular trust’s resident portion and immediately before that time the property or that part, as the case may be, was part of its non-resident portion, the non-resident portion trust is deemed to have transferred at the particular time the property or that part, as the case may be, to the particular trust,
(viii)the particular trust and the non-resident portion trust are deemed at all times to be affiliated with each other and to not deal with each other at arm’s length,
(ix)the particular trust
(A)has jointly and severally, or solidarily, with the non-resident portion trust, the rights and obligations of the non-resident portion trust in respect of any taxation year under Divisions I and J, and
(B)is subject to Part XV in respect of those rights and obligations, and
(x)if the non-resident portion trust ceases to exist at a particular time (for greater certainty, as determined by clause (i)(B))
(A)the non-resident portion trust is deemed, at the time (referred to in this subparagraph as the “disposition time”) that is immediately before the time that is immediately before the particular time, to have
(I)in the case of each property of the non-resident portion trust that is property described in any of subparagraphs 128.1(1)(b)(i) to (iv), disposed of the property for proceeds of disposition equal to the cost amount to it of the property at the disposition time, and
(II)in the case of each other property of the non-resident portion trust, disposed of the property for proceeds of disposition equal to its fair market value of the property at the disposition time,
(B)the particular trust is deemed to have acquired, at the time that is immediately before the particular time, each property described in subclause (A)(I) or (II) at a cost equal to the proceeds determined under that subclause in respect of the property, and
(C)each person or partnership that is at the time immediately before the particular time a beneficiary under the non-resident portion trust is deemed
(I)at the disposition time to have disposed of the beneficiary’s interest as a beneficiary under the non-resident portion trust for proceeds equal to the beneficiary’s cost amount in the interest at the disposition time, and
(II)at the disposition time, to have ceased to be, other than for purposes of this clause, a beneficiary under the non-resident portion trust; and
(g)if a person deducts or withholds any amount (referred to in this paragraph as the “withholding amount”) as required by section 215 from a particular amount paid or credited or deemed to have been paid or credited to the trust, and the particular amount has been included in the trust’s income for the particular taxation year, the withholding amount is deemed to have been paid on account of the trust’s tax under this Part for the particular taxation year.
Marginal note:Excluded provisions
(4)For greater certainty, paragraph (3)(a) does not deem a trust to be resident in Canada for the purposes of
(a)the definitionsarm’s length transferandexempt foreign trustin subsection (1);
(b)subsections (8.1) and (8.2), paragraph (14)(a), subsections 70(6) and 73(1), the definitionCanadian partnershipin subsection 102(1), paragraph 107.4(1)(c), the definitionqualified disability trustin subsection 122(3), paragraph (a) of the definitionmutual fund trustin subsection 132(6), the definitioneligible trustin subsection 135.2(1) and subparagraph (b)(i) of the definitioninvestment fundin subsection 251.2(1);
(c)determining the liability of a person (other than the trust) that would arise under section 215;
(d)determining whether, in applying subsection 128.1(1), the trust becomes resident in Canada at a particular time;
(e)determining whether, in applying subsection 128.1(4), the trust ceases to be resident in Canada at a particular time;
(f)subparagraph (f)(i) of the definitiondispositionin subsection 248(1);
(g)determining whether subsection 107(5) applies to a distribution on or after July 18, 2005, of property to the trust; and
(h)determining whether subsection 75(2) applies.
Marginal note:Deemed cessation of residence — loss of resident contributor or resident beneficiary
(5)A trust is deemed to cease to be resident in Canada at the earliest time at which there is neither a resident contributor to the trust nor a resident beneficiary under the trust in a taxation year (determined without reference to subsection 128.1(4)) of the trust
(a)that immediately follows a taxation year of the trust throughout which it was deemed by subsection (3) to be resident in Canada for the purpose of computing its income; and
(b)at a specified time in which the trust
(i)is non-resident,
(ii)is not an exempt foreign trust, and
(iii)has no resident contributor to it or resident beneficiary under it.
Marginal note:Deemed cessation of residence — becoming an exempt foreign trust
(5.1)A trust is deemed to cease to be resident in Canada at the earliest time at which the trust becomes an exempt foreign trust in a taxation year (determined without reference to subsection 128.1(4)) of the trust
(a)that immediately follows a taxation year of the trust throughout which it was deemed by subsection (3) to be resident in Canada for the purpose of computing its income; and
(b)at a specified time in which
(i)there is a resident contributor to the trust or a resident beneficiary under the trust, and
(ii)the trust is an exempt foreign trust.
Marginal note:Administrative relief — changes in status
(5.2)If a trust is deemed by subsection (5) or (5.1) to cease to be resident in Canada at a particular time, the following rules apply to the trust in respect of the particular taxation year that is, as a result of that cessation of residence, deemed by subparagraph 128.1(4)(a)(i) to end immediately before the particular time:
(a)the trust’s return of income for the particular taxation year is deemed to be filed with the Minister on a timely basis if it is filed with the Minister within 90 days from the end of the trust’s taxation year that is deemed by subparagraph 128.1(4)(a)(i) to start at the particular time; and
(b)an amount that is included in the trust’s income (determined without reference to subsections 104(6) and (12)) for the particular taxation year but that became payable (determined without regard to this paragraph) by the trust in the period after the particular taxation year and before the end of the trust’s taxation year that is deemed by subparagraph 128.1(4)(a)(i) to start at the particular time, is deemed to have become payable by the trust immediately before the end of the particular taxation year and not at any other time.
Marginal note:Ceasing to be an exempt foreign trust
(6)If at a specified time in a trust’s taxation year it is an exempt foreign trust, at a particular time in the immediately following taxation year (determined without reference to this subsection) the trust ceases to be an exempt foreign trust (otherwise than because of becoming resident in Canada), and at the particular time there is a resident contributor to, or resident beneficiary under, the trust,
(a)the trust’s taxation year (determined without reference to this subsection) that includes the particular time is deemed to have ended immediately before the particular time and a new taxation year of the trust is deemed to begin at the particular time; and
(b)for the purpose of determining the trust’s fiscal period after the particular time, the trust is deemed not to have established a fiscal period before the particular time.
Marginal note:Limit to amount recoverable
(7)The maximum amount recoverable under the provisions referred to in paragraph (3)(d) at any particular time from a person in respect of a trust (other than a person that is deemed, under subsection (12) or (13), to be a contributor or a resident contributor to the trust) and a particular taxation year of the trust is the person’s recovery limit at the particular time in respect of the trust and the particular year if
(a)either
(i)the person is liable under a provision referred to in paragraph (3)(d) in respect of the trust and the particular year solely because the person was a resident beneficiary under the trust at a specified time in respect of the trust in the particular year, or
(ii)at a specified time in respect of the trust in the particular year, the total of all amounts each of which is the amount, at the time it was made, of a contribution to the trust made before the specified time by the person or by another person or partnership not dealing at arm’s length with the person, is not more than the greater of
(A)$10,000, and
(B)10% of the total of all amounts each of which was the amount, at the time it was made, of a contribution made to the trust before the specified time;
(b)except if the total determined in subparagraph (a)(ii) in respect of the person and all persons or partnerships not dealing at arm’s length with the person is $10,000 or less, the person has filed on a timely basis under section 233.2 all information returns required to be filed by the person before the particular time in respect of the trust (or on any later day that is acceptable to the Minister); and
(c)it is reasonable to conclude that for each transaction that occurred before the end of the particular year at the direction of, or with the acquiescence of, the person
(i)none of the purposes of the transaction was to enable the person to avoid or minimize any liability under a provision referred to in paragraph (3)(d) in respect of the trust, and
(ii)the transaction was not part of a series of transactions any of the purposes of which was to enable the person to avoid or minimize any liability under a provision referred to in paragraph (3)(d) in respect of the trust.
Marginal note:Recovery limit
(8)The recovery limit referred to in paragraph (3)(e) and subsection (7) at a particular time of a particular person in respect of a trust and a particular taxation year of the trust is the amount, if any, by which the greater of
(a)the total of all amounts each of which is
(i)an amount received or receivable after 2000 and before the particular time
(A)by the particular person on the disposition of all or part of the person’s interest as a beneficiary under the trust, or
(B)by a person or partnership (that was, when the amount became receivable, a specified party in respect of the particular person) on the disposition of all or part of the specified party’s interest as a beneficiary under the trust,
(ii)an amount (other than an amount described in subparagraph (i)) made payable by the trust after 2000 and before the particular time to
(A)the particular person because of the interest of the particular person as a beneficiary under the trust, or
(B)a person or partnership (that was, when the amount became payable, a specified party in respect of the particular person) because of the interest of the specified party as a beneficiary under the trust,
(iii)an amount received after August 27, 2010, by the particular person, or a person or partnership (that was, when the amount was received, a specified party in respect of the particular person), as a loan from the trust to the extent that the amount has not been repaid,
(iv)an amount (other than an amount described in any of subparagraphs (i) to (iii)) that is the fair market value of a benefit received or enjoyed, after 2000 and before the particular time, from or under the trust by
(A)the particular person, or
(B)a person or partnership that was, when the benefit was received or enjoyed, a specified party in respect of the particular person, or
(v)the maximum amount that would be recoverable from the particular person at the end of the trust’s 2006 taxation year under subsection (2) (as it read in its application to taxation years that end before 2007) if the trust had tax payable under this Part at the end of the trust’s 2006 taxation year and that tax payable exceeded the total of the amounts described in respect of the particular person under paragraphs (2)(a) and (b) (as they read in their application to taxation years that end before 2007), except to the extent that the amount so recoverable is in respect of an amount that is included in the particular person’s recovery limit because of subparagraph (i) or (ii), and
(b)the total of all amounts each of which is the amount, when made, of a contribution to the trust before the particular time by the particular person,
exceeds the total of all amounts each of which is
(c)an amount recovered before the particular time from the particular person in connection with a liability of the particular person (in respect of the trust and the particular year or a preceding taxation year of the trust) that arose because of the application of subsection (3) (or the application of this section as it read in its application to taxation years that end before 2007),
(d)an amount (other than an amount in respect of which this paragraph has applied in respect of any other person) recovered before the particular time from a specified party in respect of the particular person in connection with a liability of the particular person (in respect of the trust and the particular year or a preceding taxation year of the trust) that arose because of the application of subsection (3) (or the application of this section as it read in its application to taxation years that end before 2007), or
(e)the amount, if any, by which the particular person’s tax payable under this Part for any taxation year in which an amount described in any of subparagraphs (a)(i) to (iv) was paid, became payable, was received, became receivable or was enjoyed by the particular person exceeds the amount that would have been the particular person’s tax payable under this Part for that taxation year if no such amount were paid, became payable, were received, became receivable or were enjoyed by the particular person in that taxation year.
Marginal note:Application of subsection (8.2)
(8.1)Subsection (8.2) applies at any time to a particular person, and to a particular property, in respect of a non-resident trust, if at that time
(a)the particular person is resident in Canada; and
(b)the trust holds the particular property on condition that the particular property or property substituted for the particular property
(i)may
(A)revert to the particular person, or
(B)pass to one or more persons or partnerships to be determined by the particular person, or
(ii)shall not be disposed of by the trust during the existence of the particular person, except with the particular person’s consent or in accordance with the particular person’s direction.
Marginal note:Deemed transfer of restricted property
(8.2)If this subsection applies at any time to a particular person, and to a particular property, in respect of a non-resident trust, then in applying this section in respect of the trust for a taxation year of the trust that includes that time
(a)every transfer or loan made at or before that time by the particular person (or by a trust or partnership of which the particular person was a beneficiary or member, as the case may be) of the particular property, of another property for which the particular property is a substitute, or of property from which the particular property derives, or the other property derived, its value in whole or in part, directly or indirectly, is deemed to be a transfer or loan, as the case may be, by the particular person
(i)that is not an arm’s length transfer, and
(ii)that is, for the purposes of paragraph (2)(c) and subsection (9), a transfer or loan of restricted property; and
(b)paragraph (2)(c) is to be read without reference to subparagraph (2)(c)(iii) in its application to each transfer and loan described in paragraph (a).
Marginal note:Determination of contribution amount — restricted property
(9)If a person or partnership contributes at any time restricted property to a trust, the amount of the contribution at that time is deemed, for the purposes of this section, to be the greater of
(a)the amount, determined without reference to this subsection, of the contribution at that time, and
(b)the amount that is the greatest fair market value of the restricted property, or property substituted for it, in the period that begins immediately after that time and ends at the end of the third calendar year that ends after that time.
Marginal note:Contributor — resident in Canada within 60 months after contribution
(10)In applying this section at each specified time, in respect of a trust’s taxation year, that is before the particular time at which a contributor to the trust becomes resident in Canada within 60 months after making a contribution to the trust, the contribution is deemed to have been made at a time other than a non-resident time of the contributor if
(a)in applying the definitionnon-resident timein subsection (1) at each of those specified times, the contribution was made at a non-resident time of the contributor; and
(b)in applying the definitionnon-resident timein subsection (1) immediately after the particular time, the contribution is made at a time other than a non-resident time of the contributor.
Marginal note:Application of subsections (12) and (13)
(11)Subsections (12) and (13) apply to a trust or a person in respect of a trust if
(a)at any time property of a trust (referred to in this subsection and subsections (12) and (13) as the “original trust”) is transferred or loaned, directly or indirectly, in any manner, to another trust (referred to in this subsection and subsections (12) and (13) as the “transferee trust”);
(b)the original trust
(i)is deemed to be resident in Canada immediately before that time because of paragraph (3)(a),
(ii)would be deemed to be resident in Canada immediately before that time because of paragraph (3)(a) if this section, as it read in its application to the 2013 taxation year, were read without reference to paragraph (a) of the definitionconnected contributorin subsection (1) and paragraph (a) of the definitionresident contributorin that subsection,
(iii)was deemed to be resident in Canada immediately before that time because of subsection (1) as it read in its application to taxation years that end before 2007, or
(iv)would have been deemed to be resident in Canada immediately before that time because of subsection (1) as it read in its application to taxation years that end before 2007 if that subsection were read in that application without reference to subclause (b)(i)(A)(III) of that subsection; and
(c)it is reasonable to conclude that one of the reasons the transfer or loan is made is to avoid or minimize a liability under this Part that arose, or that would otherwise have arisen, because of the application of this section (or the application of this section as it read in its application to taxation years that end before 2007).
Marginal note:Deemed resident contributor
(12)The original trust described in subsection (11) (including a trust that has ceased to exist) is deemed to be, at and after the time of the transfer or loan referred to in that subsection, a resident contributor to the transferee trust for the purpose of applying this section in respect of the transferee trust.
Marginal note:Deemed contributor
(13)A person (including any person that has ceased to exist) that is, at the time of the transfer or loan referred to in subsection (11), a contributor to the original trust, is deemed to be at and after that time
(a)a contributor to the transferee trust; and
(b)a connected contributor to the transferee trust, if at that time the person is a connected contributor to the original trust.
Marginal note:Restricted property — exception
(14)A particular property that is, or will be, at any time held, loaned or transferred, as the case may be, by a particular person or partnership is not restricted property held, loaned or transferred, as the case may be, at that time by the particular person or partnership if
(a)the following conditions are met:
(i)the particular property (and property, if any, for which it is, or is to be, substituted) was not, and will not be, at any time acquired, held, loaned or transferred by the particular person or partnership (or any person or partnership with whom the particular person or partnership does not at any time deal at arm’s length) in whole or in part for the purpose of permitting any change in the value of the property of a corporation (that is, at any time, a closely held corporation) to accrue directly or indirectly in any manner whatever to the value of property held by a non-resident trust,
(ii)the Minister is satisfied that the particular property (and property, if any, for which it is, or is to be, substituted) is described by subparagraph (i), and
(iii)the particular property is identified in prescribed form, containing prescribed information, filed, by or on behalf of the particular person or partnership, with the Minister on or before
(A)in the case of a person, the particular person’s filing-due date for the particular person’s taxation year that includes that time,
(B)in the case of a partnership, the day on or before which a return is required by section 229 of theIncome Tax Regulationsto be filed in respect of the fiscal period of the particular partnership or would be required to be so filed if that section applied to the partnership, or
(C)another date that is acceptable to the Minister; or
(b)at that time
(i)the particular property is
(A)a share of the capital stock of a corporation,
(B)a fixed interest in a trust, or
(C)an interest, as a member of a partnership, under which, by operation of any law governing the arrangement in respect of the partnership, the liability of the member as a member of the partnership is limited,
(ii)there are at least 150 persons each of whom holds at that time property that at that time
(A)is identical to the particular property, and
(B)has a total fair market value of at least $500,
(iii)the total of all amounts each of which is the fair market value, at that time, of the particular property (or of identical property that is held, at that time, by the particular person or partnership or a person or partnership with whom the particular person or partnership does not deal at arm’s length) does not exceed 10% of the total of all amounts each of which is the fair market value, at that time, of the particular property or of identical property held by any person or partnership,
(iv)property that is identical to the particular property can normally be acquired by and sold by members of the public in the open market, and
(v)the particular property, or identical property, is listed on a designated stock exchange.
Marginal note:Anti-avoidance
(15)In applying this section,
(a)if it can reasonably be considered that one of the main reasons that a person or partnership
(i)is at any time a shareholder of a corporation is to cause the condition in paragraph (b) of the definitionclosely held corporationin subsection (1) to be satisfied in respect of the corporation, the condition is deemed not to have been satisfied at that time in respect of the corporation,
(ii)holds at any time an interest in a trust is to cause the condition in clause (h)(ii)(A) of the definitionexempt foreign trustin subsection (1) to be satisfied in respect of the trust, the condition is deemed not to have been satisfied at that time in respect of the trust, and
(iii)holds at any time a property is to cause the condition described in subparagraph (14)(b)(ii) to be satisfied in respect of the property or an identical property held by any person, the condition is deemed not to have been satisfied at that time in respect of the property or the identical property;
(b)if at any time at or before a specified time in a trust’s taxation year, a resident contributor to the trust contributes to the trust property that is restricted property of the trust, or property for which restricted property of the trust is substituted, and the trust is at that specified time an exempt foreign trust by reason of paragraph (f) of the definitionexempt foreign trustin subsection (1), the amount of the trust’s income for the taxation year from the restricted property, and the amount of any taxable capital gain from the disposition in the taxation year by the trust of the restricted property, shall be included in computing the income of the resident contributor for its taxation year in which that taxation year of the trust ends and not in computing the income of the trust for that taxation year of the trust; and
(c)if at a specified time in a trust’s taxation year it is an exempt foreign trust by reason of paragraph (h) of the definitionexempt foreign trustin subsection (1), at a time immediately before a particular time in the immediately following taxation year (determined without reference to subsection (6)) there is a resident contributor to, or resident beneficiary under, the trust, at the time that is immediately before the particular time a beneficiary holds a fixed interest in the trust, and at the particular time the interest ceases to be a fixed interest in the trust,
(i)the trust is deemed, other than for purposes of subsection (6), not to be an exempt foreign trust at any time in the trust’s taxation year (referred to in this paragraph as its “assessment year”) that ends (for greater certainty as determined under paragraph (6)(a)) at the time that is immediately before the particular time,
(ii)the trust shall include in computing its income for its assessment year an amount equal to the amount determined by the formula
A – B – C
where
(iii)if the trust is liable for tax for its assessment year, then throughout the period that begins at the trust’s balance-due day for each taxation year that ends in the interest gross-up period and ends at the balance-due day for its assessment year, the trust is (in addition to any excess otherwise determined in respect of the trust under that subsection) deemed to have an excess for the purposes of subsection 161(1) equal to the amount determined by the formula
A/B × 42.92%
where
Marginal note:Attribution to electing contributors
(16)If at a specified time in respect of a trust for a taxation year of the trust (referred to in this subsection as the “trust’s year”), there is an electing contributor in respect of the trust, the following rules apply:
(a)the electing contributor is required to include in computing their income for their taxation year (referred to in this subsection as the “contributor’s year”) in which the trust’s year ends, the amount determined by the formula
A/B × (C – D)
where
(i)if at or before the specified time the electing contributor has made a contribution to the trust and is not a joint contributor in respect of the trust and the contribution, the amount of the contribution, or
(ii)if at or before the specified time the electing contributor has made a contribution to the trust and is a joint contributor in respect of the trust and the contribution, the amount obtained when the amount of the contribution is divided by the number of joint contributors in respect of the contribution,
(b)subject to paragraph (c), the amount, if any, required by paragraph (a) to be included in the electing contributor’s income for the contributor’s year is deemed to be income from property from a source in Canada;
(c)for the purposes of this paragraph, paragraph (d) and section 126, an amount in respect of the trust’s income for the trust’s year from a source in a country other than Canada is deemed to be income of the electing contributor for the contributor’s year from that source if
(i)the amount is designated by the trust, in respect of the electing contributor, in the trust’s return of income under this Part for the trust’s year,
(ii)the amount may reasonably be considered (having regard to all the circumstances including the terms and conditions of the trust) to be part of the amount that because of paragraph (a) was included in computing the income of the electing contributor for the contributor’s year, and
(iii)the total of all amounts designated by the trust, under this paragraph or subsection 104(22) in respect of that source, in the trust’s return of income under this Part for the trust’s year is not greater than the trust’s income for the trust’s year from that source;
(d)for the purposes of this paragraph and section 126, the electing contributor is deemed to have paid as business-income tax (in this subsection as defined by subsection 126(7)) or non-business-income tax (in this subsection as defined by subsection 126(7)), as the case may be, for the contributor’s year in respect of a source the amount determined by the formula
A × B/C
where
(e)in applying subsection 20(12) and section 126 in respect of the trust’s year there shall be deducted
(i)in computing the trust’s income from a source for the trust’s year the total of all amounts each of which is an amount deemed by paragraph (c) to be income from that source of the electing contributor for the contributor’s year, and
(ii)in computing the business-income tax or non-business-income tax paid by the trust for the trust’s year in respect of a source the total of all amounts in respect of that source each of which is an amount deemed by paragraph (d) to be paid by the electing contributor as business-income tax or non-business-income tax, as the case may be, in respect of that source;
(f)in computing the trust’s income for the trust’s year there may be deducted the amount that does not exceed the amount included by reason of paragraph (a) in the electing contributor’s income for the contributor’s year; and
(g)if before the specified time the electing contributor made a contribution to the trust as part of a series of transactions in which another person made the same contribution, in applying paragraphs (a) to (f) in respect of the electing contributor and the other person, the other person is deemed not to be a joint contributor in respect of the contribution if it can reasonably be considered that one of the main purposes of the series was to obtain the benefit of any deduction in computing income, taxable income or tax payable under this Act or any balance of undeducted outlays, expenses or other amounts available to the other person or any exemption available to the other person from tax payable under this Act.
Marginal note:Liability for joint contribution
(17)If, at or before a specified time in a trust’s taxation year (referred to in this subsection as the “trust’s year”), there is an electing contributor in respect of the trust who is a joint contributor in respect of a contribution to the trust,
(a)each person who is a joint contributor in respect of the contribution
(i)has, in respect of the contribution, jointly and severally, or solidarily, the rights and obligations under Divisions I and J of each other person (referred to in this subsection as the “specified person”) who is, at or before the specified time, a joint contributor in respect of that contribution, for the specified person’s taxation year in which the trust’s year ends, and
(ii)is subject to Part XV in respect of those rights and obligations; and
(b)the maximum amount recoverable under the provisions referred to in paragraph (a) at a particular time from the person in respect of the contribution and a taxation year, of another person who is the specified person, in which the trust’s year ends is the amount determined by the formula
A – B – C
where
Marginal note:Offshore investment fund property
94.1(1)If in a taxation year a taxpayer holds or has an interest in property (referred to in this section as an “offshore investment fund property”)
(a)that is a share of the capital stock of, an interest in, or a debt of, a non-resident entity (other than a controlled foreign affiliate of the taxpayer or a prescribed non-resident entity) or an interest in or a right or option to acquire such a share, interest or debt, and
(b)that may reasonably be considered to derive its value, directly or indirectly, primarily from portfolio investments of that or any other non-resident entity in
(i)shares of the capital stock of one or more corporations,
(ii)indebtedness or annuities,
(iii)interests in one or more corporations, trusts, partnerships, organizations, funds or entities,
(iv)commodities,
(v)real estate,
(vi)Canadian or foreign resource properties,
(vii)currency of a country other than Canada,
(viii)rights or options to acquire or dispose of any of the foregoing, or
(ix)any combination of the foregoing,
and it may reasonably be concluded, having regard to all the circumstances, including
(c)the nature, organization and operation of any non-resident entity and the form of, and the terms and conditions governing, the taxpayer’s interest in, or connection with, any non-resident entity,
(d)the extent to which any income, profits and gains that may reasonably be considered to be earned or accrued, whether directly or indirectly, for the benefit of any non-resident entity are subject to an income or profits tax that is significantly less than the income tax that would be applicable to such income, profits and gains if they were earned directly by the taxpayer, and
(e)the extent to which the income, profits and gains of any non-resident entity for any fiscal period are distributed in that or the immediately following fiscal period,
that one of the main reasons for the taxpayer acquiring, holding or having the interest in such property was to derive a benefit from portfolio investments in assets described in any of subparagraphs 94.1(1)(b)(i) to 94.1(1)(b)(ix) in such a manner that the taxes, if any, on the income, profits and gains from such assets for any particular year are significantly less than the tax that would have been applicable under this Part if the income, profits and gains had been earned directly by the taxpayer, there shall be included in computing the taxpayer’s income for the year the amount, if any, by which
(f)the total of all amounts each of which is the product obtained when
(i)the designated cost to the taxpayer of the offshore investment fund property at the end of a month in the year
is multiplied by
(ii)1/12 of the total of
(A)the prescribed rate of interest for the period that includes that month, and
(B)two per cent
exceeds
(g)the taxpayer’s income for the year (other than a capital gain) from the offshore investment fund property determined without reference to this subsection.
Marginal note:Definitions
(2)In this section,
designated costto a taxpayer at any time in a taxation year of an offshore investment fund property that the taxpayer holds or has an interest in means the amount determined by the formula
A + B + C + D
where
(a)where the taxpayer has held or has had the interest in the property at all times since the end of 1984, the amount, if any, by which the fair market value of the property at the end of 1984 exceeds the cost amount to the taxpayer of the property at the end of 1984, or
(b)in any other case, the total of
(i)the amount, if any, by which the fair market value of the property at the particular time the taxpayer acquired the property exceeds the cost amount to the taxpayer of the property at the particular time, and
(ii)the amount, if any, by which
(A)the total of all amounts each of which is an amount that would have been included in respect of the property because of this section in computing the taxpayer’s income for a taxation year that began before June 20, 1996 if the cost to the taxpayer of the property were equal to the fair market value of the property at the particular time
exceeds
(B)the total of all amounts each of which is an amount that was included in respect of the property because of this section in computing the taxpayer’s income for a taxation year that began before June 20, 1996,
except that the designated cost of an offshore investment fund property that is a prescribed offshore investment fund property is nil; (coût désigné)
non-resident entityat any time means
(a)a corporation that is at that time non-resident,
(b)a partnership, organization, fund or entity that is at that time non-resident or is not at that time situated in Canada, or
(c)an exempt foreign trust (other than a trust described in any of paragraphs (a) to (g) of the definitionexempt foreign trustin subsection 94(1)). (entité non-résidente)
Marginal note:Interpretation
(3)Where subsection 94.1(1) is applied with respect to an offshore investment fund property that was
(a)held by the taxpayer on February 15, 1984,
(b)received as a stock dividend in respect of a share of the capital stock of a non-resident entity held by the taxpayer on February 15, 1984,
(c)received as a stock dividend in respect of a share of the capital stock of a non-resident entity that the taxpayer had previously received as described in paragraph 94.1(3)(b), or
(d)substituted for a property held by the taxpayer on February 15, 1984 pursuant to an arrangement that existed on that date,
the reference to “1984” in the descriptions of B and in the definitiondesignated costin subsection 94.1(2) shall be read as a reference to “1985”.
Marginal note:Investments in non-resident commercial trusts
94.2(1)Subsection (2) applies to a beneficiary under a trust, and to any particular person of which any such beneficiary is a controlled foreign affiliate, at any time if
(a)the trust is at that time an exempt foreign trust (other than a trust described in any of paragraphs (a) to (g) of the definitionexempt foreign trustin subsection 94(1));
(b)either
(i)the total fair market value at that time of all fixed interests of a particular class in the trust held by the beneficiary, persons or partnerships not dealing at arm’s length with the beneficiary, or persons or partnerships that acquired their interests in the trust in exchange for consideration given to the trust by the beneficiary, is at least 10% of the total fair market value at that time of all fixed interests of the particular class, or
(ii)the beneficiary or the particular person has at or before that time contributed restricted property to the trust; and
(c)the beneficiary is at that time a
(i)resident beneficiary,
(ii)mutual fund,
(iii)controlled foreign affiliate of the particular person, or
(iv)partnership of which a person described in any of subparagraphs (i) to (iii) is a member.
Marginal note:Deemed corporation
(2)If this subsection applies at any time to a beneficiary under, or a particular person in respect of, a trust, then for the purposes of applying this section, subsections 91(1) to (4), paragraph 94.1(1)(a) and sections 95 and 233.4 to the beneficiary under, and, if applicable, to the particular person in respect of, the trust
(a)the trust is deemed to be at that time a non-resident corporation
(i)controlled by each of the beneficiary and the particular person, and
(ii)having, for each particular class of fixed interests in the trust, a separate class of capital stock of 100 issued shares that have the same attributes as the interests of the particular class; and
(b)each beneficiary under the trust is deemed to hold at that time the number of shares of each separate class described in subparagraph (a)(ii) equal to the proportion of 100 that the fair market value at that time of that beneficiary’s fixed interests in the corresponding particular class of fixed interests in the trust is of the fair market value at that time of all fixed interests in the particular class.
Marginal note:Relief from double tax
(3)For the purposes of applying subsection 91(1) to the beneficiary, and, if applicable, to the particular person, to whom subsection (2) applies
(a)there may be deducted in computing the foreign accrual property income of the trust referred to in paragraph (2)(a) (in this subsection referred to as the “entity”) for a particular taxation year of the entity the amount that would, in the absence of this paragraph, be the portion of the entity’s foreign accrual property income that would reasonably be considered to have been if this Part were applicable to all beneficiaries of the entity, included under subsection 104(13) in computing the income of any beneficiary of the entity for the taxation year in which the particular taxation year of the entity ends; and
(b)subsection 5904(2) of theIncome Tax Regulationsis to be read without reference to its paragraph (a) in determining the distribution entitlement of all the shares of a class of the capital stock of the entity at the end of the particular taxation year.
Marginal note:Request for information
(4)If the Minister sends a written request, served personally or by registered mail, to a taxpayer requesting additional information for the purpose of enabling the Minister to determine the fair market value of interests in a trust for the purpose of determining the application of subsections (1) to (3) for a taxation year to the taxpayer, and information that may reasonably be considered to be sufficient to make the determination is not received by the Minister within 120 days (or within any longer period that is acceptable to the Minister) after the Minister sends the request, then in applying this section for the taxation year to the taxpayer the fair market value of those interests is deemed to be the fair market value as reasonably determined by the Minister based on the information received by the Minister within 120 days (or within any longer period that is acceptable to the Minister) after the Minister sends the request and any other information the Minister considers reasonable.
Marginal note:Definitions for this Subdivision
95(1)In this Subdivision,
active businessof a foreign affiliate of a taxpayer means any business carried on by the foreign affiliate other than
(a)an investment business carried on by the foreign affiliate,
(b)a business that is deemed by subsection (2) to be a business other than an active business carried on by the foreign affiliate, or
(c)a non-qualifying business of the foreign affiliate; (entreprise exploitée activement)
antecedent corporationof a particular corporation means
(a)a predecessor corporation (within the meaning assigned by subsection 87(1)) in respect of an amalgamation to which subsection 87(11) applied and by which the particular corporation was formed,
(b)a predecessor corporation (within the meaning of subsection 87(1)) of the corporation (referred to in this definition as the “first amalco”) that was formed on an amalgamation of the predecessor corporation and another corporation, where
(i)shares of the capital stock of the predecessor corporation that were not owned by the other corporation, or by a corporation of which the other corporation is a subsidiary wholly-owned corporation, were exchanged on the amalgamation for shares of the capital stock of the first amalco that were, during the series of transactions or events that includes the amalgamation, redeemed, acquired or cancelled by the first amalco for money,
(ii)the first amalco was a predecessor corporation (within the meaning assigned by subsection 87(1)) in respect of an amalgamation to which subsection 87(11) applied and by which the particular corporation was formed, and
(iii)the amalgamation referred to in subparagraph (i) occurred in a series of transactions or events that included the amalgamation referred to in subparagraph (ii),
(c)a corporation that was wound-up into the particular corporation in a winding-up to which subsection 88(1) applied, or
(d)an antecedent corporation of an antecedent corporation of the particular corporation; (société antécédente)
calculating currencyfor a taxation year of a foreign affiliate of a taxpayer means
(a)the currency of the country in which the foreign affiliate is resident at the end of the taxation year, or
(b)any currency that the taxpayer demonstrates to be reasonable in the circumstances; (monnaie de calcul)
controlled foreign affiliate, at any time, of a taxpayer resident in Canada, means
(a)a foreign affiliate of the taxpayer that is, at that time, controlled by the taxpayer, or
(b)a foreign affiliate of the taxpayer that would, at that time, be controlled by the taxpayer if the taxpayer owned
(i)all of the shares of the capital stock of the foreign affiliate that are owned at that time by the taxpayer,
(ii)all of the shares of the capital stock of the foreign affiliate that are owned at that time by persons who do not deal at arm’s length with the taxpayer,
(iii)all of the shares of the capital stock of the foreign affiliate that are owned at that time by the persons (each of whom is referred to in this definition as a “relevant Canadian shareholder”), in any set of persons not exceeding four (which set of persons shall be determined without reference to the existence of or the absence of any relationship, connection or action in concert between those persons), who
(A)are resident in Canada,
(B)are not the taxpayer or a person described in subparagraph (ii), and
(C)own, at that time, shares of the capital stock of the foreign affiliate, and
(iv)all of the shares of the capital stock of the foreign affiliate that are owned at that time by persons who do not deal at arm’s length with any relevant Canadian shareholder; (société étrangère affiliée contrôlée)
designated acquired corporationof a taxpayer means a particular antecedent corporation of the taxpayer if
(a)the taxpayer or another antecedent corporation of the taxpayer acquired control of
(i)the particular antecedent corporation, or
(ii)a corporation (referred to in this definition as a “successor corporation”) of which the particular antecedent corporation is an antecedent corporation, and
(b)immediately before the acquisition of control or a series of transactions or events that includes the acquisition of control, the taxpayer, the other antecedent corporation or a corporation resident in Canada of which the taxpayer or the other antecedent corporation is a subsidiary wholly-owned corporation, as the case may be, dealt at arm’s length (otherwise than because of a right referred to in paragraph 251(5)(b)) with the particular antecedent corporation or the successor corporation, as the case may be; (société acquise désignée)
designated liquidation and dissolution, of a foreign affiliate (referred to in this definition as the “disposing affiliate”) of a taxpayer, means a liquidation and dissolution of the disposing affiliate in respect of which
(a)the taxpayer had, immediately before the time of the earliest distribution of property by the disposing affiliate in the course of the liquidation and dissolution, a surplus entitlement percentage in respect of the disposing affiliate of not less than 90%,
(b)both
(i)the percentage determined by the following formula is greater than or equal to 90%:
A/B
where
(A)the total of all amounts each of which is the fair market value, at the time at which it is distributed, of a property that is distributed by the disposing affiliate, in respect of shares of the capital stock of the disposing affiliate, in the course of the liquidation and dissolution to one particular shareholder of the disposing affiliate that was, immediately before the time of the distribution, a foreign affiliate of the taxpayer
exceeds
(B)the total of all amounts each of which is an amount owing (other than an unpaid dividend) by, or an obligation of, the disposing affiliate that was assumed or cancelled by the particular shareholder in consideration for a property referred to in clause (A), and
(A)the total of all amounts each of which is the fair market value, at the time at which it is distributed, of a property that is distributed by the disposing affiliate, in respect of shares of the capital stock of the disposing affiliate, to a shareholder of the disposing affiliate in the course of the liquidation and dissolution
exceeds
(B)the total of all amounts each of which is an amount owing (other than an unpaid dividend) by, or an obligation of, the disposing affiliate that was assumed or cancelled by a shareholder of the disposing affiliate in consideration for a property referred to in clause (A), and
(ii)at the time of each distribution of property by the disposing affiliate in the course of the liquidation and dissolution in respect of shares of the capital stock of the disposing affiliate, the particular shareholder holds shares of that capital stock that would, if an annual general meeting of the shareholders of the disposing affiliate were held at that time, entitle it to 90% or more of the votes that could be cast under all circumstances at the meeting, or
(c)one particular shareholder of the disposing affiliate that was, throughout the liquidation and dissolution, a foreign affiliate of the taxpayer owns not less than 90% of the issued shares of each class of the capital stock of the disposing affiliate throughout the liquidation and dissolution; (liquidation et dissolution désignées)
eligible trust, at any time, means a trust, other than a trust
(a)created or maintained for charitable purposes,
(b)governed by an employee benefit plan,
(c)described in paragraph (a.1) of the definitiontrustin subsection 108(1),
(d)governed by a salary deferral arrangement,
(e)operated for the purpose of administering or providing superannuation, pension, retirement or employee benefits, or
(f)where the amount of income or capital that any entity may receive directly from the trust at any time as a beneficiary under the trust depends on the exercise by any entity of, or the failure by any entity to exercise, a discretionary power; (fiducie admissible)
entityincludes an association, a corporation, a fund, a natural person, a joint venture, an organization, a partnership, a syndicate and a trust; (entité)
excluded property, at a particular time, of a foreign affiliate of a taxpayer means any property of the foreign affiliate that is
(a)used or held by the foreign affiliate principally for the purpose of gaining or producing income from an active business carried on by it,
(b)shares of the capital stock of another foreign affiliate of the taxpayer where all or substantially all of the fair market value of the property of the other foreign affiliate is attributable to property, of that other foreign affiliate, that is excluded property,
(c)property all or substantially all of the income from which is, or would be, if there were income from the property, income from an active business (which, for this purpose, includes income that would be deemed to be income from an active business by paragraph (2)(a) if that paragraph were read without reference to subparagraph (v)), or
(c.1)property arising under or as a result of an agreement that
(i)provides for the purchase, sale or exchange of currency, and
(ii)either
(A)can reasonably be considered to have been made by the affiliate to reduce its risk, with respect to an amount that was receivable under an agreement that relates to the sale of excluded property or with respect to an amount that was receivable and was a property described in paragraph (c), of fluctuations in the value of the currency in which the amount receivable was denominated, or
(B)can reasonably be considered to have been made by the affiliate to reduce its risk, with respect to any of the following amounts, of fluctuations in the value of the currency in which that amount was denominated:
(I)an amount that was payable under an agreement that relates to the purchase of property that (at all times between the time of the acquisition of the property and the particular time) is excluded property of the affiliate,
(II)an amount of indebtedness, to the extent that the proceeds derived from the issuance or incurring of the indebtedness can reasonably be considered to have been used to acquire property that (at all times between the time of the acquisition of that property and the particular time) is excluded property of the affiliate, or
(III)an amount of indebtedness, to the extent that the proceeds derived from the issuance or incurring of the indebtedness can reasonably be considered to have been used to repay the outstanding balance of
1an amount that, immediately before the time of that repayment, is described by subclause (I),
2an amount of indebtedness of the affiliate that, immediately before the time of that repayment, is described by subclause (II), or
3an amount of indebtedness of the affiliate that, immediately before the time of that repayment, is described by this subclause,
and, for the purposes of the definitionsforeign affiliatein this subsection anddirect equity percentagein subsection 95(4) as they apply to this definition, where at any time a foreign affiliate of a taxpayer has an interest in a partnership,
(d)the partnership shall be deemed to be a non-resident corporation having capital stock of a single class divided into 100 issued shares, and
(e)the affiliate shall be deemed to own at that time that proportion of the issued shares of that class that
(i)the fair market value of the affiliate’s interest in the partnership at that time
is of
(ii)the fair market value of all interests in the partnership at that time; (bien exclu)
exempt trust, at a particular time in respect of a taxpayer resident in Canada, means a trust that, at that time, is a trust under which the interest of each beneficiary under the trust is, at all times that the interest exists during the trust’s taxation year that includes the particular time, a specified fixed interest of the beneficiary in the trust, if at the particular time
(a)the trust is an eligible trust,
(b)there are at least 150 beneficiaries each of whom holds a specified fixed interest, in the trust, that has a fair market value of at least $500, and
(c)the total of all amounts each of which is the fair market value of an interest as a beneficiary under the trust held by a specified purchaser in respect of the taxpayer is not more than 10% of the total fair market value of all interests as a beneficiary under the trust; (fiducie exonérée)
foreign accrual property incomeof a foreign affiliate of a taxpayer, for any taxation year of the affiliate, means the amount determined by the formula
(A + A.1 + A.2 + B + C) – (D + E + F + F.1 + G + H)
where
(a)interest that would, by virtue of paragraph 81(1)(m), not be included in computing the income of the affiliate if it were resident in Canada,
(b)a dividend from another foreign affiliate of the taxpayer,
(c)a taxable dividend to the extent that the amount thereof would, if the dividend were received by the taxpayer, be deductible by the taxpayer under section 112, or
(d)any amount included because of subsection 80.4(2) in the affiliate’s income in respect of indebtedness to another corporation that is a foreign affiliate of the taxpayer or of a person resident in Canada with whom the taxpayer does not deal at arm’s length,
(a)that is not, at the time of disposition, excluded property of the affiliate, or
(b)that is, at the time of disposition, excluded property of the affiliate, if any of paragraphs (2)(c), (d) and (d.1), subparagraph (2)(e)(i) and paragraph 88(3)(a) applies to the disposition,
(a)subsection 94.1(1) were applicable in computing that income,
(b)the words “earned directly by the taxpayer” in that subsection were replaced by the words “earned by the person resident in Canada in respect of whom the taxpayer is a foreign affiliate”,
(c)the words “other than a controlled foreign affiliate of the taxpayer or a prescribed non-resident entity” in paragraph 94.1(1)(a) were replaced by the words “other than a prescribed non-resident entity or a controlled foreign affiliate of a person resident in Canada of whom the taxpayer is a controlled foreign affiliate”, and
(d)the words “other than a capital gain” in paragraph 94.1(1)(g) were replaced by the words “other than any income that would not be included in the taxpayer’s foreign accrual property income for the year if the value of C in the definitionforeign accrual property incomein subsection 95(1) were nil and other than a capital gain”,
(a)the amount of the affiliate’s allowable capital losses for the year from dispositions of property (other than excluded property and property in respect of which an election is made by the taxpayer under subsection 88(3.3)) that can reasonably be considered to have accrued after its 1975 taxation year, and
(b)the total of all amounts each of which is the portion of a taxable capital gain of the affiliate that is included in the amount determined for B in respect of the affiliate for the year,
(a)the prescribed amount for the year, and
(b)the amount, if any, by which
(i)the total of all amounts each of which is the portion of a taxable capital gain of the affiliate that is included in the amount determined for B in respect of the affiliate for the year
exceeds
(ii)the amount determined for E in respect of the affiliate for the year,
(a)the total of amounts determined for A.1 and A.2 in respect of the affiliate for the year
exceeds
(b)the total of all amounts determined for D to F.1 in respect of the affiliate for the year, and
(a)if the affiliate was a member of a partnership at the end of the fiscal period of the partnership that ended in the year and the partnership received a dividend at a particular time in that fiscal period from a corporation that would be, if the reference in subsection 93.1(1) to “corporation resident in Canada” were a reference to “taxpayer resident in Canada”, a foreign affiliate of the taxpayer for the purposes of sections 93 and 113 at that particular time, then the portion of the amount of that dividend that is included in the value determined for A in respect of the affiliate for the year and that would be, if the reference in subsection 93.1(2) to “corporation resident in Canada” were a reference to “taxpayer resident in Canada”, deemed by paragraph 93.1(2)(a) to have been received by the affiliate for the purposes of sections 93 and 113, and
(b)in any other case, nil; (revenu étranger accumulé, tiré de biens)
foreign accrual taxapplicable to any amount included under subsection 91(1) in computing a taxpayer’s income for a taxation year of the taxpayer in respect of a particular foreign affiliate of the taxpayer means, subject to subsection 91(4.1),
(a)the portion of any income or profits tax that may reasonably be regarded as applicable to that amount and that is paid by
(i)the particular affiliate,
(ii)another foreign affiliate (in paragraph (b) referred to as the “shareholder affiliate”) of the taxpayer where
(A)the other affiliate has an equity percentage in the particular affiliate,
(B)the income or profits tax is paid to a country other than Canada, and
(C)the other affiliate, and not the particular affiliate, is liable for that tax under the laws of that country, or
(iii)another foreign affiliate of the taxpayer in respect of a dividend received, directly or indirectly, from the particular affiliate, if that other affiliate has an equity percentage in the particular affiliate, and
(b)any amount prescribed in respect of the particular affiliate or the shareholder affiliate, as the case may be, to be foreign accrual tax applicable to that amount; (impôt étranger accumulé)
foreign affiliate, at any time, of a taxpayer resident in Canada means a non-resident corporation in which, at that time,
(a)the taxpayer’s equity percentage is not less than 1%, and
(b)the total of the equity percentages in the corporation of the taxpayer and of each person related to the taxpayer (where each such equity percentage is determined as if the determinations under paragraph (b) of the definitionequity percentagein subsection 95(4) were made without reference to the equity percentage of any person in the taxpayer or in any person related to the taxpayer) is not less than 10%,
except that a corporation is not a foreign affiliate of a non-resident-owned investment corporation; (société étrangère affiliée)
foreign bankmeans an entity that would be a foreign bank within the meaning assigned by the definition of that expression in section 2 of theBank Actif
(a)that definition were read without reference to the portion thereof after paragraph (g) thereof, and
(b)the entity had not been exempt under section 12 of that Act from being a foreign bank; (banque étrangère)
income from an active businessof a foreign affiliate of a taxpayer for a taxation year includes the foreign affiliate’s income for the taxation year that pertains to or is incident to that active business but does not include
(a)the foreign affiliate’s income from property for the taxation year,
(b)the foreign affiliate’s income for the taxation year from a business that is deemed by subsection (2) to be a business other than an active business of the foreign affiliate, or
(c)the foreign affiliate’s income from a non-qualifying business of the foreign affiliate for the taxation year; (revenu provenant d’une entreprise exploitée activement)
income from a non-qualifying businessof a foreign affiliate of a taxpayer resident in Canada for a taxation year includes the foreign affiliate’s income for the taxation year that pertains to or is incident to that non-qualifying business, but does not include
(a)the foreign affiliate’s income from property for the taxation year, or
(b)the foreign affiliate’s income for the taxation year from a business that is deemed by subsection (2) to be a business other than an active business of the foreign affiliate; (revenu provenant d’une entreprise non admissible)
income from propertyof a foreign affiliate of a taxpayer for a taxation year includes the foreign affiliate’s income for the taxation year from an investment business and the foreign affiliate’s income for the taxation year from an adventure or concern in the nature of trade, but does not include
(a)the foreign affiliate’s income for the taxation year from a business that is deemed by subsection (2) to be a business other than an active business of the foreign affiliate, or
(b)the foreign affiliate’s income for the taxation year that pertains to or is incident to
(i)an active business of the foreign affiliate, or
(ii)a non-qualifying business of the foreign affiliate; (revenu de biens)
investment businessof a foreign affiliate of a taxpayer means a business carried on by the foreign affiliate in a taxation year (other than a business deemed by subsection (2) to be a business other than an active business carried on by the foreign affiliate and other than a non-qualifying business of the foreign affiliate) the principal purpose of which is to derive income from property (including interest, dividends, rents, royalties or any similar returns or substitutes for such interest, dividends, rents, royalties or returns), income from the insurance or reinsurance of risks, income from the factoring of trade accounts receivable, or profits from the disposition of investment property, unless it is established by the taxpayer or the foreign affiliate that, throughout the period in the taxation year during which the business was carried on by the foreign affiliate,
(a)the business (other than any business conducted principally with persons with whom the affiliate does not deal at arm’s length) is
(i)a business carried on by it as a foreign bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities, the activities of which are regulated under the laws
(A)of each country in which the business is carried on through a permanent establishment in that country and of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued,
(B)of the country in which the business is principally carried on, or
(C)if the affiliate is related to a non-resident corporation, of the country under whose laws that non-resident corporation is governed and any of exists, was (unless that non-resident corporation was continued in any jurisdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all of those countries are members of the European Union, or
(ii)the development of real property or immovables for sale, the lending of money, the leasing or licensing of property or the insurance or reinsurance of risks,
(b)either
(i)the affiliate (otherwise than as a member of a partnership) carries on the business (the affiliate being, in respect of those times, in that period of the year, that it so carries on the business, referred to in paragraph (c) as the “operator”), or
(ii)the affiliate carries on the business as a qualifying member of a partnership (the partnership being, in respect of those times, in that period of the year, that the affiliate so carries on the business, referred to in paragraph (c) as the “operator”), and
(c)the operator employs
(i)more than five employees full time in the active conduct of the business, or
(ii)the equivalent of more than five employees full time in the active conduct of the business taking into consideration only
(A)the services provided by employees of the operator, and
(B)the services provided outside Canada to the operator by any one or more persons each of whom is, during the time at which the services were performed by the person, an employee of
(I)a corporation related to the affiliate (otherwise than because of a right referred to in paragraph 251(5)(b)),
(II)in the case where the operator is the affiliate,
1a corporation (referred to in this subparagraph as a “providing shareholder”) that is a qualifying shareholder of the affiliate,
2a designated corporation in respect of the affiliate, or
3a designated partnership in respect of the affiliate, and
(III)in the case where the operator is the partnership described in subparagraph (b)(ii),
1any person (referred to in this subparagraph as a “providing member”) who is a qualifying member of that partnership,
2a designated corporation in respect of the affiliate, or
3a designated partnership in respect of the affiliate,
if the corporations referred to in subclause (B)(I) and the designated corporations, designated partnerships, providing shareholders or providing members referred to in subclauses (B)(II) and (III) receive compensation from the operator for the services provided to the operator by those employees the value of which is not less than the cost to those corporations, partnerships, shareholders or members of the compensation paid or accruing to the benefit of those employees that performed the services during the time at which the services were performed by those employees; (entreprise de placement)
investment propertyof a foreign affiliate of a taxpayer includes
(a)a share of the capital stock of a corporation other than a share of another foreign affiliate of the taxpayer that is excluded property of the affiliate,
(b)an interest in a partnership other than an interest in a partnership that is excluded property of the affiliate,
(c)an interest in a trust other than an interest in a trust that is excluded property of the affiliate,
(d)indebtedness or annuities,
(e)commodities or commodities futures purchased or sold, directly or indirectly in any manner whatever, on a commodities or commodities futures exchange (except commodities manufactured, produced, grown, extracted or processed by the affiliate or a person to whom the affiliate is related (otherwise than because of a right referred to in paragraph 251(5)(b)) or commodities futures in respect of such commodities),
(f)currency,
(g)real property or immovables,
(h)Canadian and foreign resource properties,
(i)interests in funds or entities other than corporations, partnerships and trusts, and
(j)interests in, or for civil law rights in, or options in respect of, property that is included in any of paragraphs (a) to (i); (bien de placement)
lease obligationof a person includes an obligation under an agreement that authorizes the use of or the production or reproduction of property including information or any other thing; (obligation découlant d’un bail)
lending of moneyby a person (for the purpose of this definition referred to as the “lender”) includes
(a)the acquisition by the lender of trade accounts receivable (other than trade accounts receivable owing by a person with whom the lender does not deal at arm’s length) from another person or the acquisition by the lender of any interest in any such accounts receivable,
(b)the acquisition by the lender of loans made by and lending assets (other than loans or lending assets owing by a person with whom the lender does not deal at arm’s length) of another person or the acquisition by the lender of any interest in such a loan or lending asset,
(c)the acquisition by the lender of a foreign resource property (other than a foreign resource property that is a rental or royalty payable by a person with whom the lender does not deal at arm’s length) of another person, and
(d)the sale by the lender of loans or lending assets (other than loans or lending assets owing by a person with whom the lender does not deal at arm’s length) or the sale by the lender of any interest in such loans or lending assets;
and for the purpose of this definition, the definitionlending assetin subsection 248(1) shall be read without the words “but does not include a prescribed property”; (prêt d’argent)
licensing of propertyincludes authorizing the use of or the production or reproduction of property including information or any other thing; (concession d’une licence sur un bien)
non-qualifying businessof a foreign affiliate of a taxpayer at any time means a business carried on by the foreign affiliate through a permanent establishment in a jurisdiction that, at the end of the foreign affiliate’s taxation year that includes that time, is a non-qualifying country, other than
(a)an investment business of the foreign affiliate, or
(b)a business that is deemed by subsection (2) to be a business other than an active business of the foreign affiliate; (entreprise non admissible)
non-qualifying country, at any time, means a country or other jurisdiction
(a)with which Canada neither has a tax treaty at that time nor has, before that time, signed an agreement that will, on coming into effect, be a tax treaty,
(a.1)for which, if the time is after February 2014, the Convention on Mutual Administrative Assistance in Tax Matters — concluded at Strasbourg on January 25, 1988, as amended from time to time by a protocol, or other international instrument, as ratified by Canada — is at that time not in force and does not have effect,
(b)with which Canada does not have a comprehensive tax information exchange agreement that is in force and has effect at that time, and
(c)with which Canada has, more than 60 months before that time, either
(i)begun negotiations for a comprehensive tax information exchange agreement (unless that time is before 2014 and Canada was, on March 19, 2007, in the course of negotiating a comprehensive tax information exchange agreement with that jurisdiction), or
(ii)sought, by written invitation, to enter into negotiations for a comprehensive tax information exchange agreement (unless that time is before 2014 and Canada was, on March 19, 2007, in the course of negotiating a comprehensive tax information exchange agreement with that jurisdiction); (pays non admissible)
participating percentageof a particular share owned by a taxpayer of the capital stock of a corporation in respect of any foreign affiliate of the taxpayer that was, at the end of its taxation year, a controlled foreign affiliate of the taxpayer is
(a)where the foreign accrual property income of the affiliate for that year is $5,000 or less, nil, and
(b)where the foreign accrual property income of the affiliate for that year exceeds $5,000,
(i)the percentage that would be the taxpayer’s equity percentage in the affiliate at the end of that taxation year on the assumption that the taxpayer owned no shares other than the particular share (but in no case shall that assumption be made for the purpose of determining whether or not a corporation is a foreign affiliate of the taxpayer) if
(A)the affiliate and each corporation that is relevant to the determination of the taxpayer’s equity percentage in the affiliate have, at that time, only one class of issued shares, and
(B)no foreign affiliate (referred to in this clause as the “upper-tier affiliate”) of the taxpayer that is relevant to the determination of the taxpayer’s equity percentage in the affiliate has, at that time, an equity percentage in a foreign affiliate (including, for greater certainty, the affiliate) of the taxpayer that has an equity percentage in the upper-tier affiliate, and
(ii)in any other case, the percentage determined in prescribed manner; (pourcentage de participation)
permanent establishmenthas the meaning assigned by regulation; (établissement stable)
relevant tax factor, of a person or partnership for a taxation year, means
(a)in the case of a corporation, or of a partnership all the members of which, other than non-resident persons, are corporations, the quotient obtained by the formula
1/(A – B)
where
(i)in the case of a corporation, the percentage that is the corporation’s general rate reduction percentage (as defined by section 123.4) for the taxation year, and
(ii)in the case of a partnership, the percentage that would be determined under subparagraph (i) in respect of the partnership if the partnership were a corporation whose taxation year is the partnership’s fiscal period, and
(b)in any other case, 1.9; (facteur fiscal approprié)
specified fixed interest, at any time, of an entity in a trust, means an interest of the entity as a beneficiary under the trust if
(a)the interest includes, at that time, rights of the entity as a beneficiary under the trust to receive, at or after that time and directly from the trust, income and capital of the trust,
(b)the interest was issued by the trust, at or before that time, to an entity, in exchange for consideration and the fair market value, at the time at which the interest was issued, of that consideration was equal to the fair market value, at the time at which it was issued, of the interest,
(c)the only manner in which any part of the interest may cease to be the entity’s is by way of a disposition (determined without reference to paragraph (i) of the definitiondispositionin subsection 248(1) and paragraph 248(8)(c)) by the entity of that part, and
(d)no amount of income or capital of the trust that any entity may receive directly from the trust at any time as a beneficiary under the trust depends on the exercise by any entity of, or the failure by any entity to exercise, a discretionary power; (participation fixe désignée)
specified person or partnership, in respect of a taxpayer, at any time means the taxpayer or a person (other than a designated acquired corporation of the taxpayer), or a partnership, that is at that time
(a)a person (other than a partnership) that is resident in Canada and does not, at that time, deal at arm’s length with the taxpayer,
(b)a specified predecessor corporation of the taxpayer or of a specified person or partnership in respect of the taxpayer,
(c)a foreign affiliate of
(i)the taxpayer,
(ii)a person that is at that time a specified person or partnership in respect of the taxpayer under this definition because of paragraph (a) or (b), or
(iii)a partnership that is at that time a specified person or partnership in respect of the taxpayer under this definition because of paragraph (d), or
(d)a partnership a member of which is at that time a specified person or partnership in respect of the taxpayer under this definition; (personne ou société de personnes déterminée)
specified predecessor corporationof a particular corporation means
(a)an antecedent corporation of the particular corporation,
(b)a predecessor corporation (within the meaning assigned by subsection 87(1)) in respect of an amalgamation by which the particular corporation was formed, or
(c)a specified predecessor corporation of a specified predecessor corporation of the particular corporation; (société remplacée déterminée)
specified purchaser, at any time, in respect of a particular taxpayer resident in Canada, means an entity that is, at that time,
(a)the particular taxpayer,
(b)an entity resident in Canada with which the particular taxpayer does not deal at arm’s length,
(c)a foreign affiliate of an entity described in any of paragraphs (a) and (b) and (d) to (f),
(d)a trust (other than an exempt trust) in which an entity described in any of paragraphs (a) to (c) and (e) and (f) is beneficially interested,
(e)a partnership of which an entity described in any of paragraphs (a) to (d) and (f) is a member, or
(f)an entity (other than an entity described in any of paragraphs (a) to (e)) with which an entity described in any of paragraphs (a) to (e) does not deal at arm’s length; (acheteur déterminé)
surplus entitlement percentage, at any time, of a taxpayer in respect of a foreign affiliate has the meaning assigned by regulation; (pourcentage de droit au surplus)
taxable Canadian business, at any time, of a foreign affiliate of a taxpayer resident in Canada or of a partnership of which a foreign affiliate of a taxpayer resident in Canada is a member (which foreign affiliate or partnership is referred to in this definition as the “operator”), means a business the income from which
(a)is, or would be if there were income from the business for the operator’s taxation year or fiscal period that includes that time, included in computing the foreign affiliate’s taxable income earned in Canada for a taxation year under subparagraph 115(1)(a)(ii), and
(b)is not, or would not be if there were income from the business for the operator’s taxation year or fiscal period that includes that time, exempt, because of a tax treaty with a country, from tax under this Part; (entreprise canadienne imposable)
taxation yearin relation to a foreign affiliate of a taxpayer means the period for which the accounts of the foreign affiliate have been ordinarily made up, but no such period may exceed 53 weeks; (année d’imposition)
trust companyincludes a corporation that is resident in Canada and that is aloan companyas defined in subsection 2(1) of theCanadian Payments Act. (société de fiducie)
Marginal note:British Virgin Islands
(1.1)For the purposes of paragraph (b) of the definitionnon-qualifying countryin subsection (1), the British Overseas Territory of the British Virgin Islands is deemed to have a comprehensive tax information exchange agreement with Canada that is in force and has effect after 2013 and before March 11, 2014.
Marginal note:Determination of certain components of foreign accrual property income
(2)For the purposes of this Subdivision,
(a)in computing the income or loss from an active business for a taxation year of a particular foreign affiliate of a taxpayer in respect of which the taxpayer has a qualifying interest throughout the year or that is a controlled foreign affiliate of the taxpayer throughout the year, there shall be included any income or loss of the particular foreign affiliate for the year from sources in a country other than Canada that would otherwise be income or loss from property of the particular foreign affiliate for the year to the extent that
(i)the income or loss
(A)is derived by the particular foreign affiliate from activities of the particular foreign affiliate, or of a particular partnership of which the particular foreign affiliate is a member, to the extent that the activities occur while the particular affiliate is a qualifying member of the particular partnership that can reasonably be considered to be directly related to active business activities carried on in a country other than Canada by
(I)another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year,
(II)a life insurance corporation that is resident in Canada throughout the year and that is
1the taxpayer,
2a person who controls the taxpayer,
3a person controlled by the taxpayer, or
4a person controlled by a person who controls the taxpayer,
(III)the particular foreign affiliate or a partnership of which the particular foreign affiliate is a member, to the extent that the activities occur while the particular affiliate is a qualifying member of the partnership, or
(IV)a partnership of which another foreign affiliate of the taxpayer, in respect of which the taxpayer has a qualifying interest throughout the year, is a member, to the extent that the activities occur while the other affiliate is a qualifying member of the partnership, and
(B)if any of subclauses (A)(I), (II) and (IV) applies, would be included in computing the amount prescribed to be the earnings or loss, from an active business carried on in a country other than Canada, of
(I)that other foreign affiliate referred to in subclause (A)(I) or (IV), if the income were earned by it, or
(II)the life insurance corporation referred to in subclause (A)(II), if that life insurance corporation were a foreign affiliate of the taxpayer and the income were earned by it,
(ii)the income or loss is derived from amounts that were paid or payable, directly or indirectly, to the particular foreign affiliate or a partnership of which the particular foreign affiliate was a member
(A)by a life insurance corporation that is resident in Canada and that is the taxpayer, a person who controls the taxpayer, a person controlled by the taxpayer or a person controlled by a person who controls the taxpayer, to the extent that those amounts that were paid or payable were for expenditures that are deductible in a taxation year of the life insurance corporation by the life insurance corporation in computing its income or loss for a taxation year from carrying on its life insurance business outside Canada and are not deductible in computing its income or loss for a taxation year from carrying on its life insurance business in Canada,
(B)by
(I)another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year, to the extent that those amounts that were paid or payable are for expenditures that were deductible by that other foreign affiliate in computing the amounts prescribed to be its earnings or loss for a taxation year from an active business (other than an active business carried on in Canada), or
(II)a partnership of which another foreign affiliate of the taxpayer (in respect of which other foreign affiliate the taxpayer has a qualifying interest throughout the year) is a qualifying member throughout each period, in the fiscal period of the partnership that ends in the year, in which that other foreign affiliate was a member of the partnership, to the extent that those amounts that were paid or payable are for expenditures that are deductible by the partnership in computing that other foreign affiliate’s share of any income or loss of the partnership, for a fiscal period, that is included in computing the amounts prescribed to be that other foreign affiliate’s earnings or loss for a taxation year from an active business (other than an active business carried on in Canada),
(C)by a partnership of which the particular foreign affiliate is a qualifying member throughout each period, in the fiscal period of the partnership that ends in the year, in which the particular foreign affiliate was a member of the partnership, to the extent that those amounts that were paid or payable are for expenditures that are deductible by the partnership in computing the particular foreign affiliate’s share of any income or loss of the partnership, for a fiscal period, that is included in computing the amounts prescribed to be the particular foreign affiliate’s earnings or loss for a taxation year from an active business (other than an active business carried on in Canada), or
(D)by another foreign affiliate (referred to in this clause as the “second affiliate”) of the taxpayer — in respect of which the taxpayer has a qualifying interest throughout the year — to the extent that the amounts are paid or payable by the second affiliate, in respect of any particular period in the year,
(I)under a legal obligation to pay interest on borrowed money used for the purpose of earning income from property, or
(II)on an amount payable for property acquired for the purpose of gaining or producing income from property
where
(III)the property is, throughout the particular period, excluded property of the second affiliate that is shares of the capital stock of a corporation (referred to in this clause as the “third affiliate”) which is, throughout the particular period, a foreign affiliate (other than the particular foreign affiliate) of the taxpayer in respect of which the taxpayer has a qualifying interest, and
(IV)in respect of each of the second affiliate and the third affiliate, for each of their taxation years (each of which is referred to in this subclause as a “relevant taxation year”) that end in the year, either
1that affiliate is subject to income taxation in a country other than Canada in that relevant taxation year, or
2the members or shareholders of that affiliate (which, for the purposes of this sub-subclause, includes a person that has, directly or indirectly, an interest, or for civil law a right, in a share of the capital stock of, or in an equity interest in, the affiliate) at the end of that relevant taxation year are subject to income taxation in a country other than Canada on, in aggregate, all or substantially all of the income of that affiliate for that relevant taxation year in their taxation years in which that relevant taxation year ends,
(V)[Repealed, 2014, c. 39, s. 25]
(iii)the income or loss is derived by the particular foreign affiliate from the factoring of trade accounts receivable acquired by the particular foreign affiliate, or a partnership of which the particular foreign affiliate was a member, from another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year to the extent that the accounts receivable arose in the course of an active business carried on in a country other than Canada by that other foreign affiliate,
(iv)the income or loss is derived by the particular foreign affiliate from loans or lending assets acquired by the particular foreign affiliate, or a partnership of which the particular foreign affiliate was a member, from another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year, to the extent that the loans or lending assets arose in the course of an active business carried on in a country other than Canada by that other foreign affiliate,
(v)the income or loss is derived by the particular foreign affiliate from the disposition of excluded property that is not capital property, or
(vi)the income or loss is derived by the particular foreign affiliate under or as a result of an agreement that provides for the purchase, sale or exchange of currency and that can reasonably be considered to have been made by the particular foreign affiliate to reduce
(A)its risk — with respect to an amount that increases the amount required by this paragraph to be included in computing the particular foreign affiliate’s income for a taxation year from an active business or that decreases the amount required by this paragraph to be included in computing the particular foreign affiliate’s loss for a taxation year from an active business — of fluctuations in the value of the currency in which the amount was denominated, or
(B)its risk — with respect to an amount that decreases the amount required by this paragraph to be included in computing the particular foreign affiliate’s income for a taxation year from an active business or that increases the amount required by this paragraph to be included in computing the particular foreign affiliate’s loss for a taxation year from an active business — of fluctuations in the value of the currency in which the amount was denominated;
(a.1)in computing the income from a business other than an active business for a taxation year of a foreign affiliate of a taxpayer there shall be included the income of the affiliate for the year from the sale of property (which, for the purposes of this paragraph, includes the income of the affiliate for the year from the performance of services as an agent in relation to a purchase or sale of property) where
(i)it is reasonable to conclude that the cost to any person of the property (other than property that is designated property) is relevant in computing the income from a business carried on by the taxpayer or by a person resident in Canada with whom the taxpayer does not deal at arm’s length or is relevant in computing the income from a business carried on in Canada by a non-resident person with whom the taxpayer does not deal at arm’s length, and
(ii)the property was not
(A)manufactured, produced, grown, extracted or processed in the country
(I)under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued, and
(II)in which the affiliate’s business is principally carried on,
(B)an interest in real property, or a real right in an immovable, located in, or a foreign resource property in respect of, the country
(I)under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued, and
(II)in which the affiliate’s business is principally carried on, or
(C)an indebtedness, or a lease obligation, of a person resident in Canada or in respect of a business carried on in Canada, that was purchased and sold by the affiliate on its own account,
unless more than 90% of the gross revenue of the affiliate for the year from the sale of property (other than a property the income from the sale of which is not included in computing the income from a business other than an active business of the affiliate under this paragraph because of subsection (2.31)) is derived from the sale of such property (other than a property described in subparagraph (ii) the cost of which to any person is a cost referred to in subparagraph (i)) to persons with whom the affiliate deals at arm’s length (which, for this purpose, includes a sale of property to a non-resident corporation with which the affiliate does not deal at arm’s length for sale to persons with whom the affiliate deals at arm’s length) and, where this paragraph applies to include income of the affiliate from the sale of property in the income of the affiliate from a business other than an active business,
(iii)the sale of such property shall be deemed to be a separate business, other than an active business, carried on by the affiliate, and
(iv)any income of the affiliate that pertains to or is incident to that business shall be deemed to be income from a business other than an active business;
(a.2)in computing the income from a business other than an active business for a taxation year of a foreign affiliate of a taxpayer
(i)there shall be included the income of the affiliate for the year from the insurance of specified Canadian risks (which, for the purposes of this paragraph, includes income for the year from the reinsurance of specified Canadian risks), unless more than 90% of the gross premium revenue of the affiliate for the year from the insurance of risks (net of reinsurance ceded) was in respect of the insurance of risks (other than specified Canadian risks) of persons with whom the affiliate deals at arm’s length,
(ii)if subparagraph (i) applies to include income of the affiliate from the insurance of specified Canadian risks,
(A)the insurance of those risks is deemed to be a separate business, other than an active business, carried on by the affiliate, and
(B)any income of the affiliate that pertains to or is incident to that business is deemed to be income from a business other than an active business,
(iii)there shall be included the income of the affiliate for the year in respect of the ceding of specified Canadian risks — except to the extent that the income is included because of subparagraph (i) or (ii) — which, for the purposes of this paragraph, includes
(A)income of the affiliate from services in respect of the ceding of specified Canadian risks, and
(B)except to the extent the amount is included under clause (A), the amount, if any, by which the fair market value of the consideration provided in respect of the ceding of the specified Canadian risks exceeds the affiliate’s cost in respect of those specified Canadian risks, and
(iv)if subparagraph (iii) applies to include income of the affiliate in respect of the ceding of specified Canadian risks,
(A)the ceding of those risks is deemed to be a separate business, other than an active business, carried on by the affiliate, and
(B)any income of the affiliate that pertains to or is incident to that business is deemed to be income from a business other than an active business;
(a.21)for the purposes of paragraph (a.2), one or more risks insured by a foreign affiliate of a taxpayer that, if this Act were read without reference to this paragraph, would not be specified Canadian risks (in this paragraph referred to as theforeign policy pool) are deemed to be specified Canadian risks if
(i)the affiliate, or a person or partnership that does not deal at arm’s length with the affiliate, enters into one or more agreements or arrangements in respect of the foreign policy pool,
(ii)the affiliate’s risk of loss or opportunity for gain or profit in respect of the foreign policy pool, in combination with its risk of loss or opportunity for gain in respect of the agreements or arrangements, can reasonably be considered to be — or could reasonably be considered to be if the affiliate had entered into the agreements or arrangements entered into by the person or partnership — determined, in whole or in part, by reference to one or more criteria in respect of one or more risks insured by another person or partnership (in this paragraph referred to as thetracked policy pool), which criteria are
(A)the fair market value of the tracked policy pool,
(B)the revenue, income, loss or cash flow from the tracked policy pool, or
(C)any other similar criteria, and
(iii)10% or more of the tracked policy pool consists of specified Canadian risks;
(a.22)if the conditions in paragraph (a.21) are satisfied in respect of a foreign affiliate of a taxpayer, or a foreign affiliate of another taxpayer if that other taxpayer does not deal at arm’s length with the taxpayer, and a particular foreign affiliate of the taxpayer, or a partnership of which the particular affiliate is a member, has entered into one or more agreements or arrangements described in that paragraph,
(i)activities performed in connection with those agreements or arrangements are deemed to be a separate business, other than an active business, carried on by the particular affiliate to the extent that those activities can reasonably be considered to be performed for the purpose of obtaining the result described in subparagraph (a.21)(ii), and
(ii)any income of the particular affiliate from the business (including income that pertains to or is incident to the business) is deemed to be income from a business other than an active business;
(a.23)for the purposes of paragraphs (a.2), (a.21) and (a.24),specified Canadian riskmeans a risk in respect of
(i)a person resident in Canada,
(ii)a property situated in Canada, or
(iii)a business carried on in Canada;
(a.24)for the purposes of paragraph (a.2),
(i)a risk is deemed to be a specified Canadian risk of a particular foreign affiliate of a taxpayer if
(A)as part of a transaction or series of transactions, the particular affiliate insured or reinsured the risk,
(B)the risk would not be a specified Canadian risk if this Act were read without reference to this paragraph, and
(C)it can reasonably be concluded that one of the purposes of the transaction or series of transactions was to avoid the application of any of paragraphs (a.2) to (a.22), and
(ii)if the particular affiliate — or a foreign affiliate of another taxpayer, if that other taxpayer or affiliate, or a partnership of which that other taxpayer or affiliate is a member, does not deal at arm’s length with the particular affiliate — enters into one or more agreements or arrangements in respect of the risk,
(A)activities performed in connection with those agreements or arrangements are deemed to be a separate business, other than an active business, carried on by the particular affiliate or other affiliate, as the case may be, and
(B)any income of the particular affiliate or other affiliate, as the case may be, from the business (including income that pertains to or is incident to the business) is deemed to be income from a business other than an active business;
(a.3)in computing the income from a business other than an active business for a taxation year of a foreign affiliate of a taxpayer there shall be included the income of the affiliate for the year derived directly or indirectly from indebtedness and lease obligations (which, for the purposes of this paragraph, includes the income of the affiliate for the year from the purchase and sale of indebtedness and lease obligations on its own account, but does not include excluded income)
(i)of persons resident in Canada, or
(ii)in respect of businesses carried on in Canada
unless more than 90% of the gross revenue of the affiliate derived directly or indirectly from indebtedness and lease obligations (other than excluded revenue or revenue that is not included in computing the income from a business other than an active business of the affiliate under this paragraph because of subsection (2.31)) was derived directly or indirectly from indebtedness and lease obligations of non-resident persons with whom the affiliate deals at arm’s length and, where this paragraph applies to include income of the affiliate for the year in the income of the affiliate from a business other than an active business,
(iii)those activities carried out to earn such income shall be deemed to be a separate business, other than an active business, carried on by the affiliate, and
(iv)any income of the affiliate that pertains to or is incident to that business shall be deemed to be income from a business other than an active business;
(a.4)in computing the income from a business other than an active business for a taxation year of a foreign affiliate of a taxpayer there shall be included (to the extent not included under paragraph 95(2)(a.3) in such income of the affiliate for the year) that proportion of the income of the affiliate for the year derived directly or indirectly from indebtedness and lease obligations (which, for the purposes of this paragraph, includes the income of the affiliate for the year from the purchase and sale of indebtedness and lease obligations on its own account) in respect of a business carried on outside Canada by a partnership (any portion of the income or loss of which for fiscal periods of the partnership that end in the year is included or would, if the partnership had an income or loss for such fiscal periods, be included directly or indirectly in computing the income or loss of the taxpayer or a person resident in Canada with whom the taxpayer does not deal at arm’s length) that
(i)the total of all amounts each of which is the income or loss of the partnership for fiscal periods of the partnership that end in the year that are included directly or indirectly in computing the income or loss of the taxpayer or a person resident in Canada with whom the taxpayer does not deal at arm’s length
is of
(ii)the total of all amounts each of which is the income or loss of the partnership for fiscal periods of the partnership that end in the year
unless more than 90% of the gross revenue of the affiliate derived directly or indirectly from indebtedness and lease obligations was derived directly or indirectly from indebtedness and lease obligations of non-resident persons with whom the affiliate deals at arm’s length (other than indebtedness and lease obligations of a partnership described in this paragraph) and where this paragraph applies to include a proportion of the income of the affiliate for the year in the income of the affiliate from a business other than an active business
(iii)those activities carried out to earn such income of the affiliate for the year shall be deemed to be a separate business, other than an active business, carried on by the affiliate, and
(iv)any income of the affiliate that pertains to or is incident to that business shall be deemed to be income from a business other than an active business
and for the purpose of this paragraph, where the income or loss of a partnership for a fiscal period that ends in the year is nil, the proportion of the income of the affiliate that is to be included in the income of the affiliate for the year from a business other than an active business shall be determined as if the partnership had income of $1,000,000 for that fiscal period;
(b)the provision, by a foreign affiliate of a taxpayer, of services or of an undertaking to provide services
(i)is deemed to be a separate business, other than an active business, carried on by the affiliate, and any income from that business or that pertains to or is incident to that business is deemed to be income from a business other than an active business, to the extent that the amounts paid or payable in consideration for those services or for the undertaking to provide services
(A)are deductible, or can reasonably be considered to relate to amounts that are deductible, in computing the income from a business carried on in Canada, by
(I)any taxpayer of whom the affiliate is a foreign affiliate, or
(II)another taxpayer who does not deal at arm’s length with
1the affiliate, or
2any taxpayer of whom the affiliate is a foreign affiliate, or
(B)are deductible, or can reasonably be considered to relate to an amount that is deductible, in computing the foreign accrual property income of a foreign affiliate of
(I)any taxpayer of whom the affiliate is a foreign affiliate, or
(II)another taxpayer who does not deal at arm’s length with
1the affiliate, or
2any taxpayer of whom the affiliate is a foreign affiliate, and
(ii)is deemed to be a separate business, other than an active business, carried on by the affiliate, and any income from that business or that pertains to or is incident to that business is deemed to be income from a business other than an active business, to the extent that the services are, or are to be, performed by
(A)any taxpayer of whom the affiliate is a foreign affiliate,
(B)a relevant person who does not deal at arm’s length with
(I)the affiliate, or
(II)any taxpayer of whom the affiliate is a foreign affiliate,
(C)a partnership any member of which is a person described in clause (A) or (B), or
(D)a partnership in which any person or partnership described in any of clauses (A) to (C) has, directly or indirectly, a partnership interest;
(c)if a foreign affiliate (referred to in this paragraph as the “disposing affiliate”) of a taxpayer has, at any time, disposed of capital property (other than property the adjusted cost base of which, at that time, is greater than the amount that would, in the absence of this paragraph, be the disposing affiliate’s proceeds of disposition of the property in respect of the disposition) that was shares (referred to in this paragraph as the “shares disposed of”) of the capital stock of another foreign affiliate of the taxpayer to any other corporation that was, immediately after that time, a foreign affiliate (referred to in this paragraph as the “acquiring affiliate”) of the taxpayer for consideration that includes shares of the capital stock of the acquiring affiliate,
(i)the cost to the disposing affiliate of any property (other than shares of the capital stock of the acquiring affiliate) receivable by the disposing affiliate as consideration for the disposition is deemed to be the fair market value of the property at that time,
(ii)the cost to the disposing affiliate of each share of a class of the capital stock of the acquiring affiliate that is receivable by the disposing affiliate as consideration for the disposition is deemed to be the amount determined by the formula
(A – B) × C/D
where
(iii)the disposing affiliate’s proceeds of disposition of the shares are deemed to be an amount equal to the cost to it of all shares and other property receivable by it from the acquiring affiliate as consideration for the disposition, and
(iv)the cost to the acquiring affiliate of the shares acquired from the disposing affiliate is deemed to be an amount equal to the disposing affiliate’s proceeds of disposition referred to in subparagraph (iii);
(d)where there has been a foreign merger in which the shares owned by a foreign affiliate of a taxpayer of the capital stock of a corporation that was a predecessor foreign corporation immediately before the merger were exchanged for or became shares of the capital stock of the new foreign corporation or the foreign parent corporation, subsection 87(4) applies to the foreign affiliate as if the references in that subsection to
(i)“amalgamation” were read as “foreign merger”,
(ii)“predecessor corporation” were read as “predecessor foreign corporation”,
(iii)“new corporation” were read as “new foreign corporation or the foreign parent corporation”, and
(iv)“adjusted cost bases” were read as “relevant cost bases, in respect of the taxpayer,”;
(d.1)if there has been a foreign merger of two or more predecessor foreign corporations to form a new foreign corporation that is, immediately after the merger, a foreign affiliate of a taxpayer and one or more of the predecessor foreign corporations (each being referred to in this paragraph as a “foreign affiliate predecessor”) was, immediately before the merger, a foreign affiliate of the taxpayer,
(i)each property of the new foreign corporation that was a property of a foreign affiliate predecessor immediately before the merger is deemed to have been
(A)disposed of by the foreign affiliate predecessor immediately before the merger for proceeds of disposition equal to the relevant cost base of the property to the foreign affiliate predecessor, in respect of the taxpayer, at that time, and
(B)acquired by the new foreign corporation, at that time, at a cost equal to the amount determined under clause (A),
(ii)the new foreign corporation is deemed to be the same corporation as, and a continuation of, each foreign affiliate predecessor for the purposes of applying
(A)this subsection and the definitionforeign accrual property incomein subsection (1) with respect to any disposition by the new foreign corporation of any property to which subparagraph (i) applied,
(B)subsections 13(21.2), 18(15) and 40(3.4) in respect of any property that was disposed of, at any time before the merger, by a foreign affiliate predecessor, and
(C)paragraph 40(3.5)(c) in respect of any share that was deemed under that paragraph to be owned, at any time before the merger, by a foreign affiliate predecessor, and
(iii)for the purposes of the description of A.2 in the definitionforeign accrual property incomein subsection (1), the total of all amounts each of which is the amount determined for G in respect of a foreign affiliate predecessor for its last taxation year that ends on or before the time of the merger is deemed to be the amount determined for G in respect of the new foreign corporation for its taxation year that immediately precedes its first taxation year;
(e)notwithstanding subsection 69(5), if at any time a foreign affiliate (referred to in this paragraph as the “shareholder affiliate”) of a taxpayer receives a property (referred to in this paragraph as the “distributed property”) from another foreign affiliate (referred to in this paragraph as the “disposing affiliate”) of the taxpayer on a liquidation and dissolution of the disposing affiliate and the distributed property is received in respect of shares of the capital stock of the disposing affiliate that are disposed of on the liquidation and dissolution,
(i)the distributed property is deemed to have been disposed of at that time by the disposing affiliate to the shareholder affiliate for proceeds of disposition equal to the relevant cost base to the disposing affiliate of the distributed property in respect of the taxpayer, immediately before that time, if
(A)the liquidation and dissolution is a designated liquidation and dissolution of the disposing affiliate, or
(B)the distributed property is a share of the capital stock of another foreign affiliate of the taxpayer that was, immediately before that time, excluded property of the disposing affiliate,
(ii)if subparagraph (i) does not apply to the distributed property, the distributed property is deemed to have been disposed of at that time by the disposing affiliate to the shareholder affiliate for proceeds of disposition equal to the distributed property’s fair market value at that time,
(iii)the distributed property is deemed to have been acquired, at that time, by the shareholder affiliate at a cost equal to the amount determined under subparagraph (i) or (ii) to be the disposing affiliate’s proceeds of disposition of the distributed property,
(iv)each share of a class of the capital stock of the disposing affiliate that is disposed of by the shareholder affiliate on the liquidation and dissolution of the disposing affiliate is deemed to be disposed of for proceeds of disposition equal to
(A)if the liquidation and dissolution is a designated liquidation and dissolution of the disposing affiliate
(I)where the amount that would, if clause (B) applied, be determined under that clause in respect of the share is greater than or equal to the adjusted cost base of the share to the shareholder affiliate immediately before the disposition, that adjusted cost base, or
(II)where the adjusted cost base of the share to the shareholder affiliate immediately before the disposition exceeds the amount that would, if clause (B) applied, be determined under that clause in respect of the share
1if the share is not excluded property of the shareholder affiliate, that adjusted cost base, and
2in any other case, the amount that would be determined under clause (B), and
(B)in any other case, the amount determined by the formula
(A – B)/C
where
(v)if the liquidation and dissolution is a designated liquidation and dissolution of the disposing affiliate,
(A)the shareholder affiliate is deemed to be the same corporation as, and a continuation of, the disposing affiliate for the purposes of applying
(I)this subsection and the definitionforeign accrual property incomein subsection (1) with respect to any disposition by the shareholder affiliate of any property to which clause (i)(A) applied,
(II)subsections 13(21.2), 18(15) and 40(3.4) in respect of any property that was disposed of, at any time before the liquidation and dissolution, by the disposing affiliate, and
(III)paragraph 40(3.5)(c) in respect of any share that was deemed under that paragraph to be owned, at any time before the liquidation and dissolution, by the disposing affiliate, and
(B)for the purposes of the description of A.2 in the definitionforeign accrual property incomein subsection (1), the amount, if any, determined for G in respect of the disposing affiliate for its first taxation year that ends after the beginning of the liquidation and dissolution is to be added to the amount otherwise determined for G in respect of the shareholder affiliate for its taxation year that immediately precedes its taxation year that includes the time at which the liquidation and dissolution began;
(e.1)[Repealed, 2013, c. 34, s. 70]
(f)except as otherwise provided in this Subdivision and except to the extent that the context otherwise requires, a foreign affiliate of a taxpayer is deemed to be at all times resident in Canada for the purposes of determining, in respect of the taxpayer for a taxation year of the foreign affiliate, each amount that is the foreign affiliate’s
(i)capital gain, capital loss, taxable capital gain or allowable capital loss from a disposition of a property, or
(ii)income or loss from a property, from a business other than an active business or from a non-qualifying business;
(f.1)in computing an amount described in paragraph (f) in respect of a property or a business, there is not to be included any portion of that amount that can reasonably be considered to have accrued, in respect of the property (including for the purposes of this paragraph any property for which the property was substituted) or the business, while no person or partnership that held the property or carried on the business was a specified person or partnership in respect of the taxpayer referred to in paragraph (f);
(f.11)in determining an amount described in paragraph (f) for a taxation year of a foreign affiliate of a taxpayer,
(i)if the amount is described in subparagraph (f)(i), this Act is to be
(A)read without reference to section 26 of theIncome Tax Application Rules, and
(B)applied as if, in respect of any debt obligation owing by the foreign affiliate or a partnership of which the foreign affiliate is a member (which foreign affiliate or partnership is referred to in this clause as the “debtor”), each capital gain or loss of the debtor that is deemed to arise under subsection 39(2) or (3) in respect of the debt obligation were from a disposition of property that was held by the debtor throughout the period during which the debt obligation was owed by the debtor and, for greater certainty, at the time of the disposition,
(ii)if the amount is described in subparagraph (f)(ii),
(A)this Act is to be read without reference to subsections 17(1) and 18(4) and section 91, except that, where the foreign affiliate is a member of a partnership, section 91 is to be applied to determine the income or loss of the partnership and for that purpose subsection 96(1) is to be applied to determine the foreign affiliate’s share of that income or loss of the partnership,
(B)if the foreign affiliate has, in the taxation year, disposed of a foreign resource property in respect of a country, it is deemed to have designated, in respect of the disposition and in accordance with subparagraph 59(1)(b)(ii) for the taxation year, the amount, if any, by which
(I)the amount determined under paragraph 59(1)(a) in respect of the disposition
exceeds
(II)the amount determined under subparagraph 59(1)(b)(i) in respect of the disposition, and
(C)this Act is to be applied as if, in respect of any debt obligation owing by the foreign affiliate or a partnership of which the foreign affiliate is a member (which foreign affiliate or partnership is referred to in this clause as the “debtor”), each amount of income or loss of the debtor — from a property, from a business other than an active business or from a non-qualifying business — in respect of the debt obligation were from such a property that was held, or such a business that was carried on, as the case may be, by the debtor throughout the period during which the debt obligation was owed by the debtor and at the time at which the debt obligation was settled or extinguished;
(f.12)a foreign affiliate of a taxpayer shall determine each of the following amounts using its calculating currency for a taxation year:
(i)subject to paragraph (f.13), each capital gain, capital loss, taxable capital gain and allowable capital loss (other than a gain or loss in respect of a debt referred to in subparagraph (i)(i) or (ii)) of the foreign affiliate for the taxation year from the disposition, at any time, of a property that, at that time, was an excluded property of the foreign affiliate,
(ii)its income or loss for the taxation year from each active business carried on by it in the taxation year in a country, and
(iii)its income or loss that is included in computing its income or loss from an active business for the taxation year because of paragraph (a);
(f.13)where the calculating currency of a foreign affiliate of a taxpayer is a currency other than Canadian currency, the foreign affiliate shall determine the amount included in computing its foreign accrual property income, in respect of the taxpayer for a taxation year of the foreign affiliate, attributable to its capital gain or taxable capital gain, from the disposition of an excluded property in the taxation year, in Canadian currency by converting the amount of the capital gain, or taxable capital gain, otherwise determined under subparagraph (f.12)(i) using its calculating currency for the taxation year into Canadian currency using the rate of exchange quoted by the Bank of Canada on the day on which the disposition was made, or another rate of exchange that is acceptable to the Minister;
(f.14)a foreign affiliate of a taxpayer is to determine using Canadian currency each amount of its income, loss, capital gain, capital loss, taxable capital gain or allowable capital loss for a taxation year, other than an amount to which paragraph (f.12), (f.13) or (f.15) applies;
(f.15)for the purposes of applying subparagraph (f)(i), the references in subsection 39(2) to “Canadian currency” are to be read as “the taxpayer’s calculating currency”
(i)in respect of a debt obligation owing by a foreign affiliate of a taxpayer, or a partnership of which the foreign affiliate is a member, that is a debt referred to in subparagraph (i)(i) or (ii), and
(ii)in respect of an agreement described in subparagraph (i)(iii) entered into by a foreign affiliate of a taxpayer, or a partnership of which the foreign affiliate is a member;
(g)income earned, a loss incurred or a capital gain or capital loss realized, as the case may be, in a taxation year by a particular foreign affiliate of a taxpayer in respect of which the taxpayer has a qualifying interest throughout the taxation year or a particular foreign affiliate of a taxpayer that is a controlled foreign affiliate of the taxpayer throughout the taxation year, because of a fluctuation in the value of the currency of a country other than Canada relative to the value of Canadian currency, is deemed to be nil if it is earned, incurred or realized in reference to any of the following sources:
(i)a debt obligation that was owing to
(A)another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year (which other foreign affiliate is referred to in this paragraph as a “qualified foreign affiliate”) by the particular affiliate, or
(B)the particular affiliate by a qualified foreign affiliate,
(ii)the redemption, acquisition or cancellation of, or a qualifying return of capital (within the meaning assigned by subsection 90(3)) in respect of, a share of the capital stock of a qualified foreign affiliate by the qualified foreign affiliate, or
(iii)the disposition to a qualified foreign affiliate of a share of the capital stock of another qualified foreign affiliate;
(g.01)any income, loss, capital gain or capital loss, derived by a foreign affiliate of a taxpayer under or as a result of an agreement that provides for the purchase, sale or exchange of currency and that can reasonably be considered to have been made by the foreign affiliate to reduce its risk (with respect to any source, any particular income, gain or loss determined in reference to which is deemed by paragraph (g) to be nil) of fluctuations in the value of currency, is, to the extent of the absolute value of the particular income, gain or loss, deemed to be nil;
(g.02)[Repealed, 2013, c. 34, s. 70]
(g.03)if at any time a particular foreign affiliate referred to in paragraph (g) is a member of a partnership or a qualified foreign affiliate referred to in that paragraph is a member of a partnership,
(i)in applying this paragraph, where a debt obligation is owing at that time by a debtor to the partnership of which the particular foreign affiliate is a member, the debt obligation is deemed to be owing at that time by the debtor to the particular foreign affiliate in the proportion that the particular foreign affiliate shared in any income earned, loss incurred or capital gain or capital loss realized by the partnership in respect of the debt obligation,
(ii)in applying this paragraph, where a debt obligation is owing at that time to a creditor by the partnership of which the particular foreign affiliate is a member, the debt obligation is deemed to be owing at that time to the creditor by the particular foreign affiliate in the proportion that the particular foreign affiliate shared in any income earned, loss incurred or capital gain or capital loss realized by the partnership in respect of the debt obligation,
(iii)in applying paragraph (g) and this paragraph, where a debt obligation is owing at that time by a debtor to the partnership of which the qualified foreign affiliate is a member, the debt obligation is deemed to be owing at that time by the debtor to the qualified foreign affiliate in the proportion that the qualified foreign affiliate shared in any income earned, loss incurred or capital gain or capital loss realized by the partnership in respect of the debt obligation,
(iv)in applying paragraph (g) and this paragraph, where a debt obligation is owing at that time to a creditor by the partnership of which the qualified foreign affiliate is a member, the debt obligation is deemed to be owing at that time to the creditor by the qualified foreign affiliate in the proportion that the qualified foreign affiliate shared in any income earned, loss incurred or capital gain or capital loss realized by the partnership in respect of the debt obligation, and
(v)in computing the particular foreign affiliate’s income or loss from a partnership, any income earned, loss incurred or capital gain or capital loss realized, as the case may be, by the partnership — in respect of the portion of a debt obligation owing to or owing by the partnership that is deemed by any of subparagraphs (i) to (iv) to be a debt obligation owing to or owing by the particular foreign affiliate (referred to in this subparagraph as the “allocated debt obligation”) — because of a fluctuation in the value of the currency of a country other than Canada relative to the value of Canadian currency, that is attributable to the allocated debt obligation is deemed to be nil to the extent that paragraph (g) would, if the rules in subparagraphs (i) to (iv) were applied, have applied to the particular foreign affiliate, to deem to be nil the income earned, loss incurred or capital gain or capital loss realized, as the case may be, by the particular foreign affiliate in respect of the allocated debt obligation, because of a fluctuation in the value of the currency of a country other than Canada relative to the value of Canadian currency;
(g.04)if at any time a corporation resident in Canada or a partnership of which such a corporation is a member (such corporation or partnership referred to in this paragraph as the “borrowing party”) has received a loan from, or become indebted to, a creditor that is a foreign affiliate (referred to in this paragraph as a “creditor affiliate”) of aqualifying entity(in this paragraph within the meaning assigned by subsection 39(2.2)), or that is a partnership (referred to in this paragraph as a “creditor partnership”) of which such an affiliate is a member, and the loan or indebtedness is at a later time repaid, in whole or in part, then the amount of the creditor affiliate’s or creditor partnership’s capital gain or capital loss, as the case may be, determined in the absence of this paragraph, in respect of the repayment, is to be reduced
(i)in the case of a capital loss
(A)if the creditor is a creditor affiliate, by an amount, not exceeding the amount of that capital loss so determined, that is determined by the formula
A/B
where
(I)the capital loss of the creditor affiliate, determined in the absence of this paragraph, in respect of the repayment of the loan or indebtedness were a capital gain of the creditor affiliate, and
(II)neither the creditor affiliate nor any other foreign affiliate of a qualifying entity had any other income, gain or loss for any taxation year, and
(B)if the creditor is a creditor partnership, by an amount, not exceeding the capital loss so determined, that is equal to the amount determined by the formula
A/(B × C)
where
(I)the capital loss of the creditor partnership, determined in the absence of this paragraph, in respect of the repayment of the loan or indebtedness were a capital gain of the creditor partnership, and
(II)neither the creditor partnership nor any foreign affiliate of a qualifying entity had any other income, gain or loss for any taxation year, and
(ii)in the case of a capital gain,
(A)if the creditor is a creditor affiliate, by an amount, not exceeding that capital gain so determined, that is equal to the amount determined by the formula
A/B
where
(B)if the creditor is a creditor partnership, by an amount, not exceeding the capital loss so determined, that is equal to the amount determined by the following formula
A/(B × C)
where
(g.1)in computing the foreign accrual property income of a foreign affiliate of a taxpayer the Act shall be read
(i)as if the expression “income, taxable income or taxable income earned in Canada, as the case may be” in the definitioncommercial debt obligationin subsection 80(1) were read as “foreign accrual property income (within the meaning assigned by subsection 95(1))”, and
(ii)without reference to subsections 80(3) to 80(12) and 80(15) and 80.01(5) to 80.01(11) and sections 80.02 to 80.04;
(g.2)for the purpose of computing the foreign accrual property income of a foreign affiliate of any taxpayer resident in Canada for a taxation year of the affiliate, an election made pursuant to paragraph 86.1(2)(f) in respect of a distribution received by the affiliate in a particular taxation year of the affiliate is deemed to have been filed under that paragraph by the affiliate if
(i)where there is only one taxpayer resident in Canada in respect of whom the affiliate is a controlled foreign affiliate, the election is filed by the taxpayer with the taxpayer’s return of income for the taxpayer’s taxation year in which the particular year of the affiliate ends, and
(ii)where there is more than one taxpayer resident in Canada in respect of whom the affiliate is a controlled foreign affiliate, all of those taxpayers jointly elect in writing and each of them files the joint election with the Minister with their return of income for their taxation year in which the particular year of the affiliate ends;
(h)[Repealed, 2001, c. 17, s. 73]
(i)any income, gain or loss of a foreign affiliate of a taxpayer or of a partnership of which a foreign affiliate of a taxpayer is a member (which foreign affiliate or partnership is referred to in this paragraph as the “debtor”), for a taxation year or fiscal period of the debtor, as the case may be, is deemed to be income, a gain or a loss, as the case may be, from the disposition of an excluded property of the debtor, if the income, gain or loss is
(i)derived from the settlement or extinguishment of a debt of the debtor all or substantially all of the proceeds from which
(A)were used to acquire property, if at all times after the time at which the debt became debt of the debtor and before the time of that settlement or extinguishment, the property (or property substituted for the property) was property of the debtor and was, or would if the debtor were a foreign affiliate of the taxpayer be, excluded property of the debtor,
(B)were used at all times to earn income from an active business carried on by the debtor, or
(C)were used by the debtor for a combination of the uses described in clause (A) or (B),
(ii)derived from the settlement or extinguishment of a debt of the debtor all or substantially all of the proceeds from which were used to settle or extinguish a debt referred to in subparagraph (i) or in this subparagraph, or
(iii)derived under or as a result of an agreement that provides for the purchase, sale or exchange of currency and that can reasonably be considered to have been made by the debtor to reduce its risk, with respect to a debt referred to in subparagraph (i) or (ii), of fluctuations in the value of the currency in which the debt was denominated;
(j)the adjusted cost base to a foreign affiliate of a taxpayer of an interest in a partnership at any time shall be such amount as is prescribed by regulation; and
(j.1)paragraph (j.2) applies if, in a particular taxation year of a foreign affiliate of a taxpayer or in a particular fiscal period of a partnership (which foreign affiliate or partnership is referred to in this paragraph and paragraph (j.2) as the “operator” and which particular taxation year or particular fiscal period is referred to in this paragraph and paragraph (j.2) as the “specified taxation year”) a member of which is, at the end of the period, a foreign affiliate of a taxpayer,
(i)the operator carries on a business,
(ii)the business includes the insuring of risks,
(iii)the business is not, at any time, a taxable Canadian business,
(iv)the business is
(A)an investment business,
(B)a non-qualifying business, or
(C)a business whose activities include activities deemed by paragraph (a.2) or (b) to be a separate business, other than an active business, carried on by the affiliate, and
(v)in respect of the investment business, non-qualifying business or separate business (each of these businesses being referred to in this subparagraph and paragraph (j.2) as a “foreign business”), as the case may be, the operator would, if it were a corporation carrying on the foreign business in Canada, be required by law to report to, and be subject to the supervision of, a regulatory authority that is the Superintendent of Financial Institutions or is a similar authority of a province;
(j.2)if this paragraph applies, in computing the operator’s income or loss from the foreign business for the specified taxation year and each subsequent taxation year or fiscal period in which the foreign business is carried on by the operator
(i)the operator is deemed to carry on the foreign business in Canada throughout that part of the specified taxation year, and of each of those subsequent taxation years or fiscal periods, in which the foreign business is carried on by the operator, and
(ii)for the purposes of Part XIV of theIncome Tax Regulations,
(A)the operator is deemed to be required by law to report to, and to be subject to the supervision of, the regulatory authority referred to in subparagraph (j.1)(v), and
(B)if the operator is a life insurer and the foreign business is part of a life insurance business, the life insurance policies issued in the conduct of the foreign business are deemed to be life insurance policies in Canada;
(k)paragraph (k.1) applies if
(i)in a particular taxation year of a foreign affiliate of a taxpayer or in a particular fiscal period of a partnership (which foreign affiliate or partnership is referred to in this paragraph and paragraph (k.1) as the “operator” and which particular taxation year or particular fiscal period is referred to in this paragraph and paragraph (k.1) as the “specified taxation year”) a member of which is, at the end of the period, a foreign affiliate of a taxpayer,
(A)the operator carries on a business,
(B)the business is not, at any time, a taxable Canadian business, and
(C)the business is
(I)an investment business,
(II)a non-qualifying business,
(III)a business whose activities include activities deemed by any of paragraphs (a.1) to (b) to be a separate business, other than an active business, carried on by the affiliate, or
(IV)a business the income from which is included by paragraph (l) in computing the affiliate’s income from property for the specified taxation year, and
(ii)in the taxation year of the affiliate or the fiscal period of the partnership that includes the day that is immediately before the beginning of the specified taxation year,
(A)the affiliate or partnership carried on the business, or the activities so deemed to be a separate business, as the case may be,
(B)the business was not, or the activities were not, as the case may be, at any time, part of a taxable Canadian business, and
(C)the business was not described in any of subclauses (i)(C)(I), (II) and (IV), or the activities were not described in subclause (i)(C)(III), as the case may be;
(k.1)if this paragraph applies, in computing the operator’s income or loss from the investment business, non-qualifying business, separate business or business described in paragraph (l) (each of these businesses being referred to in this paragraph as a “foreign business”), as the case may be, and the operator’s capital gain or capital loss from the disposition of property used or held in the course of carrying on the foreign business, for the specified taxation year and each subsequent taxation year or fiscal period in which the foreign business is carried on by the operator
(i)the operator is deemed
(A)to begin to carry on the foreign business in Canada at the beginning of the specified taxation year, and
(B)to carry on the foreign business in Canada throughout that part of the specified taxation year, and of each of those subsequent taxation years or fiscal periods, in which the foreign business is carried on by the operator,
(ii)where, in respect of the foreign business, the operator would, if it were a corporation carrying on the foreign business in Canada, be required by law to report to, and be subject to the supervision of, a regulatory authority that is the Superintendent of Financial Institutions or a similar authority of a province,
(A)the operator is deemed to be required by law to report to, and to be subject to the supervision of, the regulatory authority, and
(B)if the operator is a life insurer and the foreign business is part of a life insurance business, the life insurance policies issued in the conduct of the foreign business are deemed to be life insurance policies in Canada, and
(iii)paragraphs 138(11.91)(c) to (e) apply to the operator for the specified taxation year in respect of the foreign business as if
(A)the operator were the insurer referred to in subsection 138(11.91),
(B)the specified taxation year of the operator were the particular taxation year of the insurer referred to in that subsection,
(C)the foreign business of the operator were the business of the insurer referred to in that subsection, and
(D)the reference in paragraph 138(11.91)(e) to “property owned by it at that time that is designated insurance property in respect of the business” were read as a reference to “property owned or held by it at that time that is used or held by it in the particular taxation year in the course of carrying on the insurance business”;
(k.2)for the purposes of paragraphs (j.1) to (k.1) and the definitiontaxable Canadian businessin subsection (1), any portion of a business carried on by a person or partnership that is carried on in Canada is deemed to be a business that is separate from any other portion of the business carried on by the person or partnership;
(l)in computing the income from property for a taxation year of a foreign affiliate of a taxpayer there shall be included the income of the affiliate for the year from a business (other than an investment business of the affiliate) the principal purpose of which is to derive income from trading or dealing in indebtedness (which for the purpose of this paragraph includes the earning of interest on indebtedness) other than
(i)indebtedness owing by persons with whom the affiliate deals at arm’s length who are resident in the country in which the affiliate was formed or continued and exists and is governed and in which the business is principally carried on, or
(ii)trade accounts receivable owing by persons with whom the affiliate deals at arm’s length,
unless it is established by the taxpayer or the foreign affiliate that, throughout the period in the taxation year during which the business was carried on by the affiliate,
(iii)the business (other than any business conducted principally with persons with whom the affiliate does not deal at arm’s length) is carried on by the affiliate as a foreign bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities, the activities of which are regulated under the laws
(A)of each country in which the business is carried on through a permanent establishment in that country and of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued,
(B)of the country in which the business is principally carried on, or
(C)if the affiliate is related to a non-resident corporation, of the country under whose laws that non-resident corporation is governed and any of exists, was (unless that non-resident corporation was continued in any jurisdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all of those countries are members of the European Union.
(iv)[Repealed, 2018, c. 27, s. 7]
(m)a taxpayer has a qualifying interest in respect of a foreign affiliate of the taxpayer at any time if, at that time, the taxpayer owned
(i)not less than 10% of the issued and outstanding shares (having full voting rights under all circumstances) of the affiliate, and
(ii)shares of the affiliate having a fair market value of not less than 10% of the fair market value of all the issued and outstanding shares of the affiliate
and for the purpose of this paragraph
(iii)where, at any time, shares of a corporation are owned or are deemed for the purposes of this paragraph to be owned by another corporation (in this paragraph referred to as the “holding corporation”), those shares shall be deemed to be owned at that time by each shareholder of the holding corporation in a proportion equal to the proportion of all such shares that
(A)the fair market value of the shares of the holding corporation owned at that time by the shareholder
is of
(B)the fair market value of all the issued shares of the holding corporation outstanding at that time,
(iv)where, at any time, shares of a corporation are property of a partnership or are deemed for the purposes of this paragraph to be property of a partnership, those shares shall be deemed to be owned at that time by each member of the partnership in a proportion equal to the proportion of all such shares that
(A)the member’s share of the income or loss of the partnership for its fiscal period that includes that time
is of
(B)the income or loss of the partnership for its fiscal period that includes that time
and for the purpose of this subparagraph, where the income and loss of the partnership for its fiscal period that includes that time are nil, that proportion shall be computed as if the partnership had income for the period in the amount of $1,000,000, and
(v)where, at any time, a person is a holder of convertible property issued by the affiliate before June 23, 1994 the terms of which confer on the holder the right to exchange the convertible property for shares of the affiliate and the taxpayer elects in its return of income for its first taxation year that ends after 1994 to have the provisions of this subparagraph apply to the taxpayer in respect of all the convertible property issued by the affiliate and outstanding at that time, each holder shall, in respect of the convertible property held by it at that time, be deemed to have, immediately before that time,
(A)exchanged the convertible property for shares of the affiliate, and
(B)acquired shares of the affiliate in accordance with the terms and conditions of the convertible property;
(n)in applying paragraphs (a) and (g), paragraph (b) of the description of A in the formula in the definitionforeign accrual property incomein subsection (1), subsections (2.2), (2.21) and 93.1(5) and paragraph (d) of the definitionexempt earnings, and paragraph (c) of the definitionexempt loss, in subsection 5907(1) of theIncome Tax Regulations, a non-resident corporation is deemed to be, at any time, a foreign affiliate of a particular corporation resident in Canada, and a foreign affiliate of the particular corporation in respect of which the particular corporation has a qualifying interest, if at that time
(i)the non-resident corporation is a foreign affiliate of another corporation that is resident in Canada and that is related (otherwise than because of a right referred to in paragraph 251(5)(b)) to the particular corporation, and
(ii)that other corporation has a qualifying interest in respect of the non-resident corporation;
(o)a particular person is a qualifying member of a partnership at a particular time if, at that time, the particular person is a member of the partnership and
(i)throughout the period, in the fiscal period of the partnership that includes the particular time, during which the member was a member of the partnership, the particular person is, on a regular, continuous and substantial basis
(A)actively engaged in those activities, of the principal business of the partnership carried on in that fiscal period by the partnership, that are other than activities connected with the provision of or the acquisition of funds required for the operation of that principal business, or
(B)actively engaged in those activities, of a particular business carried on in that fiscal period by the particular person (otherwise than as a member of a partnership) that is similar to the principal business carried on in that fiscal period by the partnership, that are other than activities connected with the provision of or the acquisition of funds required for the operation of the particular business, or
(ii)throughout the period, in the fiscal period of the partnership that includes the particular time, during which the particular person was a member of the partnership
(A)the total of the fair market value of all partnership interests in the partnership owned by the particular person was equal to or greater than 1% of the total of the fair market value of all partnership interests in the partnership owned by all members of the partnership, and
(B)the total of the fair market value of all partnership interests in the partnership owned by the particular person or persons (other than trusts) related to the particular person was equal to or greater than 10% of the total of the fair market value of all partnership interests in the partnership owned by all members of the partnership;
(p)a particular person is a qualifying shareholder of a corporation at any time if throughout the period, in the taxation year of the corporation that includes that time, during which the particular person was a shareholder of the corporation
(i)the particular person owned 1% or more of the issued and outstanding shares (having full voting rights under all circumstances) of the capital stock of the corporation,
(ii)the particular person, or the particular person and persons (other than trusts) related to the particular person, owned 10% or more of the issued and outstanding shares (having full voting rights under all circumstances) of the capital stock of the corporation,
(iii)the total of the fair market value of all the issued and outstanding shares of the capital stock of the corporation owned by the particular person is 1% or more of the total fair market value of all the issued and outstanding shares of the capital stock of the corporation, and
(iv)the total of the fair market value of all the issued and outstanding shares of the capital stock of the corporation owned by the particular person or by persons (other than trusts) related to the particular person is 10% or more of the total fair market value of all the issued and outstanding shares of the capital stock of the corporation;
(q)in applying paragraphs (o) and (p),
(i)where interests in any partnership or shares of the capital stock of any corporation (which interests or shares are referred to in this subparagraph as “equity interests”) are, at any time, property of a particular partnership or are deemed under this paragraph to be, at any time, property of the particular partnership, the equity interests are deemed to be owned at that time by each member of the particular partnership in a proportion equal to the proportion of the equity interests that
(A)the fair market value, at that time, of the member’s partnership interest in the particular partnership
is of
(B)the fair market value, at that time, of all members’ partnership interests in the particular partnership, and
(ii)where interests in a partnership or shares of the capital stock of a corporation (which interests or shares are referred to in this subparagraph as “equity interests”) are, at any time, property of a non-discretionary trust (within the meaning assigned by subsection 17(15)) or are deemed under this paragraph to be, at any time, property of such a non-discretionary trust, the equity interests are deemed to be owned at that time by each beneficiary under that trust in a proportion equal to that proportion of the equity interests that
(A)the fair market value, at that time, of the beneficiary’s beneficial interest in the trust
is of
(B)the fair market value, at that time, of all beneficial interests in the trust;
(r)in applying paragraph (a) and in applying paragraph (d) of the definitionexempt earnings, and paragraph (c) of the definitionexempt loss, in subsection 5907(1) of the Regulations, a partnership is deemed to be, at any time, a partnership of which a foreign affiliate — of a particular corporation resident in Canada and in respect of which foreign affiliate the particular corporation has a qualifying interest — is a qualifying member, if at that time
(i)a particular foreign affiliate — of another corporation that is resident in Canada and that is related (otherwise than because of a right referred to in paragraph 251(5)(b)) to the particular corporation — is a member of the partnership,
(ii)that other corporation has a qualifying interest in respect of the particular foreign affiliate, and
(iii)the particular foreign affiliate is a qualifying member of the partnership;
(s)in applying the definitioninvestment businessin subsection (1), a particular corporation is, at any time, a designated corporation in respect of a foreign affiliate of a taxpayer, if at that time
(i)a qualifying shareholder of the foreign affiliate or a person related to such a qualifying shareholder is a qualifying shareholder of the particular corporation,
(ii)the particular corporation
(A)is controlled by a qualifying shareholder of the foreign affiliate, or
(B)would be controlled by a particular qualifying shareholder of the foreign affiliate if the particular qualifying shareholder of the foreign affiliate owned each share of the capital stock of the particular corporation that is owned by a qualifying shareholder of the foreign affiliate or by a person related to a qualifying shareholder of the foreign affiliate, and
(iii)the total of all amounts each of which is the fair market value of a share of the capital stock of the particular corporation owned by a qualifying shareholder of the foreign affiliate or by a person related to a qualifying shareholder of the foreign affiliate is greater than 50% of the total fair market value of all the issued and outstanding shares of the capital stock of the particular corporation;
(t)in applying the definitioninvestment businessin subsection (1) in respect of a business carried on by a foreign affiliate of a taxpayer in a taxation year, a particular partnership is, at any time, a designated partnership in respect of the foreign affiliate of the taxpayer, if at that time
(i)the foreign affiliate or a person related to the foreign affiliate is a qualifying member of the particular partnership, and
(ii)the total of all amounts — each of which is the fair market value of a partnership interest in the particular partnership held by the foreign affiliate, by a person related to the foreign affiliate or (where the foreign affiliate carries on, at that time, the business as a qualifying member of another partnership) by a qualifying member of the other partnership — is greater than 50% of the total fair market value of all partnership interests in the particular partnership owned by all members of the particular partnership;
(u)[Repealed, 2013, c. 34, s. 70]
(v)in applying paragraph (p),
(i)where shares of the capital stock of any corporation (referred to in this paragraph as the “issuing corporation”) are, at any time, owned by a corporation (referred to in this paragraph as the “holding corporation”) or are deemed under this paragraph to be, at any time, owned by a corporation (referred to in this paragraph as the “holding corporation”), those shares are deemed to be owned at that time by each shareholder of the holding corporation in a proportion equal to the proportion of those shares that
(A)the fair market value, at that time, of the shares of the capital stock of the issuing corporation that are owned by the shareholder
is of
(B)the fair market value, at that time, of all the issued and outstanding shares of the capital stock of the issuing corporation, and
(ii)a person who is deemed by subparagraph (i) to own, at any time, shares of the capital stock of a corporation is deemed to be, at that time, a shareholder of the corporation;
(w)where a foreign affiliate of a corporation resident in Canada carries on an active business in more than one country,
(i)where the business is carried on in a country other than Canada, it is deemed to carry on that business in that country only to the extent that the profit or loss from that business can reasonably be attributed to a permanent establishment situated in that country, and
(ii)where the business is carried on in Canada, it is deemed to carry on that business in Canada only to the extent that the income from the active business is subject to tax under this Part;
(x)the loss from an active business, from a non-qualifying business or from property (as the case may be) of a foreign affiliate of a taxpayer resident in Canada for a taxation year is the amount of that loss, if any, that is computed by applying the provisions in this Subdivision with respect to the computation of income from the active business, from the non-qualifying business or from property (as the case may be) of the foreign affiliate for the taxation year with any modifications that the circumstances require;
(y)in determining — for the purpose of paragraph (a) and for the purpose of applying subsections (2.2) and (2.21) for the purpose of applying that paragraph — whether a non-resident corporation is, at any time, a foreign affiliate of a taxpayer in respect of which the taxpayer has a qualifying interest, where interests in any partnership or shares of the capital stock of any corporation (which interests or shares are referred to in this paragraph as “equity interests”) are, at that time, property of a particular partnership or are deemed under this paragraph to be, at any time, property of the particular partnership, the equity interests are deemed to be owned at that time by each member of the particular partnership in a proportion equal to the proportion of the equity interests that
(i)the fair market value, at that time, of the member’s partnership interest in the particular partnership
is of
(ii)the fair market value, at that time, of all members’ partnership interests in the particular partnership; and
(z)where a particular foreign affiliate of a taxpayer — in respect of which the taxpayer has a qualifying interest or that is a controlled foreign affiliate of the taxpayer — is a member of a partnership, the particular foreign affiliate’s foreign accrual property income or loss in respect of the taxpayer for a taxation year shall not include any income or loss of the partnership to the extent that the income or loss
(i)is attributable to the foreign accrual property income or loss of a foreign affiliate of the partnership that is also a foreign affiliate of the taxpayer (referred to in this paragraph as the “second foreign affiliate”) in respect of which the taxpayer has a qualifying interest or that is a controlled foreign affiliate of the taxpayer, and
(ii)is, because of paragraph (a) as applied in respect of the taxpayer, included in computing the income or loss from an active business of the second foreign affiliate for a taxation year.
Marginal note:Rules for the definitioncontrolled foreign affiliate
(2.01)In applying paragraph (b) of the definitioncontrolled foreign affiliatein subsection (1) and in applying this subsection,
(a)shares of the capital stock of a corporation that are at any time owned by, or that are deemed by this subsection to be at any time owned by, another corporation are deemed to be, at that time, owned by, or property of, as the case may be, each shareholder of the other corporation in the proportion that
(i)the fair market value at that time of the shares of the capital stock of the other corporation that, at that time, are owned by, or are property of, the shareholder
is of
(ii)the fair market value at that time of all the issued and outstanding shares of the capital stock of the other corporation;
(b)shares of the capital stock of a corporation that are, or are deemed by this subsection to be, at any time, property of a partnership, are deemed to be, at that time, owned by, or property of, as the case may be, each member of the partnership in the proportion that
(i)the fair market value at that time of the member’s partnership interest in the partnership
is of
(ii)the fair market value at that time of all partnership interests in the partnership;
(c)shares of the capital stock of a corporation that are at any time owned by, or that are deemed by this subsection to be at any time owned by, a non-discretionary trust (within the meaning assigned by subsection 17(15)) other than an exempt trust (within the meaning assigned by subsection (1)) are deemed to be, at that time, owned by, or property of, as the case may be, each beneficiary of the trust in the proportion that
(i)the fair market value at that time of the beneficiary’s beneficial interest in the trust
is of
(ii)the fair market value at that time of all beneficial interests in the trust; and
(d)all of the shares of the capital stock of a corporation that are at any time owned by, or that are deemed by this subsection to be at any time owned by, a particular trust (other than an exempt trust within the meaning assigned by subsection (1) or a non-discretionary trust within the meaning assigned by subsection 17(15)) are deemed to be, at that time, owned by, or property of, as the case may be,
(i)each beneficiary of the particular trust at that time, and
(ii)each settlor (within the meaning assigned by subsection 17(15)) in respect of the particular trust at that time.
Marginal note:Rule against double-counting
(2.02)In applying the assumption in paragraph (b) of the definitioncontrolled foreign affiliatein subsection (1) in respect of a taxpayer resident in Canada to determine whether a foreign affiliate of the taxpayer is at any time a controlled foreign affiliate of the taxpayer, nothing in that paragraph or in subsection (2.01) is to be read or construed as requiring an interest, or for civil law a right, in a share of the capital stock of the foreign affiliate of the taxpayer owned at that time by the taxpayer to be taken into account more than once.
Marginal note:Rule for definitioninvestment business
(2.1)For the purposes of the definitioninvestment businessin subsection 95(1), a foreign affiliate of a taxpayer, the taxpayer and, where the taxpayer is a corporation all the issued shares of which are owned by a corporation described in subparagraph 95(2.1)(a)(i), such corporation described in subparagraph 95(2.1)(a)(i) shall be considered to be dealing with each other at arm’s length in respect of the entering into of agreements that provide for the purchase, sale or exchange of currency and the execution of such agreements where
(a)the taxpayer is
(i)a bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities resident in Canada, the business activities of which are subject by law to the supervision of a regulating authority such as the Superintendent of Financial Institutions or a similar authority of a province, or
(ii)a subsidiary wholly-owned corporation of a corporation described in subparagraph 95(2.1)(a)(i);
(b)the agreements are swap agreements, forward purchase or sale agreements, forward rate agreements, futures agreements, options or rights agreements or similar agreements;
(c)the affiliate entered into the agreements in the course of a business carried on by the affiliate, if
(i)the business is carried on by the affiliate principally in a country (other than Canada) and principally with persons with whom the affiliate deals at arm’s length, and
(ii)the business activities of the affiliate are regulated in that country; and
(d)the terms and conditions of such agreements are substantially the same as the terms and conditions of similar agreements made by persons dealing at arm’s length.
Marginal note:Rule forinvestment businessdefinition and paragraph (2)(l)
(2.11)A taxpayer or a foreign affiliate of the taxpayer, as the case may be, is deemed not to have established that the conditions in subparagraph (a)(i) of the definitioninvestment businessin subsection (1), or in subparagraph (2)(l)(iii), have been satisfied throughout a period in a particular taxation year of the affiliate unless
(a)throughout the period the taxpayer is
(i)a particular corporation resident in Canada
(A)that is a bank listed in Schedule I to theBank Act, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities that is a registered securities dealer, the business activities of which are subject to the supervision of a regulating authority such as the Superintendent of Financial Institutions, a similar regulating authority of a province or an authority of, or approved by, a province to regulate traders or dealers in securities or commodities, and
(B)that is not a corporation the fair market value of any share of the capital stock of which is determined primarily by reference to one or more of the fair market value of, any revenue, income or cash flow from, any profits or gains from the disposition of, or any other similar criteria in respect of, property the fair market value of which is less than 90% of the fair market value of all of the property of the corporation,
(ii)a corporation resident in Canada
(A)of which
(I)the particular corporation described in subparagraph (i) is a subsidiary controlled corporation, or
(II)a corporation described in this subparagraph is a subsidiary wholly-owned corporation, and
(B)that is not a corporation the fair market value of any share of the capital stock of which is determined primarily by reference to one or more of the fair market value of, any revenue, income or cash flow from, any profits or gains from the disposition of, or any other similar criteria in respect of, property the fair market value of which is less than 90% of the fair market value of all of the property of the corporation,
(iii)a corporation resident in Canada each of the shares of the capital stock of which is owned by a corporation that is described in this subparagraph or in subparagraph (i) or (ii), or
(iv)a partnership
(A)each member of which is a corporation described in any of subparagraphs (i) to (iii), or another partnership described in this subparagraph, or
(B)in respect of which the following conditions are satisfied:
(I)the partnership is a registered securities dealer, the business activities of which are subject to the supervision of a regulating authority described in clause (a)(i)(A), and
(II)the share of the total income or loss of the partnership of a majority-interest partner of the partnership that is either a corporation resident in Canada or a Canadian partnership — together with the share of each corporation resident in Canada that is affiliated with the majority-interest partner — is equal to all or substantially all of the total income or loss of the partnership; and
(b)either
(i)throughout the period the particular corporation described in subparagraph (a)(i) has, or is deemed for certain purposes to have, $2 billion or more of equity
(A)if the particular corporation is a bank, under theBank Act,
(B)if the particular corporation is a trust company, under theTrust and Loan Companies Act, or
(C)if the particular corporation is an insurance corporation, under theInsurance Companies Act, or
(ii)more than 50% of the total of all amounts each of which is an amount of taxable capital employed in Canada (within the meaning assigned by Part I.3) of the taxpayer — or of a corporation resident in Canada that is affiliated with the taxpayer — for the taxation year of the taxpayer or of the affiliated corporation, as the case may be, that ends in the particular year is attributable to a business carried on in Canada, the activities of which are subject to the supervision of a regulating authority such as the Superintendent of Financial Institutions, a similar regulating authority of a province or an authority of, or approved by, a province to regulate traders or dealers in securities or commodities.
Marginal note:Qualifying interest throughout year
(2.2)For the purposes of paragraphs (2)(a) and (g), a non-resident corporation that is not a foreign affiliate of a taxpayer in respect of which the taxpayer has a qualifying interest throughout a particular taxation year is deemed to be a foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout that particular taxation year if
(a)a person or partnership has, in that particular taxation year, acquired or disposed of shares of the capital stock of that non-resident corporation or of any other corporation and, because of that acquisition or disposition, that non-resident corporation becomes or ceases to be a foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest, and
(b)at the beginning of that particular taxation year or at the end of that particular taxation year, the non-resident corporation is a foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest.
Marginal note:Controlled foreign affiliate throughout year
(2.201)For the purposes of paragraphs (2)(a) and (g), a non-resident corporation is deemed to be a controlled foreign affiliate of a taxpayer throughout a taxation year of the non-resident corporation if
(a)in the taxation year, a person or partnership acquires or disposes of shares of the capital stock of a corporation and, because of the acquisition or disposition, the non-resident corporation becomes or ceases to be a controlled foreign affiliate of the taxpayer; and
(b)at either or both of the beginning and end of the taxation year, the non-resident corporation is a controlled foreign affiliate of the taxpayer.
Marginal note:Rule re subsection (2.2)
(2.21)Subsection (2.2) does not apply for the purpose of paragraph (2)(a) in respect of any income or loss referred to in that paragraph, of a particular foreign affiliate of the taxpayer, to the extent that that income or loss can reasonably be considered to have been realized or to have accrued before the earlier of
(a)the time at which the particular affiliate became, as determined without reference to subsection (2.2), a foreign affiliate of the taxpayer in respect of which the taxpayer had a qualifying interest, and
(b)the time at which the particular affiliate became, as determined without reference to subsection (2.2), a foreign affiliate of another person resident in Canada in respect of which the other person resident in Canada had a qualifying interest, where
(i)the taxpayer is a corporation,
(ii)the taxpayer did not exist at the beginning of the taxation year,
(iii)the particular affiliate became a foreign affiliate of the taxpayer in the taxation year because of a disposition, in the taxation year, of shares of the capital stock of the particular affiliate to the taxpayer by the other person resident in Canada, and
(iv)the other person resident in Canada was, immediately before that disposition, related to the taxpayer.
Marginal note:Application of paragraph (2)(a.1)
(2.3)Paragraph 95(2)(a.1) does not apply to a foreign affiliate of a taxpayer in respect of a sale or exchange of property that is currency or a right to purchase, sell or exchange currency where
(a)the taxpayer is
(i)a bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities resident in Canada, the business activities of which are subject by law to the supervision of a regulating authority such as the Superintendent of Financial Institutions or a similar authority of a province, or
(ii)a subsidiary wholly-owned corporation of a corporation described in subparagraph 95(2.3)(a)(i);
(b)the sale or exchange was made by the affiliate in the course of a business conducted principally with persons with whom the affiliate deals at arm’s length, if
(i)the business is principally carried on in the country (other than Canada) under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued, or
(ii)the affiliate is a foreign bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities and the activities of the business are regulated
(A)under the laws of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued, and under the laws of each country in which the business is carried on through a permanent establishment in that country,
(B)under the laws of the country (other than Canada) in which the business is principally carried on, or
(C)if the affiliate is related to a corporation, under the laws of the country under the laws of which that related corporation is governed and any of exists, was (unless that related corporation was continued in any jurisdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all of those countries are members of the European Union; and
(c)the terms and conditions of the sale or exchange of such property are substantially the same as the terms and conditions of similar sales or exchanges of such property by persons dealing at arm’s length.
Marginal note:Application of paragraphs (2)(a.1) and (a.3)
(2.31)Paragraphs (2)(a.1) and (a.3) do not apply to a controlled foreign affiliate (for the purposes of section 17) of an eligible Canadian bank (as defined in subsection (2.43)) in respect of activities carried out to earn income from a property, other than a specified property of the affiliate, if
(a)the affiliate sells the property, or performs services as an agent in relation to a purchase or sale of the property, and it is reasonable to conclude that the cost to any person of the property is relevant in computing the income from
(i)a business carried on by the bank or a person resident in Canada with whom the bank does not deal at arm’s length, or
(ii)a business carried on in Canada by a non-resident person with whom the bank does not deal at arm’s length;
(b)the property has a readily available fair market value and
(i)is listed on a recognized stock exchange,
(ii)would be a mark-to-market property (as defined in subsection 142.2(1)) of the bank if it were owned by the bank, or
(iii)is a debt obligation owing by the bank that would be a mark-to-market property (as defined in subsection 142.2(1)) of the affiliate if
(A)the affiliate were the taxpayer referred to in that definition, and
(B)the definitionspecified debt obligationin subsection 142.2(1) were read without reference to its paragraph (d);
(c)the purchase and sale of the property by the affiliate, or services performed by the affiliate as agent in respect of the purchase or sale, are made
(i)on terms and conditions that are substantially the same as the terms and conditions of similar purchases or sales of, or services performed in respect of the purchase or sale of, such property by persons dealing at arm’s length,
(ii)in the course of a business
(A)that regularly includes trading or dealing in securities principally with persons with whom the affiliate deals at arm’s length, and
(B)that is principally carried on through a permanent establishment in a country other than Canada, and
(iii)for the purpose of enabling the purchase or sale of the property by a particular person who deals at arm’s length with the affiliate and the bank; and
(d)the affiliate is a foreign bank or a trader or dealer in securities and the activities of the business are regulated
(i)under the laws of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued, and under the laws of each country in which the business is carried on through a permanent establishment in that country,
(ii)under the laws of the country (other than Canada) in which the business is principally carried on, or
(iii)if the affiliate is related to a corporation, under the laws of the country under whose laws that related corporation is governed and any of exists, was (unless that related corporation was continued in any jurisdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all those countries are members of the European Union.
Marginal note:Definition ofspecified property
(2.32)For the purposes of subsection (2.31),specified property, of a foreign affiliate, means a property that is owned by the affiliate for more than 10 days and that is
(a)a share of the capital stock of a corporation resident in Canada;
(b)a property traded on a stock exchange located in Canada and not traded on a stock exchange located in the jurisdiction in which the affiliate is resident; or
(c)a debt obligation
(i)of a corporation resident in Canada,
(ii)of a trust or partnership, units of which are traded on a stock exchange located in Canada, or
(iii)of, or guaranteed by, the Government of Canada, the government of a province, an agent of a province, a municipality in Canada or a municipal or public body performing a function of government in Canada.
Marginal note:Application of paragraph (2)(a.3)
(2.4)Paragraph 95(2)(a.3) does not apply to a foreign affiliate of a taxpayer in respect of its income derived directly or indirectly from indebtedness to the extent that
(a)the income is derived by the affiliate in the course of a business conducted principally with persons with whom the affiliate deals at arm’s length carried on by it as a foreign bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities, the activities of which are regulated under the laws
(i)of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued and of each country in which the business is carried on through a permanent establishment in that country,
(ii)of the country in which the business is principally carried on, or
(iii)if the affiliate is related to a corporation, of the country under the laws of which that related corporation is governed and any of exists, was (unless that related corporation was continued in any jurisdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all of those countries are members of the European Union, and
(b)all the following conditions are satisfied:
(i)the income is derived by the affiliate from trading or dealing in the indebtedness (which, for this purpose, consists of income from the actual trading or dealing in the indebtedness and interest earned by the affiliate during a short term holding period on indebtedness acquired by it for the purpose of the trading or dealing) directly or indirectly with persons (in this subsection referred to as “regular customers”) that
(A)deal at arm’s length with the affiliate, and
(B)are resident, or carry on business through a permanent establishment, in a country other than Canada,
(ii)the affiliate has a substantial market presence in the country, and
(iii)one or more persons that deal at arm’s length with the affiliate and are resident, or carry on business through a permanent establishment, in the country
(A)carry on a business
(I)that competes in the country with the business of the affiliate, and
(II)the activities of which are regulated under the laws of the country or, where the country is a member of the European Union, any country that is a member of the European Union, in the same manner as are the activities of the business of the affiliate, and
(B)have a substantial market presence in the country,
and, for the purpose of this subsection, an acquisition of indebtedness from the taxpayer shall be deemed to be part of the trading or dealing in indebtedness described in paragraph 95(2.4)(b) where the indebtedness is acquired by the affiliate and sold to regular customers and the terms and conditions of the acquisition and the sale are substantially the same as the terms and conditions of similar acquisitions and sales made by the affiliate in transactions with persons with whom it deals at arm’s length.
Marginal note:Application of paragraph (2)(a.3)
(2.41)Paragraph (2)(a.3) does not apply to a foreign affiliate of a taxpayer resident in Canada in respect of the foreign affiliate’s income for a taxation year derived, directly or indirectly, from indebtedness of persons resident in Canada or from indebtedness in respect of businesses carried on in Canada (referred to in this subsection as the “Canadian indebtedness”) if
(a)the taxpayer is, at the end of the foreign affiliate’s taxation year
(i)a life insurance corporation resident in Canada, the business activities of which are subject by law to the supervision of the Superintendent of Financial Institutions or a similar authority of a province, or
(ii)a corporation resident in Canada that is a subsidiary controlled corporation of a corporation described in subparagraph (i);
(b)the Canadian indebtedness is used or held by the foreign affiliate, throughout the period in the taxation year that that Canadian indebtedness was used or held by the foreign affiliate, in the course of carrying on a business (referred to in this subsection as the “foreign life insurance business”) that is a life insurance business carried on outside Canada (other than a business deemed by paragraph (2)(a.2) to be a separate business other than an active business), the activities of which are regulated
(i)under the laws of the country under whose laws the foreign affiliate is governed and any of exists, was (unless the foreign affiliate was continued in any jurisdiction) formed or organized, or was last continued, and
(ii)under the laws of the country, if any, in which the business is principally carried on;
(c)more than 90% of the gross premium revenue of the foreign affiliate for the taxation year in respect of the foreign life insurance business was derived from the insurance or reinsurance of risks (net of reinsurance ceded) in respect of persons
(i)that were non-resident at the time at which the policies in respect of those risks were issued or effected, and
(ii)that were at that time dealing at arm’s length with the foreign affiliate, the taxpayer and all persons that were related at that time to the foreign affiliate or the taxpayer; and
(d)it is reasonable to conclude that the foreign affiliate used or held the Canadian indebtedness
(i)to fund a liability or reserve of the foreign life insurance business, or
(ii)as capital that can reasonably be considered to have been required for the foreign life insurance business.
Marginal note:Exception re paragraph (2)(a.3)
(2.42)If, at any time in a taxation year of a foreign affiliate of a taxpayer referred to in paragraph (2)(a.3), a life insurance corporation resident in Canada is the taxpayer referred to in paragraph (2)(a.3) or is a person who controls, or is controlled by, such a taxpayer, a particular indebtedness or a particular lease obligation of the life insurance corporation is, for the purposes of that paragraph, deemed, at that time, not to be an indebtedness or a lease obligation of a person resident in Canada, to the extent of the portion of the particular indebtedness or lease obligation that can reasonably be considered to have been issued by the life insurance corporation to the foreign affiliate
(a)in respect of the life insurance corporation’s life insurance business carried on outside Canada; and
(b)not in respect of
(i)the life insurance corporation’s life insurance business carried on in Canada, or
(ii)any other use.
Marginal note:Definitions — subsections (2.43) to (2.45)
(2.43)The following definitions apply in this subsection and subsections (2.44) and (2.45).
Canadian indebtednessmeans indebtedness (other than upstream deposits) owed by persons resident in Canada or in respect of businesses carried on in Canada. (dettes canadiennes)
eligible bank affiliate, of an eligible Canadian bank at any time, means a foreign bank that, at that time, is a controlled foreign affiliate (for the purposes of section 17) of the eligible Canadian bank and is described in subparagraph (a)(i) of the definitioninvestment businessin subsection (1). (filiale bancaire admissible)
eligible Canadian bankmeans a bank listed in Schedule I to theBank Act. (banque canadienne admissible)
eligible Canadian indebtedness, owing to an eligible bank affiliate of an eligible Canadian bank, means bonds, debentures, notes or similar obligations of the Government of Canada, the government of a province, an agent of a province, a municipality in Canada or a municipal or public body performing a function of government in Canada, that are owing to the affiliate, other than property in respect of which paragraph (2)(a.3) does not apply because of subsection (2.31). (dettes canadiennes admissibles)
eligible currency hedge, of an eligible bank affiliate of an eligible Canadian bank, means an agreement that provides for the purchase, sale or exchange of currency and that
(a)can reasonably be considered to have been made by the affiliate to reduce its risk of fluctuations in the value of currency with respect to eligible Canadian indebtedness and upstream deposits owing to the affiliate; and
(b)cannot reasonably be considered to have been made by the affiliate to reduce its risk with respect to property other than eligible Canadian indebtedness and upstream deposits owing to the affiliate. (couverture de change admissible)
excess liquidity, of an eligible bank affiliate of an eligible Canadian bank for a taxation year of the affiliate, means the amount, if any, by which
(a)the average of all amounts each of which is, in respect of a month that ends in the 12-month period that begins 60 days prior to the beginning of the year — or, if the affiliate was formed after the beginning of the period, in respect of a month that ends in the year — the amount of the affiliate’s relationship deposits for the month, expressed in the affiliate’s calculating currency for the year unless the context requires otherwise,
exceeds
(b)the average of all amounts each of which is, in respect of a month that ends in the period — or, if the affiliate was formed after the beginning of the period, in respect of a month that ends in the year — the amount of the affiliate’s organic assets for the month, expressed in the affiliate’s calculating currency for the year unless the context requires otherwise. (liquidités excédentaires)
organic assets, of an eligible bank affiliate of an eligible Canadian bank for a month, means the total of all amounts in respect of the affiliate each of which is
(a)included in the amounts reported as loans in the assets section of the consolidated monthly balance sheet accepted by the Superintendent of Financial Institutions that is filed for the month by the bank, or another corporation resident in Canada that is related to the bank at the end of the month, or
(b)an amount owing to the affiliate by a person that is related to the affiliate (other than an amount described in paragraph (a))
but does not include the amount of an eligible Canadian indebtedness or upstream deposit owing to the affiliate. (actif organique)
qualifying indebtedness, owing to an eligible bank affiliate of an eligible Canadian bank, means an upstream deposit owing to, or an eligible Canadian indebtedness of, the affiliate, to the extent that it can reasonably be considered that
(a)the upstream deposit or the acquisition of eligible Canadian indebtedness, as the case may be, is funded by
(i)property transferred or lent by a person other than the bank or a person resident in Canada that was not, at the time of the transfer or loan, dealing at arm’s length with the bank,
(ii)a repayment of all or part of an upstream deposit owing to the affiliate, or
(iii)the purchase of eligible Canadian indebtedness by the bank or a person resident in Canada that was not, at the time of the transfer or loan, dealing at arm’s length with the bank; and
(b)the proceeds of the upstream deposit or the proceeds received by the vendor of the eligible Canadian indebtedness, as the case may be, are used for a purpose other than to fund a transfer or loan of property by the bank — or another person resident in Canada that was not, at the time of the transfer or loan, dealing at arm’s length with the bank — to the affiliate or another foreign affiliate of the bank or of the other person. (dettes déterminées)
relationship deposits, of an eligible bank affiliate of an eligible Canadian bank for a month, means the total of all amounts included in the amounts reported as demand and notice deposits, and fixed-term deposits in the liabilities section of the consolidated monthly balance sheet accepted by the Superintendent of Financial Institutions that is filed for the month by the bank, or another corporation resident in Canada that is related to the bank at the end of the month, that are deposits (other than of a temporary nature) of the affiliate made by a person who at the end of the month
(a)deals at arm’s length with the affiliate; and
(b)is not resident in Canada. (dépôts apparentés)
total specified indebtedness, owing to an eligible bank affiliate of an eligible Canadian bank for a taxation year of the affiliate, means the average of all amounts each of which is, in respect of a month that ends in the year, the greatest total amount at any time in the month that is the total of all amounts each of which is
(a)the amount of an upstream deposit owing to the affiliate;
(b)the amount of an eligible Canadian indebtedness owing to the affiliate; or
(c)the positive or negative fair market value of an eligible currency hedge of the affiliate. (dettes désignées totales)
upstream deposit, owing to an eligible bank affiliate of an eligible Canadian bank, means indebtedness owing by the bank to the affiliate. (dépôt en amont)
Marginal note:FAPI adjustment — eligible bank affiliate
(2.44)If a non-resident corporation (in this subsection referred to as the “affiliate”) is, throughout a taxation year of the affiliate, an eligible bank affiliate of an eligible Canadian bank, and the bank elects in writing under this subsection, in respect of the affiliate for the year, and files the election with the Minister on or before the filing-due date of the bank for the particular taxation year of the bank in which the year ends,
(a)there is to be deducted in computing the amount determined for A in the definitionforeign accrual property incomein subsection (1) in respect of the affiliate for the year, the lesser of
(i)the amount determined, without reference to this paragraph, for A in that definition in respect of the affiliate for the year, and
(ii)the amount determined by the following formula, where each amount referred to in the formula is to be determined using Canadian currency:
A – B – C – D
where
(A)the rate of interest in respect of the upstream deposit, and
(B)the benchmark rate of interest, acceptable to the Minister, that is
(I)if the upstream deposit is denominated in a qualifying currency (as defined in subsection 261(1)), the average, for the year, of a daily interbank offered rate for loans denominated in that currency with a term to maturity of three months, or
(II)in any other case, the average, for the year, of a daily rate for Canadian dollar denominated bankers’ acceptances with a term to maturity of three months, and
E × F/G
where
(b)there is to be included, in computing the income of the affiliate from an active business for the year, an amount equal to the proportion of the amount computed under the formula in subparagraph (a)(ii), computed as if each amount referred to in that formula were determined using the affiliate’s calculating currency, that the amount that is required to be deducted under paragraph (a) for the year is of the amount described in subparagraph (a)(ii).
Marginal note:Investment business and excluded property
(2.45)If an election is made under subsection (2.44) in respect of an eligible bank affiliate of an eligible Canadian bank for a taxation year of the affiliate,
(a)for the purposes of the definitioninvestment businessin subsection (1), the bank, and any other person resident in Canada that does not deal at arm’s length with the bank, are deemed to deal at arm’s length with the affiliate in respect of the making of upstream deposits, and acquisitions of Canadian indebtedness from the bank or the other person, by the affiliate in the course of a business carried on by the affiliate in the year if the affiliate’s excess liquidity for the year is at least 90% of the total specified indebtedness owing to the affiliate for the year; and
(b)for the purposes of paragraph (b) of the definitionexcluded propertyin subsection (1),
(i)the fair market value of each upstream deposit and Canadian indebtedness owing to, and eligible currency hedge of, the affiliate is deemed to be nil,
(ii)at any particular time, the lesser of the following amounts is deemed to be the fair market value of a property of the affiliate that is excluded property at that particular time:
(A)the total of all amounts each of which is the fair market value of an upstream deposit or Canadian indebtedness owing to, or an eligible currency hedge of, the affiliate, and
(B)the amount, if any, by which
(I)the affiliate’s relationship deposits for the calendar month that is two months prior to the particular time (or if the affiliate was formed less than two months prior to the particular time, for the calendar month that includes the particular time)
exceeds
(II)the amount of the affiliate’s organic assets for the calendar month that is two months prior to the particular time (or if the affiliate was formed less than two months prior to the particular time, for the calendar month that includes the particular time), and
(iii)the amount, if any, by which the amount in clause (ii)(A) exceeds the amount in subparagraph (ii) is deemed to be the fair market value of a property of the eligible bank affiliate that is not excluded property at that time.
Marginal note:Definitions for paragraph (2)(a.3)
(2.5)For the purpose of paragraph 95(2)(a.3),
excluded incomeandexcluded revenuefor a taxation year in respect of a foreign affiliate of a taxpayer mean, respectively, income or revenue, that is
(a)derived directly or indirectly from a specified deposit with a prescribed financial institution,
(b)derived directly or indirectly from a lease obligation of a person (other than the taxpayer or a person that does not deal at arm’s length with the taxpayer) resident in Canada relating to property used by the person in the course of carrying on a business through a permanent establishment outside Canada,
(c)included in computing the affiliate’s income for the year from carrying on a business through a permanent establishment in Canada, or
(d)included in computing the affiliate’s income or loss from an active business for the year because of subparagraph (2)(a)(ii); (revenu exclu)
indebtednessdoes not include obligations of a particular person under agreements with non-resident corporations providing for the purchase, sale or exchange of currency where
(a)the agreements are swap agreements, forward purchase or sale agreements, forward rate agreements, futures agreements, options or rights agreements, or similar agreements,
(b)the particular person is a bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities resident in Canada, the business activities of which are subject by law to the supervision of a regulating authority in Canada such as the Superintendent of Financial Institutions or a similar authority of a province,
(c)the agreements are entered into by the non-resident corporation in the course of a business conducted principally with persons with whom the non-resident corporation deals at arm’s length, if
(i)the business is principally carried on in the country (other than Canada) under whose laws the non-resident corporation is governed and any of exists, was (unless the non-resident corporation was continued in any jurisdiction) formed or organized, or was last continued, or
(ii)the non-resident corporation is a foreign affiliate of the particular person, or of a person related to the particular person, and
(A)the non-resident corporation is a foreign bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities, and
(B)the activities of the business are regulated
(I)under the laws of the country under whose laws the non-resident corporation is governed and any of exists, was (unless the non-resident corporation was continued in any jurisdiction) formed or organized, or was last continued and under the laws of each country in which the business is carried on through a permanent establishment in that country,
(II)under the laws of the country (other than Canada) in which the business is principally carried, or
(III)if the affiliate is related to a corporation, under the laws of the country under the laws of which a corporation related to the non-resident corporation is governed and any of exists, was (unless that related corporation was continued in any jurisdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all of those countries are members of the European Union, and
(d)the terms and conditions of such agreements are substantially the same as the terms and conditions of similar agreements made by persons dealings at arm’s length; (dette)
specified deposit, of a foreign affiliate of a taxpayer, means a deposit of the affiliate made with a permanent establishment in a country other than Canada of a prescribed financial institution resident in Canada if the income from the deposit is income of the affiliate for the year that would, in the absence of paragraph (2)(a.3), be income from an active business carried on by the affiliate in a country other than Canada, other than a business the principal purpose of which is to derive income from property (including any interest, dividends, rents, royalties or similar returns, or any substitutes for any of those) or profits from the disposition of investment property. (dépôt déterminé)
Marginal note:Rule for the definitionspecified person or partnership
(2.6)For the purposes of paragraphs (a) to (d) of the definitionspecified person or partnershipin subsection (1), if a person or partnership (referred to in this subsection as the “taxpayer”) is not dealing at arm’s length with another person or partnership (referred to in this subsection as the “particular person”) at a particular time, the taxpayer is deemed to have existed and not to have dealt at arm’s length with the particular person, nor with each specified predecessor corporation of the particular person, throughout the period that began when the particular person or the specified predecessor corporation, as the case may be, came into existence and that ends at the particular time.
Marginal note:Definition ofservices
(3)For the purposes of paragraph 95(2)(b),servicesincludes the insurance of Canadian risks but does not include
(a)the transportation of persons or goods;
(b)services performed in connection with the purchase or sale of goods;
(c)the transmission of electronic signals or electricity along a transmission system located outside Canada; or
(d)the manufacturing or processing outside Canada, in accordance with the taxpayer’s specifications and under a contract between the taxpayer and the affiliate, of tangible property, or for civil law corporeal property, that is owned by the taxpayer if the property resulting from the manufacturing or processing is used or held by the taxpayer in the ordinary course of the taxpayer’s business carried on in Canada.
Marginal note:Application of paragraph (2)(b) — eligible Canadian bank
(3.01)Paragraph (2)(b) does not apply to a controlled foreign affiliate (for the purposes of section 17) of an eligible Canadian bank (as defined in subsection (2.43)) in respect of services performed in connection with the purchase or sale of a property described in paragraph (2.31)(b) if
(a)the services have been performed by the affiliate
(i)under terms and conditions that are substantially the same as the terms and conditions that would have been made between persons who deal at arm’s length with each other,
(ii)in the course of a business
(A)that regularly includes trading or dealing in securities principally with persons with whom the affiliate deals at arm’s length, and
(B)that is principally carried on through a permanent establishment in a country other than Canada, and
(iii)for the purpose of enabling the acquisition or disposition of the property by a person who, at the time of the acquisition or disposition, deals at arm’s length with the affiliate and the eligible Canadian bank; and
(b)the affiliate is a foreign bank or a trader or dealer in securities and the activities of the business are regulated
(i)under the laws of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued, and under the laws of each country in which the business is carried on through a permanent establishment in that country,
(ii)under the laws of the country (other than Canada) in which the business is principally carried on, or
(iii)if the affiliate is related to a corporation, under the laws of the country under whose laws that related corporation is governed and any of exists, was (unless that related corporation was continued in any jurisdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all those countries are members of the European Union.
Marginal note:Rules for clause (2)(b)(ii)(B)
(3.02)For the purposes of clause (2)(b)(ii)(B),
(a)a relevant person is
(i)a person resident in Canada, or
(ii)a non-resident person if the non-resident person performs the services referred to in subparagraph (2)(b)(ii) in the course of a business (other than a treaty-protected business) carried on in Canada; and
(b)any portion of a business carried on by a non-resident person that is carried on in Canada is deemed to be a business that is separate from any other portion of the business carried on by the person.
Marginal note:Designated property — subparagraph (2)(a.1)(i)
(3.1)Designated property referred to in subparagraph (2)(a.1)(i) is property that is described in the portion of paragraph (2)(a.1) that is before subparagraph (i) that is
(a)property that was sold to non-resident persons other than the affiliate, or sold to the affiliate for sale to non-resident persons, and
(i)that
(A)was — in the course of carrying on a business in Canada — manufactured, produced, grown, extracted or processed in Canada by the taxpayer, or by a person with whom the taxpayer does not deal at arm’s length, or
(B)was — in the course of a business carried on by a foreign affiliate of the taxpayer outside Canada — manufactured or processed from tangible property, or for civil law corporeal property, that, at the time of the manufacturing or processing, was owned by the taxpayer or by a person related to the taxpayer and used or held by the owner in the course of carrying on a business in Canada, if the manufacturing or processing was in accordance with the specifications of the owner of that tangible or corporeal property and under a contract between that owner and that foreign affiliate,
(ii)that was acquired, in the course of carrying on a business in Canada, by a purchaser from a vendor, if
(A)the purchaser is the taxpayer or is a person resident in Canada with whom the taxpayer does not deal at arm’s length, and
(B)the vendor is a person
(I)with whom the taxpayer deals at arm’s length,
(II)who is not a foreign affiliate of the taxpayer, and
(III)who is not a foreign affiliate of a person resident in Canada with whom the taxpayer does not deal at arm’s length, or
(iii)that was acquired by a purchaser from a vendor, if
(A)the purchaser is the taxpayer or is a person resident in Canada with whom the taxpayer does not deal at arm’s length,
(B)the vendor is a foreign affiliate of
(I)the taxpayer, or
(II)a person resident in Canada with whom the taxpayer does not deal at arm’s length, and
(C)that property was manufactured, produced, grown, extracted or processed in the country
(I)under whose laws the vendor is governed and any of exists, was (unless the vendor was continued in any jurisdiction) formed or organized, or was last continued, and
(II)in which the vendor’s business is principally carried on; or
(b)property that is an interest in real property, or a real right in an immovable, located in, or a foreign resource property in respect of, the country
(i)under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued, and
(ii)in which the affiliate’s business is principally carried on.
Marginal note:Contract manufacturing
(3.2)For the purposes of clause (2)(a.1)(ii)(A), property of a particular foreign affiliate of a taxpayer is deemed to have been manufactured by the particular affiliate in a particular country if the property is
(a)developed and designed by the particular affiliate in the particular country in the course of an active business carried on by the particular affiliate in the particular country; and
(b)manufactured, produced or processed outside the particular country by another foreign affiliate of the taxpayer, during a period throughout which the taxpayer has a qualifying interest in the other affiliate,
(i)under a contract between the particular affiliate and the other affiliate, and
(ii)in accordance with specifications provided by the particular affiliate.
Marginal note:Definitions
(4)In this section,
direct equity percentageat any time of any person in a corporation is the percentage determined by the following rules:
(a)for each class of the issued shares of the capital stock of the corporation, determine the proportion of 100 that the number of shares of that class owned by that person at that time is of the total number of issued shares of that class at that time, and
(b)select the proportion determined under paragraph (a) for that person in respect of the corporation that is not less than any other proportion so determined for that person in respect of the corporation at that time,
and the proportion selected under paragraph (b), when expressed as a percentage, is that person’s direct equity percentage in the corporation at that time; (pourcentage d’intérêt direct)
eligible controlled foreign affiliate, of a taxpayer, at any time, means a foreign affiliate at that time of the taxpayer in respect of which the following conditions are met:
(a)the affiliate is a controlled foreign affiliate of the taxpayer at that time and at the end of the affiliate’s taxation year that includes that time, and
(b)the total of all amounts each of which would be, if this definition were read without reference to this paragraph, the participating percentage (determined at the end of the taxation year) of a share owned by the taxpayer of the capital stock of a corporation, in respect of the affiliate, is not less than 90%; (société étrangère affiliée contrôlée admissible)
equity percentageat any time of a person, in any particular corporation, is the total of
(a)the person’s direct equity percentage at that time in the particular corporation, and
(b)all percentages each of which is the product obtained when the person’s equity percentage at that time in any corporation is multiplied by that corporation’s direct equity percentage at that time in the particular corporation
except that for the purposes of the definitionparticipating percentagein subsection 95(1), paragraph (b) shall be read as if the reference to “any corporation” were a reference to “any corporation other than a corporation resident in Canada”; (pourcentage d’intérêt)
relevant cost base, of a property at any time to a foreign affiliate of a taxpayer, in respect of the taxpayer, means the greater of
(a)the amount determined — or, if the taxpayer is not a corporation, the amount that would be determined if the taxpayer were a corporation resident in Canada — by the formula
A + B – C
where
(i)exempt earnings, exempt loss, taxable earnings and taxable loss (all within the meaning of subsection 5907(1) of theIncome Tax Regulations), in respect of the taxpayer, for the taxation year of the affiliate that includes that time, and
(ii)hybrid surplus and hybrid deficit, in respect of the taxpayer, at that time,
(b)either
(i)if the affiliate is an eligible controlled foreign affiliate of the taxpayer at that time, the amount that the taxpayer elects, in accordance with prescribed rules, in respect of the property not exceeding the fair market value at that time of the property, or
(ii)in any other case, nil. (prix de base approprié)
Marginal note:Application of s. 87(8.1)
(4.1)In this section, the expressionsforeign merger,predecessor foreign corporation,new foreign corporationandforeign parent corporationhave the meanings assigned by subsection 87(8.1).
Marginal note:Income bonds or debentures issued by foreign affiliates
(5)For the purposes of this Subdivision, an income bond or income debenture issued by a corporation (other than a corporation resident in Canada) shall be deemed to be a share of the capital stock of the corporation unless any interest or other similar periodic amount paid by the corporation on or in respect of the bond or debenture was, under the laws of the country in which the corporation was resident, deductible in computing the amount for the year on which the corporation was liable to pay income or profits tax imposed by the government of that country.
Marginal note:Where rights or shares issued, acquired or disposed of to avoid tax
(6)For the purposes of this Subdivision (other than section 90),
(a)where any person or partnership has a right under a contract, in equity or otherwise, either immediately or in the future and either absolutely or contingently, to, or to acquire, shares of the capital stock of a corporation or interests in a partnership and
(i)it can reasonably be considered that the principal purpose for the existence of the right is to cause 2 or more corporations to be related for the purpose of paragraph 95(2)(a), those corporations shall be deemed not to be related for that purpose, or
(ii)it can reasonably be considered that the principal purpose for the existence of the right is to permit any person to avoid, reduce or defer the payment of tax or any other amount that would otherwise be payable under this Act, those shares or partnership interests, as the case may be, are deemed to be owned by that person or partnership; and
(b)where a person or partnership acquires or disposes of shares of the capital stock of a corporation or interests in a partnership, either directly or indirectly, and it can reasonably be considered that the principal purpose for the acquisition or disposition is to permit a person to avoid, reduce or defer the payment of tax or any other amount that would otherwise be payable under this Act, that acquisition or disposition is deemed not to have taken place, and where the shares or partnership interests were unissued by the corporation or partnership immediately before the acquisition, those shares or partnership interests, as the case may be, are deemed not to have been issued.
Marginal note:Stock dividends from foreign affiliates
(7)For the purposes of this Subdivision and subsection 52(3), the amount of any stock dividend paid by a foreign affiliate of a corporation resident in Canada shall, in respect of the corporation, be deemed to be nil.
Marginal note:Tracking interests — interpretation
(8)For the purposes of subsections (9) to (12), a particular property is a tracking interest in respect of a person or partnership (referred to in this subsection as the “tracked entity”) if
(a)all or part of the fair market value of the particular property — or of any payment or right to receive an amount in respect of the particular property — can reasonably be considered to be determined, directly or indirectly, by reference to one or more of the following criteria in respect of property or activities of the tracked entity (referred to in this subsection and subsections (9) to (11) as the “tracked property and activities”):
(i)the fair market value of property of the tracked entity,
(ii)any revenue, income or cash flow from property or activities of the tracked entity,
(iii)any profits or gains from the disposition of property of the tracked entity, and
(iv)any similar criteria in respect of property or activities of the tracked entity; and
(b)the tracked property and activities in respect of the particular property represent less than all of the property and activities of the tracked entity.
Marginal note:Tracking interests —investment businessdefinition
(9)For the purposes of the definitioninvestment businessin subsection (1), if, at any time in a taxation year of a foreign affiliate of a taxpayer, a person or partnership holds a tracking interest in respect of the affiliate or a partnership of which the affiliate is a member, the tracked property and activities in respect of the tracking interest are, to the extent they would not otherwise be part of an investment business of the affiliate, deemed, in respect of the taxpayer,
(a)to be a separate business carried on by the affiliate throughout the year; and
(b)not to be part of any other business of the affiliate.
Marginal note:Conditions for subsection (11)
(10)Subsection (11) applies in respect of a foreign affiliate of a taxpayer for a taxation year of the affiliate if, at any time in the year,
(a)the taxpayer holds a property that is a tracking interest in respect of the affiliate; and
(b)shares of a class of the capital stock of the affiliate the fair market value of which can reasonably be considered to be determined by reference to the tracked property and activities in respect of the tracking interest (referred to in subsection (11) as a “tracking class”) are held by the taxpayer or a foreign affiliate of the taxpayer.
Marginal note:Tracking class — separate corporation
(11)If this subsection applies in respect of a foreign affiliate (referred to in this subsection as the “actual affiliate”) of a taxpayer for a taxation year of the actual affiliate, the following rules apply for the purpose of determining the amounts, if any, to be included under subsection 91(1), and to be deducted under subsection 91(4), by the taxpayer in respect of the year and for the purpose of applying section 233.4 in respect of the year:
(a)the tracked property and activities of the actual affiliate are deemed to be property and activities of a non-resident corporation (referred to in this subsection as the “separate corporation”) that is separate from the actual affiliate and not to be property or activities of the actual affiliate;
(b)any income, losses or gains for the year in respect of the property and activities described in paragraph (a) are deemed to be income, losses or gains of the separate corporation and not of the actual affiliate;
(c)all rights and obligations of the actual affiliate in respect of the property and activities described in paragraph (a) are deemed to be rights and obligations of the separate corporation and not of the actual affiliate;
(d)the separate corporation is deemed to have, at the end of the year, 100 issued and outstanding shares of a single class (referred to in this subsection as the “single class”) of its capital stock, having full voting rights under all circumstances;
(e)each shareholder of the actual affiliate is deemed to own, at the end of the year, that number of shares of the single class that is equal to the product of 100 and the amount that would be theaggregate participating percentage(as defined in subsection 91(1.3)) of that shareholder in respect of the actual affiliate for the year if
(i)the actual affiliate were a controlled foreign affiliate of that shareholder at the end of the year,
(ii)the only shares of the capital stock of the actual affiliate issued and outstanding at the end of the year were shares of tracking classes in respect of the tracked properties and activities, and
(iii)the only income, losses and gains of the actual affiliate for the year were those referred to in paragraph (b); and
(f)any amounts included under subsection 91(1), or deducted under subsection 91(4), by the taxpayer in respect of shares of the separate corporation are deemed to be amounts included under subsection 91(1), or deducted under subsection 91(4), as the case may be, by the taxpayer in respect of shares of tracking classes held by the taxpayer or a foreign affiliate of the taxpayer, as the case may be.
Marginal note:Tracking interests – controlled foreign affiliate
(12)If subsection (11) does not apply in respect of a foreign affiliate of the taxpayer for a taxation year of the affiliate, the affiliate is deemed to be a controlled foreign affiliate of the taxpayer throughout the taxation year if, at any time in the year, a tracking interest in respect of the affiliate, or a partnership of which the affiliate is a member, is held by
(a)the taxpayer; or
(b)a person or partnership (each referred to in this paragraph as a “holder”), if
(i)the holder does not deal at arm’s length with the taxpayer at that time,
(ii)where either the taxpayer or the holder is a partnership and the other party is not, any member of the partnership does not deal at arm’s length, at that time, with the other party, or
(iii)where both the taxpayer and the holder are partnerships, the taxpayer or any member of the taxpayer does not deal at arm’s length, at that time, with the holder or any member of the holder.
Marginal note:General Rules
96(1)Where a taxpayer is a member of a partnership, the taxpayer’s income, non-capital loss, net capital loss, restricted farm loss and farm loss, if any, for a taxation year, or the taxpayer’s taxable income earned in Canada for a taxation year, as the case may be, shall be computed as if
(a)the partnership were a separate person resident in Canada;
(b)the taxation year of the partnership were its fiscal period;
(c)each partnership activity (including the ownership of property) were carried on by the partnership as a separate person, and a computation were made of the amount of
(i)each taxable capital gain and allowable capital loss of the partnership from the disposition of property, and
(ii)each income and loss of the partnership from each other source or from sources in a particular place,
for each taxation year of the partnership;
(d)each income or loss of the partnership for a taxation year were computed as if
(i)this Act were read without reference to sections 34.1 and 34.2, subsection 59(1), paragraph 59(3.2)(c.1) and subsections 66.1(1), 66.2(1) and 66.4(1), and
(ii)no deduction were permitted under any of section 29 of theIncome Tax Application Rules, subsection 65(1) and sections 66, 66.1, 66.2, 66.21 and 66.4;
(e)each gain of the partnership from the disposition of land used in a farming business of the partnership were computed as if this Act were read without reference to paragraph 53(1)(i);
(e.1)the amount, if any, by which
(i)the total of all amounts determined under paragraphs 37(1)(a) to 37(1)(c.1) in respect of the partnership at the end of the taxation year
exceeds
(ii)the total of all amounts determined under paragraphs 37(1)(d) to 37(1)(g) in respect of the partnership at the end of the year
were deducted under subsection 37(1) by the partnership in computing its income for the year;
(f)the amount of the income of the partnership for a taxation year from any source or from sources in a particular place were the income of the taxpayer from that source or from sources in that particular place, as the case may be, for the taxation year of the taxpayer in which the partnership’s taxation year ends, to the extent of the taxpayer’s share thereof; and
(g)the amount, if any, by which
(i)the loss of the partnership for a taxation year from any source or sources in a particular place,
exceeds
(ii)in the case of a specified member (within the meaning of the definitionspecified memberin subsection 248(1) if that definition were read without reference to paragraph (b) thereof) of the partnership in the year, the amount, if any, deducted by the partnership by virtue of section 37 in calculating its income for the taxation year from that source or sources in the particular place, as the case may be, and
(iii)in any other case, nil
were the loss of the taxpayer from that source or from sources in that particular place, as the case may be, for the taxation year of the taxpayer in which the partnership’s taxation year ends, to the extent of the taxpayer’s share thereof.
Marginal note:Income allocation to former member
(1.01)If, at any time in a fiscal period of a partnership, a taxpayer ceases to be a member of the partnership
(a)for the purposes of subsection (1), sections 34.1, 101 and 103 and paragraph 249.1(1)(b), and notwithstanding paragraph 98.1(1)(d), the taxpayer is deemed to be a member of the partnership at the end of the fiscal period; and
(b)for the purposes of the application of paragraph (2.1)(b), subsection 40(3.12) and subparagraphs 53(1)(e)(i) and (viii) and (2)(c)(i) to the taxpayer, the fiscal period of the partnership is deemed to end
(i)immediately before the time at which the taxpayer is deemed by subsection 70(5) to have disposed of the interest in the partnership, where the taxpayer ceased to be a member of the partnership because of the taxpayer’s death, and
(ii)immediately before the time that is immediately before the time that the taxpayer ceased to be a member of the partnership, in any other case.
Marginal note:Allocation of share of income to retiring partner
(1.1)For the purposes of subsection 96(1) and sections 34.1, 34.2, 101, 103 and 249.1,
(a)where the principal activity of a partnership is carrying on a business in Canada and its members have entered into an agreement to allocate a share of the income or loss of the partnership from any source or from sources in a particular place, as the case may be, to any taxpayer who at any time ceased to be a member of
(i)the partnership, or
(ii)a partnership that at any time has ceased to exist or would, but for subsection 98(1), have ceased to exist, and either
(A)the members of that partnership, or
(B)the members of another partnership in which, immediately after that time, any of the members referred to in clause 96(1.1)(a)(ii)(A) became members
have agreed to make such an allocation
or to the taxpayer’s spouse, or common-law partner, estate or heirs or to any person referred to in subsection 96(1.3), the taxpayer, spouse, or common-law partner, estate, heirs or person, as the case may be, shall be deemed to be a member of the partnership; and
(b)all amounts each of which is an amount equal to the share of the income or loss referred to in this subsection allocated to a taxpayer from a partnership in respect of a particular fiscal period of the partnership shall, notwithstanding any other provision of this Act, be included in computing the taxpayer’s income for the taxation year in which that fiscal period of the partnership ends.
Marginal note:Deemed dividend of SIFT partnership
(1.11)If a SIFT partnership is liable to tax for a taxation year under Part IX.1,
(a)paragraph (1)(f) is to be read as if the expression “the amount of the income of the partnership for a taxation year from any source or from sources in a particular place” were read as “the amount, if any, by which the income of the partnership for a taxation year from any source or from sources in a particular place exceeds, in respect of each such source, the portion of the partnership’s taxable non-portfolio earnings for the taxation year that is applicable to that source”; and
(b)the partnership is deemed to have received a dividend in the taxation year from a taxable Canadian corporation equal to the amount by which the partnership’s taxable non-portfolio earnings for the taxation year exceeds the tax payable by the partnership for the taxation year under Part IX.1.
Marginal note:Disposal of right to share in income, etc.
(1.2)Where in a taxation year a taxpayer who has a right to a share of the income or loss of a partnership under an agreement referred to in subsection 96(1.1) disposes of that right,
(a)there shall be included in computing the taxpayer’s income for the year the proceeds of the disposition; and
(b)for greater certainty, the cost to the taxpayer of each property received by the taxpayer as consideration for the disposition is the fair market value of the property at the time of the disposition.
Marginal note:Deductions
(1.3)Where, by virtue of subsection 96(1.1) or 96(1.2), an amount has been included in computing a taxpayer’s income for a taxation year, there may be deducted in computing the taxpayer’s income for the year the lesser of
(a)the amount so included in computing the taxpayer’s income for the year, and
(b)the amount, if any, by which the cost to the taxpayer of the right to a share of the income or loss of a partnership under an agreement referred to in subsection 96(1.1) exceeds the total of all amounts in respect of that right that were deductible by virtue of this subsection in computing the taxpayer’s income for previous taxation years.
Marginal note:Right deemed not to be capital property
(1.4)For the purposes of this Act, a right to a share of the income or loss of a partnership under an agreement referred to in subsection 96(1.1) shall be deemed not to be capital property.
Marginal note:Disposition by virtue of death of taxpayer
(1.5)Where, at the time of a taxpayer’s death, the taxpayer has a right to a share of the income or loss of a partnership under an agreement referred to in subsection 96(1.1), subsections 70(2) to 70(4) apply.
Marginal note:Members deemed carrying on business
(1.6)If a partnership carries on a business in Canada at any time, each taxpayer who is deemed by paragraph (1.1)(a) to be a member of the partnership at that time is deemed to carry on the business in Canada at that time for the purposes of subsection 2(3), sections 34.1 and 150 and (subject to subsection 34.2(18)) section 34.2.
Marginal note:Gains and losses
(1.7)Notwithstanding subsection (1) or section 38, if in a particular taxation year of a taxpayer, the taxpayer is a member of a partnership with a fiscal period that ends in the particular year, the amount of a taxable capital gain, allowable capital loss or allowable business investment loss of the taxpayer for the particular year determined in respect of the partnership is the amount determined by the formula
A × B/C
where
Marginal note:Application
(1.71)Where the fraction referred to in the description of C in subsection (1.7) cannot be determined by a taxpayer in respect of a fiscal period of a partnership that ended before February 28, 2000, or includes February 28, 2000 or October 17, 2000, for the purposes of subsection (1.7), the fraction is deemed to be
(a)where the fiscal period ended before or began before February 28, 2000, 3/4;
(b)where the fiscal period began after February 27, 2000 and before October 18, 2000, 2/3; and
(c)in any other case, 1/2.
Marginal note:Loan of property
(1.8)For the purposes of subsection 56(4.1) and sections 74.1 and 74.3, where an individual has transferred or lent property, either directly or indirectly, by means of a trust or by any other means whatever, to a person and the property or property substituted therefor is an interest in a partnership, the person’s share of the amount of any income or loss of the partnership for a fiscal period in which the person was a specified member of the partnership shall be deemed to be income or loss, as the case may be, from the property or substituted property.
Marginal note:Construction
(2)The provisions of this Subdivision shall be read and construed as if each of the assumptions in paragraphs 96(1)(a) to 96(1)(g) were made.
Marginal note:Tiered partnerships
(2.01)For the purposes of this section, a taxpayer includes a partnership.
Marginal note:Limited partnership losses
(2.1)Notwithstanding subsection 96(1), where a taxpayer is, at any time in a taxation year, a limited partner of a partnership, the amount, if any, by which
(a)the total of all amounts each of which is the taxpayer’s share of the amount of any loss of the partnership, determined in accordance with subsection 96(1), for a fiscal period of the partnership ending in the taxation year from a business (other than a farming business) or from property
exceeds
(b)the amount, if any, by which
(i)the taxpayer’s at-risk amount in respect of the partnership at the end of the fiscal period
exceeds the total of
(ii)the amount required by subsection 127(8) in respect of the partnership to be added in computing the investment tax credit of the taxpayer for the taxation year,
(iii)the taxpayer’s share of any losses of the partnership for the fiscal period from a farming business, and
(iv)the taxpayer’s share of
(A)the foreign resource pool expenses, if any, incurred by the partnership in the fiscal period,
(B)the Canadian exploration expense, if any, incurred by the partnership in the fiscal period,
(C)the Canadian development expense, if any, incurred by the partnership in the fiscal period, and
(D)the Canadian oil and gas property expense, if any, incurred by the partnership in the fiscal period,
shall
(c)not be deducted in computing the taxpayer’s income for the year,
(d)not be included in computing the taxpayer’s non-capital loss for the year,
(e)if the taxpayer is not a partnership, be deemed to be the taxpayer’s limited partnership loss in respect of the partnership for the year, and
(f)if the taxpayer is a partnership, reduce the taxpayer’s share of any loss of the partnership for a fiscal period of the partnership ending in the taxation year of the taxpayer from a business (other than a farming business) or from property.
Marginal note:Tiered partnerships — adjustments
(2.11)The following rules apply to taxation years of a taxpayer that end after February 26, 2018:
(a)for the purpose of applying section 111, the taxpayer’s non-capital loss, or limited partnership loss in respect of a partnership, for a preceding taxation year shall be determined as if subsection (2.01) and paragraph (2.1)(f) applied in respect of taxation years that end before February 27, 2018; and
(b)in computing the adjusted cost base to the taxpayer of the taxpayer’s interest in a partnership after February 26, 2018, there shall be added an amount equal to the portion of the amount of any reduction because of paragraph (a) in a non-capital loss of the taxpayer that can reasonably be considered to relate to the amount of a loss deducted under subparagraph 53(2)(c)(i) in computing the adjusted cost base of that interest.
Marginal note:At-risk amount
(2.2)For the purposes of this section and sections 111 and 127, the at-risk amount of a taxpayer, in respect of a partnership of which the taxpayer is a limited partner, at any particular time is the amount, if any, by which the total of
(a)the adjusted cost base to the taxpayer of the taxpayer’s partnership interest at that time, computed in accordance with subsection 96(2.3) where applicable,
(b)where the particular time is the end of the fiscal period of the partnership, the taxpayer’s share of the income of the partnership from a source for that fiscal period computed under the method described in subparagraph 53(1)(e)(i), and
(b.1)where the particular time is the end of the fiscal period of the partnership, the amount referred to in subparagraph 53(1)(e)(viii) in respect of the taxpayer for that fiscal period
exceeds the total of
(c)all amounts each of which is an amount owing at that time to the partnership, or to a person or partnership not dealing at arm’s length with the partnership, by the taxpayer or by a person or partnership not dealing at arm’s length with the taxpayer, other than any amount deducted under subparagraph 53(2)(c)(i.3) in computing the adjusted cost base, or under section 143.2 in computing the cost, to the taxpayer of the taxpayer’s partnership interest at that time, and
(d)any amount or benefit that the taxpayer or a person not dealing at arm’s length with the taxpayer is entitled, either immediately or in the future and either absolutely or contingently, to receive or to obtain, whether by way of reimbursement, compensation, revenue guarantee, proceeds of disposition, loan or any other form of indebtedness or in any other form or manner whatever, granted or to be granted for the purpose of reducing the impact, in whole or in part, of any loss that the taxpayer may sustain because the taxpayer is a member of the partnership or holds or disposes of an interest in the partnership, except to the extent that the amount or benefit is included in the determination of the value of J in the definitioncumulative Canadian exploration expensein subsection 66.1(6), of M in the definitioncumulative Canadian development expensein subsection 66.2(5) or of I in the definitioncumulative Canadian oil and gas property expensein subsection 66.4(5) in respect of the taxpayer, or the entitlement arises
(i)by virtue of a contract of insurance with an insurance corporation dealing at arm’s length with each member of the partnership under which the taxpayer is insured against any claim arising as a result of a liability incurred in the ordinary course of carrying on the partnership business,
(ii)[Repealed, 1996, c. 21, s. 17]
(iii)as a consequence of the death of the taxpayer,
(iv) and (v)[Repealed, 1998, c. 19, s. 123]
(vi)in respect of an amount not included in the at-risk amount of the taxpayer determined without reference to this paragraph, or
(vii)because of an excluded obligation (as defined in subsection 6202.1(5) of theIncome Tax Regulations) in relation to a share issued to the partnership by a corporation,
and, for the purposes of this subsection,
(e)where the amount or benefit to which the taxpayer or the person is entitled at any time is provided by way of an agreement or other arrangement under which the taxpayer or the person has a right, either immediately or in the future and either absolutely or contingently (otherwise than as a consequence of the death of the taxpayer), to acquire other property in exchange for all or any part of the partnership interest, for greater certainty the amount or benefit to which the taxpayer or the person is entitled under the agreement or arrangement is considered to be not less than the fair market value of the other property at that time, and
(f)where the amount or benefit to which the taxpayer or the person is entitled at any time is provided by way of a guarantee, security or similar indemnity or covenant in respect of any loan or other obligation of the taxpayer or the person, for greater certainty the amount or benefit to which the taxpayer or the person is entitled under the guarantee or indemnity at any particular time is considered to be not less than the total of the unpaid amount of the loan or obligation at that time and all other amounts outstanding in respect of the loan or obligation at that time.
Marginal note:Idem
(2.3)For the purposes of subsection 96(2.2), where a taxpayer has acquired the taxpayer’s partnership interest at any time from a transferor other than the partnership, the adjusted cost base to the taxpayer of that interest shall be computed as if the cost to the taxpayer of the interest were the lesser of
(a)the taxpayer’s cost otherwise determined, and
(b)the greater of
(i)the adjusted cost base of that interest to the transferor immediately before that time, and
(ii)nil,
and where the adjusted cost base of the transferor cannot be determined, it shall be deemed to be equal to the total of the amounts determined in respect of the taxpayer under paragraphs 96(2.2)(c) and 96(2.2)(d) immediately after that time.
Marginal note:Limited partner
(2.4)For the purposes of this section and sections 111 and 127, a taxpayer who is a member of a partnership at a particular time is a limited partner of the partnership at that time if the member’s partnership interest is not an exempt interest (within the meaning assigned by subsection (2.5)) at that time and if, at that time or within 3 years after that time,
(a)by operation of any law governing the partnership arrangement, the liability of the member as a member of the partnership is limited (except by operation of a provision of a statute of Canada or a province that limits the member’s liability only for debts, obligations and liabilities of the partnership, or any member of the partnership, arising from negligent acts or omissions, from misconduct or from fault of another member of the partnership or an employee, an agent or a representative of the partnership in the course of the partnership business while the partnership is a limited liability partnership);
(b)the member or a person not dealing at arm’s length with the member is entitled, either immediately or in the future and either absolutely or contingently, to receive an amount or to obtain a benefit that would be described in paragraph (2.2)(d) if that paragraph were read without reference to subparagraphs (ii) and (vi);
(c)one of the reasons for the existence of the member who owns the interest
(i)can reasonably be considered to be to limit the liability of any person with respect to that interest, and
(ii)cannot reasonably be considered to be to permit any person who has an interest in the member to carry on that person’s business (other than an investment business) in the most effective manner; or
(d)there is an agreement or other arrangement for the disposition of an interest in the partnership and one of the main reasons for the agreement or arrangement can reasonably be considered to be to attempt to avoid the application of this subsection to the member.
Marginal note:Exempt interest
(2.5)For the purposes of subsection 96(2.4), an exempt interest in a partnership at any time means a prescribed partnership interest or an interest in a partnership that was actively carrying on business on a regular and a continuous basis immediately before February 26, 1986 and continuously thereafter until that time or that was earning income from the rental or leasing of property immediately before February 26, 1986 and continuously thereafter until that time, where there has not after February 25, 1986 and before that time been a substantial contribution of capital to the partnership or a substantial increase in the indebtedness of the partnership and, for this purpose, an amount will not be considered to be substantial where
(a)the amount was used by the partnership to make an expenditure required to be made pursuant to the terms of a written agreement entered into by it before February 26, 1986, or to repay a loan, debt or contribution of capital that had been received or incurred in respect of any such expenditure,
(b)the amount was raised pursuant to the terms of a prospectus, preliminary prospectus or registration statement filed before February 26, 1986 with a public authority in Canada pursuant to and in accordance with the securities legislation of Canada or of any province, and, where required by law, accepted for filing by that public authority, or
(c)the amount was used for the activity that was carried on by the partnership on February 25, 1986 but was not used for a significant expansion of the activity
and, for the purposes of this subsection,
(d)a partnership in respect of which paragraph 96(2.5)(b) applies shall be considered to have been actively carrying on a business on a regular and a continuous basis immediately before February 26, 1986 and continuously thereafter until the earlier of the closing date, if any, stipulated in the document referred to in that paragraph and January 1, 1987, and
(e)an expenditure shall not be considered to have been required to be made pursuant to the terms of an agreement where the obligation to make the expenditure is conditional in any way on the consequences under this Act relating to the expenditure and the condition has not been satisfied or waived before June 12, 1986.
Marginal note:Artificial transactions
(2.6)For the purposes of paragraph 96(2.2)(c), where at any time an amount owing by a taxpayer or a person with whom the taxpayer does not deal at arm’s length is repaid and it is established, by subsequent events or otherwise, that the repayment was made as part of a series of loans or other transactions and repayments, the amount owing shall be deemed not to have been repaid.
Marginal note:Idem
(2.7)For the purposes of paragraph 96(2.2)(a), where at any time a taxpayer makes a contribution of capital to a partnership and the partnership or a person or partnership with whom or which the partnership does not deal at arm’s length makes a loan to the taxpayer or to a person with whom the taxpayer does not deal at arm’s length or repays the contribution of capital, and it is established, by subsequent events or otherwise, that the loan or repayment, as the case may be, was made as part of a series of loans or other transactions and repayments, the contribution of capital shall be deemed not to have been made to the extent of the loan or repayment, as the case may be.
Marginal note:Agreement or election of partnership members
(3)If a taxpayer who was a member of a partnership at any time in a fiscal period has, for any purpose relevant to the computation of the taxpayer’s income from the partnership for the fiscal period, made or executed an agreement, designation or election under or in respect of the application of any of subsections 10.1(1), 13(4), (4.2) and (16), section 15.2, subsections 20(9) and 21(1) to (4), section 22, subsection 29(1), section 34, clause 37(8)(a)(ii)(B), subsections 44(1) and (6), 50(1) and 80(5) and (9) to (11), section 80.04, subsections 86.1(2), 88(3.1), (3.3) and (3.5) and 90(3), the definitionrelevant cost basein subsection 95(4) and subsections 97(2), 139.1(16) and (17) and 249.1(4) and (6) that, if this Act were read without reference to this subsection, would be a valid agreement, designation or election,
(a)the agreement, designation or election is not valid unless
(i)it was made or executed on behalf of the taxpayer and each other person who was a member of the partnership during the fiscal period, and
(ii)the taxpayer had authority to act for the partnership;
(b)unless the agreement, designation or election is invalid because of paragraph 96(3)(a), each other person who was a member of the partnership during the fiscal period shall be deemed to have made or executed the agreement, designation or election; and
(c)notwithstanding paragraph 96(3)(a), any agreement, designation or election deemed by paragraph 96(3)(b) to have been made or executed by any person shall be deemed to be a valid agreement, designation or election made or executed by that person.
Marginal note:Election
(4)Any election under subsection 97(2) or 98(3) shall be made on or before the day that is the earliest of the days on or before which any taxpayer making the election is required to file a return of income pursuant to section 150 for the taxpayer’s taxation year in which the transaction to which the election relates occurred.
Marginal note:Late filing
(5)Where an election referred to in subsection 96(4) was not made on or before the day on or before which the election was required by that subsection to be made and that day was after May 6, 1974, the election shall be deemed to have been made on that day if, on or before the day that is 3 years after that day,
(a)the election is made in prescribed form; and
(b)an estimate of the penalty in respect of that election is paid by the taxpayer referred to in subsection 97(2) or by the persons referred to in subsection 98(3), as the case may be, when that election is made.
Marginal note:Special cases
(5.1)Where, in the opinion of the Minister, the circumstances of a case are such that it would be just and equitable
(a)to permit an election under subsection 97(2) or 98(3) to be made after the day that is 3 years after the day on or before which the election was required by subsection 96(4) to be made, or
(b)to permit an election made under subsection 97(2) to be amended,
the election or amended election shall be deemed to have been made on the day on or before which the election was so required to be made if
(c)the election or amended election is made in prescribed form, and
(d)an estimate of the penalty in respect of the election or amended election is paid by the taxpayer referred to in subsection 97(2) or by the persons referred to in subsection 98(3), as the case may be, when the election or amended election is made,
and where this subsection applies to the amendment of an election, that election shall be deemed not to have been effective.
Marginal note:Penalty for late-filed election
(6)For the purposes of this section, the penalty in respect of an election or an amended election referred to in paragraph 96(5)(a) or 96(5.1)(c) is
(a)where the election or amended election is made under subsection 97(2), an amount equal to the lesser of
(i)1/4 of 1% of the amount by which the fair market value of the property disposed of by the taxpayer referred to therein at the time of disposition exceeds the amount agreed on by the taxpayer and the members of the partnership in the election or amended election, for each month or part of a month during the period commencing with the day on or before which the election is required by subsection 96(4) to be made and ending on the day the election or amended election is made, and
(ii)an amount, not exceeding $8,000, equal to the product obtained by multiplying $100 by the number of months each of which is a month all or part of which is during the period referred to in subparagraph 96(6)(a)(i); and
(b)where the election is made under subsection 98(3), an amount equal to the lesser of
(i)1/4 of 1% of the amount by which
(A)the total of all amounts of money and the fair market value of partnership property received by the persons referred to therein as consideration for their interests in the partnership at the time that the partnership ceased to exist
exceeds
(B)the total of each such person’s proceeds of disposition of that person’s interest in the partnership as determined under paragraph 98(3)(a),
for each month or part of a month during the period commencing with the day on or before which the election is required by subsection 96(4) to be made and ending on the day the election or amended election is made, and
(ii)an amount, not exceeding $8,000, equal to the product obtained by multiplying $100 by the number of months each of which is a month all or part of which is during the period referred to in subparagraph 96(6)(b)(i).
Marginal note:Unpaid balance of penalty
(7)The Minister shall, with all due dispatch, examine each election and amended election referred to in paragraph 96(5)(a) or 96(5.1)(c), assess the penalty payable and send a notice of assessment to the taxpayer or persons, as the case may be, and the taxpayer or persons, as the case may be, shall pay forthwith to the Receiver General the amount, if any, by which the penalty so assessed exceeds the total of all amounts previously paid on account of that penalty.
Marginal note:Foreign partnerships
(8)For the purposes of this Act, where at a particular time a person resident in Canada becomes a member of a partnership, or a person who is a member of a partnership becomes resident in Canada, and immediately before the particular time no member of the partnership is resident in Canada, the following rules apply for the purpose of computing the partnership’s income for fiscal periods ending after the particular time:
(a)where, at or before the particular time, the partnership held depreciable property of a prescribed class (other than taxable Canadian property),
(i)no amount shall be included in determining the amounts for any of A, C, D and F to I in the definitionundepreciated capital costin subsection 13(21) in respect of the acquisition or disposition before the particular time of the property, and
(ii)where the property is the partnership’s property at the particular time, the property shall be deemed to have been acquired, immediately after the particular time, by the partnership at a capital cost equal to the lesser of its fair market value and its capital cost to the partnership otherwise determined;
(b)in the case of the partnership’s property that is inventory (other than inventory of a business carried on in Canada) or non-depreciable capital property (other than taxable Canadian property) of the partnership at the particular time, its cost to the partnership shall be deemed to be, immediately after the particular time, equal to the lesser of its fair market value and its cost to the partnership otherwise determined; and
(c)any loss in respect of the disposition of a property (other than inventory of a business carried on in Canada or taxable Canadian property) by the partnership before the particular time shall be deemed to be nil.
(d)[Repealed, 2016, c. 12, s. 32]
Marginal note:Application of foreign partnership rule
(9)For the purposes of applying subsection (8) and this subsection,
(a)where it can reasonably be considered that one of the main reasons that a member of a partnership is resident in Canada is to avoid the application of subsection (8), the member is deemed not to be resident in Canada; and
(b)where at any time a particular partnership is a member of another partnership,
(i)each person or partnership that is, at that time, a member of the particular partnership is deemed to be a member of the other partnership at that time,
(ii)each person or partnership that becomes a member of the particular partnership at that time is deemed to become a member of the other partnership at that time, and
(iii)each person or partnership that ceases to be a member of the particular partnership at that time is deemed to cease to be a member of the other partnership at that time.
Marginal note:Contribution of property to partnership
97(1)Where at any time after 1971 a partnership has acquired property from a taxpayer who was, immediately after that time, a member of the partnership, the partnership shall be deemed to have acquired the property at an amount equal to its fair market value at that time and the taxpayer shall be deemed to have disposed of the property for proceeds equal to that fair market value.
Marginal note:Rules if election by partners
(2)Notwithstanding any other provision of this Act other than subsections (3) and 13(21.2), where a taxpayer at any time disposes of any property (other than aneligible derivative, as defined in subsection 10.1(5), of the taxpayer if subsection 10.1(6) applies to the taxpayer) that is a capital property, Canadian resource property, foreign resource property or inventory of the taxpayer to a partnership that immediately after that time is a Canadian partnership of which the taxpayer is a member, if the taxpayer and all the other members of the partnership jointly so elect in prescribed form within the time referred to in subsection 96(4),
(a)the provisions of paragraphs 85(1)(a) to 85(1)(f) apply to the disposition as if
(i)the reference therein to “corporation’s cost” were read as a reference to “partnership’s cost”,
(ii)the references therein to “other than any shares of the capital stock of the corporation or a right to receive any such shares” and to “other than shares of the capital stock of the corporation or a right to receive any such shares” were read as references to “other than an interest in the partnership”,
(iii)the references therein to “shareholder of the corporation” were read as references to “member of the partnership”,
(iv)the references therein to “the corporation” were read as references to “all the other members of the partnership”, and
(v)the references therein to “to the corporation” were read as references to “to the partnership”;
(b)in computing, at any time after the disposition, the adjusted cost base to the taxpayer of the taxpayer’s interest in the partnership immediately after the disposition,
(i)there shall be added the amount, if any, by which the taxpayer’s proceeds of disposition of the property exceed the fair market value, at the time of the disposition, of the consideration (other than an interest in the partnership) received by the taxpayer for the property, and
(ii)there shall be deducted the amount, if any, by which the fair market value, at the time of the disposition, of the consideration (other than an interest in the partnership) received by the taxpayer for the property so disposed of by the taxpayer exceeds the fair market value of the property at the time of the disposition; and
(c)where the property so disposed of by the taxpayer to the partnership is taxable Canadian property of the taxpayer, the interest in the partnership received by the taxpayer as consideration for the property is deemed to be, at any time that is within 60 months after the disposition, taxable Canadian property of the taxpayer.
Marginal note:Election not available — section 88
(3)Subsection (2) does not apply to a disposition of a property by a taxpayer to a particular partnership if
(a)as part of a transaction or event or series of transactions or events that includes the disposition
(i)control of a taxable Canadian corporation (in this subsection referred to as the “subsidiary”) is acquired by another taxable Canadian corporation (in this paragraph referred to as the “parent”),
(ii)the subsidiary is wound up under subsection 88(1) or amalgamated with one or more other corporations under subsection 87(11), and
(iii)the parent makes a designation under paragraph 88(1)(d) in respect of an interest in a partnership;
(b)the disposition occurs after the acquisition of control of the subsidiary;
(c)the property
(i)is referred to in clauses (A) to (C) of the description of B in subparagraph 88(1)(d)(ii.1), or
(ii)is an interest in a partnership that holds, directly or indirectly through one or more partnerships, property referred to in clauses (A) to (C) of the description of B in subparagraph 88(1)(d)(ii.1); and
(d)the subsidiary is the taxpayer or has, before the disposition of the property, directly or indirectly in any manner whatever, an interest in the taxpayer.
(3.1)[Repealed, 1998, c. 19, s. 124]
Marginal note:Where capital cost to partner exceeds proceeds of disposition
(4)Where subsection 97(2) has been applicable in respect of the acquisition of any depreciable property by a partnership from a taxpayer who was, immediately after the taxpayer disposed of the property, a member of the partnership and the capital cost to the taxpayer of the property exceeds the taxpayer’s proceeds of the disposition, for the purposes of sections 13 and 20 and any regulations made under paragraph 20(1)(a)
(a)the capital cost to the partnership of the property shall be deemed to be the amount that was the capital cost thereof to the taxpayer; and
(b)the excess shall be deemed to have been allowed to the partnership in respect of the property under regulations made under paragraph 20(1)(a) in computing income for taxation years before the acquisition by the partnership of the property.
Marginal note:Acquisition of certain tools — capital cost and deemed depreciation
(5)If subsection (2) has applied in respect of the acquisition at any particular time of any depreciable property by a partnership from an individual, the cost of the property to the individual was included in computing an amount under paragraph 8(1)(r) or (s) in respect of the individual, and the amount that would be the cost of the property to the individual immediately before the transfer if this Act were read without reference to subsection 8(7) (which amount is in this subsection referred to as the “individual’s original cost”) exceeds the individ­ual’s proceeds of disposition of the property,
(a)the capital cost to the partnership of the property is deemed to be equal to the individual’s original cost; and
(b)the amount by which the individual’s original cost exceeds the individual’s proceeds of disposition in respect of the property is deemed to have been deducted by the partnership under paragraph 20(1)(a) in respect of the property in computing income for taxation years that ended before that particular time.
Marginal note:Disposition of partnership property
98(1)For the purposes of this Act, where, but for this subsection, at any time after 1971 a partnership would be regarded as having ceased to exist, the following rules apply:
(a)until such time as all the partnership property and any property substituted therefor has been distributed to the persons entitled by law to receive it, the partnership shall be deemed not to have ceased to exist, and each person who was a partner shall be deemed not to have ceased to be a partner,
(b)the right of each such person to share in that property shall be deemed to be an interest in the partnership, and
(c)notwithstanding subsection 40(3), where at the end of a fiscal period of the partnership, in respect of an interest in the partnership,
(i)the total of all amounts required by subsection 53(2) to be deducted in computing the adjusted cost base to the taxpayer of the interest at that time
exceeds
(ii)the total of the cost to the taxpayer of the interest determined for the purpose of computing the adjusted cost base to the taxpayer of that interest at that time and all amounts required by subsection 53(1) to be added to the cost to the taxpayer of the interest in computing the adjusted cost base to the taxpayer of that interest at that time,
the amount of the excess shall be deemed to be a gain of the taxpayer for the taxpayer’s taxation year that includes that time from a disposition at that time of that interest.
Marginal note:Deemed proceeds
(2)Subject to subsections 98(3) and 98(5) and 85(3), where at any time after 1971 a partnership has disposed of property to a taxpayer who was, immediately before that time, a member of the partnership, the partnership shall be deemed to have disposed of the property for proceeds equal to its fair market value at that time and the taxpayer shall be deemed to have acquired the property at an amount equal to that fair market value.
Marginal note:Rules applicable if partnership ceases to exist
(3)If at any particular time after 1971 a Canadian partnership has ceased to exist and all the partnership property has been distributed to persons who were members of the partnership immediately before that time so that immediately after that time each such person has, in each such property, an undivided interest, or for civil law an undivided right (which undivided interest or undivided right is referred to in this subsection as an “undivided interest or right”, as the case may be) that, when expressed as a percentage (referred to in this subsection as that person’s “percentage”) of all undivided interests or rights in the property, is equal to the person’s undivided interest or right, when so expressed, in each other such property, if each such person has jointly so elected in respect of the property in prescribed form and within the time referred to in subsection 96(4), the following rules apply:
(a)each such person’s proceeds of the disposition of the person’s interest in the partnership shall be deemed to be an amount equal to the greater of
(i)the adjusted cost base to the person, immediately before the particular time, of the person’s interest in the partnership, and
(ii)the amount of any money received by the person on the cessation of the partnership’s existence, plus the person’s percentage of the total of amounts each of which is the cost amount to the partnership of each such property immediately before its distribution;
(b)the cost to each such person of that person’s undivided interest or right in each such property is deemed to be an amount equal to the total of
(i)that person’s percentage of the cost amount to the partnership of the property immediately before its distribution, and
(i.1)[Repealed, 2016, c. 12, s. 34]
(ii)where the amount determined under subparagraph (a)(i) exceeds the amount determined under subparagraph (a)(ii), the amount determined under paragraph (c) in respect of the person’s undivided interest or right in the property;
(c)the amount determined under this paragraph in respect of each such person’s undivided interest or right in each such property that was a capital property (other than depreciable property) of the partnership is such portion of the excess, if any, described in subparagraph (b)(ii) as is designated by the person in respect of the property, except that
(i)in no case shall the amount so designated in respect of the person’s undivided interest or right in any such property exceed the amount, if any, by which the person’s percentage of the fair market value of the property immediately after its distribution exceeds the person’s percentage of the cost amount to the partnership of the property immediately before its distribution, and
(ii)in no case shall the total of amounts so designated in respect of the person’s undivided interest or right in all such capital properties (other than depreciable property) exceed the excess, if any, described in subparagraph (b)(ii);
(e)if the property so distributed by the partnership was depreciable property of the partnership of a prescribed class and any such person’s percentage of the amount that was the capital cost to the partnership of that property exceeds the amount determined under paragraph (b) to be the cost to the person of the person’s undivided interest or right in the property, for the purposes of sections 13 and 20 and any regulations made under paragraph 20(1)(a)
(i)the capital cost to the person of the person’s undivided interest or right in the property is deemed to be the person’s percentage of the amount that was the capital cost to the partnership of the property, and
(ii)the excess is deemed to have been allowed to the person in respect of the property under regulations made under paragraph 20(1)(a) in computing income for taxation years before the acquisition by the person of the undivided interest or right; and
(f)the partnership shall be deemed to have disposed of each such property for proceeds equal to the cost amount to the partnership of the property immediately before its distribution.
(g)[Repealed, 2016, c. 12, s. 34]
Marginal note:Where s. (3) does not apply
(4)Subsection 98(3) is not applicable in any case in which subsection 98(5) or 85(3) is applicable.
Marginal note:Where partnership business carried on as sole proprietorship
(5)Where at any particular time after 1971 a Canadian partnership has ceased to exist and within 3 months after the particular time one, but not more than one, of the persons who were, immediately before the particular time, members of the partnership (which person is in this subsection referred to as the “proprietor”, whether an individual, a trust or a corporation) carries on alone the business that was the business of the partnership and continues to use, in the course of the business, any property that was, immediately before the particular time, partnership property and that was received by the proprietor as proceeds of disposition of the proprietor’s interest in the partnership, the following rules apply:
(a)the proprietor’s proceeds of disposition of the proprietor’s interest in the partnership shall be deemed to be an amount equal to the greater of
(i)the total of the adjusted cost base to the proprietor, immediately before the particular time, of the proprietor’s interest in the partnership, and the adjusted cost base to the proprietor of each other interest in the partnership deemed by paragraph 98(5)(g) to have been acquired by the proprietor at the particular time, and
(ii)the total of
(A)the cost amount to the partnership, immediately before the particular time, of each such property so received by the proprietor, and
(B)the amount of any other proceeds of the disposition of the proprietor’s interest in the partnership received by the proprietor;
(b)the cost to the proprietor of each such property shall be deemed to be an amount equal to the total of
(i)the cost amount to the partnership of the property immediately before that time, and
(i.1)[Repealed, 2016, c. 12, s. 34]
(ii)where the amount determined under subparagraph 98(5)(a)(i) exceeds the amount determined under subparagraph 98(5)(a)(ii), the amount determined under paragraph 98(5)(c) in respect of the property;
(c)the amount determined under this paragraph in respect of each such property so received by the proprietor that is a capital property (other than depreciable property) of the proprietor is such portion of the excess, if any, described in subparagraph 98(5)(b)(ii) as is designated by the proprietor in respect of the property, except that
(i)in no case shall the amount so designated in respect of any such property exceed the amount, if any, by which the fair market value of the property immediately after the particular time exceeds the cost amount to the partnership of the property immediately before that time, and
(ii)in no case shall the total of amounts so designated in respect of all such capital properties (other than depreciable property) exceed the excess, if any, described in subparagraph 98(5)(b)(ii);
(e)where any such property so received by the proprietor was depreciable property of a prescribed class of the partnership and the amount that was the capital cost to the partnership of that property exceeds the amount determined under paragraph 98(5)(b) to be the cost to the proprietor of the property, for the purposes of sections 13 and 20 and any regulations made under paragraph 20(1)(a)
(i)the capital cost to the proprietor of the property shall be deemed to be the amount that was the capital cost to the partnership of the property, and
(ii)the excess shall be deemed to have been allowed to the proprietor in respect of the property under regulations made under paragraph 20(1)(a) in computing income for taxation years before the acquisition by the proprietor of the property;
(f)the partnership shall be deemed to have disposed of each such property for proceeds equal to the cost amount to the partnership of the property immediately before the particular time; and
(g)where, at the particular time, all other persons who were members of the partnership immediately before that time have disposed of their interests in the partnership to the proprietor, the proprietor shall be deemed at that time to have acquired partnership interests from those other persons and not to have acquired any property that was property of the partnership.
(h)[Repealed, 2016, c. 12, s. 34]
Marginal note:Continuation of predecessor partnership by new partnership
(6)Where a Canadian partnership (in this subsection referred to as the “predecessor partnership”) has ceased to exist at any particular time after 1971 and, at or before that time, all of the property of the predecessor partnership has been transferred to another Canadian partnership (in this subsection referred to as the “new partnership”) the only members of which were members of the predecessor partnership, the new partnership shall be deemed to be a continuation of the predecessor partnership and any member’s partnership interest in the new partnership shall be deemed to be a continuation of the member’s partnership interest in the predecessor partnership.
Marginal note:Depreciable property — leasehold interests and options
(7)For the purposes of paragraphs (3)(c) and (5)(c), a leasehold interest in a depreciable property and an option to acquire a depreciable property are depreciable properties.
Marginal note:Residual interest in partnership
98.1(1)Where, but for this subsection, at any time after 1971 a taxpayer has ceased to be a member of a partnership of which the taxpayer was a member immediately before that time, the following rules apply:
(a)until such time as all the taxpayer’s rights (other than a right to a share of the income or loss of the partnership under an agreement referred to in subsection 96(1.1)) to receive any property of or from the partnership in satisfaction of the taxpayer’s interest in the partnership immediately before the time at which the taxpayer ceased to be a member of the partnership are satisfied in full, that interest (in this section referred to as a “residual interest”) is, subject to sections 70, 110.6 and 128.1 but notwithstanding any other section of this Act, deemed not to have been disposed of by the taxpayer and to continue to be an interest in the partnership;
(b)where all of the taxpayer’s rights described in paragraph 98.1(1)(a) are satisfied in full before the end of the fiscal period of the partnership in which the taxpayer ceased to be a member thereof, the taxpayer shall, notwithstanding paragraph 98.1(1)(a), be deemed not to have disposed of the taxpayer’s residual interest until the end of that fiscal period;
(c)notwithstanding subsection 40(3), where at the end of a fiscal period of the partnership, in respect of a residual interest in the partnership,
(i)the total of all amounts required by subsection 53(2) to be deducted in computing the adjusted cost base to the taxpayer of the residual interest at that time
exceeds
(ii)the total of the cost to the taxpayer of the residual interest determined for the purpose of computing the adjusted cost base to the taxpayer of that interest at that time and all amounts required by subsection 53(1) to be added to the cost to the taxpayer of the residual interest in computing the adjusted cost base to the taxpayer of that interest at that time
the amount of the excess shall be deemed to be a gain of the taxpayer, for the taxpayer’s taxation year that includes that time, from a disposition at that time of that residual interest; and
(d)where a taxpayer has a residual interest
(i)by reason of paragraph (b), the taxpayer shall, except for the purposes of subsections 110.1(4) and 118.1(8), be deemed not to be a member of the partnership, and
(ii)in any other case, the taxpayer shall, except for the purposes of subsection 85(3), be deemed not to be a member of the partnership.
Marginal note:Continuation of original partnership
(2)Where a partnership (in this subsection referred to as the “original partnership”) has or would but for subsection 98(1) have ceased to exist at a time when a taxpayer had rights described in paragraph 98.1(1)(a) in respect of that partnership and the members of another partnership agree to satisfy all or part of those rights, that other partnership shall, for the purposes of that paragraph, be deemed to be a continuation of the original partnership.
Marginal note:Transfer of interest on death
98.2Where by virtue of the death of an individual a taxpayer has acquired a property that was an interest in a partnership to which, immediately before the individual’s death, section 98.1 applied,
(a)the taxpayer shall be deemed to have acquired a right to receive partnership property and not to have acquired an interest in a partnership;
(b)the taxpayer shall be deemed to have acquired the right referred to in paragraph 98.2(a) at a cost equal to the amount determined to be the proceeds of disposition of the interest in the partnership to the deceased individual by virtue of paragraph 70(5)(a) or (6)(d), as the case may be; and
(c)section 43 is not applicable to the right.
Marginal note:Fiscal period of terminated partnership
99(1)Subject to subsection (2), if, at any particular time in a fiscal period of a partnership, the partnership would, if this Act were read without reference to subsection 98(1), have ceased to exist, the fiscal period is deemed to have ended immediately before the time that is immediately before that particular time.
Marginal note:Fiscal period of terminated partnership for individual member
(2)Where an individual was a member of a partnership that, at any time in a fiscal period of a partnership, has or would have, but for subsection 98(1), ceased to exist, for the purposes of computing the individual’s income for a taxation year the partnership’s fiscal period may, if the individual so elects and subsection 249.1(4) does not apply in respect of the partnership, be deemed to have ended immediately before the time when the fiscal period of the partnership would have ended if the partnership had not so ceased to exist.
Marginal note:Validity of election
(3)An election under subsection 99(2) is not valid unless the individual was resident in Canada at the time when the fiscal period of the partnership would, if the election were valid, be deemed to have ended.
Marginal note:Idem
(4)An election under subsection 99(2) is not valid if, for the individual’s taxation year in which a fiscal period of the partnership would not, if the election were valid, be deemed to have ended but in which it would otherwise have ended, the individual elects to have applicable the rules set out in theIncome Tax Application Rulesthat apply when two or more fiscal periods of a partnership end in the same taxation year.
Marginal note:Disposition of interest in partnership
100(1)If, as part of a transaction or event or series of transactions or events, a taxpayer disposes of an interest in a partnership and an interest in the partnership is acquired by a person or partnership described in any of paragraphs (1.1)(a) to (d), then notwithstanding paragraph 38(a), the taxpayer’s taxable capital gain for a taxation year from the disposition of the interest is deemed to be the total of
(a)1/2 of such portion of the taxpayer’s capital gain for the year from the disposition as may reasonably be regarded as attributable to increases in the value of any partnership property of the partnership that is capital property (other than depreciable property) held directly by the partnership or held indirectly by the partnership through one or more other partnerships, and
(b)the whole of the remaining portion of that capital gain.
Marginal note:Acquisition by certain persons or partnerships
(1.1)Subject to subsection (1.2), subsection (1) applies in respect of a disposition of a partnership interest by a taxpayer if the interest is acquired by
(a)a person exempt from tax under section 149;
(b)a non-resident person;
(c)another partnership to the extent that the interest can reasonably be considered to be held, at the time of its acquisition by the other partnership, indirectly through one or more partnerships, by a person that is
(i)exempt from tax under section 149,
(ii)a non-resident, or
(iii)a trust resident in Canada (other than a mutual fund trust) if
(A)an interest as a beneficiary (in this subsection and subsection (1.2) having the meaning assigned by subsection 108(1)) under the trust is held, directly or indirectly through one or more other partnerships, by a person that is exempt from tax under section 149 or that is a trust (other than a mutual fund trust), and
(B)the total fair market value of the interests as beneficiaries under the trust held by persons referred to in clause (A) exceeds 10% of the fair market value of all the interests as beneficiaries under the trust; or
(d)a trust resident in Canada (other than a mutual fund trust) to the extent that the trust can reasonably be considered to have a beneficiary that is
(i)exempt from tax under section 149,
(ii)a partnership, if
(A)an interest in the partnership is held, whether directly or indirectly through one or more other partnerships, by one or more persons that are exempt from tax under section 149 or are trusts (other than mutual fund trusts), and
(B)the total fair market value of the interests held by persons referred to in clause (A) exceeds 10% of the fair market value of all the interests in the partnership, or
(iii)another trust (other than a mutual fund trust), if
(A)one or more beneficiaries under the other trust are a person exempt from tax under section 149, a partnership or a trust (other than a mutual fund trust), and
(B)the total fair market value of the interests as beneficiaries under the other trust held by the beneficiaries referred to in clause (A) exceeds 10% of the fair market value of all the interests as beneficiaries under the other trust.
Marginal note:De minimis
(1.2)Subsection (1) does not apply to a taxpayer’s disposition of a partnership interest to a partnership or trust described in paragraph (1.1)(c) or (d) — other than a trust under which the amount of the income or capital to be distributed at any time in respect of any interest as a beneficiary under the trust depends on the exercise by any person or partnership of, or the failure by any person or partnership to exercise, any discretionary power — if the extent to which subsection (1) would, but for this subsection, apply to the taxpayer’s disposition of the interest because of subsection (1.1) does not exceed 10% of the taxpayer’s interest.
Marginal note:Exception — non-resident person
(1.3)Subsection (1) does not apply in respect of a disposition of an interest in a partnership by a taxpayer to a person referred to in paragraph (1.1)(b) if
(a)property of the partnership is used, immediately before and immediately after the acquisition of the interest by the non-resident person, in carrying on business through one or more permanent establishments in Canada; and
(b)the total fair market value of the property referred to in paragraph (a) equals at least 90% of the total fair market value of all property of the partnership.
Marginal note:Anti-avoidance — dilution
(1.4)Subsection (1.5) applies in respect of a taxpayer’s interest in a partnership if
(a)it is reasonable to conclude that one of the purposes of a dilution, reduction or alteration of the interest was to avoid the application of subsection (1) in respect of the interest; and
(b)as part of a transaction or event or series of transactions or events that includes the dilution, reduction or alteration, there is
(i)an acquisition of an interest in the partnership by a person or partnership described in any of paragraphs (1.1)(a) to (d), or
(ii)an increase in, or alteration of, an interest in the partnership held by a person or partnership described in any of paragraphs (1.1)(a) to (d).
Marginal note:Deemed gain — dilution
(1.5)If this subsection applies in respect of a particular interest in a partnership of a taxpayer, then for the purposes of subsection (1),
(a)the taxpayer is deemed to have disposed of an interest in the partnership at the time of the dilution, reduction or alteration;
(b)the taxpayer is deemed to have a capital gain from the disposition equal to the amount by which the fair market value of the particular interest immediately before the dilution, reduction or alteration exceeds its fair market value immediately thereafter; and
(c)the person or partnership referred to in paragraph (1.4)(b) is deemed to have acquired an interest in the partnership as part of the transaction or event or series of transactions or events that includes the disposition referred to in paragraph (a).
Marginal note:Gain from disposition of interest in partnership
(2)In computing a taxpayer’s gain for a taxation year from the disposition of an interest in a partnership, there shall be included, in addition to the amount thereof determined under subsection 40(1), the amount, if any, by which
(a)the total of all amounts required by subsection 53(2) to be deducted in computing the adjusted cost base to the taxpayer, immediately before the disposition, of the interest in the partnership,
exceeds
(b)the total of
(i)the cost to the taxpayer of the interest in the partnership determined for the purpose of computing the adjusted cost base to the taxpayer of that interest at that time, and
(ii)all amounts required by subsection 53(1) to be added to the cost to the taxpayer of that interest in computing the adjusted cost base to the taxpayer of that interest at that time.
Marginal note:Idem
(2.1)Where, as a result of an amalgamation or merger, an interest in a partnership owned by a predecessor corporation has become property of the new corporation formed as a result of the amalgamation or merger and the predecessor corporation was not related to the new corporation, the predecessor corporation shall be deemed to have disposed of the interest in the partnership to the new corporation immediately before the amalgamation or merger for proceeds of disposition equal to the adjusted cost base to the predecessor corporation of the interest in the partnership at the time of the disposition and the new corporation shall be deemed to have acquired the interest in the partnership from the predecessor corporation immediately after that time at a cost equal to the proceeds of disposition.
Marginal note:Transfer of interest on death
(3)Where by virtue of the death of an individual a taxpayer has acquired a property that was an interest in a partnership immediately before the individual’s death (other than an interest to which, immediately before the individual’s death, section 98.1 applied) and the taxpayer is not a member of the partnership and does not become a member of the partnership by reason of that acquisition,
(a)the taxpayer shall be deemed to have acquired a right to receive partnership property and not to have acquired an interest in a partnership;
(b)the taxpayer shall be deemed to have acquired the right referred to in paragraph 100(3)(a) at a cost equal to the amount determined to be the proceeds of disposition of the interest in the partnership to the deceased individual by virtue of paragraph 70(5)(a) or 70(6)(d), as the case may be; and
(c)section 43 is not applicable to the right.
Marginal note:Loss re interest in partnership
(4)Notwithstanding paragraph 39(1)(b), the capital loss of a taxpayer from the disposition at any time of an interest in a partnership is deemed to be the amount of the loss otherwise determined minus the total of all amounts each of which is the amount by which the taxpayer’s share of the partnership’s loss, in respect of a share of the capital stock of a corporation that was property of a particular partnership at that time, would have been reduced under subsection 112(3.1) if the fiscal period of every partnership that includes that time had ended immediately before that time and the particular partnership had disposed of the share immediately before the end of that fiscal period for proceeds equal to its fair market value at that time.
Marginal note:Replacement of partnership capital
(5)A taxpayer who pays an amount at any time in a taxation year is deemed to have a capital loss from a disposition of property for the year if
(a)the taxpayer disposed of an interest in a partnership before that time or, because of subsection (3), acquired before that time a right to receive property of a partnership;
(b)that time is after the disposition or acquisition, as the case may be;
(c)the amount would have been described in subparagraph 53(1)(e)(iv) had the taxpayer been a member of the partnership at that time; and
(d)the amount is paid pursuant to a legal obligation of the taxpayer to pay the amount.
Marginal note:Disposition of farmland by partnership
101Where a taxpayer was a member of a partnership at the end of a taxation year of the partnership in which the partnership disposed of land used in a farming business of the partnership, there may be deducted in computing the taxpayer’s income for the taxpayer’s taxation year in which the taxation year of the partnership ended, 1/2 of the total of all amounts each of which is an amount in respect of that taxation year of the taxpayer or any preceding taxation year of the taxpayer ending after 1971, equal to the taxpayer’s loss, if any, for the year from the farming business, to the extent that the loss
(a)was, by virtue of section 31, not deductible in computing the taxpayer’s income for the year;
(b)was not deducted for the purpose of computing the taxpayer’s taxable income for the taxpayer’s taxation year in which the partnership’s taxation year in which the land was disposed of ended, or for any preceding taxation year of the taxpayer;
(c)did not exceed that proportion of the total of
(i)taxes (other than income or profits taxes or taxes imposed by reference to the transfer of the property) paid by the partnership in its taxation year ending in the year or payable by it in respect of that taxation year to a province or a Canadian municipality in respect of the property, and
(ii)interest paid by the partnership in its taxation year ending in the year or payable by it in respect of that taxation year, pursuant to a legal obligation to pay interest on borrowed money used to acquire the property or on any amount as consideration payable for the property,
(to the extent that the taxes and interest were included in computing the loss of the partnership for that taxation year from the farming business), that
(iii)the taxpayer’s loss from the farming business for the year
is of
(iv)the partnership’s loss from the farming business for its taxation year ending in the year; and
(d)did not exceed the remainder obtained when
(i)the total of each of the taxpayer’s losses from the farming business for taxation years preceding the year (to the extent that those losses are included in computing the amount determined under this section in respect of the taxpayer)
is deducted from
(ii)twice the amount of the taxpayer’s taxable capital gain from the disposition of the land.
Definition ofCanadian partnership
102(1)In this Subdivision,Canadian partnershipmeans a partnership all of the members of which were, at any time in respect of which the expression is relevant, resident in Canada.
Marginal note:Member of a partnership
(2)In this Subdivision, a reference to a person or a taxpayer who is a member of a particular partnership shall include a reference to another partnership that is a member of the particular partnership.
Marginal note:Agreement to share income, etc., so as to reduce or postpone tax otherwise payable
103(1)Where the members of a partnership have agreed to share, in a specified proportion, any income or loss of the partnership from any source or from sources in a particular place, as the case may be, or any other amount in respect of any activity of the partnership that is relevant to the computation of the income or taxable income of any of the members thereof, and the principal reason for the agreement may reasonably be considered to be the reduction or postponement of the tax that might otherwise have been or become payable under this Act, the share of each member of the partnership in the income or loss, as the case may be, or in that other amount, is the amount that is reasonable having regard to all the circumstances including the proportions in which the members have agreed to share profits and losses of the partnership from other sources or from sources in other places.
Marginal note:Agreement to share income, etc., in unreasonable proportions
(1.1)Where two or more members of a partnership who are not dealing with each other at arm’s length agree to share any income or loss of the partnership or any other amount in respect of any activity of the partnership that is relevant to the computation of the income or taxable income of those members and the share of any such member of that income, loss or other amount is not reasonable in the circumstances having regard to the capital invested in or work performed for the partnership by the members thereof or such other factors as may be relevant, that share shall, notwithstanding any agreement, be deemed to be the amount that is reasonable in the circumstances.
Definition oflosses
(2)For the purposes of this section, the wordlosseswhen used in the expression “profits and losses” means losses determined without reference to other provisions of this Act.
Marginal note:Reference to trust or estate
104(1)In this Act, a reference to a trust or estate (in this Subdivision referred to as a “trust”) shall, unless the context otherwise requires, be read to include a reference to the trustee, executor, administrator, liquidator of a succession, heir or other legal representative having ownership or control of the trust property, but, except for the purposes of this subsection, subsection (1.1), subparagraph (b)(v) of the definitiondispositionin subsection 248(1) and paragraph (k) of that definition, a trust is deemed not to include an arrangement under which the trust can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust’s property unless the trust is described in any of paragraphs (a) to (e.1) of the definitiontrustin subsection 108(1).
Marginal note:Restricted meaning ofbeneficiary
(1.1)Notwithstanding subsection 248(25), for the purposes of subsection (1), paragraph (4)(a.4), subparagraph 73(1.02)(b)(ii) and paragraph 107.4(1)(e), a person or partnership is deemed not to be a beneficiary under a trust at a particular time if the person or partnership is beneficially interested in the trust at the particular time solely because of
(a)a right that may arise as a consequence of the terms of the will or other testamentary instrument of an individual who, at the particular time, is a beneficiary under the trust;
(b)a right that may arise as a consequence of the law governing the intestacy of an individual who, at that time, is a beneficiary under the trust;
(c)a right as a shareholder under the terms of the shares of the capital stock of a corporation that, at the particular time, is a beneficiary under the trust;
(d)a right as a member of a partnership under the terms of the partnership agreement, where, at the particular time, the partnership is a beneficiary under the trust; or
(e)any combination of rights described in paragraphs (a) to (d).
Marginal note:Taxed as individual
(2)A trust shall, for the purposes of this Act, and without affecting the liability of the trustee or legal representative for that person’s own income tax, be deemed to be in respect of the trust property an individual, but where there is more than one trust and
(a)substantially all of the property of the various trusts has been received from one person, and
(b)the various trusts are conditioned so that the income thereof accrues or will ultimately accrue to the same beneficiary, or group or class of beneficiaries,
such of the trustees as the Minister may designate shall, for the purposes of this Act, be deemed to be in respect of all the trusts an individual whose property is the property of all the trusts and whose income is the income of all the trusts.
Marginal note:Deemed disposition by trust
(4)Every trust is, at the end of each of the following days, deemed to have disposed of each property of the trust (other than exempt property) that was capital property (other than depreciable property) or land included in the inventory of a business of the trust for proceeds equal to its fair market value (determined with reference to subsection 70(5.3)) at the end of that day and to have reacquired the property immediately after that day for an amount equal to that fair market value, and for the purposes of this Act those days are
(a)where the trust
(i)is a trust that was created by the will of a taxpayer who died after 1971 and that, at the time it was created, was a trust,
(i.1)is a trust that was created by the will of a taxpayer who died after 1971 to which property was transferred in circumstances to which paragraph 70(5.2)(c) (or, in the case of a transfer that occurred in a taxation year before 2007, (b) or (d), as those paragraphs read in their application to that taxation year) or (6)(d) applied, and that, immediately after any such property vested indefeasibly in the trust as a consequence of the death of the taxpayer, was a trust,
(ii)is a trust that was created after June 17, 1971 by a taxpayer during the taxpayer’s lifetime that, at any time after 1971, was a trust, or
(ii.1)is a trust (other than a trust the terms of which are described in clause (iv)(A) that elects in its return of income under this Part for its first taxation year that this subparagraph not apply) that was created after 1999 by a taxpayer during the taxpayer’s lifetime and that, at any time after 1999, was a trust
under which
(iii)the taxpayer’s spouse or common-law partner was entitled to receive all of the income of the trust that arose before the spouse’s or common-law partner’s death and no person except the spouse or common-law partner could, before the spouse’s or common-law partner’s death, receive or otherwise obtain the use of any of the income or capital of the trust, or
(iv)in the case of a trust described in subparagraph (ii.1) created by a taxpayer who had attained 65 years of age at the time the trust was created,
(A)the taxpayer was entitled to receive all of the income of the trust that arose before the taxpayer’s death and no person except the taxpayer could, before the taxpayer’s death, receive or otherwise obtain the use of any of the income or capital of the trust,
(B)the taxpayer or the taxpayer’s spouse was, in combination with the spouse or the taxpayer, as the case may be, entitled to receive all of the income of the trust that arose before the later of the death of the taxpayer and the death of the spouse and no other person could, before the later of those deaths, receive or otherwise obtain the use of any of the income or capital of the trust, or
(C)the taxpayer or the taxpayer’s common-law partner was, in combination with the common-law partner or the taxpayer, as the case may be, entitled to receive all of the income of the trust that arose before the later of the death of the taxpayer and the death of the common-law partner and no other person could, before the later of those deaths, receive or otherwise obtain the use of any of the income or capital of the trust,
the day on which the death or the later death, as the case may be, occurs;
(a.1)where the trust is a pre-1972 spousal trust on January 1, 1993 and the spouse or common-law partner referred to in the definitionpre-1972 spousal trustin subsection 108(1) in respect of the trust was
(i)in the case of a trust created by the will of a taxpayer, alive on January 1, 1976, and
(ii)in the case of a trust created by a taxpayer during the taxpayer’s lifetime, alive on May 26, 1976,
the day that is the later of
(iii)the day on which that spouse or common-law partner dies, and
(iv)January 1, 1993;
(a.2)where the trust makes a distribution to a beneficiary in respect of the beneficiary’s capital interest in the trust, it is reasonable to conclude that the distribution was financed by a liability of the trust and one of the purposes of incurring the liability was to avoid taxes otherwise payable under this Part as a consequence of the death of any individual, the day on which the distribution is made (determined as if a day ends for the trust immediately after the time at which each distribution is made by the trust to a beneficiary in respect of the beneficiary’s capital interest in the trust);
(a.3)where property (other than property described in any of subparagraphs 128.1(4)(b)(i) to (iii)) has been transferred by a taxpayer after December 17, 1999 to the trust in circumstances to which subsection 73(1) applied, it is reasonable to conclude that the property was so transferred in anticipation that the taxpayer would subsequently cease to reside in Canada and the taxpayer subsequently ceases to reside in Canada, the first day after that transfer during which the taxpayer ceases to reside in Canada (determined as if a day ends for the trust immediately after each time at which the taxpayer ceases to be resident in Canada);
(a.4)where the trust is a trust to which property was transferred by a taxpayer who is an individual (other than a trust) in circumstances in which section 73 or subsection 107.4(3) applied, the transfer did not result in a change in beneficial ownership of that property and no person (other than the taxpayer) or partnership has any absolute or contingent right as a beneficiary under the trust (determined with reference to subsection (1.1)), the day on which the death of the taxpayer occurs;
(b)the day that is 21 years after the latest of
(i)January 1, 1972,
(ii)the day on which the trust was created, and
(iii)where applicable, the day determined under paragraph (a), (a.1) or (a.4) as those paragraphs applied from time to time after 1971; and
(c)the day that is 21 years after any day (other than a day determined under any of paragraphs (a) to (a.4)) that is, because of this subsection, a day on which the trust is deemed to have disposed of each such property.
Marginal note:Depreciable property
(5)Every trust is, at the end of each day determined under subsection (4) in respect of the trust, deemed to have disposed of each property of the trust (other than exempt property) that was a depreciable property of a prescribed class of the trust for proceeds equal to its fair market value at the end of that day and to have reacquired the property immediately after that day at a capital cost (in this subsection referred to as the “deemed capital cost”) equal to that fair market value, except that
(a)where the amount that was the capital cost to the trust of the property immediately before the end of the day (in this paragraph referred to as the “actual capital cost”) exceeds the deemed capital cost to the trust of the property, for the purpose of sections 13 and 20 and any regulations made for the purpose of paragraph 20(1)(a) as they apply in respect of the property at any subsequent time,
(i)the capital cost to the trust of the property on its reacquisition shall be deemed to be the amount that was the actual capital cost to the trust of the property, and
(ii)the excess shall be deemed to have been allowed under paragraph 20(1)(a) to the trust in respect of the property in computing its income for taxation years that ended before the trust reacquired the property;
(b)for the purposes of this subsection, the reference to “at the end of a taxation year” in subsection 13(1) shall be read as a reference to “at the particular time a trust is deemed by subsection 104(5) to have disposed of depreciable property of a prescribed class”; and
(c)for the purpose of computing the excess, if any, referred to in subsection 13(1) at the end of the taxation year of a trust that included a day on which the trust is deemed by this subsection to have disposed of a depreciable property of a prescribed class, any amount that, on that day, was included in the trust’s income for the year under subsection 13(1) as it reads because of paragraph 104(5)(b), shall be deemed to be an amount included under section 13 in the trust’s income for a preceding taxation year.
Marginal note:NISA Fund No. 2
(5.1)Every trust that holds an interest in a NISA Fund No. 2 that was transferred to it in circumstances to which paragraph 70(6.1)(b) applied is deemed, at the end of the day on which the spouse or common-law partner referred to in that paragraph dies, to have been paid an amount out of the fund equal to the balance at the end of that day in the fund so transferred.
Marginal note:Resource property
(5.2)Where at the end of a day determined under subsection (4) in respect of a trust, the trust owns a Canadian resource property (other than an exempt property) or a foreign resource property (other than an exempt property),
(a)for the purposes of determining the amounts under subsection 59(1), paragraphs 59(3.2)(c) and (c.1), subsections 66(4) and 66.2(1), the definitioncumulative Canadian development expensein subsection 66.2(5), the definitioncumulative foreign resource expensein subsection 66.21(1), subsection 66.4(1) and the definitioncumulative Canadian oil and gas property expensein subsection 66.4(5), the trust is deemed
(i)to have a taxation year (in this subsection referred to as the “old taxation year”) that ended at the end of that day and a new taxation year that begins immediately after that day, and
(ii)to have disposed, immediately before the end of the old taxation year, of each of those properties for proceeds that became receivable at that time equal to its fair market value at that time and to have reacquired, at the beginning of the new taxation year, each such property for an amount equal to that fair market value; and
(b)for the particular taxation year of the trust that included that day, the trust shall
(i)include in computing its income for the particular taxation year the amount, if any, determined under paragraph 59(3.2)(c) in respect of the old taxation year and the amount so included shall, for the purposes of the determination of B in the definitioncumulative Canadian development expensein subsection 66.2(5), be deemed to have been included in computing its income for a preceding taxation year,
(i.1)include in computing its income for the particular taxation year the amount, if any, determined under paragraph 59(3.2)(c.1) in respect of the old taxation year and the amount so included is, for the purpose of determining the value of B in the definitioncumulative foreign resource expensein subsection 66.21(1), deemed to have been included in computing its income for a preceding taxation year, and
(ii)deduct in computing its income for the particular taxation year the amount, if any, determined under subsection 66(4) in respect of the old taxation year and the amount so deducted shall, for the purposes of paragraph 66(4)(a), be deemed to have been deducted for a preceding taxation year.
(5.3) to (5.7)[Repealed, 2013, c. 34, s. 231]
Marginal note:Trust transfers
(5.8)Where capital property, land included in inventory, Canadian resource property or foreign resource property is transferred at a particular time by a trust (in this subsection referred to as the “transferor trust”) to another trust (in this subsection referred to as the “transferee trust”) in circumstances in which subsection 107(2) or 107.4(3) or paragraph (f) of the definitiondispositionin subsection 248(1) applies,
(a)for the purposes of applying subsections 104(4) to 104(5.2) after the particular time,
(i)subject to paragraphs (b) to (b.3), the first day (in this subsection referred to as the “disposition day”) that ends at or after the particular time that would, if this section were read without reference to paragraphs (4)(a.2) and (a.3), be determined in respect of the transferee trust is deemed to be the earliest of
(A)the first day ending at or after the particular time that would be determined under subsection 104(4) in respect of the transferor trust without regard to the transfer and any transaction or event occurring after the particular time,
(B)the first day ending at or after the particular time that would otherwise be determined under subsection 104(4) in respect of the transferee trust without regard to any transaction or event occurring after the particular time,
(C)the first day that ends at or after the particular time, where
(I)the transferor trust is a joint spousal or common-law partner trust, a post-1971 spousal or common-law partner trust or a trust described in the definitionpre-1972 spousal trustin subsection 108(1), and
(II)the spouse or common-law partner referred to in paragraph (4)(a) or in the definitionpre-1972 spousal trustin subsection 108(1) is alive at the particular time,
(C.1)the first day that ends at or after the particular time, where
(I)the transferor trust is an alter ego trust, a trust to which paragraph (4)(a.4) applies or a joint spousal or common-law partner trust, and
(II)the taxpayer referred to in paragraph (4)(a) or (a.4), as the case may be, is alive at the particular time, and
(D)where
(I)the disposition day would, but for the application of this subsection to the transfer, be determined under paragraph 104(5.3)(a) in respect of the transferee trust, and
(II)the particular time is after the day that would, but for subsection 104(5.3), be determined under paragraph 104(4)(b) in respect of the transferee trust,
the first day ending at or after the particular time, and
(ii)where the disposition day determined in respect of the transferee trust under subparagraph 104(5.8)(a)(i) is earlier than the day referred to in clause 104(5.8)(a)(i)(B) in respect of the transferee trust, subsections 104(4) to 104(5.2) do not apply to the transferee trust on the day referred to in clause 104(5.8)(a)(i)(B) in respect of the transferee trust;
(b)paragraph (a) does not apply in respect of the transfer where
(i)the transferor trust is a post-1971 spousal or common-law partner trust or a trust described in the definitionpre-1972 spousal trustin subsection 108(1),
(ii)the spouse or common-law partner referred to in paragraph (4)(a) or in the definitionpre-1972 spousal trustin subsection 108(1) is alive at the particular time, and
(iii)the transferee trust is a post-1971 spousal or common-law partner trust or a trust described in the definitionpre-1972 spousal trustin subsection 108(1);
(b.1)paragraph (a) does not apply in respect of the transfer where
(i)the transferor trust is an alter ego trust,
(ii)the taxpayer referred to in paragraph (4)(a) is alive at the particular time, and
(iii)the transferee trust is an alter ego trust;
(b.2)paragraph (a) does not apply in respect of the transfer where
(i)the transferor trust is a joint spousal or common-law partner trust,
(ii)either the taxpayer referred to in paragraph (4)(a), or the spouse or common-law partner referred to in that paragraph, is alive at the particular time, and
(iii)the transferee trust is a joint spousal or common-law partner trust;
(b.3)paragraph (a) does not apply in respect of the transfer where
(i)the transferor trust is a trust to which paragraph (4)(a.4) applies,
(ii)the taxpayer referred to in paragraph (4)(a.4) is alive at the particular time, and
(iii)the transferee trust is a trust to which paragraph (4)(a.4) applies; and
(c)for the purposes of subsection 104(5.3), unless a day ending before the particular time has been determined under paragraph 104(4)(a.1) or 104(4)(b) or would, but for subsection 104(5.3), have been so determined, a day determined under subparagraph 104(5.8)(a)(i) shall be deemed to be a day determined under paragraph 104(4)(a.1) or 104(4)(b), as the case may be, in respect of the transferee trust.
Marginal note:Deduction in computing income of trust
(6)Subject to subsections (7) to (7.1), for the purposes of this Part, there may be deducted in computing the income of a trust for a taxation year
(a)in the case of an employee trust, the amount by which the amount that would, but for this subsection, be its income for the year exceeds the amount, if any, by which
(i)the total of all amounts each of which is its income for the year from a business
exceeds
(ii)the total of all amounts each of which is its loss for the year from a business;
(a.1)in the case of a trust governed by an employee benefit plan, such part of the amount that would, but for this subsection, be its income for the year as was paid in the year to a beneficiary;
(a.2)where the taxable income of the trust for the year is subject to tax under this Part because of paragraph 146(4)(c) or subsection 146.3(3.1), the part of the amount that, but for this subsection, would be the income of the trust for the year that was paid in the year to a beneficiary;
(a.3)in the case of a trust deemed by subsection 143(1) to exist in respect of a congregation that is a constituent part of a religious organization, such part of its income for the year as became payable in the year to a beneficiary;
(a.4)in the case of an employee life and health trust, an amount that became payable by the trust in the year as a designated employee benefit (as defined in subsection 144.1(1)); and
(b)in any other case, the amount that the trust claims not exceeding the amount, if any, determined by the formula
A – B
where
(i)if the trust is a trust for which a day is to be determined under paragraph (4)(a) or (a.4) by reference to a death or later death, as the case may be, that has not occurred before the beginning of the year, the total of
(A)the part of its income (determined without reference to this subsection and subsection (12)) for the year that became payable in the year to, or that was included under subsection 105(2) in computing the income of, a beneficiary (other than an individual whose death is that death or later death, as the case may be), and
(B)the total of all amounts each of which
(I)is included in its income (determined without reference to this subsection and subsection (12)) for the year — if the year is the year in which that death or later death, as the case may be, occurs and paragraph (13.4)(b) does not apply in respect of the trust for the year — because of the application of subsection (4), (5), (5.1) or (5.2) or 12(10.2), and
(II)is not included in the amount determined for clause (A) for the year, and
(ii)if the trust is a SIFT trust for the year, the amount, if any, by which
(A)the amount determined for A for the trust for the year
exceeds
(B)the amount, if any, by which the amount determined for A for the trust for the year exceeds its non-portfolio earnings for the year.
Marginal note:Non-resident beneficiary
(7)No deduction may be made under subsection 104(6) in computing the income for a taxation year of a trust in respect of such part of an amount that would otherwise be its income for the year as became payable in the year to a beneficiary who was, at any time in the year, a designated beneficiary of the trust (as that expression applies for the purposes of section 210.3) unless, throughout the year, the trust was resident in Canada.
Marginal note:Trusts deemed to be resident in Canada
(7.01)If a trust is deemed by subsection 94(3) to be resident in Canada for a taxation year for the purpose of computing the trust’s income for the year, the maximum amount deductible under subsection (6) in computing its income for the year is the amount, if any, by which
(a)the maximum amount that, if this Act were read without reference to this subsection, would be deductible under subsection (6) in computing its income for the year,
exceeds
(b)the total of
(i)the portion of the trust’s designated income for the year (within the meaning assigned by section 210) that became payable in the year to a non-resident beneficiary under the trust in respect of an interest of the non-resident as a beneficiary under the trust, and
(ii)all amounts each of which is determined by the formula
A × B
where
(A)is paid or credited (having the meaning assigned by Part XIII) in the year to the trust,
(B)would, if this Act were read without reference to subparagraph 94(3)(a)(viii), paragraph 212(2)(b) and sections 216 and 217, be an amount as a consequence of the payment or crediting of which the trust would have been liable to tax under Part XIII, and
(C)becomes payable in the year by the trust to a non-resident beneficiary under the trust in respect of an interest of the non-resident as a beneficiary under the trust, and
(A)0.35, if the trust can establish to the satisfaction of the Minister that the non-resident beneficiary to whom the amount described in the description of A is payable is resident in a country with which Canada has a tax treaty under which the income tax that Canada may impose on the beneficiary in respect of the amount is limited, and
(B)0.6, in any other case.
Marginal note:Limitation — amount claimed as gift
(7.02)No deduction may be made under subsection (6) in computing the income for a taxation year of an estate that arose on and as a consequence of an individual’s death in respect of a payment to the extent that the payment is a gift in respect of which an amount is deducted under section 118.1 for any taxation year in computing the individual’s tax payable under this Part.
Marginal note:Capital interest greater than income interest
(7.1)Where it is reasonable to consider that one of the main purposes for the existence of any term, condition, right or other attribute of an interest in a trust (other than a personal trust) is to give a beneficiary a percentage interest in the property of the trust that is greater than the beneficiary’s percentage interest in the income of the trust, no amount may be deducted under paragraph 104(6)(b) in computing the income of the trust.
Marginal note:Avoidance of s. (7.1)
(7.2)Notwithstanding any other provision of this Act, where
(a)a taxpayer has acquired a right to or to acquire an interest in a trust, or a right to or to acquire a property of a trust, and
(b)it is reasonable to consider that one of the main purposes of the acquisition was to avoid the application of subsection 104(7.1) in respect of the trust,
on a disposition of the right (other than pursuant to the exercise thereof), the interest or the property, there shall be included in computing the income of the taxpayer for the taxation year in which the disposition occurs the amount, if any, by which
(c)the proceeds of disposition of the right, interest or property, as the case may be,
exceed
(d)the cost amount to the taxpayer of the right, interest or property, as the case may be.
(10) and (11)[Repealed, 2013, c. 34, s. 231]
Marginal note:Deduction of amounts included in preferred beneficiaries’ incomes
(12)There may be deducted in computing the income of a trust for a taxation year the lesser of
(a)the total of all amounts designated under subsection 104(14) by the trust in respect of the year, and
(b)the accumulating income of the trust for the year.
Marginal note:Income of beneficiary
(13)There shall be included in computing the income for a particular taxation year of a beneficiary under a trust such of the following amounts as are applicable:
(a)in the case of a trust (other than a trust referred to in paragraph (a) of the definitiontrustin subsection 108(1)), such part of the amount that, but for subsections (6) and (12), would be the trust’s income for the trust’s taxation year that ended in the particular year as became payable in the trust’s year to the beneficiary; and
(b)in the case of a trust governed by an employee benefit plan to which the beneficiary has contributed as an employer, such part of the amount that, but for subsections (6) and (12), would be the trust’s income for the trust’s taxation year that ended in the particular year as was paid in the trust’s year to the beneficiary.
Marginal note:Amounts deemed not paid
(13.1)Where a trust, in its return of income under this Part for a taxation year throughout which it was resident in Canada and not exempt from tax under Part I by reason of subsection 149(1), designates an amount in respect of a beneficiary under the trust, not exceeding the amount determined by the formula
A/B × (C - D - E)
where
the amount so designated shall be deemed, for the purposes of subsections 104(13) and 105(2), not to have been paid or to have become payable in the year to or for the benefit of the beneficiary or out of income of the trust.
Marginal note:Idem
(13.2)Where a trust, in its return of income under this Part for a taxation year throughout which it was resident in Canada and not exempt from tax under Part I by reason of subsection 149(1), designates an amount in respect of a beneficiary under the trust, not exceeding the amount determined by the formula
A/B × C
where
(i)the total of all amounts each of which is an amount that, but for this subsection or subsection 104(13.1), would be included in computing the income of a beneficiary under the trust by reason of subsection 104(13) or 105(2) for the year
exceeds
(ii)the amount deducted under subsection 104(6) in computing the income of the trust for the year,
the amount so designated shall
(a)for the purposes of subsections (13) and 105(2) (except in the application of subsection (13) for the purposes of subsection (21)), be deemed not to have been paid or to have become payable in the year to or for the benefit of the beneficiary or out of income of the trust; and
(b)except for the purposes of subsection 104(21) as it applies for the purposes of subsections 104(21.1) and 104(21.2), reduce the amount of the taxable capital gains of the beneficiary otherwise included in computing the beneficiary’s income for the year by reason of subsection 104(21).
Marginal note:Invalid designation
(13.3)Any designation made under subsection (13.1) or (13.2) by a trust in its return of income under this Part for a taxation year is invalid if the trust’s taxable income for the year, determined without reference to this subsection, is greater than nil.
Marginal note:Death of beneficiary — spousal and similar trusts
(13.4)If an individual’s death occurs on a day in a particular taxation year of a trust and the death is the death or later death, as the case may be, referred to in paragraph (4)(a), (a.1) or (a.4) in respect of the trust,
(a)the particular year is deemed to end at the end of that day, a new taxation year of the trust is deemed to begin immediately after that day and, for the purpose of determining the trust’s fiscal period after the new taxation year began, the trust is deemed not to have established a fiscal period before the new taxation year began;
(b)subject to paragraph (b.1), the trust’s income (determined without reference to subsections (6) and (12)) for the particular year is, notwithstanding subsection (24), deemed
(i)to have become payable in the year to the individual, and
(ii)not
(A)to have become payable to another beneficiary, or
(B)to be included under subsection 105(2) in computing the individual’s income;
(b.1)paragraph (b) does not apply in respect of the trust for the particular year, unless
(i)the individual is resident in Canada immediately before the death,
(ii)the trust is, immediately before the death, a testamentary trust that
(A)is a post-1971 spousal or common-law partner trust, and
(B)was created by the will of a taxpayer who died before 2017, and
(iii)an election — made jointly between the trust and the legal representative administering the individual’s graduated rate estate in prescribed form — that paragraph (b) applies is filed with
(A)the individual’s return of income under this Part for the individual’s year, and
(B)the trust’s return of income under this Part for the particular year; and
(c)in respect of the particular year
(i)the references in paragraph 150(1)(c) to “year” and in subparagraph (a)(ii) of the definitionbalance-due dayin subsection 248(1) to “taxation year” are to be read as “calendar year in which the taxation year ends”, and
(ii)the reference in subsection 204(2) of theIncome Tax Regulationsto “end of the taxation year” is to be read as “end of the calendar year in which the taxation year ends”.
Marginal note:Election by trust and preferred beneficiary
(14)Where a trust and a preferred beneficiary under the trust for a particular taxation year of the trust jointly so elect in respect of the particular year in prescribed manner, such part of the accumulating income of the trust for the particular year as is designated in the election, not exceeding the allocable amount for the preferred beneficiary in respect of the trust for the particular year, shall be included in computing the income of the preferred beneficiary for the beneficiary’s taxation year in which the particular year ended and shall not be included in computing the income of any beneficiary of the trust for a subsequent taxation year.
(14.01) to (14.1)[Repealed, 2014, c. 39, s. 26]
Marginal note:Allocable amount for preferred beneficiary
(15)For the purpose of subsection 104(14), the allocable amount for a preferred beneficiary under a trust in respect of the trust for a taxation year is
(a)where the trust is an alter ego trust, a joint spousal or common-law partner trust, a post-1971 spousal or common-law partner trust or a trust described in the definitionpre-1972 spousal trustin subsection 108(1) at the end of the year and a beneficiary, referred to in paragraph (4)(a) or in that definition, is alive at the end of the year, an amount equal to
(i)if the preferred beneficiary is a beneficiary so referred to, the trust’s accumulating income for the year, and
(ii)in any other case, nil;
(b)where paragraph (a) does not apply and the preferred beneficiary’s interest in the trust is not solely contingent on the death of another beneficiary who has a capital interest in the trust and who does not have an income interest in the trust, the trust’s accumulating income for the year; and
(c)in any other case, nil.
Marginal note:SIFT deemed dividend
(16)If an amount (in this subsection and section 122 referred to as the trust’s “non-deductible distributions amount” for the taxation year) is determined under subparagraph (ii) of the description of B in paragraph (6)(b) in respect of a SIFT trust for a taxation year
(a)each beneficiary under the SIFT trust to whom at any time in the taxation year an amount became payable by the trust is deemed to have received at that time a taxable dividend that was paid at that time by a taxable Canadian corporation;
(b)the amount of a dividend described in paragraph (a) as having been received by a beneficiary at any time in a taxation year is equal to the amount determined by the formula
A/B × C
where
(c)the amount of a dividend described in paragraph (a) in respect of a beneficiary under the SIFT trust is deemed for the purpose of subsection (13) not to be an amount payable to the beneficiary; and
(d)for the purposes of applying Part XIII in respect of each dividend described in paragraph (a), the SIFT trust is deemed to be a corporation resident in Canada that paid the dividend.
Marginal note:Trust for minor
(18)Where any part of the amount that, but for subsections 104(6) and 104(12), would be the income of a trust for a taxation year throughout which it was resident in Canada
(a)has not become payable in the year,
(b)was held in trust for an individual who did not attain 21 years of age before the end of the year,
(c)the right to which vested at or before the end of the year otherwise than because of the exercise by any person of, or the failure of any person to exercise, any discretionary power, and
(d)the right to which is not subject to any future condition (other than a condition that the individual survive to an age not exceeding 40 years),
notwithstanding subsection 104(24), that part of the amount is, for the purposes of subsections 104(6) and 104(13), deemed to have become payable to the individual in the year.
Marginal note:Designation in respect of taxable dividends
(19)A portion of a taxable dividend received by a trust, in a particular taxation year of the trust, on a share of the capital stock of a taxable Canadian corporation is, for the purposes of this Act other than Part XIII, deemed to be a taxable dividend on the share received by a taxpayer, in the taxpayer’s taxation year in which the particular taxation year ends, and is, for the purposes of paragraphs 82(1)(b) and 107(1)(c) and (d) and section 112, deemed not to have been received by the trust, if
(a)an amount equal to that portion
(i)is designated by the trust, in respect of the taxpayer, in the trust’s return of income under this Part for the particular taxation year, and
(ii)may reasonably be considered (having regard to all the circumstances including the terms and conditions of the trust) to be part of the amount that, because of paragraph (13)(a), subsection (14) or section 105, was included in computing the income for that taxation year of the taxpayer;
(b)the taxpayer is in the particular taxation year a beneficiary under the trust;
(c)the trust is, throughout the particular taxation year, resident in Canada; and
(d)the total of all amounts each of which is an amount designated, under this subsection, by the trust in respect of a beneficiary under the trust in the trust’s return of income under this Part for the particular taxation year is not greater than the total of all amounts each of which is the amount of a taxable dividend, received by the trust in the particular taxation year, on a share of the capital stock of a taxable Canadian corporation.
Marginal note:Designation in respect of non-taxable dividends
(20)The portion of the total of all amounts, each of which is the amount of a dividend (other than a taxable dividend) paid on a share of the capital stock of a corporation resident in Canada to a trust during a taxation year of the trust throughout which the trust was resident in Canada, that can reasonably be considered (having regard to all the circumstances including the terms and conditions of the trust arrangement) to be part of an amount that became payable in the year to a particular beneficiary under the trust shall be designated by the trust in respect of the particular beneficiary in the return of the trust’s income for the year for the purposes of subclause 53(2)(h)(i.1)(B)(II), paragraphs 107(1)(c) and 107(1)(d) and subsections 112(3.1), 112(3.2), 112(3.31) and 112(4.2).
Marginal note:Designation in respect of taxable capital gains
(21)For the purposes of sections 3 and 111, except as they apply for the purposes of section 110.6, and subject to paragraph 132(5.1)(b), an amount in respect of a trust’s net taxable capital gains for a particular taxation year of the trust is deemed to be a taxable capital gain, for the taxation year of a taxpayer in which the particular taxation year ends, from the disposition by the taxpayer of capital property if
(a)the amount
(i)is designated by the trust, in respect of the taxpayer, in the trust’s return of income under this Part for the particular taxation year, and
(ii)may reasonably be considered (having regard to all the circumstances including the terms and conditions of the trust) to be part of the amount that, because of paragraph (13)(a), subsection (14) or section 105, was included in computing the income for that taxation year of the taxpayer;
(b)the taxpayer is
(i)in the particular taxation year, a beneficiary under the trust, and
(ii)resident in Canada, unless the trust is, throughout the particular taxation year, a mutual fund trust;
(c)the trust is, throughout the particular taxation year, resident in Canada; and
(d)the total of all amounts each of which is an amount designated, under this subsection, by the trust in respect of a beneficiary under the trust in the trust’s return of income under this Part for the particular taxation year is not greater than the trust’s net taxable capital gains for the particular taxation year.
Marginal note:Late, amended or revoked designation
(21.01)A trust that has filed its return of income for its taxation year that includes February 22, 1994 may subsequently designate an amount under subsection 104(21), or amend or revoke a designation made under that subsection where the designation, amendment or revocation
(a)is made solely because of an increase or decrease in the net taxable capital gains of the trust for the year that results from an election or revocation to which subsection 110.6(25), 110.6(26) or 110.6(27) applies; and
(b)is filed with the Minister, with an amended return of income for the year, when the election or revocation referred to in paragraph 104(21.01)(a) is filed with the Minister.
Marginal note:Late, amended or revoked designation
(21.02)A designation, amendment or revocation under subsection 104(21.01) that affects an amount determined in respect of a beneficiary under subsection 104(21.2) may be made only where the trust
(a)designates an amount, or amends or revokes a designation made, under subsection 104(21.2) in respect of the beneficiary; and
(b)files the designation, amendment or revocation referred to in paragraph 104(21.02)(a) with the Minister when required by paragraph 104(21.01)(b).
Marginal note:Late, amended or revoked designation
(21.03)Where a trust designates an amount, or amends or revokes a designation, under subsection 104(21) or 104(21.2) in accordance with subsection 104(21.01),
(a)the designation or amended designation, as the case may be, is deemed to have been made in the trust’s return of income for the trust’s taxation year that includes February 22, 1994; and
(b)the designation that was revoked is deemed, other than for the purposes of this subsection and subsections 104(21.01) and 104(21.02), never to have been made.
(21.1)[Repealed, 2013, c. 34, s. 231]
Marginal note:Beneficiaries’ taxable capital gain
(21.2)Where, for the purposes of subsection (21), a personal trust or a trust referred to in subsection 7(2) designates an amount in respect of a beneficiary in respect of its net taxable capital gains for a taxation year (in this subsection referred to as the “designation year”),
(a)the trust shall in its return of income under this Part for the designation year designate an amount in respect of its eligible taxable capital gains, if any, for the designation year in respect of the beneficiary equal to the amount determined in respect of the beneficiary under each of subparagraphs 104(21.2)(b)(i) and 104(21.2)(b)(ii); and
(b)the beneficiary is, for the purposes of section 120.4 and for the purposes of sections 3, 74.3 and 111 as they apply for the purposes of section 110.6,
(i)deemed to have disposed of the capital property referred to in clause (ii)(A), (B) or (C) if a taxable capital gain is determined in respect of the beneficiary for the beneficiary’s taxation year in which the designation year ends under those clauses, and
(ii)deemed to have a taxable capital gain for the beneficiary’s taxation year in which the designation year ends
(A)from a disposition of a capital property that is qualified farm or fishing property (as defined for the purpose of section 110.6) of the beneficiary equal to the amount determined by the formula
(A × B × C)/(D × E)
and
(B)from a disposition of a capital property that is a qualified small business corporation share (as defined for the purpose of section 110.6) of the beneficiary equal to the amount determined by the formula
(A × B × F)/(D × E)
where
(I)the amount determined by the formula
G - H
where
(II)the trust’s eligible taxable capital gains for the designation year,
(C)[Repealed, 2014, c. 39, s. 26]
Marginal note:Beneficiaries QFFP taxable capital gain
(21.21)If clause (21.2)(b)(ii)(A) applies to deem, for the purposes of section 110.6, the beneficiary under a trust to have a taxable capital gain (referred to in this subsection as the “QFFP taxable capital gain”) from a disposition of capital property that is qualified farm or fishing property of the beneficiary, for the beneficiary’s taxation year that ends on or after April 21, 2015, and in which the designation year of the trust ends, for the purposes of subsection 110.6(2.2), the beneficiary is, if the trust complies with the requirements of subsection (21.22), deemed to have a taxable capital gain from the disposition of qualified farm or fishing property of the beneficiary on or after April 21, 2015 equal to the amount determined by the formula
A × B/C
where
Marginal note:Trusts to designate amounts
(21.22)A trust shall determine and designate, in its return of income under this Part for a designation year of the trust, the amount that is determined under subsection (21.21) to be the beneficiary’s taxable capital gain from the disposition on or after April 21, 2015 of qualified farm or fishing property of the beneficiary.
(21.23) and (21.24)[Repealed, 2014, c. 39, s. 26]
Marginal note:Net taxable capital gains of trust determined
(21.3)For the purposes of this section, the net taxable capital gains of a trust for a taxation year is the amount, if any, determined by the formula
A + B – C – D
where
(21.4) to (21.7)[Repealed, 2013, c. 34, s. 231]
Marginal note:Designation in respect of foreign source income
(22)For the purposes of this subsection, subsection (22.1) and section 126, an amount in respect of a trust’s income for a particular taxation year of the trust from a source in a country other than Canada is deemed to be income of a taxpayer, for the taxation year of the taxpayer in which the particular taxation year ends, from that source if
(a)the amount
(i)is designated by the trust, in respect of the taxpayer, in the trust’s return of income under this Part for the particular taxation year, and
(ii)may reasonably be considered (having regard to all the circumstances including the terms and conditions of the trust) to be part of the amount that, because of paragraph (13)(a) or subsection (14), was included in computing the income for that taxation year of the taxpayer;
(b)the taxpayer is in the particular taxation year a beneficiary under the trust;
(c)the trust is, throughout the particular taxation year, resident in Canada; and
(d)the total of all amounts each of which is an amount designated, under this subsection in respect of that source, by the trust in respect of a beneficiary under the trust in the trust’s return of income under this Part for the particular taxation year is not greater than the trust’s income for the particular taxation year from that source.
Marginal note:Foreign tax deemed paid by beneficiary
(22.1)Where a taxpayer is a beneficiary under a trust, for the purposes of this subsection and section 126, the taxpayer shall be deemed to have paid as business-income tax or non-business-income tax, as the case may be, for a particular taxation year in respect of a source the amount determined by the formula
A × B/C
where
Marginal note:Recalculation of trust’s foreign source income
(22.2)For the purpose of section 126, there shall be deducted in computing a trust’s income from a source for a taxation year the total of all amounts deemed, because of designations under subsection 104(22) by the trust for the year, to be income of beneficiaries under the trust from that source.
Marginal note:Recalculation of trust’s foreign tax
(22.3)For the purpose of section 126, there shall be deducted in computing the business-income tax or non-business-income tax paid by a trust for a taxation year in respect of a source the total of all amounts deemed, because of designations under subsection 104(22) by the trust for the year, to be paid by beneficiaries under the trust as business-income tax or non-business-income tax, as the case may be, in respect of the source.
Marginal note:Definitions
(22.4)For the purposes of subsections 104(22) to 104(22.3), the expressionsbusiness-income taxandnon-business-income taxhave the meanings assigned by subsection 126(7).
Marginal note:Deceased beneficiary of graduated rate estate
(23)In the case of a trust that is a graduated rate estate,
(a) and (b)[Repealed, 2013, c. 34, s. 231]
(c)the income of a person for a taxation year from the trust shall be deemed to be the person’s benefits from or under the trust for the taxation year or years of the trust that ended in the year determined as provided by this section and section 105; and
(d)where an individual having income from the trust died after the end of a taxation year of the trust but before the end of the calendar year in which the taxation year ended, the individual’s income from the trust for the period commencing immediately after the end of the taxation year and ending at the time of death shall be included in computing the individual’s income for the individual’s taxation year in which the individual died unless the individual’s legal representative has elected otherwise, in which case the legal representative shall file a separate return of income for the period under this Part and pay the tax for the period under this Part as if
(i)the individual were another person,
(ii)the period were a taxation year,
(iii)that other person’s only income for the period were the individual’s income from the trust for that period, and
(iv)subject to sections 114.2 and 118.93, that other person were entitled to the deductions to which the individual was entitled under sections 110, 118 to 118.7 and 118.9 for the period in computing the individual’s taxable income or tax payable under this Part, as the case may be, for the period.
(e)[Repealed, 2014, c. 39, s. 26]
Marginal note:Amount payable
(24)For the purposes of subsections (6), (7), (7.01), (13), (16) and (20), subparagraph 53(2)(h)(i.1) and subsections 94(5.2) and (8), an amount is deemed not to have become payable to a beneficiary in a taxation year unless it was paid in the year to the beneficiary or the beneficiary was entitled in the year to enforce payment of it.
Marginal note:Pension benefits
(27)If a trust, in a taxation year in which it is resident in Canada and is the graduated rate estate of an individual, receives a superannuation or pension benefit or a benefit out of or under a foreign retirement arrangement and designates, in its return of income for the year under this Part, an amount in respect of a beneficiary under the trust equal to the portion (in this subsection referred to as the “beneficiary’s share”) of the benefit that
(a)may reasonably be considered (having regard to all the circumstances including the terms and conditions of the trust arrangement) to be part of the amount that, by reason of subsection 104(13), was included in computing the income for a particular taxation year of the beneficiary, and
(b)was not designated by the trust in respect of any other beneficiary under the trust,
the following rules apply:
(c)where
(i)the benefit is an amount described in subparagraph (a)(i) of the definitionpension incomein subsection 118(7), and
(ii)the beneficiary was a spouse or common-law partner of the individual,
the beneficiary’s share of the benefit shall be deemed, for the purposes of subsections 118(3) and 118(7), to be a payment described in subparagraph (a)(i) of the definitionpension incomein subsection 118(7) that is included in computing the beneficiary’s income for the particular year,
(d)where the benefit
(i)is a single amount (as defined in subsection 147.1(1)), other than an amount that relates to an actuarial surplus, paid by a registered pension plan to the trust as a consequence of the individual’s death and the individual was, at the time of death, a spouse or common-law partner of the beneficiary, or
(ii)would be an amount included in the total determined under paragraph 60(j) in respect of the beneficiary for the taxation year of the beneficiary in which the benefit was received by the trust if the benefit had been received by the beneficiary at the time it was received by the trust,
the beneficiary’s share of the benefit is, for the purposes of paragraph 60(j), an eligible amount in respect of the beneficiary for the particular year, and
(e)where the benefit is a single amount (as defined in subsection 147.1(1)) paid by a registered pension plan to the trust as a consequence of the individual’s death,
(i)if the beneficiary was, immediately before the death, a child or grandchild of the individual who, because of mental or physical infirmity, was financially dependent on the individual for support, the beneficiary’s share of the benefit (other than any portion of it that relates to an actuarial surplus) is deemed, for the purposes of paragraph 60(l), to be an amount from a registered pension plan included in computing the beneficiary’s income for the particular year as a payment described in clause 60(l)(v)(B.01), and
(ii)if the beneficiary was, at the time of the death, under 18 years of age and a child or grandchild of the individual, the beneficiary’s share of the benefit (other than any portion of it that relates to an actuarial surplus) is deemed, for the purposes of paragraph 60(l), to be an amount from a registered pension plan included in computing the beneficiary’s income for the particular year as a payment described in subclause 60(l)(v)(B.1)(II).
Marginal note:DPSP benefits
(27.1)Where
(a)a trust, in a taxation year (in this subsection referred to as the “trust year”) in which it is resident in Canada and is the graduated rate estate of an individual, receives an amount from a deferred profit sharing plan as a consequence of the individual’s death,
(b)the individual was an employee of an employer who participated in the plan on behalf of the individual, and
(c)the amount is not part of a series of periodic payments,
such portion of the amount as
(d)is included under subsection 147(10) in computing the income of the trust for the trust year,
(e)can reasonably be considered (having regard to all the circumstances including the terms and conditions of the trust arrangement) to be part of the amount that was included under subsection (13) in computing the income for a particular taxation year of a beneficiary under the trust who was, at the time of the death, the individual’s spouse or common-law partner, and
(f)is designated by the trust in respect of the beneficiary in the trust’s return of income under this Part for the trust year
is, for the purposes of paragraph 60(j), an eligible amount inrespect of the beneficiary for the particular year.
Marginal note:Death benefit
(28)If the graduated rate estate of an individual receives an amount on or after the individual’s death in recognition of the individual’s service in an office or employment, the portion of the amount that can reasonably be considered (having regard to all the circumstances including the terms and conditions of the trust arrangement) to be paid or payable at any time to a beneficiary under the estate is deemed
(a)to be an amount received by the beneficiary at that time on or after the death in recognition of the individual’s service in an office or employment; and
(b)except for purposes of this subsection, not to have been received by the estate.
(29)[Repealed, 2003, c. 28, s. 11(2)]
Marginal note:Tax under Part XII.2
(30)For the purposes of this Part, there shall be deducted in computing the income of a trust for a taxation year the tax paid by the trust for the year under Part XII.2.
Marginal note:Idem
(31)The amount in respect of a taxation year of a trust that is deemed under subsection 210.2(3) to have been paid by a beneficiary under the trust on account of the beneficiary’s tax under this Part shall, for the purposes of subsection 104(13), be deemed to be an amount in respect of the income of the trust for the year that has become payable by the trust to the beneficiary at the end of the year.
Marginal note:Benefits under trust
105(1)The value of all benefits to a taxpayer during a taxation year from or under a trust, irrespective of when created, shall, subject to subsection 105(2), be included in computing the taxpayer’s income for the year except to the extent that the value
(a)is otherwise required to be included in computing the taxpayer’s income for a taxation year; or
(b)has been deducted under paragraph 53(2)(h) in computing the adjusted cost base of the taxpayer’s interest in the trust or would be so deducted if that paragraph
(i)applied in respect of the taxpayer’s interest in the trust, and
(ii)were read without reference to clause 53(2)(h)(i.1)(B).
Marginal note:Upkeep, etc.
(2)Such part of an amount paid by a trust out of income of the trust for the upkeep, maintenance or taxes of or in respect of property that, under the terms of the trust arrangement, is required to be maintained for the use of a tenant for life or a beneficiary as is reasonable in the circumstances shall be included in computing the income of the tenant for life or other beneficiary from the trust for the taxation year for which it was paid.
Marginal note:Income interest in trust
106(1)Where an amount in respect of a taxpayer’s income interest in a trust has been included in computing the taxpayer’s income for a taxation year by reason of subsection 106(2) or 104(13), except to the extent that an amount in respect of that income interest has been deducted in computing the taxpayer’s taxable income pursuant to subsection 112(1) or 138(6), there may be deducted in computing the taxpayer’s income for the year the lesser of
(a)the amount so included in computing the taxpayer’s income for the year, and
(b)the amount, if any, by which the cost to the taxpayer of the income interest exceeds the total of all amounts in respect of the interest that were deductible under this subsection in computing the taxpayer’s income for previous taxation years.
Marginal note:Cost of income interest in a trust
(1.1)The cost to a taxpayer of an income interest of the taxpayer in a trust is deemed to be nil unless
(a)any part of the interest was acquired by the taxpayer from a person who was the beneficiary in respect of the interest immediately before that acquisition; or
(b)the cost of any part of the interest would otherwise be determined not to be nil under paragraph 128.1(1)(c) or (4)(c).
Marginal note:Disposition by taxpayer of income interest
(2)Where in a taxation year a taxpayer disposes of an income interest in a trust,
(a)except where subsection (3) applies to the disposition, there shall be included in computing the taxpayer’s income for the year the amount, if any, by which
(i)the proceeds of disposition
exceed
(ii)where that interest includes a right to enforce payment of an amount by the trust, the amount in respect of that right that has been included in computing the taxpayer’s income for a taxation year because of subsection 104(13);
(b)any taxable capital gain or allowable capital loss of the taxpayer from the disposition shall be deemed to be nil; and
(c)for greater certainty, the cost to the taxpayer of each property received by the taxpayer as consideration for the disposition is the fair market value of the property at the time of the disposition.
Marginal note:Proceeds of disposition of income interest
(3)For greater certainty, where at any time any property of a trust has been distributed by the trust to a taxpayer who was a beneficiary under the trust in satisfaction of all or any part of the taxpayer’s income interest in the trust, the trust shall be deemed to have disposed of the property for proceeds of disposition equal to the fair market value of the property at that time.
Marginal note:Disposition by taxpayer of capital interest
107(1)Where a taxpayer has disposed of all or any part of the taxpayer’s capital interest in a trust,
(a)where the trust is a personal trust or a prescribed trust, for the purpose of computing the taxpayer’s capital gain, if any, from the disposition, the adjusted cost base to the taxpayer of the interest or the part of the interest, as the case may be, immediately before the disposition is, unless any part of the interest has ever been acquired for consideration and, at the time of the disposition, the trust is non-resident, deemed to be the greater of
(i)its adjusted cost base, otherwise determined, to the taxpayer immediately before the disposition, and
(ii)the amount, if any, by which
(A)its cost amount to the taxpayer immediately before the disposition
exceeds
(B)the total of all amounts deducted under paragraph 53(2)(g.1) in computing its adjusted cost base to the taxpayer immediately before the disposition;
(b)[Repealed, 2001, c. 17, s. 80]
(c)where the taxpayer is not a mutual fund trust, the taxpayer’s loss from the disposition is deemed to be the amount, if any, by which the amount of that loss otherwise determined exceeds the amount, if any, by which
(i)the total of all amounts each of which was received or would, but for subsection 104(19), have been received by the trust on a share of the capital stock of a corporation before the disposition (and, where the trust is a unit trust, after 1987) and
(A)where the taxpayer is a corporation,
(I)was a taxable dividend designated under subsection 104(19) by the trust in respect of the taxpayer, to the extent of the amount of the dividend that was deductible under section 112 or subsection 115(1) or 138(6) in computing the taxpayer’s taxable income or taxable income earned in Canada for any taxation year, or
(II)was an amount designated under subsection 104(20) by the trust in respect of the taxpayer,
(B)where the taxpayer is another trust, was an amount designated under subsection 104(19) or 104(20) by the trust in respect of the taxpayer, and
(C)where the taxpayer is not a corporation, trust or partnership, was an amount designated under subsection 104(20) by the trust in respect of the taxpayer
exceeds
(ii)the portion of the total determined under subparagraph 107(1)(c)(i) that can reasonably be considered to have resulted in a reduction, under this paragraph, of the taxpayer’s loss otherwise determined from a previous disposition of an interest in the trust;
(d)where the taxpayer is a partnership, the share of a person (other than another partnership or a mutual fund trust) of any loss of the partnership from the disposition is deemed to be the amount, if any, by which that loss otherwise determined exceeds the amount, if any, by which
(i)the total of all amounts each of which is a dividend that was received or would, but for subsection 104(19), have been received by the trust on a share of the capital stock of a corporation before the disposition (and, where the trust is a unit trust, after 1987) and
(A)where the person is a corporation,
(I)was a taxable dividend that was designated under subsection 104(19) by the trust in respect of the taxpayer, to the extent of the amount of the dividend that was deductible under section 112 or subsection 115(1) or 138(6) in computing the person’s taxable income or taxable income earned in Canada for any taxation year, or
(II)was a dividend designated under subsection 104(20) by the trust in respect of the taxpayer and was an amount received by the person,
(B)where the person is an individual other than a trust, was a dividend designated under subsection 104(20) by the trust in respect of the taxpayer and was an amount received by the person, and
(C)where the person is another trust, was a dividend designated under subsection 104(19) or 104(20) by the trust in respect of the taxpayer and was an amount received by the person (or that would have been received by the person if this Act were read without reference to subsection 104(19)),
exceeds
(ii)the portion of the total determined under subparagraph 107(1)(d)(i) that can reasonably be considered to have resulted in a reduction, under this paragraph, of the person’s loss otherwise determined from a previous disposition of an interest in the trust; and
(e)if the capital interest is not a capital property of the taxpayer, notwithstanding the definitioncost amountin subsection 108(1), its cost amount is deemed to be the amount, if any, by which
(i)the amount that would, if this Act were read without reference to this paragraph and the definitioncost amountin subsection 108(1), be its cost amount
exceeds
(ii)the total of all amounts, each of which is an amount in respect of the capital interest that has become payable to the taxpayer before the disposition and that would be described in subparagraph 53(2)(h)(i.1) if that subparagraph were read without reference to its subclause (B)(I).
Marginal note:Cost of capital interest in a trust
(1.1)The cost to a taxpayer of a capital interest of the taxpayer in a personal trust or a prescribed trust is deemed to be,
(a)where the taxpayer elected under subsection 110.6(19) in respect of the interest and the trust does not elect under that subsection in respect of any property of the trust, the taxpayer’s cost of the interest determined under paragraph 110.6(19)(a); and
(b)in any other case, nil, unless
(i)any part of the interest was acquired by the taxpayer from a person who was the beneficiary in respect of the interest immediately before that acquisition, or
(ii)the cost of any part of the interest would otherwise be determined not to be nil under section 48 as it read in its application before 1993 or under paragraph 111(4)(e) or 128.1(1)(c) or (4)(c).
Marginal note:Deemed fair market value — non-capital property
(1.2)For the purpose of section 10, the fair market value at any time of a capital interest in a trust is deemed to be equal to the amount that is the total of
(a)the amount that would, if this Act were read without reference to this subsection, be its fair market value at that time, and
(b)the total of all amounts, each of which is an amount that would be described, in respect of the capital interest, in subparagraph 53(2)(h)(i.1) if that subparagraph were read without reference to its subclause (B)(I), that has become payable to the taxpayer before that time.
Marginal note:Distribution by personal trust
(2)Subject to subsections (2.001), (2.002) and (4) to (5), if at any time a property of a personal trust or a prescribed trust is distributed (otherwise than as a SIFT trust wind-up event) by the trust to a taxpayer who was a beneficiary under the trust and there is a resulting disposition of all or any part of the taxpayer’s capital interest in the trust,
(a)the trust shall be deemed to have disposed of the property for proceeds of disposition equal to its cost amount to the trust immediately before that time;
(b)subject to subsection (2.2), the taxpayer is deemed to have acquired the property at a cost equal to the total of its cost amount to the trust immediately before that time and the specified percentage of the amount, if any, by which
(i)the adjusted cost base to the taxpayer of the capital interest or part of it, as the case may be, immediately before that time (determined without reference to paragraph (1)(a))
exceeds
(ii)the cost amount to the taxpayer of the capital interest or part of it, as the case may be, immediately before that time;
(b.1)for the purpose of paragraph (b), the specified percentage is,
(i)where the property is capital property (other than depreciable property), 100%, and
(ii)[Repealed, 2016, c. 12, s. 36]
(iii)in any other case, 50%;
(c)the taxpayer’s proceeds of disposition of the capital interest in the trust (or of the part of it) disposed of by the taxpayer on the distribution are deemed to be equal to the amount, if any, by which
(i)the cost at which the taxpayer would be deemed by paragraph (b) to have acquired the property if the specified percentage referred to in that paragraph were 100%
exceeds
(ii)the total of all amounts each of which is an eligible offset at that time of the taxpayer in respect of the capital interest or the part of it;
(d)where the property so distributed was depreciable property of a prescribed class of the trust and the amount that was the capital cost to the trust of that property exceeds the cost at which the taxpayer is deemed by this section to have acquired the property, for the purposes of sections 13 and 20 and any regulations made under paragraph 20(1)(a)
(i)the capital cost to the taxpayer of the property shall be deemed to be the amount that was the capital cost of the property to the trust, and
(ii)the excess shall be deemed to have been allowed to the taxpayer in respect of the property under regulations made under paragraph 20(1)(a) in computing income for taxation years before the acquisition by the taxpayer of the property.
(d.1)[Repealed, 2010, c. 12, s. 10]
(e)[Repealed, 1994, c. 7, Sch