Eastern Daylight Saving Time, September 25, 1987;
(b)that represented the capital dividend account of a corporation before it became related to the related corporation;
(c)added to the capital dividend account of the particular corporation at a time when that corporation was controlled, directly or indirectly, in any manner whatever, by one or more non-resident persons;
(d)in respect of a capital gain from a disposition of a property by the particular corporation or another corporation that may reasonably be considered as having accrued while the property (or another property for which it was substituted) was a property of a corporation that was controlled, directly or indirectly, in any manner whatever, by one or more non-resident persons; or
(e)in respect of a capital gain from a disposition of a property (or another property for which it was substituted) that may reasonably be considered as having accrued while the property or the other property was a property of a person that was not related to the related corporation.
Marginal note:Late filed elections
(3)Where at any particular time after 1974 a dividend has become payable by a corporation to shareholders of any class of shares of its capital stock, and subsection 83(1) or (2) would have applied to the dividend except that the election referred to therein 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 at the particular time or on the first day on which any part of the dividend was paid, whichever is the earlier, if
(a)the election is made in prescribed manner and prescribed form;
(b)an estimate of the penalty in respect of that election is paid by the corporation when that election is made; and
(c)the directors or other person or persons legally entitled to administer the affairs of the corporation have, before the time the election is made, authorized the election to be made.
Marginal note:Request for election
(3.1)The Minister may at any time, by written request served personally or by registered mail, request that an election referred to in subsection 83(3) be made by a taxpayer, and where the taxpayer on whom such a request is served does not comply therewith within 90 days of service thereof on the taxpayer, subsection 83(3) does not apply to such an election made by the taxpayer.
Marginal note:Penalty for late filed election
(4)For the purposes of this section, the penalty in respect of an election referred to in paragraph 83(3)(a) is an amount equal to the lesser of
(a)1% per annum of the amount of the dividend referred to in the election for each month or part of a month during the period commencing with the time that the dividend became payable, or the first day on which any part of the dividend was paid if that day is earlier, and ending with the day on which that election was made, and
(b)the product obtained when $500 is multiplied by the proportion that the number of months or parts of months during the period referred to in paragraph 83(4)(a) bears to 12.
Marginal note:Unpaid balance of penalty
(5)The Minister shall, with all due dispatch, examine each election referred to in paragraph 83(3)(a), 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.
Definition ofqualifying dividend
(6)For the purposes of subsection 83(1),qualifying dividendmeans a dividend on shares of a series of a class of the capital stock of a public corporation that is prescribed to be a tax-deferred preferred series that became payable by the corporation after 1978 and not later than
(a)where the terms as at March 31, 1977 of the shares of that series entitled the holder of such a share to exchange it after a particular date for a share or shares of another series or class of preferred shares of the capital stock of the corporation, that particular date,
(b)where the terms as at March 31, 1977 of the shares of that series required the corporation to offer to purchase at a time not later than a particular date all of the shares of that series from all of the holders of those shares, that particular date, and
(c)in any other case, October 1, 1991,
whichever is applicable in respect of that series of shares, except that a dividend on shares of such a series that would otherwise be a qualifying dividend shall be deemed not to be a qualifying dividend if
(d)at the time that the dividend became payable, the terms of the shares of that series differ from the terms as at March 31, 1977 of the shares of that series, or
(e)after March 31, 1977 the corporation issued additional shares of that series.
Marginal note:Amalgamation where there are tax-deferred preferred shares
(7)For the purposes of this section, where, after March 31, 1977, there has been an amalgamation within the meaning of section 87 and one or more of the predecessor corporations had a series of shares outstanding on March 31, 1977 that was prescribed to be a tax-deferred preferred series, the following rules apply:
(a)the series of shares of the capital stock of the predecessor corporation that was prescribed to be a tax-deferred preferred series shall be deemed to have been continued in existence in the form of the new shares; and
(b)the new corporation shall be deemed to be the same corporation as, and a continuation of, each such predecessor corporation.
Marginal note:Deemed dividend
84(1)Where a corporation resident in Canada has at any time after 1971 increased the paid-up capital in respect of the shares of any particular class of its capital stock, otherwise than by
(a)payment of a stock dividend,
(b)a transaction by which
(i)the value of its assets less its liabilities has been increased, or
(ii)its liabilities less the value of its assets have been decreased,
by an amount not less than the amount of the increase in the paid-up capital in respect of the shares of the particular class,
(c)a transaction by which the paid-up capital in respect of the shares of all other classes of its capital stock has been reduced by an amount not less than the amount of the increase in the paid-up capital in respect of the shares of the particular class,
(c.1)if the corporation is an insurance corporation, any action by which it converts contributed surplus related to its insurance business (other than any portion of that contributed surplus that arose at a time when it was non-resident, or that arose in connection with a disposition to which subsection 212.1(1.1) applies or aninvestment, as defined in subsection 212.3(10), to which subsection 212.3(2) applies) into paid-up capital in respect of the shares of its capital stock,
(c.2)if the corporation is a bank, any action by which it converts any of its contributed surplus that arose on the issuance of shares of its capital stock (other than any portion of that contributed surplus that arose at a time when it was non-resident, or that arose in connection with a disposition to which subsection 212.1(1.1) applies or aninvestment, as defined in subsection 212.3(10), to which subsection 212.3(2) applies) into paid-up capital in respect of shares of its capital stock, or
(c.3)if the corporation is neither an insurance corporation nor a bank, any action by which it converts into paid-up capital in respect of a class of shares of its capital stock any of its contributed surplus that arose after March 31, 1977 (other than any portion of that contributed surplus that arose at a time when it was non-resident, or that arose in connection with a disposition to which subsection 212.1(1.1) applies or aninvestment, as defined in subsection 212.3(10), to which subsection 212.3(2) applies)
(i)on the issuance of shares of that class or shares of another class for which the shares of that class were substituted (other than an issuance to which section 51, 66.3, 84.1, 85, 85.1, 86 or 87 or subsection 192(4.1) or 194(4.1) applied),
(ii)on the acquisition of property by the corporation from a person who at the time of the acquisition held any of the issued shares of that class or shares of another class for which shares of that class were substituted for no consideration or for consideration that did not include shares of the capital stock of the corporation, or
(iii)as a result of any action by which the paid-up capital in respect of that class of shares or in respect of shares of another class for which shares of that class were substituted was reduced by the corporation, to the extent of the reduction in paid-up capital that resulted from the action,
the corporation shall be deemed to have paid at that time a dividend on the issued shares of the particular class equal to the amount, if any, by which the amount of the increase in the paid-up capital exceeds the total of
(d)the amount, if any, of the increase referred to in subparagraph 84(1)(b)(i) or the decrease referred to in subparagraph 84(1)(b)(ii), as the case may be,
(e)the amount, if any, of the reduction referred to in paragraph 84(1)(c), and
(f)the amount, if any, of the increase in the paid-up capital that resulted from a conversion referred to in paragraph 84(1)(c.1), (c.2) or (c.3),
and a dividend shall be deemed to have been received at that time by each person who held any of the issued shares of the particular class immediately after that time equal to that proportion of the dividend so deemed to have been paid by the corporation that the number of the shares of the particular class held by the person immediately after that time is of the number of the issued shares of that class outstanding immediately after that time.
Marginal note:Distribution on winding-up, etc.
(2)Where funds or property of a corporation resident in Canada have at any time after March 31, 1977 been distributed or otherwise appropriated in any manner whatever to or for the benefit of the shareholders of any class of shares in its capital stock, on the winding-up, discontinuance or reorganization of its business, the corporation shall be deemed to have paid at that time a dividend on the shares of that class equal to the amount, if any, by which
(a)the amount or value of the funds or property distributed or appropriated, as the case may be,
exceeds
(b)the amount, if any, by which the paid-up capital in respect of the shares of that class is reduced on the distribution or appropriation, as the case may be,
and a dividend shall be deemed to have been received at that time by each person who held any of the issued shares at that time equal to that proportion of the amount of the excess that the number of the shares of that class held by the person immediately before that time is of the number of the issued shares of that class outstanding immediately before that time.
Marginal note:Redemption, etc.
(3)Where at any time after December 31, 1977 a corporation resident in Canada has redeemed, acquired or cancelled in any manner whatever (otherwise than by way of a transaction described in subsection 84(2)) any of the shares of any class of its capital stock,
(a)the corporation shall be deemed to have paid at that time a dividend on a separate class of shares comprising the shares so redeemed, acquired or cancelled equal to the amount, if any, by which the amount paid by the corporation on the redemption, acquisition or cancellation, as the case may be, of those shares exceeds the paid-up capital in respect of those shares immediately before that time; and
(b)a dividend shall be deemed to have been received at that time by each person who held any of the shares of that separate class at that time equal to that portion of the amount of the excess determined under paragraph 84(3)(a) that the number of those shares held by the person immediately before that time is of the total number of shares of that separate class that the corporation has redeemed, acquired or cancelled, at that time.
Marginal note:Reduction of paid-up capital
(4)Where at any time after March 31, 1977 a corporation resident in Canada has reduced the paid-up capital in respect of any class of shares of its capital stock otherwise than by way of a redemption, acquisition or cancellation of any shares of that class or a transaction described in subsection 84(2) or (4.1),
(a)the corporation shall be deemed to have paid at that time a dividend on shares of that class equal to the amount, if any, by which the amount paid by it on the reduction of the paid-up capital, exceeds the amount by which the paid-up capital in respect of that class of shares of the corporation has been so reduced; and
(b)a dividend shall be deemed to have been received at that time by each person who held any of the issued shares at that time equal to that proportion of the amount of the excess referred to in paragraph 84(4)(a) that the number of the shares of that class held by the person immediately before that time is of the number of the issued shares of that class outstanding immediately before that time.
Marginal note:Deemed dividend on reduction of paid-up capital
(4.1)Any amount paid by a public corporation on the reduction of the paid-up capital in respect of any class of shares of its capital stock, otherwise than by way of a redemption, acquisition or cancellation of any shares of that class or by way of a transaction described in subsection (2) or section 86, is deemed to have been paid by the corporation and received by the person to whom it was paid, as a dividend, unless
(a)the amount may reasonably be considered to be derived from proceeds of disposition realized by the public corporation, or by a person or partnership in which the public corporation had a direct or indirect interest at the time that the proceeds were realized, from a transaction that occurred
(i)outside the ordinary course of the business of the corporation, or of the person or partnership that realized the proceeds, and
(ii)within the period that commenced 24 months before the payment; and
(b)no amount that may reasonably be considered to be derived from those proceeds was paid by the public corporation on a previous reduction of the paid-up capital in respect of any class of shares of its capital stock.
Marginal note:Deemed dividend on term preferred share
(4.2)Where, at any time after November 16, 1978, the paid-up capital in respect of a term preferred share owned by a shareholder that is
(a)a specified financial institution, or
(b)a partnership or trust of which a specified financial institution or a person related to such an institution was a member or a beneficiary,
was reduced otherwise than by way of a redemption, acquisition or cancellation of the share or of a transaction described in subsection 84(2) or (4.1), the amount received by the shareholder on the reduction of the paid-up capital in respect of the share shall be deemed to be a dividend received by the shareholder at that time unless the share was not acquired in the ordinary course of the business carried on by the shareholder.
Marginal note:Deemed dividend on guaranteed share
(4.3)Where at any time after 1987 the paid-up capital in respect of a share of the capital stock of a particular corporation owned
(a)by a shareholder that is another corporation to which subsection 112(2.2) or (2.4) would, if the particular corporation were a taxable Canadian corporation, apply to deny the deduction under subsection 112(1) or (2) or 138(6) of a dividend received on the share, or
(b)by a partnership or trust of which the other corporation is a member or beneficiary, as the case may be,
was reduced otherwise than by way of a redemption, acquisition or cancellation of the share or of a transaction described in subsection 84(2) or (4.1), the amount received by the shareholder on the reduction of the paid-up capital in respect of the share shall be deemed to be a dividend received by the shareholder at that time.
Marginal note:Amount distributed or paid where a share
(5)Where
(a)the amount of property distributed by a corporation or otherwise appropriated to or for the benefit of its shareholders as described in paragraph 84(2)(a), or
(b)the amount paid by a corporation as described in paragraph 84(3)(a) or (4)(a),
includes a share of the capital stock of the corporation, for the purposes of subsections 84(2) to (4) the following rules apply:
(c)in computing the amount referred to in paragraph 84(5)(a) at any time, the share shall be valued at an amount equal to its paid-up capital at that time, and
(d)in computing the amount referred to in paragraph 84(5)(b) at any time, the share shall be valued at an amount equal to the amount by which the paid-up capital in respect of the class of shares to which it belongs has increased by virtue of its issue.
Marginal note:Where s. (2) or (3) does not apply
(6)Subsection 84(2) or (3), as the case may be, is not applicable
(a)in respect of any transaction or event, to the extent that subsection 84(1) is applicable in respect of that transaction or event; and
(b)in respect of any purchase by a corporation of any of its shares in the open market, if the corporation acquired those shares in the manner in which shares would normally be purchased by any member of the public in the open market.
Marginal note:When dividend payable
(7)A dividend that is deemed by this section or section 84.1, 128.1 or 212.1 to have been paid at a particular time is deemed, for the purposes of this Subdivision and sections 131 and 133, to have become payable at that time.
Marginal note:Where s. (3) does not apply
(8)Subsection 84(3) does not apply to deem a dividend to have been received by a shareholder of a public corporation where the shareholder is an individual resident in Canada who deals at arm’s length with the corporation and the shares redeemed, acquired or cancelled are prescribed shares of the capital stock of the corporation.
Marginal note:Shares disposed of on redemptions, etc.
(9)For greater certainty it is declared that where a shareholder of a corporation has disposed of a share of the capital stock of the corporation as a result of the redemption, acquisition or cancellation of the share by the corporation, the shareholder shall, for the purposes of this Act, be deemed to have disposed of the share to the corporation.
Marginal note:Reduction of contributed surplus
(10)For the purpose of paragraph 84(1)(c.3), there shall be deducted in determining at any time a corporation’s contributed surplus that arose after March 31, 1977 in any manner described in that paragraph the lesser of
(a)the amount, if any, by which the amount of a dividend paid by the corporation at or before that time and after March 31, 1977 and when it was a public corporation exceeded its retained earnings immediately before the payment of the dividend, and
(b)the amount of its contributed surplus immediately before the payment of the dividend referred to in paragraph 84(10)(a) that arose after March 31, 1977.
Marginal note:Computation of contributed surplus
(11)For the purpose of subparagraph 84(1)(c.3)(ii), where the property acquired by the corporation (in this subsection referred to as the “acquiring corporation”) consists of shares (in this subsection referred to as the “subject shares”) of any class of the capital stock of another corporation resident in Canada (in this subsection referred to as the “subject corporation”) and, immediately after the acquisition of the subject shares, the subject corporation would be connected (within the meaning that would be assigned by subsection 186(4) if the references in that subsection to “payer corporation” and “particular corporation” were read as “subject corporation” and “acquiring corporation”, respectively) with the acquiring corporation, the contributed surplus of the acquiring corporation that arose on the acquisition of the subject shares shall be deemed to be the lesser of
(a)the amount added to the contributed surplus of the acquiring corporation on the acquisition of the subject shares, and
(b)the amount, if any, by which the paid-up capital in respect of the subject shares at the time of the acquisition exceeded the fair market value of any consideration given by the acquiring corporation for the subject shares.
Marginal note:Non-arm’s length sale of shares
84.1(1)Where after May 22, 1985 a taxpayer resident in Canada (other than a corporation) disposes of shares that are capital property of the taxpayer (in this section referred to as the “subject shares”) of any class of the capital stock of a corporation resident in Canada (in this section referred to as the “subject corporation”) to another corporation (in this section referred to as the “purchaser corporation”) with which the taxpayer does not deal at arm’s length and, immediately after the disposition, the subject corporation would be connected (within the meaning assigned by subsection 186(4) if the references therein to “payer corporation” and to “particular corporation” were read as “subject corporation” and “purchaser corporation” respectively) with the purchaser corporation,
(a)where shares (in this section referred to as the “new shares”) of the purchaser corporation have been issued as consideration for the subject shares, in computing the paid-up capital, at any particular time after the issue of the new shares, in respect of any particular class of shares of the capital stock of the purchaser corporation, there shall be deducted an amount determined by the formula
(A - B) × C/A
where
(i)the paid-up capital, immediately before the disposition, in respect of the subject shares, and
(ii)subject to paragraphs 84.1(2)(a) and 84.1(2)(a.1), the adjusted cost base to the taxpayer, immediately before the disposition, of the subject shares,
exceeds the fair market value, immediately after the disposition, of any consideration (other than the new shares) received by the taxpayer from the purchaser corporation for the subject shares, and
(b)for the purposes of this Act, a dividend shall be deemed to be paid to the taxpayer by the purchaser corporation and received by the taxpayer from the purchaser corporation at the time of the disposition in an amount determined by the formula
(A + D) - (E + F)
where
(i)the paid-up capital, immediately before the disposition, in respect of the subject shares, and
(ii)subject to paragraphs 84.1(2)(a) and 84.1(2)(a.1), the adjusted cost base to the taxpayer, immediately before the disposition, of the subject shares, and
Marginal note:Idem
(2)For the purposes of this section,
(a)where a share disposed of by a taxpayer was acquired by the taxpayer before 1972, the adjusted cost base to the taxpayer of the share at any time shall be deemed to be the total of
(i)the amount that would be its adjusted cost base to the taxpayer if theIncome Tax Application Ruleswere read without reference to subsections 26(3) and (7) of that Act, and
(ii)the total of all amounts each of which is an amount received by the taxpayer after 1971 and before that time as a dividend on the share and in respect of which the corporation that paid the dividend has made an election under subsection 83(1);
(a.1)where a share disposed of by a taxpayer was acquired by the taxpayer after 1971 from a person with whom the taxpayer was not dealing at arm’s length, was a share substituted for such a share or was a share substituted for a share owned by the taxpayer at the end of 1971, the adjusted cost base to the taxpayer of the share at any time shall be deemed to be the amount, if any, by which its adjusted cost base to the taxpayer, otherwise determined, exceeds the total of
(i)where the share or a share for which the share was substituted was owned at the end of 1971 by the taxpayer or a person with whom the taxpayer did not deal at arm’s length, the amount in respect of that share equal to the amount, if any, by which
(A)the fair market value of the share or the share for which it was substituted, as the case may be, on valuation day (within the meaning assigned by section 24 of theIncome Tax Application Rules)
exceeds the total of
(B)the actual cost (within the meaning assigned by subsection 26(13) of that Act) of the share or the share for which it was substituted, as the case may be, on January 1, 1972, to the taxpayer or the person with whom the taxpayer did not deal at arm’s length, and
(C)the total of all amounts each of which is an amount received by the taxpayer or the person with whom the taxpayer did not deal at arm’s length after 1971 and before that time as a dividend on the share or the share for which it was substituted and in respect of which the corporation that paid the dividend has made an election under subsection 83(1), and
(ii)the total of all amounts each of which is an amount determined after 1984 under subparagraph 40(1)(a)(i) in respect of a previous disposition of the share or a share for which the share was substituted (or such lesser amount as is established by the taxpayer to be the amount in respect of which a deduction under section 110.6 was claimed) by the taxpayer or an individual with whom the taxpayer did not deal at arm’s length;
(a.2)[Repealed, 1998, c. 19, s. 115(1)]
(b)in respect of any disposition described in subsection 84.1(1) by a taxpayer of shares of the capital stock of a subject corporation to a purchaser corporation, the taxpayer shall, for greater certainty, be deemed not to deal at arm’s length with the purchaser corporation if the taxpayer
(i)was, immediately before the disposition, one of a group of fewer than 6 persons that controlled the subject corporation, and
(ii)was, immediately after the disposition, one of a group of fewer than 6 persons that controlled the purchaser corporation, each member of which was a member of the group referred to in subparagraph 84.1(2)(b)(i);
(c)[Repealed, 1998, c. 19, s. 115(2)]
(d)a trust and a beneficiary of the trust or a person related to a beneficiary of the trust shall be deemed not to deal with each other at arm’s length; and
(e)if the subject shares are qualified small business corporation shares orshares of the capital stock of a family farm or fishing corporationwithin the meaning of subsection 110.6(1), the taxpayer and the purchaser corporation are deemed to be dealing at arm’s length if the purchaser corporation is controlled by one or more children or grandchildren of the taxpayer who are 18 years of age or older and if the purchaser corporation does not dispose of the subject shares within 60 months of their purchase.
Marginal note:Rules for par. 84.1(2)(a.1)
(2.01)For the purpose of paragraph 84.1(2)(a.1),
(a)where at any time a corporation issues a share of its capital stock to a taxpayer, the taxpayer and the corporation are deemed not to be dealing with each other at arm’s length at that time;
(b)where a taxpayer is deemed by paragraph 110.6(19)(a) to have reacquired a share, the taxpayer is deemed to have acquired the share at the beginning of February 23, 1994 from a person with whom the taxpayer was not dealing at arm’s length; and
(c)where a share owned by a particular person, or a share substituted for that share, has by one or more transactions or events between persons not dealing at arm’s length become vested in another person, the particular person and the other person are deemed at all times not to be dealing at arm’s length with each other whether or not the particular person and the other person coexisted.
Marginal note:Idem
(2.1)For the purposes of subparagraph 84.1(2)(a.1)(ii), where the taxpayer or an individual with whom the taxpayer did not deal at arm’s length (in this subsection referred to as the “transferor”) disposes of a share in a taxation year and claims an amount under subparagraph 40(1)(a)(iii) in computing the gain for the year from the disposition, the amount in respect of which a deduction under section 110.6 was claimed in respect of the transferor’s gain from the disposition shall be deemed to be equal to the lesser of
(a)the total of
(i)the amount claimed under subparagraph 40(1)(a)(iii) by the transferor for the year in respect of the disposition, and
(ii)twice the amount deducted under section 110.6 in computing the taxable income of the transferor for the year in respect of the taxable capital gain from the disposition, and
(b)twice the maximum amount that could have been deducted under section 110.6 in computing the taxable income of the transferor for the year in respect of the taxable capital gain from the disposition if
(i)no amount had been claimed by the transferor under subparagraph 40(1)(a)(iii) in computing the gain for the year from the disposition, and
(ii)all amounts deducted under section 110.6 in computing the taxable income of the transferor for the year in respect of taxable capital gains from dispositions of property to which this subsection does not apply were deducted before determining the maximum amount that could have been deducted under section 110.6 in respect of the taxable capital gain from the disposition,
and for the purposes of subparagraph 84.1(2.1)(b)(ii), 1/2 of the total of all amounts determined under this subsection for the year in respect of other property disposed of before the disposition of the share shall be deemed to have been deducted under section 110.6 in computing the taxable income of the transferor for the year in respect of the taxable capital gain from the disposition of property to which this subsection does not apply,
and, for the purposes of this subsection, where more than one share to which this subsection applies is disposed of in the year, each such share shall be deemed to have been separately disposed of in the order designated by the taxpayer in the taxpayer’s return of income under this Part for the year.
Marginal note:Rules for par. 84.1(2)(b)
(2.2)For the purpose of paragraph 84.1(2)(b),
(a)in determining whether or not a taxpayer referred to in that paragraph was a member of a group of fewer than 6 persons that controlled a corporation at any time, any shares of the capital stock of that corporation owned at that time by
(i)the taxpayer’s child (as defined in subsection 70(10)), who is under 18 years of age, or the taxpayer’s spouse or common-law partner,
(ii)a trust of which the taxpayer, a person described in subparagraph 84.1(2.2)(a)(i) or a corporation described in subparagraph 84.1(2.2)(a)(iii), is a beneficiary, or
(iii)a corporation controlled by the taxpayer, by a person described in subparagraph 84.1(2.2)(a)(i) or 84.1(2.2)(a)(ii) or by any combination of those persons or trusts
are deemed to be owned at that time by the taxpayer and not by the person who actually owned the shares at that time;
(b)a group of persons in respect of a corporation means any 2 or more persons each of whom owns shares of the capital stock of the corporation;
(c)a corporation that is controlled by one or more members of a particular group of persons in respect of that corporation is considered to be controlled by that group of persons; and
(d)a corporation may be controlled by a person or a particular group of persons even though the corporation is also controlled or deemed to be controlled by another person or group of persons.
Marginal note:Rules for paragraph 84.1(2)(e)
(2.3)For the purposes of paragraph (2)(e),
(a)if, otherwise than by reason of death, the purchaser corporation disposes of the subject shares within 60 months of their purchase:
(i)paragraph (2)(e) is deemed never to have applied,
(ii)the taxpayer is deemed, for the purposes of this section, to have disposed of the subject shares to the person who acquired them from the purchaser corporation, and
(iii)the period of 60 months applicable to the operation that is deemed to have taken place under subparagraph (ii) is deemed to have begun when the taxpayer disposed of the subject shares to the purchaser corporation;
(b)the deduction referred to in subsection 110.6(2) or (2.1) is, for a particular taxation year, the amount, if any, by which that deduction exceeds the amount determined by the formula:
A × B / $11,250
where
0.00225 × (D - $10 million)
where
(a)if, in both the particular taxation year and the preceding taxation year, the corporation is not associated with any corporation, the taxable capital employed in Canada (within the meaning assigned by subsection 181.2(1) or 181.3(1) or section 181.4, as the case may be) of the corporation for the preceding taxation year,
(b)if, in the particular taxation year, the corporation is not associated with any corporation but was associated with one or more corporations in the preceding taxation year, the taxable capital employed in Canada (within the meaning assigned by subsection 181.2(1) or 181.3(1) or section 181.4, as the case may be) of the corporation for the particular taxation year, or
(c)if, in the particular taxation year, the corporation is associated with one or more particular corporations, the total of all amounts each of which is the taxable capital employed in Canada (within the meaning assigned by subsection 181.2(1) or 181.3(1) or section 181.4, as the case may be) of the corporation or of any of the particular corporations for its last taxation year that ended in the preceding calendar year; and
(c)the taxpayer must provide the Minister with an independent assessment of the fair market value of the subject shares and an affidavit signed by the taxpayer and by a third party attesting to the disposal of the shares.
Marginal note:Addition to paid-up capital
(3)In computing the paid-up capital at any time after May 22, 1985 in respect of any class of shares of the capital stock of a corporation, there shall be added an amount equal to the lesser of
(a)the amount, if any, by which
(i)the total of all amounts each of which is an amount deemed by subsection 84(3), 84(4) or 84(4.1) to be a dividend on shares of the class paid after May 22, 1985 and before that time by the corporation
exceeds
(ii)the total of such dividends that would be determined under subparagraph 84.1(3)(a)(i) if this Act were read without reference to paragraph 84.1(1)(a), and
(b)the total of all amounts required by paragraph 84.1(1)(a) to be deducted in computing the paid-up capital in respect of that class of shares after May 22, 1985 and before that time.
Marginal note:Computation of paid-up capital in respect of particular class of shares
84.2(1)In computing the paid-up capital in respect of any particular class of shares of the capital stock of a corporation at any particular time after March 31, 1977,
(a)there shall be deducted that proportion of the amount, if any, by which the paid-up capital in respect of all of the issued shares of the capital stock of the corporation on April 1, 1977, determined without reference to this section, exceeds the greater of
(i)the amount that the paid-up capital limit of the corporation would have been on March 31, 1977 if paragraph 89(1)(d) of theIncome Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as it read at that date, were read without reference to clause 89(1)(d)(iv.1)(F) of that Act and without reference to all subparagraphs of paragraph 89(1)(d) of that Act except subparagraphs 89(1)(d)(iv.1) and (vii) of that Act, and
(ii)the paid-up capital limit of the corporation on March 31, 1977,
that the paid-up capital on April 1, 1977, determined without reference to this section, in respect of the particular class of shares is of the paid-up capital on April 1, 1977, determined without reference to this section, in respect of all of the issued and outstanding shares of the capital stock of the corporation; and
(b)there shall be added an amount equal to the lesser of
(i)the amount, if any, by which
(A)the total of all amounts each of which is an amount deemed by subsection 84(3) or 84(4) to be a dividend on shares of the particular class paid by the corporation after March 31, 1977 and before the particular time
exceeds
(B)the total that would be determined under clause 84.2(1)(b)(i)(A) if this Act were read without reference to paragraph 84.2(1)(a), and
(ii)the amount required by paragraph 84.2(1)(a) to be deducted in computing the paid-up capital of shares of the particular class.
Marginal note:Debt deficiency
(2)In computing, after March 31, 1977, the adjusted cost base to an individual of a debt that was owing to the individual by a corporation on March 31, 1977, there shall be deducted the amount of any dividend that would have been deemed to have been received by the individual on that day if the corporation had paid the debt in full on that day.
Marginal note:Idem
(3)Where, after March 31, 1977 and before 1979, any debt referred to in subsection 84.2(2) owing by a corporation and held by an individual on March 31, 1977 and continuously after that date until conversion, is converted into shares of a particular class of the capital stock of the corporation,
(a)subsection 84.2(2) shall not apply in respect of the debt; and
(b)in computing the paid-up capital in respect of the shares of the particular class at any particular time after the conversion,
(i)there shall be deducted the amount by which the adjusted cost base to the taxpayer of the debt would, but for paragraph 84.2(3)(a), have been reduced by virtue of subsection 84.2(2), and
(ii)there shall be added an amount equal to the lesser of
(A)the amount, if any, by which
(I)the total of all amounts deemed by subsection 84(3), 84(4) or 84(4.1) to be a dividend on shares of the particular class paid by the corporation after the conversion and before the particular time,
exceeds
(II)the total that would be determined under subclause 84.2(3)(b)(ii)(A)(I) if this Act were read without reference to subparagraph 84.2(3)(b)(i), and
(B)the amount required by subparagraph 84.2(3)(b)(i) to be deducted in computing the paid-up capital of shares of the particular class.
Marginal note:Transfer of property to corporation by shareholders
85(1)Where a taxpayer has, in a taxation year, disposed of any of the taxpayer’s property that was eligible property to a taxable Canadian corporation for consideration that includes shares of the capital stock of the corporation, if the taxpayer and the corporation have jointly elected in prescribed form and in accordance with subsection 85(6), the following rules apply:
(a)the amount that the taxpayer and the corporation have agreed on in their election in respect of the property shall be deemed to be the taxpayer’s proceeds of disposition of the property and the corporation’s cost of the property;
(b)subject to paragraph 85(1)(c), where the amount that the taxpayer and the corporation have agreed on in their election in respect of the property is less than the fair market value, at the time of the disposition, of the consideration therefor (other than any shares of the capital stock of the corporation or a right to receive any such shares) received by the taxpayer, the amount so agreed on shall, irrespective of the amount actually so agreed on by them, be deemed to be an amount equal to that fair market value;
(c)where the amount that the taxpayer and the corporation have agreed on in their election in respect of the property is greater than the fair market value, at the time of the disposition, of the property so disposed of, the amount so agreed on shall, irrespective of the amount actually so agreed on, be deemed to be an amount equal to that fair market value;
(c.1)where the property was inventory, capital property (other than depreciable property of a prescribed class), a NISA Fund No. 2 or a property that is eligible property because of paragraph 85(1.1)(g) or 85(1.1)(g.1), and the amount that the taxpayer and corporation have agreed on in their election in respect of the property is less than the lesser of
(i)the fair market value of the property at the time of the disposition, and
(ii)the cost amount to the taxpayer of the property at the time of the disposition,
the amount so agreed on shall, irrespective of the amount actually so agreed on by them, be deemed to be an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and 85(1)(c.1)(ii);
(c.2)subject to paragraphs 85(1)(b) and 85(1)(c) and notwithstanding paragraph 85(1)(c.1), where the taxpayer carries on a farming business the income from which is computed in accordance with the cash method and the property was inventory owned in connection with that business immediately before the particular time the property was disposed of to the corporation,
(i)the amount that the taxpayer and the corporation agreed on in their election in respect of inventory purchased by the taxpayer shall be deemed to be equal to the amount determined by the formula
(A × B/C) + D
where
(ii)for the purpose of subparagraph 28(1)(a)(i), the disposition of the property and the receipt of proceeds of disposition therefor shall be deemed to have occurred at the particular time and in the course of carrying on the business, and
(iii)where the property is owned by the corporation in connection with a farming business and the income from that business is computed in accordance with the cash method, for the purposes of section 28,
(A)an amount equal to the cost to the corporation of the property shall be deemed to have been paid by the corporation, and
(B)the corporation shall be deemed to have purchased the property for an amount equal to that cost,
at the particular time and in the course of carrying on that business;
(d) to (d.12)[Repealed, 2016, c. 12, s. 26]
(e)where the property was depreciable property of a prescribed class of the taxpayer and the amount that, but for this paragraph, would be the proceeds of disposition thereof is less than the least of
(i)the undepreciated capital cost to the taxpayer of all property of that class immediately before the disposition,
(ii)the cost to the taxpayer of the property, and
(iii)the fair market value of the property at the time of the disposition,
the amount agreed on by the taxpayer and the corporation in their election in respect of the property shall, irrespective of the amount actually so agreed on by them, be deemed to be the least of the amounts described in subparagraphs 85(1)(e)(i) to 85(1)(e)(iii);
(e.1)where two or more properties, each of which is a property described in paragraph (e), are disposed of at the same time, paragraph (e) applies as if each property so disposed of had been separately disposed of in the order designated by the taxpayer before the time referred to in subsection (6) for the filing of an election in respect of those properties or, if the taxpayer does not so designate any such order, in the order designated by the Minister;
(e.2)where the fair market value of the property immediately before the disposition exceeds the greater of
(i)the fair market value, immediately after the disposition, of the consideration received by the taxpayer for the property disposed of by the taxpayer, and
(ii)the amount that the taxpayer and the corporation have agreed on in their election in respect of the property, determined without reference to this paragraph,
and it is reasonable to regard any part of the excess as a benefit that the taxpayer desired to have conferred on a person related to the taxpayer (other than a corporation that was a wholly owned corporation of the taxpayer immediately after the disposition), the amount that the taxpayer and the corporation agreed on in their election in respect of the property shall, regardless of the amount actually so agreed on by them, be deemed (except for the purposes of paragraphs 85(1)(g) and 85(1)(h)) to be an amount equal to the total of the amount referred to in subparagraph 85(1)(e.2)(ii) and that part of the excess;
(e.3)where, under any of paragraphs (c.1) and (e), the amount that the taxpayer and the corporation have agreed on in their election in respect of the property (in this paragraph referred to as theelected amount) would be deemed to be an amount that is greater or less than the amount that would be deemed, subject to paragraph (c), to be the elected amount under paragraph (b), the elected amount is deemed to be the greater of
(i)the amount deemed by paragraph (c.1) or (e), as the case may be, to be the elected amount, and
(ii)the amount deemed by paragraph 85(1)(b) to be the elected amount;
(e.4)where
(i)the property is depreciable property of a prescribed class of the taxpayer and is a passenger vehicle the cost to the taxpayer of which was more than $20,000 or such other amount as may be prescribed, and
(ii)the taxpayer and the corporation do not deal at arm’s length,
the amount that the taxpayer and the corporation have agreed on in their election in respect of the property shall be deemed to be an amount equal to the undepreciated capital cost to the taxpayer of the class immediately before the disposition, except that, for the purposes of subsection 6(2), the cost to the corporation of the vehicle shall be deemed to be an amount equal to its fair market value immediately before the disposition;
(e.5)if the property is depreciable property of a prescribed class of the taxpayer that is a zero-emission passenger vehicle to which paragraph 13(7)(i) applies and the taxpayer and the corporation do not deal at arm’s length,
(i)the amount that the taxpayer and the corporation have agreed on in their election in respect of the vehicle is deemed to be an amount equal to the cost amount to the taxpayer of the vehicle immediately before the disposition, and
(ii)for the purposes of subsection 6(2), the cost to the corporation of the vehicle is deemed to be an amount equal to its fair market value immediately before the disposition;
(f)the cost to the taxpayer of any particular property (other than shares of the capital stock of the corporation or a right to receive any such shares) received by the taxpayer as consideration for the disposition shall be deemed to be an amount equal to the lesser of
(i)the fair market value of the particular property at the time of the disposition, and
(ii)that proportion of the fair market value, at the time of the disposition, of the property disposed of by the taxpayer to the corporation that
(A)the amount determined under subparagraph 85(1)(f)(i)
is of
(B)the fair market value, at the time of the disposition, of all properties (other than shares of the capital stock of the corporation or a right to receive any such shares) received by the taxpayer as consideration for the disposition;
(g)the cost to the taxpayer of any preferred shares of any class of the capital stock of the corporation receivable by the taxpayer as consideration for the disposition shall be deemed to be the lesser of the fair market value of those shares immediately after the disposition and that proportion of the amount, if any, by which the proceeds of the disposition exceed the fair market value of the consideration (other than shares of the capital stock of the corporation or a right to receive any such shares) received by the taxpayer for the disposition, that
(i)the fair market value, immediately after the disposition, of those preferred shares of that class,
is of
(ii)the fair market value, immediately after the disposition, of all preferred shares of the capital stock of the corporation receivable by the taxpayer as consideration for the disposition;
(h)the cost to the taxpayer of any common shares of any class of the capital stock of the corporation receivable by the taxpayer as consideration for the disposition shall be deemed to be that proportion of the amount, if any, by which the proceeds of the disposition exceed the total of the fair market value, at the time of the disposition, of the consideration (other than shares of the capital stock of the corporation or a right to receive any such shares) received by the taxpayer for the disposition and the cost to the taxpayer of all preferred shares of the capital stock of the corporation receivable by the taxpayer as consideration for the disposition, that
(i)the fair market value, immediately after the disposition, of those common shares of that class,
is of
(ii)the fair market value, immediately after the disposition, of all common shares of the capital stock of the corporation receivable by the taxpayer as consideration for the disposition; and
(i)where the property so disposed of is taxable Canadian property of the taxpayer, all of the shares of the capital stock of the Canadian corporation received by the taxpayer as consideration for the property are deemed to be, at any time that is within 60 months after the disposition, taxable Canadian property of the taxpayer.
Definition ofeligible property
(1.1)For the purposes of subsection 85(1),eligible propertymeans
(a)a capital property (other than real or immovable property, an option in respect of such property, or an interest in real property or a real right in an immovable, owned by a non-resident person);
(b)a capital property that is real or immovable property, an option in respect of such property, or an interest in real property or a real right in an immovable, owned by a non-resident insurer if that property and the property received as consideration for that property are designated insurance property for the year;
(c)a Canadian resource property;
(d)a foreign resource property;
(e)[Repealed, 2016, c. 12, s. 26]
(f)an inventory (other than real or immovable property, an option in respect of such property, or an interest in real property or a real right in an immovable);
(g)a property that is a security or debt obligation used by the taxpayer in the year in, or held by it in the year in the course of, carrying on the business of insurance or lending money, other than
(i)a capital property,
(ii)inventory, or
(iii)where the taxpayer is a financial institution in the year, a mark-to-market property for the year;
(g.1)where the taxpayer is a financial institution in the year, a specified debt obligation (other than a mark-to-market property of the taxpayer for the year);
(h)a capital property that is real or immovable property, an option in respect of such property, or an interest in real property or a real right in an immovable, owned by a non-resident person (other than a non-resident insurer) and used in the year in a business carried on in Canada by that person; or
(i)a NISA Fund No. 2, if that property is owned by an individual.
Marginal note:Exception
(1.11)Notwithstanding subsection (1.1), a foreign resource property, or an interest in a partnership that derives all or part of its value from one or more foreign resource properties, is not an eligible property of a taxpayer in respect of a disposition by the taxpayer to a corporation where
(a)the taxpayer and the corporation do not deal with each other at arm’s length; and
(b)it is reasonable to conclude that one of the purposes of the disposition, or a series of transactions or events of which the disposition is a part, is to increase the extent to which any person may claim a deduction under section 126.
Marginal note:Eligible derivatives
(1.12)Notwithstanding subsection (1.1), aneligible derivative(as defined in subsection 10.1(5)) of a taxpayer to which subsection 10.1(6) applies is not an eligible property of the taxpayer in respect of a disposition by the taxpayer to a corporation.
Marginal note:Application of subsection (1)
(1.2)Subsection 85(1) does not apply to a disposition by a taxpayer to a corporation of a property referred to in paragraph 85(1.1)(h) unless
(a)immediately after the disposition, the corporation is controlled by the taxpayer, a person or persons related (otherwise than because of a right referred to in paragraph 251(5)(b)) to the taxpayer or the taxpayer and a person or persons so related to the taxpayer;
(b)the disposition is part of a transaction or series of transactions in which all or substantially all of the property used in the business referred to in paragraph 85(1.1)(h) is disposed of by the taxpayer to the corporation; and
(c)the disposition is not part of a series of transactions that result in control of the corporation being acquired by a person or group of persons after the time that is immediately after the disposition.
Meaning ofwholly owned corporation
(1.3)For the purposes of this subsection and paragraph 85(1)(e.2),wholly owned corporationof a taxpayer means a corporation all the issued and outstanding shares of the capital stock of which (except directors’ qualifying shares) belong to
(a)the taxpayer;
(b)a corporation that is a wholly owned corporation of the taxpayer; or
(c)any combination of persons described in paragraph 85(1.3)(a) or 85(1.3)(b).
Marginal note:Definitions
(1.4)For the purpose of subsection 85(1.1),financial institution,mark-to-market propertyandspecified debt obligationhave the meanings assigned by subsection 142.2(1).
Marginal note:Transfer of property to corporation from partnership
(2)Where
(a)a partnership has disposed, to a taxable Canadian corporation for consideration that includes shares of the corporation’s capital stock, of any partnership property (other than aneligible derivative, as defined in subsection 10.1(5), of the partnership if subsection 10.1(6) applies to the partnership) that was
(i)a capital property (other than real or immovable property, an option in respect of such property, or an interest in real property or a real right in an immovable, if the partnership was not a Canadian partnership at the time of the disposition),
(ii)a property described in any of paragraphs 85(1.1)(c) to 85(1.1)(f), or
(iii)a property that would be described in paragraph 85(1.1)(g) or 85(1.1)(g.1) if the references in those paragraphs to “taxpayer” were read as “partnership”, and
(b)the corporation and all the members of the partnership have jointly so elected, in prescribed form and within the time referred to in subsection 85(6),
paragraphs 85(1)(a) to 85(1)(i) are applicable, with such modifications as the circumstances require, in respect of the disposition as if the partnership were a taxpayer resident in Canada who had disposed of the property to the corporation.
Marginal note:Computing paid-up capital
(2.1)Where subsection 85(1) or 85(2) applies to a disposition of property (other than a disposition of property to which section 84.1 or 212.1 applies) to a corporation by a person or partnership (in this subsection referred to as the “taxpayer”),
(a)in computing the paid-up capital in respect of any particular class of shares of the capital stock of the corporation at the time of, and at any time after, the issue of shares of the capital stock of the corporation in consideration for the disposition of the property, there shall be deducted an amount determined by the formula
(A - B) × C/A
where
(b)in computing the paid-up capital, at any time after November 21, 1985, in respect of any class of shares of the capital stock of a corporation, there shall be added an amount equal to the lesser of
(i)the amount, if any, by which
(A)the total of all amounts each of which is an amount deemed by subsection 84(3), 84(4) or 84(4.1) to be a dividend on shares of that class paid after November 21, 1985 and before that time by the corporation
exceeds
(B)the total of such dividends that would be determined under clause 85(2.1)(b)(i)(A) if this Act were read without reference to paragraph 85(2.1)(a), and
(ii)the total of all amounts required by paragraph 85(2.1)(a) to be deducted in computing the paid-up capital in respect of that class of shares after November 21, 1985 and before that time.
Marginal note:Where partnership wound up
(3)Where,
(a)in respect of any disposition of partnership property of a partnership to a corporation, subsection 85(2) applies,
(b)the affairs of the partnership were wound up within 60 days after the disposition, and
(c)immediately before the winding-up there was no partnership property other than money or property received from the corporation as consideration for the disposition,
the following rules apply:
(d)the cost to any member of the partnership of any property (other than shares of the capital stock of the corporation or a right to receive any such shares) received by the member as consideration for the disposition of the member’s partnership interest on the winding-up shall be deemed to be the fair market value of the property at the time of the winding-up,
(e)the cost to any member of the partnership of any preferred shares of any class of the capital stock of the corporation receivable by the member as consideration for the disposition of the member’s partnership interest on the winding-up shall be deemed to be
(i)where any common shares of the capital stock of the corporation were also receivable by the member as consideration for the disposition of the interest, the lesser of
(A)the fair market value, immediately after the winding-up, of the preferred shares of that class so receivable by the member, and
(B)that proportion of the amount, if any, by which the adjusted cost base to the member of the member’s partnership interest immediately before the winding-up exceeds the total of the fair market value, at the time of the winding-up, of the consideration (other than shares of the capital stock of the corporation or a right to receive any such shares) received by the member for the disposition of the interest, that
(I)the fair market value, immediately after the winding-up, of the preferred shares of that class so receivable by the member,
is of
(II)the fair market value, immediately after the winding-up, of all preferred shares of the capital stock of the corporation receivable by the member as consideration for the disposition, and
(ii)in any other case, the amount determined under clause 85(3)(e)(i)(B),
(f)the cost to any member of the partnership of any common shares of any class of the capital stock of the corporation receivable by the member as consideration for the disposition of the member’s partnership interest on the winding-up shall be deemed to be that proportion of the amount, if any, by which the adjusted cost base to the member of the member’s partnership interest immediately before the winding-up exceeds the total of the fair market value, at the time of the winding-up, of the consideration (other than shares of the capital stock of the corporation or a right to receive any such shares) received by the member for the disposition of the interest and the cost to the member of all preferred shares of the capital stock of the corporation receivable by the member as consideration for the disposition of the interest, that
(i)the fair market value, immediately after the winding-up, of the common shares of that class so receivable by the member,
is of
(ii)the fair market value, immediately after the winding-up, of all common shares of the capital stock of the corporation so receivable by the member as consideration for the disposition,
(g)the proceeds of disposition of the partnership interest of any member of the partnership shall be deemed to be the cost to the member of all shares and property receivable or received by the member as consideration for the disposition of the interest plus the amount of any money received by the member as consideration for the disposition, and
(h)where the partnership has distributed partnership property referred to in paragraph 85(3)(c) to a member of the partnership, the partnership shall be deemed to have disposed of that property for proceeds equal to the cost amount to the partnership of the property immediately before its distribution.
(4)[Repealed, 1998, c. 19, s. 116]
Marginal note:Rules on transfers of depreciable property
(5)Where subsection 85(1) or 85(2) has applied to a disposition at any time of depreciable property to a person (in this subsection referred to as the “transferee”) and the capital cost to the transferor of the property exceeds the transferor’s proceeds of disposition of the property, for the purposes of sections 13 and 20 and any regulations made for the purpose of paragraph 20(1)(a),
(a)the capital cost to the transferee of the property is deemed to be the amount that was its capital cost to the transferor; and
(b)the excess is deemed to have been deducted by the transferee under paragraph 20(1)(a) in respect of the property in computing income for taxation years that ended before that time.
Marginal note:Acquisition of certain tools — capital cost and deemed depreciation
(5.1)If subsection (1) has applied in respect of the acquisition at any particular time of any depreciable property by a corporation 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 corporation 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 corporation under paragraph 20(1)(a) in respect of the property in computing income for taxation years that ended before that particular time.
Marginal note:Time for election
(6)Any election under subsection 85(1) or 85(2) 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 taxation year in which the transaction to which the election relates occurred.
Marginal note:Late filed election
(7)Where the election referred to in subsection 85(6) 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 is 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 or the partnership, as the case may be, when that election is made.
Marginal note:Special cases
(7.1)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 85(1) or 85(2) to be made after the day that is 3 years after the day on or before which the election was required by subsection 85(6) to be made, or
(b)to permit an election made under subsection 85(1) or 85(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 or partnership, 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
(8)For the purposes of this section, the penalty in respect of an election or an amended election referred to in paragraph 85(7)(a) or 85(7.1)(c) is an amount equal to the lesser of
(a)1/4 of 1% of the amount, if any, by which
(i)the fair market value of the property in respect of which that election or amended election was made, at the time the property was disposed of,
exceeds
(ii)the amount agreed on in the election or amended election by the taxpayer or partnership, as the case may be, and the corporation,
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 85(6) to be made and ending on the day the election or amended 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 85(8)(a).
Marginal note:Unpaid balance of penalty
(9)The Minister shall, with all due dispatch, examine each election and amended election referred to in paragraph 85(7)(a) or 85(7.1)(c), assess the penalty payable and send a notice of assessment to the taxpayer or partnership, as the case may be, and the taxpayer or partnership, 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:Share for share exchange
85.1(1)Where shares of any particular class of the capital stock of a Canadian corporation (in this section referred to as the “purchaser”) are issued to a taxpayer (in this section referred to as the “vendor”) by the purchaser in exchange for a capital property of the vendor that is shares of any particular class of the capital stock (in this section referred to as the “exchanged shares”) of another corporation that is a taxable Canadian corporation (in this section referred to as the “acquired corporation”), subject to subsection 85.1(2),
(a)except where the vendor has, in the vendor’s return of income for the taxation year in which the exchange occurred, included in computing the vendor’s income for that year any portion of the gain or loss, otherwise determined, from the disposition of the exchanged shares, the vendor shall be deemed
(i)to have disposed of the exchanged shares for proceeds of disposition equal to the adjusted cost base to the vendor of those shares immediately before the exchange, and
(ii)to have acquired the shares of the purchaser at a cost to the vendor equal to the adjusted cost base to the vendor of the exchanged shares immediately before the exchange,
and where the exchanged shares were taxable Canadian property of the vendor, the shares of the purchaser so acquired by the vendor are deemed to be, at any time that is within 60 months after the exchange, taxable Canadian property of the vendor; and
(b)the cost to the purchaser of each exchanged share, at any time up to and including the time the purchaser disposed of the share, shall be deemed to be the lesser of
(i)its fair market value immediately before the exchange, and
(ii)its paid-up capital immediately before the exchange.
Marginal note:Where s. (1) does not apply
(2)Subsection 85.1(1) does not apply where
(a)the vendor and purchaser were, immediately before the exchange, not dealing with each other at arm’s length (otherwise than because of a right referred to in paragraph 251(5)(b) that is a right of the purchaser to acquire the exchanged shares);
(b)the vendor or persons with whom the vendor did not deal at arm’s length, or the vendor together with persons with whom the vendor did not deal at arm’s length,
(i)controlled the purchaser, or
(ii)beneficially owned shares of the capital stock of the purchaser having a fair market value of more than 50% of the fair market value of all of the outstanding shares of the capital stock of the purchaser,
immediately after the exchange;
(c)the vendor and the purchaser have filed an election under subsection 85(1) or 85(2) with respect to the exchanged shares;
(d)consideration other than shares of the particular class of the capital stock of the purchaser was received by the vendor for the exchanged shares, notwithstanding that the vendor may have disposed of shares of the capital stock of the acquired corporation (other than the exchanged shares) to the purchaser for consideration other than shares of one class of the capital stock of the purchaser; or
(e)the vendor
(i)is a foreign affiliate of a taxpayer resident in Canada at the end of the taxation year of the vendor in which the exchange occurred, and
(ii)has included any portion of the gain or loss, otherwise determined, from the disposition of the exchanged shares in computing its foreign accrual property income for the taxation year of the vendor in which the exchange occurred.
Marginal note:Computation of paid-up capital
(2.1)Where, at any time, a purchaser has issued shares of its capital stock as a result of an exchange to which subsection 85.1(1) applied, in computing the paid-up capital in respect of any particular class of shares of its capital stock at any particular time after that time
(a)there shall be deducted that proportion of the amount, if any, by which
(i)the increase, if any, as a result of the issue, in the paid-up capital in respect of all the shares of the capital stock of the purchaser, computed without reference to this subsection as it applies to the issue,
exceeds
(ii)the paid-up capital in respect of all the exchanged shares received as a result of the exchange
that
(iii)the increase, if any, as a result of the issue, in the paid-up capital in respect of the particular class of shares, computed without reference to this subsection as it applies to the issue,
is of
(iv)the amount, if any, determined in subparagraph 85.1(2.1)(a)(i) in respect of the issue; and
(b)there shall be added an amount equal to the lesser of
(i)the amount, if any, by which
(A)the total of all amounts each of which is an amount deemed by subsection 84(3), 84(4) or 84(4.1) to be a dividend on shares of that class paid by the purchaser before the particular time
exceeds
(B)the total that would be determined under clause 85.1(2.1)(b)(i)(A) if this Act were read without reference to paragraph 85.1(2.1)(a), and
(ii)the total of all amounts required by paragraph 85.1(2.1)(a) to be deducted in respect of that particular class of shares before the particular time.
Marginal note:Issuance deemed made to vendor
(2.2)For the purposes of subsection (1), if a purchaser issues shares of a class of its capital stock (in this subsection referred to as “purchaser shares”) to a trust under a court-approved plan or scheme of arrangement in consideration for which a vendor disposes of exchanged shares that trade on a designated stock exchange to the purchaser solely for purchaser shares that are widely traded on a designated stock exchange immediately after and as part of completion of the plan or scheme of arrangement, the issuance to the trust is deemed to be an issuance to the vendor.
Marginal note:Disposition of shares of foreign affiliate
(3)Where a taxpayer has disposed of capital property that was shares of the capital stock of a foreign affiliate of the taxpayer to any corporation that was, immediately following the disposition, a foreign affiliate of the taxpayer (in this subsection referred to as the “acquiring affiliate”) for consideration including shares of the capital stock of the acquiring affiliate,
(a)the cost to the taxpayer of any property (other than shares of the capital stock of the acquiring affiliate) receivable by the taxpayer as consideration for the disposition shall be deemed to be the fair market value of the property at the time of the disposition;
(b)the cost to the taxpayer of any shares of any class of the capital stock of the acquiring affiliate receivable by the taxpayer as consideration for the disposition shall be deemed to be that proportion of the amount, if any, by which the total of the adjusted cost bases to the taxpayer, immediately before the disposition, of the shares disposed of exceeds the fair market value at that time of the consideration receivable for the disposition (other than shares of the capital stock of the acquiring affiliate) that
(i)the fair market value, immediately after the disposition, of those shares of the acquiring affiliate of that class
is of
(ii)the fair market value, immediately after the disposition, of all shares of the capital stock of the acquiring affiliate receivable by the taxpayer as consideration for the disposition;
(c)the taxpayer’s proceeds of disposition of the shares shall be deemed to be an amount equal to the cost to the taxpayer of all shares and other property receivable by the taxpayer from the acquiring affiliate as consideration for the disposition; and
(d)the cost to the acquiring affiliate of the shares acquired from the taxpayer shall be deemed to be an amount equal to the taxpayer’s proceeds of disposition referred to in paragraph 85.1(3)(c).
Marginal note:Exception
(4)Subsection (3) does not apply in respect of a disposition at any time by a taxpayer of a share of the capital stock of a particular foreign affiliate of the taxpayer to another foreign affiliate of the taxpayer if
(a)both
(i)all or substantially all of the property of the particular affiliate was, immediately before that time, excluded property (within the meaning assigned by subsection 95(1)) of the particular affiliate, and
(ii)the disposition is part of a transaction or event or a series of transactions or events for the purpose of disposing of the share to a person or partnership that, immediately after the transaction, event or series, was a person or partnership (other than a foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest (within the meaning assigned by paragraph 95(2)(m)) at the time of the transaction or event or throughout the series, as the case may be) with whom the taxpayer was dealing at arm’s length; or
(b)the adjusted cost base to the taxpayer of the share at that time is greater than the amount that would, in the absence of subsection (3), be the taxpayer’s proceeds of disposition of the share in respect of the disposition.
Marginal note:Foreign share for foreign share exchange
(5)Subject to subsections (3) and (6) and 95(2), where a corporation resident in a country other than Canada (in this section referred to as the “foreign purchaser”) issues shares of its capital stock (in this section referred to as the “issued foreign shares”) to a vendor in exchange for shares of the capital stock of another corporation resident in a country other than Canada (in this section referred to as the “exchanged foreign shares”) that were immediately before the exchange capital property of the vendor, except where the vendor has, in the vendor’s return of income for the taxation year in which the exchange occurred, included in computing the vendor’s income for that year any portion of the gain or loss, otherwise determined, from the disposition of the exchanged foreign shares, the vendor is deemed
(a)to have disposed of the exchanged foreign shares for proceeds of disposition equal to the adjusted cost base to the vendor of those shares immediately before the exchange, and
(b)to have acquired the issued foreign shares at a cost to the vendor equal to the adjusted cost base to the vendor of the exchanged foreign shares immediately before the exchange,
and where the exchanged foreign shares were taxable Canadian property of the vendor, the issued foreign shares so acquired by the vendor are deemed to be, at any time that is within 60 months after the exchange, taxable Canadian property of the vendor.
Marginal note:Where subsection (5) does not apply
(6)Subsection (5) does not apply where
(a)the vendor and foreign purchaser were, immediately before the exchange, not dealing with each other at arm’s length (otherwise than because of a right referred to in paragraph 251(5)(b) that is a right of the foreign purchaser to acquire the exchanged foreign shares);
(b)immediately after the exchange the vendor, persons with whom the vendor did not deal at arm’s length or the vendor together with persons with whom the vendor did not deal at arm’s length
(i)controlled the foreign purchaser, or
(ii)beneficially owned shares of the capital stock of the foreign purchaser having a fair market value of more than 50% of the fair market value of all of the outstanding shares of the capital stock of the foreign purchaser;
(c)consideration other than issued foreign shares was received by the vendor for the exchanged foreign shares, notwithstanding that the vendor may have disposed of shares of the capital stock of the other corporation referred to in subsection (5) (other than the exchanged foreign shares) to the foreign purchaser for consideration other than shares of the capital stock of the foreign purchaser;
(d)the vendor
(i)is a foreign affiliate of a taxpayer resident in Canada at the end of the taxation year of the vendor in which the exchange occurred, and
(ii)has included any portion of the gain or loss, otherwise determined, from the disposition of the exchanged foreign shares in computing its foreign accrual property income for the taxation year of the vendor in which the exchange occurred; or
(e)the vendor is a foreign affiliate of a taxpayer resident in Canada at the end of the taxation year of the vendor in which the exchange occurred and the exchanged foreign shares are excluded property (within the meaning assigned by subsection 95(1)) of the vendor.
Marginal note:Issuance deemed made to vendor
(6.1)For the purposes of subsection (5), if a foreign purchaser issues shares of a class of its capital stock (in this subsection referred to asforeign purchaser shares) to a trust under a court-approved plan or scheme of arrangement in consideration for which a vendor disposes of exchanged foreign shares that trade on a designated stock exchange to the purchaser solely for foreign purchaser shares that are widely traded on a designated stock exchange immediately after and as part of completion of the plan or scheme of arrangement, the issuance to the trust is deemed to be an issuance to the vendor.
Marginal note:Application of subsection (8)
(7)Subsection (8) applies in respect of the disposition before 2013 by a taxpayer of SIFT wind-up entity equity (referred to in subsection (8) as the “particular unit”) to a taxable Canadian corporation if
(a)the disposition occurs during a period (referred to in this subsection and subsection (8) as the “exchange period”) of no more than 60 days at the end of which all of the equity in the SIFT wind-up entity is owned by the corporation;
(b)the taxpayer receives no consideration for the disposition other than a share (referred to in this subsection and subsection (8) as the “exchange share”) of the capital stock of the corporation that is issued during the exchange period to the taxpayer by the corporation;
(c)neither of subsections 85(1) and (2) applies to the disposition; and
(d)all of the exchange shares issued to holders of equity in the SIFT wind-up entity are shares of a single class of the capital stock of the corporation.
Marginal note:Rollover on SIFT unit for share exchange
(8)If this subsection applies in respect of a disposition by a taxpayer of a particular unit of a SIFT wind-up entity to a corporation for consideration that is an exchange share, the following rules apply:
(a)the taxpayer’s proceeds of disposition of the particular unit, and cost of the exchange share, are deemed to be equal to the cost amount to the taxpayer of the particular unit immediately before the disposition;
(b)if the particular unit was immediately before the disposition taxable Canadian property of the taxpayer, the exchange share is deemed to be, at any time that is within 60 months after the disposition, taxable Canadian property of the taxpayer;
(c)if the exchange share’s fair market value immediately after the disposition exceeds the particular unit’s fair market value at the time of the disposition, the excess is deemed to be an amount that section 15 requires to be included in computing the taxpayer’s income for the taxpayer’s taxation year in which the disposition occurs;
(d)if the particular unit’s fair market value at the time of the disposition exceeds the exchange share’s fair market value immediately after the disposition, and it is reasonable to regard any part of the excess as a benefit that the taxpayer desired to have conferred on a person, or partnership, with whom the taxpayer does not deal at arm’s length, the excess is deemed to be an amount that section 15 requires to be included in computing the taxpayer’s income for the taxpayer’s taxation year in which the disposition occurs;
(e)the cost to the corporation of the particular unit is deemed to be the lesser of
(i)the fair market value of the particular unit immediately before the disposition, and
(ii)the amount determined for B in the formula in paragraph (f) in respect of the particular unit; and
(f)in computing the paid-up capital in respect of each class of shares of the capital stock of the corporation at any time after the disposition there shall be deducted the amount determined by the formula
(A – B) × C/A
where
D – E
where
(i)unless subparagraph (ii) applies, the total of all amounts each of which is
(A)if the SIFT wind-up entity is a trust, the fair market value of property received by the SIFT wind-up entity on the issuance of the particular unit, or
(B)if the SIFT wind-up entity is a partnership,
(I)an amount that has at any time been added, in computing the adjusted cost base to any taxpayer of the particular unit on or before the disposition, because of subparagraph 53(1)(e)(iv) or (x), or
(II)an amount that would at any time have been added, in computing the adjusted cost base to any taxpayer of the particular unit on or before the disposition, because of subparagraph 53(1)(e)(i) if subsection 96(1) were read without reference to its paragraph (d) and the partnership deducted all amounts otherwise deductible because of that paragraph, and
(ii)if the SIFT wind-up entity has on or after the end of the exchange period issued a unit, nil, and
(i)if the SIFT wind-up entity is a trust, has become payable by the SIFT wind-up entity, in respect of the particular unit, to any holder of the unit on or before the disposition, other than an amount that has become payable out of its income (determined without reference to subsection 104(6)) or capital gains, and
(ii)if the SIFT wind-up entity is a partnership,
(A)has at any time been deducted, in computing the adjusted cost base to any taxpayer of the particular unit on or before the disposition, because of subparagraph 53(2)(c)(iv) or (v), or
(B)would have at any time been deducted, in computing the adjusted cost base to any taxpayer of the particular unit on or before the disposition, because of subparagraph 53(2)(c)(i) if subsection 96(1) were read without reference to its paragraph (d) and the partnership deducted all amounts otherwise deductible because of that paragraph, and
Marginal note:Exchange of shares by a shareholder in course of reorganization of capital
86(1)Where, at a particular time after May 6, 1974, in the course of a reorganization of the capital of a corporation, a taxpayer has disposed of capital property that was all the shares of any particular class of the capital stock of the corporation that were owned by the taxpayer at the particular time (in this section referred to as the “old shares”), and property is receivable from the corporation therefor that includes other shares of the capital stock of the corporation (in this section referred to as the “new shares”), the following rules apply:
(a)the cost to the taxpayer of any property (other than new shares) receivable by the taxpayer for the old shares shall be deemed to be its fair market value at the time of the disposition;
(b)the cost to the taxpayer of any new shares of any class of the capital stock of the corporation receivable by the taxpayer for the old shares shall be deemed to be that proportion of the amount, if any, by which the total of the adjusted cost bases to the taxpayer, immediately before the disposition, of the old shares exceeds the fair market value at that time of the consideration receivable for the old shares (other than new shares) that
(i)the fair market value, immediately after the disposition, of those new shares of that class,
is of
(ii)the fair market value, immediately after the disposition, of all new shares of the capital stock of the corporation receivable by the taxpayer for the old shares; and
(c)the taxpayer shall be deemed to have disposed of the old shares for proceeds of disposition equal to the cost to the taxpayer of all new shares and other property receivable by the taxpayer for the old shares.
Marginal note:Idem
(2)Notwithstanding paragraphs 86(1)(b) and 86(1)(c), where a taxpayer has disposed of old shares in circumstances described in subsection 86(1) and the fair market value of the old shares immediately before the disposition exceeds the total of
(a)the cost to the taxpayer of the property (other than new shares) receivable by the taxpayer for the old shares as determined under paragraph 86(1)(a), and
(b)the fair market value of the new shares, immediately after the disposition,
and it is reasonable to regard any portion of the excess (in this subsection referred to as the “gift portion”) as a benefit that the taxpayer desired to have conferred on a person related to the taxpayer, the following rules apply:
(c)the taxpayer shall be deemed to have disposed of the old shares for proceeds of disposition equal to the lesser of
(i)the total of the cost to the taxpayer of the property as determined under paragraph 86(1)(a) and the gift portion
and
(ii)the fair market value of the old shares immediately before the disposition,
(d)the taxpayer’s capital loss from the disposition of the old shares shall be deemed to be nil, and
(e)the cost to the taxpayer of any new shares of any class of the capital stock of the corporation receivable by the taxpayer for the old shares shall be deemed to be that proportion of the amount, if any, by which the total of the adjusted cost bases to the taxpayer, immediately before the disposition, of the old shares exceeds the total determined under subparagraph 86(2)(c)(i) that
(i)the fair market value, immediately after the disposition, of the new shares of that class,
is of
(ii)the fair market value, immediately after the disposition, of all new shares of the capital stock of the corporation receivable by the taxpayer for the old shares.
Marginal note:Computation of paid-up capital
(2.1)Where subsection 86(1) applies to a disposition of shares of the capital stock of a corporation (in this subsection referred to as the “exchange”), in computing the paid-up capital in respect of a particular class of shares of the capital stock of the corporation at any particular time that is the time of, or any time after, the exchange,
(a)there shall be deducted the amount determined by the formula
(A - B) × C/A
where
(b)there shall be added an amount equal to the lesser of
(i)the amount, if any, by which
(A)the total of all amounts deemed by subsection 84(3), 84(4) or 84(4.1) to be a dividend on shares of that class paid by the corporation before the particular time
exceeds
(B)the total that would be determined under clause 86(2.1)(b)(i)(A) if this Act were read without reference to paragraph 86(2.1)(a), and
(ii)the total of all amounts required by paragraph 86(2.1)(a) to be deducted in respect of that particular class of shares before the particular time.
Marginal note:Application
(3)Subsections 86(1) and 86(2) do not apply in any case where subsection 85(1) or 85(2) applies.
Marginal note:Computation of adjusted cost base
(4)Where a taxpayer has disposed of old shares in circumstances described in subsection 86(1),
(a)there shall be deducted after the disposition in computing the adjusted cost base to the taxpayer of each new share the amount determined by the formula
A × B/C
where
(i)the total of all amounts deducted under paragraph 53(2)(g.1) in computing the adjusted cost base to the taxpayer of the old shares immediately before the disposition
exceeds
(ii)the amount that would be the taxpayer’s capital gain for the taxation year that includes the time of the disposition from the disposition of the old shares if paragraph 40(1)(a) were read without reference to subparagraph (iii) of that paragraph,
(b)the amount determined under paragraph 86(4)(a) in respect of the acquisition shall be added in computing the adjusted cost base to the taxpayer of the new share after the disposition.
Marginal note:Eligible distribution not included in income
86.1(1)Notwithstanding any other provision of this Part,
(a)the amount of an eligible distribution received by a taxpayer shall not be included in computing the income of the taxpayer; and
(b)subsection 52(2) does not apply to the eligible distribution received by the taxpayer.
Marginal note:Eligible distribution
(2)For the purpose of this section, a distribution by a particular corporation that is received by a taxpayer is an eligible distribution if
(a)the distribution is with respect to all of the taxpayer’s common shares of the capital stock of the particular corporation (in this section referred to as the “original shares”);
(b)the distribution consists solely of common shares of the capital stock of another corporation that were owned by the particular corporation immediately before their distribution to the taxpayer (in this section referred to as the “spin-off shares”);
(c)in the case of a distribution that is not prescribed,
(i)at the time of the distribution, both corporations are resident in the United States and were never resident in Canada,
(ii)at the time of the distribution, the shares of the class that includes the original shares are widely held and
(A)are actively traded on a designated stock exchange in the United States, or
(B)are required, under theSecurities Exchange Act of 1934of the United States, as amended from time to time, to be registered with the Securities and Exchange Commission of the United States and are so registered, and
(iii)under the provisions of theInternal Revenue Code of 1986of the United States, as amended from time to time, that apply to the distribution, the shareholders of the particular corporation who are resident in the United States are not taxable in respect of the distribution;
(d)in the case of a distribution that is prescribed,
(i)at the time of the distribution, both corporations are resident in the same country, other than the United States, with which Canada has a tax treaty (in this section referred to as the “foreign country”) and were never resident in Canada,
(ii)at the time of the distribution, the shares of the class that includes the original shares are widely held and actively traded on a designated stock exchange,
(iii)under the law of the foreign country, those shareholders of the particular corporation who are resident in that country are not taxable in respect of the distribution, and
(iv)the distribution is prescribed subject to such terms and conditions as are considered appropriate in the circumstances;
(e)before the end of the sixth month following the day on which the particular corporation first distributes a spin-off share in respect of the distribution, the particular corporation provides to the Minister information satisfactory to the Minister establishing
(i)that, at the time of the distribution, the shares of the class that includes the original shares are shares described in subparagraph (c)(ii) or (d)(ii),
(ii)that the particular corporation and the other corporation referred to in paragraph (b) were never resident in Canada,
(iii)the date of the distribution,
(iv)the type and fair market value of each property distributed to residents of Canada,
(v)the name and address of each resident of Canada that received property with respect to the distribution,
(vi)in the case of a distribution that is not prescribed, that the distribution is not taxable under the provisions of theInternal Revenue Code of 1986of the United States, as amended from time to time, that apply to the distribution,
(vii)in the case of a distribution that is prescribed, that the distribution is not taxable under the law of the foreign country, and
(viii)such other matters that are required, in prescribed form; and
(f)the taxpayer elects in writing filed with the taxpayer’s return of income for the taxation year in which the distribution occurs that this section apply to the distribution and provides information satisfactory to the Minister
(i)of the number, cost amount (determined without reference to this section) and fair market value of the taxpayer’s original shares immediately before the distribution,
(ii)of the number, and fair market value, of the taxpayer’s original shares and the spin-off shares immediately after the distribution of the spin-off shares to the taxpayer,
(iii)except where the election is filed with the taxpayer’s return of income for the year in which the distribution occurs, concerning the amount of the distribution, the manner in which the distribution was reported by the taxpayer and the details of any subsequent disposition of original shares or spin-off shares for the purpose of determining any gains or losses from those dispositions, and
(iv)of such other matters that are required, in prescribed form.
Marginal note:Cost adjustments
(3)Where a spin-off share is distributed by a corporation to a taxpayer pursuant to an eligible distribution with respect to an original share of the taxpayer,
(a)there shall be deducted for the purpose of computing the cost amount to the taxpayer of the original share at any time the amount determined by the formula
A × (B/C)
where
(i)the fair market value of the original share immediately after the distribution of the spin-off share to the taxpayer, and
(ii)the fair market value of the spin-off share immediately after its distribution to the taxpayer; and
(b)the cost to the taxpayer of the spin-off share is the amount by which the cost amount of the taxpayer’s original share was reduced as a result of paragraph (a).
Marginal note:Inventory
(4)For the purpose of calculating the value of the property described in an inventory of a taxpayer’s business,
(a)an eligible distribution to the taxpayer of a spin-off share that is included in the inventory is deemed not to be an acquisition of property in the fiscal period of the business in which the distribution occurs; and
(b)for greater certainty, the value of the spin-off share is to be included in computing the value of the inventory at the end of that fiscal period.
Marginal note:Reassessments
(5)Notwithstanding subsections 152(4) to (5), the Minister may make at any time such assessments, reassessments, determinations and redeterminations that are necessary where information is obtained that the conditions in subparagraph (2)(c)(iii) or (d)(iii) are not, or are no longer, satisfied.
Marginal note:Amalgamations
87(1)In this section, an amalgamation means a merger of two or more corporations each of which was, immediately before the merger, a taxable Canadian corporation (each of which corporations is referred to in this section as a “predecessor corporation”) to form one corporate entity (in this section referred to as the “new corporation”) in such a manner that
(a)all of the property (except amounts receivable from any predecessor corporation or shares of the capital stock of any predecessor corporation) of the predecessor corporations immediately before the merger becomes property of the new corporation by virtue of the merger,
(b)all of the liabilities (except amounts payable to any predecessor corporation) of the predecessor corporations immediately before the merger become liabilities of the new corporation by virtue of the merger, and
(c)all of the shareholders (except any predecessor corporation), who owned shares of the capital stock of any predecessor corporation immediately before the merger, receive shares of the capital stock of the new corporation because of the merger,
otherwise than as a result of the acquisition of property of one corporation by another corporation, pursuant to the purchase of that property by the other corporation or as a result of the distribution of that property to the other corporation on the winding-up of the corporation.
Marginal note:Shares deemed to have been received by virtue of merger
(1.1)For the purposes of paragraph 87(1)(c) and theIncome Tax Application Rules, where there is a merger of
(a)a corporation and one or more of its subsidiary wholly-owned corporations, or
(b)two or more corporations each of which is a subsidiary wholly-owned corporation of the same corporation
any shares of the capital stock of a predecessor corporation owned by a shareholder (except any predecessor corporation) immediately before the merger that were not cancelled on the merger shall be deemed to be shares of the capital stock of the new corporation received by the shareholder by virtue of the merger as consideration for the disposition of the shares of the capital stock of the predecessor corporations.
Marginal note:New corporation continuation of a predecessor
(1.2)Where there has been an amalgamation of corporations described in paragraph (1.1)(a) or of two or more corporations each of which is a subsidiary wholly-owned corporation of the same person, the new corporation is, for the purposes of section 29 of theIncome Tax Application Rules, subsection 59(3.3) and sections 66, 66.1, 66.2, 66.21, 66.4 and 66.7, deemed to be the same corporation as, and a continuation of, each predecessor corporation, except that this subsection does not affect the determination of any predecessor corporation’s fiscal period, taxable income or tax payable.
Marginal note:Definition ofsubsidiary wholly-owned corporation
(1.4)Notwithstanding subsection 248(1), for the purposes of this subsection and subsections 87(1.1), 87(1.2) and 87(2.11),subsidiary wholly-owned corporationof a person (in this subsection referred to as the “parent”) means a corporation all the issued and outstanding shares of the capital stock of which belong to
(a)the parent;
(b)a corporation that is a subsidiary wholly-owned corporation of the parent; or
(c)any combination of persons each of which is a person described in paragraph 87(1.4)(a) or 87(1.4)(b).
Marginal note:Definitions
(1.5)For the purpose of this section,financial institution,mark-to-market propertyandspecified debt obligationhave the meanings assigned by subsection 142.2(1).
Marginal note:Rules applicable
(2)Where there has been an amalgamation of two or more corporations after 1971 the following rules apply
Marginal note:Taxation year
(a)for the purposes of this Act, the corporate entity formed as a result of the amalgamation shall be deemed to be a new corporation the first taxation year of which shall be deemed to have commenced at the time of the amalgamation, and a taxation year of a predecessor corporation that would otherwise have ended after the amalgamation shall be deemed to have ended immediately before the amalgamation;
Marginal note:Inventory
(b)for the purpose of computing the income of the new corporation, where the property described in the inventory, if any, of the new corporation at the beginning of its first taxation year includes property that was described in the inventory of a predecessor corporation at the end of the taxation year of the predecessor corporation that ended immediately before the amalgamation (which taxation year of a predecessor corporation is referred to in this section as its “last taxation year”), the property so included shall be deemed to have been acquired by the new corporation at the beginning of its first taxation year for an amount determined in accordance with section 10 as the value thereof for the purpose of computing the income of the predecessor corporation for its last taxation year, except that where the income of the predecessor corporation for its last taxation year from a farming business was computed in accordance with the cash method, the amount so determined in respect of inventory owned in connection with that business shall be deemed to be the total of all amounts each of which is an amount included because of paragraph 28(1)(b) or 28(1)(c) in computing that income for that year and, where the income of the new corporation from a farming business is computed in accordance with the cash method, for the purpose of section 28,
(i)an amount equal to that total shall be deemed to have been paid by the new corporation, and
(ii)the new corporation shall be deemed to have purchased the property for an amount equal to that total,
in its first taxation year and in the course of carrying on that business;
Marginal note:Method adopted for computing income
(c)in computing the income of the new corporation for a taxation year from a business or property
(i)there shall be included any amount received or receivable (depending on the method followed by the new corporation in computing its income for that year) by it in that year that would, if it had been received or receivable (depending on the method followed by the predecessor corporation in computing its income for its last taxation year) by the predecessor corporation in its last taxation year, have been included in computing the income of the predecessor corporation for that year, and
(ii)there may be deducted any amount paid or payable (depending on the method followed by the new corporation in computing its income for that year) by it in that year that would, if it had been paid or payable (depending on the method followed by the predecessor corporation in computing its income for its last taxation year) by the predecessor corporation in its last taxation year, have been deductible in computing the income of the predecessor corporation for that year;
Marginal note:Depreciable property
(d)for the purposes of sections 13 and 20 and any regulations made under paragraph 20(1)(a),
(i)where depreciable property of a prescribed class has been acquired by the new corporation from a predecessor corporation, the capital cost of the property to the new corporation shall be deemed to be the amount that was the capital cost of the property to the predecessor corporation, and
(ii)in determining the undepreciated capital cost to the new corporation of depreciable property of a prescribed class at any time,
(A)there shall be added to the capital cost to the new corporation of depreciable property of the class acquired before that time the cost amount, immediately before the amalgamation, to a predecessor corporation of each property included in that class by the new corporation,
(B)there shall be subtracted from the capital cost to the new corporation of depreciable property of that class acquired before that time the capital cost to the new corporation of property of that class acquired by virtue of the amalgamation,
(C)a reference in subparagraph 13(5)(b)(ii) to amounts that would have been deducted in respect of property in computing a taxpayer’s income shall be construed as including a reference to amounts that would have been deducted in respect of that property in computing a predecessor corporation’s income, and
(D)where depreciable property that is deemed by subsection 37(6) to be a separate prescribed class has been acquired by the new corporation from a predecessor corporation, the property shall continue to be deemed to be of that same separate prescribed class;
Marginal note:Depreciable property acquired from predecessor corporation
(d.1)for the purposes of this Act, where depreciable property (other than property of a prescribed class) has been acquired by the new corporation from a predecessor corporation, the new corporation shall be deemed to have acquired the property before 1972 at an actual cost equal to the actual cost of the property to the predecessor corporation, and the new corporation shall be deemed to have been allowed the total of all amounts allowed to the predecessor corporation in respect of the property, under regulations made under paragraph 20(1)(a), in computing the income of the predecessor corporation;
Marginal note:Capital property
(e)subject to paragraph 87(2)(e.4) and subsection 142.6(5), where a capital property (other than depreciable property or an interest in a partnership) has been acquired by the new corporation from a predecessor corporation, the cost of the property to the new corporation shall be deemed to be the amount that was the adjusted cost base of the property to the predecessor corporation immediately before the amalgamation;
Marginal note:Partnership interest
(e.1)where a partnership interest that is capital property has been acquired from a predecessor corporation to which the new corporation was related, for the purposes of this Act, the cost of that partnership interest to the new corporation shall be deemed to be the amount that was the cost of that interest to the predecessor corporation and, in respect of that partnership interest, the new corporation shall be deemed to be the same corporation as and a continuation of the predecessor corporation;
Marginal note:Security or debt obligation
(e.2)subject to paragraphs 87(2)(e.3) and 87(2)(e.4) and subsection 142.6(5), where a property that is a security or debt obligation (other than a capital property or an inventory) of a predecessor corporation used by it in the year in, or held by it in the year in the course of, carrying on the business of insurance or lending money in the taxation year ending immediately before the amalgamation has been acquired by the new corporation from the predecessor corporation, the cost of the property to the new corporation shall be deemed to be the amount that was the cost amount of the property to the predecessor corporation immediately before the amalgamation;
Marginal note:Financial institutions — specified debt obligation
(e.3)where the new corporation is a financial institution in its first taxation year, it shall be deemed, in respect of a specified debt obligation (other than a mark-to-market property) acquired from a predecessor corporation that was a financial institution in its last taxation year, to be the same corporation as, and a continuation of, the predecessor corporation;
Marginal note:Financial institutions — mark-to-market property
(e.4)where
(i)the new corporation is a financial institution in its first taxation year and a property acquired by the new corporation from a predecessor corporation is a mark-to-market property of the new corporation for the year, or
(ii)a predecessor corporation was a financial institution in its last taxation year and a property acquired by the new corporation from the predecessor corporation was a mark-to-market property of the predecessor corporation for the year,
the cost of the property to the new corporation shall be deemed to be the amount that was the fair market value of the property immediately before the amalgamation;
(e.41)if subsection 10.1(6) applied to a predecessor corporation in its last taxation year, eacheligible derivative(as defined in subsection 10.1(5)) of the predecessor corporation immediately before the end of its last taxation year is deemed to have been reacquired, or reissued or renewed, as the case may be, by the new corporation at its fair market value immediately before the amalgamation;
(e.42)for the purposes of subsection 10.1(7), the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation;
Marginal note:Financial institutions — mark-to-market property
(e.5)for the purposes of subsections 112(5) to 112(5.2) and 112(5.4) and the definitionmark-to-market propertyin subsection 142.2(1), the new corporation shall be deemed to be the same corporation as, and a continuation of, each predecessor corporation;
(f)[Repealed, 2016, c. 12, s. 27]
(f.1)[Repealed, 1994, c. 7, Sch