II, s. 8(2)]
Marginal note:Idem
(5)Where in a taxation year subsection 12.2(1) applies with respect to a taxpayer’s interest in an annuity contract (or would apply if the contract had an anniversary day in the year at a time when the taxpayer held the interest), there shall be included in computing the taxpayer’s income for the year the amount, if any, by which
(a)the total of all amounts each of which is an amount determined at the end of the year, in respect of the interest, for any of H to L in the definitionadjusted cost basisin subsection 148(9)
exceeds
(b)the total of all amounts each of which is an amount determined at the end of the year, in respect of the interest, for any of A to G in the definition referred to in paragraph 12.2(5)(a).
Marginal note:Deemed acquisition of interest in annuity
(8)For the purposes of this section, the first premium that was not fixed before 1990 and that was paid after 1989 by or on behalf of a taxpayer under an annuity contract, other than a contract described in paragraph (1)(d) of this section, or paragraph 12.2(3)(e) of theIncome Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, or to which subsection (1) of this section or subsection 12.2(4) of theIncome Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, applies (as those paragraphs and subsections, the numbers of which are those in force immediately before December 17, 1991, read in their application to life insurance policies last acquired before 1990) or to which subsection 12(3) applies, last acquired by the taxpayer before 1990 (in this subsection referred to as the “original contract”) shall be deemed to have been paid to acquire, at the time the premium was paid, an interest in a separate annuity contract issued at that time, to the extent that the amount of the premium was not fixed before 1990, and each subsequent premium paid under the original contract shall be deemed to have been paid under that separate contract to the extent that the amount of that subsequent premium was not fixed before 1990.
Marginal note:Riders
(10)For the purposes of this Act, a rider added at any time after 1989 to a life insurance policy last acquired before 1990 that provides additional life insurance is deemed to be a separate life insurance policy issued at that time unless
(a)the policy is an exempt policy last acquired after December 1, 1982 or an annuity contract; or
(b)the only additional life insurance provided by the rider is an accidental death benefit.
Marginal note:Definitions
(11)In this section and paragraph 56(1)(d.1) of theIncome Tax Act, chapter 148 of the Revised Statutes of Canada, 1952,
anniversary dayof a life insurance policy means
(a)the day that is one year after the day immediately preceding the day on which the policy was issued, and
(b)each day that occurs at each successive one-year interval after the day determined under paragraph (a). (jour anniversaire)
exempt policyhas the meaning prescribed by regulation. (police exonérée)
Marginal note:Application of ss. 138(12) and 148(9)
(12)The definitions in subsections 138(12) and 148(9) apply to this section.
Marginal note:Application of s. 148(10)
(13)Subsection 148(10) applies to this section.
12.3[Repealed, 2013, c. 34, s. 174]
Marginal note:Bad debt inclusion
12.4Where, in a taxation year, a taxpayer disposes of a property that was a property described in an inventory of the taxpayer and in the year or a preceding taxation year an amount has been deducted under paragraph 20(1)(p) in computing the taxpayer’s income in respect of the property, there shall be included in computing the taxpayer’s income for the year from the business in which the property was used or held, the amount, if any, by which
(a)the total of all amounts deducted under paragraph 20(1)(p) by the taxpayer in respect of the property in computing the taxpayer’s income for the year or a preceding taxation year
exceeds
(bthe total of all amounts included under paragraph 12(1)(i) by the taxpayer in respect of the property in computing the taxpayer’s income for the year or a preceding taxation year.
Marginal note:Definitions
12.5(1)The definitions in this section apply for the purposes of this section and section 20.4.
base yearof an insurer means the insurer’s taxation year that immediately precedes its transition year. (année de base)
insurance businessof an insurer, is an insurance business carried on by the insurer, other than a life insurance business. (entreprise d’assurance)
reserve transition amountof an insurer, in respect of an insurance business carried on by it in Canada in its transition year, is the positive or negative amount determined by the formula
A – B
where
(a)the generally accepted accounting principles that applied to the insurer in valuing its assets and liabilities for its transition year had applied to it for its base year, and
(b)section 1400 of the Regulations were read in respect of the insurer’s base year as it reads in respect of its transition year; and
transition yearof an insurer means the insurer’s first taxation year that begins after September 2006. (année transitoire)
Marginal note:Transition year income inclusion
(2)There shall be included in computing an insurer’s income for its transition year from an insurance business carried on by it in Canada in the transition year, the positive amount, if any, of the insurer’s reserve transition amount in respect of that insurance business.
Marginal note:Transition year income deduction reversal
(3)If an amount has been deducted under subsection 20.4(2) in computing an insurer’s income for its transition year from an insurance business carried on by it in Canada, there shall be included in computing the insurer’s income, for each particular taxation year of the insurer that ends after the beginning of the transition year, from that insurance business, the amount determined by the formula
A × B/1825
where
Marginal note:Winding-up
(4)If an insurer has, in a winding-up to which subsection 88(1) has applied, been wound-up into another corporation (referred to in this subsection as the “parent”), and immediately after the winding-up the parent carries on an insurance business, in applying subsections (3) and 20.4(3) in computing the incomes of the insurer and of the parent for particular taxation years that end on or after the first day (referred to in this subsection as the “start day”) on which assets of the insurer were distributed to the parent on the winding-up,
(a)the parent is, on and after the start day, deemed to be the same corporation as and a continuation of the insurer in respect of
(i)any amount included under subsection (2) or deducted under subsection 20.4(2) in computing the insurer’s income from an insurance business for its transition year,
(ii)any amount included under subsection (3) or deducted under subsection 20.4(3) in computing the insurer’s income from an insurance business for a taxation year of the insurer that begins before the start day, and
(iii)any amount that would — in the absence of this subsection and if the insurer existed and carried on an insurance business on each day that is the start day or a subsequent day and on which the parent carries on an insurance business — be required to be included or deducted, in respect of any of those days, under subsection (3) or 20.4(3) in computing the insurer’s income from an insurance business; and
(b)the insurer is, in respect of each of its particular taxation years, to determine the value for B in the formulas in subsections (3) and 20.4(3) without reference to the start day and days after the start day.
Marginal note:Amalgamations
(5)If there is an amalgamation (within the meaning assigned by subsection 87(1)) of an insurer with one or more other corporations to form one corporation (referred to in this subsection as the “new corporation”), and immediately after the amalgamation the new corporation carries on an insurance business, in applying subsections (3) and 20.4(3) in computing the new corporation’s income for particular taxation years that begin on or after the day on which the amalgamation occurred, the new corporation is, on and after that day, deemed to be the same corporation as and a continuation of the insurer in respect of
(a)any amount included under subsection (2) or deducted under subsection 20.4(2) in computing the insurer’s income from an insurance business for its transition year;
(b)any amount included under subsection (3) or deducted under subsection 20.4(3) in computing the insurer’s income from an insurance business for a taxation year of the insurer that begins before the day on which the amalgamation occurred; and
(c)any amount that would — in the absence of this subsection and if the insurer existed and carried on an insurance business on each day that is the day on which the amalgamation occurred or a subsequent day and on which the new corporation carries on an insurance business — be required to be included or deducted, in respect of any of those days, under subsection (3) or 20.4(3) in computing the insurer’s income from an insurance business.
Marginal note:Application of subsection (7)
(6)Subsection (7) applies if, at any time, an insurer (referred to in this subsection and subsection (7) as the “transferor”) transfers, to a corporation (referred to in this subsection and subsection (7) as the “transferee”) that is related to the transferor, property in respect of an insurance business carried on by the transferor in Canada (referred to in this subsection and subsection (7) as the “transferred business”) and
(a)subsection 138(11.5) or (11.94) applies to the transfer; or
(b)subsection 85(1) applies to the transfer, the transfer includes all or substantially all of the property and liabilities of the transferred business and, immediately after the transfer, the transferee carries on an insurance business.
Marginal note:Transfer of insurance business
(7)If this subsection applies in respect of the transfer, at any time, of property
(a)the transferee is, at and after that time, deemed to be the same corporation as and a continuation of the transferor in respect of
(i)any amount included under subsection (2) or deducted under subsection 20.4(2) in computing the transferor’s income for its transition year that can reasonably be attributed to the transferred business,
(ii)any amount included under subsection (3) or deducted under subsection 20.4(3) in computing the transferor’s income for a taxation year of the transferor that begins before that time that can reasonably be attributed to the transferred business,
(iii)any amount that would — in the absence of this subsection and if the transferor existed and carried on an insurance business on each day that includes that time or is a subsequent day and on which the transferee carries on an insurance business — be required to be included or deducted, in respect of any of those days, under subsection (3) or 20.4(3) in computing the transferor’s income that can reasonably be attributed to the transferred business; and
(b)in determining, in respect of the day that includes that time or any subsequent day, any amount that is required under subsection (3) or 20.4(3) to be included or deducted in computing the transferor’s income for each particular taxation year from the transferred business, the description of A in the formulas in those subsections is deemed to be nil.
Marginal note:Ceasing to carry on business
(8)If at any time an insurer ceases to carry on all or substantially all of an insurance business (referred to in this subsection as the “discontinued business”), and none of subsections (4) to (6) apply, there shall be included in computing the insurer’s income from the discontinued business for the insurer’s taxation year that includes the time that is immediately before that time, the amount determined by the formula
A – B
where
Marginal note:Ceasing to exist
(9)If at any time an insurer that carried on an insurance business ceases to exist (otherwise than as a result of a winding-up or amalgamation described in subsection (4) or (5)), for the purposes of subsections (8) and 20.4(4), the insurer is deemed to have ceased to carry on the insurance business at the earlier of
(a)the time (determined without reference to this subsection) at which the insurer ceased to carry on the insurance business, and
(b)the time that is immediately before the end of the last taxation year of the insurer that ended at or before the time at which the insurer ceased to exist.
Marginal note:Definitions
12.6(1)The definitions in section 18.3 apply in this section.
Marginal note:Where subsection (3) applies
(2)Subsection (3) applies for a taxation year of an entity in respect of a security of the entity if
(a)the security becomes, at a particular time in the year, a stapled security of the entity and, as a consequence, amounts described in paragraphs 18.3(3)(a) and (b) are not deductible because of subsection 18.3(3);
(b)the security (or any security for which the security was substituted) ceased, at an earlier time, to be a stapled security of any entity and, as a consequence, subsection 18.3(3) ceased to apply to deny the deductibility of amounts that would be described in paragraphs 18.3(3)(a) and (b) if the security were a stapled security; and
(c)throughout the period that began immediately after the most recent time referred to in paragraph (b) and that ends at the particular time, the security (or any security for which the security was substituted) was not a stapled security of any entity.
Marginal note:Income inclusion
(3)If this subsection applies for a taxation year of an entity in respect of a security of the entity, the entity shall include in computing its income for the year each amount that
(a)was deducted by the entity (or by another entity that issued a security for which the security was substituted) in computing its income for a taxation year that includes any part of the period described in paragraph (2)(c); and
(b)would not have been deductible if subsection 18.3(3) had applied in respect of the amount.
Marginal note:Deemed excess
(4)For the purposes of subsection 161(1), if an amount described in paragraph (3)(a) is included in the income of an entity for a taxation year under subsection (3), the entity is deemed to have an excess immediately after the entity’s balance-due day for the year computed as if
(a)the entity were resident in Canada throughout the year;
(b)the entity’s tax payable for the year were equal to the tax payable by the entity on its taxable income for the year;
(c)the amount were the entity’s only taxable income for the year;
(d)the entity claimed no deductions under Division E for the year;
(e)the entity had not paid any amounts on account of its tax payable for the year; and
(f)the tax payable determined under paragraph (b) had been outstanding throughout the period that begins immediately after the end of the taxation year for which the amount was deducted and that ends on the entity’s balance-due day for the year.
Marginal note:Recaptured depreciation
13(1)If, at the end of a taxation year, the total of the amounts determined for E to K in the definitionundepreciated capital costin subsection (21) in respect of a taxpayer’s depreciable property of a particular prescribed class exceeds the total of the amounts determined for A to D.1 in that definition in respect of that property, the excess shall be included in computing the taxpayer’s income of the year.
Marginal note:Recapture — Class 10.1 Passenger Vehicle
(2)Notwithstanding subsection 13(1), where an excess amount is determined under that subsection at the end of a taxation year in respect of a passenger vehicle having a cost to a taxpayer in excess of $20,000 or such other amount as may be prescribed, unless it was, at any time,designated immediate expensing propertyas defined in subsection 1104(3.1) of theIncome Tax Regulations, that excess amount shall not be included in computing the taxpayer’s income for the year but shall be deemed, for the purposes of B in the definitionundepreciated capital costin subsection 13(21), to be an amount included in the taxpayer’s income for the year by reason of this section.
Marginal note:“Taxation year”, “year” and “income” of individual
(3)Where a taxpayer is an individual whose income for a taxation year includes income from a business the fiscal period of which does not coincide with the calendar year and depreciable property acquired for the purpose of gaining or producing income from the business has been disposed of,
(a)for greater certainty, each reference in subsections 13(1) and 13(2) to a “taxation year” and “year” shall be read as a reference to a “fiscal period”; and
(b)a reference in subsection 13(1) to “the income” shall be read as a reference to “the income from the business”.
Marginal note:Exchanges of property
(4)Where an amount in respect of the disposition in a taxation year (in this subsection referred to as the “initial year”) of depreciable property (in this section referred to as the “former property”) of a prescribed class of a taxpayer would, but for this subsection, be the amount determined for F or G in the definitionundepreciated capital costin subsection 13(21) in respect of the disposition of the former property that is either
(a)property the proceeds of disposition of which were proceeds referred to in paragraph (b), (c) or (d) of the definitionproceeds of dispositionin subsection 13(21), or
(b)a property that was, immediately before the disposition, a former business property of the taxpayer,
and the taxpayer so elects under this subsection in the taxpayer’s return of income for the taxation year in which the taxpayer acquires a depreciable property of a prescribed class of the taxpayer that is a replacement property for the taxpayer’s former property,
(c)the amount otherwise determined for F or G in the definitionundepreciated capital costin subsection 13(21) in respect of the disposition of the former property shall be reduced by the lesser of
(i)the amount, if any, by which the amount otherwise determined for F or G in that definition exceeds the undepreciated capital cost to the taxpayer of property of the prescribed class to which the former property belonged at the time immediately before the time that the former property was disposed of, and
(ii)the amount that has been used by the taxpayer to acquire
(A)if the former property is described in paragraph (a), before the later of the end of the second taxation year following the initial year and 24 months after the end of the initial year, or
(B)in any other case, before the later of the end of the first taxation year following the initial year and 12 months after the end of the initial year,
a replacement property of a prescribed class that has not been disposed of by the taxpayer before the time at which the taxpayer disposed of the former property, and
(d)the amount of the reduction determined under paragraph 13(4)(c) shall be deemed to be proceeds of disposition of a depreciable property of the taxpayer that had a capital cost equal to that amount and that was property of the same class as the replacement property, from a disposition made on the later of
(i)the time the replacement property was acquired by the taxpayer, and
(ii)the time the former property was disposed of by the taxpayer.
Marginal note:Replacement for a former property
(4.1)For the purposes of subsection 13(4), a particular depreciable property of a prescribed class of a taxpayer is a replacement for a former property of the taxpayer if
(a)it is reasonable to conclude that the property was acquired by the taxpayer to replace the former property;
(a.1)it was acquired by the taxpayer and used by the taxpayer or a person related to the taxpayer for a use that is the same as or similar to the use to which the taxpayer or a person related to the taxpayer put the former property;
(b)where the former property was used by the taxpayer or a person related to the taxpayer for the purpose of gaining or producing income from a business, the particular depreciable property was acquired for the purpose of gaining or producing income from that or a similar business or for use by a person related to the taxpayer for such a purpose;
(c)where the former property was a taxable Canadian property of the taxpayer, the particular depreciable property is a taxable Canadian property of the taxpayer; and
(d)where the former property was a taxable Canadian property (other than treaty-protected property) of the taxpayer, the particular depreciable property is a taxable Canadian property (other than treaty-protected property) of the taxpayer.
Marginal note:Election — limited period franchise, concession or license
(4.2)Subsection (4.3) applies if
(a)a taxpayer (in this subsection and subsection (4.3) referred to as the “transferor”) has, pursuant to a written agreement with a person or partnership (in this subsection and subsection (4.3) referred to as the “transferee”), at any time disposed of or terminated a former property that is a franchise, concession or licence for a limited period that is wholly attributable to the carrying on of a business at a fixed place;
(b)the transferee acquired the former property from the transferor or, on the termination, acquired a similar property in respect of the same fixed place from another person or partnership; and
(c)the transferor and the transferee jointly elect in their returns of income for their taxation years that include that time to have subsection (4.3) apply in respect of the acquisition and the disposition or termination.
Marginal note:Effect of election
(4.3)If this subsection applies in respect of an acquisition and a disposition or termination,
(a)if the transferee acquired a similar property referred to in paragraph (4.2)(b), the transferee is deemed to have also acquired the former property at the time that the former property was terminated and to own the former property until the transferee no longer owns the similar property;
(b)if the transferee acquired the former property referred to in paragraph (4.2)(b), the transferee is deemed to own the former property until such time as the transferee owns neither the former property nor a similar property in respect of the same fixed place to which the former property related;
(c)for the purpose of calculating the amount deductible under paragraph 20(1)(a) in respect of the former property in computing the transferee’s income, the life of the former property remaining on its acquisition by the transferee is deemed to be equal to the period that was the life of the former property remaining on its acquisition by the transferor; and
(d)any amount that would, if this Act were read without reference to this subsection, be included in the cost of a property of the transferor included in Class 14.1 of Schedule II to theIncome Tax Regulations(including a deemed acquisition under subsection (35)) or included in the proceeds of disposition of a property of the transferee included in that Class (including a deemed disposition under subsection (37)) in respect of the disposition or termination of the former property by the transferor is deemed to be
(i)neither included in the cost nor the proceeds of disposition of property included in that Class,
(ii)an amount required to be included in computing the capital cost to the transferee of the former property, and
(iii)an amount required to be included in computing the proceeds of disposition to the transferor in respect of a disposition of the former property.
Marginal note:Reclassification of property
(5)Where one or more depreciable properties of a taxpayer that were included in a prescribed class (in this subsection referred to as the “old class”) become included at any time (in this subsection referred to as the “transfer time”) in another prescribed class (in this subsection referred to as the “new class”), for the purpose of determining at any subsequent time the undepreciated capital cost to the taxpayer of depreciable property of the old class and the new class
(a)the value of A in the definitionundepreciated capital costin subsection 13(21) shall be determined as if each of those depreciable properties were
(i)properties of the new class acquired before the subsequent time, and
(ii)never included in the old class; and
(b)there shall be deducted in computing the total depreciation allowed to the taxpayer for property of the old class before the subsequent time, and added in computing the total depreciation allowed to the taxpayer for property of the new class before the subsequent time, the greater of
(i)the amount determined by the formula
A - B
where
(ii)the total of all amounts each of which is an amount that would have been deducted under paragraph 20(1)(a) in respect of a depreciable property that is one of those properties in computing the taxpayer’s income for a taxation year that ended before the transfer time and at the end of which the property was included in the old class if
(A)the property had been the only property included in a separate prescribed class, and
(B)the rate allowed by the regulations made for the purpose of paragraph 20(1)(a) in respect of that separate class had been the effective rate that was used by the taxpayer to calculate a deduction under that paragraph in respect of the old class for the year.
Marginal note:Rules applicable
(5.1)Where at any time in a taxation year a taxpayer acquires a particular property in respect of which, immediately before that time, the taxpayer had a leasehold interest that was included in a prescribed class, for the purposes of this section, section 20 and any regulations made under paragraph 20(1)(a), the following rules apply:
(a)the leasehold interest shall be deemed to have been disposed of by the taxpayer at that time for proceeds of disposition equal to the amount, if any, by which
(i)the capital cost immediately before that time of the leasehold interest
exceeds
(ii)the total of all amounts claimed by the taxpayer in respect of the leasehold interest and deductible under paragraph 20(1)(a) in computing the taxpayer’s income in previous taxation years;
(b)the particular property shall be deemed to be depreciable property of a prescribed class of the taxpayer acquired by the taxpayer at that time and there shall be added to the capital cost to the taxpayer of the property an amount equal to the capital cost referred to in subparagraph 13(5.1)(a)(i); and
(c)the total referred to in subparagraph 13(5.1)(a)(ii) shall be added to the total depreciation allowed to the taxpayer before that time in respect of the class to which the particular property belongs.
Marginal note:Deemed cost and depreciation
(5.2)If, at any time, a taxpayer has acquired a capital property that is depreciable property or real or immovable property in respect of which, before that time, the taxpayer or any person with whom the taxpayer was not dealing at arm’s length was entitled to a deduction in computing income in respect of any amount paid or payable for the use of, or the right to use, the property and the cost or the capital cost (determined without reference to this subsection) at that time of the property to the taxpayer is less than the fair market value thereof at that time determined without reference to any option with respect to that property, for the purposes of this section, section 20 and any regulations made under paragraph 20(1)(a), the following rules apply:
(a)the property shall be deemed to have been acquired by the taxpayer at that time at a cost equal to the lesser of
(i)the fair market value of the property at that time determined without reference to any option with respect to that property, and
(ii)the total of the cost or the capital cost (determined without reference to this subsection) of the property to the taxpayer and all amounts (other than amounts paid or payable to a person with whom the taxpayer was not dealing at arm’s length) each of which is an outlay or expense made or incurred by the taxpayer or by a person with whom the taxpayer was not dealing at arm’s length at any time for the use of, or the right to use, the property,
and for the purposes of this paragraph and subsection 13(5.3), where a particular corporation has been incorporated or otherwise formed after the time any other corporation with which the particular corporation would not have been dealing at arm’s length had the particular corporation been in existence before that time, the particular corporation shall be deemed to have been in existence from the time of the formation of the other corporation and to have been not dealing at arm’s length with the other corporation;
(b)the amount by which the cost to the taxpayer of the property determined under paragraph 13(5.2)(a) exceeds the cost or the capital cost thereof (determined without reference to this subsection) shall be added to the total depreciation allowed to the taxpayer before that time in respect of the prescribed class to which the property belongs; and
(c)where the property would, but for this paragraph, not be depreciable property of the taxpayer, it shall be deemed to be depreciable property of a separate prescribed class of the taxpayer.
Marginal note:Deemed recapture
(5.3)If, at any time in a taxation year, a taxpayer has disposed of a capital property that is an option with respect to depreciable property or real or immovable property in respect of which the taxpayer or any person with whom the taxpayer was not dealing at arm’s length was entitled to a deduction in computing income in respect of any amount paid for the use of, or the right to use, the property, for the purposes of this section, the amount, if any, by which the proceeds of disposition to the taxpayer of the option exceed the taxpayer’s cost in respect thereof is deemed to be an excess referred to in subsection (1) in respect of the taxpayer for the year.
Marginal note:Idem
(5.4)Where, before the time of disposition of a capital property that was depreciable property of a taxpayer, the taxpayer, or any person with whom the taxpayer was not dealing at arm’s length, was entitled to a deduction in computing income in respect of any outlay or expense made or incurred for the use of, or the right to use, during a period of time, that capital property (other than an outlay or expense made or incurred by the taxpayer or a person with whom the taxpayer was not dealing at arm’s length before the acquisition of the property), except where the taxpayer disposed of the property to a person with whom the taxpayer was not dealing at arm’s length and that person was subject to the provisions of subsection 13(5.2) with respect to the acquisition by that person of the property, the following rules apply:
(a)an amount equal to the lesser of
(i)the total of all amounts (other than amounts paid or payable to the taxpayer or a person with whom the taxpayer was not dealing at arm’s length) each of which was a deductible outlay or expense made or incurred before the time of disposition by the taxpayer, or by a person with whom the taxpayer was not dealing at arm’s length, for the use of, or the right to use, during the period of time, the property, and
(ii)the amount, if any, by which the fair market value of the property at the earlier of
(A)the expiration of the last period of time in respect of which the deductible outlay or expense referred to in subparagraph 13(5.4)(a)(i) was made or incurred, and
(B)the time of the disposition
exceeds the capital cost to the taxpayer of the property immediately before that time
shall immediately before the time of the disposition, be added to the capital cost of the property to the person who owned the property at that time; and
(b)the amount added to the capital cost to the taxpayer of the property pursuant to paragraph 13(5.4)(a) shall be added immediately before the time of the disposition to the total depreciation allowed to the taxpayer before that time in respect of the prescribed class to which the property belongs.
Marginal note:Lease cancellation payment
(5.5)For the purposes of subsection 13(5.4), an amount deductible by a taxpayer under paragraph 20(1)(z) or 20(1)(z.1) in respect of a cancellation of a lease of property shall, for greater certainty, be deemed not to be an outlay or expense that was made or incurred by the taxpayer for the use of, or the right to use, the property.
Marginal note:Misclassified property
(6)Where, in calculating the amount of a deduction allowed to a taxpayer under subsection 20(16) or regulations made for the purposes of paragraph 20(1)(a) in respect of depreciable property of the taxpayer of a prescribed class (in this subsection referred to as the “particular class”), there has been added to the capital cost to the taxpayer of depreciable property of the particular class the capital cost of depreciable property (in this subsection referred to as “added property”) of another prescribed class, for the purposes of this section, section 20 and any regulations made for the purposes of paragraph 20(1)(a), the added property shall, if the Minister so directs with respect to any taxation year for which, under subsection 152(4), the Minister may make any reassessment or additional assessment or assess tax, interest or penalties under this Part, be deemed to have been property of the particular class and not of the other class at all times before the beginning of the year and, except to the extent that the added property or any part thereof has been disposed of by the taxpayer before the beginning of the year, to have been transferred from the particular class to the other class at the beginning of the year.
Marginal note:Rules applicable
(7)Subject to subsection 70(13), for the purposes of paragraphs 8(1)(j) and 8(1)(p), this section, section 20 and any regulations made for the purpose of paragraph 20(1)(a),
(a)where a taxpayer, having acquired property for the purpose of gaining or producing income, has begun at a later time to use it for some other purpose, the taxpayer shall be deemed to have disposed of it at that later time for proceeds of disposition equal to its fair market value at that time and to have reacquired it immediately thereafter at a cost equal to that fair market value;
(b)where a taxpayer, having acquired property for some other purpose, has begun at a later time to use it for the purpose of gaining or producing income, the taxpayer shall be deemed to have acquired it at that later time at a capital cost to the taxpayer equal to the lesser of
(i)the fair market value of the property at that later time, and
(ii)the total of
(A)the cost to the taxpayer of the property at that later time determined without reference to this paragraph, paragraph 13(7)(a) and subparagraph 13(7)(d)(ii), and
(B)1/2 of the amount, if any, by which
(I)the fair market value of the property at that later time
exceeds the total of
(II)the cost to the taxpayer of the property as determined under clause 13(7)(b)(ii)(A), and
(III)twice the amount deducted by the taxpayer under section 110.6 in respect of the amount, if any, by which the fair market value of the property at that later time exceeds the cost to the taxpayer of the property as determined under clause 13(7)(b)(ii)(A);
(c)where property has, since it was acquired by a taxpayer, been regularly used in part for the purpose of gaining or producing income and in part for some other purpose, the taxpayer shall be deemed to have acquired, for the purpose of gaining or producing income, the proportion of the property that the use regularly made of the property for gaining or producing income is of the whole use regularly made of the property at a capital cost to the taxpayer equal to the same proportion of the capital cost to the taxpayer of the whole property and, if the property has, in such a case, been disposed of, the proceeds of disposition of the proportion of the property deemed to have been acquired for gaining or producing income shall be deemed to be the same proportion of the proceeds of disposition of the whole property;
(d)where, at any time after a taxpayer has acquired property, there has been a change in the relation between the use regularly made by the taxpayer of the property for gaining or producing income and the use regularly made of the property for other purposes,
(i)if the use regularly made by the taxpayer of the property for the purpose of gaining or producing income has increased, the taxpayer shall be deemed to have acquired at that time depreciable property of that class at a capital cost equal to the total of
(A)the proportion of the lesser of
(I)its fair market value at that time, and
(II)its cost to the taxpayer at that time determined without reference to this subparagraph, subparagraph 13(7)(d)(ii) and paragraph 13(7)(a)
that the amount of the increase in the use regularly made by the taxpayer of the property for that purpose is of the whole of the use regularly made of the property, and
(B)1/2 of the amount, if any, by which
(I)the amount deemed under subparagraph 45(1)(c)(ii) to be the taxpayer’s proceeds of disposition of the property in respect of the change
exceeds the total of
(II)that proportion of the cost to the taxpayer of the property as determined under subclause 13(7)(d)(i)(A)(II) that the amount of the increase in the use regularly made by the taxpayer of the property for that purpose is of the whole of the use regularly made of the property, and
(III)twice the amount deducted by the taxpayer under section 110.6 in respect of the amount, if any, by which the amount determined under subclause 13(7)(d)(i)(B)(I) exceeds the amount determined under subclause 13(7)(d)(i)(B)(II), and
(ii)if the use regularly made of the property for the purpose of gaining or producing income has decreased, the taxpayer shall be deemed to have disposed at that time of depreciable property of that class and the proceeds of disposition shall be deemed to be an amount equal to the proportion of the fair market value of the property as of that time that the amount of the decrease in the use regularly made by the taxpayer of the property for that purpose is of the whole use regularly made of the property;
(e)notwithstanding any other provision of this Act except subsection 70(13), where at a particular time a person or partnership (in this paragraph referred to as the “taxpayer”) has, directly or indirectly, in any manner whatever, acquired (otherwise than as a consequence of the death of the transferor) a depreciable property (other than a timber resource property) of a prescribed class from a person or partnership with whom the taxpayer did not deal at arm’s length (in this paragraph referred to as the “transferor”) and, immediately before the transfer, the property was a capital property of the transferor,
(i)where the transferor was an individual resident in Canada or a partnership any member of which was either an individual resident in Canada or another partnership and the cost of the property to the taxpayer at the particular time determined without reference to this paragraph exceeds the cost, or where the property was depreciable property, the capital cost of the property to the transferor immediately before the transferor disposed of it, the capital cost of the property to the taxpayer at the particular time shall be deemed to be the amount that is equal to the total of
(A)the cost or capital cost, as the case may be, of the property to the transferor immediately before the particular time, and
(B)1/2 of the amount, if any, by which
(I)the transferor’s proceeds of disposition of the property
exceed the total of
(II)the cost or capital cost, as the case may be, to the transferor immediately before the particular time,
(III)twice the amount deducted by any person under section 110.6 in respect of the amount, if any, by which the amount determined under subclause 13(7)(e)(i)(B)(I) exceeds the amount determined under subclause 13(7)(e)(i)(B)(II), and
(IV)the amount, if any, required by subsection 110.6(21) to be deducted in computing the capital cost to the taxpayer of the property at that time
and for the purposes of paragraph 13(7)(b) and subparagraph 13(7)(d)(i), the cost of the property to the taxpayer shall be deemed to be the same amount,
(ii)where the transferor was neither an individual resident in Canada nor a partnership any member of which was either an individual resident in Canada or another partnership and the cost of the property to the taxpayer at the particular time determined without reference to this paragraph exceeds the cost, or where the property was depreciable property, the capital cost of the property to the transferor immediately before the transferor disposed of it, the capital cost of the property to the taxpayer at that time shall be deemed to be the amount that is equal to the total of
(A)the cost or capital cost, as the case may be, of the property to the transferor immediately before the particular time, and
(B)1/2 of the amount, if any, by which the transferor’s proceeds of disposition of the property exceed the cost or capital cost, as the case may be, to the transferor immediately before the particular time
and for the purposes of paragraph 13(7)(b) and subparagraph 13(7)(d)(i), the cost of the property to the taxpayer shall be deemed to be the same amount, and
(iii)where the cost or capital cost, as the case may be, of the property to the transferor immediately before the transferor disposed of it exceeds the capital cost of the property to the taxpayer at that time determined without reference to this paragraph, the capital cost of the property to the taxpayer at that time shall be deemed to be the amount that was the cost or capital cost, as the case may be, of the property to the transferor immediately before the transferor disposed of it and the excess shall be deemed to have been allowed to the taxpayer in respect of the property under regulations made under paragraph 20(1)(a) in computing the taxpayer’s income for taxation years ending before the acquisition of the property by the taxpayer;
(e.1)where a taxpayer is deemed by paragraph 110.6(19)(a) to have disposed of and reacquired a property that immediately before the disposition was a depreciable property, the taxpayer shall be deemed to have acquired the property from himself, herself or itself and, in so having acquired the property, not to have been dealing with himself, herself or itself at arm’s length;
(f)if a taxpayer is deemed under paragraph 111(4)(e) to have disposed of and reacquired depreciable property (other than a timber resource property), the capital cost to the taxpayer of the property at the time of the reacquisition is deemed to be equal to the total of
(i)the capital cost to the taxpayer of the property at the time of the disposition, and
(ii)1/2 of the amount, if any, by which the taxpayer’s proceeds of disposition of the property exceed the capital cost to the taxpayer of the property at the time of the disposition;
(g)where the cost to a taxpayer of a passenger vehicle exceeds $20,000 or such other amount as is prescribed, the capital cost to the taxpayer of the vehicle shall be deemed to be $20,000 or that other prescribed amount, as the case may be;
(h)notwithstanding paragraph 13(7)(g), where a passenger vehicle is acquired by a taxpayer at any time from a person with whom the taxpayer does not deal at arm’s length, the capital cost at that time to the taxpayer of the vehicle shall be deemed to be the least of
(i)the fair market value of the vehicle at that time,
(ii)the amount that immediately before that time was the cost amount to that person of the vehicle, and
(iii)$20,000 or such other amount as is prescribed; and
(i)if the cost to a taxpayer of azero-emission passenger vehicleexceeds the prescribed amount in subsection 7307(1.1) of theIncome Tax Regulations, or if the cost of a passenger vehicle that was, at any time,designated immediate expensing propertyas defined in subsection 1104(3.1) of theIncome Tax Regulationsexceeds the prescribed amount in subsection 7307(1) of theIncome Tax Regulations,
(i)the capital cost to the taxpayer of the vehicle is deemed to be equal to the prescribed amount under subsection 7307(1) or (1.1), as the case may be, and
(ii)for the purposes of paragraph (a) of the description of F in the definitionundepreciated capital costin subsection (21), the proceeds of disposition of the vehicle are deemed to be the amount determined by the formula
A × B/C
where
(A)if the vehicle is disposed of to a person or partnership with which the taxpayer deals at arm’s length, the capital cost to the taxpayer of the vehicle, and
(B)in any other case, the amount determined for C, and
D + (E + F) − (G + H)
where
Marginal note:Deemed capital cost of certain property
(7.1)For the purposes of this Act, where section 80 applied to reduce the capital cost to a taxpayer of a depreciable property or a taxpayer deducted an amount under subsection 127(5) or 127(6) in respect of a depreciable property or received or is entitled to receive assistance from a government, municipality or other public authority in respect of, or for the acquisition of, depreciable property, whether as a grant, subsidy, forgivable loan, deduction from tax, investment allowance or as any other form of assistance other than
(a)an amount described in paragraph 37(1)(d),
(b)an amount deducted as an allowance under section 65, or
(b.1)an amount included in income by virtue of paragraph 12(1)(u) or 56(1)(s),
the capital cost of the property to the taxpayer at any particular time shall be deemed to be the amount, if any, by which the total of
(c)the capital cost of the property to the taxpayer, determined without reference to this subsection, subsection 13(7.4) and section 80, and
(d)such part, if any, of the assistance as has been repaid by the taxpayer, pursuant to an obligation to repay all or any part of that assistance, in respect of that property before the disposition thereof by the taxpayer and before the particular time
exceeds the total of
(e)where the property was acquired in a taxation year ending before the particular time, all amounts deducted under subsection 127(5) or 127(6) by the taxpayer for a taxation year ending before the particular time,
(f)the amount of assistance the taxpayer has received or is entitled, before the particular time, to receive, and
(g)all amounts by which the capital cost of the property to the taxpayer is required because of section 80 to be reduced at or before that time,
in respect of that property before the disposition thereof by the taxpayer.
Marginal note:Receipt of public assistance
(7.2)For the purposes of subsection 13(7.1), where at any time a taxpayer who is a beneficiary of a trust or a member of a partnership has received or is entitled to receive assistance from a government, municipality or other public authority whether as a grant, subsidy, forgivable loan, deduction from tax, investment allowance or as any other form of assistance, the amount of the assistance that may reasonably be considered to be in respect of, or for the acquisition of, depreciable property of the trust or partnership shall be deemed to have been received at that time by the trust or partnership, as the case may be, as assistance from the government, municipality or other public authority for the acquisition of depreciable property.
Marginal note:Control of corporations by one trustee
(7.3)For the purposes of paragraph (7)(e), where at a particular time one corporation would, but for this subsection, be related to another corporation by reason of both corporations being controlled by the same executor, liquidator of a succession or trustee and it is established that
(a)the executor, liquidator or trustee did not acquire control of the corporations as a result of one or more estates or trusts created by the same individual or by two or more individuals not dealing with each other at arm’s length, and
(b)the estate or trust under which the executor, liquidator or trustee acquired control of each of the corporations arose only on the death of the individual creating the estate or trust,
the two corporations are deemed not to be related to each other at the particular time.
Marginal note:Deemed capital cost
(7.4)Notwithstanding subsection 13(7.1), where a taxpayer has in a taxation year received an amount that would, but for this subsection, be included in the taxpayer’s income under paragraph 12(1)(x) in respect of the cost of a depreciable property acquired by the taxpayer in the year, in the three taxation years immediately preceding the year or in the taxation year immediately following the year and the taxpayer elects under this subsection on or before the day on or before which the taxpayer is required to file the taxpayer’s return of income under this Part for the year, or, where the property is acquired in the taxation year immediately following the year, for that following year, the capital cost of the property to the taxpayer shall be deemed to be the amount by which the total of
(a)the capital cost of the property to the taxpayer otherwise determined, applying the provisions of subsection 13(7.1), where necessary, and
(b)such part, if any, of the amount received by the taxpayer as has been repaid by the taxpayer pursuant to a legal obligation to repay all or any part of that amount, in respect of that property and before the disposition thereof by the taxpayer, and as may reasonably be considered to be in respect of the amount elected under this subsection in respect of the property
exceeds the amount elected by the taxpayer under this subsection, but in no case shall the amount elected under this subsection exceed the least of
(c)the amount so received by the taxpayer,
(d)the capital cost of the property to the taxpayer otherwise determined, and
(e)where the taxpayer has disposed of the property before the year, nil.
Marginal note:Deemed capital cost
(7.41)Subsection (38) applies in respect of an amount repaid after 2016 as if that amount was repaid immediately before 2017, if
(a)the amount is repaid by the taxpayer under a legal obligation to repay all or part of an amount the taxpayer received or was entitled to receive that was assistance from a government, municipality or other public authority (whether as a grant, subsidy, forgivable loan, deduction from tax, investment allowance or as any other form of assistance) in respect of, or for the acquisition of, property the cost of which was an eligible capital expenditure of the taxpayer in respect of the business;
(b)the amount of an eligible capital expenditure of the taxpayer in respect of the business was reduced by paragraph 14(10)(c) because of the assistance referred to in paragraph (a); and
(c)paragraph 20(1)(hh.1) does not apply in respect of the amount repaid.
Marginal note:Timing of deduction
(7.42)No amount may be deducted under paragraph 20(1)(a) in respect of an amount of repaid assistance referred to in subsection (7.41) for any taxation year prior to the taxation year in which the assistance is repaid.
Marginal note:Deemed capital cost
(7.5)For the purposes of this Act,
(a)where a taxpayer, to acquire a property prescribed in respect of the taxpayer, is required under the terms of a contract made after March 6, 1996 to make a payment to Her Majesty in right of Canada or a province or to a Canadian municipality in respect of costs incurred or to be incurred by the recipient of the payment
(i)the taxpayer is deemed to have acquired the property at a capital cost equal to the portion of that payment made by the taxpayer that can reasonably be regarded as being in respect of those costs, and
(ii)the time of acquisition of the property by the taxpayer is deemed to be the later of the time the payment is made and the time at which those costs are incurred;
(b)where
(i)at any time after March 6, 1996 a taxpayer incurs a cost on account of capital for the building of, for the right to use or in respect of, a prescribed property, and
(ii)the amount of the cost would, if this paragraph did not apply, not be included in the capital cost to the taxpayer of depreciable property of a prescribed class,
the taxpayer is deemed to have acquired the property at that time at a capital cost equal to the amount of the cost;
(c)if a taxpayer acquires an intangible property, or for civil law an incorporeal property, as a consequence of making a payment to which paragraph (a) applies or incurring a cost to which paragraph (b) applies,
(i)the property referred to in paragraph (a) or (b) is deemed to include the intangible or incorporeal property, and
(ii)the portion of the capital cost referred to in paragraph (a) or (b) that applies to the intangible or incorporeal property is deemed to be the amount determined by the formula
A × B/C
where
(d)any property deemed by paragraph 13(7.5)(a) or (b) to have been acquired at any time by a taxpayer as a consequence of making a payment or incurring a cost
(i)is deemed to have been acquired for the purpose for which the payment was made or the cost was incurred, and
(ii)is deemed to be owned by the taxpayer at any subsequent time that the taxpayer benefits from the property.
Marginal note:Disposition after ceasing business
(8)Notwithstanding subsections 13(3) and 11(2), where a taxpayer, after ceasing to carry on a business, has disposed of depreciable property of the taxpayer of a prescribed class that was acquired by the taxpayer for the purpose of gaining or producing income from the business and that was not subsequently used by the taxpayer for some other purpose, in applying subsection 13(1) or 13(2), each reference therein to a “taxation year” and “year” shall not be read as a reference to a “fiscal period”.
Meaning ofgaining or producing income
(9)In applying paragraphs 13(7)(a) to 13(7)(d) in respect of a non-resident taxpayer, a reference togaining or producing incomein relation to a business shall be read as a reference to “gaining or producing income from a business wholly carried on in Canada or such part of a business as is wholly carried on in Canada”.
Marginal note:Deemed capital cost
(10)For the purposes of this Act, where a taxpayer has, after December 3, 1970 and before April 1, 1972, acquired prescribed property
(a)for use in a prescribed manufacturing or processing business carried on by the taxpayer, and
(b)that was not used for any purpose whatever before it was acquired by the taxpayer,
the taxpayer shall be deemed to have acquired that property at a capital cost to the taxpayer equal to 115% of the amount that, but for this subsection and section 21, would have been the capital cost to the taxpayer of that property.
Marginal note:Deduction in respect of property used in performance of duties
(11)Any amount deducted under subparagraph 8(1)(j)(ii) or 8(1)(p)(ii) of this Act or subsection 11(11) of TheIncome Tax Act, chapter 52 of the Statutes of Canada, 1948, shall be deemed, for the purposes of this section to have been deducted under regulations made under paragraph 20(1)(a).
Marginal note:Application of para. 20(1)(cc)
(12)Where, in computing the income of a taxpayer for a taxation year, an amount has been deducted under paragraph 20(1)(cc) or the taxpayer has elected under subsection 20(9) to make a deduction in respect of an amount that would otherwise have been deductible under that paragraph, the amount shall, if it was a payment on account of the capital cost of depreciable property, be deemed to have been allowed to the taxpayer in respect of the property under regulations made under paragraph 20(1)(a) in computing the income of the taxpayer
(a)for the year, or
(b)for the year in which the property was acquired,
whichever is the later.
Marginal note:Deduction underCanadian Vessel Construction Assistance Act
(13)Where a deduction has been made under theCanadian Vessel Construction Assistance Actfor any taxation year, subsection 13(1) is applicable in respect of the prescribed class created by that Act or any other prescribed class to which the vessel may have been transferred.
Marginal note:Conversion cost
(14)For the purposes of this section, section 20 and any regulations made under paragraph 20(1)(a), a vessel in respect of which any conversion cost is incurred after March 23, 1967 shall, to the extent of the conversion cost, be deemed to be included in a separate prescribed class.
Marginal note:Where s. (1) and Subdivision C do not apply
(15)Where a vessel owned by a taxpayer on January 1, 1966 or constructed pursuant to a construction contract entered into by the taxpayer prior to 1966 and not completed by that date was disposed of by the taxpayer before 1974,
(a)subsection 13(1) and Subdivision C do not apply to the proceeds of disposition
(i)if an amount at least equal to the proceeds of disposition was used by the taxpayer, before May, 1974 and during the taxation year of the taxpayer in which the vessel was disposed of or within 4 months after the end of that taxation year, under conditions satisfactory to the appropriate minister, either for replacement or to incur any conversion cost with respect to a vessel owned by the taxpayer, or
(ii)if the appropriate minister certified that the taxpayer had, on satisfactory terms, deposited
(A)on or before the day on which the taxpayer was required to file a return of the taxpayer’s income for the taxation year in which the vessel was disposed of, or
(B)on or before such day subsequent to the day referred to in clause 13(15)(a)(ii)(A) as the appropriate minister specified in respect of the taxpayer,
an amount at least equal to the tax that would, but for this subsection, have been payable by the taxpayer under this Part in respect of the proceeds of disposition, or satisfactory security therefor, as a guarantee that the proceeds of disposition would be used before 1975 for replacement; and
(b)if within the time specified for the filing of a return of the taxpayer’s income for the taxation year in which the vessel was disposed of
(i)the taxpayer elected to have the vessel constituted a prescribed class, or
(ii)where any conversion cost in respect of the vessel was included in a separate prescribed class, the taxpayer elected to have the vessel transferred to that class,
the vessel shall be deemed to have been so transferred immediately before the disposition thereof, but this paragraph does not apply unless the proceeds of disposition of the vessel exceed the amount that would be the undepreciated capital cost of property of the class to which it would be so transferred.
Marginal note:Election concerning vessel
(16)Where a vessel owned by a taxpayer is disposed of by the taxpayer, the taxpayer may, if subsection 13(15) does not apply to the proceeds of disposition or if the taxpayer did not make an election under paragraph 13(15)(b) in respect of the vessel, within the time specified for the filing of a return of the taxpayer’s income for the taxation year in which the vessel was disposed of, elect to have the proceeds that would be included in computing the taxpayer’s income for the year under this Part treated as proceeds of disposition of property of another prescribed class that includes a vessel owned by the taxpayer.
Marginal note:Separate prescribed class concerning vessel
(17)Where a separate prescribed class has been constituted either under this Act or theCanadian Vessel Construction Assistance Actby reason of the conversion of a vessel owned by a taxpayer and the vessel is disposed of by the taxpayer, if no election in respect of the vessel was made under paragraph 13(15)(b), the separate prescribed class constituted by reason of the conversion shall be deemed to have been transferred to the class in which the vessel was included immediately before the disposition thereof.
Marginal note:Reassessments
(18)Notwithstanding any other provision of this Act, where a taxpayer has
(a)used an amount as described in paragraph 13(4)(c), or
(b)made an election under paragraph 13(15)(b) in respect of a vessel and the proceeds of disposition of the vessel were used before 1975 for replacement under conditions satisfactory to the appropriate minister,
such reassessments of tax, interest or penalties shall be made as are necessary to give effect to subsections 13(4) and 13(15).
Marginal note:Ascertainment of certain property
(18.1)For the purpose of determining whether property meets the criteria set out in theIncome Tax Regulationsin respect of prescribed energy conservation property, theTechnical Guide to Class 43.1 and 43.2, as amended from time to time and published by the Department of Natural Resources, shall apply conclusively with respect to engineering and scientific matters.
Marginal note:Disposition of deposit
(19)All or any part of a deposit made under subparagraph 13(15)(a)(ii) or under theCanadian Vessel Construction Assistance Actmay be paid out to or on behalf of any person who, under conditions satisfactory to the appropriate minister and as a replacement for the vessel disposed of, acquires a vessel before 1975
(a)that was constructed in Canada and is registered in Canada or is registered under conditions satisfactory to the appropriate minister in any country or territory to which the British Commonwealth Merchant Shipping Agreement, signed at London on December 10, 1931, applies, and
(b)in respect of the capital cost of which no allowance has been made to any other taxpayer under this Act or theCanadian Vessel Construction Assistance Act,
or incurs any conversion cost with respect to a vessel owned by that person that is registered in Canada or is registered under conditions satisfactory to the appropriate minister in any country or territory to which the agreement referred to in paragraph 13(19)(a) applies, but the ratio of the amount paid out to the amount of the deposit shall not exceed the ratio of the capital cost to that person of the vessel or the conversion cost to that person of the vessel, as the case may be, to the proceeds of disposition of the vessel disposed of, and any deposit or part of a deposit not so paid out before July 1, 1975 or not paid out pursuant to subsection 13(20) shall be paid to the Receiver General and form part of the Consolidated Revenue Fund.
Marginal note:Idem
(20)Notwithstanding any other provision of this section, where a taxpayer made a deposit under subparagraph 13(15)(a)(ii) and the proceeds of disposition in respect of which the deposit was made were not used by any person before 1975 under conditions satisfactory to the appropriate minister as a replacement for the vessel disposed of,
(a)to acquire a vessel described in paragraphs 13(19)(a) and 13(19)(b), or
(b)to incur any conversion cost with respect to a vessel owned by that person that is registered in Canada or is registered under conditions satisfactory to the appropriate minister in any country or territory to which the agreement referred to in paragraph 13(19)(a) applies,
the appropriate minister may refund to the taxpayer the deposit, or the part thereof not paid out to the taxpayer under subsection 13(19), as the case may be, in which case there shall be added, in computing the income of the taxpayer for the taxation year of the taxpayer in which the vessel was disposed of, that proportion of the amount that would have been included in computing the income for the year under this Part had the deposit not been made under subparagraph 13(15)(a)(ii) that the portion of the proceeds of disposition not so used before 1975 as such a replacement is of the proceeds of disposition, and, notwithstanding any other provision of this Act, such reassessments of tax, interest or penalties shall be made as are necessary to give effect to this subsection.
Marginal note:Definitions
(21)In this section,
appropriate ministermeans the Canadian Maritime Commission, the Minister of Industry, Trade and Commerce, the Minister of Regional Industrial Expansion, the Minister of Industry, Science and Technology or the Minister of Industry or any other minister or body that was or is legally authorized to perform the act referred to in the provision in which this expression occurs at the time the act was or is performed; (ministre compétent)
conversion, in respect of a vessel, means a conversion or major alteration in Canada by a taxpayer; (conversion)
conversion cost, in respect of a vessel, means the cost of a conversion; (frais de conversion)
depreciable propertyof a taxpayer as of any time in a taxation year means property acquired by the taxpayer in respect of which the taxpayer has been allowed, or would, if the taxpayer owned the property at the end of the year and this Act were read without reference to subsection 13(26), be entitled to, a deduction under paragraph 20(1)(a) in computing income for that year or a preceding taxation year; (bien amortissable)
disposition of property[Repealed, 2001, c. 17, s. 6]
proceeds of dispositionof property includes
(a)the sale price of property that has been sold,
(b)compensation for property unlawfully taken,
(c)compensation for property destroyed and any amount payable under a policy of insurance in respect of loss or destruction of property,
(d)compensation for property taken under statutory authority or the sale price of property sold to a person by whom notice of an intention to take it under statutory authority was given,
(e)compensation for property injuriously affected, whether lawfully or unlawfully or under statutory authority or otherwise,
(f)compensation for property damaged and any amount payable under a policy of insurance in respect of damage to property, except to the extent that the compensation or amount, as the case may be, has within a reasonable time after the damage been expended on repairing the damage,
(g)an amount by which the liability of a taxpayer to a mortgagee or hypothecary creditor is reduced as a result of the sale of mortgaged or hypothecated property under a provision of the mortgage or hypothec, plus any amount received by the taxpayer out of the proceeds of the sale, and
(h)any amount included because of section 79 in computing a taxpayer’s proceeds of disposition of the property; (produit de disposition)
timber resource propertyof a taxpayer means
(a)a right or licence to cut or remove timber from a limit or area in Canada (in this definition referred to as an “original right”) if
(i)that original right was acquired by the taxpayer (other than in the manner referred to in paragraph 13(21)timber resource property(b)) after May 6, 1974, and
(ii)at the time of the acquisition of the original right
(A)the taxpayer may reasonably be regarded as having acquired, directly or indirectly, the right to extend or renew that original right or to acquire another such right or licence in substitution therefor, or
(B)in the ordinary course of events, the taxpayer may reasonably expect to be able to extend or renew that original right or to acquire another such right or licence in substitution therefor, or
(b)any right or licence owned by the taxpayer to cut or remove timber from a limit or area in Canada if that right or licence may reasonably be regarded
(i)as an extension or renewal of or as one of a series of extensions or renewals of an original right of the taxpayer, or
(ii)as having been acquired in substitution for or as one of a series of substitutions for an original right of the taxpayer or any renewal or extension thereof; (avoir forestier)
total depreciationallowed to a taxpayer before any time for property of a prescribed class means the total of all amounts each of which is an amount deducted by the taxpayer under paragraph 20(1)(a) in respect of property of that class or an amount deducted under subsection 20(16), or that would have been so deducted but for subsection 20(16.1), in computing the taxpayer’s income for taxation years ending before that time; (amortissement total)
undepreciated capital costto a taxpayer of depreciable property of a prescribed class as of any time means the amount determined by the formula
(A + B + C + D + D.1) - (E + E.1 + F + G + H + I + J + K)
where
(a)the proceeds of disposition of the property minus any outlays and expenses to the extent that they were made or incurred by the taxpayer for the purpose of making the disposition, and
(b)the capital cost to the taxpayer of the property,
vesselmeans a vessel as defined in theCanada Shipping Act. (navire)
Marginal note:Disposition of building
(21.1)Notwithstanding subsection 13(7) and the definitionproceeds of dispositionin section 54, where at any particular time in a taxation year a taxpayer disposes of a building of a prescribed class and the proceeds of disposition of the building determined without reference to this subsection and subsection 13(21.2) are less than the lesser of the cost amount and the capital cost to the taxpayer of the building immediately before the disposition, for the purposes of paragraph (a) of the description of F in the definitionundepreciated capital costin subsection 13(21) and Subdivision C,
(a)where in the year the taxpayer or a person with whom the taxpayer does not deal at arm’s length disposes of land subjacent to, or immediately contiguous to and necessary for the use of, the building, the proceeds of disposition of the building are deemed to be the lesser of
(i)the amount, if any, by which
(A)the total of the fair market value of the building at the particular time and the fair market value of the land immediately before its disposition
exceeds
(B)the lesser of the fair market value of the land immediately before its disposition and the amount, if any, by which the cost amount to the vendor of the land (determined without reference to this subsection) exceeds the total of the capital gains (determined without reference to subparagraphs 40(1)(a)(ii) and (iii)) in respect of dispositions of the land within 3 years before the particular time by the taxpayer or by a person with whom the taxpayer was not dealing at arm’s length to the taxpayer or to another person with whom the taxpayer was not dealing at arm’s length, and
(ii)the greater of
(A)the fair market value of the building at the particular time, and
(B)the lesser of the cost amount and the capital cost to the taxpayer of the building immediately before its disposition,
and notwithstanding any other provision of this Act, the proceeds of disposition of the land are deemed to be the amount, if any, by which
(iii)the total of the proceeds of disposition of the building and of the land determined without reference to this subsection and subsection 13(21.2)
exceeds
(iv)the proceeds of disposition of the building as determined under this paragraph,
and the cost to the purchaser of the land shall be determined without reference to this subsection; and
(b)where paragraph 13(21.1)(a) does not apply with respect to the disposition and, at any time before the disposition, the taxpayer or a person with whom the taxpayer did not deal at arm’s length owned the land subjacent to, or immediately contiguous to and necessary for the use of, the building, the proceeds of disposition of the building are deemed to be an amount equal to the total of
(i)the proceeds of disposition of the building determined without reference to this subsection and subsection 13(21.2), and
(ii)1/2 of the amount by which the greater of
(A)the cost amount to the taxpayer of the building, and
(B)the fair market value of the building
immediately before its disposition exceeds the proceeds of disposition referred to in subparagraph 13(21.1)(b)(i).
Marginal note:Loss on certain transfers
(21.2)Where
(a)a person or partnership (in this subsection referred to as the “transferor”) disposes at a particular time (otherwise than in a disposition described in any of paragraphs (c) to (g) of the definitionsuperficial lossin section 54) of a depreciable property — other than, for the purposes of computing the exempt surplus or exempt deficit and taxable surplus or taxable deficit of a foreign affiliate of a taxpayer, in respect of the taxpayer, where the transferor is the affiliate or is a partnership of which the affiliate is a member, depreciable property that is, or would be, if the transferor were a foreign affiliate of the taxpayer, excluded property (within the meaning assigned by subsection 95(1)) of the transferor — of a particular prescribed class of the transferor,
(b)the lesser of
(i)the capital cost to the transferor of the transferred property, and
(ii)the proportion of the undepreciated capital cost to the transferor of all property of the particular class immediately before that time that
(A)the fair market value of the transferred property at that time
is of
(B)the fair market value of all property of the particular class immediately before that time
exceeds the amount that would otherwise be the transferor’s proceeds of disposition of the transferred property at the particular time, and
(c)on the 30th day after the particular time, a person or partnership (in this subsection referred to as the “subsequent owner”) who is the transferor or a person affiliated with the transferor owns or has a right to acquire the transferred property (other than a right, as security only, derived from a mortgage, hypothec, agreement for sale or similar obligation),
the following rules apply:
(d)sections 85 and 97 do not apply to the disposition,
(e)for the purposes of applying this section and section 20 and any regulations made for the purpose of paragraph 20(1)(a) to the transferor for taxation years that end after the particular time,
(i)the transferor is deemed to have disposed of the transferred property for proceeds equal to the lesser of the amounts determined under subparagraphs 13(21.2)(b)(i) and 13(21.2)(b)(ii) with respect to the transferred property,
(ii)where two or more properties of a prescribed class of the transferor are disposed of at the same time, subparagraph (i) applies as if each property so disposed of had been separately disposed of in the order designated by the transferor or, if the transferor does not designate an order, in the order designated by the Minister,
(iii)the transferor is deemed to own a property that was acquired before the beginning of the taxation year that includes the particular time at a capital cost equal to the amount of the excess described in paragraph 13(21.2)(b), and that is property of the particular class, until the time that is immediately before the first time, after the particular time,
(A)at which a 30-day period begins throughout which neither the transferor nor a person affiliated with the transferor owns or has a right to acquire the transferred property (other than a right, as security only, derived from a mortgage, hypothec, agreement for sale or similar obligation),
(B)at which the transferred property is not used by the transferor or a person affiliated with the transferor for the purpose of earning income and is used for another purpose,
(C)at which the transferred property would, if it were owned by the transferor, be deemed by section 128.1 or subsection 149(10) to have been disposed of by the transferor,
(D)that is immediately before the transferor is subject to a loss restriction event, or
(E)if the transferor is a corporation,
(I)for the purposes of computing the transferor’s foreign accrual property income, exempt surplus or exempt deficit, and taxable surplus or taxable deficit, in respect of a taxpayer for a taxation year of the transferor where the transferor is a foreign affiliate of the taxpayer, at which the liquidation and dissolution of the transferor begins, unless the liquidation and dissolution is
1a qualifying liquidation and dissolution (within the meaning assigned by subsection 88(3.1)) of the transferor, or
2a designated liquidation and dissolution (within the meaning assigned by subsection 95(1)) of the transferor, and
(II)for any other purposes, at which the winding-up (other than a winding-up to which subsection 88(1) applies) of the transferor begins, and
(iv)the property described in subparagraph 13(21.2)(e)(iii) is considered to have become available for use by the transferor at the time at which the transferred property is considered to have become available for use by the subsequent owner,
(f)for the purposes of subparagraphs 13(21.2)(e)(iii) and 13(21.2)(e)(iv), where a partnership otherwise ceases to exist at any time after the particular time, the partnership is deemed not to have ceased to exist, and each person who was a member of the partnership immediately before the partnership would, but for this paragraph, have ceased to exist is deemed to remain a member of the partnership, until the time that is immediately after the first time described in clauses 13(21.2)(e)(iii)(A) to 13(21.2)(e)(iii)(E), and
(g)for the purposes of applying this section and section 20 and any regulations made for the purpose of paragraph 20(1)(a) to the subsequent owner,
(i)the subsequent owner’s capital cost of the transferred property is deemed to be the amount that was the transferor’s capital cost of the transferred property, and
(ii)the amount by which the transferor’s capital cost of the transferred property exceeds its fair market value at the particular time is deemed to have been deducted under paragraph 20(1)(a) by the subsequent owner in respect of property of that class in computing income for taxation years that ended before the particular time.
(22) to (23.1)[Repealed, 2013, c. 34, s. 175]
Marginal note:Loss restriction event
(24)If at any time a taxpayer is subject to a loss restriction event and, within the 12-month period that ended immediately before that time, the taxpayer, a partnership of which the taxpayer was a majority-interest partner or a trust of which the taxpayer was a majority-interest beneficiary (as defined in subsection 251.1(3)) acquired depreciable property (other than property that was held, by the taxpayer, partnership or trust or by a person that would be affiliated with the taxpayer if section 251.1 were read without reference to the definitioncontrolledin subsection 251.1(3), throughout the period that began immediately before the 12-month period began and ended at the time the property was acquired by the taxpayer, partnership or trust) that was not used, or acquired for use, by the taxpayer, partnership or trust in a business that was carried on by it immediately before the 12-month period began
(a)subject to paragraph (b), for the purposes of the description of A in the definitionundepreciated capital costin subsection (21) and of sections 127 and 127.1, the property is deemed
(i)not to have been acquired by the taxpayer, partnership or trust, as the case may be, before that time, and
(ii)to have been acquired by it immediately after that time; and
(b)if the property was disposed of by the taxpayer, partnership or trust, as the case may be, before that time and was not reacquired by it before that time, for the purposes of the description of A in that definition, the property is deemed to have been acquired by it immediately before the property was disposed of.
Marginal note:Affiliation — subsection (24)
(25)For the purposes of subsection (24), if the taxpayer referred to in that subsection was formed or created in the 12-month period referred to in that subsection, the taxpayer is deemed to have been, throughout the period that began immediately before the 12-month period and ended immediately after it was formed or created,
(a)in existence; and
(b)affiliated with every person with whom it was affiliated (otherwise than because of a right referred to in paragraph 251(5)(b)) throughout the period that began when it was formed or created and that ended immediately before the time at which the taxpayer was subject to the loss restriction event referred to in that subsection.
Marginal note:Restriction on deduction before available for use
(26)In applying the definitionundepreciated capital costin subsection 13(21) for the purpose of paragraph 20(1)(a) and any regulations made for the purpose of that paragraph, in computing a taxpayer’s income for a taxation year from a business or property, no amount shall be included in calculating the undepreciated capital cost to the taxpayer of depreciable property of a prescribed class in respect of the capital cost to the taxpayer of a property of that class (other than property that is a certified production, as defined by regulations made for the purpose of paragraph 20(1)(a)) before the time the property is considered to have become available for use by the taxpayer.
Marginal note:Interpretation — available for use
(27)For the purposes of subsection 13(26) and subject to subsection 13(29), property (other than a building or part thereof) acquired by a taxpayer shall be considered to have become available for use by the taxpayer at the earliest of
(a)the time the property is first used by the taxpayer for the purpose of earning income,
(b)the time that is immediately after the beginning of the first taxation year of the taxpayer that begins more than 357 days after the end of the taxation year of the taxpayer in which the property was acquired by the taxpayer,
(c)the time that is immediately before the disposition of the property by the taxpayer,
(d)the time the property
(i)is delivered to the taxpayer, or to a person or partnership (in this paragraph referred to as the “other person”) that will use the property for the benefit of the taxpayer, or, where the property is not of a type that is deliverable, is made available to the taxpayer or the other person, and
(ii)is capable, either alone or in combination with other property in the possession at that time of the taxpayer or the other person, of being used by or for the benefit of the taxpayer or the other person to produce a commercially saleable product or to perform a commercially saleable service, including an intermediate product or service that is used or consumed, or to be used or consumed, by or for the benefit of the taxpayer or the other person in producing or performing any such product or service,
(e)in the case of property acquired by the taxpayer for the prevention, reduction or elimination of air or water pollution created by operations carried on by the taxpayer or that would be created by such operations if the property had not been acquired, the time at which the property is installed and capable of performing the function for which it was acquired,
(f)in the case of property acquired by
(i)a corporation a class of shares of the capital stock of which is listed on a designated stock exchange,
(ii)a corporation that is a public corporation because of an election made under subparagraph (b)(i) of the definitionpublic corporationin subsection 89(1) or a designation made by the Minister in a notice to the corporation under subparagraph (b)(ii) of that definition, or
(iii)a subsidiary wholly-owned corporation of a corporation described in subparagraph 13(27)(f)(i) or 13(27)(f)(ii),
the end of the taxation year for which depreciation in respect of the property is first deducted in computing the earnings of the corporation in accordance with generally accepted accounting principles and for the purpose of the financial statements of the corporation for the year presented to its shareholders,
(g)in the case of property acquired by the taxpayer in the course of carrying on a business of farming or fishing, the time at which the property has been delivered to the taxpayer and is capable of performing the function for which it was acquired,
(h)in the case of property of a taxpayer that is a motor vehicle, trailer, trolley bus, aircraft or vessel for which one or more permits, certificates or licences evidencing that the property may be operated by the taxpayer in accordance with any laws regulating the use of such property are required to be obtained, the time all those permits, certificates or licences have been obtained,
(i)in the case of property that is a spare part intended to replace a part of another property of the taxpayer if required due to a breakdown of that other property, the time the other property became available for use by the taxpayer,
(j)in the case of a concrete gravity base structure and topside modules intended to be used at an oil production facility in a commercial discovery area (within the meaning assigned by section 2 of theCanada Petroleum Resources Act) on which the drilling of the first well that indicated the discovery began before March 5, 1982, in an offshore region prescribed for the purposes of subsection 127(9), the time the gravity base structure deballasts and lifts the assembled topside modules, and
(k)where the property is (within the meaning assigned by subsection 13(4.1)) a replacement for a former property described in paragraph 13(4)(a) that was acquired before 1990 or that became available for use at or before the time the replacement property is acquired, the time the replacement property is acquired,
and, for the purposes of paragraph 13(27)(f), where depreciation is calculated by reference to a portion of the cost of the property, only that portion of the property shall be considered to have become available for use at the end of the taxation year referred to in that paragraph.
Marginal note:Idem
(28)For the purposes of subsection 13(26) and subject to subsection 13(29), property that is a building or part thereof of a taxpayer shall be considered to have become available for use by the taxpayer at the earliest of
(a)the time all or substantially all of the building is first used by the taxpayer for the purpose for which it was acquired,
(b)the time the construction of the building is complete,
(c)the time that is immediately after the beginning of the taxpayer’s first taxation year that begins more than 357 days after the end of the taxpayer’s taxation year in which the property was acquired by the taxpayer,
(d)the time that is immediately before the disposition of the property by the taxpayer, and
(e)where the property is (within the meaning assigned by subsection 13(4.1)) a replacement for a former property described in paragraph 13(4)(a) that was acquired before 1990 or that became available for use at or before the time the replacement property is acquired, the time the replacement property is acquired,
and, for the purpose of this subsection, a renovation, alteration or addition to a particular building shall be considered to be a building separate from the particular building.
Marginal note:Idem
(29)For the purposes of subsection 13(26), where a taxpayer acquires property (other than a building that is used or is to be used by the taxpayer principally for the purpose of gaining or producing gross revenue that is rent) in the taxpayer’s first taxation year (in this subsection referred to as the “particular year”) that begins more than 357 days after the end of the taxpayer’s taxation year in which the taxpayer first acquired property after 1989, that is part of a project of the taxpayer, or in a taxation year subsequent to the particular year, and at the end of any taxation year (in this subsection referred to as the “inclusion year”) of the taxpayer
(a)the property can reasonably be considered to be part of the project, and
(b)the property has not otherwise become available for use,
if the taxpayer so elects in prescribed form filed with the taxpayer’s return of income under this Part for the particular year, that particular portion of the property the capital cost of which does not exceed the amount, if any, by which
(c)the total of all amounts each of which is the capital cost to the taxpayer of a depreciable property (other than a building that is used or is to be used by the taxpayer principally for the purpose of gaining or producing gross revenue that is rent) that is part of the project, that was acquired by the taxpayer after 1989 and before the end of the taxpayer’s last taxation year that ends more than 357 days before the beginning of the inclusion year and that has not become available for use at or before the end of the inclusion year (except where the property has first become available for use before the end of the inclusion year because of this subsection or paragraph 13(27)(b) or 13(28)(c))
exceeds
(d)the total of all amounts each of which is the capital cost to the taxpayer of a depreciable property, other than the particular portion of the property, that is part of the project to the extent that the property is considered, because of this subsection, to have become available for use before the end of the inclusion year
shall be considered to have become available for use immediately before the end of the inclusion year.
Marginal note:Transfers of property
(30)Notwithstanding subsections 13(27) to 13(29), for the purpose of subsection 13(26), property of a taxpayer shall be deemed to have become available for use by the taxpayer at the earlier of the time the property was acquired by the taxpayer and, if applicable, a prescribed time, where
(a)the property was acquired
(i)from a person with whom the taxpayer was not dealing at arm’s length (otherwise than because of a right referred to in paragraph 251(5)(b)) at the time the property was acquired by the taxpayer, or
(ii)in the course of a reorganization in respect of which, if a dividend were received by a corporation in the course of the reorganization, subsection 55(2) would not apply to the dividend because of paragraph 55(3)(b); and
(b)before the property was acquired by the taxpayer, it became available for use (determined without reference to paragraphs 13(27)(c) and 13(28)(d)) by the person from whom it was acquired.
Marginal note:Idem
(31)For the purposes of paragraphs 13(27)(b) and 13(28)(c) and subsection 13(29), where a property of a taxpayer was acquired from a person (in this subsection referred to as “the transferor”)
(a)with whom the taxpayer was, at the time the taxpayer acquired the property, not dealing at arm’s length (otherwise than because of a right referred to in paragraph 251(5)(b)), or
(b)in the course of a reorganization in respect of which, if a dividend were received by a corporation in the course of the reorganization, subsection 55(2) would not apply to the dividend because of the application of paragraph 55(3)(b), the taxpayer shall be deemed to have acquired the property at the time it was acquired by the transferor.
Marginal note:Leased property
(32)Where a taxpayer has leased property that is depreciable property of a person with whom the taxpayer does not deal at arm’s length, the amount, if any, by which
(a)the total of all amounts paid or payable by the taxpayer for the use of, or the right to use, the property in a particular taxation year and before the time the property would have been considered to have become available for use by the taxpayer if the taxpayer had acquired the property, and that, but for this subsection, would be deductible in computing the taxpayer’s income for any taxation year
exceeds
(b)the total of all amounts received or receivable by the taxpayer for the use of, or the right to use, the property in the particular taxation year and before that time and that are included in the income of the taxpayer for any taxation year shall be deemed to be a cost to the taxpayer of a property included in Class 13 in Schedule II to theIncome Tax Regulationsand not to be an amount paid or payable for the use of, or the right to use, the property.
Marginal note:Consideration given for depreciable property
(33)For greater certainty, where a person acquires a depreciable property for consideration that can reasonably be considered to include a transfer of property, the portion of the cost to the person of the depreciable property attributable to the transfer shall not exceed the fair market value of the transferred property.
Marginal note:Goodwill
(34)Where a taxpayer carries on a particular business,
(a)there is deemed to be a single goodwill property in respect of the particular business;
(b)if at any time the taxpayer acquires goodwill as part of an acquisition of all or a part of another business that is carried on, after the acquisition, as part of the particular business — or is deemed by subsection (35) to acquire goodwill in respect of the particular business — the cost of the goodwill is added at that time to the cost of the goodwill property in respect of the particular business;
(c)if at any time the taxpayer disposes of goodwill as part of the disposition of part of the particular business, receives proceeds of disposition a portion of which is attributable to goodwill and continues to carry on the particular business or is deemed by subsection (37) to dispose of goodwill in respect of the particular business,
(i)the taxpayer is deemed to dispose at that time of a portion of the goodwill property in respect of the particular business having a cost equal to the lesser of the cost of the goodwill property in respect of the particular business otherwise determined and the portion of the proceeds attributable to goodwill, and
(ii)the cost of the goodwill property in respect of the particular business is reduced at that time by the amount determined under subparagraph (i); and
(d)if paragraph (c) applies to more than one disposition of goodwill at the same time, that paragraph and subsection (39) apply as if each disposition had occurred separately in the order designated by the taxpayer or, if the taxpayer does not designate an order, in the order designated by the Minister.
Marginal note:Outlays not relating to property
(35)If at any time a taxpayer makes or incurs an outlay or expense on account of capital for the purpose of gaining or producing income from a business carried on by the taxpayer, the taxpayer is deemed to acquire at that time goodwill in respect of the business with a cost equal to the amount of the outlay or expense if no portion of the amount is
(a)the cost, or any part of the cost, of a property;
(b)deductible in computing the taxpayer’s income from the business (determined without reference to this subsection);
(c)not deductible in computing the taxpayer’s income from the business because of any provision of this Act (other than paragraph 18(1)(b)) or theIncome Tax Regulations;
(d)paid or payable to a creditor of the taxpayer as, on account of or in lieu of payment of, any debt, or on account of the redemption, cancellation or purchase of any bond or debenture; or
(e)where the taxpayer is a corporation, partnership or trust, paid or payable to a person as a shareholder, partner or beneficiary, as the case may be, of the taxpayer.
Marginal note:No addition to goodwill
(36)For greater certainty, no amount paid or payable may be included in Class 14.1 of Schedule II to theIncome Tax Regulations, if the amount is
(a)in consideration for the purchase of shares; or
(b)in consideration for the cancellation or assignment of an obligation to pay consideration referred to in paragraph (a).
Marginal note:Receipts not relating to property
(37)If at any time in a taxation year a taxpayer has or may become entitled to receive an amount (in this subsection referred to as thereceipt) on account of capital in respect of a business that is or was carried on by the taxpayer, the taxpayer is deemed to dispose, at that time, of goodwill in respect of the business for proceeds of disposition equal to the amount by which the receipt exceeds the total of all outlays or expenses that were made or incurred by the taxpayer for the purpose of obtaining the receipt and that were not otherwise deductible in computing the taxpayer’s income, if the following conditions are satisfied (determined without reference to this subsection):
(a)the receipt is not included in computing the taxpayer’s income, or deducted in computing, for the purposes of this Act, any balance of undeducted outlays, expenses or other amounts for the taxation year or a preceding taxation year;
(b)the receipt does not reduce the cost or capital cost of a property or the amount of an outlay or expense; and
(c)the receipt is not included in computing any gain or loss of the taxpayer from a disposition of a capital property.
Marginal note:Class 14.1 — transitional rules
(38)If a taxpayer has incurred an eligible capital expenditure in respect of a business before January 1, 2017,
(a)at the beginning of that day, the total capital cost of all property of the taxpayer included in Class 14.1 of Schedule II to theIncome Tax Regulationsin respect of the business, each of which was an eligible capital property of the taxpayer immediately before that day or is the goodwill property in respect of the business, is deemed to be the amount determined by the formula
4/3 × (A + B – C)
where
(b)at the beginning of that day, the capital cost of each property of the taxpayer included in the class in respect of the business, each of which was an eligible capital property of the taxpayer immediately before that day or is the goodwill property in respect of the business, is to be determined as follows:
(i)the taxpayer shall designate the order in which the capital cost of each property that is not the goodwill property is determined and, if the taxpayer does not designate an order, the Minister may designate the order,
(ii)the capital cost of a particular property that is not the goodwill property in respect of the business is deemed to be the lesser of the eligible capital expenditure of the taxpayer in respect of the particular property and the amount by which the total capital cost of the class determined under paragraph (a) exceeds the total of all amounts each of which is an amount deemed by this subparagraph to be the capital cost of a property that is determined in advance of the determination of the capital cost of the particular property, and
(iii)the capital cost of the goodwill property is deemed to be the amount by which the total capital cost of the class exceeds the total of all amounts each of which is an amount deemed by subparagraph (ii) to be the capital cost of a property;
(c)an amount is deemed to have been allowed to the taxpayer in respect of property of the class under regulations made under paragraph 20(1)(a) in computing the taxpayer’s income for taxation years ending before that day equal to the amount by which
(i)the total of the total capital cost of the class and the amount determined for C in paragraph (a)
exceeds
(ii)the amount determined for A in paragraph (a); and
(d)if no taxation year of the taxpayer ends immediately before that day and the taxpayer would have had a particular amount included, because of paragraph 14(1)(b) (as that paragraph applied immediately before that day), in computing the taxpayer’s income from the business for the particular taxation year that includes that day if the particular year had ended immediately before that day,
(i)for the purposes of the formula in paragraph (a), 3/2 of the particular amount is to be included in computing the amount for B of the definitioncumulative eligible capitalin subsection 14(5) (as that subsection applied immediately before that day),
(ii)the taxpayer is deemed to dispose of a capital property in respect of the business immediately before that day for proceeds of disposition equal to twice the particular amount,
(iii)if the taxpayer elects in writing to have this subparagraph apply and files that election with the Minister on or before the filing-due date for the particular year, subparagraph (ii) does not apply and an amount equal to the particular amount is to be included in computing the taxpayer’s income from the business for the particular year,
(iv)if, on or after that day and in the particular year, the taxpayer acquires a property included in the class in respect of the business, or is deemed by subsection (35) to acquire goodwill in respect of the business, and the taxpayer elects in writing to have this subparagraph apply and files that election with the Minister on or before the filing-due date for the particular year,
(A)for the purposes of subparagraphs (ii) and (iii), the particular amount is to be reduced by the lesser of the particular amount otherwise determined and 1/2 of the capital cost of the property or goodwill acquired (determined without reference to clause (B)), and
(B)the capital cost of the property or goodwill acquired, as the case may be, is to be reduced by twice the amount by which the particular amount is reduced under clause (A), and
(v)if, in the particular year and before that day, the taxpayer disposed of aqualified farm or fishing property(as defined in subsection 110.6(1)) that was an eligible capital property of the taxpayer, the capital property disposed of under subparagraph (ii), if any, is deemed to be a qualified farm or fishing property to the extent of the lesser of
(A)the proceeds of disposition of the capital property, and
(B)the amount by which the proceeds of disposition of the qualified farm or fishing property exceed its cost.
Marginal note:Class 14.1 — transitional rule
(39)If at any time a taxpayer disposes of a particular property included in Class 14.1 of Schedule II to theIncome Tax Regulationsin respect of a business and none of subsections 24(2), 70(5.1), 73(3.1), 85(1), 88(1), 98(3) and (5), 107(2) and 107.4(3) apply to the disposition, then for the purpose of determining the undepreciated capital cost of the class, the taxpayer is deemed to have acquired a property of the class immediately before that time with a capital cost equal to the least of 1/4 of the proceeds of disposition of the particular property, 1/4 of the capital cost of the particular property and
(a)if the particular property is not goodwill and is acquired before January 1, 2017 by the taxpayer, 1/4 of the capital cost of the particular property;
(b)if the particular property is not goodwill, is acquired on or after that day by the taxpayer and subsection (40) deems an amount to have been allowed under paragraph 20(1)(a) in respect of the taxpayer’s acquisition of the particular property, that amount;
(c)if the particular property (other than a property to which paragraph (b) applies) is not goodwill and is acquired on or after that day by the taxpayer — in circumstances under which any of subsections 24(2), 70(5.1), 73(3.1), 85(1), 88(1), 98(3) and (5), 107(2) and 107.4(3) apply — from a person or partnership that would have been deemed under this subsection to have acquired a property if none of those subsections had applied, the capital cost of the property that would have been deemed under this subsection to have been acquired by the person or partnership;
(d)if the particular property is goodwill, the amount by which
(i)the total of all amounts each of which is
(A)1/4 of the amount determined under subparagraph (38)(b)(iii) in respect of the business,
(B)if goodwill is acquired on or after that day by the taxpayer and subsection (40) deems an amount to have been allowed under paragraph 20(1)(a) in respect of the taxpayer’s acquisition of the goodwill, that amount, or
(C)if goodwill is acquired (other than an acquisition in respect of which clause (B) applies) on or after that day by the taxpayer — in circumstances under which any of subsections 24(2), 70(5.1), 73(3.1), 85(1), 88(1), 98(3) and (5), 107(2) and 107.4(3) apply — from a person or partnership that would have been deemed under this subsection to have acquired a property if none of those subsections had applied, the capital cost of the property that would have been deemed under this subsection to have been acquired by the person or partnership
exceeds
(ii)the total of all amounts each of which is the capital cost of a property deemed by this subsection to have been acquired by the taxpayer at or before that time in respect of another disposition of goodwill in respect of the business; and
(e)in any other case, nil.
Marginal note:Class 14.1 — transitional rule
(40)If at any time a taxpayer acquires a particular property included in Class 14.1 of Schedule II to theIncome Tax Regulationsin respect of a business, the acquisition of the particular property is part of a transaction or series of transactions or events that includes a disposition (in this subsection referred to as theprior disposition) at or before that time of the particular property, or a similar property, by the taxpayer or a person or partnership that does not deal at arm’s length with the taxpayer and subsection (39) applies in respect of the prior disposition, then for the purpose of determining the undepreciated capital cost of the class, an amount is deemed to have been allowed under paragraph 20(1)(a) to the taxpayer in respect of the particular property in computing the taxpayer’s income for taxation years ending before the acquisition equal to the lesser of the capital cost of the property deemed by subsection (39) to be acquired in respect of the prior disposition and 1/4 of the capital cost of the particular property.
Marginal note:Class 14.1 — transitional rule
(41)For the purposes of subsections (38) to (40) and (42), paragraph 20(1)(hh.1), subsections 40(13) to (16) and paragraph 79(4)(b),cumulative eligible capital,eligible capital expenditure,eligible capital propertyandexempt gains balancehave the meanings that would be assigned to those expressions if the Act read as it did immediately before 2017.
Marginal note:Class 14.1 — transitional rules
(42)If a taxpayer owns property included in Class 14.1 of Schedule II to theIncome Tax Regulationsin respect of a business at the beginning of 2017, that was an eligible capital property in respect of the business immediately before 2017,
(a)for the purposes of the Act and its regulations (other than this section, section 20 and any regulations made for the purposes of paragraph 20(1)(a)), if the amount determined for A in the definitioncumulative eligible capitalin subsection 14(5) would have been increased immediately before 2017 if the property had been disposed of immediately before that time, the capital cost of the property is deemed to be increased by 4/3 of the amount of that increase;
(b)for purposes of this section, section 20 and any regulations made for the purposes of paragraph 20(1)(a), if the taxpayer was deemed by subsection 14(12) to continue to own eligible capital property in respect of the business and not to have ceased to carry on the business until a time that is after 2016, the taxpayer is deemed to continue to own the property and to continue to carry on the business until the time that is immediately before the first time one of the events that would be described in any of paragraphs 14(12)(c) to (g) (as they read immediately before 2017, if the reference to “eligible capital property” in paragraph 14(12)(d) were read as “eligible capital property or capital property”) occurs;
(c)for the purposes of the descriptions of D.1 and K in the definitionundepreciated capital costin subsection (21), the taxpayer is deemed not to have paid or received any amounts before 2017 as or on account of an existing or proposed countervailing or anti-dumping duty in respect of depreciable property of the class; and
(d)subsection (7.1) does not apply to assistance that a taxpayer received or is entitled to receive before 2017 in respect of a property that was an eligible capital property immediately before 2017.
14[Repealed, 2016, c. 12, s. 4]
Marginal note:Benefit conferred on shareholder
15(1)If, at any time, a benefit is conferred by a corporation on a shareholder of the corporation, on a member of a partnership that is a shareholder of the corporation or on a contemplated shareholder of the corporation, then the amount or value of the benefit is to be included in computing the income of the shareholder, member or contemplated shareholder, as the case may be, for its taxation year that includes the time, except to the extent that the amount or value of the benefit is deemed by section 84 to be a dividend or that the benefit is conferred on the shareholder
(a)where the corporation is resident in Canada at the time,
(i)by the reduction of the paid-up capital of the corporation,
(ii)by the redemption, acquisition or cancellation by the corporation of shares of its capital stock,
(iii)on the winding-up, discontinuance or reorganization of the corporation’s business, or
(iv)by way of a transaction to which subsection 88(1) or (2) applies;
(a.1)where the corporation is not resident in Canada at the time,
(i)by way of a distribution to which subsection 86.1(1) applies,
(ii)by a reduction of the paid-up capital of the corporation to which subclause 53(2)(b)(i)(B)(II) or subparagraph 53(2)(b)(ii) applies,
(iii)by the redemption, acquisition or cancellation by the corporation of shares of its capital stock, or
(iv)on the winding-up, or liquidation and dissolution, of the corporation;
(b)by the payment of a dividend or a stock dividend;
(c)by conferring, on all owners of common shares of the capital stock of the corporation at that time, a right in respect of each common share, that is identical to every other right conferred at that time in respect of each other such share, to acquire additional shares of the capital stock of the corporation, and, for the purposes of this paragraph,
(i)the shares of a particular class of common shares of the capital stock of the corporation are deemed to be property that is identical to the shares of another class of common shares of the capital stock of the corporation if
(A)the voting rights attached to the particular class differ from the voting rights attached to the other class, and
(B)there are no other differences between the terms and conditions of the classes of shares that could cause the fair market value of a share of the particular class to differ materially from the fair market value of a share of the other class, and
(ii)rights are not considered identical if the cost of acquiring the rights differs; or
(d)by an action to which paragraph 84(1)(c.1), (c.2) or (c.3) applies.
Marginal note:Conferring of benefit
(1.1)Notwithstanding subsection (1), if in a taxation year a corporation has paid a stock dividend to a person and it may reasonably be considered that one of the purposes of that payment was to significantly alter the value of the interest of any specified shareholder of the corporation, the fair market value of the stock dividend shall, except to the extent that it is otherwise included in computing that person’s income under any of paragraphs 82(1)(a), (a.1) and (c) to (e), be included in computing the income of that person for the year.
Marginal note:Forgiveness of shareholder debt
(1.2)For the purpose of subsection 15(1), the value of the benefit where an obligation issued by a debtor is settled or extinguished at any time shall be deemed to be the forgiven amount at that time in respect of the obligation.
Marginal note:Forgiven amount
(1.21)For the purpose of subsection 15(1.2), theforgiven amountat any time in respect of an obligation issued by a debtor has the meaning that would be assigned by subsection 80(1) if
(a)the obligation were a commercial obligation (within the meaning assigned by subsection 80(1)) issued by the debtor;
(b)no amount included in computing income (otherwise than because of paragraph 6(1)(a)) because of the obligation being settled or extinguished were taken into account;
(c)the definitionforgiven amountin subsection 80(1) were read without reference to paragraphs (f) and (h) of the description B in that definition; and
(d)section 80 were read without reference to paragraphs (2)(b) and (q) of that section.
Marginal note:Cost of property or service
(1.3)To the extent that the cost to a person of purchasing a property or service or an amount payable by a person for the purpose of leasing property is taken into account in determining an amount required under this section to be included in computing a taxpayer’s income for a taxation year, that cost or amount payable, as the case may be, shall include any tax that was payable by the person in respect of the property or service or that would have been so payable if the person were not exempt from the payment of that tax because of the nature of the person or the use to which the property or service is to be put.
Marginal note:Interpretation — subsection (1)
(1.4)For the purposes of this subsection and subsection (1),
(a)a contemplated shareholder of a corporation is
(i)a person or partnership on whom a benefit is conferred by the corporation in contemplation of the person or partnership becoming a shareholder of the corporation, or
(ii)a member of a partnership on whom a benefit is conferred by the corporation in contemplation of the partnership becoming a shareholder of the corporation;
(b)a person or partnership that is (or is deemed by this paragraph to be) a member of a particular partnership that is a member of another partnership is deemed to be a member of the other partnership;
(c)a benefit conferred by a corporation on an individual is a benefit conferred on a shareholder of the corporation, a member of a partnership that is a shareholder of the corporation or a contemplated shareholder of the corporation — except to the extent that the amount or value of the benefit is included in computing the income of the individual or any other person — if the individual is an individual, other than an excluded trust in respect of the corporation, who does not deal at arm’s length with, or is affiliated with, the shareholder, member of the partnership or contemplated shareholder, as the case may be; and
(d)for the purposes of paragraph (c), an excluded trust in respect of a corporation is a trust in which no individual (other than an excluded trust in respect of the corporation) who does not deal at arm’s length with, or is affiliated with, a shareholder of the corporation, a member of a partnership that is a shareholder of the corporation or a contemplated shareholder of the corporation, is beneficially interested.
(e)[Repealed, 2018, c. 27, s. 2]
Marginal note:Division of corporation under foreign laws
(1.5)If a non-resident corporation (in this subsection referred to as the “original corporation”) governed by the laws of a foreign jurisdiction undergoes a division under those laws that results in all or part of its property and liabilities becoming the property and liabilities of one or more other non-resident corporations (each of which is referred to in this subsection as a “new corporation”) and, as a consequence of the division, a shareholder of the original corporation acquires one or more shares (referred to in this subsection as “new shares”) of the capital stock of a new corporation at a particular time, the following rules apply:
(a)except to the extent that any of subparagraphs (1)(a.1)(i) to (iii) and paragraph (1)(b) applies (determined without reference to this subsection) to the acquisition of the new shares
(i)in the case where, for each class of shares of the capital stock of the original corporation of which shares are held by the shareholder immediately before the division, new shares are received at the particular time by shareholders of that class on a pro rata basis in respect of all the shares (referred to in this subsection as the “original shares”) of that class
(A)at the particular time, the original corporation is deemed to have distributed, and the shareholder is deemed to have received, as a dividend in kind in respect of the original shares, the new shares acquired by the shareholder at the particular time, and
(B)the amount of the dividend in kind received by the shareholder in respect of an original share is deemed to be equal to the fair market value, immediately after the particular time, of the new shares acquired by the shareholder at the particular time in respect of the original share, and
(ii)in any case where subparagraph (i) does not apply, the original corporation is deemed, at the particular time, to have conferred a benefit on the shareholder equal to the total fair market value, at that time, of the new shares acquired by the shareholder as a consequence of the division;
(b)any gain or loss of the original corporation from a distribution of the new shares as a consequence of the division is deemed to be nil; and
(c)each property of the original corporation that becomes at any time (referred to in this paragraph as the “disposition time”) property of the new corporation as a consequence of the division is deemed to be
(i)disposed of by the original corporation immediately before the disposition time for proceeds of disposition equal to the property’s fair market value, and
(ii)acquired by the new corporation at the disposition time at a cost equal to the amount determined under subparagraph (i) to be the original corporation’s proceeds of disposition.
Marginal note:Shareholder debt
(2)Where a person (other than a corporation resident in Canada) or a partnership (other than a partnership each member of which is a corporation resident in Canada) is
(a)a shareholder of a particular corporation,
(b)connected with a shareholder of a particular corporation, or
(c)a member of a partnership, or a beneficiary of a trust, that is a shareholder of a particular corporation
and the person or partnership has in a taxation year received a loan from or become indebted to (otherwise than by way of a pertinent loan or indebtedness) the particular corporation, any other corporation related to the particular corporation or a partnership of which the particular corporation or a corporation related to the particular corporation is a member, the amount of the loan or indebtedness is included in computing the income for the year of the person or partnership.
Marginal note:Meaning of connected
(2.1)For the purposes of subsection (2), a person or partnership is connected with a shareholder of a particular corporation if that person or partnership does not deal at arm’s length with, or is affiliated with, the shareholder, unless, in the case of a person, that person is
(a)a foreign affiliate of the particular corporation; or
(b)a foreign affiliate of a person resident in Canada with which the particular corporation does not deal at arm’s length.
Marginal note:Pertinent loan or indebtedness
(2.11)For the purposes of subsection (2) and subject to subsection 17.1(3),pertinent loan or indebtednessmeans a loan received, or an indebtedness incurred, at any time, by a non-resident corporation (in this subsection referred to as the “subject corporation”), or by a partnership of which the subject corporation is, at that time, a member, that is an amount owing to a corporation resident in Canada (in this subsection and subsections (2.12) and (2.14) referred to as the “CRIC”) or to a qualifying Canadian partnership in respect of the CRIC and in respect of which amount owing all of the following apply:
(a)subsection (2) would, in the absence of this subsection, apply to the amount owing;
(b)the amount becomes owing after March 28, 2012;
(c)at that time, the CRIC is controlled by a non-resident corporation that
(i)is the subject corporation, or
(ii)does not deal at arm’s length with the subject corporation; and
(d)either
(i)in the case of an amount owing to the CRIC, the CRIC and a non-resident corporation that controls the CRIC jointly elect in writing under this subparagraph in respect of the amount owing and file the election with the Minister on or before the filing-due date of the CRIC for the taxation year that includes that time, or
(ii)in the case of an amount owing to the qualifying Canadian partnership, all the members of the qualifying Canadian partnership and a non-resident corporation that controls the CRIC jointly elect in writing under this subparagraph in respect of the amount owing and file the election with the Minister on or before the filing-due date of the CRIC for its taxation year in which ends the fiscal period of the qualifying Canadian partnership that includes that time.
Marginal note:Late-filed elections
(2.12)Where an election referred to in paragraph (2.11)(d) was not made on or before the day on or before which the election was required by that paragraph to be made, the election is deemed to have been made on that day if the election is made on or before the day that is three years after that day and the penalty in respect of the election is paid by the CRIC when the election is made.
Marginal note:Penalty for late-filed election
(2.13)For the purposes of subsection (2.12), the penalty in respect of an election referred to in that subsection is the amount 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 commencing with the day on or before which the election is required by paragraph (2.11)(d) to be made and ending on the day the election is made.
Marginal note:Partnerships
(2.14)For purposes of this subsection, subsection (2.11), section 17.1 and subsection 18(5),
(a)aqualifying Canadian partnership, at any time in respect of a CRIC, means a partnership each member of which is, at that time, the CRIC or another corporation resident in Canada to which the CRIC is, at that time, related; and
(b)a person or partnership that is (or is deemed by this paragraph to be) a member of a particular partnership that is a member of another partnership is deemed to be a member of the other partnership.
Marginal note:Mergers
(2.15)For the purposes of subsections (2.11) and (2.14),
(a)if there has been an amalgamation to which subsection 87(1) applies, the new corporation referred to in that subsection is deemed to be the same corporation as, and a continuation of, each predecessor corporation referred to in that subsection; and
(b)if there has been a winding-up to which subsection 88(1) applies, the parent referred to in that subsection is deemed to be the same corporation as, and a continuation of, the subsidiary referred to in that subsection.
Marginal note:Back-to-back arrangement — application
(2.16)Subsection (2.17) applies at any time if
(a)at that time, a person or partnership (referred to in this subsection and subsections (2.17) to (2.192) as theintended borrower) has an amount outstanding as or on account of a debt or other obligation to pay an amount (in this subsection and subsections (2.17) to (2.192) referred to as theshareholder debt) to a person or partnership (in this subsection and subsections (2.17) to (2.192) referred to as theimmediate funder);
(b)subsection (2) would not, in the absence of this subsection and subsection (2.17), apply to the shareholder debt;
(c)at that time, a funder, in respect of a particular funding arrangement,
(i)has an amount outstanding as or on account of a debt or other obligation to pay an amount (other than a debt or other obligation to pay an amount to which subsection (2) applies or would apply if it were not apertinent loan or indebtedness, as defined in subsection (2.11)) to a person or partnership that meets either of the following conditions:
(A)recourse in respect of the debt or other obligation is limited in whole or in part, either immediately or in the future and either absolutely or contingently, to a funding arrangement, or
(B)it can reasonably be concluded that all or a portion of the particular funding arrangement was entered into or was permitted to remain outstanding because
(I)all or a portion of the debt or other obligation was entered into or was permitted to remain outstanding, or
(II)the funder anticipated that all or a portion of the debt or other obligation would become owing or remain outstanding, or
(ii)has a specified right in respect of a particular property that was granted directly or indirectly by a person or partnership and
(A)the existence of the specified right is required under the terms and conditions of the particular funding arrangement, or
(B)it can reasonably be concluded that all or a portion of the particular funding arrangement was entered into, or was permitted to remain in effect, because
(I)the specified right was granted, or
(II)the funder anticipated that the specified right would be granted; and
(d)at that time, one or more funders is an ultimate funder.
Marginal note:Back-to-back arrangement — consequences
(2.17)If this subsection applies at a particular time, then for the purposes of this section and section 80.4, the intended borrower is deemed to receive a loan from each particular ultimate funder at the particular time, the amount of which is equal to the amount determined by the formula
A × B/C – (D – E)
where
(a)the amount outstanding as or on account of the shareholder debt at the particular time, and
(b)the total of all amounts, each of which is, at the particular time,
(i)an amount outstanding as or on account of a debt or other obligation that is owed by a funder (other than an ultimate funder) to an ultimate funder under a funding arrangement in respect of the shareholder debt, or
(ii)the fair market value of a particular property in respect of which an ultimate funder has granted a specified right to a funder (other than an ultimate funder) under a funding arrangement in respect of the shareholder debt;
(a)an amount outstanding as or on account of a debt or other obligation that is owed by a funder (other than an ultimate funder) to the particular ultimate funder under a funding arrangement in respect of the shareholder debt, or
(b)the fair market value of a particular property in respect of which the particular ultimate funder has granted a specified right to a funder (other than an ultimate funder) under a funding arrangement in respect of the shareholder debt;
Marginal note:Back-to-back arrangement — conditions for deemed repayment
(2.18)Subsection (2.19) applies in respect of an intended borrower and a particular ultimate funder at a particular time if
(a)prior to the particular time, subsection (2.17) has applied in respect of a shareholder debt to deem one or more loans to have been received by the intended borrower from the particular ultimate funder; and
(b)at the particular time,
(i)an amount owing in respect of the shareholder debt is repaid in whole or in part,
(ii)an amount owing in respect of a debt or other obligation owing to the particular ultimate funder by a funder (other than an ultimate funder) under a funding arrangement in respect of the shareholder debt is repaid in whole or in part, or
(iii)either
(A)there is a decrease in the fair market value of a property in respect of which a specified right was granted by the particular ultimate funder to a funder (other than an ultimate funder) under a funding arrangement in respect of the shareholder debt, or
(B)a right described in clause (A) is extinguished.
Marginal note:Back-to-back arrangement — deemed repayment
(2.19)If this subsection applies in respect of an intended borrower and a particular ultimate funder at a particular time,
(a)the intended borrower is deemed, for the purposes of this section, paragraph 20(1)(j), section 80.4 and subsection 227(6.1), to repay, in whole or in part, one or more of the deemed loans referred to in paragraph (2.18)(a) at the particular time; and
(b)the total amount of the deemed repayments referred to in paragraph (a) is to be determined by the following formula:
A – B – C
where
D × E/F
where
(i)the amount outstanding as or on account of the shareholder debt, immediately after the particular time, and
(ii)the total of all amounts, each of which is, immediately after the particular time,
(A)an amount outstanding as or on account of a debt or other obligation that is owed by a funder (other than an ultimate funder) to an ultimate funder under a funding arrangement in respect of the shareholder debt, or
(B)the fair market value of a particular property in respect of which an ultimate funder has granted a specified right to a funder (other than an ultimate funder) under a funding arrangement in respect of the shareholder debt,
(i)an amount outstanding as or on account of a debt or other obligation that is owed by a funder (other than an ultimate funder) to the particular ultimate funder under a funding arrangement in respect of the shareholder debt, or
(ii)the fair market value of a particular property in respect of which the particular ultimate funder has granted a specified right to a funder (other than an ultimate funder) under a funding arrangement in respect of the shareholder debt, and
Marginal note:Negative amounts
(2.191)If, in the absence of section 257, the formula in subsection (2.17) would result in a negative amount at a particular time,
(a)the intended borrower is deemed, for the purposes of this section, paragraph 20(1)(j), section 80.4 and subsection 227(6.1), to repay, in whole or in part, one or more of the loans deemed by subsection (2.17) to have been received by the intended borrower from the particular ultimate funder before the particular time; and
(b)the total amount of the deemed repayments referred to in paragraph (a) is equal to the absolute value of that negative amount.
Marginal note:Back-to-back arrangement — definitions
(2.192)The following definitions apply in this subsection and subsections (2.16) to (2.191).
funder, in respect of a funding arrangement, means
(a)if the funding arrangement is described in paragraph (a) of the definitionfunding arrangement, the immediate funder;
(b)if the funding arrangement is described in paragraph (b) of the definitionfunding arrangement, the creditor in respect of the debt or other obligation or the grantor of the specified right, as the case may be; and
(c)a person or partnership that does not deal at arm’s length with a person or partnership referred to in paragraph (a) or (b). (bailleur de fonds)
funding arrangementmeans
(a)the shareholder debt; and
(b)each debt or other obligation or specified right, owing by or granted to a funder, in respect of a particular funding arrangement, if the debt or other obligation or specified right meets the conditions in subparagraph (2.16)(c)(i) or (ii) in respect of a funding arrangement. (mécanisme de financement)
specified righthas the same meaning as in subsection 18(5). (droit déterminé)
ultimate fundermeans a funder, if subsection (2) would apply to the shareholder debt if the creditor under the shareholder debt were the funder instead of the immediate funder. (bailleur de fonds ultime)
Marginal note:When s. 15(2) not to apply — non-resident persons
(2.2)Subsection 15(2) does not apply to indebtedness between non-resident persons.
Marginal note:When s. 15(2) not to apply — ordinary lending business
(2.3)Subsection 15(2) does not apply to a debt that arose in the ordinary course of the creditor’s business or a loan made in the ordinary course of the lender’s ordinary business of lending money where, at the time the indebtedness arose or the loan was made,bona fidearrangements were made for repayment of the debt or loan within a reasonable time.
Marginal note:When s. 15(2) not to apply — certain employees
(2.4)Subsection 15(2) does not apply to a loan made or a debt that arose
(a)in respect of an individual who is an employee of the lender or creditor but not a specified employee of the lender or creditor,
(b)in respect of an individual who is an employee of the lender or creditor or who is the spouse or common-law partner of an employee of the lender or creditor to enable or assist the individual to acquire a dwelling or a share of the capital stock of a cooperative housing corporation acquired for the sole purpose of acquiring the right to inhabit a dwelling owned by the corporation, where the dwelling is for the individual’s habitation,
(c)where the lender or creditor is a particular corporation, in respect of an employee of the particular corporation or of another corporation that is related to the particular corporation, to enable or assist the employee to acquire from the particular corporation, or from another corporation related to the particular corporation, previously unissued fully paid shares of the capital stock of the particular corporation or the related corporation, as the case may be, to be held by the employee for the employee’s own benefit, or
(d)in respect of an employee of the lender or creditor to enable or assist the employee to acquire a motor vehicle to be used by the employee in the performance of the duties of the employee’s office or employment,
where
(e)it is reasonable to conclude that the employee or the employee’s spouse or common-law partner received the loan, or became indebted, because of the employee’s employment and not because of any person’s share-holdings, and
(f)at the time the loan was made or the debt was incurred,bona fidearrangements were made for repayment of the loan or debt within a reasonable time.
Marginal note:When s. 15(2) not to apply — certain trusts
(2.5)Subsection 15(2) does not apply to a loan made or a debt that arose in respect of a trust where
(a)the lender or creditor is a private corporation;
(b)the corporation is the settlor and sole beneficiary of the trust;
(c)the sole purpose of the trust is to facilitate the purchase and sale of the shares of the corporation, or of another corporation related to the corporation, for an amount equal to their fair market value at the time of the purchase or sale, as the case may be, from or to the employees of the corporation or of the related corporation (other than employees who are specified employees of the corporation or of another corporation related to the corporation), as the case may be; and
(d)at the time the loan was made or the debt incurred,bona fidearrangements were made for repayment of the loan or debt within a reasonable time.
Marginal note:When s. 15(2) not to apply — repayment within one year
(2.6)Subsection 15(2) does not apply to a loan or an indebtedness repaid within one year after the end of the taxation year of the lender or creditor in which the loan was made or the indebtedness arose, where it is established, by subsequent events or otherwise, that the repayment was not part of a series of loans or other transactions and repayments.
Marginal note:Employee of partnership
(2.7)For the purpose of this section, an individual who is an employee of a partnership is deemed to be a specified employee of the partnership where the individual is a specified shareholder of one or more corporations that, in total, are entitled, directly or indirectly, to a share of any income or loss of the partnership, which share is not less than 10% of the income or loss.
Marginal note:Interest or dividend on income bond or debenture
(3)An amount paid as interest or a dividend by a corporation resident in Canada to a taxpayer in respect of an income bond or income debenture shall be deemed to have been paid by the corporation and received by the taxpayer as a dividend on a share of the capital stock of the corporation, unless the corporation is entitled to deduct the amount so paid in computing its income.
Marginal note:Idem, where corporation not resident
(4)An amount paid as interest or a dividend by a corporation not resident in Canada to a taxpayer in respect of an income bond or income debenture shall be deemed to have been received by the taxpayer as a dividend on a share of the capital stock of the corporation unless the amount so paid was, under the laws of the country in which the corporation was resident, deductible in computing the amount for the year on which the corporation was liable to pay income or profits tax imposed by the government of that country.
Marginal note:Automobile benefit
(5)For the purposes of subsection 15(1), the value of the benefit to be included in computing a shareholder’s income for a taxation year with respect to an automobile made available to the shareholder, or a person related to the shareholder, by a corporation shall (except where an amount is determined under subparagraph 6(1)(e)(i) in respect of the automobile in computing the shareholder’s income for the year) be computed on the assumption that subsections 6(1), 6(1.1), 6(2) and 6(7) apply, with such modifications as the circumstances require, and as though the references therein to “the employer of the taxpayer”, “the taxpayer’s employer” and “the employer” were read as “the corporation”.
Marginal note:Application of ss. (1), (2) and (5)
(7)For greater certainty, subsections 15(1), (2) and (5) are applicable in computing, for the purposes of this Part, the income of a shareholder or of a person or partnership whether or not the corporation, or the lender or creditor, as the case may be, was resident or carried on business in Canada.
(8)[Repealed, 1998, c. 19, s. 75(3)]
Marginal note:Deemed benefit to shareholder by corporation
(9)Where an amount in respect of a loan or debt is deemed by section 80.4 to be a benefit received by a person or partnership in a taxation year, the amount is deemed for the purpose of subsection 15(1) to be a benefit conferred in the year on a shareholder, unless subsection 6(9) or paragraph 12(1)(w) applies to the amount.
Marginal note:Interest on small business development bonds
15.1(1)Any amount received by a taxpayer as or on account of interest on a small business development bond shall, except for the purposes of Part IV, be deemed to have been received as a taxable dividend.
Marginal note:Rules for small business development bonds
(2)Where a corporation (in this section referred to as the “issuer”) has issued an obligation that is at any time a small business development bond, notwithstanding any other provision of this Act,
(a)in computing the issuer’s income for a taxation year, no deduction shall be made in respect of any amount paid or payable (depending on the method regularly followed in computing the issuer’s income) as or on account of interest on the obligation in respect of a period that includes that time;
(b)except for the purpose of subsection 129(1), to the extent that any amount paid by the issuer as or on account of interest on the obligation is not allowed as a deduction because of paragraph 15.1(2)(a), it shall, when paid, be deemed to have been paid as a taxable dividend; and
(c)except for the purposes of paragraph 125(1)(b), the issuer’s taxable income for any taxation year that includes a period throughout which the obligation was a small business development bond but
(i)the issuer was not an eligible small business corporation, or
(ii)all or substantially all of the proceeds from the issue of the obligation cannot reasonably be regarded as having been used by the issuer or a corporation with which it was not dealing at arm’s length in the financing of an active business carried on in Canada immediately before the obligation was issued
shall be deemed to be an amount equal to the total of
(iii)the amount paid or payable (depending on the method regularly followed in computing the issuer’s income) as or on account of interest on the obligation in respect of that period, and
(iv)the issuer’s taxable income otherwise determined for the year.
Marginal note:Definitions
(3)In this section,
eligible small business corporationat any time means a taxable Canadian corporation that at that time is
(a)a small business corporation, or
(b)a cooperative corporation (within the meaning assigned by subsection 136(2)) all or substantially all of the assets of which are used in an active business carried on by it in Canada; (société admissible exploitant une petite entreprise)
joint electionmeans an election that is made in prescribed form, containing prescribed information, jointly by the issuer of an obligation and the person who is the holder of the obligation at the time of the election, that is filed with the Minister by the holder, and in which the holder and the issuer elect that this section apply to the obligation; (choix conjoint)
majority interest partner[Repealed, 1998, c. 19, s. 76(1)]
property used for specified purposes[Repealed, 1994, c. 7, Sch