Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

Act current to 2016-08-15 and last amended on 2016-07-01. Previous Versions

Marginal note:Definitions
  •  (1) In this section,

    exempt capital gains balance

    solde des gains en capital exonérés

    exempt capital gains balance of an individual for a taxation year that ends before 2005 in respect of a flow-through entity means the amount determined by the formula

    A - B - C - F

    where

    A 
    is
    • (a) if the entity is a trust referred to in any of paragraphs (f) to (j) of the definition flow-through entity in this subsection, the amount determined under paragraph 110.6(19)(c) in respect of the individual’s interest or interests therein, and

    • (b) in any other case, the lesser of

      • (i) 4/3 of the total of the taxable capital gains that resulted from elections made under subsection 110.6(19) in respect of the individual’s interests in or shares of the capital stock of the entity, and

      • (ii) the amount that would be determined under subparagraph (i) if

        • (A) the amount designated in the election in respect of each interest or share were equal to the amount determined by the formula

          D - E

          where

          D 
          is the fair market value of the interest or share at the end of February 22, 1994, and
          E 
          is the amount, if any, by which the amount designated in the election that was made in respect of the interest or share exceeds 11/10 of its fair market value at the end of February 22, 1994, and
        • (B) this Act were read without reference to subsection 110.6(20),

    B 
    is the total of all amounts each of which is the amount by which the individual’s capital gain for a preceding taxation year, determined without reference to subsection 39.1(2), from the disposition of an interest in or a share of the capital stock of the entity was reduced under that subsection,
    C 
    is
    • (a) if the entity is a trust described in any of paragraphs (d) and (h) to (j) of the definition flow-through entity in this subsection, the total of

      • (i) 3/2 of the total of all amounts each of which is the amount by which the individual’s taxable capital gain (determined without reference to this section), for a preceding taxation year that began after February 27, 2000 and ended before October 18, 2000 that resulted from a designation made under subsection 104(21) by the trust, was reduced under subsection (3),

      • (ii) 4/3 of the total of all amounts each of which is the amount by which the individual’s taxable capital gain (determined without reference to this section), for a preceding taxation year that ended before February 28, 2000 and that resulted from a designation made under subsection 104(21) by the trust, was reduced under subsection (3),

      • (iii) the amount claimed by the individual under subparagraph 104(21.4)(a)(ii) or (21.7)(b)(ii) for a preceding taxation year, and

      • (iv) twice the total of all amounts each of which is the amount by which the individual’s taxable capital gain (determined without reference to this section) for a preceding taxation year that began after October 17, 2000 and that resulted from a designation made under subsection 104(21) by the trust, was reduced under subsection (3),

    • (b) if the entity is a partnership, the total of

      • (i) 3/2 of the total of

        • (A) the total of all amounts each of which is the amount by which the individual’s share of the partnership’s taxable capital gains (determined without reference to this section), for its fiscal period that began after February 27, 2000 and ended before October 18, 2000, was reduced under subsection (4), and

        • (B) the total of all amounts each of which is the amount by which the individual’s share of the partnership’s income from a business (determined without reference to this section), for its fiscal period that began after February 27, 2000 and ended before October 18, 2000, was reduced under subsection (5),

      • (ii) 4/3 of the total of

        • (A) the total of all amounts each of which is the amount by which the individual’s share of the partnership’s taxable capital gains (determined without reference to this section), for its fiscal period that ended before February 28, 2000 and in a preceding taxation year was reduced under subsection (4), and

        • (B) the total of all amounts each of which is the amount by which the individual’s share of the partnership’s income from a business (determined without reference to this section), for its fiscal period that ended before February 28, 2000 and in a preceding taxation year, was reduced under subsection (5),

      • (iii) the product obtained when the reciprocal of the fraction in paragraph 38(a) that applies to the partnership for its fiscal period that includes February 28, 2000 or October 17, 2000 is multiplied by the total of

        • (A) the total of all amounts each of which is the amount by which the individual’s share of the partnership’s taxable capital gains (determined without reference to this section), for its fiscal period that includes February 28, 2000 or October 17, 2000 and ended in a preceding taxation year, was reduced under subsection (4), and

        • (B) the total of all amounts each of which is the amount by which the individual’s share of the partnership’s income from a business (determined without reference to this section), for its fiscal period that includes February 28, 2000 or October 17, 2000 and ended in a preceding taxation year was reduced under subsection (5), and

      • (iv) twice the total of

        • (A) the total of all amounts each of which is the amount by which the individual’s share of the partnership’s taxable capital gains (determined without reference to this section), for its fiscal period that began after October 17, 2000 and ended in a preceding taxation year, was reduced under subsection (4), and

        • (B) the total of all amounts each of which is the amount by which the individual’s share of the partnership’s income from a business (determined without reference to this section), for its fiscal period that began after October 17, 2000 and ended in a preceding taxation year, was reduced under subsection (5), and

    • (c) in any other case, the total of all amounts each of which is the amount by which the total of the individual’s capital gains otherwise determined under subsection 130.1(4) or 131(1), subsections 138.1(3) and 138.1(4) or subsection 144(4), as the case may be, for a preceding taxation year in respect of the entity was reduced under subsection 39.1(6); and

    F 
    is
    • (a) if the entity is a trust described in any of paragraphs (g) to (j) of the definition flow-through entity in this subsection, the total of all amounts each of which is an amount included before the year in the cost to the individual of a property under subsection 107(2.2) or paragraph 144(7.1)(c) because of the individual’s exempt capital gains balance in respect of the entity, and

    • (b) in any other case, nil; (solde des gains en capital exonérés)

    flow-through entity

    entité intermédiaire

    flow-through entity means

    • (a) an investment corporation,

    • (b) a mortgage investment corporation,

    • (c) a mutual fund corporation,

    • (d) a mutual fund trust,

    • (e) a partnership,

    • (f) a related segregated fund trust for the purpose of section 138.1,

    • (g) a trust governed by an employees profit sharing plan,

    • (h) a trust maintained primarily for the benefit of employees of a corporation or two or more corporations that do not deal at arm’s length with each other, where one of the main purposes of the trust is to hold interests in, or for civil law rights in, shares of the capital stock of the corporation or corporations, as the case may be, or any corporation not dealing at arm’s length therewith,

    • (i) a trust established exclusively for the benefit of one or more persons each of whom was, at the time the trust was created, either a person from whom the trust received property or a creditor of that person, where one of the main purposes of the trust is to secure the payments required to be made by or on behalf of that person to such creditor, and

    • (j) a trust all or substantially all of the properties of which consist of shares of the capital stock of a corporation, where the trust was established pursuant to an agreement between 2 or more shareholders of the corporation and one of the main purposes of the trust is to provide for the exercise of voting rights in respect of those shares pursuant to that agreement. (entité intermédiaire)

  • Marginal note:Reduction of capital gain

    (2) Where at any time after February 22, 1994 an individual disposes of an interest in or a share of the capital stock of a flow-through entity, the individual’s capital gain, if any, otherwise determined for a taxation year from the disposition shall be reduced by such amount as the individual claims, not exceeding the amount determined by the formula

    A - B - C

    where

    A 
    is the exempt capital gains balance of the individual for the year in respect of the entity,
    B 
    is
    • (a) if the entity made a designation under subsection 104(21) in respect of the individual for the year, twice the amount, if any, claimed under subsection 39.1(3) by the individual for the year in respect of the entity,

    • (b) if the entity is a partnership, twice the total of

      • (i) the amount, if any, claimed under subsection 39.1(4) by the individual for the year in respect of the entity, and

      • (ii) the amount, if any, claimed under subsection 39.1(5) by the individual for the year in respect of the entity, and

    • (c) in any other case, the amount, if any, claimed under subsection 39.1(6) by the individual for the year in respect of the entity, and

    C 
    is the total of all reductions under this subsection in the individual’s capital gains otherwise determined for the year from the disposition of other interests in or shares of the capital stock of the entity.
  • Marginal note:Reduction of taxable capital gain

    (3) The taxable capital gain otherwise determined under subsection 104(21) of an individual for a taxation year as a result of a designation made under that subsection by a flow-through entity shall be reduced by such amount as the individual claims, not exceeding 1/2 of the individual’s exempt capital gains balance for the year in respect of the entity.

  • Marginal note:Reduction in share of partnership’s taxable capital gains

    (4) An individual’s share otherwise determined for a taxation year of a taxable capital gain of a partnership from the disposition of a property (other than property acquired by the partnership after February 22, 1994 in a transfer to which subsection 97(2) applied) for its fiscal period that ends after February 22, 1994 and in the year shall be reduced by such amount as the individual claims, not exceeding the amount determined by the formula

    A - B

    where

    A 
    is 1/2 of the individual’s exempt capital gains balance for the year in respect of the partnership, and
    B 
    is the total of amounts claimed by the individual under this subsection in respect of other taxable capital gains of the partnership for that fiscal period.
  • Marginal note:Reduction in share of partnership’s income from a business

    (5) An individual’s share otherwise determined for a taxation year of the income of a partnership from a business for the partnership’s fiscal period that ends in the year and the individual’s share of the partnership’s taxable capital gain, if any, arising under paragraph 14(1)(b) shall be reduced by such amount as the individual claims, not exceeding the lesser of

    • (a) the amount, if any, by which 1/2 of the individual’s exempt capital gains balance for the year in respect of the partnership exceeds the total of

      • (i) the amount, if any, claimed under subsection (4) by the individual for the year in respect of the partnership, and

      • (ii) all amounts, if any, claimed under this subsection by the individual for the year in respect of other businesses of the partnership, and

    • (b) the amount determined by the formula

      A × (B/C)

      where

      A 
      is the amount included under paragraph 14(1)(b) in computing the income of the partnership from the business for the fiscal period,
      B 
      is the amount that would otherwise be the individual’s share of the partnership’s income from the business for the fiscal period, and
      C 
      is the partnership’s income from the business for the fiscal period.
  • Marginal note:Reduction of capital gains

    (6) The total capital gains otherwise determined under subsection 130.1(4) or 131(1), subsections 138.1(3) and 138.1(4) or subsection 144(4), as the case may be, of an individual for a taxation year as a result of one or more elections, allocations or designations made after February 22, 1994 by a flow-through entity shall be reduced by such amount as the individual claims, not exceeding the individual’s exempt capital gains balance for the year in respect of the entity.

  • Marginal note:Nil exempt capital gains balance

    (7) Notwithstanding subsection 39.1(1), where at any time an individual ceases to be a member or shareholder of, or a beneficiary under, a flow-through entity, the exempt capital gains balance of the individual in respect of the entity for each taxation year that begins after that time is deemed to be nil.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts. 1995, c. 3, s. 11;
  • 1998, c. 19, s. 88;
  • 2001, c. 17, s. 24;
  • 2013, c. 34, s. 101.
 
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