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

Act current to 2014-12-18 and last amended on 2014-12-16. Previous Versions

PART XTAXES ON DEFERRED PROFIT SHARING PLANS AND REVOKED PLANS

Marginal note:Tax on non-qualified investments and use of assets as security
  •  (1) Every trust governed by a deferred profit sharing plan or revoked plan that

    • (a) acquires a non-qualified investment, or

    • (b) uses or permits to be used any property of the trust as security for a loan,

    shall pay a tax equal to the fair market value of

    • (c) the non-qualified investment at the time it was acquired by the trust, or

    • (d) the property used as security at the time it commenced to be so used.

  • Marginal note:Payment of tax

    (2) A trustee of a trust liable to pay tax under subsection 198(1) shall remit the amount of the tax to the Receiver General within 10 days of the day on which the non-qualified investment is acquired or the property is used as security for a loan, as the case may be.

  • Marginal note:Trustee liable for tax

    (3) Where a trustee of a trust liable to pay tax under subsection 198(1) does not remit to the Receiver General the amount of the tax within the time specified in subsection 198(2), the trustee is personally liable to pay on behalf of the trust the full amount of the tax and is entitled to recover from the trust any amount paid by the trustee as tax under this section.

  • Marginal note:Refund of tax on disposition of non-qualified investment

    (4) Where a trust disposes of a property that, when acquired, was a non-qualified investment, the trust is, on application in accordance with section 202, entitled to a refund of an amount equal to the lesser of

    • (a) the amount of the tax imposed under this section as a result of the acquisition of the property, and

    • (b) the proceeds of disposition of the property.

  • Marginal note:Refund of tax on recovery of property given as security

    (5) Where a loan, for which a trust has used or permitted to be used trust property as security, ceases to be extant, the trust is, on application in accordance with section 202, entitled to a refund of an amount equal to the amount remaining, if any, when

    • (a) the net loss (exclusive of payments by the trust as or on account of interest) sustained by the trust in consequence of its using or permitting to be used the property as security for the loan and not as a result of a change in the fair market value of the property

    is deducted from

    • (b) the tax imposed under this section in consequence of the trust’s using or permitting to be used the property as security for the loan.

  • Marginal note:Special rules relating to life insurance policies

    (6) For the purposes of this section,

    • (a) the acquisition of an interest in or the payment of an amount under a life insurance policy shall be deemed not to be the acquisition of a non-qualified investment, and

    • (b) the disposition of an interest in a life insurance policy shall be deemed not to be the disposition of a non-qualified investment,

    except that where a trust governed by a deferred profit sharing plan or revoked plan makes a payment under or to acquire an interest in a life insurance policy, other than a life insurance policy under which

    • (c) the trust is, or by virtue of the payment about to become, the only person entitled to any rights or benefits under the policy (other than the rights or benefits of the insurer),

    • (d) the cash surrender value of the policy (exclusive of accumulated dividends) is or will be, at or before the end of the year in which the insured person attains 71 years of age, if all premiums under the policy are paid, not less than the maximum total amount (exclusive of accumulated dividends) payable by the insurer under the policy, and

    • (e) the total of the premiums payable in any year under the policy is not greater than the total of the amounts that, if the annual premiums had been payable in monthly instalments, would have been payable as such instalments in the 12 months commencing with the date the policy was issued,

    the making of the payment shall be deemed to be the acquisition of a non-qualified investment at a cost equal to the amount of the payment.

  • Marginal note:Idem

    (6.1) A life insurance policy giving an option to the policyholder to receive annuity payments that otherwise complies with paragraph 198(6)(d) shall be deemed,

    • (a) where the option has not been exercised, to comply with that paragraph; and

    • (b) where at a particular time the option is exercised, to have been disposed of at that time for an amount equal to the cash surrender value of the policy immediately before that time, and an annuity contract shall be deemed to have been acquired at that time at a cost equal to that amount.

  • Marginal note:Idem

    (7) Notwithstanding subsection 198(6), where the total of all payments made in a year by a trust governed by a deferred profit sharing plan or revoked plan under or to acquire interests in life insurance policies in respect of which the trust is the only person entitled to any rights or benefits (other than the rights or benefits of the insurer) does not exceed an amount equal to 25% of the total of all amounts paid by employers to the trust in the year under the plan for the benefit of beneficiaries thereunder, the making of the payments under or to acquire interests in such policies shall be deemed, for the purposes of this section, not to be the acquisition of non-qualified investments.

  • Marginal note:Idem

    (8) Where a trust surrenders, cancels, assigns or otherwise disposes of its interest in a life insurance policy,

    • (a) the trust shall be deemed, for the purposes of subsection 198(4), to have disposed of each non-qualified investment that, by virtue of payments under the policy, it was deemed by subsection 198(6) to have acquired; and

    • (b) the proceeds of the disposition shall be deemed to be the amount, if any, by which

      • (i) the amount received by the trust in consequence of the surrender, cancellation, assignment or other disposition of its interest in the policy

      exceeds the total of

      • (ii) each amount paid by the trust under or to acquire an interest in the policy, the payment of which is deemed by this section not to be the acquisition of a non-qualified investment, and

      • (iii) the cash surrender value on December 21, 1966 of the interest of the trust in the policy on that date.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts. R.S., 1985, c. 1 (5th Supp.), s. 198;
  • 1997, c. 25, s. 54;
  • 2007, c. 29, s. 25.