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

Act current to 2017-05-11 and last amended on 2017-05-01. Previous Versions

DIVISION CComputation of Taxable Income

Marginal note:Deductions permitted
  •  (1) For the purpose of computing the taxable income of a taxpayer for a taxation year, there may be deducted such of the following amounts as are applicable

    • Marginal note:Employee options

      (d) an amount equal to 1/2 of the amount of the benefit deemed by subsection 7(1) to have been received by the taxpayer in the year in respect of a security that a particular qualifying person has agreed after February 15, 1984 to sell or issue under an agreement, or in respect of the transfer or other disposition of rights under the agreement, if

      • (i) the security was acquired under the agreement by the taxpayer or a person not dealing at arm’s length with the taxpayer in circumstances described in paragraph 7(1)(c),

      • (i.1) the security

        • (A) is a prescribed share at the time of its sale or issue, as the case may be,

        • (B) would have been a prescribed share if it were issued or sold to the taxpayer at the time the taxpayer disposed of rights under the agreement,

        • (C) would have been a unit of a mutual fund trust at the time of its sale or issue if those units issued by the trust that were not identical to the security had not been issued, or

        • (D) would have been a unit of a mutual fund trust if

          • (I) it were issued or sold to the taxpayer at the time the taxpayer disposed of rights under the agreement, and

          • (II) those units issued by the trust that were not identical to the security had not been issued,

      • (ii) where rights under the agreement were not acquired by the taxpayer as a result of a disposition of rights to which subsection 7(1.4) applied,

        • (A) the amount payable by the taxpayer to acquire the security under the agreement is not less than the amount by which

          • (I) the fair market value of the security at the time the agreement was made

          exceeds

          • (II) the amount, if any, paid by the taxpayer to acquire the right to acquire the security, and

        • (B) at the time immediately after the agreement was made, the taxpayer was dealing at arm’s length with

          • (I) the particular qualifying person,

          • (II) each other qualifying person that, at the time, was an employer of the taxpayer and was not dealing at arm’s length with the particular qualifying person, and

          • (III) the qualifying person of which the taxpayer had, under the agreement, a right to acquire a security, and

      • (iii) where rights under the agreement were acquired by the taxpayer as a result of one or more dispositions to which subsection 7(1.4) applied,

        • (A) the amount payable by the taxpayer to acquire the security under the agreement is not less than the amount that was included, in respect of the security, in the amount determined under subparagraph 7(1.4)(c)(ii) with respect to the most recent of those dispositions,

        • (B) at the time immediately after the agreement the rights under which were the subject of the first of those dispositions (in this subparagraph referred to as the “original agreement”) was made, the taxpayer was dealing at arm’s length with

          • (I) the qualifying person that made the original agreement,

          • (II) each other qualifying person that, at the time, was an employer of the taxpayer and was not dealing at arm’s length with the qualifying person that made the original agreement, and

          • (III) the qualifying person of which the taxpayer had, under the original agreement, a right to acquire a security,

        • (C) the amount that was included, in respect of each particular security that the taxpayer had a right to acquire under the original agreement, in the amount determined under subparagraph 7(1.4)(c)(iv) with respect to the first of those dispositions was not less than the amount by which

          • (I) the fair market value of the particular security at the time the original agreement was made

          exceeded

          • (II) the amount, if any, paid by the taxpayer to acquire the right to acquire the security, and

        • (D) for the purpose of determining if the condition in paragraph 7(1.4)(c) was satisfied with respect to each of the particular dispositions following the first of those dispositions,

          • (I) the amount that was included, in respect of each particular security that could be acquired under the agreement the rights under which were the subject of the particular disposition, in the amount determined under subparagraph 7(1.4)(c)(iv) with respect to the particular disposition

          was not less than

          • (II) the amount that was included, in respect of the particular security, in the amount determined under subparagraph 7(1.4)(c)(ii) with respect to the last of those dispositions preceding the particular disposition;

    • Marginal note:Charitable donation of employee option securities

      (d.01) subject to subsection (2.1), if the taxpayer disposes of a security acquired in the year by the taxpayer under an agreement referred to in subsection 7(1) by making a gift of the security to a qualified donee, an amount in respect of the disposition of the security equal to 1/2 of the lesser of the benefit deemed by paragraph 7(1)(a) to have been received by the taxpayer in the year in respect of the acquisition of the security and the amount that would have been that benefit had the value of the security at the time of its acquisition by the taxpayer been equal to the value of the security at the time of the disposition, if

      • (i) the security is a security described in subparagraph 38(a.1)(i),

      • (ii) [Repealed, 2002, c. 9, s. 33(1)]

      • (iii) the gift is made in the year and on or before the day that is 30 days after the day on which the taxpayer acquired the security, and

      • (iv) the taxpayer is entitled to a deduction under paragraph (d) in respect of the acquisition of the security;

    • Marginal note:Idem

      (d.1) where the taxpayer

      • (i) is deemed, under paragraph 7(1)(a) by virtue of subsection 7(1.1), to have received a benefit in the year in respect of a share acquired by the taxpayer after May 22, 1985,

      • (ii) has not disposed of the share (otherwise than as a consequence of the taxpayer’s death) or exchanged the share within two years after the date the taxpayer acquired it, and

      • (iii) has not deducted an amount under paragraph 110(1)(d) in respect of the benefit in computing the taxpayer’s taxable income for the year,

      an amount equal to 1/2 of the amount of the benefit;

    • Marginal note:Prospector’s and grubstaker’s shares

      (d.2) where the taxpayer has, under paragraph 35(1)(d), included an amount in the taxpayer’s income for the year in respect of a share received after May 22, 1985, an amount equal to 1/2 of that amount unless that amount is exempt from income tax in Canada by reason of a provision contained in a tax convention or agreement with another country that has the force of law in Canada;

    • Marginal note:Employer’s shares

      (d.3) where the taxpayer has, under subsection 147 (10.4), included an amount in computing the taxpayer’s income for the year, an amount equal to 1/2 of that amount;

    • Marginal note:Deductions for payments

      (f) any social assistance payment made on the basis of a means, needs or income test and included because of clause 56(1)(a)(i)(A) or paragraph 56(1)(u) in computing the taxpayer’s income for the year or any amount that is

      • (i) an amount exempt from income tax in Canada because of a provision contained in a tax convention or agreement with another country that has the force of law in Canada,

      • (ii) compensation received under an employees’ or workers’ compensation law of Canada or a province in respect of an injury, disability or death, except any such compensation received by a person as the employer or former employer of the person in respect of whose injury, disability or death the compensation was paid,

      • (iii) income from employment with a prescribed international organization,

      • (iv) the taxpayer’s income from employment with a prescribed international non-governmental organization, where the taxpayer

        • (A) was not, at any time in the year, a Canadian citizen,

        • (B) was a non-resident person immediately before beginning that employment in Canada, and

        • (C) if the taxpayer is resident in Canada, became resident in Canada solely for the purpose of that employment, or

      • (v) the lesser of

        • (A) the employment income earned by the taxpayer as a member of the Canadian Forces, or as a police officer, while serving on a deployed operational mission (as determined by the Department of National Defence) that is

          • (I) assessed for risk allowance at level 3 or higher (as determined by the Department of National Defence), or

          • (II) assessed at a risk score greater than 1.99 and less than 2.50 (as determined by the Department of National Defence) and designated by the Minister of Finance, and

        • (B) the employment income that would have been so earned by the taxpayer if the taxpayer had been paid at the maximum rate of pay that applied, from time to time during the mission, to a non-commissioned member of the Canadian Forces;

      to the extent that it is included in computing the taxpayer’s income for the year;

    • Marginal note:Financial assistance

      (g) any amount that

      • (i) is received by the taxpayer in the year under a program referred to in subparagraph 56(1)(r)(ii) or (iii), a program established under the authority of the Department of Employment and Social Development Act or a prescribed program,

      • (ii) is financial assistance for the payment of tuition fees of the taxpayer that are not included in computing an amount deductible under subsection 118.5(1) in computing the taxpayer’s tax payable under this Part for any taxation year,

      • (iii) is included in computing the taxpayer’s income for the year, and

      • (iv) is not otherwise deductible in computing the taxpayer’s taxable income for the year;

    • (h) 35 per cent of the total of all benefits (in this paragraph referred to as “U.S. social security benefits”) that are received by the taxpayer in the taxation year and to which paragraph 5 of Article XVIII of the Convention between Canada and the United States of America with respect to Taxes on Income and on Capital as set out in Schedule I to the Canada-United States Tax Convention Act, 1984, S.C. 1984, c. 20, applies, if

      • (i) the taxpayer has continuously during a period that begins before 1996 and ends in the taxation year, been resident in Canada, and has received U.S. social security benefits in each taxation year that ends in that period, or

      • (ii) in the case where the benefits are payable to the taxpayer in respect of a deceased individual,

        • (A) the taxpayer was, immediately before the deceased individual’s death, the deceased individual’s spouse or common-law partner,

        • (B) the taxpayer has continuously during a period that begins at the time of the deceased individual’s death and ends in the taxation year, been resident in Canada,

        • (C) the deceased individual was, in respect of the taxation year in which the deceased individual died, a taxpayer described in subparagraph (i), and

        • (D) in each taxation year that ends in a period that begins before 1996 and that ends in the taxation year, the taxpayer, the deceased individual, or both of them, received U.S. social security benefits.

    • (i) [Repealed, 1994, c. 7, Sch. II, s. 78(3)]

    • Marginal note:Home relocation loan

      (j) where the taxpayer has, by virtue of section 80.4, included an amount in the taxpayer’s income for the year in respect of a benefit received by the taxpayer in respect of a home relocation loan, the least of

      • (i) the amount of the benefit that would have been deemed to have been received by the taxpayer under section 80.4 in the year if that section had applied only in respect of the home relocation loan,

      • (ii) the amount of interest for the year that would be computed under paragraph 80.4(1)(a) in respect of the home relocation loan if that loan were in the amount of $25,000 and were extinguished on the earlier of

        • (A) the day that is five years after the day on which the home relocation loan was made, and

        • (B) the day on which the home relocation loan was extinguished, and

      • (iii) the amount of the benefit deemed to have been received by the taxpayer under section 80.4 in the year; and

    • Marginal note:Part VI.1 tax

      (k) the amount determined by multiplying the taxpayer’s tax payable under subsection 191.1(1) for the year by

      • (i) if the taxation year ends before 2010, 3,

      • (ii) if the taxation year ends after 2009 and before 2012, 3.2, and

      • (iii) if the taxation year ends after 2011, 3.5.

  • Marginal note:Election by particular qualifying person

    (1.1) For the purpose of computing the taxable income of a taxpayer for a taxation year, paragraph (1)(d) shall be read without reference to its subparagraph (i) in respect of all rights granted to the taxpayer under an agreement to sell or issue securities referred to in subsection 7(1) if

    • (a) the particular qualifying person elects in prescribed form that neither the particular qualifying person nor any person not dealing at arm’s length with the particular qualifying person will deduct in computing its income for a taxation year any amount (other than a designated amount described in subsection (1.2)) in respect of a payment to or for the benefit of a taxpayer for the taxpayer’s transfer or disposition of rights under the agreement;

    • (b) the particular qualifying person files the election with the Minister;

    • (c) the particular qualifying person provides the taxpayer with evidence in writing of the election; and

    • (d) the taxpayer files the evidence with the Minister with the taxpayer’s return of income for the year in which a deduction under paragraph (1)(d) is claimed.

  • Marginal note:Designated amount

    (1.2) For the purposes of subsection (1.1), an amount is a designated amount if the following conditions are met:

    • (a) the amount would otherwise be deductible in computing the income of the particular qualifying person in the absence of subsection (1.1);

    • (b) the amount is payable to a person

      • (i) with whom the particular qualifying person deals at arm’s length, and

      • (ii) who is neither an employee of the particular qualifying person nor of any person not dealing at arm’s length with the particular qualifying person; and

    • (c) the amount is payable in respect of an arrangement entered into for the purpose of managing the particular qualifying person’s financial risk associated with a potential increase in value of the securities under the agreement described in subsection (1.1).

  • Marginal note:Designated mission

    (1.3) The Minister of Finance may, on the recommendation of the Minister of National Defence (in respect of members of the Canadian Forces) or the Minister of Public Safety (in respect of police officers), designate a deployed operational mission for the purposes of subclause (1)(f)(v)(A)(II). The designation shall specify the day on which it comes into effect, which may precede the day on which the designation is made.

  • Marginal note:Replacement of home relocation loan

    (1.4) For the purposes of paragraph 110(1)(j), a loan received by a taxpayer that is used to repay a home relocation loan shall be deemed to be the same loan as the relocation loan and to have been made on the same day as the relocation loan.

  • Marginal note:Determination of amounts relating to employee security options

    (1.5) For the purpose of paragraph (1)(d),

    • (a) the amount payable by a taxpayer to acquire a security under an agreement referred to in subsection 7(1) shall be determined without reference to any change in the value of a currency of a country other than Canada, relative to Canadian currency, occurring after the agreement was made;

    • (b) the fair market value of a security at the time an agreement in respect of the security was made shall be determined on the assumption that all specified events associated with the security that occurred after the agreement was made and before the sale or issue of the security or the disposition of the taxpayer’s rights under the agreement in respect of the security, as the case may be, had occurred immediately before the agreement was made; and

    • (c) in determining the amount that was included, in respect of a security that a qualifying person has agreed to sell or issue to a taxpayer, in the amount determined under subparagraph 7(1.4)(c)(ii) for the purpose of determining if the condition in paragraph 7(1.4)(c) was satisfied with respect to a particular disposition, an assumption shall be made that all specified events associated with the security that occurred after the particular disposition and before the sale or issue of the security or the taxpayer’s subsequent disposition of rights under the agreement in respect of the security, as the case may be, had occurred immediately before the particular disposition.

  • Meaning of specified event

    (1.6) For the purpose of subsection (1.5), a specified event associated with a security is

    • (a) where the security is a share of the capital stock of a corporation,

      • (i) a subdivision or consolidation of shares of the capital stock of the corporation,

      • (ii) a reorganization of share capital of the corporation, and

      • (iii) a stock dividend of the corporation; and

    • (b) where the security is a unit of a mutual fund trust,

      • (i) a subdivision or consolidation of the units of the trust, and

      • (ii) an issuance of units of the trust as payment, or in satisfaction of a person’s right to enforce payment, out of the trust’s income (determined before the application of subsection 104(6)) or out of the trust’s capital gains.

  • Marginal note:Reduction in exercise price

    (1.7) If the amount payable by a taxpayer to acquire securities under an agreement referred to in subsection 7(1) is reduced at any particular time and the conditions in subsection (1.8) are satisfied in respect of the reduction,

    • (a) the rights (referred to in this subsection and subsection (1.8) as the “old rights”) that the taxpayer had under the agreement immediately before the particular time are deemed to have been disposed of by the taxpayer immediately before the particular time;

    • (b) the rights (referred to in this subsection and subsection (1.8) as the “new rights”) that the taxpayer has under the agreement at the particular time are deemed to be acquired by the taxpayer at the particular time; and

    • (c) the taxpayer is deemed to receive the new rights as consideration for the disposition of the old rights.

  • Marginal note:Conditions for subsection (1.7) to apply

    (1.8) The following are the conditions in respect of the reduction:

    • (a) that the taxpayer would not be entitled to a deduction under paragraph (1)(d) if the taxpayer acquired securities under the agreement immediately after the particular time and this section were read without reference to subsection (1.7); and

    • (b) that the taxpayer would be entitled to a deduction under paragraph (1)(d) if the taxpayer

      • (i) disposed of the old rights immediately before the particular time,

      • (ii) acquired the new rights at the particular time as consideration for the disposition, and

      • (iii) acquired securities under the agreement immediately after the particular time.

  • Marginal note:Charitable gifts

    (2) Where an individual is, during a taxation year, a member of a religious order and has, as such, taken a vow of perpetual poverty, the individual may deduct in computing the individual’s taxable income for the year an amount equal to the total of the individual’s superannuation or pension benefits and the individual’s earned income for the year (within the meaning assigned by section 63) if, of the individual’s income, that amount is paid in the year to the order.

  • Marginal note:Charitable donation — proceeds of disposition of employee option securities

    (2.1) Where a taxpayer, in exercising a right to acquire a security that a particular qualifying person has agreed to sell or issue to the taxpayer under an agreement referred to in subsection 7(1), directs a broker or dealer appointed or approved by the particular qualifying person (or by a qualifying person that does not deal at arm’s length with the particular qualifying person) to immediately dispose of the security and pay all or a portion of the proceeds of disposition of the security to a qualified donee,

    • (a) if the payment is a gift, the taxpayer is deemed, for the purpose of paragraph (1)(d.01), to have disposed of the security by making a gift of the security to the qualified donee at the time the payment is made; and

    • (b) the amount deductible under paragraph (1)(d.01) by the taxpayer in respect of the disposition of the security is the amount determined by the formula

      A × B/C

      where

      A
      is the amount that would be deductible under paragraph (1)(d.01) in respect of the disposition of the security if this subsection were read without reference to this paragraph,
      B
      is the amount of the payment, and
      C
      is the amount of the proceeds of disposition of the security.
  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts. R.S., 1985, c. 1 (5th Supp.), s. 110;
  • 1994, c. 7, Sch. II, s. 78, Sch. VIII, s. 45, c. 21, s. 49;
  • 1999, c. 22, s. 26;
  • 2001, c. 17, s. 84;
  • 2002, c. 9, s. 33;
  • 2005, c. 19, s. 18, c. 34, s. 81;
  • 2006, c. 4, s. 56;
  • 2007, c. 35, s. 29;
  • 2010, c. 12, s. 12, c. 25, s. 20;
  • 2013, c. 33, s. 7, c. 34, s. 237, c. 40, s. 236.
 
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