Income Tax Act

Version of section 206 from 2004-08-31 to 2005-06-28:

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

    affiliate

    société affiliée

    affiliate of a corporation (in this definition referred to as the “parent corporation”) at any time is any other corporation where, at that time,

    • (a) the parent corporation controls the other corporation,

    • (b) the parent corporation or a corporation controlled by the parent corporation owns

      • (i) shares of the capital stock of the other corporation that would give the parent corporation or the corporation controlled by the parent corporation 25% or more of the votes that could be cast under all circumstances at an annual meeting of shareholders of that other corporation, and

      • (ii) shares of the capital stock of the other corporation having a fair market value of 25% or more of the fair market value of all the issued shares of the capital stock of that other corporation, or

    • (c) the other corporation is controlled by a particular corporation and the parent corporation or a corporation controlled by the parent corporation owns

      • (i) shares of the capital stock of the particular corporation that would give the parent corporation or the corporation controlled by the parent corporation 25% or more of the votes that could be cast under all circumstances at an annual meeting of shareholders of the particular corporation, and

      • (ii) shares of the capital stock of the particular corporation having a fair market value of 25% or more of the fair market value of all the issued shares of the capital stock of the particular corporation; (société affiliée)

    carrying value

    valeur comptable

    carrying value of a property of a corporation or partnership at any time means

    • (a) where a balance sheet of the corporation or the partnership as of that time was presented to the shareholders of the corporation or the members of the partnership and the balance sheet was prepared using generally accepted accounting principles and was not prepared using the equity or consolidation method of accounting, the amount in respect of the property reflected in the balance sheet, and

    • (b) in any other case, the amount that would have been reflected in a balance sheet of the corporation or the partnership as of that time if the balance sheet had been prepared in accordance with generally acceptable accounting principles and neither the equity nor consolidation method of accounting were used; (valeur comptable)

    cost amount

    coût indiqué

    cost amount at any time of a taxpayer’s capital interest in a trust that is foreign property is deemed to be the greater of

    • (a) the cost amount of the interest, determined without reference to this definition, and

    • (b) where that time is more than 60 days after the end of a taxation year of the trust, the amount that would be the cost amount of the interest if new units of the trust had been issued in satisfaction of each amount payable

      • (i) after 2000 and at or before the end of the taxation year, by the trust in respect of the interest,

      • (ii) to which subparagraph 53(2)(h)(i.1) applies (or would apply if that subparagraph were read without reference to clauses (A) and (B) of that subparagraph), and

      • (iii) that has not been satisfied at or before that time by the issue of new units of the trust or by a payment of an amount by the trust; (coût indiqué)

    designated value

    valeur désignée

    designated value of a property at any time means the greater of

    • (a) the fair market value at that time of the property, and

    • (b) the carrying value at that time of the property; (valeur désignée)

    excluded share

    action exclue

    excluded share means

    • (a) a share that is of a class of shares listed on a prescribed stock exchange in Canada, where no share of that class has been issued after December 4, 1985 (otherwise than pursuant to an agreement in writing entered into before 5:00 p.m. Eastern Standard Time on December 4, 1985),

    • (b) a share last acquired after 1995 that is of a class of shares listed on a prescribed stock exchange in Canada, where

      • (i) no share of that class has been issued after July 20, 1995 (otherwise than pursuant to an agreement in writing made before July 21, 1995), and

      • (ii) the share would not be foreign property if the expression “primarily from foreign property” in paragraph (d.1) of the definition foreign property in this subsection were read as “primarily from portfolio investments in property that is foreign property” and that paragraph were read without reference to “(other than an excluded share)”, and

    • (c) a share last acquired after 1995 as a consequence of the exercise of a right acquired before 1996 where the share would not be foreign property if the expression “primarily from foreign property” in paragraph (d.1) of the definition foreign property in this subsection were read as “primarily from portfolio investments in property that is foreign property” and that paragraph were read without reference to “(other than an excluded share)”; (action exclue)

    foreign property

    bien étranger

    foreign property means

    • (a) tangible property situated outside Canada except automotive equipment registered in Canada,

    • (b) automotive equipment not registered in Canada pursuant to the laws of Canada or a province,

    • (c) intangible property (other than any property described in paragraphs (d) to (g)) situated outside Canada including, without restricting the generality of the foregoing, any patent under the laws of a country other than Canada and any licence in respect thereof,

    • (d) any share of the capital stock of a corporation other than a Canadian corporation,

    • (d.1) except as provided by subsection 206(1.1), any share (other than an excluded share) of the capital stock of, or any debt obligation issued by, a corporation (other than an investment corporation, mutual fund corporation or registered investment) that is a Canadian corporation, where shares of the corporation can reasonably be considered to derive their value, directly or indirectly, primarily from foreign property,

    • (e) except as prescribed, any share of the capital stock of a mutual fund corporation or investment corporation that is not a registered investment, other than a share of the capital stock of an investment corporation that was last acquired before October 14, 1971,

    • (f) any property that, under the terms or conditions thereof or any agreement relating thereto, is convertible into, is exchangeable for or confers a right to acquire, property that is foreign property, but not including property that is

      • (i) a share of the capital stock of a Canadian corporation listed on a prescribed stock exchange in Canada, or

      • (ii) a right issued before 1984 and listed on a prescribed stock exchange in Canada to acquire a share of the capital stock of a Canadian corporation,

    • (g) indebtedness of a non-resident person, other than

      • (i) indebtedness issued by an authorized foreign bank and payable at a branch in Canada of the bank, or

      • (ii) indebtedness issued or guaranteed by

        • (A) the International Bank for Reconstruction and Development,

        • (B) the International Finance Corporation,

        • (C) the Inter-American Development Bank,

        • (D) the Asian Development Bank,

        • (E) the Caribbean Development Bank,

        • (F) the European Bank for Reconstruction and Development,

        • (G) the African Development Bank, or

        • (H) a prescribed person,

    • (h) any interest in or right to any property that is foreign property by virtue of paragraphs (a) to (g), and

    • (i) except as prescribed by regulation, any interest in, or right to acquire an interest in, a trust (other than a registered investment) or a partnership; (bien étranger)

    investment activity

    activité d’investissement

    investment activity of a particular corporation means any business carried on by the corporation, or any holding of property by the corporation otherwise than as part of a business carried on by the corporation, the principal purpose of which is to derive income from, or to derive profits from the disposition of,

    • (a) shares (other than shares of the capital stock of another corporation in which the particular corporation has a significant interest, where the primary activity of the other corporation is not an investment activity),

    • (b) interests in trusts,

    • (c) indebtedness (other than indebtedness owing by another corporation in which the particular corporation has a significant interest, where the primary activity of the other corporation is not an investment activity),

    • (d) annuities,

    • (e) commodities or commodities futures purchased or sold, directly or indirectly in any manner whatever, on a commodities or commodities futures exchange (except commodities manufactured, produced, grown, extracted or processed by the corporation or another corporation with which the corporation does not deal at arm’s length),

    • (f) currencies (other than currencies in the form of numismatic coins),

    • (g) interests in funds or entities other than corporations, partnerships and trusts,

    • (h) interests or options in respect of property described in any of paragraphs (a) to (g), or

    • (i) any combination of properties described in any of paragraphs (a) to (h); (activité d’investissement)

    qualified property

    bien admissible

    qualified property of a corporation means a property (other than a debt obligation or share issued by an affiliate of the corporation or by any corporation related to the corporation) owned by the corporation and used by it or an affiliate of the corporation in a specified active business carried on by it or the affiliate; (bien admissible)

    significant interest

    participation notable

    significant interest has the meaning that would be assigned by section 142.2 if that section were read without reference to paragraphs 142.2(3)(b) and 142.2(3)(c); (participation notable)

    small business investment amount

    montant d’un placement dans des petites entreprises

    small business investment amount of a taxpayer for a month means the greater of

    • (a) the total of the cost amounts of all small business properties to the taxpayer at the end of the month, and

    • (b) the quotient obtained when the total of all amounts determined for each of the three preceding months, each of which is the total of the cost amounts of all small business properties to the taxpayer at the end of that preceding month, is divided by three; (montant d’un placement dans des petites entreprises)

    small business property

    bien de petite entreprise

    small business property of a taxpayer at a particular time means property acquired by the taxpayer after October 31, 1985 that is at that particular time

    • (a) a property prescribed to be a small business security,

    • (b) a share of a class of the capital stock of a corporation prescribed to be a small business investment corporation,

    • (c) an interest of a limited partner in a partnership prescribed to be a small business investment limited partnership, or

    • (d) an interest in a trust prescribed to be a small business investment trust,

    where

    • (e) the taxpayer is a prescribed person in respect of the property, or

    • (f) throughout the period that began at the time the property was first acquired (otherwise than by a broker or dealer in securities) and ends at the particular time, the property was not owned by any person other than

      • (i) the taxpayer,

      • (ii) a trust governed by a particular registered retirement income fund or registered retirement savings plan if

        • (A) the taxpayer is another trust governed by a registered retirement income fund or registered retirement savings plan, and

        • (B) the annuitant under the particular fund or plan (or the spouse, common-law partner, former spouse or former common-law partner of that annuitant) is also the annuitant under the fund or plan referred to in clause (A), or

      • (iii) an annuitant under a registered retirement income fund or registered retirement savings plan that governs the taxpayer, or a spouse or former spouse of that annuitant; (bien de petite entreprise)

    specified active business

    entreprise déterminée exploitée activement

    specified active business carried on by a corporation, at any time, means a particular business that is carried on by the corporation in Canada where

    • (a) the corporation employs in the particular business at that time more than 5 full-time employees and at least

      • (i) 50% of the full-time employees employed by the corporation at that time in the particular business are employed in Canada, and

      • (ii) 50% of the salaries and wages paid to employees employed at that time in the particular business are reasonably attributable to services rendered in Canada by the employees, or

    • (b) one or more other corporations associated with the corporation provide, in the course of carrying on one or more other active businesses, managerial, administrative, financial, maintenance or other similar services to the corporation in respect of the particular business and

      • (i) the corporation could reasonably be expected to require more than 5 full-time employees at that time in respect of the particular business if those services had not been provided,

      • (ii) at least 50% of the full-time employees employed at that time by the corporation in the particular business and by the other corporations in the other active businesses are employed in Canada, and

      • (iii) at least 50% of the salaries and wages paid to employees employed at that time by the corporation in the particular business and by the other corporations in the other active businesses are reasonably attributable to services rendered in Canada by the employees,

      but does not include a business carried on by the corporation the principal purpose of which is to derive income from, or from the disposition of, shares and debt obligations the value of which can reasonably be considered to derive, directly or indirectly, primarily from foreign property; (entreprise déterminée exploitée activement)

    specified proportion

    proportion déterminée

    specified proportion of a member of a partnership for a fiscal period of the partnership means the proportion that the member’s share of the total income or loss of the partnership for the partnership’s fiscal period is of the partnership’s total income or loss for that period and, for the purpose of this definition, where that income or loss for a period is nil, that proportion shall be computed as if the partnership had income for that period in the amount of $1,000,000. (proportion déterminée)

  • Marginal note:Exception where substantial Canadian presence

    (1.1) Property described in paragraph (d.1) of the definition foreign property in subsection 206(1) does not, at a particular time, include property of a taxpayer that is a share or debt obligation that was issued by a corporation that, at the particular time, is a Canadian corporation where

    • (a) either at any time in any of the last 15 months beginning before the time (in this subsection referred to as the “acquisition time”) when the property was last acquired before the particular time by the taxpayer or at any time in the calendar year that includes the acquisition time, the total of all amounts each of which is the designated value of a qualified property of the corporation or an affiliate of the corporation exceeded $50,000,000;

    • (b) the particular time is not later than the end of the 15th month ending after the acquisition time and, at any time in any of the last 15 months beginning before the acquisition time, the total of all amounts each of which is the designated value of a qualified property of the corporation or another corporation controlled by the corporation exceeded 50% of the lesser of the fair market value of all of the corporation’s property and the carrying value of all of the corporation’s property;

    • (c) the particular time is after the acquisition time and, at any time in any of the first 15 months beginning after the acquisition time, the total of all amounts each of which is the designated value of a qualified property of the corporation or another corporation controlled by the corporation exceeded 50% of the lesser of the fair market value of all of the corporation’s property and the carrying value of all of the corporation’s property;

    • (d) the particular time is after 1995 and, at the particular time,

      • (i) either

        • (A) the corporation was incorporated or otherwise formed under the laws of Canada or a province, or

        • (B) where the corporation was not required to maintain an office under the laws by or under which it was incorporated, the maintenance of an office in Canada is required under the constitutional documents of the corporation,

      • (ii) the corporation maintains an office in Canada, and

      • (iii) any of the following conditions applies, namely,

        • (A) the corporation employs more than 5 individuals in Canada full time and those individuals are not employed primarily in connection with

          • (I) an investment activity of the corporation or another corporation with which the corporation does not deal at arm’s length,

          • (II) a business carried on by the corporation through a partnership of which the corporation is not a majority interest partner, or

          • (III) a business carried on by another corporation with which the corporation does not deal at arm’s length through a partnership of which that other corporation is not a majority interest partner,

        • (B) another corporation that is controlled by the corporation employs more than 5 individuals in Canada full time and those individuals are not employed primarily in connection with

          • (I) an investment activity of the other corporation or another corporation with which the other corporation does not deal at arm’s length,

          • (II) a business carried on by the other corporation through a partnership of which the other corporation is not a majority interest partner, or

          • (III) a business carried on by another corporation with which the other corporation does not deal at arm’s length through a partnership of which that other corporation is not a majority interest partner,

        • (C) the total amount incurred by the corporation for the services (other than services relating to an investment activity of the corporation or another corporation with which the corporation does not deal at arm’s length) of employees and other individuals rendered in Canada in any calendar year that ends in any of the last 15 months that end before the particular time exceeds $250,000,

        • (D) the total amount incurred by another corporation that is controlled by the corporation for the services (other than services relating to an investment activity of the other corporation or another corporation with which the other corporation does not deal at arm’s length) of employees and other individuals rendered in Canada in any calendar year that ends in any of the last 15 months that end before the particular time exceeds $250,000, or

        • (E) in the calendar year that includes the particular time the corporation was continued from a jurisdiction outside Canada, or incorporated or otherwise formed and the total amount incurred in the year by the corporation for the services (other than services relating to an investment activity of the corporation or another corporation with which the corporation does not deal at arm’s length) of employees and other individuals rendered in Canada exceeds $250,000; or

    • (e) the particular time is after 1995 and, at the particular time, all or substantially all of the property of the corporation is not foreign property.

  • Marginal note:Partnerships

    (1.2) For the purposes of paragraphs 206(1.1)(a) to 206(1.1)(c) and this subsection,

    • (a) a member of a partnership

      • (i) is deemed not to own any interest in the partnership at any time, and

      • (ii) is deemed to own the member’s specified proportion for the partnership’s first fiscal period that ends at or after that time of each property that would, if the assumption in paragraph 96(1)(c) were made, be owned by the partnership at that time; and

    • (b) the carrying value at that time of that specified proportion of a partnership’s property is deemed to be that specified proportion of the carrying value at that time to the partnership of that property.

  • Marginal note:Interpretation

    (1.3) For the purpose of paragraph 206(1.1)(d),

    • (a) an employee of a corporation is deemed to be employed in Canada where the corporation’s permanent establishment (as defined by regulation) to which the employee principally reports is situated in Canada; and

    • (b) services are deemed to be rendered in Canada to a corporation where the permanent establishment (as defined by regulation) for which the services are rendered is situated in Canada.

  • Marginal note:Rights in respect of foreign property

    (1.4) For the purpose of determining whether a property owned by a taxpayer is foreign property at any time because of paragraph (f) or (h) of the definition foreign property in subsection 206(1), it shall be assumed that each other property not owned at that time by the taxpayer was acquired immediately before that time by the taxpayer.

  • Marginal note:Identical property

    (1.5) Notwithstanding paragraphs (d.1), (f) and (h) of the definition foreign property in subsection 206(1), a property shall not be considered to be foreign property at a particular time of a taxpayer because of any of those paragraphs where

    • (a) the property is

      • (i) a share or debt obligation issued by a Canadian corporation, or

      • (ii) an interest in, a right to, a property that is convertible into or a property that is exchangeable for, a share or debt obligation issued by a Canadian corporation; and

    • (b) the property, or the share or obligation referred to in subparagraph 206(1.5)(a)(ii), is identical to another property that is owned at the particular time by the taxpayer and that is not foreign property at the particular time of the taxpayer.

  • Marginal note:Tax payable

    (2) Where, at the end of any month,

    • (a) the amount, if any, by which

      • (i) the total of all amounts each of which is the cost amount of a foreign property to a taxpayer described in any of paragraphs 205(a) to 205(f)

      exceeds the total of

      • (ii) where the taxpayer is described in any of paragraphs 205(b), 205(c) and 205(e), all amounts each of which is the cost amount to the taxpayer of a foreign property that was not at the end of the month a qualified investment (within the meaning assigned by subsection 146(1) or 146.3(1) or section 204, as the case may be) of the taxpayer, and

      • (iii) all amounts (other than an amount included in respect of the taxpayer for the month under subparagraph 206(2)(a)(ii)) each of which is the cost amount to the taxpayer of foreign property that became foreign property of the taxpayer after its last acquisition by the taxpayer and at a time that is not more than 24 months before the end of the month,

    exceeds the total of

    • (b) 30% of the total of all amounts each of which is the cost amount of a property to the taxpayer, and

    • (c) in the case of a taxpayer described in paragraph 205(a), 205(b), 205(c) or 205(e), other than a taxpayer described in paragraph 149(1)(o.2), the lesser of

      • (i) three times the small business investment amount of the taxpayer for the month, and

      • (ii) 20% of the total of all amounts each of which is the cost amount of a property to the taxpayer,

    the taxpayer shall, in respect of that month, pay a tax under this Part equal to 1% of the lesser of the excess and the total of all amounts each of which is the cost amount to the taxpayer of each of its foreign properties that was acquired after June 18, 1971.

  • Marginal note:Registered investments

    (2.01) Notwithstanding subsection 206(2), the tax payable under this section by a registered investment in respect of a month is equal to the lesser of

    • (a) the tax that would, but for this subsection, be payable by the registered investment in respect of the month, and

    • (b) the greater of

      • (i) 20% of the amount determined under paragraph 206(2.01)(a), and

      • (ii) the amount determined by the formula

        $5,000 + (A × B/C)

        where

        A
        is equal to the amount determined under paragraph 206(2.01)(a),
        B
        is equal to
        • (A) where the registered investment is a trust, the total of all amounts each of which is the fair market value at the end of the month of an interest in the registered investment that is held at that time by a taxpayer described in any of paragraphs 205(a) to 205(f) or by a mutual fund corporation, investment corporation, mutual fund trust, prescribed trust or prescribed partnership, and

        • (B) where the registered investment is a corporation, the total of all amounts each of which is the fair market value at the end of the month of a share of the capital stock of the registered investment that is held at that time by a taxpayer described in any of paragraphs 205(a) to 205(f) or by a mutual fund corporation, investment corporation, mutual fund trust, prescribed trust or prescribed partnership, and

        C
        is equal to
        • (A) where the registered investment is a trust, the total of all amounts each of which is the fair market value at the end of the month of an interest in the registered investment that is held at that time, and

        • (B) where the registered investment is a corporation, the total of all amounts each of which is the fair market value at the end of the month of a share of the capital stock of the registered investment that is held at that time.

  • Marginal note:Exemption

    (2.1) Notwithstanding section 205, subsection 206(2) does not apply to a trust described in paragraph 149(1)(o.4) or a corporation described in paragraph 149(1)(o.2) in respect of any month that falls within a period for which the trustee or the corporation, as the case may be, elects in accordance with subsections 259(1) and 259(3).

  • (3) [Repealed, 1998, c. 19, s. 210(6)]

  • Marginal note:Acquisition of qualifying security

    (3.1) For the purpose of applying subparagraph (2)(a)(iii) at or after a particular time, where a qualifying security in relation to another security is acquired at the particular time by the taxpayer referred to in subsection (3.2) in respect of the security, and the security is foreign property at that time,

    • (a) the qualifying security is deemed to have been last acquired by the taxpayer at the time the other security was last acquired by the taxpayer;

    • (b) where the other security was not foreign property immediately before the particular time, the qualifying security is deemed to have become foreign property at the particular time; and

    • (c) where the other security was foreign property immediately before the particular time, the qualifying security is deemed to have become foreign property at the time the other security became foreign property.

  • Marginal note:Qualifying security

    (3.2) For the purpose of subsection (3.1), a qualifying security in relation to another security means

    • (a) a security issued at any time by a corporation to a taxpayer

      • (i) in exchange for another security acquired before that time by the taxpayer, and

      • (ii) in the course of

        • (A) a corporate merger or reorganization of capital,

        • (B) a transaction or series of transactions in which control of the corporation that issued the other security is acquired by a person or group of persons, or

        • (C) a transaction or series of transactions in which all or substantially all of the issued and outstanding shares (other than shares held immediately before the transaction or the beginning of the series by a particular person or related group) of the corporation that issued the other security are acquired by the particular person or related group; or

    • (b) a security acquired by a taxpayer from a corporation pursuant to a distribution with respect to another security that is an eligible distribution described in subsection 86.1(2).

  • Marginal note:Non-arm’s length transactions

    (4) For the purposes of this Part, where at any time a taxpayer acquires property, otherwise than pursuant to a transfer of property to which paragraph (f) or (g) of the definition disposition in subsection 248(1) applies, from a person with whom the taxpayer does not deal at arm’s length for no consideration or for consideration less than the fair market value of the property at that time, the taxpayer is deemed to acquire the property at that fair market value, and for those purposes, a particular trust is deemed not to deal at arm’s length with another trust if a person who is beneficially interested in the particular trust is at that time also beneficially interested in the other trust.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts. R.S., 1985, c. 1 (5th Supp.), s. 206;
  • 1994, c. 7, Sch. II, s. 166, Sch. VIII, s. 120, c. 21, s. 93;
  • 1998, c. 19, s. 210;
  • 2000, c. 14, s. 41, c. 19, s. 60;
  • 2001, c. 17, ss. 169, 247.
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