Income Tax Act

Version of section 44.1 from 2013-06-26 to 2017-09-27:

Marginal note:Definitions
  •  (1) The definitions in this subsection apply in this section.

    ACB reduction

    réduction du prix de base rajusté

    ACB reduction of an individual in respect of a replacement share of the individual in respect of a qualifying disposition of the individual means the amount determined by the formula

    D × (E/F)

    where

    D
    is the permitted deferral of the individual in respect of the qualifying disposition;
    E
    is the cost to the individual of the replacement share; and
    F
    is the cost to the individual of all the replacement shares of the individual in respect of the qualifying disposition.

    active business corporation

    société exploitant activement une entreprise

    active business corporation at any time means, subject to subsection (10), a corporation that is, at that time, a taxable Canadian corporation all or substantially all of the fair market value of the assets of which at that time is attributable to assets of the corporation that are

    • (a) assets used principally in an active business carried on by the corporation or by an active business corporation that is related to the corporation;

    • (b) shares issued by or debt owing by other active business corporations that are related to the corporation; or

    • (c) a combination of assets described in paragraphs (a) and (b). (société exploitant activement une entreprise)

    carrying value

    valeur comptable

    carrying value of the assets of a corporation at any time means the amount at which the assets of the corporation would be valued for the purpose of the corporation’s balance sheet as of that time if that balance sheet were prepared in accordance with generally accepted accounting principles used in Canada at that time, except that an asset of a corporation that is a share or debt issued by a related corporation is deemed to have a carrying value of nil. (valeur comptable)

    common share

    action ordinaire

    common share means a share prescribed for the purpose of paragraph 110(1)(d). (action ordinaire)

    eligible pooling arrangement

    arrangement admissible de mis en commun

    eligible pooling arrangement in respect of an individual means an agreement in writing made between the individual and another person or partnership (which other person or partnership is referred to in this definition and subsection (3) as the “investment manager”) where the agreement provides for

    • (a) the transfer of funds or other property by the individual to the investment manager for the purpose of making investments on behalf of the individual;

    • (b) the purchase of eligible small business corporation shares with those funds, or the proceeds of a disposition of the other property, within 60 days after receipt of those funds or the other property by the investment manager; and

    • (c) the provision of a statement of account to the individual by the investment manager at the end of each month that ends after the transfer disclosing the details of the investment portfolio held by the investment manager on behalf of the individual at the end of that month and the details of the transactions made by the investment manager on behalf of the individual during the month. (arrangement admissible de mis en commun)

    eligible small business corporation

    société admissible exploitant une petite entreprise

    eligible small business corporation at any time means, subject to subsection (10), a corporation that, at that time, is a Canadian-controlled private corporation all or substantially all of the fair market value of the assets of which at that time is attributable to assets of the corporation that are

    • (a) assets used principally in an active business carried on primarily in Canada by the corporation or by an eligible small business corporation that is related to the corporation;

    • (b) shares issued by or debt owing by other eligible small business corporations that are related to the corporation; or

    • (c) a combination of assets described in paragraphs (a) and (b). (société admissible exploitant une petite entreprise)

    eligible small business corporation share

    action déterminée de petite entreprise

    eligible small business corporation share of an individual means a common share issued by a corporation to the individual if

    • (a) at the time the share was issued, the corporation was an eligible small business corporation; and

    • (b) immediately before and after the share was issued, the total carrying value of the assets of the corporation and corporations related to it did not exceed $50,000,000. (action déterminée de petite entreprise)

    permitted deferral

    montant de report autorisé

    permitted deferral of an individual in respect of a qualifying disposition of the individual means the amount determined by the formula

    (G/H) × I

    where

    G
    is the lesser of the individual’s proceeds of disposition from the qualifying disposition and the total of all amounts each of which is the cost to the individual of a replacement share in respect of the qualifying disposition;
    H
    is the individual’s proceeds of disposition from the qualifying disposition; and
    I
    is the individual’s capital gain from the qualifying disposition.
    qualifying cost

    qualifying cost[Repealed, 2003, c. 15, s. 70(1)]

    qualifying disposition

    disposition admissible

    qualifying disposition of an individual (other than a trust) means, subject to subsection (9), a disposition of shares of the capital stock of a corporation where each such share disposed of was

    • (a) an eligible small business corporation share of the individual;

    • (b) throughout the period during which the individual owned the share, a common share of an active business corporation; and

    • (c) throughout the 185-day period that ended immediately before the disposition of the share, owned by the individual. (disposition admissible)

    qualifying portion of a capital gain

    qualifying portion of a capital gain[Repealed, 2003, c. 15, s. 70(1)]

    qualifying portion of the proceeds of disposition

    qualifying portion of the proceeds of disposition[Repealed, 2003, c. 15, s. 70(1)]

    replacement share

    action remplacement

    replacement share of an individual in respect of a qualifying disposition of the individual in a taxation year means an eligible small business corporation share of the individual that is

    • (a) acquired by the individual in the year or within 120 days after the end of the year; and

    • (b) designated by the individual in the individual’s return of income for the year to be a replacement share in respect of the qualifying disposition. (action remplacement)

  • Marginal note:Capital gain deferral

    (2) Where an individual has made a qualifying disposition in a taxation year,

    • (a) the individual’s capital gain for the year from the qualifying disposition is deemed to be the amount by which the individual’s capital gain for the year from the qualifying disposition, determined without reference to this section, exceeds the individual’s permitted deferral in respect of the qualifying disposition;

    • (b) in computing the adjusted cost base to the individual of a replacement share of the individual in respect of the qualifying disposition at any time after its acquisition, there shall be deducted the amount of the ACB reduction of the individual in respect of the replacement share; and

    • (c) where the qualifying disposition was a disposition of a share that was taxable Canadian property of the individual, the replacement share of the individual in respect of the qualifying disposition is deemed to be, at any time that is within 60 months after the disposition, taxable Canadian property of the individual.

  • Marginal note:Special rule — re eligible pooling arrangements

    (3) Except for the purpose of the definition eligible pooling arrangement in subsection (1), any transaction entered into by an investment manager under an eligible pooling arrangement on behalf of an individual is deemed to be a transaction of the individual and not a transaction of the investment manager.

  • Marginal note:Special rule — re acquisitions on death

    (4) For the purpose of this section, a share of the capital stock of a corporation, acquired by an individual as a consequence of the death of a person who is the individual’s spouse, common-law partner or parent, is deemed to be a share that was acquired by the individual at the time it was acquired by that person and owned by the individual throughout the period that it was owned by that person, if

    • (a) where the person was the spouse or common-law partner of the individual, the share was an eligible small business share of the person and subsection 70(6) applied to the individual in respect of the share; or

    • (b) where the person was the individual’s parent, the share was an eligible small business share of the parent and subsection 70(9.2) applied to the individual in respect of the share.

  • Marginal note:Special rule — re breakdown of relationships

    (5) For the purpose of this section, a share of the capital stock of a corporation, acquired by an individual from a person who was the individual’s former spouse or common-law partner as a consequence of the settlement of rights arising out of their marriage or common-law partnership, is deemed to be a share that was acquired by the individual at the time it was acquired by that person and owned by the individual throughout the period that it was owned by that person if the share was an eligible small business share of the person and subsection 73(1) applied to the individual in respect of the share.

  • Marginal note:Special rule — re eligible small business corporation share exchanges

    (6) For the purpose of this section, where an individual receives shares of the capital stock of a particular corporation that are eligible small business corporation shares of the individual (in this subsection referred to as the “new shares”) as the sole consideration for the disposition by the individual of shares issued by the particular corporation or by another corporation that were eligible small business corporation shares of the individual (in this subsection referred to as the “exchanged shares”), the new shares are deemed to have been owned by the individual throughout the period that the exchanged shares were owned by the individual if

    • (a) section 51, paragraph 85(1)(h), subsection 85.1(1), section 86 or subsection 87(4) applied to the individual in respect of the new shares; and

    • (b) the individual’s total proceeds of disposition of the exchanged shares was equal to the total of all amounts each of which was the individual’s adjusted cost base of an exchanged share immediately before the disposition.

  • Marginal note:Special rule — re active business corporation share exchanges

    (7) For the purpose of this section, where an individual receives common shares of the capital stock of a particular corporation (in this subsection referred to as the “new shares”) as the sole consideration for the disposition by the individual of common shares of the particular corporation or of another corporation (in this subsection referred to as the “exchanged shares”), the new shares are deemed to be eligible small business corporation shares of the individual and shares of the capital stock of an active business corporation that were owned by the individual throughout the period that the exchanged shares were owned by the individual, if

    • (a) section 51, paragraph 85(1)(h), subsection 85.1(1), section 86 or subsection 87(4) applied to the individual in respect of the new shares;

    • (b) the total of the individual’s proceeds of disposition in respect of the disposition of the exchanged shares was equal to the total of the individual’s adjusted cost bases immediately before the disposition of such shares; and

    • (c) the disposition of the exchanged shares was a qualifying disposition of the individual.

  • Marginal note:Special rule — re carrying on an active business

    (8) For the purpose of the definitions in subsection (1), a property held at any particular time by a corporation that would, if this Act were read without reference to this subsection, be considered to carry on an active business at that time, is deemed to be used or held by the corporation in the course of carrying on that active business if the property (or other property for which the property is substituted property) was acquired by the corporation, at any time in the 36-month period ending at the particular time, because the corporation

    • (a) issued a debt or a share of a class of its capital stock in order to acquire money for the purpose of acquiring property to be used in or held in the course of, or making expenditures for the purpose of, earning income from an active business carried on by it;

    • (b) disposed of property used or held by it in the course of carrying on an active business in order to acquire money for the purpose of acquiring property to be used in or held in the course of, or making expenditures for the purpose of, earning income from an active business carried on by it; or

    • (c) accumulated income derived from an active business carried on by it in order to acquire property to be used in or held in the course of, or to make expenditures for the purpose of, earning income from an active business carried on by it.

  • Marginal note:Special rule — re qualifying disposition

    (9) A disposition of a common share of an active business corporation (in this subsection referred to as the “subject share”) by an individual that, but for this subsection, would be a qualifying disposition of the individual is deemed not to be a qualifying disposition of the individual unless the active business of the corporation referred to in paragraph (a) of the definition active business corporation in subsection (1) was carried on primarily in Canada

    • (a) at all times in the period that began at the time the individual last acquired the subject share and ended at the time of disposition, if that period is less than 730 days; or

    • (b) in any other case, for at least 730 days in the period referred to in paragraph (a).

  • Marginal note:Special rule — re exceptions

    (10) For the purpose of this section, an eligible small business corporation and an active business corporation at any time do not include a corporation that is, at that time,

    • (a) a professional corporation;

    • (b) a specified financial institution;

    • (c) a corporation the principal business of which is the leasing, rental, development or sale, or any combination of those activities, of real or immovable property owned by it; or

    • (d) a corporation more than 50% of the fair market value of the property of which (net of debts incurred to acquire the property) is attributable to real or immovable property.

  • Marginal note:Determination rule

    (11) In determining whether a share owned by an individual is an eligible small business corporation share of the individual, this Act shall be read without reference to section 48.1.

  • Marginal note:Anti-avoidance rule

    (12) The permitted deferral of an individual in respect of a qualifying disposition of shares issued by a corporation (in this subsection referred to as “new shares”) is deemed to be nil where

    • (a) the new shares (or shares for which the new shares are substituted property) were issued to the individual or a person related to the individual as part of a series of transactions or events in which

      • (i) shares of the capital stock of a corporation (in this subsection referred to as the “old shares”) were disposed of by the individual or a person related to the individual, or

      • (ii) the paid-up capital of old shares or the adjusted cost base to the individual or to a person related to the individual of the old shares was reduced;

    • (b) the new shares (or shares for which the new shares are substituted property) were

      • (i) issued by the corporation that issued the old shares,

      • (ii) issued by a corporation that, at or immediately after the time of issue of the new shares, was a corporation that was not dealing at arm’s length with

        • (A) the corporation that issued the old shares, or

        • (B) the individual, or

      • (iii) issued, by a corporation that acquired the old shares (or by another corporation related to that corporation), as part of the transaction or event or series of transactions or events that included that acquisition of the old shares; and

    • (c) it is reasonable to conclude that one of the main reasons for the series of transactions or events or a transaction in the series was to permit the individual, persons related to the individual, or the individual and persons related to the individual to become eligible to deduct under subsection (2) permitted deferrals in respect of qualifying dispositions of new shares (or shares substituted for the new shares) the total of which would exceed the total that those persons would have been eligible to deduct under subsection (2) in respect of permitted deferrals in respect of qualifying dispositions of old shares.

  • Marginal note:Order of disposition of shares

    (13) For the purpose of this section, an individual is deemed to dispose of shares that are identical properties in the order in which the individual acquired them.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts. 2001, c. 17, s. 29;
  • 2003, c. 15, s. 70;
  • 2010, c. 12, s. 2;
  • 2013, c. 34, ss. 105, 187.
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