Income Tax Act
Marginal note:Deferred recognition of debtor’s gain on settlement of debt
(2) Where at any time in a taxation year a person (in this subsection referred to as the “transferor”) surrenders a particular capital property (other than a distress preferred share) that is a share, a capital interest in a trust or an interest in a partnership, the person shall be deemed to have a capital gain from the disposition at that time of another capital property (or, where the particular property is a taxable Canadian property, another taxable Canadian property) equal to the amount, if any, by which
(a) the total of all amounts deducted under paragraph 53(2)(g.1) in computing the adjusted cost base to the transferor of the particular property immediately before that time
exceeds the total of
(b) the amount that would be the transferor’s capital gain for the year from the disposition of the particular property if this Act were read without reference to subsection 100(2), and
(c) where, at the end of the year, the transferor is resident in Canada or is a non-resident person who carries on business in Canada through a fixed place of business, the amount designated under subsection (7) by the transferor in respect of the disposition, at that time or immediately after that time, of the particular property.
Marginal note:Surrender of capital property
(3) For the purpose of subsection (2), a person shall be considered to have surrendered a property at any time only where
(a) in the case of a share of the capital stock of a particular corporation,
(i) the person is a corporation that disposed of the share at that time and the proceeds of disposition of the share are determined under paragraph 88(1)(b), or
(ii) the person is a corporation that owned the share at that time and, immediately after that time, amalgamates or merges with the particular corporation;
(b) in the case of a capital interest in a trust, the person disposed of the interest at that time and the proceeds of disposition are determined under paragraph 107(2)(c); and
(c) in the case of an interest in a partnership, the person disposed of the interest at that time and the proceeds of disposition are determined under paragraph 98(3)(a) or (5)(a).
(4) to (6) [Repealed, 1998, c. 19, s. 112]
Marginal note:Alternative treatment
(7) Where at any time in a taxation year a person disposes of a property, for the purposes of subsection (2) and section 80
(a) the person may designate an amount in a prescribed form filed with the person’s return of income under this Part for the year; and
(b) where an amount is designated by the person under paragraph (a) in respect of the disposition,
(i) the person shall be deemed to have issued a commercial debt obligation at that time that is settled immediately after that time,
(ii) the lesser of the amount so designated and the amount that would, but for this subsection, be a capital gain determined in respect of the disposition because of subsection (2) shall be treated as if it were the forgiven amount at the time of the settlement in respect of the obligation referred to in subparagraph (i),
(iii) the source in connection with which the obligation referred to in subparagraph (i) was issued shall be deemed to be the business, if any, carried on by the person at the end of the year, and
(iv) where the person does not carry on a business at the end of the year, the person shall be deemed to carry on an active business at the end of the year and the source in connection with which the obligation referred to in subparagraph (i) was issued shall be deemed to be the business deemed by this subparagraph to be carried on.
Marginal note:Lifetime capital gains exemption
(8) If, as a consequence of the disposition at any time by an individual of a property that is a qualified farm or fishing property of the individual or a qualified small business corporation share of the individual (as defined in subsection 110.6(1)), the individual is deemed by subsection (2) to have a capital gain at that time from the disposition of another property, for the purposes of sections 3, 74.3 and 111, as they apply for the purposes of section 110.6, the other property is deemed to be a qualified farm or fishing property of the individual or a qualified small business corporation share of the individual, as the case may be.
- NOTE: Application provisions are not included in the consolidated text;
- see relevant amending Acts. 1995, c. 21, s. 27;
- 1998, c. 19, s. 112;
- 2014, c. 39, s. 15.
- Date modified: