Income Tax Application Rules (R.S.C., 1985, c. 2 (5th Supp.))

Marginal note:Reference to this Act in amended Act

• 30 (3) In subsection 66(14) of the amended Act, any amount deductible under the Income Tax Application Rules in respect of that subsection means any amount deductible under section 29 of this Act.

Marginal note:Application of s. 67 of amended Act

31 In respect of any outlay or expense made or incurred by a taxpayer before 1972, section 67 of the amended Act shall be read without reference to the words “in respect of which any amount is”.

Marginal note:Application of para. 69(1)(a) of amended Act

• 32 (1) Paragraph 69(1)(a) of the amended Act does not apply to deem a taxpayer by whom anything was acquired at any time before 1972 to have acquired it at its fair market value at that time, unless, if subsection 17(1) of the former Act had continued to apply, that fair market value would have been deemed to have been paid or to be payable therefor for the purpose of computing the taxpayer’s income from a business.

• Marginal note:Application of para. 69(1)(b) of amended Act

  (2) Paragraph 69(1)(b) of the amended Act does not apply to deem a taxpayer by whom anything was disposed of at any time before the 1972 taxation year to have received proceeds of disposition therefor equal to its fair market value at that time.

• Marginal note:Application of para. 69(1)(c) of amended Act

  (3) For greater certainty, paragraph 69(1)(c) of the amended Act applies to property acquired by a taxpayer before, at or after the end of 1971.

Marginal note:Capital dividend account

• 32.1 (4) Where a dividend became payable, or was paid if that time was earlier, by a corporation in a taxation year at a particular time that was before May 7, 1974, for the purpose of computing the corporation’s capital dividend account immediately before the particular time, all amounts each of which is an amount in respect of a capital loss from the disposition of property in the taxation year and before the particular time shall be deemed to be nil.

Marginal note:Amalgamations

• 34 (1) Notwithstanding section 9, subsections 85I(1) and (2) of the former Act continue to apply with such modifications as, in the circumstances, are necessary because of this Act, in respect of any amalgamation of two or more corporations before 1972.

• Marginal note:Idem

  (4) In applying the provisions of subsection 29(25) to determine the amount that may be deducted by the successor or second successor corporation, as the case may be, in computing its income under Part I of the amended Act for a taxation year, where a predecessor corporation has paid an amount (other than a rental or royalty) to the government of Canada or a province for

  • (a) the right to explore for petroleum or natural gas on a specified parcel of land in Canada (which right is, for greater certainty, declared to include a right of the type commonly referred to as a “licence”, “permit” or “reservation”), or

  • (b) a legal lease of the right to take or remove petroleum or natural gas from a specified parcel of land in Canada,

  and before April 11, 1962 acquired the rights in respect of which the amount was so paid, if, before the predecessor corporation was entitled because of subsection 29(21) to any deduction in computing its income for a taxation year in respect of the amount so paid, the property of the predecessor corporation was acquired by the successor or second successor corporation, as the case may be, and at any time, before any well came into production in reasonable commercial quantities on the land referred to in paragraph (a) or (b), the successor or second successor corporation, as the case may be, surrendered all rights so acquired by the predecessor corporation (including, in respect of a right of the kind described in paragraph (a), all rights thereunder to any lease and all rights under any lease made thereunder) without receiving any consideration therefor or payment of any part of the amount so paid by the predecessor corporation, the amount so paid by the predecessor corporation shall be added at that time to the amount determined under subparagraph 29(25)(c)(i).

• Definition of amalgamation

  (7) In this section, amalgamation has the meaning assigned by section 85i of the former Act.

Marginal note:Foreign affiliates

• 35 (1) Section 26 does not apply in determining for the purposes of section 91 of the amended Act the amount of any taxable capital gain or allowable capital loss of a foreign affiliate of a taxpayer.

• Marginal note:Idem

  (2) Any corporation that was a foreign affiliate of a taxpayer on January 1, 1972 shall be deemed, for the purposes of subdivision i of Division B of Part I of the amended Act, to have become a foreign affiliate of the taxpayer on that day.

• Marginal note:Idem

  (4) Any corporation that was deemed to be a foreign affiliate of a taxpayer at any time prior to May 7, 1974 because of an election made by the taxpayer in accordance with subparagraph 95(1)(b)(iv) of the amended Act, as it read before being amended by chapter 26 of the Statutes of Canada 1974-75-76, shall be deemed to have been a foreign affiliate of the taxpayer at that time.

Marginal note:Application of paras. 107(2)(b) and (d) of amended Act

36 In computing the income of a taxpayer for the taxpayer’s 1972 or any subsequent taxation year, paragraphs 107(2)(b) to (d) of the amended Act do not apply in respect of any property of a trust distributed by the trust to the taxpayer at any time before the commencement of the taxpayer’s 1972 taxation year.

Marginal note:Payments out of pension funds, etc.

• 40 (1) In the case of

  • (a) a single payment

    • (i) out of or under a superannuation or pension fund or plan

      • (A) on the death, withdrawal or retirement from employment of an employee or former employee,

      • (B) on the winding-up of the fund or plan in full satisfaction of all rights of the payee in or under the fund or plan, or

      • (C) to which the payee is entitled because of an amendment to the plan although the payee continues to be an employee whom the plan applies,

    • (ii) on retirement of an employee in recognition of long service and not made out of or under a superannuation fund or plan,

    • (iii) under an employees profit sharing plan in full satisfaction of all rights of the payee in or under the plan, to the extent that the amount thereof would otherwise be included in computing the payee’s income for the year in which the payment was received, or

    • (iv) under a deferred profit sharing plan on the death, withdrawal or retirement from employment of an employee or former employee, to the extend that the amount thereof would otherwise be included in computing the payee’s income for the year in which the payment was received,

  • (b) a payment or payments made by an employer to an employee or former employee on or after retirement in respect of loss of office or employment, if made in the year of retirement or within one year after that year, or

  • (c) a payment or payments made as a death benefit, if made in the year of death or within one year after that year,

  the payment or payments made in a taxation year ending after 1971 and before 1974 may, at the option of the taxpayer by whom it is or they are received, be deemed not to be income of the taxpayer for the purpose of Part I of the amended Act, in which case the taxpayer shall pay, in addition to any other tax payable for the year, a tax on the payment or total of the payments equal to the proportion thereof that

  • (d) the total of the taxes otherwise payable by the employee under that Part for the 3 years immediately preceding the taxation year (before making any deduction under section 120, 121 or 126 or subsection 127(3) of the amended Act),

  is of

  • (e) the total of the employee’s incomes for those 3 years.

• Marginal note:Employee not resident in Canada

  (2) Where a taxpayer has elected that a payment or payments of one of the classes described in paragraphs (1)(a) to (c) in respect of an employee or former employee who was not resident in Canada throughout the whole of the 3 years referred to in paragraph (1)(e) shall be deemed not to be income of the taxpayer for the purpose of Part I of the amended Act, the tax payable under this section is that proportion of the amount on which the tax is payable that

  • (a) the total of the taxes that would have been payable by the employee under that Part for the 3 years referred to in paragraph (1)(e) (before making any deduction under section 120, 121 or 126 or subsection 127(3) of the amended Act) if the employee had been resident in Canada throughout those years and the employee’s incomes for those years had been from sources in Canada,

  is of

  • (b) the total of the employee’s incomes for those 3 years,

  and, in such a case, the election is not valid unless the taxpayer has filed with the election, a return of the employee’s incomes for each of the 3 years in the same form and containing the same information as the return that the employee, or the employee’s legal representative, would have been required to file under that Part if the employee had been resident in Canada in those years.

• Marginal note:Determination of amount of payment

  (3) In determining the amount of any payment or payments made in a taxation year out of or under a superannuation or pension fund or plan, under a deferred profit sharing plan or as a retiring allowance that is deemed, for the purposes of this section, not to be income of the taxpayer by whom it is or they are received, there shall be subtracted from the amount of the payment or payments so made

  • (a) the total of all amounts deductible under paragraph 60(j) of the amended Act in computing the taxpayer’s income for that year; and

  • (b) any amount deductible under paragraph 60(m) of the amended Act because of that payment or those payments in computing the taxpayer’s income for that year.

• Marginal note:Idem

  (4) In determining the amount of any payment or payments made in a taxation year as a death benefit that is deemed, for the purpose of this section, not to be income of the taxpayer by whom it is or they are received, there shall be subtracted from the amount of the payment or payments so made any amount deductible under paragraph 60(m) of the amended Act because of that payment or those payments in computing the taxpayer’s income for that year.

• Marginal note:Maximum amount for election

  (5) For the purpose of determining the amount of any payment or payments of one or more of the classes described in subsection (1) made in a taxation year that may be deemed, for the purposes of this section, not to be income of the taxpayer by whom it is or they are received, the maximum amount in respect of which an election may be made by the taxpayer under subsection (1) for the taxation year in respect of the payment or payments is,

  • (a) in the case of a payment or payments of a class described in subsection (1) made to the taxpayer on the death of an employee or former employee in respect of whom the payment or payments are made, the amount of the payment or the total amount of the payments, as the case may be, minus any amount subtracted therefrom under subsection (3) or (4);

  • (b) in the case of one or more single payments of a class described in subparagraph (1)(a)(i), (iii) or (iv), other than a payment described in paragraph (a) of this subsection, the lesser of

    • (i) the amount of the payment or the total amount of the payments, as the case may be, minus any amount subtracted therefrom under subsection (3), and

    • (ii) the amount by which

      • (A) the product obtained by multiplying $1,500 by the number of consecutive 12 month periods included in the period throughout which the taxpayer was a member of any plan or plans described in subparagraph (1)(a)(i), (iii) or (iv) (in this subsection referred to as a “retirement plan”),

        • (I) out of or under which a payment was made to the taxpayer in the taxation year or a preceding taxation year ending after April 26, 1965, and

        • (II) to which an employer of the taxpayer has made a contribution on behalf of the taxpayer,

      exceeds

      • (B) the total of all amounts each of which is an amount that, because of a payment to the taxpayer after April 26, 1965,

        • (I) out of or under a retirement plan to which the employer referred to in subclause (A)(II) made a contribution on behalf of the taxpayer, or

        • (II) by the employer referred to in subclause (A)(II),

        was deemed not to be income of the taxpayer for the purpose of Part I of the amended Act for a preceding taxation year because of an election made by the taxpayer under subsection (1); and

  • (c) in the case of a payment or payments of the class described in subparagraph (1)(a)(ii) or paragraph (1)(b), other than a payment described in paragraph (a) or (b) of this subsection, the lesser of

    • (i) the amount of the payment or the total amount of the payments, as the case may be, minus any amount subtracted therefrom pursuant to subsection (3), and

    • (ii) the amount by which

      • (A) the product obtained by multiplying $1,000 by the number of years during which the taxpayer was an employee of the employer who made the payment

      exceeds

      • (B) the total of

        • (I) the total of all amounts each of which is an amount that, because of a payment to the taxpayer after April 26, 1965 by an employer referred to in clause (A) or a payment to the taxpayer after that date out of or under a retirement plan to which such an employer made a contribution on behalf of the taxpayer, was deemed not to be income of the taxpayer for the purpose of Part I of the amended Act for a preceding taxation year by reason of an election made by the taxpayer under subsection (1), and

        • (II) the total of all amounts each of which is an amount that, because of a payment to the taxpayer after April 26, 1965 out of or under a retirement plan to which an employer referred to in clause (A) made a contribution on behalf of the taxpayer, may be deemed, by subsection (1), not to be income of the taxpayer for the purpose of that Part for the taxation year.

• Marginal note:Idem

  (6) For the purpose of subsection (5),

  • (a) where all or substantially all of the property used in carrying on the business of a person who was an employer of an employee (in this subsection referred to as the “former employer”)

    • (i) has been purchased by a person who, because of the purchase, or

    • (ii) has been acquired by bequest or inheritance, or because of an amalgamation (within the meaning assigned by section 85i of the former Act), by a person who, because of the acquisition,

    became an employer of the employee, and who subsequently made a payment of a class described in paragraph (5)(c) in respect of the employee or former employee, the employee or former employee shall be deemed to have been an employee of that employer throughout the period he or she was an employee of the former employer; and

  • (b) a taxpayer may, in computing the number of years during which the taxpayer was a member of a superannuation or pension fund or plan (in this subsection referred to as the “subsequent plan”), include the number of years during which the taxpayer was a member of another plan (in this subsection referred to as the “former plan”) if the taxpayer had received an amount out of or under the former plan all or part of which amount was deductible under paragraph 60(j) of the amended Act in computing the taxpayer’s income for the taxation year in which the amount was received, because of the fact that all or part of the amount, as the case may be, was paid by the taxpayer to or under the subsequent plan as described in clause 60(j)(i)(A) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as it read in its application to the 1978 and preceding taxation years.

• Marginal note:Limitation

  (7) This section applies in respect of any payment or payments described in subparagraph (1)(a)(i) or (iv) made in a taxation year ending after 1973, except that the amount of the payment or the total amount of the payments, as the case may be, shall be deemed to be the lesser of the amount thereof otherwise determined and the total of the amounts that the taxpayer would have received out of or under the plan described in subparagraph (1)(a)(i) or (iv), as the case may be, if

  • (a) the taxpayer had withdrawn from the plan on January 1, 1972;

  • (b) there had been no change in the terms and conditions of the plan after June 18, 1971 and before January 2, 1972; and

  • (c) any term or condition of the plan that would, in the event that the taxpayer had withdrawn from the plan on January 1, 1972, have reduced the amount of any payment or payments that would, if the taxpayer remained a member of the plan for a specified period of time after December 31, 1971, have been made to the taxpayer in respect of years ending before 1972 were not a term or condition of the plan.

• Marginal note:Application rule

  (8) For the purposes of paragraphs (1)(d) and (2)(a), there may be deducted from the total referred to in those paragraphs 9% of the portion of that total that is attributable to the 1974, 1975 or 1976 taxation year.