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

Act current to 2015-03-31 and last amended on 2015-01-02. Previous Versions

Marginal note:Application
  •  (1) This section applies where

    • (a) a taxpayer disposes at a particular time of a share of the capital stock of a corporation resident in Canada (or any property more than 10% of the fair market value of which can be attributed to shares of the capital stock of corporations resident in Canada) to

      • (i) a person resident in Canada,

      • (ii) a partnership in which any person resident in Canada has, directly or indirectly, an interest, or

      • (iii) a person or partnership that acquires the share or the property in the course of carrying on a business through a permanent establishment in Canada, as defined in the Income Tax Regulations;

    • (b) subsection 212.1(1) does not apply to the disposition;

    • (c) the taxpayer is non-resident at the particular time;

    • (d) it is reasonable to conclude that the disposition is part of an expected series of transactions or events that includes the issue after December 15, 1998 of a particular share of the capital stock of a particular insurance corporation resident in Canada on the demutualization (within the meaning assigned by subsection 139.1(1)) of the particular corporation and

      • (i) after the particular time, the redemption, acquisition or cancellation of the particular share, or a share substituted for the particular share, by the particular corporation or the issuer of the substituted share, as the case may be,

      • (ii) after the particular time, an increase in the level of dividends declared or paid on the particular share or a share substituted for the particular share, or

      • (iii) the acquisition, at or after the particular time, of the particular share or a share substituted for the particular share by

        • (A) a person not dealing at arm’s length with the particular corporation or with the issuer of the substituted share, as the case may be, or

        • (B) a partnership any direct or indirect interest in which is held by a person not dealing at arm’s length with the particular corporation or with the issuer of the substituted share, as the case may be; and

    • (e) at the particular time, the person described in subparagraph (a)(i) or (iii) or any person who has, directly or indirectly, an interest in the partnership described in subparagraph (a)(ii) or (iii) knew, or ought reasonably to have known, of the expected series of transactions or events described in paragraph (d).

  • Marginal note:Deemed dividend

    (2) For the purposes of this Part, where property is disposed of at any time by a taxpayer to a person or partnership in circumstances in which this section applies,

    • (a) a taxable dividend is deemed to be paid at that time by the person or partnership to the taxpayer and received at the time by the taxpayer;

    • (b) the amount of the dividend is deemed to be equal to the amount determined by the formula

      A - ((A/B) × C)

      where

      A 
      is the portion of the proceeds of disposition of the property that can reasonably be attributed to the fair market value of shares of a class of the capital stock of a corporation resident in Canada,
      B 
      is the fair market value immediately before that time of shares of that class, and
      C 
      is the paid-up capital immediately before that time of that class of shares; and
    • (c) in respect of the dividend, the person or partnership is deemed to be a corporation resident in Canada.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts. 2000, c. 19, s. 64.