Economic Action Plan 2014 Act, No. 2 (S.C. 2014, c. 39)
Full Document:
Assented to 2014-12-16
6. (1) The portion of subsection 18(5) of the Act before the first definition is replaced by the following:
Marginal note:Definitions
(5) Notwithstanding any other provision of this Act (other than subsection (5.1)), in this subsection and subsections (4) and (5.1) to (6.1),
(2) Paragraph (b) of the definition “outstanding debts to specified non-residents” in subsection 18(5) of the Act is replaced by the following:
(b) an amount outstanding at the particular time as or on account of a debt or other obligation
(i) to pay an amount to
(A) a non-resident insurance corporation to the extent that the obligation was, for the non-resident insurance corporation’s taxation year that included the particular time, designated insurance property in respect of an insurance business carried on in Canada through a permanent establishment as defined by regulation, or
(B) an authorized foreign bank, if the bank uses or holds the obligation at the particular time in its Canadian banking business, or
(ii) that is a debt obligation described in subparagraph (ii) of the description of A in paragraph 17.1(1)(b) to the extent that the proceeds of the debt obligation can reasonably be considered to directly or indirectly fund at the particular time, in whole or in part, a pertinent loan or indebtedness (as defined in subsection 212.3(11)) owing to the corporation or another corporation resident in Canada that does not, at the particular time, deal at arm’s length with the corporation;
(3) Subsection 18(5) of the Act is amended by adding the following in alphabetical order:
“security interest”
« garantie »
“security interest”, in respect of a property, means an interest in, or for civil law a right in, the property that secures payment of an obligation;
“specified right”
« droit déterminé »
“specified right”, at any time in respect of a property, means a right to, at that time, mortgage, hypothecate, assign, pledge or in any way encumber the property to secure payment of an obligation — other than the particular debt or other obligation described in paragraph (6)(a) or a debt or other obligation described in subparagraph (6)(d)(ii) — or to use, invest, sell or otherwise dispose of, or in any way alienate, the property unless it is established by the taxpayer that all of the proceeds (net of costs, if any) received, or that would be received, from exercising the right must first be applied to reduce an amount described in subparagraph (6)(d)(i) or (ii);
(4) Subsection 18(6) of the Act is replaced by the following:
Marginal note:Back-to-back loan arrangement
(6) Subsection (6.1) applies at any time in respect of a taxpayer if at that time
(a) the taxpayer has a particular amount outstanding as or on account of a particular debt or other obligation to pay an amount to a person (in this subsection and subsection (6.1) referred to as the “intermediary”);
(b) the intermediary is neither
(i) a person resident in Canada with whom the taxpayer does not deal at arm’s length, nor
(ii) a person that is, in respect of the taxpayer, described in subparagraph (a)(i) of the definition “outstanding debts to specified non-residents” in subsection (5);
(c) the intermediary or a person that does not deal at arm’s length with the intermediary
(i) has an amount outstanding as or on account of a debt or other obligation to pay an amount to a particular non-resident person that is, in respect of the taxpayer, described in subparagraph (a)(i) of the definition “outstanding debts to specified non-residents” in subsection (5) that meets any of the following conditions (in this subsection and subsection (6.1) referred to as the “intermediary debt”):
(A) recourse in respect of the debt or other obligation is limited in whole or in part, either immediately or in the future and either absolutely or contingently, to the particular debt or other obligation, or
(B) it can reasonably be concluded that all or a portion of the particular amount became owing, or was permitted to remain owing, because
(I) all or a portion of the debt or other obligation was entered into or was permitted to remain outstanding, or
(II) the intermediary anticipated that all or a portion of the debt or other obligation would become owing or remain outstanding, or
(ii) has a specified right in respect of a particular property that was granted directly or indirectly by a person that is, in respect of the taxpayer, a particular non-resident person described in subparagraph (a)(i) of the definition “outstanding debts to specified non-residents” in subsection (5) and
(A) the existence of the specified right is required under the terms and conditions of the particular debt or other obligation, or
(B) it can reasonably be concluded that all or a portion of the particular amount became owing, or was permitted to remain owing, because
(I) the specified right was granted, or
(II) the intermediary anticipated that the specified right would be granted; and
(d) the total of all amounts — each of which is, in respect of the particular debt or other obligation, an amount outstanding as or on account of an intermediary debt or the fair market value of a particular property described in subparagraph (c)(ii) — is equal to at least 25% of the total of
(i) the particular amount, and
(ii) the total of all amounts each of which is an amount (other than the particular amount) that the taxpayer, or a person that does not deal at arm’s length with the taxpayer, has outstanding as or on account of a debt or other obligation to pay an amount to the intermediary under the agreement, or an agreement that is connected to the agreement, under which the particular debt or other obligation was entered into if
(A) the intermediary is granted a security interest in respect of a property that is the intermediary debt or the particular property, as the case may be, and the security interest secures the payment of two or more debts or other obligations that include the debt or other obligation and the particular debt or other obligation, and
(B) each security interest that secures the payment of a debt or other obligation referred to in clause (A) secures the payment of every debt or other obligation referred to in that clause.
Marginal note:Back-to-back loan arrangement
(6.1) If this subsection applies at any time in respect of a taxpayer,
(a) then for the purpose of applying subsections (4) and (5),
(i) the portion of the particular amount, at that time, referred to in paragraph (6)(a) that is equal to the lesser of the following amounts is deemed to be an amount outstanding as or on account of a debt or other obligation to pay an amount to the particular non-resident person referred to in subparagraph (6)(c)(i) or (ii), as the case may be, and not to the intermediary:
(A) the amount outstanding as or on account of the intermediary debt or the fair market value of the particular property referred to in subparagraph (6)(c)(ii), as the case may be, and
(B) the proportion of the particular amount that the amount outstanding or the fair market value, as the case may be, is of the total of all amounts each of which is
(I) an amount outstanding as or on account of an intermediary debt in respect of the particular debt or other obligation, owed to the particular non-resident or any other non-resident person that is, in respect of the taxpayer, described in the definition “outstanding debts to specified non-residents” in subsection (5), or
(II) the fair market value of a particular property referred to in subparagraph (6)(c)(ii) in respect of the particular debt or other obligation, and
(ii) the portion of the interest paid or payable by the taxpayer, in respect of a period throughout which subparagraph (a)(i) applies, on the particular debt or other obligation referred to in paragraph (6)(a) that is equal to the amount determined by the following formula is deemed to be paid or payable by the taxpayer to the particular non-resident, and not to the intermediary, as interest for the period on the amount deemed by subparagraph (a)(i) to be outstanding to the particular non-resident:
A × B/C
where
- A
- is the interest paid or payable,
- B
- is the average of all amounts each of which is an amount that is deemed by subparagraph (a)(i) to be outstanding to the particular non-resident at a time during the period, and
- C
- is the average of all amounts each of which is the particular amount outstanding at a time during the period; and
(b) for the purposes of Part XIII and subject to subsections 214(16) and (17), interest deemed under subparagraph (a)(ii) to be paid or payable to the particular non-resident in respect of a period is, to the extent that the interest is not deductible in computing the income of the taxpayer for the year because of subsection 18(4), deemed to be paid or payable by the taxpayer to the particular non-resident, and not to the intermediary, in respect of the period.
(5) The portion of subsection 18(7) of the Act before paragraph (a) is replaced by the following:
Marginal note:Partnership debts and property
(7) For the purposes of this subsection, paragraph (4)(a), subsections (5) to (6.1) and paragraph 12(1)(l.1), each member of a partnership at any time is deemed at that time
(6) Subsections (1) and (3) to (5) apply to taxation years that begin after 2014.
(7) Subsection (2) applies to taxation years that end after March 28, 2012, except that, if an election is made by a taxpayer under subsection 49(3) of the Jobs and Growth Act, 2012, subsection (2) does not apply to taxation years of the taxpayer that end before August 14, 2012.
7. (1) Paragraph 28(1)(g) of the Act is replaced by the following:
(g) the total of all amounts each of which is an amount deducted for the year under paragraph 20(1)(a), (b) or (uu), subsection 20(16) or 24(1), section 30 or subsection 80.3(2), (4) or (4.1) in respect of the business,
(2) Subsection (1) applies to the 2014 and subsequent taxation years.
8. (1) Paragraph 34.1(1)(a) of the Act is replaced by the following:
(a) an individual (other than a graduated rate estate) carries on a business in a taxation year,
(2) Paragraph 34.1(2)(a) of the Act is replaced by the following:
(a) an individual (other than a graduated rate estate) begins carrying on a business in a taxation year and not earlier than the beginning of the first fiscal period of the business that begins in the year and ends after the end of the year (in this subsection referred to as the “particular period”), and
(3) Subsections (1) and (2) apply to the 2016 and subsequent taxation years.
- Date modified: