Income Tax Regulations (C.R.C., c. 945)

Regulations are current to 2017-09-27 and last amended on 2017-07-01. Previous Versions

PART XCIIFinancial Institutions — Disposition of Specified Debt Obligations

Interpretation

Marginal note:Definitions
  •  (1) The following definitions apply in this Part.

    gain

    gain, of a taxpayer from the disposition of a specified debt obligation, means the gain from the disposition determined under paragraph 142.4(6)(a) of the Act. (gain)

    loss

    loss, of a taxpayer from the disposition of a specified debt obligation, means the loss from the disposition determined under paragraph 142.4(6)(b) of the Act. (perte)

    residual portion

    residual portion, of a taxpayer’s gain or loss from the disposition of a specified debt obligation, means the amount determined under subsection 142.4(8) of the Act in respect of the disposition. (partie résiduelle)

  • Marginal note:Amortization date

    (2) For the purposes of this Part, the amortization date for a specified debt obligation disposed of by a taxpayer is the day determined as follows:

    • (a) subject to paragraphs (b) to (d), the amortization date is the later of the day of disposition and the day on which the debtor is required to make the final payment under the obligation, determined without regard to any option respecting the timing of payments under the obligation (other than an option that was exercised before the disposition);

    • (b) subject to paragraphs (c) and (d), the amortization date is the day of disposition if the day on which the debtor is required to make the final payment under the obligation is not determinable for the purpose of paragraph (a);

    • (c) subject to paragraph (d), the amortization date is the first day, if any, after the disposition on which the interest rate could change, if the obligation is one in respect of which the following conditions are satisfied:

      • (i) the obligation provides for stipulated interest payments,

      • (ii) the rate of interest for one or more periods after the issuance of the obligation was not fixed on the day of issue, and

      • (iii) when the obligation was issued, it was reasonable to expect that the interest rate for each period would equal or approximate a reasonable market rate of interest for that period; and

    • (d) if, for purposes of its financial statements, the taxpayer had a gain or loss from the disposition that is being amortized to profit, the amortization date is the last day of the amortization period.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending regulations. SOR/2009-222, s. 7.
Marginal note:Transition amount

 For the purpose of subsection 142.4(1) of the Act, transition amount, of a taxpayer in respect of the disposition of a specified debt obligation, means,

  • (a) if neither paragraph (b) nor (c) applies, nil;

  • (b) if

    • (i) the taxpayer acquired the obligation before its taxation year that includes February 23, 1994,

    • (ii) neither paragraph 7000(2)(a) nor (b) has applied to the obligation, and

    • (iii) the principal amount of the obligation exceeds the cost of the obligation to the taxpayer (which excess is referred to in this paragraph as the “discount”),

    the amount determined by the formula

    A - B

    where

    A
    is the total of all amounts each of which is the amount included in respect of the discount in computing the taxpayer’s profit for a taxation year that ended before February 23, 1994, and
    B
    is the total of all amounts each of which is the amount included in respect of the discount in computing the taxpayer’s income for a taxation year that ended before February 23, 1994; and
  • (c) where

    • (i) the conditions in subparagraphs (b)(i) and (ii) are satisfied, and

    • (ii) the cost of the obligation to the taxpayer exceeds the principal amount of the obligation (which excess is referred to in this paragraph as the “premium”),

    the negative of the amount determined by the formula

    A - B

    where

    A
    is the total of all amounts each of which is the amount deducted in respect of the premium in computing the taxpayer’s profit for a taxation year that ended before February 23, 1994, and
    B
    is the total of all amounts each of which is the amount deducted in respect of the premium in computing the taxpayer’s income for a taxation year that ended before February 23, 1994.
  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending regulations. SOR/2009-222, s. 7.

Prescribed Debt Obligations

Marginal note:Application of related election
  •  (1) The following rules apply with respect to an election made under subsection (3) or (4) by a taxpayer:

    • (a) the election applies only if

      • (i) it is in writing,

      • (ii) it specifies the first taxation year (in this subsection referred to as the “initial year”) of the taxpayer to which it is to apply, and

      • (iii) either it is received by the Minister within six months after the end of the initial year, or the Minister has expressly accepted the later filing of the election;

    • (b) subject to paragraph (c), the election applies to dispositions of specified debt obligations in the initial year and subsequent taxation years; and

    • (c) if the Minister has approved, on written application by the taxpayer, the revocation of the election, the election does not apply to dispositions of specified debt obligations in the taxation year specified in the application and in subsequent taxation years.

  • Marginal note:Prescribed specified debt obligation

    (2) For the purpose of subparagraph 142.4(5)(a)(ii) of the Act, a specified debt obligation disposed of by a taxpayer in a taxation year is prescribed in respect of the taxpayer if the amortization date for the obligation is not more than two years after the end of the taxation year.

  • Marginal note:Prescribed specified debt obligation — exception

    (3) Subsection (2) does not apply in respect of a taxpayer for a taxation year if

    • (a) generally accepted accounting principles require that the taxpayer’s gains and losses arising on the disposition of a class of debt obligations be amortized to profit for the purpose of the taxpayer’s financial statements;

    • (b) the taxpayer has elected not to have subsection (2) apply; and

    • (c) the election applies to dispositions in the year.

  • Marginal note:Prescribed specified debt obligation

    (4) For the purpose of subparagraph 142.4(5)(a)(ii) of the Act, a specified debt obligation disposed of by a taxpayer in a taxation year is prescribed in respect of the taxpayer if

    • (a) the taxpayer has elected to have this subsection apply;

    • (b) the election applies to dispositions in the year; and

    • (c) the absolute value of the positive or negative amount determined by the formula (A - B) does not exceed the lesser of $5,000 and the amount, if any, specified in the election, where

      A
      is the total of all amounts each of which is the residual portion of the taxpayer’s gain from the disposition of the obligation or any other specified debt obligation disposed of in the same transaction, and
      B
      is the total of all amounts each of which is the residual portion of the taxpayer’s loss from the disposition of the obligation or any other specified debt obligation disposed of in the same transaction.
  • Marginal note:Prescribed specified debt obligation

    (5) For the purpose of subparagraph 142.4(5)(a)(ii) of the Act, a specified debt obligation disposed of by a taxpayer in a taxation year is prescribed in respect of the taxpayer if

    • (a) the disposition resulted in an extinguishment of the obligation, other than an extinguishment that occurred because of a purchase of the obligation by the debtor in the open market;

    • (b) the taxpayer had the right to require the obligation to be settled at any time; or

    • (c) the debtor had the right to settle the obligation at any time.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending regulations. SOR/2009-222, s. 7.

Residual Portion of Gain or Loss

Marginal note:Allocation of residual portion
  •  (1) Subject to section 9204, if subsection 142.4(4) of the Act applies to the disposition of a specified debt obligation by a taxpayer, the amount allocated to each taxation year in respect of the residual portion of the gain or loss from the disposition shall be determined, for the purpose of that subsection,

    • (a) by a method that complies with, or is substantially similar to a method that complies with, subsection (2); or

    • (b) if gains and losses from the disposition of debt obligations are amortized to profit for the purpose of the taxpayer’s financial statements, by the method used for the purpose of the taxpayer’s financial statements.

  • Marginal note:Proration method

    (2) For the purpose of subsection (1), a method for allocating to taxation years the residual portion of a taxpayer’s gain or loss from the disposition of a specified debt obligation complies with this subsection if the amount allocated to each taxation year is determined by the formula

    A × B/C

    where

    A
    is the residual portion of the taxpayer’s gain or loss;
    B
    is the number of days in the taxation year that are in the period referred to in the description of C; and
    C
    is the number of days in the period that,
    • (a) where subsection (3) applies in respect of the obligation, is determined under that subsection, and

    • (b) in any other case,

      • (i) begins on the day on which the taxpayer disposed of the obligation, and

      • (ii) ends on the earlier of

        • (A) the amortization date for the obligation, and

        • (B) the day that is 20 years after the day on which the taxpayer disposed of the obligation.

  • Marginal note:Single proration period

    (3) This subsection applies in respect of specified debt obligations disposed of by a taxpayer in a transaction in a taxation year, and the period determined under this subsection in respect of the obligations is the period that begins on the day of disposition and ends on the weighted average amortization date for those obligations so disposed of to which subsection 142.4(4) of the Act applies, if

    • (a) the taxpayer has elected in its return of income for the taxation year to have this subsection apply in respect of the obligations so disposed of;

    • (b) all the obligations so disposed of were disposed of at the same time; and

    • (c) the number of the obligations so disposed of to which subsection 142.4(4) of the Act applies is at least 50.

  • Marginal note:Weighted average amortization date

    (4) For the purpose of subsection (3), the weighted average amortization date for a group of specified debt obligations disposed of on the same day by a taxpayer is,

    • (a) if paragraph (b) does not apply, the day that is the number of days after the day of disposition equal to the total of the number of days determined in respect of each obligation by the formula

      A × B/C

      where

      A
      is the number of days from the day of disposition to the amortization date for the obligation,
      B
      is the residual portion of the gain or loss from the disposition of the obligation, and
      C
      is the total of all amounts each of which is the residual portion of the gain or loss from the disposition of an obligation in the group; and
    • (b) the day that the taxpayer determines using a reasonable method for estimating the day determined under paragraph (a).

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending regulations. SOR/2009-222, s. 7.
 
Date modified: