Government of Canada / Gouvernement du Canada
Symbol of the Government of Canada

Search

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

Full Document:  

Act current to 2022-09-22 and last amended on 2022-09-01. Previous Versions

PART XIIITax on Income from Canada of Non-resident Persons (continued)

Marginal note:Loan to wholly-owned subsidiary

  •  (1) For the purposes of this Act, where

    • (a) a non-resident corporation (in this section referred to as the “parent corporation”) is indebted to

      • (i) a person resident in Canada, or

      • (ii) a non-resident insurance corporation carrying on business in Canada,

      (in this section referred to as the “creditor”) under an arrangement whereby the parent corporation is required to pay interest in Canadian currency, and

    • (b) the parent corporation has lent the money in respect of which it is so indebted, or a part thereof, to a subsidiary wholly-owned corporation resident in Canada whose principal business is the making of loans (in this section referred to as the “subsidiary corporation”) under an arrangement whereby the subsidiary corporation is required to repay the loan to the parent corporation with interest at the same rate as is payable by the parent corporation to the creditor,

    the amount so lent by the parent corporation to the subsidiary corporation shall be deemed to have been borrowed by the parent corporation as agent of the subsidiary corporation and interest paid by the subsidiary corporation to the parent corporation that has been paid by the parent corporation to the creditor shall be deemed to have been paid by the subsidiary corporation to the creditor and not by the subsidiary corporation to the parent corporation or by the parent corporation to the creditor.

  • Marginal note:Idem

    (2) Where a parent corporation has lent money to a subsidiary wholly-owned corporation resident in Canada whose principal business is not the making of loans and the money has been lent by that corporation to a subsidiary corporation wholly-owned by it and resident in Canada whose principal business is the making of loans, the loan by the parent corporation shall be deemed, for the purpose of subsection 218(1), to have been a loan to a subsidiary wholly-owned corporation whose principal business is the making of loans.

  • Marginal note:Election

    (3) This section does not apply in respect of any payment of interest unless the parent corporation and the creditor have executed, and filed with the Minister, an election in prescribed form.

  • Marginal note:Application of election

    (4) An election filed under subsection 218(3) does not apply in respect of any payment of interest made more than 12 months before the date on which the election was filed with the Minister.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 1970-71-72, c. 63, s. 1 “218”
  • 1985, c. 45, s. 126(F)

Marginal note:Application of s. 138.1

 In respect of life insurance policies for which all or any part of an insurer’s reserves vary in amount depending on the fair market value of a specified group of properties, the rules contained in section 138.1 apply for the purposes of this Part.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 1977-78, c. 1, s. 69

PART XIII.1Additional Tax on Authorized Foreign Banks

Marginal note:Branch interest tax

  •  (1) Every authorized foreign bank shall pay a tax under this Part for each taxation year equal to 25% of its taxable interest expense for the year.

  • Marginal note:Taxable interest expense

    (2) The taxable interest expense of an authorized foreign bank for a taxation year is 15% of the amount, if any, by which

    • (a) the total of all amounts on account of interest that are deducted under section 20.2 in computing the bank’s income for the year from its Canadian banking business

    exceeds

    • (b) the total of all amounts that are included in paragraph (a) and that are in respect of a liability of the bank to another person or partnership.

  • Marginal note:Where tax not payable

    (3) No tax is payable under this Part for a taxation year by an authorized foreign bank if

    • (a) the bank is resident in a country with which Canada has a tax treaty at the end of the year; and

    • (b) no tax similar to the tax under this Part would be payable in that country for the year by a bank resident in Canada carrying on business in that country during the year.

  • Marginal note:Rate limitation

    (4) Notwithstanding any other provision of this Act, the reference in subsection (1) to 25% shall, in respect of a taxation year of an authorized foreign bank that is resident in a country with which Canada has a tax treaty on the last day of the year, be read as a reference to,

    • (a) if the treaty specifies the maximum rate of tax that Canada may impose under this Part for the year on residents of that country, that rate;

    • (b) if the treaty does not specify a maximum rate as described in paragraph (a) but does specify the maximum rate of tax that Canada may impose on a payment of interest in the year by a person resident in Canada to a related person resident in that country, that rate; and

    • (c) in any other case, 25%.

  • Marginal note:Provisions applicable to Part

    (5) Sections 150 to 152, 158, 159, 160.1 and 161 to 167 and Division J of Part I apply to this Part with any modifications that the circumstances require.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 2001, c. 17, s. 176

PART XIII.2Non-resident Investors in Canadian Mutual Funds

Marginal note:Definitions

  •  (1) The following definitions apply in this Part.

    assessable distribution

    assessable distribution, in respect of a Canadian property mutual fund investment, means the portion of any amount that is paid or credited (otherwise than as a SIFT trust wind-up event), by the mutual fund that issued the investment, to a non-resident investor who holds the investment, and that is not otherwise subject to tax under Part I or Part XIII. (distribution déterminée)

    Canadian property mutual fund investment

    Canadian property mutual fund investment means a share of the capital stock of a mutual fund corporation, or a unit of a mutual fund trust, if

    • (a) the share or unit is listed on a designated stock exchange; and

    • (b) more than 50% of the fair market value of the share or unit is attributable to one or more properties each of which is real property in Canada, a Canadian resource property or a timber resource property. (placement collectif en biens canadiens)

    Canadian property mutual fund loss

    Canadian property mutual fund loss  — of a non-resident investor for a taxation year for which the non-resident investor has filed, on or before their filing-due date for the taxation year, a return of income under this Part in prescribed form, in respect of a Canadian property mutual fund investment — means the lesser of

    • (a) the non-resident investor’s loss (for greater certainty as determined under section 40) for the taxation year from the disposition of the Canadian property mutual fund investment, and

    • (b) the total of all assessable distributions that were paid or credited on the Canadian property mutual fund investment after the non-resident investor last acquired the investment and at or before the time of the disposition. (perte collective en biens canadiens)

    non-resident investor

    non-resident investor means a non-resident person or a partnership other than a Canadian partnership. (investisseur non résident)

    unused Canadian property mutual fund loss

    unused Canadian property mutual fund loss, of a non-resident investor for a taxation year, means the portion of the total of the non-resident investor’s Canadian mutual fund property losses for preceding taxation years that has neither reduced under subsection (3) the amount of tax payable, nor increased under subsection (5) the amount of a refund of tax paid, under this Part for any preceding taxation year. (perte collective en biens canadiens inutilisée)

  • Marginal note:Tax payable

    (2) If at any time a person (referred to in this section as the “payer”) pays or credits, to a non-resident investor who holds a Canadian property mutual fund investment, an amount as, on account of, in lieu of payment of or in satisfaction of, an assessable distribution,

    • (a) the non-resident investor is deemed for the purposes of this Act, other than section 150, to have disposed at that time, for proceeds equal to the amount of the assessable distribution, of a property

      • (i) that is a taxable Canadian property the adjusted cost base of which to the non-resident investor immediately before that time is nil, and

      • (ii) that is in all other respects identical to the Canadian property mutual fund investment;

    • (b) the non-resident investor is liable to pay an income tax of 15% on the amount of any gain (for greater certainty as determined under section 40) from the disposition; and

    • (c) the payer shall, notwithstanding any agreement or law to the contrary,

      • (i) deduct or withhold 15% from the amount paid or credited,

      • (ii) immediately remit that amount to the Receiver General on behalf of the non-resident investor on account of the tax, and

      • (iii) submit with the remittance a statement in prescribed form.

  • Marginal note:Use of losses

    (3) If a non-resident investor files, on or before their filing-due date for a taxation year, a return of income under this Part in prescribed form for the taxation year, the non-resident investor is liable, instead of paying tax under paragraph (2)(b) in respect of any amount paid or credited in the taxation year, to pay an income tax of 15% for the taxation year on the amount, if any, by which

    • (a) the total of the non-resident investor’s gains under subsection (2) for the taxation year

    exceeds

    • (b) the total of the non-resident investor’s Canadian property mutual fund losses for the year and the non-resident investor’s unused Canadian property mutual fund loss for the taxation year.

  • Marginal note:Deemed tax paid

    (4) If a non-resident investor files, on or before their filing-due date for a taxation year, a return of income under this Part in prescribed form for the taxation year, any amount that is remitted to the Receiver General in respect of an assessable distribution paid or credited to the non-resident investor in the taxation year is deemed to have been paid on account of the non-resident investor’s tax under subsection (3) for the taxation year.

  • Marginal note:Refund

    (5) The amount, if any, by which the total of all amounts paid on account of a non-resident investor’s tax under subsection (3) for a taxation year exceeds the non-resident investor’s liability for tax under this Part for the taxation year shall be refunded to the non-resident investor.

  • Marginal note:Excess loss — carryback

    (6) If a non-resident investor files, on or before their filing-due date for a taxation year, a return of income under this Part in prescribed form for the taxation year, the Minister shall refund to the non-resident investor an amount equal to the lesser of

    • (a) the total amount of tax under this Part paid by the non-resident investor in each of the three preceding taxation years, to the extent that the Minister has not previously refunded that tax, and

    • (b) 15% of the amount, if any, by which

      • (i) the total of the non-resident investor’s Canadian property mutual fund losses for the taxation year and the non-resident investor’s unused Canadian property mutual fund loss for the taxation year

      exceeds

      • (ii) the total of all assessable distributions paid or credited to the non-resident investor in the taxation year.

  • Marginal note:Ordering

    (7) In applying subsection (6), amounts of tax are to be considered to be refunded in the order in which they were paid.

  • Marginal note:Partnership filing-due date

    (8) For the purposes of this Part, the taxation year of a partnership is its fiscal period and the filing-due date for the taxation year is to be determined as if the partnership were a corporation.

  • Marginal note:Partnership — member resident in Canada

    (9) If a non-resident investor is a partnership a member of which is resident in Canada, the portion of the tax paid by the partnership under this Part in respect of an assessable distribution paid or credited to the partnership in a particular taxation year of the partnership (or, if the partnership files a return of income for the particular taxation year in accordance with subsection (3), the portion of the tax paid by the partnership under that subsection for the taxation year) that can reasonably be considered to be the member’s share is deemed

    • (a) to be an amount paid on account of that member’s liability for tax under Part I for that member’s taxation year in which the particular taxation year of the partnership ends; and

    • (b) except for the purposes of this subsection, to be neither a tax paid on account of the partnership’s tax under this Part nor a tax paid by the partnership.

  • Marginal note:Provisions applicable

    (10) Section 150.1, subsections 161(1), (7) and (11), sections 162 to 167, Division J of Part I, paragraph 214(3)(f), subsections 215(2), (3) and (6) and sections 227 and 227.1 apply to this Part with any modifications that the circumstances require.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 2005, c. 19, s. 47
  • 2007, c. 35, s. 68
  • 2009, c. 2, s. 74

PART XIVAdditional Tax on Non-resident Corporations

Marginal note:Additional tax

  •  (1) Every corporation that is non-resident in a taxation year shall, on or before its balance-due day for the year, pay a tax under this Part for the year equal to 25% of the amount, if any, by which the total of

    • (a) the corporation’s taxable income earned in Canada for the year (in this subsection referred to as the corporation’s “base amount”),

    • (b) the amount deducted because of section 112 and paragraph 115(1)(e) in computing the corporation’s base amount,

    • (c) [Repealed, 2003, c. 28, s. 17]

    • (d) the amount, if any, by which the total of all amounts each of which is a taxable capital gain of the corporation for the year from a disposition of a taxable Canadian property exceeds the total of all amounts each of which is

      • (i) an allowable capital loss of the corporation for the year from a disposition of a taxable Canadian property, or

      • (ii) an amount deductible because of paragraphs 111(1)(b) and 115(1)(d) in computing the corporation’s base amount,

    • (e) the total of all amounts each of which is an amount in respect of a grant or credit that

      • (i) can reasonably be considered to have been received by the corporation in the year as a reimbursement or repayment of, or as indemnification or compensation for, an amount deducted because of paragraph (j), as it read in its application to the 1995 taxation year, in computing the amount determined under this subsection for a preceding taxation year that began before 1996, and

      • (ii) was not included in computing the corporation’s base amount for any taxation year,

    • (f) where, at any time in the year, the corporation has made one or more dispositions described in paragraph 219(219)(l) of qualified property, the total of all amounts each of which is an amount in respect of one of those dispositions equal to the amount, if any, by which the fair market value of the qualified property at the time of the disposition exceeds the corporation’s proceeds of disposition of the property, and

    • (g) the amount, if any, claimed for the immediately preceding taxation year under paragraph 219(1)(j) by the corporation,

    exceeds the total of

    • (h) that proportion of the total of

      • (i) the total of the taxes payable under Parts I, I.3 and VI for the year by the corporation, determined without reference to subsection 219(1.1), and

      • (ii) the total of the income taxes payable to the government of a province for the year by the corporation, determined without reference to subsection 219(1.1),

      that the corporation’s base amount is of the amount that would, if this Act were read without reference to subsection 219(1.1), be the corporation’s base amount,

    • (i) the total of all amounts each of which is the amount of interest or a penalty paid by the corporation in the year

      • (i) under this Act, or

      • (ii) on or in respect of an income tax payable by it to the government of a province under a law of the province relating to income tax,

      to the extent that the interest or penalty was not deductible in computing its base amount for any taxation year,

    • (j) where the corporation was carrying on business in Canada at the end of the year, the amount claimed by the corporation for the year, not exceeding the amount prescribed to be its allowance for the year in respect of its investment in property in Canada, and

    • (k) [Repealed, 2003, c. 28, s. 17]

    • (l) where the corporation has at any time in the year disposed of property (in this paragraph and paragraph 219(1)(f) referred to as “qualified property”) used by it immediately before that time for the purpose of gaining or producing income from a business carried on by it in Canada to a Canadian corporation (in this paragraph referred to as the “purchaser corporation”) that was, immediately after the disposition, a qualified related corporation of the corporation for consideration that includes a share of the capital stock of the purchaser corporation, the total of all amounts each of which is an amount in respect of a disposition in the year of a qualified property equal to the amount, if any, by which

      • (i) the fair market value of the qualified property at the time of the disposition

      exceeds the total of

      • (ii) the amount, if any, by which the paid-up capital in respect of the issued and outstanding shares of the capital stock of the purchaser corporation increased because of the disposition, and

      • (iii) the fair market value, at the time of receipt, of the consideration (other than shares) given by the purchaser corporation for the qualified property.

  • Marginal note:Excluded gains

    (1.1) For the purposes of subsection (1), the definition taxable Canadian property in subsection 248(1) shall be read without reference to paragraphs (a) and (c) to (e) of that definition and as if the only options, interests or rights referred to in paragraph (f) of that definition were those in respect of property described in paragraph (b) of that definition.

  • Marginal note:Exempt corporations

    (2) No tax is payable under this Part for a taxation year by a corporation that was, throughout the year,

    • (a) [Repealed, 2001, c. 17, s. 177]

    • (b) a corporation whose principal business was

      • (i) the transportation of persons or goods,

      • (ii) communications, or

      • (iii) mining iron ore in Canada; or

    • (c) a corporation exempt from tax under section 149.

  • Marginal note:Provisions applicable to Part

    (3) Sections 150 to 152, 154, 158, 159 and 161 to 167 and Division J of Part I are applicable to this Part with such modifications as the circumstances require.

  • Marginal note:Non-resident insurers

    (4) No tax is payable under subsection 219(1) for a taxation year by a non-resident insurer, but where it elects, in prescribed manner and within the prescribed time, to deduct, in computing its Canadian investment fund as of the end of the immediately following taxation year, an amount not greater than the amount, if any, by which

    • (a) the amount, if any, by which the total of

      • (i) the insurer’s surplus funds derived from operations as of the end of the year, and

      • (i.1) where, in any particular taxation year that began before the end of the year, the insurer transferred to a taxable Canadian corporation with which it did not deal at arm’s length any designated insurance property of the insurer for the particular year, and

        • (A) the property was transferred before December 16, 1987 and subsection 138(11.5) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, applied in respect of the transfer, or

        • (B) the property was transferred before November 22, 1985 and subsection 85(1) of that Act applied in respect of the transfer,

        the amount, if any, by which

        • (C) the total of the fair market value, at the time of the transfer, of all such property

        exceeds

        • (D) the total of the insurer’s proceeds of disposition of all such property,

      exceeds the total of

      • (ii) each amount on which the insurer has paid tax under this Part for a previous taxation year,

      • (iii) the amount, if any, by which the insurer’s accumulated 1968 deficit exceeds the amount of the insurer’s maximum tax actuarial reserves for its 1968 taxation year for its life insurance policies in Canada,

      • (iv) the insurer’s loss, if any, for each of its 5 consecutive taxation years ending with its 1968 taxation year, from all insurance businesses (other than its life insurance business) carried on by it in Canada (computed without reference to section 30 of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as it read in its application to those years), except to the extent that any such loss was deductible in computing its taxable income for any of its taxation years ending before 1969, and

      • (v) the total of all amounts in respect of which the insurer has filed an election under subsection 219(5.2) for a previous taxation year in accordance with that subsection,

    exceeds

    • (b) the amount of the insurer’s attributed surplus for the year,

    the insurer shall, on or before the day on or before which it is required to file a return under Part I for the year, pay a tax for the year equal to 25% of the amount, if any, by which the amount it has so elected to deduct exceeds the amount in respect of which it filed an election under subsection 219(5.2) for the year in accordance with that subsection.

  • Marginal note:Additional tax on insurer

    (5.1) Where a non-resident insurer ceases in a taxation year to carry on all or substantially all of an insurance business in Canada, it shall, on or before its filing-due date for the year, pay a tax for the year equal to 25% of the amount, if any, by which

    • (a) that portion of the amount determined under paragraph 219(4)(a) for the year in respect of the insurer that can reasonably be attributed to the business, including the disposition by it of property that was its designated insurance property in respect of the business for the year in which the disposition occurred,

    exceeds

    • (b) the amount the insurer and a qualified related corporation of the insurer jointly elect in accordance with subsection 219(5.2) for the year in respect of the business.

  • Marginal note:Election by non-resident insurer

    (5.2) Where

    • (a) a non-resident insurer has ceased to carry on all or substantially all of an insurance business in Canada in a taxation year, and

    • (b) the insurer has transferred the business to a qualified related corporation of the insurer and the insurer and the corporation have elected to have subsection 138(11.5) apply in respect of the transfer,

    the insurer and the corporation may elect, in prescribed manner and within prescribed time, to reduce the amount in respect of which the insurer would otherwise be liable to pay tax under subsection 219(5.1) by an amount not exceeding the lesser of

    • (c) the amount determined under paragraph 219(5.1)(a) in respect of the insurer in respect of the business, and

    • (d) the total of the paid-up capital of the shares of the capital stock of the corporation received by the insurer as consideration for the transfer of the business and any contributed surplus arising on the issue of those shares.

  • Marginal note:Deemed payment of dividend

    (5.3) Where, at any time in a taxation year,

    • (a) a qualified related corporation of a non-resident insurer ceases to be a qualified related corporation of that insurer, or

    • (b) the tax deferred account of a qualified related corporation of a non-resident insurer exceeds the total of the paid-up capital in respect of all the shares of the capital stock of the corporation and its contributed surplus,

    the corporation shall be deemed to have paid, immediately before that time, a dividend to the insurer in an amount equal to

    • (c) where paragraph 219(5.3)(a) is applicable, the balance of the tax deferred account of the corporation at that time, or

    • (d) where paragraph 219(5.3)(b) is applicable, the amount of the excess referred to in that paragraph at that time.

  • Marginal note:Definitions

    (7) In this Part,

    accumulated 1968 deficit

    accumulated 1968 deficit of a life insurer means such amount as can be established by the insurer to be its deficit as of the end of its 1968 taxation year from carrying on its life insurance business in Canada on the assumption that the amounts of its assets and liabilities (including reserves of any kind)

    • (a) as of the end of any taxation year before its 1968 taxation year, were the amounts thereof determined for the purposes of the Superintendent of Insurance for Canada or other similar officer, and

    • (b) as of the end of its 1968 taxation year, were

      • (i) in respect of depreciable property, the capital cost thereof as of the first day of its 1969 taxation year,

      • (ii) in respect of policy reserves, the insurer’s maximum tax actuarial reserves for its 1968 taxation year for life insurance policies issued by it in the course of carrying on its life insurance business in Canada, and

      • (iii) in respect of other assets and liabilities, the amounts thereof determined as of the end of that year for the purpose of computing its income for its 1969 taxation year; (déficit accumulé pour 1968)

    attributed surplus

    attributed surplus of an insurer for a taxation year has the meaning assigned by regulation; (surplus attribué)

    Canadian investment fund

    Canadian investment fund has the meaning prescribed for that expression; (fonds de placement canadien)

    maximum tax actuarial reserves

    maximum tax actuarial reserves has the meaning assigned by subsection 138(12); (provision actuarielle maximale aux fins d’impôt)

    surplus funds derived from operations

    surplus funds derived from operations has the meaning assigned by subsection 138(12); (fonds excédentaire résultant de l’activité)

    tax deferred account

    tax deferred account of a qualified related corporation at any time means the amount determined by the formula

    A - B

    where

    A
    is the total of all amounts each of which is an amount in respect of which the qualified related corporation and a non-resident insurer have elected jointly before that time in accordance with subsection 219(5.2), and
    B
    is the total of all amounts each of which is the amount of a dividend deemed by subsection 219(5.3) to have been paid by the qualified related corporation before that time. (compte d’impôt différé)
  • Meaning of qualified related corporation

    (8) For the purposes of this Part, a corporation is a qualified related corporation of a particular corporation if it is resident in Canada and all of the issued and outstanding shares (other than directors’ qualifying shares) of its capital stock (having full voting rights under all circumstances) are owned by

    • (a) the particular corporation,

    • (b) a subsidiary wholly-owned corporation of the particular corporation,

    • (c) a corporation of which the particular corporation is a subsidiary wholly-owned corporation,

    • (d) a subsidiary wholly-owned corporation of a corporation of which the particular corporation is also a subsidiary wholly-owned corporation, or

    • (e) any combination of corporations each of which is a corporation described in paragraph 219(8)(a), 219(8)(b), 219(8)(c) or 219(8)(d),

    and, for the purpose of this subsection, a subsidiary wholly-owned corporation of a particular corporation includes any subsidiary wholly-owned corporation of a corporation that is a subsidiary wholly-owned corporation of the particular corporation.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 219
  • 1994, c. 7, Sch. II, s. 180, Sch. VIII, s. 126
  • 1997, c. 25, s. 65
  • 1998, c. 19, s.219
  • 2001, c. 17, s. 177
  • 2003, c. 15, s. 128, c. 28, s. 17
  • 2013, c. 34, s. 159, c. 40, s. 84
 
Date modified: