Income Tax Act
R.S.C., 1985, c. 1 (5th Supp.)
An Act respecting income taxes
Short Title
Marginal note:Short Title
1 This Act may be cited as the Income Tax Act.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S.C. 1952, c. 148, s. 1
PART IIncome Tax
DIVISION ALiability for Tax
Marginal note:Tax payable by persons resident in Canada
2 (1) An income tax shall be paid, as required by this Act, on the taxable income for each taxation year of every person resident in Canada at any time in the year.
Marginal note:Taxable income
(2) The taxable income of a taxpayer for a taxation year is the taxpayer’s income for the year plus the additions and minus the deductions permitted by Division C.
Marginal note:Tax payable by non-resident persons
(3) Where a person who is not taxable under subsection 2(1) for a taxation year
(a) was employed in Canada,
(b) carried on a business in Canada, or
(c) disposed of a taxable Canadian property,
at any time in the year or a previous year, an income tax shall be paid, as required by this Act, on the person’s taxable income earned in Canada for the year determined in accordance with Division D.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- 1970-71-72, c. 63, s. 1 “2”
- 1984, c. 1, s.1
- 1985, c. 45, s. 1
DIVISION BComputation of Income
Basic Rules
Marginal note:Income for taxation year
3 The income of a taxpayer for a taxation year for the purposes of this Part is the taxpayer’s income for the year determined by the following rules:
(a) determine the total of all amounts each of which is the taxpayer’s income for the year (other than a taxable capital gain from the disposition of a property) from a source inside or outside Canada, including, without restricting the generality of the foregoing, the taxpayer’s income for the year from each office, employment, business and property,
(b) determine the amount, if any, by which
(i) the total of
(A) all of the taxpayer’s taxable capital gains for the year from dispositions of property other than listed personal property, and
(B) the taxpayer’s taxable net gain for the year from dispositions of listed personal property,
exceeds
(ii) the amount, if any, by which the taxpayer’s allowable capital losses for the year from dispositions of property other than listed personal property exceed the taxpayer’s allowable business investment losses for the year,
(c) determine the amount, if any, by which the total determined under paragraph (a) plus the amount determined under paragraph (b) exceeds the total of the deductions permitted by Subdivision E in computing the taxpayer’s income for the year (except to the extent that those deductions, if any, have been taken into account in determining the total referred to in paragraph (a), and
(d) determine the amount, if any, by which the amount determined under paragraph (c) exceeds the total of all amounts each of which is the taxpayer’s loss for the year from an office, employment, business or property or the taxpayer’s allowable business investment loss for the year,
and for the purposes of this Part,
(e) where an amount is determined under paragraph (d) for the year in respect of the taxpayer, the taxpayer’s income for the year is the amount so determined, and
(f) in any other case, the taxpayer shall be deemed to have income for the year in an amount equal to zero.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 3
- 1994, c. 7, Sch. II, s. 1
Marginal note:Income or loss from a source or from sources in a place
4 (1) For the purposes of this Act,
(a) a taxpayer’s income or loss for a taxation year from an office, employment, business, property or other source, or from sources in a particular place, is the taxpayer’s income or loss, as the case may be, computed in accordance with this Act on the assumption that the taxpayer had during the taxation year no income or loss except from that source or no income or loss except from those sources, as the case may be, and was allowed no deductions in computing the taxpayer’s income for the taxation year except such deductions as may reasonably be regarded as wholly applicable to that source or to those sources, as the case may be, and except such part of any other deductions as may reasonably be regarded as applicable thereto; and
(b) where the business carried on by a taxpayer or the duties of the office or employment performed by a taxpayer was carried on or were performed, as the case may be, partly in one place and partly in another place, the taxpayer’s income or loss for the taxation year from the business carried on, or the duties performed, by the taxpayer in a particular place is the taxpayer’s income or loss, as the case may be, computed in accordance with this Act on the assumption that the taxpayer had during the taxation year no income or loss except from the part of the business that was carried on in that particular place or no income or loss except from the part of those duties that were performed in that particular place, as the case may be, and was allowed no deductions in computing the taxpayer’s income for the taxation year except such deductions as may reasonably be regarded as wholly applicable to that part of the business or to those duties, as the case may be, and except such part of any other deductions as may reasonably be regarded as applicable thereto.
Marginal note:Idem
(2) Subject to subsection 4(3), in applying subsection 4(1) for the purposes of this Part, no deductions permitted by sections 60 to 64 apply either wholly or in part to a particular source or to sources in a particular place.
Marginal note:Deductions applicable
(3) In applying subsection 4(1) for the purposes of subsections 104(22) and 104(22.1) and sections 115 and 126,
(a) subject to paragraph (b), all deductions permitted in computing a taxpayer’s income for a taxation year for the purposes of this Part, except any deduction permitted by any of paragraphs 60(b) to 60(o), 60(p), 60(r) and 60(v) to 60(w), shall apply either wholly or in part to a particular source or to sources in a particular place; and
(b) any deduction permitted by subsection 104(6) or 104(12) shall not apply either wholly or in part to a source in a country other than Canada.
(4) [Repealed, 1996, c. 21, s. 2(1)]
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 4
- 1994, c. 7, Sch. II, s. 2, c. 21, s. 1
- 1996, c. 21, s. 2
SUBDIVISION aIncome or Loss from an Office or Employment
Basic Rules
Marginal note:Income from office or employment
5 (1) Subject to this Part, a taxpayer’s income for a taxation year from an office or employment is the salary, wages and other remuneration, including gratuities, received by the taxpayer in the year.
Marginal note:Loss from office or employment
(2) A taxpayer’s loss for a taxation year from an office or employment is the amount of the taxpayer’s loss, if any, for the taxation year from that source computed by applying, with such modifications as the circumstances require, the provisions of this Act respecting the computation of income from that source.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- 1970-71-72, c. 63, s. 1“5”
Inclusions
Marginal note:Amounts to be included as income from office or employment
6 (1) There shall be included in computing the income of a taxpayer for a taxation year as income from an office or employment such of the following amounts as are applicable
Marginal note:Value of benefits
(a) the value of board, lodging and other benefits of any kind whatever received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment, except any benefit
(i) derived from the contributions of the taxpayer’s employer to or under a registered pension plan, group sickness or accident insurance plan, private health services plan, supplementary unemployment benefit plan, deferred profit sharing plan or group term life insurance policy,
(ii) under a retirement compensation arrangement, an employee benefit plan or an employee trust,
(iii) that was a benefit in respect of the use of an automobile,
(iv) derived from counselling services in respect of
(A) the mental or physical health of the taxpayer or an individual related to the taxpayer, other than a benefit attributable to an outlay or expense to which paragraph 18(1)(l) applies, or
(B) the re-employment or retirement of the taxpayer, or
(v) under a salary deferral arrangement, except to the extent that the benefit is included under this paragraph because of subsection 6(11);
Marginal note:Personal or living expenses
(b) all amounts received by the taxpayer in the year as an allowance for personal or living expenses or as an allowance for any other purpose, except
(i) travel, personal or living expense allowances
(A) expressly fixed in an Act of Parliament, or
(B) paid under the authority of the Treasury Board to a person who was appointed or whose services were engaged pursuant to the Inquiries Act, in respect of the discharge of the person’s duties relating to the appointment or engagement,
(ii) travel and separation allowances received under service regulations as a member of the Canadian Forces,
(iii) representation or other special allowances received in respect of a period of absence from Canada as a person described in paragraph 250(1)(b), (c), (d) or (d.1),
(iv) representation or other special allowances received by a person who is an agent-general of a province in respect of a period while the person was in Ottawa as the agent-general of the province,
(v) reasonable allowances for travel expenses received by an employee from the employee’s employer in respect of a period when the employee was employed in connection with the selling of property or negotiating of contracts for the employee’s employer,
(vi) reasonable allowances received by a minister or clergyman in charge of or ministering to a diocese, parish or congregation for expenses for transportation incident to the discharge of the duties of that office or employment,
(vii) reasonable allowances for travel expenses (other than allowances for the use of a motor vehicle) received by an employee (other than an employee employed in connection with the selling of property or the negotiating of contracts for the employer) from the employer for travelling away from
(A) the municipality where the employer’s establishment at which the employee ordinarily worked or to which the employee ordinarily reported was located, and
(B) the metropolitan area, if there is one, where that establishment was located,
in the performance of the duties of the employee’s office or employment,
(vii.1) reasonable allowances for the use of a motor vehicle received by an employee (other than an employee employed in connection with the selling of property or the negotiating of contracts for the employer) from the employer for travelling in the performance of the duties of the office or employment,
(viii) [Repealed, 1999, c. 22, s. 2(1)]
(ix) allowances (not in excess of reasonable amounts) received by an employee from the employee’s employer in respect of any child of the employee living away from the employee’s domestic establishment in the place where the employee is required by reason of the employee’s employment to live and in full-time attendance at a school in which the language primarily used for instruction is the official language of Canada primarily used by the employee if
(A) a school suitable for that child primarily using that language of instruction is not available in the place where the employee is so required to live, and
(B) the school the child attends primarily uses that language for instruction and is not farther from that place than the community nearest to that place in which there is such a school having suitable boarding facilities,
and, for the purposes of subparagraphs (v), (vi) and (vii.1), an allowance received in a taxation year by a taxpayer for the use of a motor vehicle in connection with or in the course of the taxpayer’s office or employment shall be deemed not to be a reasonable allowance
(x) where the measurement of the use of the vehicle for the purpose of the allowance is not based solely on the number of kilometres for which the vehicle is used in connection with or in the course of the office or employment, or
(xi) where the taxpayer both receives an allowance in respect of that use and is reimbursed in whole or in part for expenses in respect of that use (except where the reimbursement is in respect of supplementary business insurance or toll or ferry charges and the amount of the allowance was determined without reference to those reimbursed expenses);
Marginal note:Director’s or other fees
(c) director’s or other fees received by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment;
Marginal note:Allocations, etc., under profit sharing plan
(d) amounts allocated to the taxpayer in the year by a trustee under an employees profit sharing plan as provided by section 144 except subsection 144(4), and amounts required by subsection 144(7) to be included in computing the taxpayer’s income for the year;
Marginal note:Standby charge for automobile
(e) where the taxpayer’s employer or a person related to the employer made an automobile available to the taxpayer, or to a person related to the taxpayer, in the year, the amount, if any, by which
(i) an amount that is a reasonable standby charge for the automobile for the total number of days in the year during which it was made so available
exceeds
(ii) the total of all amounts, each of which is an amount (other than an expense related to the operation of the automobile) paid in the year to the employer or the person related to the employer by the taxpayer or the person related to the taxpayer for the use of the automobile;
(e.1) [Repealed, 1997, c. 10, s. 267(1)]
Marginal note:Employment insurance benefits
(f) the total of all amounts received by the taxpayer in the year that were payable to the taxpayer on a periodic basis in respect of the loss of all or any part of the taxpayer’s income from an office or employment, pursuant to
(i) a sickness or accident insurance plan,
(ii) a disability insurance plan, or
(iii) an income maintenance insurance plan
to or under which the taxpayer’s employer has made a contribution, not exceeding the amount, if any, by which
(iv) the total of all such amounts received by the taxpayer pursuant to the plan before the end of the year and
(A) where there was a preceding taxation year ending after 1971 in which any such amount was, by virtue of this paragraph, included in computing the taxpayer’s income, after the last such year, and
(B) in any other case, after 1971,
exceeds
(v) the total of the contributions made by the taxpayer under the plan before the end of the year and
(A) where there was a preceding taxation year described in clause (iv)(A), after the last such year, and
(B) in any other case, after 1967;
Marginal note:Canadian Forces members and veterans income replacement benefits
(f.1) the total of all amounts received by the taxpayer in the year on account of an earnings loss benefit, a supplementary retirement benefit or a permanent impairment allowance payable to the taxpayer under Part 2 of the Canadian Forces Members and Veterans Re-establishment and Compensation Act;
Marginal note:Employee benefit plan benefits
(g) the total of all amounts each of which is an amount received by the taxpayer in the year out of or under an employee benefit plan or from the disposition of any interest in any such plan, other than the portion thereof that is
(i) a death benefit or an amount that would, but for the deduction provided in the definition of that term in subsection 248(1), be a death benefit,
(ii) a return of amounts contributed to the plan by the taxpayer or a deceased employee of whom the taxpayer is an heir or legal representative, or
(iii) a superannuation or pension benefit attributable to services rendered by a person in a period throughout which the person was not resident in Canada;
Marginal note:Employee trust
(h) amounts allocated to the taxpayer for the year by a trustee under an employee trust;
Marginal note:Salary deferral arrangement payments
(i) the amount, if any, by which the total of all amounts received by any person as benefits (other than amounts received by or from a trust governed by a salary deferral arrangement) in the year out of or under a salary deferral arrangement in respect of the taxpayer exceeds the amount, if any, by which
(i) the total of all deferred amounts under the arrangement that were included under paragraph 6(1)(a) as benefits in computing the taxpayer’s income for preceding taxation years
exceeds
(ii) the total of
(A) all deferred amounts received by any person in preceding taxation years out of or under the arrangement, and
(B) all deferred amounts under the arrangement that were deducted under paragraph 8(1)(o) in computing the taxpayer’s income for the year or preceding taxation years;
Marginal note:Reimbursements and awards
(j) amounts received by the taxpayer in the year as an award or reimbursement in respect of an amount that would, if the taxpayer were entitled to no reimbursements or awards, be deductible under subsection 8(1) in computing the income of the taxpayer, except to the extent that the amounts so received
(i) are otherwise included in computing the income of the taxpayer for the year, or
(ii) are taken into account in computing the amount that is claimed under subsection 8(1) by the taxpayer for the year or a preceding taxation year;
Marginal note:Automobile operating expense benefit
(k) where
(i) an amount is determined under subparagraph 6(1)(e)(i) in respect of an automobile in computing the taxpayer’s income for the year,
(ii) amounts related to the operation (otherwise than in connection with or in the course of the taxpayer’s office or employment) of the automobile for the period or periods in the year during which the automobile was made available to the taxpayer or a person related to the taxpayer are paid or payable by the taxpayer’s employer or a person related to the taxpayer’s employer (each of whom is in this paragraph referred to as the “payor”), and
(iii) the total of the amounts so paid or payable is not paid in the year or within 45 days after the end of the year to the payor by the taxpayer or by the person related to the taxpayer,
the amount in respect of the operation of the automobile determined by the formula
A - B
where
- A
- is
(iv) where the automobile is used primarily in the performance of the duties of the taxpayer’s office or employment during the period or periods referred to in subparagraph (ii) and the taxpayer notifies the employer in writing before the end of the year of the taxpayer’s intention to have this subparagraph apply, 1/2 of the amount determined under subparagraph 6(1)(e)(i) in respect of the automobile in computing the taxpayer’s income for the year, and
(v) in any other case, the amount equal to the product obtained when the amount prescribed for the year is multiplied by the total number of kilometres that the automobile is driven (otherwise than in connection with or in the course of the taxpayer’s office or employment) during the period or periods referred to in subparagraph 6(1)(k)(ii), and
- B
- is the total of all amounts in respect of the operation of the automobile in the year paid in the year or within 45 days after the end of the year to the payor by the taxpayer or by the person related to the taxpayer; and
Marginal note:Idem
(l) the value of a benefit in respect of the operation of an automobile (other than a benefit to which paragraph 6(1)(k) applies or would apply but for subparagraph 6(1)(k)(iii)) received or enjoyed by the taxpayer in the year in respect of, in the course of or because of, the taxpayer’s office or employment.
Marginal note:Parking cost
(1.1) For the purposes of this section, an amount or a benefit in respect of the use of a motor vehicle by a taxpayer does not include any amount or benefit related to the parking of the vehicle.
Marginal note:Reasonable standby charge
(2) For the purposes of paragraph 6(1)(e), a reasonable standby charge for an automobile for the total number of days (in this subsection referred to as the “total available days”) in a taxation year during which the automobile is made available to a taxpayer or to a person related to the taxpayer by the employer of the taxpayer or by a person related to the employer (both of whom are in this subsection referred to as the “employer”) shall be deemed to be the amount determined by the formula
A/B × [2% × (C × D) + 2/3 × (E - F)]
where
- A
- is
(a) the lesser of the total kilometres that the automobile is driven (otherwise than in connection with or in the course of the taxpayer’s office or employment) during the total available days and the value determined for the description of B for the year in respect of the standby charge for the automobile during the total available days, if
(i) the taxpayer is required by the employer to use the automobile in connection with or in the course of the office or employment, and
(ii) the distance travelled by the automobile in the total available days is primarily in connection with or in the course of the office or employment, and
(b) the value determined for the description of B for the year in respect of the standby charge for the automobile during the total available days, in any other case;
- B
- is the product obtained when 1,667 is multiplied by the quotient obtained by dividing the total available days by 30 and, if the quotient so obtained is not a whole number and exceeds one, by rounding it to the nearest whole number or, where that quotient is equidistant from two consecutive whole numbers, by rounding it to the lower of those two numbers;
- C
- is the cost of the automobile to the employer where the employer owns the vehicle at any time in the year;
- D
- is the number obtained by dividing such of the total available days as are days when the employer owns the automobile by 30 and, if the quotient so obtained is not a whole number and exceeds one, by rounding it to the nearest whole number or, where that quotient is equidistant from two consecutive whole numbers, by rounding it to the lower of those two numbers;
- E
- is the total of all amounts that may reasonably be regarded as having been payable by the employer to a lessor for the purpose of leasing the automobile during such of the total available days as are days when the automobile is leased to the employer; and
- F
- is the part of the amount determined for E that may reasonably be regarded as having been payable to the lessor in respect of all or part of the cost to the lessor of insuring against
(a) loss of, or damage to, the automobile, or
(b) liability resulting from the use or operation of the automobile.
Marginal note:Automobile salesman
(2.1) Where in a taxation year
(a) a taxpayer was employed principally in selling or leasing automobiles,
(b) an automobile owned by the taxpayer’s employer was made available by the employer to the taxpayer or to a person related to the taxpayer, and
(c) the employer has acquired one or more automobiles,
the amount that would otherwise be determined under subsection 6(2) as a reasonable standby charge shall, at the option of the employer, be computed as if
(d) the reference in the formula in subsection 6(2) to “2%” were read as a reference to “1 1/2%”, and
(e) the cost to the employer of the automobile were the greater of
(i) the quotient obtained by dividing
(A) the cost to the employer of all new automobiles acquired by the employer in the year for sale or lease in the course of the employer’s business
by
(B) the number of automobiles described in clause 6(2.1)(e)(i)(A), and
(ii) the quotient obtained by dividing
(A) the cost to the employer of all automobiles acquired by the employer in the year for sale or lease in the course of the employer’s business
by
(B) the number of automobiles described in clause 6(2.1)(e)(ii)(A).
(2.2) [Repealed, 1994, c. 21, s. 2(5)]
Marginal note:Payments by employer to employee
(3) An amount received by one person from another
(a) during a period while the payee was an officer of, or in the employment of, the payer, or
(b) on account, in lieu of payment or in satisfaction of an obligation arising out of an agreement made by the payer with the payee immediately prior to, during or immediately after a period that the payee was an officer of, or in the employment of, the payer,
shall be deemed, for the purposes of section 5, to be remuneration for the payee’s services rendered as an officer or during the period of employment, unless it is established that, irrespective of when the agreement, if any, under which the amount was received was made or the form or legal effect thereof, it cannot reasonably be regarded as having been received
(c) as consideration or partial consideration for accepting the office or entering into the contract of employment,
(d) as remuneration or partial remuneration for services as an officer or under the contract of employment, or
(e) in consideration or partial consideration for a covenant with reference to what the officer or employee is, or is not, to do before or after the termination of the employment.
Marginal note:Group term life insurance
(4) Where at any time in a taxation year a taxpayer’s life is insured under a group term life insurance policy, there shall be included in computing the taxpayer’s income for the year from an office or employment the amount, if any, prescribed for the year in respect of the insurance.
(5) [Repealed, 1995, c. 3, s. 1(3)]
Marginal note:Employment at special work site or remote location
(6) Notwithstanding subsection 6(1), in computing the income of a taxpayer for a taxation year from an office or employment, there shall not be included any amount received or enjoyed by the taxpayer in respect of, in the course or by virtue of the office or employment that is the value of, or an allowance (not in excess of a reasonable amount) in respect of expenses the taxpayer has incurred for,
(a) the taxpayer’s board and lodging for a period at
(i) a special work site, being a location at which the duties performed by the taxpayer were of a temporary nature, if the taxpayer maintained at another location a self-contained domestic establishment as the taxpayer’s principal place of residence
(A) that was, throughout the period, available for the taxpayer’s occupancy and not rented by the taxpayer to any other person, and
(B) to which, by reason of distance, the taxpayer could not reasonably be expected to have returned daily from the special work site, or
(ii) a location at which, by virtue of its remoteness from any established community, the taxpayer could not reasonably be expected to establish and maintain a self-contained domestic establishment,
if the period during which the taxpayer was required by the taxpayer’s duties to be away from the taxpayer’s principal place of residence, or to be at the special work site or location, was not less than 36 hours; or
(b) transportation between
(i) the principal place of residence and the special work site referred to in subparagraph 6(6)(a)(i), or
(ii) the location referred to in subparagraph 6(6)(a)(ii) and a location in Canada or a location in the country in which the taxpayer is employed,
in respect of a period described in paragraph 6(6)(a) during which the taxpayer received board and lodging, or a reasonable allowance in respect of board and lodging, from the taxpayer’s employer.
Marginal note:Cost of property or service
(7) To the extent that the cost to a person of purchasing a property or service or an amount payable by a person for the purpose of leasing property is taken into account in determining an amount required under this section to be included in computing a taxpayer’s income for a taxation year, that cost or amount payable, as the case may be, shall include any tax that was payable by the person in respect of the property or service or that would have been so payable if the person were not exempt from the payment of that tax because of the nature of the person or the use to which the property or service is to be put.
Marginal note:GST rebates re costs of property or service
(8) If
(a) an amount in respect of an outlay or expense is deducted under section 8 in computing the income of a taxpayer for a taxation year from an office or employment, or
(b) an amount is included in the capital cost to a taxpayer of a property described in subparagraph 8(1)(j)(ii) or 8(1)(p)(ii),
and a particular amount is paid to the taxpayer in a particular taxation year as a rebate under the Excise Tax Act in respect of any goods and services tax included in the amount of the outlay or expense, or the capital cost of the property, as the case may be, the particular amount
(c) to the extent that it relates to an outlay or expense referred to in paragraph (a), shall be included in computing the taxpayer’s income from an office or employment for the particular taxation year, and
(d) to the extent that it relates to the capital cost of property referred to in paragraph (b), is deemed, for the purposes of subsection 13(7.1), to have been received by the taxpayer in the particular taxation year as assistance from a government for the acquisition of the property.
Marginal note:Amount in respect of interest on employee debt
(9) Where an amount in respect of a loan or debt is deemed by subsection 80.4(1) to be a benefit received in a taxation year by an individual, the amount of the benefit shall be included in computing the income of the individual for the year as income from an office or employment.
Marginal note:Contributions to an employee benefit plan
(10) For the purposes of subparagraph 6(1)(g)(ii),
(a) an amount included in the income of an individual in respect of an employee benefit plan for a taxation year preceding the year in which it was paid out of the plan shall be deemed to be an amount contributed to the plan by the individual; and
(b) where an amount is received in a taxation year by an individual from an employee benefit plan that was in a preceding year an employee trust, such portion of the amount so received by the individual as does not exceed the amount, if any, by which the lesser of
(i) the amount, if any, by which
(A) the total of all amounts allocated to the individual or a deceased person of whom the individual is an heir or legal representative by the trustee of the plan at a time when it was an employee trust
exceeds
(B) the total of all amounts previously paid out of the plan to or for the benefit of the individual or the deceased person at a time when the plan was an employee trust, and
(ii) the portion of the amount, if any, by which the cost amount to the plan of its property immediately before it ceased to be an employee trust exceeds its liabilities at that time that
(A) the amount determined under subparagraph 6(10)(b)(i) in respect of the individual
is of
(B) the total of amounts determined under subparagraph 6(10)(b)(i) in respect of all individuals who were beneficiaries under the plan immediately before it ceased to be an employee trust
exceeds
(iii) the total of all amounts previously received out of the plan by the individual or a deceased person of whom the individual is an heir or legal representative at a time when the plan was an employee benefit plan to the extent that the amounts were deemed by this paragraph to be a return of amounts contributed to the plan
shall be deemed to be the return of an amount contributed to the plan by the individual.
Marginal note:Salary deferral arrangement
(11) Where at the end of a taxation year any person has a right under a salary deferral arrangement in respect of a taxpayer to receive a deferred amount, an amount equal to the deferred amount shall be deemed, for the purposes only of paragraph 6(1)(a), to have been received by the taxpayer as a benefit in the year, to the extent that the amount was not otherwise included in computing the taxpayer’s income for the year or any preceding taxation year.
Marginal note:Idem
(12) Where at the end of a taxation year any person has a right under a salary deferral arrangement (other than a trust governed by a salary deferral arrangement) in respect of a taxpayer to receive a deferred amount, an amount equal to any interest or other additional amount that accrued to, or for the benefit of, that person to the end of the year in respect of the deferred amount shall be deemed at the end of the year, for the purposes only of subsection 6(11), to be a deferred amount that the person has a right to receive under the arrangement.
Marginal note:Application
(13) Subsection 6(11) does not apply in respect of a deferred amount under a salary deferral arrangement in respect of a taxpayer that was established primarily for the benefit of one or more non-resident employees in respect of services to be rendered in a country other than Canada, to the extent that the deferred amount
(a) was in respect of services rendered by an employee who
(i) was not resident in Canada at the time the services were rendered, or
(ii) was resident in Canada for a period (in this subsection referred to as an “excluded period”) of not more than 36 of the 72 months preceding the time the services were rendered and was an employee to whom the arrangement applied before the employee became resident in Canada; and
(b) cannot reasonably be regarded as being in respect of services rendered or to be rendered during a period (other than an excluded period) when the employee was resident in Canada.
Marginal note:Part of plan or arrangement
(14) Where deferred amounts under a salary deferral arrangement in respect of a taxpayer (in this subsection referred to as “that arrangement”) are required to be included as benefits under paragraph 6(1)(a) in computing the taxpayer’s income and that arrangement is part of a plan or arrangement (in this subsection referred to as the “plan”) under which amounts or benefits not related to the deferred amounts are payable or provided, for the purposes of this Act, other than this subsection,
(a) that arrangement shall be deemed to be a separate arrangement independent of other parts of the plan of which it is a part; and
(b) where any person has a right to a deferred amount under that arrangement, an amount received by the person as a benefit at any time out of or under the plan shall be deemed to have been received out of or under that arrangement except to the extent that it exceeds the amount, if any, by which
(i) the total of all deferred amounts under that arrangement that were included under paragraph 6(1)(a) as benefits in computing the taxpayer’s income for taxation years ending before that time
exceeds
(ii) the total of
(A) all deferred amounts received by any person before that time out of or under the plan that were deemed by this paragraph to have been received out of or under that arrangement, and
(B) all deferred amounts under that arrangement that were deducted under paragraph 8(1)(o) in computing the taxpayer’s income for the year or preceding taxation years.
Marginal note:Forgiveness of employee debt
(15) For the purpose of paragraph 6(1)(a),
(a) a benefit shall be deemed to have been enjoyed by a taxpayer at any time an obligation issued by any debtor (including the taxpayer) is settled or extinguished; and
(b) the value of that benefit shall be deemed to be the forgiven amount at that time in respect of the obligation.
Marginal note:Forgiven amount
(15.1) For the purpose of subsection 6(15), the forgiven amount at any time in respect of an obligation issued by a debtor has the meaning that would be assigned by subsection 80(1) if
(a) the obligation were a commercial obligation (within the meaning assigned by subsection 80(1)) issued by the debtor;
(b) no amount included in computing income because of the obligation being settled or extinguished at that time were taken into account;
(c) the definition forgiven amount in subsection 80(1) were read without reference to paragraphs (f) and (h) of the description of B in that definition; and
(d) section 80 were read without reference to paragraphs (2)(b) and (q) of that section.
Marginal note:Disability-related employment benefits
(16) Notwithstanding subsection 6(1), in computing an individual’s income for a taxation year from an office or employment, there shall not be included any amount received or enjoyed by the individual in respect of, in the course of or because of the individual’s office or employment that is the value of a benefit relating to, or an allowance (not in excess of a reasonable amount) in respect of expenses incurred by the individual for,
(a) the transportation of the individual between the individual’s ordinary place of residence and the individual’s work location (including parking near that location) if the individual is blind or is a person in respect of whom an amount is deductible, or would but for paragraph 118.3(1)(c) be deductible, because of the individual’s mobility impairment, under section 118.3 in computing a taxpayer’s tax payable under this Part for the year; or
(b) an attendant to assist the individual in the performance of the individual’s duties if the individual is a person in respect of whom an amount is deductible, or would but for paragraph 118.3(1)(c) be deductible, under section 118.3 in computing a taxpayer’s tax payable under this Part for the year.
Marginal note:Definitions
(17) The definitions in this subsection apply in this subsection and subsection 6(18).
disability policy
police d’assurance-invalidité
disability policy means a group disability insurance policy that provides for periodic payments to individuals in respect of the loss of remuneration from an office or employment. (police d’assurance-invalidité)
employer
employeur
employer of an individual includes a former employer of the individual. (employeur)
top-up disability payment
paiement compensatoire pour invalidité
top-up disability payment in respect of an individual means a payment made by an employer of the individual as a consequence of the insolvency of an insurer that was obligated to make payments to the individual under a disability policy where
(a) the payment is made to an insurer so that periodic payments made to the individual under the policy will not be reduced because of the insolvency, or will be reduced by a lesser amount, or
(b) the following conditions are satisfied:
(i) the payment is made to the individual to replace, in whole or in part, periodic payments that would have been made under the policy to the individual but for the insolvency, and
(ii) the payment is made under an arrangement by which the individual is required to reimburse the payment to the extent that the individual subsequently receives an amount from an insurer in respect of the portion of the periodic payments that the payment was intended to replace.
For the purposes of paragraphs (a) and (b), an insurance policy that replaces a disability policy is deemed to be the same policy as, and a continuation of, the disability policy that was replaced. (paiement compensatoire pour invalidité)
Marginal note:Group disability benefits — insolvent insurer
(18) Where an employer of an individual makes a top-up disability payment in respect of the individual,
(a) the payment is, for the purpose of paragraph 6(1)(a), deemed not to be a benefit received or enjoyed by the individual;
(b) the payment is, for the purpose of paragraph 6(1)(f), deemed not to be a contribution made by the employer to or under the disability insurance plan of which the disability policy in respect of which the payment is made is or was a part; and
(c) if the payment is made to the individual, it is, for the purpose of paragraph 6(1)(f), deemed to be an amount payable to the individual pursuant to the plan.
Marginal note:Benefit re housing loss
(19) For the purpose of paragraph (1)(a), an amount paid at any time in respect of a housing loss (other than an eligible housing loss) to or on behalf of a taxpayer or a person who does not deal at arm’s length with the taxpayer in respect of, in the course of or because of, an office or employment is deemed to be a benefit received by the taxpayer at that time because of the office or employment.
Marginal note:Benefit re eligible housing loss
(20) For the purpose of paragraph (1)(a), an amount paid at any time in a taxation year in respect of an eligible housing loss to or on behalf of a taxpayer or a person who does not deal at arm’s length with the taxpayer in respect of, in the course of or because of, an office or employment is deemed to be a benefit received by the taxpayer at that time because of the office or employment to the extent of the amount, if any, by which
(a) one half of the amount, if any, by which the total of all amounts each of which is so paid in the year or in a preceding taxation year exceeds $15,000
exceeds
(b) the total of all amounts each of which is an amount included in computing the taxpayer’s income because of this subsection for a preceding taxation year in respect of the loss.
Marginal note:Housing loss
(21) In this section, housing loss at any time in respect of a residence of a taxpayer means the amount, if any, by which the greater of
(a) the adjusted cost base of the residence at that time to the taxpayer or to another person who does not deal at arm’s length with the taxpayer, and
(b) the highest fair market value of the residence within the six-month period that ends at that time exceeds
(c) if the residence is disposed of by the taxpayer or the other person before the end of the first taxation year that begins after that time, the lesser of
(i) the proceeds of disposition of the residence, and
(ii) the fair market value of the residence at that time, and
(d) in any other case, the fair market value of the residence at that time.
Marginal note:Eligible housing loss
(22) In this section, eligible housing loss in respect of a residence designated by a taxpayer means a housing loss in respect of an eligible relocation of the taxpayer or a person who does not deal at arm’s length with the taxpayer and, for these purposes, no more than one residence may be so designated in respect of an eligible relocation.
Marginal note:Employer-provided housing subsidies
(23) For greater certainty, an amount paid or the value of assistance provided by any person in respect of, in the course of or because of, an individual’s office or employment in respect of the cost of, the financing of, the use of or the right to use, a residence is, for the purposes of this section, a benefit received by the individual because of the office or employment.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 6
- 1994, c. 7, Sch. II, s. 3, Sch. VIII, s. 1, c. 21, s. 2
- 1995, c. 3, s. 1, c. 21, s. 1
- 1997, c. 10, s. 267
- 1998, c. 19, s. 68
- 1999, c. 22, s. 2
- 2002, c. 9, s. 20
- 2003, c. 15, s. 69
- 2005, c. 21, s. 101
Marginal note:Agreement to issue securities to employees
7 (1) Subject to subsections (1.1) and (8), where a particular qualifying person has agreed to sell or issue securities of the particular qualifying person (or of a qualifying person with which it does not deal at arm’s length) to an employee of the particular qualifying person (or of a qualifying person with which the particular qualifying person does not deal at arm’s length),
(a) if the employee has acquired securities under the agreement, a benefit equal to the amount, if any, by which
(i) the value of the securities at the time the employee acquired them
exceeds the total of
(ii) the amount paid or to be paid to the particular qualifying person by the employee for the securities, and
(iii) the amount, if any, paid by the employee to acquire the right to acquire the securities
is deemed to have been received, in the taxation year in which the employee acquired the securities, by the employee because of the employee’s employment;
(b) if the employee has transferred or otherwise disposed of rights under the agreement in respect of some or all of the securities to a person with whom the employee was dealing at arm’s length, a benefit equal to the amount, if any, by which
(i) the value of the consideration for the disposition
exceeds
(ii) the amount, if any, paid by the employee to acquire those rights
shall be deemed to have been received, in the taxation year in which the employee made the disposition, by the employee because of the employee’s employment;
(c) if rights of the employee under the agreement have, by one or more transactions between persons not dealing at arm’s length, become vested in a person who has acquired securities under the agreement, a benefit equal to the amount, if any, by which
(i) the value of the securities at the time the person acquired them
exceeds the total of
(ii) the amount paid or to be paid to the particular qualifying person by the person for the securities, and
(iii) the amount, if any, paid by the employee to acquire the right to acquire the securities,
is deemed to have been received, in the taxation year in which the person acquired the securities, by the employee because of the employee’s employment, unless at the time the person acquired the securities the employee was deceased, in which case such a benefit is deemed to have been received by the person in that year as income from the duties of an employment performed by the person in that year in the country in which the employee primarily performed the duties of the employee’s employment;
(d) if rights of the employee under the agreement have, by one or more transactions between persons not dealing at arm’s length, become vested in a particular person who has transferred or otherwise disposed of rights under the agreement to another person with whom the particular person was dealing at arm’s length, a benefit equal to the amount, if any, by which
(i) the value of the consideration for the disposition
exceeds
(ii) the amount, if any, paid by the employee to acquire those rights
shall be deemed to have been received, in the taxation year in which the particular person made the disposition, by the employee because of the employee’s employment, unless at the time the other person acquired the rights the employee was deceased, in which case such a benefit shall be deemed to have been received by the particular person in that year as income from the duties of an employment performed by the particular person in that year in the country in which the employee primarily performed the duties of the employee’s employment; and
(e) if the employee has died and immediately before death owned a right to acquire securities under the agreement, a benefit equal to the amount, if any, by which
(i) the value of the right immediately after the death
exceeds
(ii) the amount, if any, paid by the employee to acquire the right
shall be deemed to have been received, in the taxation year in which the employee died, by the employee because of the employee’s employment, and paragraphs 7(1)(b), 7(1)(c) and 7(1)(d) do not apply.
Marginal note:Employee stock options
(1.1) Where after March 31, 1977 a Canadian-controlled private corporation (in this subsection referred to as “the corporation”) has agreed to sell or issue a share of the capital stock of the corporation or of a Canadian-controlled private corporation with which it does not deal at arm’s length to an employee of the corporation or of a Canadian-controlled private corporation with which it does not deal at arm’s length and at the time immediately after the agreement was made the employee was dealing at arm’s length with
(a) the corporation,
(b) the Canadian-controlled private corporation, the share of the capital stock of which has been agreed to be sold by the corporation, and
(c) the Canadian-controlled private corporation that is the employer of the employee,
in applying paragraph (1)(a) in respect of the employee’s acquisition of the share, the reference in that paragraph to the taxation year in which the employee acquired the securities shall be read as a reference to the taxation year in which the employee disposed of or exchanged the securities.
Marginal note:Non-arm’s length relationship with trusts
(1.11) For the purposes of this section, a mutual fund trust is deemed not to deal at arm’s length with a corporation only if the trust controls the corporation.
Marginal note:Order of disposition of securities
(1.3) For the purposes of this subsection, subsections (1.1) and (8), subdivision c, paragraph 110(1)(d.01), subparagraph 110(1)(d.1)(ii) and subsections 110(2.1) and 147(10.4), and subject to subsection (1.31) and paragraph (14)(c), a taxpayer is deemed to dispose of securities that are identical properties in the order in which the taxpayer acquired them and, for this purpose,
(a) where a taxpayer acquires a particular security (other than under circumstances to which subsection (1.1) or (8) or 147(10.1) applies) at a time when the taxpayer also acquires or holds one or more other securities that are identical to the particular security and are, or were, acquired under circumstances to which any of subsections (1.1), (8) or 147(10.1) applied, the taxpayer is deemed to have acquired the particular security at the time immediately preceding the earliest of the times at which the taxpayer acquired those other securities; and
(b) where a taxpayer acquires, at the same time, two or more identical securities under circumstances to which either subsection (1.1) or (8) applied, the taxpayer is deemed to have acquired the securities in the order in which the agreements under which the taxpayer acquired the rights to acquire the securities were made.
Marginal note:Disposition of newly-acquired security
(1.31) Where a taxpayer acquires, at a particular time, a particular security under an agreement referred to in subsection (1) and, on a day that is no later than 30 days after the day that includes the particular time, the taxpayer disposes of a security that is identical to the particular security, the particular security is deemed to be the security that is so disposed of if
(a) no other securities that are identical to the particular security are acquired, or disposed of, by the taxpayer after the particular time and before the disposition;
(b) the taxpayer identifies the particular security as the security so disposed of in the taxpayer’s return of income under this Part for the year in which the disposition occurs; and
(c) the taxpayer has not so identified the particular security, in accordance with this subsection, in connection with the disposition of any other security.
Marginal note:Exchange of options
(1.4) Where
(a) a taxpayer disposes of rights under an agreement referred to in subsection (1) to acquire securities of a particular qualifying person that made the agreement or of a qualifying person with which it does not deal at arm’s length (which rights and securities are referred to in this subsection as the “exchanged option” and the “old securities”, respectively),
(b) the taxpayer receives no consideration for the disposition of the exchanged option other than rights under an agreement with a person (in this subsection referred to as the “designated person”) that is
(i) the particular person,
(ii) a qualifying person with which the particular person does not deal at arm’s length immediately after the disposition,
(iii) a corporation formed on the amalgamation or merger of the particular person and one or more other corporations,
(iv) a mutual fund trust to which the particular person has transferred property in circumstances to which subsection 132.2(1) applied, or
(v) a qualifying person with which the corporation referred to in subparagraph (iii) does not deal at arm’s length immediately after the disposition
to acquire securities of the designated person or a qualifying person with which the designated person does not deal at arm’s length (which rights and securities are referred to in this subsection as the new option and the new securities, respectively), and
(c) the amount, if any, by which
(i) the total value of the new securities immediately after the disposition
exceeds
(ii) the total amount payable by the taxpayer to acquire the new securities under the new option
does not exceed the amount, if any, by which
(iii) the total value of the old securities immediately before the disposition
exceeds
(iv) the amount payable by the taxpayer to acquire the old securities under the exchanged option,
for the purposes of this section,
(d) the taxpayer is deemed (other than for the purposes of subparagraph (9)(d)(ii)) not to have disposed of the exchanged option and not to have acquired the new option,
(e) the new option is deemed to be the same option as, and a continuation of, the exchanged option, and
(f) if the designated person is not the particular person, the designated person is deemed to be the same person as, and a continuation of, the particular person.
Marginal note:Rules where securities exchanged
(1.5) For the purposes of this section and paragraphs 110(1)(d) to (d.1), where
(a) a taxpayer disposes of or exchanges securities of a particular qualifying person that were acquired by the taxpayer under circumstances to which either subsection (1.1) or (8) applied (in this subsection referred to as the “exchanged securities”),
(b) the taxpayer receives no consideration for the disposition or exchange of the exchanged securities other than securities (in this subsection referred to as the “new securities”) of
(i) the particular qualifying person,
(ii) a qualifying person with which the particular qualifying person does not deal at arm’s length immediately after the disposition or exchange,
(iii) a corporation formed on the amalgamation or merger of the particular qualifying person and one or more other corporations,
(iv) a mutual fund trust to which the particular qualifying person has transferred property in circumstances to which subsection 132.2(1) applied, or
(v) a qualifying person with which the corporation referred to in subparagraph (iii) does not deal at arm’s length immediately after the disposition or exchange, and
(c) the total value of the new securities immediately after the disposition or exchange does not exceed the total value of the old securities immediately before the disposition or exchange,
the following rules apply:
(d) the taxpayer is deemed not to have disposed of or exchanged the exchanged securities and not to have acquired the new securities,
(e) the new securities are deemed to be the same securities as, and a continuation of, the exchanged securities, except for the purpose of determining if the new securities are identical to any other securities,
(f) the qualifying person that issued the new securities is deemed to be the same person as, and a continuation of, the qualifying person that issued the exchanged securities, and
(g) where the exchanged securities were issued under an agreement, the new securities are deemed to have been issued under that agreement.
Marginal note:Emigrant
(1.6) For the purposes of this section and paragraph 110(1)(d.1), a taxpayer is deemed not to have disposed of a share acquired under circumstances to which subsection (1.1) applied solely because of subsection 128.1(4).
Marginal note:Rights ceasing to be exercisable
(1.7) For the purposes of paragraphs (1)(b) and 110(1)(d), where a taxpayer receives at a particular time one or more particular amounts in respect of rights of the taxpayer to acquire securities under an agreement referred to in subsection (1) ceasing to be exercisable in accordance with the terms of the agreement, and the cessation would not, if this Act were read without reference to this subsection, constitute a transfer or disposition of those rights by the taxpayer,
(a) the taxpayer is deemed to have disposed of those rights at the particular time to a person with whom the taxpayer was dealing at arm’s length and to have received the particular amounts as consideration for the disposition; and
(b) for the purpose of determining the amount, if any, of the benefit that the taxpayer is deemed by paragraph (1)(b) to have received as a consequence of the disposition referred to in paragraph (a), the taxpayer is deemed to have paid an amount to acquire those rights equal to the amount, if any, by which
(i) the amount paid by the taxpayer to acquire those rights (determined without reference to this subsection)
exceeds
(ii) the total of all amounts each of which is an amount received by the taxpayer before the particular time in respect of the cessation.
Marginal note:Securities held by trustee
(2) If a security is held by a trustee in trust or otherwise, whether absolutely, conditionally or contingently, for an employee, the employee is deemed, for the purposes of this section and paragraphs 110(1)(d) to (d.1),
(a) to have acquired the security at the time the trust began to so hold it; and
(b) to have exchanged or disposed of the security at the time the trust exchanged it or disposed of it to any person other than the employee.
Marginal note:Special provision
(3) If a particular qualifying person has agreed to sell or issue securities of the particular person, or of a qualifying person with which it does not deal at arm’s length, to an employee of the particular person or of a qualifying person with which it does not deal at arm’s length,
(a) except as provided by this section, the employee is deemed to have neither received nor enjoyed any benefit under or because of the agreement; and
(b) the income for a taxation year of any person is deemed to be not less than its income for the year would have been if a benefit had not been conferred on the employee by the sale or issue of the securities.
Marginal note:Application of s. (1)
(4) For greater certainty it is hereby declared that, where a person to whom any provision of subsection 7(1) would otherwise apply has ceased to be an employee before all things have happened that would make that provision applicable, subsection 7(1) shall continue to apply as though the person were still an employee and as though the employment were still in existence.
Marginal note:Non-application of this section
(5) This section does not apply if the benefit conferred by the agreement was not received in respect of, in the course of, or by virtue of, the employment.
Marginal note:Sale to trustee for employees
(6) If a particular qualifying person has entered into an arrangement under which securities of the particular person, or of a qualifying person with which it does not deal at arm’s length, are sold or issued by either person to a trustee to be held by the trustee in trust for sale to an employee of the particular person or of a qualifying person with which it does not deal at arm’s length,
(a) for the purposes of this section (other than subsection (2)) and paragraphs 110(1)(d) to (d.1),
(i) any particular rights of the employee under the arrangement in respect of those securities are deemed to be rights under a particular agreement with the particular person under which the particular person has agreed to sell or issue securities to the employee,
(ii) any securities acquired under the arrangement by the employee or by a person in whom the particular rights have become vested are deemed to be securities acquired under the particular agreement, and
(iii) any amounts paid or agreed to be paid to the trustee for any securities acquired under the arrangement by the employee or by a person in whom the particular rights have become vested are deemed to be amounts paid or agreed to be paid to the particular person for securities acquired under the particular agreement; and
(b) subsection (2) does not apply in respect of securities held by the trustee under the arrangement.
Marginal note:Definitions
(7) The definitions in this subsection apply in this section and in subsection 47(3), paragraphs 53(1)(j), 110(1)(d) and (d.01) and subsections 110(1.5), (1.6) and (2.1).
qualifying person
personne admissible
qualifying person means a corporation or a mutual fund trust. (personne admissible)
security
titre
security of a qualifying person means
(a) if the person is a corporation, a share of the capital stock of the corporation; and
(b) if the person is a mutual fund trust, a unit of the trust. (titre)
Marginal note:Deferral in respect of non-CCPC employee options
(8) Where a particular qualifying person (other than a Canadian-controlled private corporation) has agreed to sell or issue securities of the particular qualifying person (or of a qualifying person with which it does not deal at arm’s length) to a taxpayer who is an employee of the particular qualifying person (or of a qualifying person with which the particular qualifying person does not deal at arm’s length), in applying paragraph (1)(a) in respect of the taxpayer’s acquisition of a security under the agreement, the reference in that paragraph to “the taxation year in which the employee acquired the securities” shall be read as a reference to “the taxation year in which the employee disposed of or exchanged the securities” if
(a) the acquisition is a qualifying acquisition; and
(b) the taxpayer elects, in accordance with subsection (10), to have this subsection apply in respect of the acquisition.
Meaning of qualifying acquisition
(9) For the purpose of subsection (8), a taxpayer’s acquisition of a security under an agreement made by a particular qualifying person is a qualifying acquisition if
(a) the acquisition occurs after February 27, 2000;
(b) the taxpayer would, if this Act were read without reference to subsection (8), be entitled to deduct an amount under paragraph 110(1)(d) in respect of the acquisition in computing income for the taxation year in which the security is acquired;
(c) where the particular qualifying person is a corporation, the taxpayer was not, at the time immediately after the agreement was made, a person who would, if the references in the portion of the definition specified shareholder in subsection 248(1) before paragraph (a) to “in a taxation year” and “at any time in the year” were read as references to “at any time” and “at that time”, respectively, be a specified shareholder of any of
(i) the particular qualifying person,
(ii) any qualifying person that, at that time, was an employer of the taxpayer and was not dealing at arm’s length with the particular qualifying person, and
(iii) the qualifying person of which the taxpayer had, under the agreement, a right to acquire a security; and
(d) where the security is a share,
(i) it is of a class of shares that, at the time the acquisition occurs, is listed on a prescribed stock exchange, and
(ii) where rights under the agreement were acquired by the taxpayer as a result of one or more dispositions to which subsection (1.4) applied, none of the rights that were the subject of any of the dispositions included a right to acquire a share of a class of shares that, at the time the rights were disposed of, was not listed on any prescribed stock exchange.
Marginal note:Election for the purpose of subsection (8)
(10) For the purpose of subsection (8), a taxpayer’s election to have that subsection apply in respect of the taxpayer’s acquisition of a particular security under an agreement referred to in subsection (1) is in accordance with this subsection if
(a) the election is filed, in the prescribed form and manner at a particular time that is before January 16 of the year following the year in which the acquisition occurs, with a person who would be required to file an information return in respect of the acquisition if subsection (8) were read without reference to paragraph (8)(b);
(b) the taxpayer is resident in Canada at the time the acquisition occurs; and
(c) the specified value of the particular security does not exceed the amount by which
(i) $100,000
exceeds
(ii) the total of all amounts each of which is the specified value of another security acquired by the taxpayer at or before the particular time under an agreement referred to in subsection (1), where
(A) the taxpayer’s right to acquire that other security first became exercisable in the year that the taxpayer’s right to acquire the particular security first became exercisable, and
(B) at or before the particular time, the taxpayer has elected in accordance with this subsection to have subsection (8) apply in respect of the acquisition of that other security.
Meaning of specified value
(11) For the purpose of paragraph (10)(c), the specified value of a particular security acquired by a taxpayer under an agreement referred to in subsection (1) is the amount determined by the formula
A/B
where
- A
- is the fair market value, determined at the time the agreement was made, of a security that was the subject of the agreement at the time the agreement was made; and
- B
- is
(a) except where paragraph (b) applies, 1, and
(b) where the number or type of securities that are the subject of the agreement has been modified in any way after the time the agreement was made, the number of securities (including any fraction of a security) that it is reasonable to consider the taxpayer would, at the time the particular security was acquired, have a right to acquire under the agreement in lieu of one of the securities that was the subject of the agreement at the time the agreement was made.
Marginal note:Identical options — order of exercise
(12) Unless the context otherwise requires, a taxpayer is deemed to exercise identical rights to acquire securities under agreements referred to in subsection (1)
(a) where the taxpayer has designated an order, in the order so designated; and
(b) in any other case, in the order in which those rights first became exercisable and, in the case of identical rights that first became exercisable at the same time, in the order in which the agreements under which those rights were acquired were made.
Marginal note:Revoked election
(13) For the purposes of this section (other than this subsection), an election filed by a taxpayer to have subsection (8) apply to the taxpayer’s acquisition of a security is deemed never to have been filed if, before January 16 of the year following the year in which the acquisition occurs, the taxpayer files with the person with whom the election was filed a written revocation of the election.
Marginal note:Deferral deemed valid
(14) For the purposes of this section and paragraph 110(1)(d), where a taxpayer files an election to have subsection (8) apply in respect of the taxpayer’s acquisition of a particular security and subsection (8) would not apply to the acquisition if this section were read without reference to this subsection, the following rules apply if the Minister so notifies the taxpayer in writing:
(a) the acquisition is deemed, for the purpose of subsection (8), to be a qualifying acquisition;
(b) the taxpayer is deemed to have elected, in accordance with subsection (10), at the time of the acquisition, to have subsection (8) apply in respect of the acquisition; and
(c) if, at the time the Minister sends the notice, the taxpayer has not disposed of the security, the taxpayer is deemed (other than for the purpose of subsection (1.5)) to have disposed of the security at that time and to have acquired the security immediately after that time other than under an agreement referred to in subsection (1).
Marginal note:Withholding
(15) Where, because of subsection (8), a taxpayer is deemed by paragraph (1)(a) to have received a benefit from employment in a taxation year, the benefit is deemed to be nil for the purpose of subsection 153(1).
Marginal note:Prescribed form for deferral
(16) Where, at any time in a taxation year, a taxpayer holds a security that was acquired under circumstances to which subsection (8) applied, the taxpayer shall file with the Minister, with the taxpayer’s return of income for the year, a prescribed form containing prescribed information relating to the taxpayer’s acquisition and disposition of securities under agreements referred to in subsection (1).
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 7
- 1994, c. 7, Sch. II, s. 4, c. 21, s. 3
- 1999, c. 22, s. 3
- 2001, c. 17, s. 2
Deductions
Marginal note:Deductions allowed
8 (1) In computing a taxpayer’s income for a taxation year from an office or employment, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto
(a) [Repealed, 2001, c. 17, s. 3(1)]
Marginal note:Legal expenses of employee
(b) amounts paid by the taxpayer in the year as or on account of legal expenses incurred by the taxpayer to collect or establish a right to salary or wages owed to the taxpayer by the employer or former employer of the taxpayer;
Marginal note:Clergy residence
(c) where, in the year, the taxpayer
(i) is a member of the clergy or of a religious order or a regular minister of a religious denomination, and
(ii) is
(A) in charge of a diocese, parish or congregation,
(B) ministering to a diocese, parish or congregation, or
(C) engaged exclusively in full-time administrative service by appointment of a religious order or religious denomination,
the amount, not exceeding the taxpayer’s remuneration for the year from the office or employment, equal to
(iii) the total of all amounts including amounts in respect of utilities, included in computing the taxpayer’s income for the year under section 6 in respect of the residence or other living accommodation occupied by the taxpayer in the course of, or because of, the taxpayer’s office or employment as such a member or minister so in charge of or ministering to a diocese, parish or congregation, or so engaged in such administrative service, or
(iv) rent and utilities paid by the taxpayer for the taxpayer’s principal place of residence (or other principal living accommodation), ordinarily occupied during the year by the taxpayer, or the fair rental value of such a residence (or other living accommodation), including utilities, owned by the taxpayer or the taxpayer’s spouse or common-law partner, not exceeding the lesser of
(A) the greater of
(I) $1,000 multiplied by the number of months (to a maximum of ten) in the year, during which the taxpayer is a person described in subparagraphs (i) and (ii), and
(II) one-third of the taxpayer’s remuneration for the year from the office or employment, and
(B) the amount, if any, by which
(I) the rent paid or the fair rental value of the residence or living accommodation, including utilities
exceeds
(II) the total of all amounts each of which is an amount deducted, in connection with the same accommodation or residence, in computing an individual’s income for the year from an office or employment or from a business (other than an amount deducted under this paragraph by the taxpayer), to the extent that the amount can reasonably be considered to relate to the period, or a portion of the period, in respect of which an amount is claimed by the taxpayer under this paragraph;
Marginal note:Teachers’ exchange fund contribution
(d) a single amount, in respect of all employments of the taxpayer as a teacher, not exceeding $250 paid by the taxpayer in the year to a fund established by the Canadian Education Association for the benefit of teachers from Commonwealth countries present in Canada under a teachers’ exchange arrangement;
Marginal note:Expenses of railway employees
(e) amounts disbursed by the taxpayer in the year for meals and lodging while employed by a railway company
(i) away from the taxpayer’s ordinary place of residence as a relieving telegrapher or station agent or on maintenance and repair work, or
(ii) away from the municipality and the metropolitan area, if there is one, where the taxpayer’s home terminal was located, and at a location from which, by reason of distance from the place where the taxpayer maintained a self-contained domestic establishment in which the taxpayer resided and actually supported a spouse or common-law partner or a person dependent on the taxpayer for support and connected with the taxpayer by blood relationship, marriage or common-law partnership or adoption, the taxpayer could not reasonably be expected to return daily to that place,
to the extent that the taxpayer has not been reimbursed and is not entitled to be reimbursed in respect thereof;
Marginal note:Sales expenses
(f) where the taxpayer was employed in the year in connection with the selling of property or negotiating of contracts for the taxpayer’s employer, and
(i) under the contract of employment was required to pay the taxpayer’s own expenses,
(ii) was ordinarily required to carry on the duties of the employment away from the employer’s place of business,
(iii) was remunerated in whole or part by commissions or other similar amounts fixed by reference to the volume of the sales made or the contracts negotiated, and
(iv) was not in receipt of an allowance for travel expenses in respect of the taxation year that was, by virtue of subparagraph 6(1)(b)(v), not included in computing the taxpayer’s income,
amounts expended by the taxpayer in the year for the purpose of earning the income from the employment (not exceeding the commissions or other similar amounts referred to in subparagraph 8(1)(f)(iii) and received by the taxpayer in the year) to the extent that those amounts were not
(v) outlays, losses or replacements of capital or payments on account of capital, except as described in paragraph 8(1)(j),
(vi) outlays or expenses that would, by virtue of paragraph 18(1)(l), not be deductible in computing the taxpayer’s income for the year if the employment were a business carried on by the taxpayer, or
(vii) amounts the payment of which reduced the amount that would otherwise be included in computing the taxpayer’s income for the year because of paragraph 6(1)(e);
Marginal note:Transport employee’s expenses
(g) where the taxpayer was an employee of a person whose principal business was passenger, goods, or passenger and goods transport and the duties of the employment required the taxpayer, regularly,
(i) to travel, away from the municipality where the employer’s establishment to which the taxpayer reported for work was located and away from the metropolitan area, if there is one, where it was located, on vehicles used by the employer to transport the goods or passengers, and
(ii) while so away from that municipality and metropolitan area, to make disbursements for meals and lodging,
amounts so disbursed by the taxpayer in the year to the extent that the taxpayer has not been reimbursed and is not entitled to be reimbursed in respect thereof;
Marginal note:Travel expenses
(h) where the taxpayer, in the year,
(i) was ordinarily required to carry on the duties of the office or employment away from the employer’s place of business or in different places, and
(ii) was required under the contract of employment to pay the travel expenses incurred by the taxpayer in the performance of the duties of the office or employment,
amounts expended by the taxpayer in the year (other than motor vehicle expenses) for travelling in the course of the office or employment, except where the taxpayer
(iii) received an allowance for travel expenses that was, because of subparagraph 6(1)(b)(v), 6(1)(b)(vi) or 6(1)(b)(vii), not included in computing the taxpayer’s income for the year, or
(iv) claims a deduction for the year under paragraph 8(1)(e), 8(1)(f) or 8(1)(g);
Marginal note:Motor vehicle travel expenses
(h.1) where the taxpayer, in the year,
(i) was ordinarily required to carry on the duties of the office or employment away from the employer’s place of business or in different places, and
(ii) was required under the contract of employment to pay motor vehicle expenses incurred in the performance of the duties of the office or employment,
amounts expended by the taxpayer in the year in respect of motor vehicle expenses incurred for travelling in the course of the office or employment, except where the taxpayer
(iii) received an allowance for motor vehicle expenses that was, because of paragraph 6(1)(b), not included in computing the taxpayer’s income for the year, or
(iv) claims a deduction for the year under paragraph 8(1)(f);
Marginal note:Dues and other expenses of performing duties
(i) amounts paid by the taxpayer in the year as
(i) annual professional membership dues the payment of which was necessary to maintain a professional status recognized by statute,
(ii) office rent, or salary to an assistant or substitute, the payment of which by the officer or employee was required by the contract of employment,
(iii) the cost of supplies that were consumed directly in the performance of the duties of the office or employment and that the officer or employee was required by the contract of employment to supply and pay for,
(iv) annual dues to maintain membership in a trade union as defined
(A) by section 3 of the Canada Labour Code, or
(B) in any provincial statute providing for the investigation, conciliation or settlement of industrial disputes,
or to maintain membership in an association of public servants the primary object of which is to promote the improvement of the members’ conditions of employment or work,
(v) annual dues that were, pursuant to the provisions of a collective agreement, retained by the taxpayer’s employer from the taxpayer’s remuneration and paid to a trade union or association designated in subparagraph 8(1)(i)(iv) of which the taxpayer was not a member,
(vi) dues to a parity or advisory committee or similar body, the payment of which was required under the laws of a province in respect of the employment for the year, and
(vii) dues to a professions board, the payment of which was required under the laws of a province,
to the extent that the taxpayer has not been reimbursed, and is not entitled to be reimbursed in respect thereof;
Marginal note:Motor vehicle and aircraft costs
(j) where a deduction may be made under paragraph 8(1)(f), 8(1)(h) or 8(1)(h.1) in computing the taxpayer’s income from an office or employment for a taxation year,
(i) any interest paid by the taxpayer in the year on borrowed money used for the purpose of acquiring, or on an amount payable for the acquisition of, property that is
(A) a motor vehicle that is used, or
(B) an aircraft that is required for use
in the performance of the duties of the taxpayer’s office or employment, and
(ii) such part, if any, of the capital cost to the taxpayer of
(A) a motor vehicle that is used, or
(B) an aircraft that is required for use
in the performance of the duties of the office or employment as is allowed by regulation;
Marginal note:C.P.P. contributions and U.I.A. premiums
(l.1) any amount payable by the taxpayer in the year
(i) as an employer’s premium under the employment Insurance Act, or
(ii) as an employer’s contribution under the Canada Pension Plan or under a provincial pension plan as defined in section 3 of the Canada Pension Plan,
in respect of salary, wages or other remuneration, including gratuities, paid to an individual employed by the taxpayer as an assistant or substitute to perform the duties of the taxpayer’s office or employment if an amount is deductible by the taxpayer for the year under subparagraph 8(1)(i)(ii) in respect of that individual;
Marginal note:Employee’s registered pension plan contributions
(m) the amount in respect of contributions to registered pension plans that, by reason of subsection 147.2(4), is deductible in computing the taxpayer’s income for the year;
Marginal note:Employee RCA contributions
(m.2) an amount contributed by the taxpayer in the year to a pension plan in respect of services rendered by the taxpayer where the plan is a prescribed plan established by an enactment of Canada or a province or where
(i) the plan is a retirement compensation arrangement,
(ii) the amount was paid to a custodian (within the meaning assigned by the definition retirement compensation arrangement in subsection 248(1)) of the arrangement who is resident in Canada, and
(iii) either
(A) the taxpayer was required, by the terms of the taxpayer’s office or employment, to contribute the amount, and the total of the amounts contributed to the plan in the year by the taxpayer does not exceed the total of the amount contributed to the plan in the year by any other person in respect of the taxpayer, or
(B) the plan is a pension plan the registration of which under this Act was revoked (other than a plan the registration of which was revoked as of the effective date of its registration) and the amount was contributed in accordance with the terms of the plan as last registered;
(C) [Repealed, 1994, c. 21, s. 4(2)]
Marginal note:Salary reimbursement
(n) an amount paid by or on behalf of the taxpayer in the year pursuant to an arrangement (other than an arrangement described in subparagraph (b)(ii) of the definition top-up disability payment in subsection 6(17)) under which the taxpayer is required to reimburse any amount paid to the taxpayer for a period throughout which the taxpayer did not perform the duties of the office or employment, to the extent that
(i) the amount so paid to the taxpayer for the period was included in computing the taxpayer’s income from an office or employment, and
(ii) the total of amounts so reimbursed does not exceed the total of amounts received by the taxpayer for the period throughout which the taxpayer did not perform the duties of the office or employment;
Marginal note:Reimbursement of disability payments
(n.1) where,
(i) as a consequence of the receipt of a payment (in this paragraph referred to as the “deferred payment”) from an insurer, a payment (in this paragraph referred to as the “reimbursement payment”) is made by or on behalf of an individual to an employer or former employer of the individual pursuant to an arrangement described in subparagraph (b)(ii) of the definition top-up disability payment in subsection 6(17), and
(ii) the reimbursement payment is made
(A) in the year, other than within the first 60 days of the year if the deferred payment was received in the immediately preceding taxation year, or
(B) within 60 days after the end of the year, if the deferred payment was received in the year,
an amount equal to the lesser of
(iii) the amount included under paragraph 6(1)(f) in respect of the deferred payment in computing the individual’s income for any taxation year, and
(iv) the amount of the reimbursement payment;
Marginal note:Forfeited amounts
(o) where at the end of the year the rights of any person to receive benefits under a salary deferral arrangement in respect of the taxpayer have been extinguished or no person has any further right to receive any amount under the arrangement, the amount, if any, by which the total of all deferred amounts under the arrangement included in computing the taxpayer’s income for the year and preceding taxation years as benefits under paragraph 6(1)(a) exceeds the total of
(i) all such deferred amounts received by any person in that year or preceding taxation years out of or under the arrangement,
(ii) all such deferred amounts receivable by any person in subsequent taxation years out of or under the arrangement, and
(iii) all amounts deducted under this paragraph in computing the taxpayer’s income for preceding taxation years in respect of deferred amounts under the arrangement;
Marginal note:Idem
(o.1) an amount that is deductible in computing the taxpayer’s income for the year because of subsection 144(9);
Marginal note:Musical instrument costs
(p) where the taxpayer was employed in the year as a musician and as a term of the employment was required to provide a musical instrument for a period in the year, an amount (not exceeding the taxpayer’s income for the year from the employment, computed without reference to this paragraph) equal to the total of
(i) amounts expended by the taxpayer before the end of the year for the maintenance, rental or insurance of the instrument for that period, except to the extent that the amounts are otherwise deducted in computing the taxpayer’s income for any taxation year, and
(ii) such part, if any, of the capital cost to the taxpayer of the instrument as is allowed by regulation;
Marginal note:Artists’ employment expenses
(q) where the taxpayer’s income for the year from the office or employment includes income from an artistic activity
(i) that was the creation by the taxpayer of, but did not include the reproduction of, paintings, prints, etchings, drawings, sculptures or similar works of art,
(ii) that was the composition by the taxpayer of a dramatic, musical or literary work,
(iii) that was the performance by the taxpayer of a dramatic or musical work as an actor, dancer, singer or musician, or
(iv) in respect of which the taxpayer was a member of a professional artists’ association that is certified by the Minister of Communications,
amounts paid by the taxpayer before the end of the year in respect of expenses incurred for the purpose of earning the income from those activities to the extent that they were not deductible in computing the taxpayer’s income for a preceding taxation year, but not exceeding a single amount in respect of all such offices and employments of the taxpayer equal to the amount, if any, by which
(v) the lesser of $1,000 and 20% of the total of all amounts each of which is the taxpayer’s income from an office or employment for the year, before deducting any amount under this section, that was income from an artistic activity described in any of subparagraphs 8(1)(q)(i) to 8(1)(q)(iv),
exceeds
(vi) the total of all amounts deducted by the taxpayer for the year under paragraph 8(1)(j) or 8(1)(p) in respect of costs or expenses incurred for the purpose of earning the income from such an activity for the year; and
Marginal note:Apprentice mechanics’ tool costs
(r) if the taxpayer was an eligible apprentice mechanic at any time after 2001 and before the end of the taxation year, the amount claimed by the taxpayer for the taxation year under this paragraph not exceeding the lesser of
(i) the taxpayer’s income for the taxation year computed without reference to this paragraph, and
(ii) the amount determined by the formula
(A - B) + C
where
- A
- is the total of all amounts each of which is the cost to the taxpayer of an eligible tool acquired in the taxation year by the taxpayer or, if the taxpayer first becomes employed as an eligible apprentice mechanic in the taxation year, the cost to the taxpayer of an eligible tool acquired by the taxpayer in the last three months of the preceding taxation year,
- B
- is the lesser of
(A) the value of A for the taxation year in respect of the taxpayer, and
(B) the greater of $1,000 and 5% of the total of all amounts, each of which is the taxpayer’s income from employment for the taxation year as an eligible apprentice mechanic, computed without reference to this paragraph, and
- C
- is the amount by which the amount determined under this subparagraph for the preceding taxation year in respect of the taxpayer exceeds the amount deducted under this paragraph for that preceding taxation year by the taxpayer.
Marginal note:General limitation
(2) Except as permitted by this section, no deductions shall be made in computing a taxpayer’s income for a taxation year from an office or employment.
Marginal note:Meals
(4) An amount expended in respect of a meal consumed by a taxpayer who is an officer or employee shall not be included in computing the amount of a deduction under paragraph 8(1)(f) or 8(1)(h) unless the meal was consumed during a period while the taxpayer was required by the taxpayer’s duties to be away, for a period of not less than twelve hours, from the municipality where the employer’s establishment to which the taxpayer ordinarily reported for work was located and away from the metropolitan area, if there is one, where it was located.
Marginal note:Dues not deductible
(5) Notwithstanding subparagraphs 8(1)(i)(i), 8(1)(i)(iv), 8(1)(i)(vi) and 8(1)(i)(vii), dues are not deductible under those subparagraphs in computing a taxpayer’s income from an office or employment to the extent that they are, in effect, levied
(a) for or under a superannuation fund or plan;
(b) for or under a fund or plan for annuities, insurance (other than professional or malpractice liability insurance that is necessary to maintain a professional status recognized by statute) or similar benefits; or
(c) for any other purpose not directly related to the ordinary operating expenses of the committee or similar body, association, board or trade union, as the case may be.
Marginal note:Apprentice mechanics
(6) For the purpose of paragraph (1)(r),
(a) a taxpayer is an eligible apprentice mechanic in a taxation year if, at any time in the taxation year, the taxpayer
(i) is registered in a program established in accordance with the laws of a province that leads to designation under those laws as a mechanic licensed to repair self-propelled motorized vehicles, and
(ii) is employed as an apprentice mechanic;
(b) an eligible tool is a tool (including ancillary equipment) that
(i) is acquired by a taxpayer for use in connection with the taxpayer’s employment as an eligible apprentice mechanic,
(ii) has not been used for any purpose before it is acquired by the taxpayer, and
(iii) is certified in prescribed form by the taxpayer’s employer to be required to be provided by the taxpayer as a condition of, and for use in, the taxpayer’s employment as an eligible apprentice mechanic; and
(c) a taxpayer who, for a taxation year, is not an eligible apprentice mechanic and has an excess amount determined under the description of C in subparagraph (1)(r)(ii) is, for the taxation year, entitled to claim a deduction under that paragraph as if that excess amount were wholly applicable to an employment of the taxpayer.
Marginal note:Cost of tools of an apprentice mechanic
(7) Except for the purpose of the description of A in subparagraph (1)(r)(ii), the cost to a taxpayer of an eligible tool the cost of which was included in determining the value of that description in respect of the taxpayer for a taxation year is the amount determined by the formula
K - (K × L/M)
where
- K
- is the cost to the taxpayer of the tool determined without reference to this subsection;
- L
- is the amount that would be determined under subparagraph (1)(r)(ii) in respect of the taxpayer for the taxation year if the value of C in that subparagraph were nil; and
- M
- is the value of A determined under subparagraph (1)(r)(ii) in respect of the taxpayer for the taxation year.
Marginal note:Presumption
(9) Notwithstanding any other provision of this Act, the total of all amounts that would otherwise be deductible by a taxpayer pursuant to paragraph 8(1)(f), 8(1)(h) or 8(1)(j) for travelling in the course of the taxpayer’s employment in an aircraft that is owned or rented by the taxpayer, may not exceed an amount that is reasonable in the circumstances having regard to the relative cost and availability of other modes of transportation.
Marginal note:Certificate of employer
(10) An amount otherwise deductible for a taxation year under paragraph (1)(c), (f), (h) or (h.1) or subparagraph (1)(i)(ii) or (iii) by a taxpayer shall not be deducted unless a prescribed form, signed by the taxpayer’s employer certifying that the conditions set out in the applicable provision were met in the year in respect of the taxpayer, is filed with the taxpayer’s return of income for the year.
Marginal note:Goods and services tax
(11) For the purposes of this section and section 6, the amount of any rebate paid or payable to a taxpayer under the Excise Tax Act in respect of the goods and services tax shall be deemed not to be an amount that is reimbursed to the taxpayer or to which the taxpayer is entitled.
Marginal note:Forfeiture of securities by employee
(12) If, in a taxation year,
(a) an employee is deemed by subsection 7(2) to have disposed of a security (as defined in subsection 7(7)) held by a trust,
(b) the trust disposed of the security to the person that issued the security,
(c) the disposition occurred as a result of the employee not meeting the conditions necessary for title to the security to vest in the employee, and
(d) the amount paid by the person to acquire the security from the trust or to redeem or cancel the security did not exceed the amount paid to the person for the security,
the following rules apply:
(e) there may be deducted in computing the employee’s income for the year from employment the amount, if any, by which
(i) the amount of the benefit deemed by subsection 7(1) to have been received by the employee in the year or a preceding taxation year in respect of the security
exceeds
(ii) any amount deducted under paragraph 110(1)(d) or (d.1) in computing the employee’s taxable income for the year or a preceding taxation year in respect of that benefit, and
(f) notwithstanding any other provision of this Act, the employee’s gain or loss from the disposition of the security is deemed to be nil and section 84 does not apply to deem a dividend to have been received in respect of the disposition.
Marginal note:Work space in home
(13) Notwithstanding paragraphs 8(1)(f) and 8(1)(i),
(a) no amount is deductible in computing an individual’s income for a taxation year from an office or employment in respect of any part (in this subsection referred to as the “work space”) of a self-contained domestic establishment in which the individual resides, except to the extent that the work space is either
(i) the place where the individual principally performs the duties of the office or employment, or
(ii) used exclusively during the period in respect of which the amount relates for the purpose of earning income from the office or employment and used on a regular and continuous basis for meeting customers or other persons in the ordinary course of performing the duties of the office or employment;
(b) where the conditions set out in subparagraph 8(13)(a)(i) or 8(13)(a)(ii) are met, the amount in respect of the work space that is deductible in computing the individual’s income for the year from the office or employment shall not exceed the individual’s income for the year from the office or employment, computed without reference to any deduction in respect of the work space; and
(c) any amount in respect of a work space that was, solely because of paragraph 8(13)(b), not deductible in computing the individual’s income for the immediately preceding taxation year from the office or employment shall be deemed to be an amount in respect of a work space that is otherwise deductible in computing the individual’s income for the year from that office or employment and that, subject to paragraph 8(13)(b), may be deducted in computing the individual’s income for the year from the office or employment.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 8
- 1994, c. 7, Sch. II, s. 5, Sch. VIII, s. 2, c. 21, s. 4
- 1996, c. 23, s. 171
- 1998, c. 19, s. 69
- 1999, c. 22, s. 4
- 2000, c. 12, s. 142
- 2001, c. 17, s. 3
- 2002, c. 9, s. 21
SUBDIVISION bIncome or Loss from a Business or Property
Basic Rules
Marginal note:Income
9 (1) Subject to this Part, a taxpayer’s income for a taxation year from a business or property is the taxpayer’s profit from that business or property for the year.
Marginal note:Loss
(2) Subject to section 31, a taxpayer’s loss for a taxation year from a business or property is the amount of the taxpayer’s loss, if any, for the taxation year from that source computed by applying the provisions of this Act respecting computation of income from that source with such modifications as the circumstances require.
Marginal note:Gains and losses not included
(3) In this Act, “income from a property” does not include any capital gain from the disposition of that property and “loss from a property” does not include any capital loss from the disposition of that property.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- 1970-71-72, c. 63, s. 1“9”
- 1984, c. 1, s. 4
- 1986, c. 6, s. 4
Marginal note:Valuation of inventory
10 (1) For the purpose of computing a taxpayer’s income for a taxation year from a business that is not an adventure or concern in the nature of trade, property described in an inventory shall be valued at the end of the year at the cost at which the taxpayer acquired the property or its fair market value at the end of the year, whichever is lower, or in a prescribed manner.
Marginal note:Adventures in the nature of trade
(1.01) For the purpose of computing a taxpayer’s income from a business that is an adventure or concern in the nature of trade, property described in an inventory shall be valued at the cost at which the taxpayer acquired the property.
Marginal note:Certain expenses included in cost
(1.1) For the purposes of subsections 10(1), 10(1.01) and 10(10), where land is described in an inventory of a business of a taxpayer, the cost at which the taxpayer acquired the land shall include each amount that is
(a) described in paragraph 18(2)(a) or (b) in respect of the land and for which no deduction is permitted to the taxpayer, or to another person or partnership that is
(i) a person or partnership with whom the taxpayer does not deal at arm’s length,
(ii) if the taxpayer is a corporation, a person or partnership that is a specified shareholder of the taxpayer, or
(iii) if the taxpayer is a partnership, a person or partnership whose share of any income or loss of the taxpayer is 10% or more; and
(b) not included in or added to the cost to that other person or partnership of any property otherwise than because of paragraph 53(1)(d.3) or subparagraph 53(1)(e)(xi).
Marginal note:Continuation of valuation
(2) Notwithstanding subsection 10(1), for the purpose of computing income for a taxation year from a business, the inventory at the commencement of the year shall be valued at the same amount as the amount at which it was valued at the end of the preceding taxation year for the purpose of computing income for that preceding year.
Marginal note:Methods of valuation to be the same
(2.1) Where property described in an inventory of a taxpayer’s business that is not an adventure or concern in the nature of trade is valued at the end of a taxation year in accordance with a method permitted under this section, that method shall, subject to subsection 10(6), be used in the valuation of property described in the inventory at the end of the following taxation year for the purpose of computing the taxpayer’s income from the business unless the taxpayer, with the concurrence of the Minister and on any terms and conditions that are specified by the Minister, adopts another method permitted under this section.
Marginal note:Incorrect valuation
(3) Where the inventory of a business at the commencement of a taxation year has, according to the method adopted by the taxpayer for computing income from the business for that year, not been valued as required by subsection 10(1), the inventory at the commencement of that year shall, if the Minister so directs, be deemed to have been valued as required by that subsection.
Marginal note:Fair market value
(4) For the purpose of subsection 10(1), the fair market value of property (other than property that is obsolete, damaged or defective or that is held for sale or lease or for the purpose of being processed, fabricated, manufactured, incorporated into, attached to, or otherwise converted into property for sale or lease) that is
(a) work in progress at the end of a taxation year of a business that is a profession means the amount that can reasonably be expected to become receivable in respect thereof after the end of the year; and
(b) advertising or packaging material, parts, supplies or other property (other than work in progress of a business that is a profession) that is included in inventory means the replacement cost of the property.
Marginal note:Inventory
(5) Without restricting the generality of this section,
(a) property (other than capital property) of a taxpayer that is advertising or packaging material, parts or supplies or work in progress of a business that is a profession is, for greater certainty, inventory of the taxpayer;
(b) anything used primarily for the purpose of advertising or packaging property that is included in the inventory of a taxpayer shall be deemed not to be property held for sale or lease or for any of the purposes referred to in subsection 10(4); and
(c) property of a taxpayer, the cost of which to the taxpayer was deductible by virtue of paragraph 20(1)(mm), is, for greater certainty, inventory of the taxpayer having a cost to the taxpayer, except for the purposes of that paragraph, of nil.
Marginal note:Artistic endeavour
(6) Notwithstanding subsection 10(1), for the purpose of computing the income of an individual other than a trust for a taxation year from a business that is the individual’s artistic endeavour, the value of the inventory of the business for that year shall, if the individual so elects in the individual’s return of income under this Part for the year, be deemed to be nil.
Marginal note:Value in later years
(7) Where an individual has made an election pursuant to subsection 10(6) for a taxation year, the value of the inventory of a business that is the individual’s artistic endeavour shall, for each subsequent taxation year, be deemed to be nil unless the individual, with the concurrence of the Minister and on such terms and conditions as are specified by the Minister, revokes the election.
Definition of business that is an individual’s artistic endeavour
(8) For the purpose of this section, business that is an individual’s artistic endeavour means the business of creating paintings, prints, etchings, drawings, sculptures or similar works of art, where such works of art are created by the individual, but does not include a business of reproducing works of art.
Marginal note:Transition
(9) Where, at the end of a taxpayer’s last taxation year at the end of which property described in an inventory of a business that is an adventure or concern in the nature of trade was valued under subsection 10(1), the property was valued at an amount that is less than the cost at which the taxpayer acquired the property, after that time the cost to the taxpayer at which the property was acquired is, subject to subsection 10(10), deemed to be that amount.
Marginal note:Acquisition of control
(10) Notwithstanding subsection 10(1.01), property described in an inventory of a corporation’s business that is an adventure or concern in the nature of trade at the end of the corporation’s taxation year that ends immediately before the time at which control of the corporation is acquired by a person or group of persons shall be valued at the cost at which the corporation acquired the property, or its fair market value at the end of the year, whichever is lower, and, after that time, the cost at which the corporation acquired the property is, subject to a subsequent application of this subsection, deemed to be that lower amount.
Marginal note:Acquisition of control
(11) For the purposes of subsections 88(1.1) and 111(5), a corporation’s business that is at any time an adventure or concern in the nature of trade is deemed to be a business carried on at that time by the corporation.
Marginal note:Removing property from inventory
(12) If at any time a non-resident taxpayer ceases to use, in connection with a business or part of a business carried on by the taxpayer in Canada immediately before that time, a property that was immediately before that time described in the inventory of the business or the part of the business, as the case may be, (other than a property that was disposed of by the taxpayer at that time), the taxpayer is deemed
(a) to have disposed of the property immediately before that time for proceeds of disposition equal to its fair market value at that time; and
(b) to have received those proceeds immediately before that time in the course of carrying on the business or the part of the business, as the case may be.
Marginal note:Adding property to inventory
(13) If at any time a property becomes included in the inventory of a business or part of a business that a non-resident taxpayer carries on in Canada after that time (other than a property that was, otherwise than because of this subsection, acquired by the taxpayer at that time), the taxpayer is deemed to have acquired the property at that time at a cost equal to its fair market value at that time.
Marginal note:Work in progress
(14) For the purposes of subsections (12) and (13), property that is included in the inventory of a business includes property that would be so included if paragraph 34(a) did not apply.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 10
- 1994, c. 7, Sch. II, s. 6
- 1998, c. 19, s. 70
- 2001, c. 17, s. 4
Marginal note:Proprietor of business
11 (1) Subject to sections 34.1 and 34.2, where an individual is a proprietor of a business, the individual’s income from the business for a taxation year is deemed to be the individual’s income from the business for the fiscal periods of the business that end in the year.
Marginal note:Reference to “taxation year”
(2) Where an individual’s income for a taxation year includes income from a business the fiscal period of which does not coincide with the calendar year, unless the context otherwise requires, a reference in this subdivision or section 80.3 to a “taxation year” or “year” shall, in respect of the business, be read as a reference to a fiscal period of the business ending in the year.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 11
- 1994, c. 21, s. 5
- 1996, c. 21, s. 3
Inclusions
Marginal note:Income inclusions
12 (1) There shall be included in computing the income of a taxpayer for a taxation year as income from a business or property such of the following amounts as are applicable
Marginal note:Services, etc., to be rendered
(a) any amount received by the taxpayer in the year in the course of a business
(i) that is on account of services not rendered or goods not delivered before the end of the year or that, for any other reason, may be regarded as not having been earned in the year or a previous year, or
(ii) under an arrangement or understanding that it is repayable in whole or in part on the return or resale to the taxpayer of articles in or by means of which goods were delivered to a customer;
Marginal note:Amounts receivable
(b) any amount receivable by the taxpayer in respect of property sold or services rendered in the course of a business in the year, notwithstanding that the amount or any part thereof is not due until a subsequent year, unless the method adopted by the taxpayer for computing income from the business and accepted for the purpose of this Part does not require the taxpayer to include any amount receivable in computing the taxpayer’s income for a taxation year unless it has been received in the year, and for the purposes of this paragraph, an amount shall be deemed to have become receivable in respect of services rendered in the course of a business on the day that is the earlier of
(i) the day on which the account in respect of the services was rendered, and
(ii) the day on which the account in respect of those services would have been rendered had there been no undue delay in rendering the account in respect of the services;
Marginal note:Interest
(c) subject to subsections (3) and (4.1), any amount received or receivable by the taxpayer in the year (depending on the method regularly followed by the taxpayer in computing the taxpayer’s income) as, on account of, in lieu of payment of or in satisfaction of, interest to the extent that the interest was not included in computing the taxpayer’s income for a preceding taxation year;
Marginal note:Reserve for doubtful debts
(d) any amount deducted under paragraph 20(1)(l) as a reserve in computing the taxpayer’s income for the immediately preceding taxation year;
Marginal note:Reserve for guarantees, etc.
(d.1) any amount deducted under paragraph 20(1)(l.1) as a reserve in computing the taxpayer’s income for the immediately preceding taxation year;
Marginal note:Reserves for certain goods and services, etc.
(e) any amount
(i) deducted under paragraph 20(1)(m) (including any amount substituted by virtue of subsection 20(6) for any amount deducted under that paragraph), paragraph 20(1)(m.1) or subsection 20(7), or
(ii) deducted under paragraph 20(1)(n),
in computing the taxpayer’s income from a business for the immediately preceding year;
Marginal note:Negative reserves
(e.1) where the taxpayer is an insurer, the amount prescribed in respect of the insurer for the year;
Marginal note:Insurance proceeds expended
(f) such part of any amount payable to the taxpayer as compensation for damage to, or under a policy of insurance in respect of damage to, property that is depreciable property of the taxpayer as has been expended by the taxpayer
(i) within the year, and
(ii) within a reasonable time after the damage,
on repairing the damage;
Marginal note:Payments based on production or use
(g) any amount received by the taxpayer in the year that was dependent on the use of or production from property whether or not that amount was an instalment of the sale price of the property, except that an instalment of the sale price of agricultural land is not included by virtue of this paragraph;
Marginal note:Proceeds of disposition of right to receive production
(g.1) any proceeds of disposition to which subsection 18.1(6) applies;
Marginal note:Previous reserve for quadrennial survey
(h) any amount deducted as a reserve under paragraph 20(1)(o) in computing the taxpayer’s income for the immediately preceding year;
Marginal note:Bad debts recovered
(i) any amount, other than an amount referred to in paragraph 12(1)(i.1), received in the year on account of a debt or a loan or lending asset in respect of which a deduction for bad debts or uncollectable loans or lending assets was made in computing the taxpayer’s income for a preceding taxation year;
Marginal note:Bad debts recovered
(i.1) where an amount is received in the year on account of a debt in respect of which a deduction for bad debts was made under subsection 20(4.2) in computing the taxpayer’s income for a preceding taxation year, the amount determined by the formula
A × B/C
where
- A
- is 1/2 of the amount so received,
- B
- is the amount that was deducted under subsection 20(4.2) in respect of the debt, and
- C
- is the total of the amount that was so deducted under subsection 20(4.2) and the amount that was deemed by that subsection or subsection 20(4.3) to be an allowable capital loss in respect of the debt;
Marginal note:Dividends from resident corporations
(j) any amount required by subdivision h to be included in computing the taxpayer’s income for the year in respect of a dividend paid by a corporation resident in Canada on a share of its capital stock;
Marginal note:Dividends from other corporations
(k) any amount required by subdivision i to be included in computing the taxpayer’s income for the year in respect of a dividend paid by a corporation not resident in Canada on a share of its capital stock or in respect of a share owned by the taxpayer of the capital stock of a foreign affiliate of the taxpayer;
Marginal note:Partnership income
(l) any amount that is, by virtue of subdivision j, income of the taxpayer for the year from a business or property;
Marginal note:Benefits from trusts
(m) any amount required by subdivision k or subsection 132.1(1) to be included in computing the taxpayer’s income for the year, except
(i) any amount deemed by that subdivision to be a taxable capital gain of the taxpayer, and
(ii) any amount paid or payable to the taxpayer out of or under an RCA trust (within the meaning assigned by subsection 207.5(1));
Marginal note:Employees profit sharing plan
(n) any amount received by the taxpayer in the year out of or under
(i) an employees profit sharing plan, or
(ii) an employee trust
established for the benefit of employees of the taxpayer or of a person with whom the taxpayer does not deal at arm’s length;
Marginal note:Employee benefit plan
(n.1) the amount, if any, by which the total of amounts received by the taxpayer in the year out of or under an employee benefit plan to which the taxpayer has contributed as an employer (other than amounts included in the income of the taxpayer by virtue of paragraph 12(1)(m)) exceeds the amount, if any, by which the total of all amounts
(i) so contributed by the taxpayer to the plan, or
(ii) included in computing the taxpayer’s income for any preceding taxation year by virtue of this paragraph
exceeds the total of all amounts
(iii) deducted by the taxpayer in respect of the taxpayer’s contributions to the plan in computing the taxpayer’s income for the year or any preceding taxation year, or
(iv) received by the taxpayer out of or under the plan in any preceding taxation year (other than an amount included in the taxpayer’s income by virtue of paragraph 12(1)(m));
Marginal note:Forfeited salary deferral amounts
(n.2) where deferred amounts under a salary deferral arrangement in respect of another person have been deducted under paragraph 20(1)(oo) in computing the taxpayer’s income for preceding taxation years, any amount in respect of the deferred amounts that was deductible under paragraph 8(1)(o) in computing the income of the person for a taxation year ending in the year;
Marginal note:Retirement compensation arrangement
(n.3) the total of all amounts received by the taxpayer in the year in the course of a business out of or under a retirement compensation arrangement to which the taxpayer, another person who carried on a business that was acquired by the taxpayer, or any person with whom the taxpayer or that other person does not deal at arm’s length, has contributed an amount that was deductible under paragraph 20(1)(r) in computing the contributor’s income for a taxation year;
(o) [Repealed, 2003, c. 28, s. 1(2)]
Marginal note:Foreign oil and gas production taxes
(o.1) the total of all amounts, each of which is the taxpayer’s production tax amount for a foreign oil and gas business of the taxpayer for the year, within the meaning assigned by subsection 126(7);
Marginal note:Certain payments to farmers
(p) any amount received by the taxpayer in the year as a stabilization payment, or as a refund of a levy, under the Western Grain Stabilization Act or as a payment, or a refund of a premium, in respect of the gross revenue insurance program established under the Farm Income Protection Act;
Marginal note:Employment tax deduction
(q) any amount deducted under subsection 127(13) or (14) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, by the taxpayer for the year;
Marginal note:Inventory adjustment
(r) the total of all amounts each of which, in respect of a property described in the taxpayer’s inventory at the end of the year and valued at its cost amount to the taxpayer for the purposes of computing the taxpayer’s income for the year, is an allowance in respect of depreciation, obsolescence or depletion included in that cost amount;
Marginal note:Reinsurance commission
(s) the total of all amounts each of which is the maximum amount that an insurer may claim in the year in respect of a reserve for a reinsurance commission for a policy as allowed by regulations made under paragraph 20(7)(c) in respect of a risk the reinsurance of which is assumed by the taxpayer;
Marginal note:Investment tax credit
(t) the amount deducted under subsection 127(5) or 127(6) in respect of a property acquired or an expenditure made in a preceding taxation year in computing the taxpayer’s tax payable for a preceding taxation year to the extent that it was not included in computing the taxpayer’s income for a preceding taxation year under this paragraph or is not included in an amount determined under paragraph 13(7.1)(e) or 37(1)(e), subparagraph 53(2)(c)(vi) or 53(2)(h)(ii) or for I in the definition undepreciated capital cost in subsection 13(21) or L in the definition cumulative Canadian exploration expense in subsection 66.1(6);
Marginal note:Home insulation or energy conversion grants
(u) the amount of any grant received by the taxpayer in the year under a prescribed program of the Government of Canada relating to home insulation or energy conversion in respect of a property used by the taxpayer principally for the purpose of gaining or producing income from a business or property;
Marginal note:Research and development deductions
(v) the amount, if any, by which the total of amounts determined at the end of the year in respect of the taxpayer under paragraphs 37(1)(d) to 37(1)(h) exceeds the total of amounts determined at the end of the year in respect of the taxpayer under paragraphs 37(1)(a) to 37(1)(c.1);
Marginal note:S. 80.4(1) benefit
(w) where the taxpayer is a corporation that carried on a personal services business at any time in the year or a preceding taxation year, the amount deemed by subsection 80.4(1) to be a benefit received by it in the year from carrying on a personal services business;
Marginal note:Inducement, reimbursement, etc.
(x) any particular amount (other than a prescribed amount) received by the taxpayer in the year, in the course of earning income from a business or property, from
(i) a person or partnership (in this paragraph referred to as the “payer”) who pays the particular amount
(A) in the course of earning income from a business or property,
(B) in order to achieve a benefit or advantage for the payer or for persons with whom the payer does not deal at arm’s length, or
(C) in circumstances where it is reasonable to conclude that the payer would not have paid the amount but for the receipt by the payer of amounts from a payer, government, municipality or public authority described in this subparagraph or in subparagraph (ii), or
(ii) a government, municipality or other public authority,
where the particular amount can reasonably be considered to have been received
(iii) as an inducement, whether as a grant, subsidy, forgivable loan, deduction from tax, allowance or any other form of inducement, or
(iv) as a refund, reimbursement, contribution or allowance or as assistance, whether as a grant, subsidy, forgivable loan, deduction from tax, allowance or any other form of assistance, in respect of
(A) an amount included in, or deducted as, the cost of property, or
(B) an outlay or expense,
to the extent that the particular amount
(v) was not otherwise included in computing the taxpayer’s income, or deducted in computing, for the purposes of this Act, any balance of undeducted outlays, expenses or other amounts, for the year or a preceding taxation year,
(vi) except as provided by subsection 127(11.1), 127(11.5) or 127(11.6), does not reduce, for the purpose of an assessment made or that may be made under this Act, the cost or capital cost of the property or the amount of the outlay or expense, as the case may be,
(vii) does not reduce, under subsection 12(2.2) or 13(7.4) or paragraph 53(2)(s), the cost or capital cost of the property or the amount of the outlay or expense, as the case may be, and
(viii) may not reasonably be considered to be a payment made in respect of the acquisition by the payer or the public authority of an interest in the taxpayer or the taxpayer’s business or property;
Marginal note:Fuel tax rebates
(x.1) the total of all amounts each of which is
(i) a fuel tax rebate received in the year by the taxpayer under subsection 68.4(3) of the Excise Tax Act, or
(ii) the amount determined by the formula
10(A - B) - C
where
- A
- is the total of all fuel tax rebates under subsections 68.4(2) and (3.1) of that Act received in the year by the taxpayer,
- B
- is the total of all amounts, in respect of fuel tax rebates under section 68.4 of that Act received in the year by the taxpayer, repaid by the taxpayer under subsection 68.4(7) of that Act, and
- C
- is the total of all amounts, in respect of fuel tax rebates under section 68.4 of that Act received in the year, deducted under subsection 111(10) in computing the taxpayer’s non-capital losses for other taxation years;
Marginal note:Crown charge rebates
(x.2) the total of all amounts each of which is an amount that
(i) was received by the taxpayer, including by way of a deduction from tax, in the year as a refund, reimbursement, contribution or allowance, in respect of an amount that was at any time receivable, directly or indirectly in any manner whatever, by Her Majesty in right of Canada or of a province in respect of
(A) the acquisition, development or ownership of a Canadian resource property, or
(B) the production in Canada from a mineral resource, a natural accumulation of petroleum or natural gas, or an oil or a gas well, and
(ii) was not otherwise included in computing the taxpayer’s income for the year or a preceding taxation year;
Marginal note:Automobile provided to partner
(y) where the taxpayer is an individual who is a member of a partnership or an employee of a member of a partnership and the partnership makes an automobile available in the year to the taxpayer or to a person related to the taxpayer, the amounts that would be included by reason of paragraph 6(1)(e) in the income of the taxpayer for the year if the taxpayer were employed by the partnership;
Marginal note:Amateur athlete trust payments
(z) any amount in respect of an amateur athlete trust required by section 143.1 to be included in computing the taxpayer’s income for the year;
Marginal note:Qualifying environmental trusts
(z.1) the total of all amounts received by the taxpayer in the year as a beneficiary under a qualifying environmental trust, whether or not the amounts are included because of subsection 107.3(1) in computing the taxpayer’s income for any taxation year;
Marginal note:Dispositions of interests in qualifying environmental trusts
(z.2) the total of all amounts each of which is the consideration received by the taxpayer in the year for the disposition to another person or partnership of all or part of the taxpayer’s interest as a beneficiary under a qualifying environmental trust, other than consideration that is the assumption of a reclamation obligation in respect of the trust;
Marginal note:Debt forgiveness
(z.3) any amount required because of subsection 80(13) or 80(17) to be included in computing the taxpayer’s income for the year;
Marginal note:Eligible funeral arrangements
(z.4) any amount required because of subsection 148.1(3) to be included in computing the taxpayer’s income for the year;
(z.5) [Repealed, 2003, c. 28, s. 1(4)]
Marginal note:Refunds
(z.6) any amount received by the taxpayer in the year in respect of a refund of an amount that was deducted under paragraph 20(1)(vv) in computing income for any taxation year.
Marginal note:Interpretation
(2) Paragraphs 12(1)(a) and 12(1)(b) are enacted for greater certainty and shall not be construed as implying that any amount not referred to in those paragraphs is not to be included in computing income from a business for a taxation year whether it is received or receivable in the year or not.
Marginal note:Receipt of inducement, reimbursement, etc.
(2.1) For the purposes of paragraph 12(1)(x), where at a particular time a taxpayer who is a beneficiary of a trust or a member of a partnership has received an amount as an inducement, whether as a grant, subsidy, forgivable loan, deduction from tax, allowance or any other form of inducement, in respect of the activities of the trust or partnership, or as a reimbursement, contribution, allowance or as assistance, whether as a grant, subsidy, forgivable loan, deduction from tax, allowance or any other form of assistance, in respect of the cost of property or in respect of an expense of the trust or partnership, the amount shall be deemed to have been received at that time by the trust or partnership, as the case may be, as such an inducement, reimbursement, contribution, allowance or assistance.
Marginal note:Deemed outlay or expense
(2.2) Where
(a) in a taxation year a taxpayer receives an amount that would, but for this subsection, be included under paragraph 12(1)(x) in computing the taxpayer’s income for the year in respect of an outlay or expense (other than an outlay or expense in respect of the cost of property of the taxpayer) made or incurred by the taxpayer before the end of the following taxation year, and
(b) the taxpayer elects under this subsection on or before the day on or before which the taxpayer’s return of income under this Part for the year is required to be filed, or would be required to be filed if tax under this Part were payable by the taxpayer for the year or, where the outlay or expense is made or incurred in the following taxation year, for that following year,
the amount of the outlay or expense shall be deemed for the purpose of computing the taxpayer’s income, other than for the purposes of this subsection and paragraphs 12(1)(x) and 20(1)(hh), to have always been the amount, if any, by which
(c) the amount of the outlay or expense
exceeds
(d) the lesser of the amount elected by the taxpayer under this subsection and the amount so received by the taxpayer,
and, notwithstanding subsections 152(4) to 152(5), such assessment or reassessment of the taxpayer’s tax, interest and penalties under this Act for any taxation year shall be made as is necessary to give effect to the election.
Marginal note:Interest income
(3) Subject to subsection 12(4.1), in computing the income for a taxation year of a corporation, partnership, unit trust or any trust of which a corporation or a partnership is a beneficiary, there shall be included any interest on a debt obligation (other than interest in respect of an income bond, an income debenture, a small business bond, a small business development bond, a net income stabilization account or an indexed debt obligation) that accrues to it to the end of the year, or becomes receivable or is received by it before the end of the year, to the extent that the interest was not included in computing its income for a preceding taxation year.
Marginal note:Interest from investment contract
(4) Subject to subsection 12(4.1), where in a taxation year a taxpayer (other than a taxpayer to whom subsection 12(3) applies) holds an interest in an investment contract on any anniversary day of the contract, there shall be included in computing the taxpayer’s income for the year the interest that accrued to the taxpayer to the end of that day with respect to the investment contract, to the extent that the interest was not otherwise included in computing the taxpayer’s income for the year or any preceding taxation year.
Marginal note:Impaired debt obligations
(4.1) Paragraph 12(1)(c) and subsections 12(3) and 12(4) do not apply to a taxpayer in respect of a debt obligation for the part of a taxation year throughout which the obligation is impaired where an amount in respect of the obligation is deductible because of subparagraph 20(1)(l)(ii) in computing the taxpayer’s income for the year.
Marginal note:Deemed accrual
(9) For the purposes of subsections 12(3), 12(4) and 12(11) and 20(14) and 20(21), where a taxpayer acquires an interest in a prescribed debt obligation, an amount determined in prescribed manner shall be deemed to accrue to the taxpayer as interest on the obligation in each taxation year during which the taxpayer holds the interest in the obligation.
Marginal note:Exclusion of proceeds of disposition
(9.1) Where a taxpayer disposes of an interest in a debt obligation that is a debt obligation in respect of which the proportion of the payments of principal to which the taxpayer is entitled is not equal to the proportion of the payments of interest to which the taxpayer is entitled, such portion of the proceeds of disposition received by the taxpayer as can reasonably be considered to represent a recovery of the cost to the taxpayer of the interest in the debt obligation shall, notwithstanding any other provision of this Act, not be included in computing the income of the taxpayer, and for the purpose of this subsection, a debt obligation includes, for greater certainty, all of the issuer’s obligations to pay principal and interest under that obligation.
Marginal note:Income from R.H.O.S.P
(10.1) Notwithstanding any other provision of this Act, where an individual was at the end of 1985 a beneficiary under a registered home ownership savings plan (within the meanings assigned by paragraphs 146.2(1)(a) and (h) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as they read in their application to the 1985 taxation year), that portion of the income that can reasonably be considered to have accrued under the plan before 1986 (other than the portion thereof that can reasonably be considered to be attributable to amounts contributed after May 22, 1985 to or under the plan) shall not be included in computing the income of the individual or of any other person.
Marginal note:NISA receipts
(10.2) There shall be included in computing a taxpayer’s income for a taxation year from a property the total of all amounts each of which is the amount determined by the formula
A - B
where
- A
- is an amount paid at a particular time in the year out of the taxpayer’s NISA Fund No. 2; and
- B
- is the amount, if any, by which
(a) the total of all amounts each of which is deemed by subsection 104(5.1) or 104(14.1) to have been paid out of the taxpayer’s NISA Fund No. 2 before the particular time, or is deemed by subsection 70(5.4) or 73(5) to have been paid out of another person’s NISA Fund No. 2 on being transferred to the taxpayer’s NISA Fund No. 2 before the particular time,
exceeds
(b) the total of all amounts each of which is the amount by which an amount otherwise determined under this subsection in respect of a payment out of the taxpayer’s NISA Fund No. 2 before the particular time was reduced because of this description.
Marginal note:Amount credited or added not included in income
(10.3) Notwithstanding any other provision of this Act, an amount credited or added to a taxpayer’s NISA Fund No. 2 shall not be included in computing the taxpayer’s income solely because of that crediting or adding.
Marginal note:Definitions
(11) In this section,
anniversary day
jour anniversaire
anniversary day of an investment contract means
(a) the day that is one year after the day immediately preceding the date of issue of the contract,
(b) the day that occurs at every successive one year interval from the day determined under paragraph (a), and
(c) the day on which the contract was disposed of; (jour anniversaire)
investment contract
contrat de placement
investment contract, in relation to a taxpayer, means any debt obligation other than
(a) a salary deferral arrangement or a plan or arrangement that, but for any of paragraphs (a), (b) and (d) to (l) of the definition salary deferral arrangement in subsection 248(1), would be a salary deferral arrangement,
(b) a retirement compensation arrangement or a plan or arrangement that, but for any of paragraphs (a), (b), (d) and (f) to (n) of the definition retirement compensation arrangement in subsection 248(1), would be a retirement compensation arrangement,
(c) an employee benefit plan or a plan or arrangement that, but for any of paragraphs (a) to (e) of the definition employee benefit plan in subsection 248(1), would be an employee benefit plan,
(d) a foreign retirement arrangement,
(e) an income bond,
(f) an income debenture,
(g) a small business development bond,
(h) a small business bond,
(i) an obligation in respect of which the taxpayer has (otherwise than because of subsection 12(4)) at periodic intervals of not more than one year, included, in computing the taxpayer’s income throughout the period in which the taxpayer held an interest in the obligation, the income accrued thereon for such intervals,
(j) an obligation in respect of a net income stabilization account,
(k) an indexed debt obligation, and
(l) a prescribed contract. (contrat de placement)
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 12
- 1994, c. 7, Sch. II, s. 7, Sch. VI, s. 2, Sch. VIII, s. 3, c. 21, s. 6
- 1995, c. 3, s. 2, c. 21, s. 76
- 1996, c. 21, s. 4
- 1997, c. 10, s. 268, c. 25, s. 2, c. 26, s. 82
- 1998, c. 19, ss. 2 and 71
- 1999, c. 22, s. 5
- 2001, c. 17, s. 5
- 2003, c. 28, s. 1
Marginal note:Cash bonus on Canada Savings Bonds
12.1 Notwithstanding any other provision of this Act, where in a taxation year a taxpayer receives an amount from the Government of Canada in respect of a Canada Savings Bond as a cash bonus that the Government of Canada has undertaken to pay (other than any amount of interest, bonus or principal agreed to be paid at the time of the issue of the bond under the terms of the bond), the taxpayer shall, in computing the taxpayer’s income for the year, include as interest in respect of the Canada Savings Bond 1/2 of the cash bonus so received.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- 1974-75-76, c. 26, s. 5
- 1986, c. 6, s. 7
Marginal note:Amount to be included
12.2 (1) Where in a taxation year a taxpayer holds an interest, last acquired after 1989, in a life insurance policy that is not
(a) an exempt policy,
(b) a prescribed annuity contract, and
(c) a contract under which the policyholder has, under the terms and conditions of a life insurance policy that was not an annuity contract and that was last acquired before December 2, 1982, received the proceeds therefrom in the form of an annuity contract,
on any anniversary day of the policy, there shall be included in computing the taxpayer’s income for the taxation year the amount, if any, by which the accumulating fund on that day in respect of the interest in the policy, as determined in prescribed manner, exceeds the adjusted cost basis to the taxpayer of the interest in the policy on that day.
(3) [Repealed, 1994, c. 7, Sch. II, s. 8(2)]
Marginal note:Idem
(5) Where in a taxation year subsection 12.2(1) applies with respect to a taxpayer’s interest in an annuity contract (or would apply if the contract had an anniversary day in the year at a time when the taxpayer held the interest), there shall be included in computing the taxpayer’s income for the year the amount, if any, by which
(a) the total of all amounts each of which is an amount determined at the end of the year, in respect of the interest, for any of H to L in the definition adjusted cost basis in subsection 148(9)
exceeds
(b) the total of all amounts each of which is an amount determined at the end of the year, in respect of the interest, for any of A to G in the definition referred to in paragraph 12.2(5)(a).
Marginal note:Deemed acquisition of interest in annuity
(8) For the purposes of this section, the first premium that was not fixed before 1990 and that was paid after 1989 by or on behalf of a taxpayer under an annuity contract, other than a contract described in paragraph (1)(d) of this section, or paragraph 12.2(3)(e) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, or to which subsection (1) of this section or subsection 12.2(4) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, applies (as those paragraphs and subsections, the numbers of which are those in force immediately before December 17, 1991, read in their application to life insurance policies last acquired before 1990) or to which subsection 12(3) applies, last acquired by the taxpayer before 1990 (in this subsection referred to as the “original contract”) shall be deemed to have been paid to acquire, at the time the premium was paid, an interest in a separate annuity contract issued at that time, to the extent that the amount of the premium was not fixed before 1990, and each subsequent premium paid under the original contract shall be deemed to have been paid under that separate contract to the extent that the amount of that subsequent premium was not fixed before 1990.
Marginal note:Riders
(10) For the purposes of this Act, a rider added at any time after 1989 to a life insurance policy last acquired before 1990 that provides additional life insurance is deemed to be a separate life insurance policy issued at that time unless
(a) the policy is an exempt policy last acquired after December 1, 1982 or an annuity contract; or
(b) the only additional life insurance provided by the rider is an accidental death benefit.
Marginal note:Definitions
(11) In this section and paragraph 56(1)(d.1) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952,
- anniversary day
anniversary day of a life insurance policy means
(a) the day that is one year after the day immediately preceding the day on which the policy was issued, and
(b) each day that occurs at each successive one-year interval after the day determined under paragraph (a). (jour anniversaire)
- exempt policy
exempt policy has the meaning prescribed by regulation. (police exonérée)
Marginal note:Application of ss. 138(12) and 148(9)
(12) The definitions in subsections 138(12) and 148(9) apply to this section.
Marginal note:Application of s. 148(10)
(13) Subsection 148(10) applies to this section.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 12.2
- 1994, c. 7, Sch. II, s. 8
- 1998, c. 19, s. 72
Marginal note:Transition inclusion re unpaid claims reserve
12.3 Where an amount has been deducted under subsection 20(26) in computing the income of an insurer for its taxation year that includes February 23, 1994, there shall be included in computing the insurer’s income for that taxation year and each subsequent taxation year that begins before 2004, the prescribed portion for the year of the amount so deducted.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 12.3
- 1995, c. 3, s. 3
Marginal note:Bad debt inclusion
12.4 Where, in a taxation year, a taxpayer disposes of a property that was a property described in an inventory of the taxpayer and in the year or a preceding taxation year an amount has been deducted under paragraph 20(1)(p) in computing the taxpayer’s income in respect of the property, there shall be included in computing the taxpayer’s income for the year from the business in which the property was used or held, the amount, if any, by which
(a) the total of all amounts deducted under paragraph 20(1)(p) by the taxpayer in respect of the property in computing the taxpayer’s income for the year or a preceding taxation year
exceeds
(b the total of all amounts included under paragraph 12(1)(i) by the taxpayer in respect of the property in computing the taxpayer’s income for the year or a preceding taxation year.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- 1988, c. 55, s. 5
Marginal note:Recaptured depreciation
13 (1) Where, at the end of a taxation year, the total of the amounts determined for E to J in the definition undepreciated capital cost in subsection 13(21) in respect of a taxpayer’s depreciable property of a particular prescribed class exceeds the total of the amounts determined for A to in that definition in respect thereof, the excess shall be included in computing the taxpayer’s income for the year.
Marginal note:Idem
(2) Notwithstanding subsection 13(1), where an excess amount is determined under that subsection at the end of a taxation year in respect of a passenger vehicle having a cost to a taxpayer in excess of $20,000 or such other amount as may be prescribed, that excess amount shall not be included in computing the taxpayer’s income for the year but shall be deemed, for the purposes of B in the definition undepreciated capital cost in subsection 13(21), to be an amount included in the taxpayer’s income for the year by reason of this section.
Marginal note:“Taxation year”, “year” and “income” of individual
(3) Where a taxpayer is an individual whose income for a taxation year includes income from a business the fiscal period of which does not coincide with the calendar year and depreciable property acquired for the purpose of gaining or producing income from the business has been disposed of,
(a) for greater certainty, each reference in subsections 13(1) and 13(2) to a “taxation year” and “year” shall be read as a reference to a “fiscal period”; and
(b) a reference in subsection 13(1) to “the income” shall be read as a reference to “the income from the business”.
Marginal note:Exchanges of property
(4) Where an amount in respect of the disposition in a taxation year (in this subsection referred to as the “initial year”) of depreciable property (in this section referred to as the “former property”) of a prescribed class of a taxpayer would, but for this subsection, be the amount determined for F or G in the definition undepreciated capital cost in subsection 13(21) in respect of the disposition of the former property that is either
(a) property the proceeds of disposition of which were proceeds referred to in paragraph (b), (c) or (d) of the definition proceeds of disposition in subsection 13(21), or
(b) a property that was, immediately before the disposition, a former business property of the taxpayer,
and the taxpayer so elects under this subsection in the taxpayer’s return of income for the taxation year in which the taxpayer acquires a depreciable property of a prescribed class of the taxpayer that is a replacement property for the taxpayer’s former property,
(c) the amount otherwise determined for F or G in the definition undepreciated capital cost in subsection 13(21) in respect of the disposition of the former property shall be reduced by the lesser of
(i) the amount, if any, by which the amount otherwise determined for F or G in that definition exceeds the undepreciated capital cost to the taxpayer of property of the prescribed class to which the former property belonged at the time immediately before the time that the former property was disposed of, and
(ii) the amount that has been used by the taxpayer to acquire
(A) where the former property is referred to in paragraph 13(4)(a), before the end of the second taxation year following the initial year, or
(B) in any other case, before the end of the first taxation year following the initial year,
a replacement property of a prescribed class that has not been disposed of by the taxpayer before the time at which the taxpayer disposed of the former property, and
(d) the amount of the reduction determined under paragraph 13(4)(c) shall be deemed to be proceeds of disposition of a depreciable property of the taxpayer that had a capital cost equal to that amount and that was property of the same class as the replacement property, from a disposition made on the later of
(i) the time the replacement property was acquired by the taxpayer, and
(ii) the time the former property was disposed of by the taxpayer.
Marginal note:Replacement for a former property
(4.1) For the purposes of subsection 13(4), a particular depreciable property of a prescribed class of a taxpayer is a replacement for a former property of the taxpayer if
(a) it is reasonable to conclude that the property was acquired by the taxpayer to replace the former property;
(a.1) it was acquired by the taxpayer and used by the taxpayer or a person related to the taxpayer for a use that is the same as or similar to the use to which the taxpayer or a person related to the taxpayer put the former property;
(b) where the former property was used by the taxpayer or a person related to the taxpayer for the purpose of gaining or producing income from a business, the particular depreciable property was acquired for the purpose of gaining or producing income from that or a similar business or for use by a person related to the taxpayer for such a purpose;
(c) where the former property was a taxable Canadian property of the taxpayer, the particular depreciable property is a taxable Canadian property of the taxpayer; and
(d) where the former property was a taxable Canadian property (other than treaty-protected property) of the taxpayer, the particular depreciable property is a taxable Canadian property (other than treaty-protected property) of the taxpayer.
Marginal note:Reclassification of property
(5) Where one or more depreciable properties of a taxpayer that were included in a prescribed class (in this subsection referred to as the “old class”) become included at any time (in this subsection referred to as the “transfer time”) in another prescribed class (in this subsection referred to as the “new class”), for the purpose of determining at any subsequent time the undepreciated capital cost to the taxpayer of depreciable property of the old class and the new class
(a) the value of A in the definition undepreciated capital cost in subsection 13(21) shall be determined as if each of those depreciable properties were
(i) properties of the new class acquired before the subsequent time, and
(ii) never included in the old class; and
(b) there shall be deducted in computing the total depreciation allowed to the taxpayer for property of the old class before the subsequent time, and added in computing the total depreciation allowed to the taxpayer for property of the new class before the subsequent time, the greater of
(i) the amount determined by the formula
A - B
where
- A
- is the total of all amounts each of which is the capital cost to the taxpayer of each of those depreciable properties, and
- B
- is the undepreciated capital cost to the taxpayer of depreciable property of the old class at the transfer time, and
(ii) the total of all amounts each of which is an amount that would have been deducted under paragraph 20(1)(a) in respect of a depreciable property that is one of those properties in computing the taxpayer’s income for a taxation year that ended before the transfer time and at the end of which the property was included in the old class if
(A) the property had been the only property included in a separate prescribed class, and
(B) the rate allowed by the regulations made for the purpose of paragraph 20(1)(a) in respect of that separate class had been the effective rate that was used by the taxpayer to calculate a deduction under that paragraph in respect of the old class for the year.
Marginal note:Rules applicable
(5.1) Where at any time in a taxation year a taxpayer acquires a particular property in respect of which, immediately before that time, the taxpayer had a leasehold interest that was included in a prescribed class, for the purposes of this section, section 20 and any regulations made under paragraph 20(1)(a), the following rules apply:
(a) the leasehold interest shall be deemed to have been disposed of by the taxpayer at that time for proceeds of disposition equal to the amount, if any, by which
(i) the capital cost immediately before that time of the leasehold interest
exceeds
(ii) the total of all amounts claimed by the taxpayer in respect of the leasehold interest and deductible under paragraph 20(1)(a) in computing the taxpayer’s income in previous taxation years;
(b) the particular property shall be deemed to be depreciable property of a prescribed class of the taxpayer acquired by the taxpayer at that time and there shall be added to the capital cost to the taxpayer of the property an amount equal to the capital cost referred to in subparagraph 13(5.1)(a)(i); and
(c) the total referred to in subparagraph 13(5.1)(a)(ii) shall be added to the total depreciation allowed to the taxpayer before that time in respect of the class to which the particular property belongs.
Marginal note:Idem
(5.2) Where, at any time, a taxpayer has acquired a capital property that is depreciable property or real property in respect of which, before that time, the taxpayer or any person with whom the taxpayer was not dealing at arm’s length was entitled to a deduction in computing income in respect of any amount paid or payable for the use of, or the right to use, the depreciable property or real property and the cost or the capital cost (determined without reference to this subsection) at that time of the property to the taxpayer is less than the fair market value thereof at that time determined without reference to any option with respect to that property, for the purposes of this section, section 20 and any regulations made under paragraph 20(1)(a), the following rules apply:
(a) the property shall be deemed to have been acquired by the taxpayer at that time at a cost equal to the lesser of
(i) the fair market value of the property at that time determined without reference to any option with respect to that property, and
(ii) the total of the cost or the capital cost (determined without reference to this subsection) of the property to the taxpayer and all amounts (other than amounts paid or payable to a person with whom the taxpayer was not dealing at arm’s length) each of which is an outlay or expense made or incurred by the taxpayer or by a person with whom the taxpayer was not dealing at arm’s length at any time for the use of, or the right to use, the property,
and for the purposes of this paragraph and subsection 13(5.3), where a particular corporation has been incorporated or otherwise formed after the time any other corporation with which the particular corporation would not have been dealing at arm’s length had the particular corporation been in existence before that time, the particular corporation shall be deemed to have been in existence from the time of the formation of the other corporation and to have been not dealing at arm’s length with the other corporation;
(b) the amount by which the cost to the taxpayer of the property determined under paragraph 13(5.2)(a) exceeds the cost or the capital cost thereof (determined without reference to this subsection) shall be added to the total depreciation allowed to the taxpayer before that time in respect of the prescribed class to which the property belongs; and
(c) where the property would, but for this paragraph, not be depreciable property of the taxpayer, it shall be deemed to be depreciable property of a separate prescribed class of the taxpayer.
Marginal note:Idem
(5.3) Where, at any time in a taxation year, a taxpayer has disposed of a capital property that is an option with respect to depreciable property or real property in respect of which the taxpayer or any person with whom the taxpayer was not dealing at arm’s length was entitled to a deduction in computing income in respect of any amount paid for the use of, or the right to use, the depreciable property or real property, for the purposes of this section, the amount, if any, by which the proceeds of disposition to the taxpayer of the option exceed the taxpayer’s cost in respect thereof shall be deemed to be an excess referred to in subsection 13(1) in respect of the taxpayer for the year.
Marginal note:Idem
(5.4) Where, before the time of disposition of a capital property that was depreciable property of a taxpayer, the taxpayer, or any person with whom the taxpayer was not dealing at arm’s length, was entitled to a deduction in computing income in respect of any outlay or expense made or incurred for the use of, or the right to use, during a period of time, that capital property (other than an outlay or expense made or incurred by the taxpayer or a person with whom the taxpayer was not dealing at arm’s length before the acquisition of the property), except where the taxpayer disposed of the property to a person with whom the taxpayer was not dealing at arm’s length and that person was subject to the provisions of subsection 13(5.2) with respect to the acquisition by that person of the property, the following rules apply:
(a) an amount equal to the lesser of
(i) the total of all amounts (other than amounts paid or payable to the taxpayer or a person with whom the taxpayer was not dealing at arm’s length) each of which was a deductible outlay or expense made or incurred before the time of disposition by the taxpayer, or by a person with whom the taxpayer was not dealing at arm’s length, for the use of, or the right to use, during the period of time, the property, and
(ii) the amount, if any, by which the fair market value of the property at the earlier of
(A) the expiration of the last period of time in respect of which the deductible outlay or expense referred to in subparagraph 13(5.4)(a)(i) was made or incurred, and
(B) the time of the disposition
exceeds the capital cost to the taxpayer of the property immediately before that time
shall immediately before the time of the disposition, be added to the capital cost of the property to the person who owned the property at that time; and
(b) the amount added to the capital cost to the taxpayer of the property pursuant to paragraph 13(5.4)(a) shall be added immediately before the time of the disposition to the total depreciation allowed to the taxpayer before that time in respect of the prescribed class to which the property belongs.
Marginal note:Lease cancellation payment
(5.5) For the purposes of subsection 13(5.4), an amount deductible by a taxpayer under paragraph 20(1)(z) or 20(1)(z.1) in respect of a cancellation of a lease of property shall, for greater certainty, be deemed not to be an outlay or expense that was made or incurred by the taxpayer for the use of, or the right to use, the property.
Marginal note:Misclassified property
(6) Where, in calculating the amount of a deduction allowed to a taxpayer under subsection 20(16) or regulations made for the purposes of paragraph 20(1)(a) in respect of depreciable property of the taxpayer of a prescribed class (in this subsection referred to as the “particular class”), there has been added to the capital cost to the taxpayer of depreciable property of the particular class the capital cost of depreciable property (in this subsection referred to as “added property”) of another prescribed class, for the purposes of this section, section 20 and any regulations made for the purposes of paragraph 20(1)(a), the added property shall, if the Minister so directs with respect to any taxation year for which, under subsection 152(4), the Minister may make any reassessment or additional assessment or assess tax, interest or penalties under this Part, be deemed to have been property of the particular class and not of the other class at all times before the beginning of the year and, except to the extent that the added property or any part thereof has been disposed of by the taxpayer before the beginning of the year, to have been transferred from the particular class to the other class at the beginning of the year.
Marginal note:Rules applicable
(7) Subject to subsection 70(13), for the purposes of paragraphs 8(1)(j) and 8(1)(p), this section, section 20 and any regulations made for the purpose of paragraph 20(1)(a),
(a) where a taxpayer, having acquired property for the purpose of gaining or producing income, has begun at a later time to use it for some other purpose, the taxpayer shall be deemed to have disposed of it at that later time for proceeds of disposition equal to its fair market value at that time and to have reacquired it immediately thereafter at a cost equal to that fair market value;
(b) where a taxpayer, having acquired property for some other purpose, has begun at a later time to use it for the purpose of gaining or producing income, the taxpayer shall be deemed to have acquired it at that later time at a capital cost to the taxpayer equal to the lesser of
(i) the fair market value of the property at that later time, and
(ii) the total of
(A) the cost to the taxpayer of the property at that later time determined without reference to this paragraph, paragraph 13(7)(a) and subparagraph 13(7)(d)(ii), and
(B) 1/2 of the amount, if any, by which
(I) the fair market value of the property at that later time
exceeds the total of
(II) the cost to the taxpayer of the property as determined under clause 13(7)(b)(ii)(A), and
(III) twice the amount deducted by the taxpayer under section 110.6 in respect of the amount, if any, by which the fair market value of the property at that later time exceeds the cost to the taxpayer of the property as determined under clause 13(7)(b)(ii)(A);
(c) where property has, since it was acquired by a taxpayer, been regularly used in part for the purpose of gaining or producing income and in part for some other purpose, the taxpayer shall be deemed to have acquired, for the purpose of gaining or producing income, the proportion of the property that the use regularly made of the property for gaining or producing income is of the whole use regularly made of the property at a capital cost to the taxpayer equal to the same proportion of the capital cost to the taxpayer of the whole property and, if the property has, in such a case, been disposed of, the proceeds of disposition of the proportion of the property deemed to have been acquired for gaining or producing income shall be deemed to be the same proportion of the proceeds of disposition of the whole property;
(d) where, at any time after a taxpayer has acquired property, there has been a change in the relation between the use regularly made by the taxpayer of the property for gaining or producing income and the use regularly made of the property for other purposes,
(i) if the use regularly made by the taxpayer of the property for the purpose of gaining or producing income has increased, the taxpayer shall be deemed to have acquired at that time depreciable property of that class at a capital cost equal to the total of
(A) the proportion of the lesser of
(I) its fair market value at that time, and
(II) its cost to the taxpayer at that time determined without reference to this subparagraph, subparagraph 13(7)(d)(ii) and paragraph 13(7)(a)
that the amount of the increase in the use regularly made by the taxpayer of the property for that purpose is of the whole of the use regularly made of the property, and
(B) 1/2 of the amount, if any, by which
(I) the amount deemed under subparagraph 45(1)(c)(ii) to be the taxpayer’s proceeds of disposition of the property in respect of the change
exceeds the total of
(II) that proportion of the cost to the taxpayer of the property as determined under subclause 13(7)(d)(i)(A)(II) that the amount of the increase in the use regularly made by the taxpayer of the property for that purpose is of the whole of the use regularly made of the property, and
(III) twice the amount deducted by the taxpayer under section 110.6 in respect of the amount, if any, by which the amount determined under subclause 13(7)(d)(i)(B)(I) exceeds the amount determined under subclause 13(7)(d)(i)(B)(II), and
(ii) if the use regularly made of the property for the purpose of gaining or producing income has decreased, the taxpayer shall be deemed to have disposed at that time of depreciable property of that class and the proceeds of disposition shall be deemed to be an amount equal to the proportion of the fair market value of the property as of that time that the amount of the decrease in the use regularly made by the taxpayer of the property for that purpose is of the whole use regularly made of the property;
(e) notwithstanding any other provision of this Act except subsection 70(13), where at a particular time a person or partnership (in this paragraph referred to as the “taxpayer”) has, directly or indirectly, in any manner whatever, acquired (otherwise than as a consequence of the death of the transferor) a depreciable property (other than a timber resource property) of a prescribed class from a person or partnership with whom the taxpayer did not deal at arm’s length (in this paragraph referred to as the “transferor”) and, immediately before the transfer, the property was a capital property of the transferor,
(i) where the transferor was an individual resident in Canada or a partnership any member of which was either an individual resident in Canada or another partnership and the cost of the property to the taxpayer at the particular time determined without reference to this paragraph exceeds the cost, or where the property was depreciable property, the capital cost of the property to the transferor immediately before the transferor disposed of it, the capital cost of the property to the taxpayer at the particular time shall be deemed to be the amount that is equal to the total of
(A) the cost or capital cost, as the case may be, of the property to the transferor immediately before the particular time, and
(B) 1/2 of the amount, if any, by which
(I) the transferor’s proceeds of disposition of the property
exceed the total of
(II) the cost or capital cost, as the case may be, to the transferor immediately before the particular time,
(III) twice the amount deducted by any person under section 110.6 in respect of the amount, if any, by which the amount determined under subclause 13(7)(e)(i)(B)(I) exceeds the amount determined under subclause 13(7)(e)(i)(B)(II), and
(IV) the amount, if any, required by subsection 110.6(21) to be deducted in computing the capital cost to the taxpayer of the property at that time
and for the purposes of paragraph 13(7)(b) and subparagraph 13(7)(d)(i), the cost of the property to the taxpayer shall be deemed to be the same amount,
(ii) where the transferor was neither an individual resident in Canada nor a partnership any member of which was either an individual resident in Canada or another partnership and the cost of the property to the taxpayer at the particular time determined without reference to this paragraph exceeds the cost, or where the property was depreciable property, the capital cost of the property to the transferor immediately before the transferor disposed of it, the capital cost of the property to the taxpayer at that time shall be deemed to be the amount that is equal to the total of
(A) the cost or capital cost, as the case may be, of the property to the transferor immediately before the particular time, and
(B) 1/2 of the amount, if any, by which the transferor’s proceeds of disposition of the property exceed the cost or capital cost, as the case may be, to the transferor immediately before the particular time
and for the purposes of paragraph 13(7)(b) and subparagraph 13(7)(d)(i), the cost of the property to the taxpayer shall be deemed to be the same amount, and
(iii) where the cost or capital cost, as the case may be, of the property to the transferor immediately before the transferor disposed of it exceeds the capital cost of the property to the taxpayer at that time determined without reference to this paragraph, the capital cost of the property to the taxpayer at that time shall be deemed to be the amount that was the cost or capital cost, as the case may be, of the property to the transferor immediately before the transferor disposed of it and the excess shall be deemed to have been allowed to the taxpayer in respect of the property under regulations made under paragraph 20(1)(a) in computing the taxpayer’s income for taxation years ending before the acquisition of the property by the taxpayer;
(e.1) where a taxpayer is deemed by paragraph 110.6(19)(a) to have disposed of and reacquired a property that immediately before the disposition was a depreciable property, the taxpayer shall be deemed to have acquired the property from himself, herself or itself and, in so having acquired the property, not to have been dealing with himself, herself or itself at arm’s length;
(f) where a corporation is deemed under paragraph 111(4)(e) to have disposed of and reacquired depreciable property (other than a timber resource property), the capital cost to the corporation of the property at the time of the reacquisition is deemed to be the amount that is equal to the total of
(i) the capital cost to the corporation of the property at the time of the disposition, and
(ii) 1/2 of the amount, if any, by which the corporation’s proceeds of disposition of the property exceed the capital cost to the corporation of the property at the time of the disposition;
(g) where the cost to a taxpayer of a passenger vehicle exceeds $20,000 or such other amount as is prescribed, the capital cost to the taxpayer of the vehicle shall be deemed to be $20,000 or that other prescribed amount, as the case may be; and
(h) notwithstanding paragraph 13(7)(g), where a passenger vehicle is acquired by a taxpayer at any time from a person with whom the taxpayer does not deal at arm’s length, the capital cost at that time to the taxpayer of the vehicle shall be deemed to be the least of
(i) the fair market value of the vehicle at that time,
(ii) the amount that immediately before that time was the cost amount to that person of the vehicle, and
(iii) $20,000 or such other amount as is prescribed.
Marginal note:Deemed capital cost of certain property
(7.1) For the purposes of this Act, where section 80 applied to reduce the capital cost to a taxpayer of a depreciable property or a taxpayer deducted an amount under subsection 127(5) or 127(6) in respect of a depreciable property or received or is entitled to receive assistance from a government, municipality or other public authority in respect of, or for the acquisition of, depreciable property, whether as a grant, subsidy, forgivable loan, deduction from tax, investment allowance or as any other form of assistance other than
(a) an amount described in paragraph 37(1)(d),
(b) an amount deducted as an allowance under section 65, or
(b.1) an amount included in income by virtue of paragraph 12(1)(u) or 56(1)(s),
the capital cost of the property to the taxpayer at any particular time shall be deemed to be the amount, if any, by which the total of
(c) the capital cost of the property to the taxpayer, determined without reference to this subsection, subsection 13(7.4) and section 80, and
(d) such part, if any, of the assistance as has been repaid by the taxpayer, pursuant to an obligation to repay all or any part of that assistance, in respect of that property before the disposition thereof by the taxpayer and before the particular time
exceeds the total of
(e) where the property was acquired in a taxation year ending before the particular time, all amounts deducted under subsection 127(5) or 127(6) by the taxpayer for a taxation year ending before the particular time,
(f) the amount of assistance the taxpayer has received or is entitled, before the particular time, to receive, and
(g) all amounts by which the capital cost of the property to the taxpayer is required because of section 80 to be reduced at or before that time,
in respect of that property before the disposition thereof by the taxpayer.
Marginal note:Receipt of public assistance
(7.2) For the purposes of subsection 13(7.1), where at any time a taxpayer who is a beneficiary of a trust or a member of a partnership has received or is entitled to receive assistance from a government, municipality or other public authority whether as a grant, subsidy, forgivable loan, deduction from tax, investment allowance or as any other form of assistance, the amount of the assistance that may reasonably be considered to be in respect of, or for the acquisition of, depreciable property of the trust or partnership shall be deemed to have been received at that time by the trust or partnership, as the case may be, as assistance from the government, municipality or other public authority for the acquisition of depreciable property.
Marginal note:Control of corporations by one trustee
(7.3) For the purposes of paragraph (7)(e), where at a particular time one corporation would, but for this subsection, be related to another corporation by reason of both corporations being controlled by the same executor, liquidator of a succession or trustee and it is established that
(a) the executor, liquidator or trustee did not acquire control of the corporations as a result of one or more estates or trusts created by the same individual or by two or more individuals not dealing with each other at arm’s length, and
(b) the estate or trust under which the executor, liquidator or trustee acquired control of each of the corporations arose only on the death of the individual creating the estate or trust,
the two corporations are deemed not to be related to each other at the particular time.
Marginal note:Deemed capital cost
(7.4) Notwithstanding subsection 13(7.1), where a taxpayer has in a taxation year received an amount that would, but for this subsection, be included in the taxpayer’s income under paragraph 12(1)(x) in respect of the cost of a depreciable property acquired by the taxpayer in the year, in the three taxation years immediately preceding the year or in the taxation year immediately following the year and the taxpayer elects under this subsection on or before the day on or before which the taxpayer is required to file the taxpayer’s return of income under this Part for the year, or, where the property is acquired in the taxation year immediately following the year, for that following year, the capital cost of the property to the taxpayer shall be deemed to be the amount by which the total of
(a) the capital cost of the property to the taxpayer otherwise determined, applying the provisions of subsection 13(7.1), where necessary, and
(b) such part, if any, of the amount received by the taxpayer as has been repaid by the taxpayer pursuant to a legal obligation to repay all or any part of that amount, in respect of that property and before the disposition thereof by the taxpayer, and as may reasonably be considered to be in respect of the amount elected under this subsection in respect of the property
exceeds the amount elected by the taxpayer under this subsection, but in no case shall the amount elected under this subsection exceed the least of
(c) the amount so received by the taxpayer,
(d) the capital cost of the property to the taxpayer otherwise determined, and
(e) where the taxpayer has disposed of the property before the year, nil.
Marginal note:Deemed capital cost
(7.5) For the purposes of this Act,
(a) where a taxpayer, to acquire a property prescribed in respect of the taxpayer, is required under the terms of a contract made after March 6, 1996 to make a payment to Her Majesty in right of Canada or a province or to a Canadian municipality in respect of costs incurred or to be incurred by the recipient of the payment
(i) the taxpayer is deemed to have acquired the property at a capital cost equal to the portion of that payment made by the taxpayer that can reasonably be regarded as being in respect of those costs, and
(ii) the time of acquisition of the property by the taxpayer is deemed to be the later of the time the payment is made and the time at which those costs are incurred;
(b) where
(i) at any time after March 6, 1996 a taxpayer incurs a cost on account of capital for the building of, for the right to use or in respect of, a prescribed property, and
(ii) the amount of the cost would, if this paragraph did not apply, not be included in the capital cost to the taxpayer of depreciable property of a prescribed class,
the taxpayer is deemed to have acquired the property at that time at a capital cost equal to the amount of the cost;
(c) where a taxpayer acquires an intangible property as a consequence of making a payment to which paragraph 13(7.5)(a) applies or incurring a cost to which paragraph 13(7.5)(b) applies,
(i) the property referred to in paragraph 13(7.5)(a) or 13(7.5)(b) is deemed to include the intangible property, and
(ii) the portion of the capital cost referred to in paragraph 13(7.5)(a) or 13(7.5)(b) that applies to the intangible property is deemed to be the amount determined by the formula
A × B/C
where
- A
- is the lesser of the amount of the payment made or cost incurred and the amount determined for C,
- B
- is the fair market value of the intangible property at the time the payment was made or the cost was incurred, and
- C
- is the fair market value at the time the payment was made or the cost was incurred of all intangible properties acquired as a consequence of making the payment or incurring the cost; and
(d) any property deemed by paragraph 13(7.5)(a) or (b) to have been acquired at any time by a taxpayer as a consequence of making a payment or incurring a cost
(i) is deemed to have been acquired for the purpose for which the payment was made or the cost was incurred, and
(ii) is deemed to be owned by the taxpayer at any subsequent time that the taxpayer benefits from the property.
Marginal note:Disposition after ceasing business
(8) Notwithstanding subsections 13(3) and 11(2), where a taxpayer, after ceasing to carry on a business, has disposed of depreciable property of the taxpayer of a prescribed class that was acquired by the taxpayer for the purpose of gaining or producing income from the business and that was not subsequently used by the taxpayer for some other purpose, in applying subsection 13(1) or 13(2), each reference therein to a “taxation year” and “year” shall not be read as a reference to a “fiscal period”.
Meaning of gaining or producing income
(9) In applying paragraphs 13(7)(a) to 13(7)(d) in respect of a non-resident taxpayer, a reference to gaining or producing income in relation to a business shall be read as a reference to “gaining or producing income from a business wholly carried on in Canada or such part of a business as is wholly carried on in Canada”.
Marginal note:Deemed capital cost
(10) For the purposes of this Act, where a taxpayer has, after December 3, 1970 and before April 1, 1972, acquired prescribed property
(a) for use in a prescribed manufacturing or processing business carried on by the taxpayer, and
(b) that was not used for any purpose whatever before it was acquired by the taxpayer,
the taxpayer shall be deemed to have acquired that property at a capital cost to the taxpayer equal to 115% of the amount that, but for this subsection and section 21, would have been the capital cost to the taxpayer of that property.
Marginal note:Deduction in respect of property used in performance of duties
(11) Any amount deducted under subparagraph 8(1)(j)(ii) or 8(1)(p)(ii) of this Act or subsection 11(11) of The Income Tax Act, chapter 52 of the Statutes of Canada, 1948, shall be deemed, for the purposes of this section to have been deducted under regulations made under paragraph 20(1)(a).
Marginal note:Application of para. 20(1)(cc)
(12) Where, in computing the income of a taxpayer for a taxation year, an amount has been deducted under paragraph 20(1)(cc) or the taxpayer has elected under subsection 20(9) to make a deduction in respect of an amount that would otherwise have been deductible under that paragraph, the amount shall, if it was a payment on account of the capital cost of depreciable property, be deemed to have been allowed to the taxpayer in respect of the property under regulations made under paragraph 20(1)(a) in computing the income of the taxpayer
(a) for the year, or
(b) for the year in which the property was acquired,
whichever is the later.
Marginal note:Deduction under Canadian Vessel Construction Assistance Act
(13) Where a deduction has been made under the Canadian Vessel Construction Assistance Act for any taxation year, subsection 13(1) is applicable in respect of the prescribed class created by that Act or any other prescribed class to which the vessel may have been transferred.
Marginal note:Conversion cost
(14) For the purposes of this section, section 20 and any regulations made under paragraph 20(1)(a), a vessel in respect of which any conversion cost is incurred after March 23, 1967 shall, to the extent of the conversion cost, be deemed to be included in a separate prescribed class.
Marginal note:Where s. (1) and subdivision c do not apply
(15) Where a vessel owned by a taxpayer on January 1, 1966 or constructed pursuant to a construction contract entered into by the taxpayer prior to 1966 and not completed by that date was disposed of by the taxpayer before 1974,
(a) subsection 13(1) and subdivision c do not apply to the proceeds of disposition
(i) if an amount at least equal to the proceeds of disposition was used by the taxpayer, before May, 1974 and during the taxation year of the taxpayer in which the vessel was disposed of or within 4 months after the end of that taxation year, under conditions satisfactory to the appropriate minister, either for replacement or to incur any conversion cost with respect to a vessel owned by the taxpayer, or
(ii) if the appropriate minister certified that the taxpayer had, on satisfactory terms, deposited
(A) on or before the day on which the taxpayer was required to file a return of the taxpayer’s income for the taxation year in which the vessel was disposed of, or
(B) on or before such day subsequent to the day referred to in clause 13(15)(a)(ii)(A) as the appropriate minister specified in respect of the taxpayer,
an amount at least equal to the tax that would, but for this subsection, have been payable by the taxpayer under this Part in respect of the proceeds of disposition, or satisfactory security therefor, as a guarantee that the proceeds of disposition would be used before 1975 for replacement; and
(b) if within the time specified for the filing of a return of the taxpayer’s income for the taxation year in which the vessel was disposed of
(i) the taxpayer elected to have the vessel constituted a prescribed class, or
(ii) where any conversion cost in respect of the vessel was included in a separate prescribed class, the taxpayer elected to have the vessel transferred to that class,
the vessel shall be deemed to have been so transferred immediately before the disposition thereof, but this paragraph does not apply unless the proceeds of disposition of the vessel exceed the amount that would be the undepreciated capital cost of property of the class to which it would be so transferred.
Marginal note:Election concerning vessel
(16) Where a vessel owned by a taxpayer is disposed of by the taxpayer, the taxpayer may, if subsection 13(15) does not apply to the proceeds of disposition or if the taxpayer did not make an election under paragraph 13(15)(b) in respect of the vessel, within the time specified for the filing of a return of the taxpayer’s income for the taxation year in which the vessel was disposed of, elect to have the proceeds that would be included in computing the taxpayer’s income for the year under this Part treated as proceeds of disposition of property of another prescribed class that includes a vessel owned by the taxpayer.
Marginal note:Separate prescribed class concerning vessel
(17) Where a separate prescribed class has been constituted either under this Act or the Canadian Vessel Construction Assistance Act by reason of the conversion of a vessel owned by a taxpayer and the vessel is disposed of by the taxpayer, if no election in respect of the vessel was made under paragraph 13(15)(b), the separate prescribed class constituted by reason of the conversion shall be deemed to have been transferred to the class in which the vessel was included immediately before the disposition thereof.
Marginal note:Reassessments
(18) Notwithstanding any other provision of this Act, where a taxpayer has
(a) used an amount as described in paragraph 13(4)(c), or
(b) made an election under paragraph 13(15)(b) in respect of a vessel and the proceeds of disposition of the vessel were used before 1975 for replacement under conditions satisfactory to the appropriate minister,
such reassessments of tax, interest or penalties shall be made as are necessary to give effect to subsections 13(4) and 13(15).
Marginal note:Ascertainment of certain property
(18.1) For the purpose of determining whether property meets the criteria set out in the Regulations in respect of prescribed energy conservation property, the Technical Guide to Class 43.1, as amended from time to time and published by the Department of Natural Resources, shall apply conclusively with respect to engineering and scientific matters.
Marginal note:Disposition of deposit
(19) All or any part of a deposit made under subparagraph 13(15)(a)(ii) or under the Canadian Vessel Construction Assistance Act may be paid out to or on behalf of any person who, under conditions satisfactory to the appropriate minister and as a replacement for the vessel disposed of, acquires a vessel before 1975
(a) that was constructed in Canada and is registered in Canada or is registered under conditions satisfactory to the appropriate minister in any country or territory to which the British Commonwealth Merchant Shipping Agreement, signed at London on December 10, 1931, applies, and
(b) in respect of the capital cost of which no allowance has been made to any other taxpayer under this Act or the Canadian Vessel Construction Assistance Act,
or incurs any conversion cost with respect to a vessel owned by that person that is registered in Canada or is registered under conditions satisfactory to the appropriate minister in any country or territory to which the agreement referred to in paragraph 13(19)(a) applies, but the ratio of the amount paid out to the amount of the deposit shall not exceed the ratio of the capital cost to that person of the vessel or the conversion cost to that person of the vessel, as the case may be, to the proceeds of disposition of the vessel disposed of, and any deposit or part of a deposit not so paid out before July 1, 1975 or not paid out pursuant to subsection 13(20) shall be paid to the Receiver General and form part of the Consolidated Revenue Fund.
Marginal note:Idem
(20) Notwithstanding any other provision of this section, where a taxpayer made a deposit under subparagraph 13(15)(a)(ii) and the proceeds of disposition in respect of which the deposit was made were not used by any person before 1975 under conditions satisfactory to the appropriate minister as a replacement for the vessel disposed of,
(a) to acquire a vessel described in paragraphs 13(19)(a) and 13(19)(b), or
(b) to incur any conversion cost with respect to a vessel owned by that person that is registered in Canada or is registered under conditions satisfactory to the appropriate minister in any country or territory to which the agreement referred to in paragraph 13(19)(a) applies,
the appropriate minister may refund to the taxpayer the deposit, or the part thereof not paid out to the taxpayer under subsection 13(19), as the case may be, in which case there shall be added, in computing the income of the taxpayer for the taxation year of the taxpayer in which the vessel was disposed of, that proportion of the amount that would have been included in computing the income for the year under this Part had the deposit not been made under subparagraph 13(15)(a)(ii) that the portion of the proceeds of disposition not so used before 1975 as such a replacement is of the proceeds of disposition, and, notwithstanding any other provision of this Act, such reassessments of tax, interest or penalties shall be made as are necessary to give effect to this subsection.
Marginal note:Definitions
(21) In this section,
appropriate minister
ministre compétent
appropriate minister means the Canadian Maritime Commission, the Minister of Industry, Trade and Commerce, the Minister of Regional Industrial Expansion, the Minister of Industry, Science and Technology or the Minister of Industry or any other minister or body that was or is legally authorized to perform the act referred to in the provision in which this expression occurs at the time the act was or is performed; (ministre compétent)
conversion
conversion
conversion, in respect of a vessel, means a conversion or major alteration in Canada by a taxpayer; (conversion)
conversion cost
frais de conversion
conversion cost, in respect of a vessel, means the cost of a conversion; (frais de conversion)
depreciable property
bien amortissable
depreciable property of a taxpayer as of any time in a taxation year means property acquired by the taxpayer in respect of which the taxpayer has been allowed, or would, if the taxpayer owned the property at the end of the year and this Act were read without reference to subsection 13(26), be entitled to, a deduction under paragraph 20(1)(a) in computing income for that year or a preceding taxation year; (bien amortissable)
- disposition of property
disposition of property[Repealed, 2001, c. 17, s. 6(5)]
proceeds of disposition
produit de disposition
proceeds of disposition of property includes
(a) the sale price of property that has been sold,
(b) compensation for property unlawfully taken,
(c) compensation for property destroyed and any amount payable under a policy of insurance in respect of loss or destruction of property,
(d) compensation for property taken under statutory authority or the sale price of property sold to a person by whom notice of an intention to take it under statutory authority was given,
(e) compensation for property injuriously affected, whether lawfully or unlawfully or under statutory authority or otherwise,
(f) compensation for property damaged and any amount payable under a policy of insurance in respect of damage to property, except to the extent that the compensation or amount, as the case may be, has within a reasonable time after the damage been expended on repairing the damage,
(g) an amount by which the liability of a taxpayer to a mortgagee or hypothecary creditor is reduced as a result of the sale of mortgaged or hypothecated property under a provision of the mortgage or hypothec, plus any amount received by the taxpayer out of the proceeds of the sale, and
(h) any amount included because of section 79 in computing a taxpayer’s proceeds of disposition of the property; (produit de disposition)
timber resource property
avoir forestier
timber resource property of a taxpayer means
(a) a right or licence to cut or remove timber from a limit or area in Canada (in this definition referred to as an “original right”) if
(i) that original right was acquired by the taxpayer (other than in the manner referred to in paragraph 13(21) “timber resource property” (b)) after May 6, 1974, and
(ii) at the time of the acquisition of the original right
(A) the taxpayer may reasonably be regarded as having acquired, directly or indirectly, the right to extend or renew that original right or to acquire another such right or licence in substitution therefor, or
(B) in the ordinary course of events, the taxpayer may reasonably expect to be able to extend or renew that original right or to acquire another such right or licence in substitution therefor, or
(b) any right or licence owned by the taxpayer to cut or remove timber from a limit or area in Canada if that right or licence may reasonably be regarded
(i) as an extension or renewal of or as one of a series of extensions or renewals of an original right of the taxpayer, or
(ii) as having been acquired in substitution for or as one of a series of substitutions for an original right of the taxpayer or any renewal or extension thereof; (avoir forestier)
total depreciation
amortissement total
total depreciation allowed to a taxpayer before any time for property of a prescribed class means the total of all amounts each of which is an amount deducted by the taxpayer under paragraph 20(1)(a) in respect of property of that class or an amount deducted under subsection 20(16), or that would have been so deducted but for subsection 20(16.1), in computing the taxpayer’s income for taxation years ending before that time; (amortissement total)
undepreciated capital cost
fraction non amortie du coût en capital
undepreciated capital cost to a taxpayer of depreciable property of a prescribed class as of any time means the amount determined by the formula
(A + B + C + D + D.1) - (E + E.1 + F + G + H + I + J + K)
where
- A
- is the total of all amounts each of which is the capital cost to the taxpayer of a depreciable property of the class acquired before that time,
- B
- is the total of all amounts included in the taxpayer’s income under this section for a taxation year ending before that time, to the extent that those amounts relate to depreciable property of the class,
- C
- is the total of all amounts each of which is such part of any assistance as has been repaid by the taxpayer, pursuant to an obligation to repay all or any part of that assistance, in respect of a depreciable property of the class subsequent to the disposition thereof by the taxpayer that would have been included in an amount determined under paragraph 13(7.1)(d) had the repayment been made before the disposition,
- D
- is the total of all amounts each of which is an amount repaid in respect of a property of the class subsequent to the disposition thereof by the taxpayer that would have been an amount described in paragraph 13(7.4)(b) had the repayment been made before the disposition,
- D.1
- is the total of all amounts each of which is an amount paid by the taxpayer before that time as or on account of an existing or proposed countervailing or anti-dumping duty in respect of depreciable property of the class,
- E
- is the total depreciation allowed to the taxpayer for property of the class before that time,
- E.1
- is the total of all amounts each of which is an amount by which the undepreciated capital cost to the taxpayer of depreciable property of that class is required (otherwise than because of a reduction in the capital cost to the taxpayer of depreciable property) to be reduced at or before that time because of subsection 80(5),
- F
- is the total of all amounts each of which is an amount in respect of a disposition before that time of property (other than a timber resource property) of the taxpayer of the class, and is the lesser of
(a) the proceeds of disposition of the property minus any outlays and expenses to the extent that they were made or incurred by the taxpayer for the purpose of making the disposition, and
(b) the capital cost to the taxpayer of the property,
- G
- is the total of all amounts each of which is the proceeds of disposition before that time of a timber resource property of the taxpayer of the class minus any outlays and expenses to the extent that they were made or incurred by the taxpayer for the purpose of making the disposition,
- H
- is, where the property of the class was acquired by the taxpayer for the purpose of gaining or producing income from a mine and the taxpayer so elects in prescribed manner and within a prescribed time in respect of that property, the amount equal to that portion of the income derived from the operation of the mine that is, by virtue of the provisions of the Income Tax Application Rules relating to income from the operation of new mines, not included in computing income of the taxpayer or any other person,
- I
- is the total of all amounts deducted under subsection 127(5) or 127(6), in respect of a depreciable property of the class of the taxpayer, in computing the taxpayers tax payable for a taxation year ending before that time and subsequent to the disposition of that property by the taxpayer,
- J
- is the total of all amounts of assistance that the taxpayer received or was entitled to receive before that time, in respect of or for the acquisition of a depreciable property of the class of the taxpayer subsequent to the disposition of that property by the taxpayer, that would have been included in an amount determined under paragraph 13(7.1)(f) had the assistance been received before the disposition, and
- K
- is the total of all amounts each of which is an amount received by the taxpayer before that time in respect of a refund of an amount added to the undepreciated capital cost of depreciable property of the class because of the description of D.1;
vessel
navire
vessel means a vessel as defined in the Canada Shipping Act. (navire)
Marginal note:Disposition of building
(21.1) Notwithstanding subsection 13(7) and the definition proceeds of disposition in section 54, where at any particular time in a taxation year a taxpayer disposes of a building of a prescribed class and the proceeds of disposition of the building determined without reference to this subsection and subsection 13(21.2) are less than the lesser of the cost amount and the capital cost to the taxpayer of the building immediately before the disposition, for the purposes of paragraph (a) of the description of F in the definition undepreciated capital cost in subsection 13(21) and subdivision c,
(a) where in the year the taxpayer or a person with whom the taxpayer does not deal at arm’s length disposes of land subjacent to, or immediately contiguous to and necessary for the use of, the building, the proceeds of disposition of the building are deemed to be the lesser of
(i) the amount, if any, by which
(A) the total of the fair market value of the building at the particular time and the fair market value of the land immediately before its disposition
exceeds
(B) the lesser of the fair market value of the land immediately before its disposition and the amount, if any, by which the cost amount to the vendor of the land (determined without reference to this subsection) exceeds the total of the capital gains (determined without reference to subparagraphs 40(1)(a)(ii) and (iii)) in respect of dispositions of the land within 3 years before the particular time by the taxpayer or by a person with whom the taxpayer was not dealing at arm’s length to the taxpayer or to another person with whom the taxpayer was not dealing at arm’s length, and
(ii) the greater of
(A) the fair market value of the building at the particular time, and
(B) the lesser of the cost amount and the capital cost to the taxpayer of the building immediately before its disposition,
and notwithstanding any other provision of this Act, the proceeds of disposition of the land are deemed to be the amount, if any, by which
(iii) the total of the proceeds of disposition of the building and of the land determined without reference to this subsection and subsection 13(21.2)
exceeds
(iv) the proceeds of disposition of the building as determined under this paragraph,
and the cost to the purchaser of the land shall be determined without reference to this subsection; and
(b) where paragraph 13(21.1)(a) does not apply with respect to the disposition and, at any time before the disposition, the taxpayer or a person with whom the taxpayer did not deal at arm’s length owned the land subjacent to, or immediately contiguous to and necessary for the use of, the building, the proceeds of disposition of the building are deemed to be an amount equal to the total of
(i) the proceeds of disposition of the building determined without reference to this subsection and subsection 13(21.2), and
(ii) 1/2 of the amount by which the greater of
(A) the cost amount to the taxpayer of the building, and
(B) the fair market value of the building
immediately before its disposition exceeds the proceeds of disposition referred to in subparagraph 13(21.1)(b)(i).
Marginal note:Loss on certain transfers
(21.2) Where
(a) a person or partnership (in this subsection referred to as the “transferor”) disposes at a particular time (otherwise than in a disposition described in any of paragraphs (c) to (g) of the definition superficial loss in section 54) of a depreciable property of a particular prescribed class of the transferor,
(b) the lesser of
(i) the capital cost to the transferor of the transferred property, and
(ii) the proportion of the undepreciated capital cost to the transferor of all property of the particular class immediately before that time that
(A) the fair market value of the transferred property at that time
is of
(B) the fair market value of all property of the particular class immediately before that time
exceeds the amount that would otherwise be the transferor’s proceeds of disposition of the transferred property at the particular time, and
(c) on the 30th day after the particular time, a person or partnership (in this subsection referred to as the “subsequent owner”) who is the transferor or a person affiliated with the transferor owns or has a right to acquire the transferred property (other than a right, as security only, derived from a mortgage, hypothec, agreement for sale or similar obligation),
the following rules apply:
(d) sections 85 and 97 do not apply to the disposition,
(e) for the purposes of applying this section and section 20 and any regulations made for the purpose of paragraph 20(1)(a) to the transferor for taxation years that end after the particular time,
(i) the transferor is deemed to have disposed of the transferred property for proceeds equal to the lesser of the amounts determined under subparagraphs 13(21.2)(b)(i) and 13(21.2)(b)(ii) with respect to the transferred property,
(ii) where two or more properties of a prescribed class of the transferor are disposed of at the same time, subparagraph (i) applies as if each property so disposed of had been separately disposed of in the order designated by the transferor or, if the transferor does not designate an order, in the order designated by the Minister,
(iii) the transferor is deemed to own a property that was acquired before the beginning of the taxation year that includes the particular time at a capital cost equal to the amount of the excess described in paragraph 13(21.2)(b), and that is property of the particular class, until the time that is immediately before the first time, after the particular time,
(A) at which a 30-day period begins throughout which neither the transferor nor a person affiliated with the transferor owns or has a right to acquire the transferred property (other than a right, as security only, derived from a mortgage, hypothec, agreement for sale or similar obligation),
(B) at which the transferred property is not used by the transferor or a person affiliated with the transferor for the purpose of earning income and is used for another purpose,
(C) at which the transferred property would, if it were owned by the transferor, be deemed by section 128.1 or subsection 149(10) to have been disposed of by the transferor,
(D) that is immediately before control of the transferor is acquired by a person or group of persons, where the transferor is a corporation, or
(E) at which the winding-up of the transferor begins (other than a winding-up to which subsection 88(1) applies), where the transferor is a corporation, and
(iv) the property described in subparagraph 13(21.2)(e)(iii) is considered to have become available for use by the transferor at the time at which the transferred property is considered to have become available for use by the subsequent owner,
(f) for the purposes of subparagraphs 13(21.2)(e)(iii) and 13(21.2)(e)(iv), where a partnership otherwise ceases to exist at any time after the particular time, the partnership is deemed not to have ceased to exist, and each person who was a member of the partnership immediately before the partnership would, but for this paragraph, have ceased to exist is deemed to remain a member of the partnership, until the time that is immediately after the first time described in clauses 13(21.2)(e)(iii)(A) to 13(21.2)(e)(iii)(E), and
(g) for the purposes of applying this section and section 20 and any regulations made for the purpose of paragraph 20(1)(a) to the subsequent owner,
(i) the subsequent owner’s capital cost of the transferred property is deemed to be the amount that was the transferor’s capital cost of the transferred property, and
(ii) the amount by which the transferor’s capital cost of the transferred property exceeds its fair market value at the particular time is deemed to have been deducted under paragraph 20(1)(a) by the subsequent owner in respect of property of that class in computing income for taxation years that ended before the particular time.
Marginal note:Deduction for insurer
(22) For the purposes of E in the definition undepreciated capital cost in subsection 13(21), an insurer shall be deemed to have been allowed a deduction for depreciation for property of a prescribed class under paragraph 20(1)(a) in computing income for taxation years before its 1977 taxation year equal to the total of
(a) the amount determined, immediately after the end of its 1976 taxation year, for E in that definition, with respect to property of the particular prescribed class of the insurer (determined without reference to this subsection),
(b) the lesser of
(i) the amount of its 1975-76 excess capital cost allowance with respect to property of the particular prescribed class of the insurer, and
(ii) that proportion of the amount, if any, by which its 1975 branch accounting election deficiency exceeds the amount determined under subparagraph 138(4.1)(d)(ii) that
(A) the amount of its 1975-76 excess capital cost allowance with respect to property of the particular prescribed class of the insurer
is of
(B) the total of all its 1975-76 excess capital cost allowances with respect to properties of a prescribed class of the insurer, and
(c) the lesser of
(i) the amount, if any, by which
(A) the undepreciated capital cost of property of the particular prescribed class of the insurer immediately after the end of its 1976 taxation year (determined without reference to this subsection),
exceeds
(B) the amount determined under paragraph 13(22)(b) in respect of property of the particular prescribed class of the insurer, and
(ii) that proportion of the amount, if any, by which its 1975 branch accounting election deficiency exceeds the total of
(A) the amount determined under subparagraph 138(4.1)(d)(ii),
(B) the total of all amounts determined under paragraph 13(22)(b) with respect to property of a prescribed class of the insurer,
(C) the total described in subclause 138(4.1)(a)(ii)(B)(IV),
(D) the amount determined under subparagraph 138(4.1)(b)(ii), and
(E) the amount determined under subparagraph 138(4.1)(a)(ii)
that
(F) the undepreciated capital cost of property of the particular prescribed class of the insurer immediately after the end of its 1976 taxation year (determined without reference to this subsection),
is of
(G) the total of all amounts each of which is the undepreciated capital cost of property of a prescribed class of the insurer immediately after the end of its 1976 taxation year (determined without reference to this subsection).
Marginal note:Deduction for life insurer
(23) For the purposes of E in the definition undepreciated capital cost in subsection 13(21), a life insurer shall be deemed to have been allowed a deduction for depreciation for property of a prescribed class under paragraph 20(1)(a) in computing income for taxation years before its 1978 taxation year equal to the total of
(a) the amount determined immediately after the end of its 1977 taxation year for E in that definition, with respect to property of the particular prescribed class of the insurer (determined without reference to this subsection), and
(b) the amount, if any, by which
(i) the total of all maximum amounts the insurer was entitled to claim with respect to property of the particular prescribed class of the insurer in taxation years ending before 1978 and after 1968
exceeds
(ii) the amount determined under paragraph 13(23)(a).
Marginal note:Application of s. 138(12)
(23.1) The definitions in subsection 138(12) apply to this section.
Marginal note:Acquisition of control
(24) Where control of a corporation has been acquired at any time by a person or group of persons and, within the 12-month period that ended immediately before that time, the corporation or a partnership of which it was a majority interest partner acquired depreciable property (other than property that was owned by the corporation or partnership or by a person that would, if section 251.1 were read without reference to the definition controlled in subsection 251.1(2), be affiliated with the corporation throughout the period that began immediately before the 12-month period began and ended at the time the property was acquired by the corporation or partnership) that was not used, or acquired for use, by the corporation or partnership in a business that was carried on by it immediately before the 12-month period began,
(a) for the purposes of the description of A in the definition undepreciated capital cost in subsection 13(21) and of sections 127 and 127.1, the property is, subject to paragraph 13(24)(b), deemed not to have been acquired by the corporation or partnership before that time and to have been acquired by it immediately after that time; and
(b) where the property was disposed of by it before that time and was not reacquired by it before that time, for the purpose of the description of A in that definition, the property is deemed to have been acquired by the corporation or partnership immediately before the property was disposed of.
Marginal note:Early change of control
(25) For the purpose of subsection 13(24), where a corporation referred to in that subsection was incorporated or otherwise formed in the 12-month period referred to in that subsection, the corporation is deemed to have been, throughout the period that began immediately before the 12-month period and ended immediately after it was incorporated or otherwise formed,
(a) in existence; and
(b) affiliated with every person with whom it was affiliated (otherwise than because of a right referred to in paragraph 251(5)(b)) throughout the period that began when it was incorporated or otherwise formed and ended immediately before its control is acquired.
Marginal note:Restriction on deduction before available for use
(26) In applying the definition undepreciated capital cost in subsection 13(21) for the purpose of paragraph 20(1)(a) and any regulations made for the purpose of that paragraph, in computing a taxpayer’s income for a taxation year from a business or property, no amount shall be included in calculating the undepreciated capital cost to the taxpayer of depreciable property of a prescribed class in respect of the capital cost to the taxpayer of a property of that class (other than property that is a certified production, as defined by regulations made for the purpose of paragraph 20(1)(a)) before the time the property is considered to have become available for use by the taxpayer.
Marginal note:Interpretation — available for use
(27) For the purposes of subsection 13(26) and subject to subsection 13(29), property (other than a building or part thereof) acquired by a taxpayer shall be considered to have become available for use by the taxpayer at the earliest of
(a) the time the property is first used by the taxpayer for the purpose of earning income,
(b) the time that is immediately after the beginning of the first taxation year of the taxpayer that begins more than 357 days after the end of the taxation year of the taxpayer in which the property was acquired by the taxpayer,
(c) the time that is immediately before the disposition of the property by the taxpayer,
(d) the time the property
(i) is delivered to the taxpayer, or to a person or partnership (in this paragraph referred to as the “other person”) that will use the property for the benefit of the taxpayer, or, where the property is not of a type that is deliverable, is made available to the taxpayer or the other person, and
(ii) is capable, either alone or in combination with other property in the possession at that time of the taxpayer or the other person, of being used by or for the benefit of the taxpayer or the other person to produce a commercially saleable product or to perform a commercially saleable service, including an intermediate product or service that is used or consumed, or to be used or consumed, by or for the benefit of the taxpayer or the other person in producing or performing any such product or service,
(e) in the case of property acquired by the taxpayer for the prevention, reduction or elimination of air or water pollution created by operations carried on by the taxpayer or that would be created by such operations if the property had not been acquired, the time at which the property is installed and capable of performing the function for which it was acquired,
(f) in the case of property acquired by
(i) a corporation a class of shares of the capital stock of which is listed on a prescribed stock exchange,
(ii) a corporation that is a public corporation because of an election made under subparagraph (b)(i) of the definition public corporation in subsection 89(1) or a designation made by the Minister in a notice to the corporation under subparagraph (b)(ii) of that definition, or
(iii) a subsidiary wholly-owned corporation of a corporation described in subparagraph 13(27)(f)(i) or 13(27)(f)(ii),
the end of the taxation year for which depreciation in respect of the property is first deducted in computing the earnings of the corporation in accordance with generally accepted accounting principles and for the purpose of the financial statements of the corporation for the year presented to its shareholders,
(g) in the case of property acquired by the taxpayer in the course of carrying on a business of farming or fishing, the time at which the property has been delivered to the taxpayer and is capable of performing the function for which it was acquired,
(h) in the case of property of a taxpayer that is a motor vehicle, trailer, trolley bus, aircraft or vessel for which one or more permits, certificates or licences evidencing that the property may be operated by the taxpayer in accordance with any laws regulating the use of such property are required to be obtained, the time all those permits, certificates or licences have been obtained,
(i) in the case of property that is a spare part intended to replace a part of another property of the taxpayer if required due to a breakdown of that other property, the time the other property became available for use by the taxpayer,
(j) in the case of a concrete gravity base structure and topside modules intended to be used at an oil production facility in a commercial discovery area (within the meaning assigned by section 2 of the Canada Petroleum Resources Act) on which the drilling of the first well that indicated the discovery began before March 5, 1982, in an offshore region prescribed for the purposes of subsection 127(9), the time the gravity base structure deballasts and lifts the assembled topside modules, and
(k) where the property is (within the meaning assigned by subsection 13(4.1)) a replacement for a former property described in paragraph 13(4)(a) that was acquired before 1990 or that became available for use at or before the time the replacement property is acquired, the time the replacement property is acquired,
and, for the purposes of paragraph 13(27)(f), where depreciation is calculated by reference to a portion of the cost of the property, only that portion of the property shall be considered to have become available for use at the end of the taxation year referred to in that paragraph.
Marginal note:Idem
(28) For the purposes of subsection 13(26) and subject to subsection 13(29), property that is a building or part thereof of a taxpayer shall be considered to have become available for use by the taxpayer at the earliest of
(a) the time all or substantially all of the building is first used by the taxpayer for the purpose for which it was acquired,
(b) the time the construction of the building is complete,
(c) the time that is immediately after the beginning of the taxpayer’s first taxation year that begins more than 357 days after the end of the taxpayer’s taxation year in which the property was acquired by the taxpayer,
(d) the time that is immediately before the disposition of the property by the taxpayer, and
(e) where the property is (within the meaning assigned by subsection 13(4.1)) a replacement for a former property described in paragraph 13(4)(a) that was acquired before 1990 or that became available for use at or before the time the replacement property is acquired, the time the replacement property is acquired,
and, for the purpose of this subsection, a renovation, alteration or addition to a particular building shall be considered to be a building separate from the particular building.
Marginal note:Idem
(29) For the purposes of subsection 13(26), where a taxpayer acquires property (other than a building that is used or is to be used by the taxpayer principally for the purpose of gaining or producing gross revenue that is rent) in the taxpayer’s first taxation year (in this subsection referred to as the “particular year”) that begins more than 357 days after the end of the taxpayer’s taxation year in which the taxpayer first acquired property after 1989, that is part of a project of the taxpayer, or in a taxation year subsequent to the particular year, and at the end of any taxation year (in this subsection referred to as the “inclusion year”) of the taxpayer
(a) the property can reasonably be considered to be part of the project, and
(b) the property has not otherwise become available for use,
if the taxpayer so elects in prescribed form filed with the taxpayer’s return of income under this Part for the particular year, that particular portion of the property the capital cost of which does not exceed the amount, if any, by which
(c) the total of all amounts each of which is the capital cost to the taxpayer of a depreciable property (other than a building that is used or is to be used by the taxpayer principally for the purpose of gaining or producing gross revenue that is rent) that is part of the project, that was acquired by the taxpayer after 1989 and before the end of the taxpayer’s last taxation year that ends more than 357 days before the beginning of the inclusion year and that has not become available for use at or before the end of the inclusion year (except where the property has first become available for use before the end of the inclusion year because of this subsection or paragraph 13(27)(b) or 13(28)(c))
exceeds
(d) the total of all amounts each of which is the capital cost to the taxpayer of a depreciable property, other than the particular portion of the property, that is part of the project to the extent that the property is considered, because of this subsection, to have become available for use before the end of the inclusion year
shall be considered to have become available for use immediately before the end of the inclusion year.
Marginal note:Transfers of property
(30) Notwithstanding subsections 13(27) to 13(29), for the purpose of subsection 13(26), property of a taxpayer shall be deemed to have become available for use by the taxpayer at the earlier of the time the property was acquired by the taxpayer and, if applicable, a prescribed time, where
(a) the property was acquired
(i) from a person with whom the taxpayer was not dealing at arm’s length (otherwise than because of a right referred to in paragraph 251(5)(b)) at the time the property was acquired by the taxpayer, or
(ii) in the course of a reorganization in respect of which, if a dividend were received by a corporation in the course of the reorganization, subsection 55(2) would not apply to the dividend because of paragraph 55(3)(b); and
(b) before the property was acquired by the taxpayer, it became available for use (determined without reference to paragraphs 13(27)(c) and 13(28)(d)) by the person from whom it was acquired.
Marginal note:Idem
(31) For the purposes of paragraphs 13(27)(b) and 13(28)(c) and subsection 13(29), where a property of a taxpayer was acquired from a person (in this subsection referred to as “the transferor”)
(a) with whom the taxpayer was, at the time the taxpayer acquired the property, not dealing at arm’s length (otherwise than because of a right referred to in paragraph 251(5)(b)), or
(b) in the course of a reorganization in respect of which, if a dividend were received by a corporation in the course of the reorganization, subsection 55(2) would not apply to the dividend because of the application of paragraph 55(3)(b), the taxpayer shall be deemed to have acquired the property at the time it was acquired by the transferor.
Marginal note:Leased property
(32) Where a taxpayer has leased property that is depreciable property of a person with whom the taxpayer does not deal at arm’s length, the amount, if any, by which
(a) the total of all amounts paid or payable by the taxpayer for the use of, or the right to use, the property in a particular taxation year and before the time the property would have been considered to have become available for use by the taxpayer if the taxpayer had acquired the property, and that, but for this subsection, would be deductible in computing the taxpayer’s income for any taxation year
exceeds
(b) the total of all amounts received or receivable by the taxpayer for the use of, or the right to use, the property in the particular taxation year and before that time and that are included in the income of the taxpayer for any taxation year shall be deemed to be a cost to the taxpayer of a property included in Class 13 in Schedule II to the Income Tax Regulations and not to be an amount paid or payable for the use of, or the right to use, the property.
Marginal note:Consideration given for depreciable property
(33) For greater certainty, where a person acquires a depreciable property for consideration that can reasonably be considered to include a transfer of property, the portion of the cost to the person of the depreciable property attributable to the transfer shall not exceed the fair market value of the transferred property.
Marginal note:Deductible expenses
(34) Notwithstanding paragraph 1102(1)(a) of the Regulations, for taxation years that end after 1987 and before December 6, 1996, the classes of property prescribed for the purpose of paragraph 20(1)(a) are deemed to include property of a taxpayer that, if the Act were read without reference to sections 66 to 66.4, would be included in one of the classes.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 13
- 1994, c. 7, Sch. II, s. 9, Sch. VIII, s. 4, c. 21, s. 7
- 1995, c. 1, s. 44, c. 3, s. 4, c. 21, s. 2
- 1997, c. 25, s. 3
- 1998, c. 19, s. 73
- 1999, c. 22, s. 6
- 2001, c. 17, ss. 6, 196
Marginal note:Eligible capital property — inclusion in income from business
14 (1) Where, at the end of a taxation year, the total of all amounts each of which is an amount determined, in respect of a business of a taxpayer, for E in the definition cumulative eligible capital in subsection (5) (in this section referred to as an “eligible capital amount”) or for F in that definition exceeds the total of all amounts determined for A to D in that definition in respect of the business (which excess is in this subsection referred to as “the excess”), there shall be included in computing the taxpayer’s income from the business for the year the total of
(a) the amount, if any, that is the lesser of
(i) the excess, and
(ii) the amount determined for F in the definition cumulative eligible capital in subsection (5) at the end of the year in respect of the business, and
(b) the amount, if any, determined by the formula
2/3 × (A - B - C - D)
where
- A
- is the excess,
- B
- is the amount determined for F in the definition cumulative eligible capital in subsection (5) at the end of the year in respect of the business,
- C
- is 1/2 of the amount determined for Q in the definition cumulative eligible capital in subsection (5) at the end of the year in respect of the business, and
- D
- is the amount claimed by the taxpayer, not exceeding the taxpayer’s exempt gains balance for the year in respect of the business.
Marginal note:Election re capital gain
(1.01) Where, at any time in a taxation year, a taxpayer disposes of an eligible capital property (other than goodwill) in respect of a business, the cost of the property to the taxpayer can be determined, the proceeds of the disposition (in this subsection referred to as the “actual proceeds”) exceed that cost, the taxpayer’s exempt gains balance in respect of the business for the year is nil and the taxpayer so elects under this subsection in the taxpayer’s return of income for the year,
(a) for the purposes of subsection (5), the proceeds of disposition of the property are deemed to be equal to that cost;
(b) the taxpayer is deemed to have disposed at that time of a capital property that had at that time an adjusted cost base to the taxpayer equal to that cost, for proceeds of disposition equal to the actual proceeds; and
(c) where the eligible capital property is at that time a qualified farm property (within the meaning assigned by subsection 110.6(1)) of the taxpayer, the capital property deemed by paragraph (b) to have been disposed of by the taxpayer is deemed to have been at that time a qualified farm property of the taxpayer.
Marginal note:Deemed taxable capital gain
(1.1) For the purposes of section 110.6 and paragraph 3(b) as it applies for the purposes of that section, an amount included under paragraph (1)(b) in computing a taxpayer’s income for a particular taxation year from a business is deemed to be a taxable capital gain of the taxpayer for the year from the disposition in the year of qualified farm property to the extent of the lesser of
(a) the amount included under paragraph (1)(b) in computing the taxpayer’s income for the particular year from the business, and
(b) the amount determined by the formula
A - B
where
- A
- is the amount by which the total of
(i) 3/4 of the total of all amounts each of which is the taxpayer’s proceeds from a disposition in a preceding taxation year that began after 1987 and ended before February 28, 2000 of eligible capital property in respect of the business that, at the time of the disposition, was a qualified farm property (within the meaning assigned by subsection 110.6(1)) of the taxpayer,
(ii) 2/3 of the total of all amounts each of which is the taxpayer’s proceeds from a disposition in the particular year or a preceding taxation year that ended after February 27, 2000 and before October 18, 2000 of eligible capital property in respect of the business that, at the time of the disposition, was a qualified farm property (within the meaning assigned by subsection 110.6(1)) of the taxpayer, and
(iii) 1/2 of the total of all amounts each of which is the taxpayer’s proceeds from a disposition in the particular year or a preceding taxation year that ended after October 17, 2000 of eligible capital property in respect of the business that, at the time of the disposition, was a qualified farm property (within the meaning assigned by subsection 110.6(1)) of the taxpayer
exceeds the total of
(iv) 3/4 of the total of all amounts each of which is
(A) an eligible capital expenditure of the taxpayer in respect of the business that was made or incurred in respect of a qualified farm property disposed of by the taxpayer in a preceding taxation year that began after 1987 and ended before February 28, 2000, or
(B) an outlay or expense of the taxpayer that was not deductible in computing the taxpayer’s income and that was made or incurred for the purpose of making a disposition referred to in clause (A),
(v) 2/3 of the total of all amounts each of which is
(A) an eligible capital expenditure of the taxpayer in respect of the business that was made or incurred in respect of a qualified farm property disposed of by the taxpayer in the particular year or a preceding taxation year that ended after February 27, 2000 and before October 18, 2000, or
(B) an outlay or expense of the taxpayer that was not deductible in computing the taxpayer’s income and that was made or incurred for the purpose of making a disposition referred to in clause (A), and
(vi) 1/2 of the total of all amounts each of which is
(A) an eligible capital expenditure of the taxpayer in respect of the business that was made or incurred in respect of a qualified farm property disposed of by the taxpayer in the particular year or a preceding taxation year that ended after October 17, 2000, or
(B) an outlay or expense of the taxpayer that was not deductible in computing the taxpayer’s income and that was made or incurred for the purpose of making a disposition referred to in clause (A), and
- B
- is the total of all amounts each of which is
(i) that portion of an amount deemed by subparagraph 14(1)(a)(v) (as it applied in respect of the business to fiscal periods that began after 1987 and ended before February 23, 1994) to be a taxable capital gain of the taxpayer that can reasonably be attributed to a disposition of a qualified farm property of the taxpayer, or
(ii) an amount deemed by this section to be a taxable capital gain of the taxpayer for a taxation year preceding the particular year from the disposition of qualified farm property of the taxpayer.
Marginal note:Amount deemed payable
(2) Where any amount is, by any provision of this Act, deemed to be a taxpayer’s proceeds of disposition of any property disposed of by the taxpayer at any time, for the purposes of this section, that amount shall be deemed to have become payable to the taxpayer at that time.
Marginal note:Acquisition of eligible capital property
(3) Notwithstanding any other provision of this Act, where at any particular time a person or partnership (in this subsection referred to as the “taxpayer”) has, directly or indirectly, in any manner whatever, acquired an eligible capital property in respect of a business from a person or partnership with which the taxpayer did not deal at arm’s length (in this subsection referred to as the “transferor”) and the property was an eligible capital property of the transferor (other than property acquired by the taxpayer as a consequence of the death of the transferor), the eligible capital expenditure of the taxpayer in respect of the business is, in respect of that acquisition, deemed to be equal to 4/3 of the amount, if any, by which
(a) the amount determined for E in the definition cumulative eligible capital in subsection (5) in respect of the disposition of the property by the transferor
exceeds the total of
(b) the total of all amounts that can reasonably be considered to have been claimed as deductions under section 110.6 for taxation years that ended before February 28, 2000 by any person with whom the taxpayer was not dealing at arm’s length in respect of the disposition of the property by the transferor, or any other disposition of the property before the particular time,
(b.1) 9/8 of the total of all amounts that can reasonably be considered to have been claimed as deductions under section 110.6 for taxation years that ended after February 27, 2000 and before October 18, 2000 by any person with whom the taxpayer was not dealing at arm’s length in respect of the disposition of the property by the transferor, or any other disposition of the property before the particular time, and
(b.2) 3/2 of the total of all amounts that can reasonably be considered to have been claimed as deductions under section 110.6 for taxation years that end after October 17, 2000 by any person with whom the taxpayer was not dealing at arm’s length in respect of the disposition of the property by the transferor, or any other disposition of the property before the particular time,
except that, where the taxpayer disposes of the property after the particular time, the amount of the eligible capital expenditure deemed by this subsection to be made by the taxpayer in respect of the property shall be determined at any time after the disposition as if the total of the amounts determined under paragraphs (b), (b.1) and (b.2) in respect of the disposition were the lesser of
(c) the amount otherwise so determined, and
(d) the amount, if any, by which
(i) the amount determined under paragraph 14(3)(a) in respect of the disposition of the property by the transferor
exceeds
(ii) the amount determined for E in the definition cumulative eligible capital in subsection 14(5) in respect of the disposition of the property by the taxpayer.
Marginal note:References to “taxation year” or “year”
(4) Where a taxpayer is an individual and the taxpayer’s income for a taxation year includes income from a business the fiscal period of which does not coincide with the calendar year, for greater certainty a reference in this section to a “taxation year” or “year” shall be read as a reference to a “fiscal period” or “period”.
Marginal note:Definitions
(5) In this section,
adjustment time
moment du rajustement
adjustment time of a taxpayer in respect of a business is
(a) in the case of a corporation formed as a result of an amalgamation occurring after June 30, 1988, the time immediately before the amalgamation,
(b) in the case of any other corporation, the time immediately after the commencement of its first taxation year commencing after June 30, 1988, and
(c) for any other taxpayer, the time immediately after the commencement of the taxpayer’s first fiscal period commencing after 1987 in respect of the business; (moment du rajustement)
cumulative eligible capital
montant cumulatif des immobilisations admissibles
cumulative eligible capital of a taxpayer at any time in respect of a business of the taxpayer means the amount determined by the formula
(A + B + C + D + D.1) - (E + F)
where
- A
- is 3/4 of the total of all eligible capital expenditures in respect of the business made or incurred by the taxpayer before that time and after the taxpayer’s adjustment time,
- B
- is the total of
(a) 3/2 of all amounts included under paragraph (1)(b) in computing the taxpayer’s income from the business for taxation years that ended before that time and after October 17, 2000,
(b) 9/8 of all amounts included under paragraph (1)(b) in computing the taxpayer’s income from the business for taxation years that ended
(i) before that time, and
(ii) after February 27, 2000 and before October 18, 2000,
(c) all amounts included under paragraph (1)(b) in computing the taxpayer’s income from the business for taxation years that ended
(i) before the earlier of that time and February 28, 2000, and
(ii) after the taxpayer’s adjustment time,
(d) all amounts each of which is the amount that would have been included under subparagraph (1)(a)(v) (as that subparagraph applied for taxation years that ended before February 28, 2000) in computing the taxpayer’s income from the business, if the amount determined for D in that subparagraph for the year were nil, for taxation years that ended
(i) before the earlier of that time and February 28, 2000, and
(ii) after February 22, 1994, and
(e) all taxable capital gains included, because of the application of subparagraph (1)(a)(v) (as that subparagraph applied for taxation years that ended before February 28, 2000) to the taxpayer in respect of the business, in computing the taxpayer’s income for taxation years that began before February 23, 1994,
- C
- is 3/2 of the amount, if any, of the taxpayer’s cumulative eligible capital in respect of the business at the taxpayer’s adjustment time,
- D
- is the amount, if any, by which
(a) the total of all amounts deducted under paragraph 20(1)(b) in computing the taxpayer’s income from the business for taxation years ending before the taxpayer’s adjustment time
exceeds
(b) the total of all amounts included under subsection 14(1) in computing the taxpayer’s income from the business for taxation years ending before the taxpayer’s adjustment time,
- D.1
- is where the amount determined by B exceeds zero, 1/2 of the amount determined for Q in respect of the business
- E
- is the total of all amounts each of which is 3/4 of the amount, if any, by which
(a) an amount which, as a result of a disposition occurring after the taxpayer’s adjustment time and before that time, the taxpayer has or may become entitled to receive, in respect of the business carried on or formerly carried on by the taxpayer where the consideration given by the taxpayer therefor was such that, if any payment had been made by the taxpayer after 1971 for that consideration, the payment would have been an eligible capital expenditure of the taxpayer in respect of the business
exceeds
(b) all outlays and expenses to the extent that they were not otherwise deductible in computing the taxpayer’s income and were made or incurred by the taxpayer for the purpose of giving that consideration, and
- F
- is the amount determined by the formula
(P + P.1 + Q) - R
where
- P
- is the total of all amounts deducted under paragraph 20(1)(b) in computing the taxpayer’s income from the business for taxation years ending before that time and after the taxpayer’s adjustment time,
- P.1
- is the total of all amounts each of which is an amount by which the cumulative eligible capital of the taxpayer in respect of the business is required to be reduced at or before that time because of subsection 80(7);
- Q
- is the amount, if any, by which
(a) the total of all amounts deducted under paragraph 20(1)(b) in computing the taxpayer’s income from the business for taxation years ending before the taxpayer’s adjustment time
exceeds
(b) the total of all amounts included under subsection 14(1) in computing the taxpayer’s income for taxation years ending before the taxpayer’s adjustment time, and
- R
- is the total of all amounts included, in computing the taxpayer’s income from the business for taxation years that ended before that time and after the taxpayer’s adjustment time, under subparagraph (1)(a)(iv) in respect of taxation years that ended before February 28, 2000 and under paragraph (1)(a) in respect of taxation years that end after February 27, 2000;
eligible capital expenditure
dépense en capital admissible
eligible capital expenditure of a taxpayer in respect of a business means the portion of any outlay or expense made or incurred by the taxpayer, as a result of a transaction occurring after 1971, on account of capital for the purpose of gaining or producing income from the business, other than any such outlay or expense
(a) in respect of which any amount is or would be, but for any provision of this Act limiting the quantum of any deduction, deductible (otherwise than under paragraph 20(1)(b)) in computing the taxpayer’s income from the business, or in respect of which any amount is, by virtue of any provision of this Act other than paragraph 18(1)(b), not deductible in computing that income,
(b) made or incurred for the purpose of gaining or producing income that is exempt income, or
(c) that is the cost of, or any part of the cost of,
(i) tangible property of the taxpayer,
(ii) intangible property that is depreciable property of the taxpayer,
(iii) property in respect of which any deduction (otherwise than under paragraph 20(1)(b)) is permitted in computing the taxpayer’s income from the business or would be so permitted if the taxpayer’s income from the business were sufficient for the purpose, or
(iv) an interest in, or right to acquire, any property described in any of subparagraphs (i) to (iii)
but for greater certainty and without restricting the generality of the foregoing, does not include any portion of
(d) any amount paid or payable to any creditor of the taxpayer as, on account or in lieu of payment of any debt or as or on account of the redemption, cancellation or purchase of any bond or debenture,
(e) where the taxpayer is a corporation, any amount paid or payable to a person as a shareholder of the corporation, or
(f) any amount that is the cost of, or any part of the cost of,
(i) an interest in a trust,
(ii) an interest in a partnership,
(iii) a share, bond, debenture, mortgage, hypothecary claim, note, bill or other similar property, or
(iv) an interest in, or right to acquire, any property described in any of subparagraphs (f)(i) to (iii). (dépense en capital admissible)
exempt gains balance
solde des gains exonérés
exempt gains balance of an individual in respect of a business of the individual for a taxation year means the amount determined by the formula
A - B
where
- A
- is the lesser of
(a) the amount by which
(i) the amount that would have been the individual’s taxable capital gain determined under paragraph 110.6(19)(b) in respect of the business if
(A) the amount designated in an election under subsection 110.6(19) in respect of the business were equal to the fair market value at the end of February 22, 1994 of all the eligible capital property owned by the elector at that time in respect of the business, and
(B) this Act were read without reference to subsection 110.6(20)
exceeds
(ii) the amount determined by the formula
0.75(C - 1.1D)
where
- C
- is the amount designated in the election that was made under subsection 110.6(19) in respect of the business, and
- D
- is the fair market value at the end of February 22, 1994 of the property referred to in clause 14(5)(a)(i)(A), and
(b) the individual’s taxable capital gain determined under paragraph 110.6(19)(b) in respect of the business, and
- B
- is the total of all amounts each of which is the amount determined for D in subparagraph (1)(a)(v) in respect of the business for a preceding taxation year that ended before February 28, 2000 or the amount determined for D in paragraph (1)(b) for a preceding taxation year that ended after February 27, 2000.
Marginal note:Exchange of property
(6) Where in a taxation year (in this subsection referred to as the “initial year”) a taxpayer disposes of an eligible capital property (in this section referred to as the taxpayer’s “former property”) and the taxpayer so elects under this subsection in the taxpayer’s return of income for the year in which the taxpayer acquires an eligible capital property that is a replacement property for the taxpayer’s former property, such amount, not exceeding the amount that would otherwise be included in the amount determined for E in the definition cumulative eligible capital in subsection 14(5) (if the description of E in that definition were read without reference to “3/4 of”) in respect of a business, as has been used by the taxpayer before the end of the first taxation year after the initial year to acquire the replacement property
(a) shall, subject to paragraph 14(6)(b), not be included in the amount determined for E in that definition for the purpose of determining the cumulative eligible capital of the taxpayer in respect of the business; and
(b) shall, to the extent of 3/4 thereof, be included in the amount determined for E in that definition for the purpose of determining the cumulative eligible capital of the taxpayer in respect of the business at a time that is the later of
(i) the time the replacement property was acquired by the taxpayer, and
(ii) the time the former property was disposed of by the taxpayer.
Marginal note:Replacement property
(7) For the purposes of subsection 14(6), a particular eligible capital property of a taxpayer is a replacement property for a former property of the taxpayer if
(a) it is reasonable to conclude that the property was acquired by the taxpayer to replace the former property;
(a.1) it was acquired by the taxpayer for a use that is the same as or similar to the use to which the taxpayer put the former property;
(b) it was acquired for the purpose of gaining or producing income from the same or a similar business as that in which the former property was used; and
(c) where the former property was used by the taxpayer in a business carried on in Canada, the particular property was acquired for use by the taxpayer in a business carried on by the taxpayer in Canada.
Marginal note:Deemed residence in Canada
(8) Where an individual was resident in Canada at any time in a particular taxation year and throughout
(a) the preceding taxation year, or
(b) the following taxation year,
for the purpose of paragraph 14(1)(a), the individual shall be deemed to have been resident in Canada throughout the particular year.
Marginal note:Effect of election under subsection 110.6(19)
(9) Where an individual elects under subsection 110.6(19) in respect of a business, the individual shall be deemed to have received proceeds of a disposition on February 23, 1994 of eligible capital property in respect of the business equal to the amount determined by the formula
(A - B)4/3
where
- A
- is the amount determined in respect of the business under subparagraph (a)(ii) of the description of A in the definition exempt gains balance in subsection 14(5), and
- B
- is the amount determined in respect of the business under subparagraph (a)(i) of the description of A in the definition exempt gains balance in subsection 14(5).
Marginal note:Deemed eligible capital expenditure
(10) For the purposes of this Act, where a taxpayer received or is entitled to receive assistance from a government, municipality or other public authority in respect of, or for the acquisition of, property the cost of which is an eligible capital expenditure of the taxpayer in respect of a business, whether as a grant, subsidy, forgivable loan, deduction from tax, investment allowance or as any other form of assistance, that eligible capital expenditure shall at any time be deemed to be the amount, if any, by which the total of
(a) that eligible capital expenditure, determined without reference to this subsection, and
(b) such part, if any, of the assistance as the taxpayer repaid before
(i) the taxpayer ceased to carry on the business, and
(ii) that time
under a legal obligation to pay all or any part of the assistance
exceeds
(c) the amount of the assistance the taxpayer received or is entitled to receive before the earlier of that time and the time the taxpayer ceases to carry on the business.
Marginal note:Receipt of public assistance
(11) For the purpose of subsection 14(10), where at any time a taxpayer who is a beneficiary under a trust or a member of a partnership received or is entitled to receive assistance from a government, municipality or other public authority, whether as a grant, subsidy, forgivable loan, deduction from tax, investment allowance or as any other form of assistance, the amount of the assistance that can reasonably be considered to be in respect of, or for the acquisition of, property the cost of which was an eligible capital expenditure of the trust or partnership shall be deemed to have been received at that time by the trust or partnership, as the case may be, as assistance from the government, municipality or other public authority for the acquisition of such property.
Marginal note:Loss on certain transfers
(12) Where
(a) a corporation, trust or partnership (in this subsection referred to as the “transferor”) disposes at any time in a taxation year of a particular eligible capital property in respect of a business of the transferor in respect of which it would, but for this subsection, be permitted a deduction under paragraph 24(1)(a) as a consequence of the disposition, and
(b) during the period that begins 30 days before and ends 30 days after the disposition, the transferor or a person affiliated with the transferor acquires a property (in this subsection referred to as the “substituted property”) that is, or is identical to, the particular property and, at the end of that period, a person or partnership that is either the transferor or a person or partnership affiliated with the transferor owns the substituted property,
the transferor is deemed, for the purposes of this section and sections 20 and 24, to continue to own eligible capital property in respect of the business, and not to have ceased to carry on the business, until the time that is immediately before the first time, after the disposition,
(c) at which a 30-day period begins throughout which neither the transferor nor a person affiliated with the transferor owns
(i) the substituted property, or
(ii) a property that is identical to the substituted property and that was acquired after the day that is 31 days before the period begins,
(d) at which the substituted property is not eligible capital property in respect of a business carried on by the transferor or a person affiliated with the transferor,
(e) at which the substituted property would, if it were owned by the transferor, be deemed by section 128.1 or subsection 149(10) to have been disposed of by the transferor,
(f) that is immediately before control of the transferor is acquired by a person or group of persons, where the transferor is a corporation, or
(g) at which the winding-up of the transferor begins (other than a winding-up to which subsection 88(1) applies), where the transferor is a corporation.
Marginal note:Deemed identical property
(13) For the purpose of subsection 14(12),
(a) a right to acquire a property (other than a right, as security only, derived from a mortgage, hypothec, agreement for sale or similar obligation) is deemed to be a property that is identical to the property; and
(b) where a partnership otherwise ceases to exist at any time after the disposition, the partnership is deemed not to have ceased to exist and each person who, immediately before the partnership would, but for this paragraph, have ceased to exist, was a member of the partnership is deemed to remain a member of the partnership, until the time that is immediately after the first time described in paragraphs 14(12)(c) to 14(12)(g).
Marginal note:Ceasing to use property in Canadian business
(14) If at a particular time a non-resident taxpayer ceases to use, in connection with a business or part of a business carried on by the taxpayer in Canada immediately before the particular time, a property that was immediately before the particular time eligible capital property of the taxpayer (other than a property that was disposed of by the taxpayer at the particular time), the taxpayer is deemed to have disposed of the property immediately before the particular time for proceeds of disposition equal to the amount determined by the formula
A - B
where
- A
- is the fair market value of the property immediately before the particular time, and
- B
- is
(a) where at a previous time before the particular time the taxpayer ceased to use the property in connection with a business or part of a business carried on by the taxpayer outside Canada and began to use it in connection with a business or part of a business carried on by the taxpayer in Canada, the amount, if any, by which the fair market value of the property at the previous time exceeded its cost to the taxpayer at the previous time, and
(b) in any other case, nil.
Marginal note:Beginning to use property in Canadian business
(15) If at a particular time a non-resident taxpayer ceases to use, in connection with a business or part of a business carried on by the taxpayer outside Canada immediately before the particular time, and begins to use, in connection with a business or part of a business carried on by the taxpayer in Canada, a property that is an eligible capital property of the taxpayer, the taxpayer is deemed to have disposed of the property immediately before the particular time and to have reacquired the property at the particular time for consideration equal to the lesser of the cost to the taxpayer of the property immediately before the particular time and its fair market value immediately before the particular time.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 14
- 1994, c. 7, Sch. II, s. 10, c. 21, s. 8
- 1995, c. 3, s. 5, c. 21, s. 3
- 1998, c. 19, s. 74
- 2001, c. 17, ss. 7, 197
Marginal note:Benefit conferred on shareholder
15 (1) Where at any time in a taxation year a benefit is conferred on a shareholder, or on a person in contemplation of the person becoming a shareholder, by a corporation otherwise than by
(a) the reduction of the paid-up capital, the redemption, cancellation or acquisition by the corporation of shares of its capital stock or on the winding-up, discontinuance or reorganization of its business, or otherwise by way of a transaction to which section 88 applies,
(b) the payment of a dividend or a stock dividend,
(c) conferring, on all owners of common shares of the capital stock of the corporation at that time, a right in respect of each common share, that is identical to every other right conferred at that time in respect of each other such share, to acquire additional shares of the capital stock of the corporation, and, for the purpose of this paragraph,
(i) where
(A) the voting rights attached to a particular class of common shares of the capital stock of a corporation differ from the voting rights attached to another class of common shares of the capital stock of the corporation, and
(B) there are no other differences between the terms and conditions of the classes of shares that could cause the fair market value of a share of the particular class to differ materially from the fair market value of a share of the other class,
the shares of the particular class shall be deemed to be property that is identical to the shares of the other class, and
(ii) rights are not considered identical if the cost of acquiring the rights differs, or
(d) an action described in paragraph 84(1)(c.1), 84(1)(c.2) or 84(1)(c.3),
the amount or value thereof shall, except to the extent that it is deemed by section 84 to be a dividend, be included in computing the income of the shareholder for the year.
Marginal note:Conferring of benefit
(1.1) Notwithstanding subsection 15(1), where in a taxation year a corporation has paid a stock dividend to a person and it may reasonably be considered that one of the purposes of that payment was to significantly alter the value of the interest of any specified shareholder of the corporation, the fair market value of the stock dividend shall, except to the extent that it is otherwise included in computing that person’s income under paragraph 82(1)(a), be included in computing the income of that person for the year.
Marginal note:Forgiveness of shareholder debt
(1.2) For the purpose of subsection 15(1), the value of the benefit where an obligation issued by a debtor is settled or extinguished at any time shall be deemed to be the forgiven amount at that time in respect of the obligation.
Marginal note:Forgiven amount
(1.21) For the purpose of subsection 15(1.2), the forgiven amount at any time in respect of an obligation issued by a debtor has the meaning that would be assigned by subsection 80(1) if
(a) the obligation were a commercial obligation (within the meaning assigned by subsection 80(1)) issued by the debtor;
(b) no amount included in computing income (otherwise than because of paragraph 6(1)(a)) because of the obligation being settled or extinguished were taken into account;
(c) the definition forgiven amount in subsection 80(1) were read without reference to paragraphs (f) and (h) of the description B in that definition; and
(d) section 80 were read without reference to paragraphs (2)(b) and (q) of that section.
Marginal note:Cost of property or service
(1.3) To the extent that the cost to a person of purchasing a property or service or an amount payable by a person for the purpose of leasing property is taken into account in determining an amount required under this section to be included in computing a taxpayer’s income for a taxation year, that cost or amount payable, as the case may be, shall include any tax that was payable by the person in respect of the property or service or that would have been so payable if the person were not exempt from the payment of that tax because of the nature of the person or the use to which the property or service is to be put.
(1.4) [Repealed, 1997, c. 10, s. 269(1)]
Marginal note:Shareholder debt
(2) Where a person (other than a corporation resident in Canada) or a partnership (other than a partnership each member of which is a corporation resident in Canada) is
(a) a shareholder of a particular corporation,
(b) connected with a shareholder of a particular corporation, or
(c) a member of a partnership, or a beneficiary of a trust, that is a shareholder of a particular corporation
and the person or partnership has in a taxation year received a loan from or has become indebted to the particular corporation, any other corporation related to the particular corporation or a partnership of which the particular corporation or a corporation related to the particular corporation is a member, the amount of the loan or indebtedness is included in computing the income for the year of the person or partnership.
Marginal note:Persons connected with a shareholder
(2.1) For the purposes of subsection 15(2), a person is connected with a shareholder of a particular corporation if that person does not deal at arm’s length with the shareholder and if that person is a person other than
(a) a foreign affiliate of the particular corporation; or
(b) a foreign affiliate of a person resident in Canada with which the particular corporation does not deal at arm’s length.
Marginal note:When s. 15(2) not to apply — non-resident persons
(2.2) Subsection 15(2) does not apply to indebtedness between non-resident persons.
Marginal note:When s. 15(2) not to apply — ordinary lending business
(2.3) Subsection 15(2) does not apply to a debt that arose in the ordinary course of the creditor’s business or a loan made in the ordinary course of the lender’s ordinary business of lending money where, at the time the indebtedness arose or the loan was made, bona fide arrangements were made for repayment of the debt or loan within a reasonable time.
Marginal note:When s. 15(2) not to apply — certain employees
(2.4) Subsection 15(2) does not apply to a loan made or a debt that arose
(a) in respect of an individual who is an employee of the lender or creditor but not a specified employee of the lender or creditor,
(b) in respect of an individual who is an employee of the lender or creditor or who is the spouse or common-law partner of an employee of the lender or creditor to enable or assist the individual to acquire a dwelling or a share of the capital stock of a cooperative housing corporation acquired for the sole purpose of acquiring the right to inhabit a dwelling owned by the corporation, where the dwelling is for the individual’s habitation,
(c) where the lender or creditor is a particular corporation, in respect of an employee of the particular corporation or of another corporation that is related to the particular corporation, to enable or assist the employee to acquire from the particular corporation, or from another corporation related to the particular corporation, previously unissued fully paid shares of the capital stock of the particular corporation or the related corporation, as the case may be, to be held by the employee for the employee’s own benefit, or
(d) in respect of an employee of the lender or creditor to enable or assist the employee to acquire a motor vehicle to be used by the employee in the performance of the duties of the employee’s office or employment,
where
(e) it is reasonable to conclude that the employee or the employee’s spouse or common-law partner received the loan, or became indebted, because of the employee’s employment and not because of any person’s share-holdings, and
(f) at the time the loan was made or the debt was incurred, bona fide arrangements were made for repayment of the loan or debt within a reasonable time.
Marginal note:When s. 15(2) not to apply — certain trusts
(2.5) Subsection 15(2) does not apply to a loan made or a debt that arose in respect of a trust where
(a) the lender or creditor is a private corporation;
(b) the corporation is the settlor and sole beneficiary of the trust;
(c) the sole purpose of the trust is to facilitate the purchase and sale of the shares of the corporation, or of another corporation related to the corporation, for an amount equal to their fair market value at the time of the purchase or sale, as the case may be, from or to the employees of the corporation or of the related corporation (other than employees who are specified employees of the corporation or of another corporation related to the corporation), as the case may be; and
(d) at the time the loan was made or the debt incurred, bona fide arrangements were made for repayment of the loan or debt within a reasonable time.
Marginal note:When s. 15(2) not to apply — repayment within one year
(2.6) Subsection 15(2) does not apply to a loan or an indebtedness repaid within one year after the end of the taxation year of the lender or creditor in which the loan was made or the indebtedness arose, where it is established, by subsequent events or otherwise, that the repayment was not part of a series of loans or other transactions and repayments.
Marginal note:Employee of partnership
(2.7) For the purpose of this section, an individual who is an employee of a partnership is deemed to be a specified employee of the partnership where the individual is a specified shareholder of one or more corporations that, in total, are entitled, directly or indirectly, to a share of any income or loss of the partnership, which share is not less than 10% of the income or loss.
Marginal note:Interest or dividend on income bond or debenture
(3) An amount paid as interest or a dividend by a corporation resident in Canada to a taxpayer in respect of an income bond or income debenture shall be deemed to have been paid by the corporation and received by the taxpayer as a dividend on a share of the capital stock of the corporation, unless the corporation is entitled to deduct the amount so paid in computing its income.
Marginal note:Idem, where corporation not resident
(4) An amount paid as interest or a dividend by a corporation not resident in Canada to a taxpayer in respect of an income bond or income debenture shall be deemed to have been received by the taxpayer as a dividend on a share of the capital stock of the corporation unless the amount so paid was, under the laws of the country in which the corporation was resident, deductible in computing the amount for the year on which the corporation was liable to pay income or profits tax imposed by the government of that country.
Marginal note:Automobile benefit
(5) For the purposes of subsection 15(1), the value of the benefit to be included in computing a shareholder’s income for a taxation year with respect to an automobile made available to the shareholder, or a person related to the shareholder, by a corporation shall (except where an amount is determined under subparagraph 6(1)(e)(i) in respect of the automobile in computing the shareholder’s income for the year) be computed on the assumption that subsections 6(1), 6(1.1), 6(2) and 6(7) apply, with such modifications as the circumstances require, and as though the references therein to “the employer of the taxpayer”, “the taxpayer’s employer” and “the employer” were read as “the corporation”.
Marginal note:Application of ss. (1), (2) and (5)
(7) For greater certainty, subsections 15(1), (2) and (5) are applicable in computing, for the purposes of this Part, the income of a shareholder or of a person or partnership whether or not the corporation, or the lender or creditor, as the case may be, was resident or carried on business in Canada.
(8) [Repealed, 1998, c. 19, s. 75(3)]
Marginal note:Deemed benefit to shareholder by corporation
(9) Where an amount in respect of a loan or debt is deemed by section 80.4 to be a benefit received by a person or partnership in a taxation year, the amount is deemed for the purpose of subsection 15(1) to be a benefit conferred in the year on a shareholder, unless subsection 6(9) or paragraph 12(1)(w) applies to the amount.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 15
- 1994, c. 7, Sch. II, s. 11, Sch, VIII, s. 5, c. 21, s. 9
- 1995, c. 21, s. 4
- 1997, c. 10, s. 269
- 1998, c. 19, s. 75
- 2000, c. 12, s. 142
Marginal note:Interest on small business development bonds
15.1 (1) Any amount received by a taxpayer as or on account of interest on a small business development bond shall, except for the purposes of Part IV, be deemed to have been received as a taxable dividend.
Marginal note:Rules for small business development bonds
(2) Where a corporation (in this section referred to as the “issuer”) has issued an obligation that is at any time a small business development bond, notwithstanding any other provision of this Act,
(a) in computing the issuer’s income for a taxation year, no deduction shall be made in respect of any amount paid or payable (depending on the method regularly followed in computing the issuer’s income) as or on account of interest on the obligation in respect of a period that includes that time;
(b) except for the purpose of subsection 129(1), to the extent that any amount paid by the issuer as or on account of interest on the obligation is not allowed as a deduction because of paragraph 15.1(2)(a), it shall, when paid, be deemed to have been paid as a taxable dividend; and
(c) except for the purposes of paragraph 125(1)(b), the issuer’s taxable income for any taxation year that includes a period throughout which the obligation was a small business development bond but
(i) the issuer was not an eligible small business corporation, or
(ii) all or substantially all of the proceeds from the issue of the obligation cannot reasonably be regarded as having been used by the issuer or a corporation with which it was not dealing at arm’s length in the financing of an active business carried on in Canada immediately before the obligation was issued
shall be deemed to be an amount equal to the total of
(iii) the amount paid or payable (depending on the method regularly followed in computing the issuer’s income) as or on account of interest on the obligation in respect of that period, and
(iv) the issuer’s taxable income otherwise determined for the year.
Marginal note:Definitions
(3) In this section,
- eligible small business corporation
eligible small business corporation at any time means a taxable Canadian corporation that at that time is
(a) a small business corporation, or
(b) a cooperative corporation (within the meaning assigned by subsection 136(2)) all or substantially all of the assets of which are used in an active business carried on by it in Canada; (société admissible exploitant une petite entreprise)
- joint election
joint election means an election that is made in prescribed form, containing prescribed information, jointly by the issuer of an obligation and the person who is the holder of the obligation at the time of the election, that is filed with the Minister by the holder, and in which the holder and the issuer elect that this section apply to the obligation; (choix conjoint)
- majority interest partner
majority interest partner[Repealed, 1998, c. 19, s. 76(1)]
- property used for specified purposes
property used for specified purposes[Repealed, 1994, c. 7, Sch. VIII, s. 6(1)]
- qualifying debt obligation
qualifying debt obligation of a corporation at a particular time means an obligation that is a bond, debenture, bill, note, mortgage, hypothecary claim or similar obligation issued after February 25, 1992 and before 1995,
(a) the principal amount of which is not less than $10,000 or more than $500,000,
(b) that is issued for a term of not more than 5 years and, except in the event of a failure or default under the terms or conditions of the obligation, not less than one year, and
(c) that was issued not more than 5 years before the particular time,
if the obligation is issued by the corporation
(d) as part of a proposal to, or an arrangement with, its creditors that has been approved by a court under the Bankruptcy and Insolvency Act,
(e) at a time when all or substantially all of its assets are under the control of a receiver, receiver-manager, sequestrator or trustee in bankruptcy, or
(f) at a time when, because of financial difficulty, the corporation is in default, or could reasonably be expected to default, on a debt held by a person with whom the corporation was dealing at arm’s length and the obligation is issued, in whole or in part, directly or indirectly in exchange or substitution for that debt; (créance admissible)
- small business development bond
small business development bond at any time means
(a) an obligation that is at that time a qualifying debt obligation issued after 1981 and before 1988 by a Canadian-controlled private corporation in respect of which a joint election was made within 90 days after the later of its issue date and March 30, 1983,
(b) an obligation that is at that time a qualifying debt obligation issued after February 25, 1992 by a Canadian-controlled private corporation in respect of which a joint election was made within 90 days after its issue date, or
(c) an obligation that is at that time a qualifying debt obligation issued by a Canadian-controlled private corporation if
(i) it is reasonable to consider that the corporation and the holder of the obligation intended that this section apply to the obligation, having regard to such factors as may be relevant, including the rate of interest stipulated under the terms of the obligation and the manner in which the corporation and the holder have treated the obligation for the purposes of this Act, and
(ii) the holder files with the Minister a joint election in respect of the obligation within 90 days after the date of notification by the Minister that a joint election in respect of the obligation has not been filed. (obligation pour le développement de la petite entreprise)
- specified property
specified property[Repealed, 1994, c. 7, Sch. VIII, s. 6(1)]
Marginal note:Money borrowed
(4) Notwithstanding any other provision of this Act, an amount paid or payable by a taxpayer pursuant to a legal obligation to pay interest on borrowed money used for the purpose of acquiring a small business development bond shall be deemed to be an amount paid or payable, as the case may be, on borrowed money used for the purpose of earning income from a business or property.
Marginal note:False declaration
(5) Where the Minister establishes that an issuer has knowingly or under circumstances amounting to gross negligence made a false declaration in a joint election in respect of an obligation, the reference in subparagraph 15.1(2)(c)(iii) to “the amount paid or payable” shall in respect of the obligation be read as a reference to “3 times the amount paid or payable”.
Marginal note:Disqualification
(6) Where at a particular time an issuer makes a joint election in respect of an obligation and
(a) the issuer or any other corporation associated at the time the obligation was issued with the issuer,
(b) an individual who controls or is a member of a related group that controls the issuer, or
(c) a partnership any member of which, who is a majority interest partner of the partnership, controls, or is a member of a related group that controls, the issuer
had at or before the particular time made a joint election in respect of any small business development bond or small business bond, as the case may be, for the purposes of this section, the issuer shall be deemed not to be an eligible small business corporation in respect of the obligation.
Marginal note:Exception
(7) Subsection 15.1(6) does not apply in respect of an obligation issued at any time where the issue price of the obligation does not exceed the amount, if any, by which
(a) $500,000
exceeds
(b) the total of all amounts each of which is the principal amount outstanding immediately after that time in respect of
(i) another obligation that is a small business development bond issued by
(A) the issuer, or
(B) a corporation associated with the issuer, or
(ii) a small business bond issued by
(A) an individual who controls, or is a member of a related group that controls, the issuer, or
(B) a partnership any member of which, who is a majority interest partner of the partnership, controls, or is a member of a related group that controls, the issuer.
(8) to (12) [Repealed, 1994, c. 7, Sch. VIII, s. 6(1)]
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 15.1
- 1994, c. 7, Sch. V, s. 90, Sch. VIII, s. 6, c. 8, s. 1
- 1998, c. 19, s. 76
- 2001, c. 17, s. 198
Marginal note:Interest on small business bond
15.2 (1) Any amount received by a taxpayer as or on account of interest on a small business bond shall, except for the purposes of Part IV, be deemed to have been received as a taxable dividend from a taxable Canadian corporation.
Marginal note:Rules for small business bonds
(2) Where an individual or a partnership (in this section referred to as the “issuer”) has issued an obligation that is at any time a small business bond, notwithstanding any other provision of this Act,
(a) in computing the issuer’s income for a taxation year, no deduction shall be made in respect of any amount paid or payable (depending on the method regularly followed in computing the issuer’s income) as or on account of interest on the bond in respect of a period that includes that time; and
(b) for any taxation year that includes a period throughout which the obligation was a small business bond but
(i) the issuer was not an eligible issuer, or
(ii) all or substantially all of the proceeds from the issue of the obligation were not used by the issuer in the financing of an active business carried on by the issuer in Canada immediately before the time of the issue of the obligation,
there shall be added to the tax otherwise payable under this Part by the issuer for that taxation year an amount equal to 29% of the amount of interest paid or payable (depending on the method regularly followed in computing the issuer’s income) in respect of the bond for that period.
Marginal note:Definitions
(3) In this section,
- eligible issuer
eligible issuer at any time means
(a) an individual (other than a trust) who is resident in Canada and who
(i) has not made a joint election before that time in respect of a small business bond,
(ii) is not a majority interest partner of a partnership that has made a joint election before that time in respect of a small business bond, and
(iii) neither controls nor is a member of a related group that controls
(A) a corporation that has made a joint election before that time in respect of a small business development bond, or
(B) a corporation that is associated with a corporation referred to in clause (A), or
(b) a partnership
(i) each member of which is an individual (other than a trust) who is resident in Canada,
(ii) each majority interest partner, if any, of which is an eligible issuer, and
(iii) that has not made a joint election before that time in respect of a small business bond; (émetteur admissible)
- joint election
joint election means an election that is made in prescribed form, containing prescribed information, jointly by the issuer of an obligation and the person who is the holder of the obligation at the time of the election, that is filed with the Minister by the holder and in which the holder and the issuer elect that the provisions of this section apply to that obligation; (choix conjoint)
- majority interest partner
majority interest partner[Repealed, 1998, c. 19, s. 77(1)]
- qualifying debt obligation
qualifying debt obligation of an issuer at a particular time means an obligation that is a bill, note, mortgage, hypothecary claim or similar obligation issued after February 25, 1992 and before 1995,
(a) the principal amount of which is not less than $10,000 or more than $500,000,
(b) that is issued for a term of not more than 5 years and, except in the event of a failure or default under the terms or conditions of the obligation, not less than one year, and
(c) that was issued not more than 5 years before the particular time,if the obligation is issued
(d) as part of a proposal to, or an arrangement with, the issuer’s creditors that has been approved by a court under the Bankruptcy and Insolvency Act,
(e) at a time when all or substantially all of the issuer’s assets are under the control of a receiver, receiver-manager, sequestrator or trustee in bankruptcy, or
(f) at a time when, because of financial difficulty, the issuer is in default, or could reasonably be expected to default, on a debt incurred in the course of the issuer’s business and held by a person with whom the issuer was dealing at arm’s length or, where the issuer is a partnership, by a person with whom each member of the partnership was dealing at arm’s length, and it is issued, in whole or in part, directly or indirectly in exchange or substitution for that debt,
and the funds from the issue of the obligation are used in Canada in a business of the issuer carried on immediately before the time of issue; (créance admissible)
- small business bond
small business bond at any time means
(a) an obligation that is at that time a qualifying debt obligation, issued by an individual or a partnership, in respect of which a joint election was made within 90 days after its issue date, or
(b) an obligation that is at that time a qualifying debt obligation issued by an individual or a partnership if
(i) it is reasonable to consider that the issuer and the holder of the obligation intended that this section apply to the obligation, having regard to such factors as may be relevant, including the rate of interest stipulated under the terms of the obligation and the manner in which the issuer and the holder have treated the obligation for the purposes of this Act, and
(ii) the holder files with the Minister a joint election in respect of the obligation within 90 days after the date of notification by the Minister that a joint election in respect of the obligation has not been filed under paragraph (a). (obligation pour la petite entreprise)
Marginal note:Status of interest
(4) Notwithstanding any other provision of this Act, an amount paid or payable by a taxpayer pursuant to a legal obligation to pay interest on borrowed money used for the purpose of acquiring a small business bond shall be deemed to be an amount paid or payable, as the case may be, on borrowed money used for the purpose of earning income from a business or property.
Marginal note:False declaration
(5) Where the Minister establishes that an issuer has knowingly or under circumstances amounting to gross negligence made a false declaration in a joint election in respect of an obligation, the reference in paragraph 15.2(2)(b) to “29%” shall, in respect of the obligation, be read as a reference to “87%”.
Marginal note:Partnerships
(6) For the purpose of paragraph 15.2(2)(b), in the case of an issuer that is a partnership, the expression “tax otherwise payable under this Part by the issuer” shall be read as a reference to the “tax otherwise payable under this Part by each member of the partnership” and each member shall add to that member’s tax otherwise payable under this Part for the taxation year that includes the period described in paragraph 15.2(2)(b) the amount that can reasonably be regarded as that member’s share of the amount determined under that paragraph with respect to the partnership.
Marginal note:Deemed eligible issuer
(7) Where, but for subparagraphs (a)(i), (ii) and (iii) and (b)(ii) of the definition eligible issuer in subsection 15.2(3), an individual or a partnership would be an “eligible issuer”, the individual or partnership shall be deemed to be an eligible issuer in respect of a small business bond at any time where the issue price of the bond does not exceed the amount, if any, by which
(a) $500,000
exceeds
(b) where the issuer is an individual, the total of all amounts each of which is the principal amount outstanding immediately after that time in respect of
(i) another obligation that is a small business bond issued by
(A) the individual, or
(B) a partnership of which the individual is a majority interest partner, or
(ii) a small business development bond issued by
(A) a corporation that is controlled by the individual or by a related group of which the individual is a member, or
(B) a corporation that is associated with a corporation referred to in clause (A), or
(c) where the issuer is a partnership, the total of all amounts each of which is the principal amount outstanding immediately after that time in respect of
(i) another obligation that is a small business bond issued by
(A) the partnership,
(B) an individual who is a majority interest partner of the partnership, or
(C) a partnership of which the individual referred to in clause (B) is a majority interest partner, or
(ii) a small business development bond issued by
(A) a corporation that is controlled by the individual referred to in clause (B) or by a related group of which the individual is a member, or
(B) a corporation that is associated with a corporation referred to in clause (A).
(8) and (9) [Repealed, 1994, c. 7, Sch. VIII, s. 6(1)]
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 15.2
- 1994, c. 7, Sch. V, s. 90, Sch. VIII, s. 6, c. 8, s. 2
- 1998, c. 19, s. 77
- 2001, c. 17, s. 199
Marginal note:Income and capital combined
16 (1) Where, under a contract or other arrangement, an amount can reasonably be regarded as being in part interest or other amount of an income nature and in part an amount of a capital nature, the following rules apply:
(a) the part of the amount that can reasonably be regarded as interest shall, irrespective of when the contract or arrangement was made or the form or legal effect thereof, be deemed to be interest on a debt obligation held by the person to whom the amount is paid or payable; and
(b) the part of the amount that can reasonably be regarded as an amount of an income nature, other than interest, shall, irrespective of when the contract or arrangement was made or the form or legal effect thereof, be included in the income of the taxpayer to whom the amount is paid or payable for the taxation year in which the amount was received or became due to the extent it has not otherwise been included in the taxpayer’s income.
Marginal note:Obligation issued at discount
(2) Where, in the case of a bond, debenture, bill, note, mortgage or similar obligation issued after December 20, 1960 and before June 19, 1971 by a person exempt from tax under section 149, a non-resident person not carrying on business in Canada, or a government, municipality or municipal or other public body performing a function of government,
(a) the obligation was issued for an amount that is less than the principal amount of the obligation,
(b) the interest stipulated to be payable on the obligation, expressed in terms of an annual rate on
(i) the principal amount thereof, if no amount is payable on account of the principal amount before the maturity of the obligation, or
(ii) the amount outstanding from time to time as or on account of the principal amount thereof, in any other case,
is less than 5%, and
(c) the yield from the obligation, expressed in terms of an annual rate on the amount for which the obligation was issued (which annual rate shall, if the terms of the obligation or any agreement relating thereto conferred on the holder thereof a right to demand payment of the principal amount of the obligation or the amount outstanding as or on account of the principal amount, as the case may be, before the maturity of the obligation, be calculated on the basis of the yield that produces the highest annual rate obtainable either on the maturity of the obligation or conditional on the exercise of any such right) exceeds the annual rate determined under paragraph 16(2)(b) by more than 1/3 thereof,
the amount by which the principal amount of the obligation exceeds the amount for which the obligation was issued shall be included in computing the income of the first owner of the obligation who is a resident of Canada and is not a person exempt from tax under section 149 or a government, for the taxation year of that owner of the obligation in which he, she or it became the owner thereof.
Marginal note:Obligation issued at discount
(3) Where, in the case of a bond, debenture, bill, note, mortgage, hypothecary claim or similar obligation (other than an obligation that is a prescribed debt obligation for the purpose of subsection 12(9)) issued after June 18, 1971 by a person exempt, because of section 149, from Part I tax on part or on all of the person’s income, a non-resident person not carrying on business in Canada or a government, municipality or municipal or other public body performing a function of government,
(a) the obligation was issued for an amount that is less than the principal amount of the obligation, and
(b) the yield from the obligation, expressed in terms of an annual rate on the amount for which the obligation was issued (which annual rate shall, if the terms of the obligation or any agreement relating thereto conferred on the holder thereof a right to demand payment of the principal amount of the obligation or the amount outstanding as or on account of the principal amount, as the case may be, before the maturity of the obligation, be calculated on the basis of the yield that produces the highest annual rate obtainable either on the maturity of the obligation or conditional on the exercise of any such right) exceeds 4/3 of the interest stipulated to be payable on the obligation, expressed in terms of an annual rate on
(i) the principal amount of the obligation, if no amount is payable on account of the principal amount before the maturity of the obligation, or
(ii) the amount outstanding from time to time as or on account of the principal amount thereof, in any other case,
the amount by which the principal amount of the obligation exceeds the amount for which the obligation was issued shall be included in computing the income of the first owner of the obligation
(c) who is resident in Canada,
(d) who is not a government nor a person exempt, because of section 149, from tax under this Part on all or part of the person’s taxable income, and
(e) of whom the obligation is a capital property,
for the taxation year in which the owner acquired the obligation.
Marginal note:Where s. (1) does not apply
(4) Subsection 16(1) does not apply to any amount received by a taxpayer in a taxation year
(a) as an annuity payment; or
(b) in satisfaction of the taxpayer’s rights under an annuity contract.
Marginal note:Idem
(5) Subsection 16(1) does not apply in any case where subsection 16(2) or 16(3) applies.
Marginal note:Indexed debt obligations
(6) Subject to subsection 16(7) and for the purposes of this Act, where at any time in a taxpayer’s taxation year
(a) an interest in an indexed debt obligation is held by the taxpayer,
(i) an amount determined in prescribed manner shall be deemed to be received and receivable by the taxpayer in the year as interest in respect of the obligation, and
(ii) an amount determined in prescribed manner shall be deemed to be paid and payable in respect of the year by the taxpayer as interest under a legal obligation of the taxpayer to pay interest on borrowed money used for the purpose of earning income from a business or property;
(b) an indexed debt obligation is an obligation of the taxpayer,
(i) an amount determined in prescribed manner shall be deemed to be payable in respect of the year by the taxpayer as interest in respect of the obligation, and
(ii) an amount determined in prescribed manner shall be deemed to be received and receivable by the taxpayer in the year as interest in respect of the obligation; and
(c) the taxpayer pays or credits an amount in respect of an amount determined under subparagraph 16(6)(b)(i) in respect of an indexed debt obligation, the payment or crediting shall be deemed to be a payment or crediting of interest on the obligation.
Marginal note:Impaired indexed debt obligations
(7) Paragraph 16(6)(a) does not apply to a taxpayer in respect of an indexed debt obligation for the part of a taxation year throughout which the obligation is impaired where an amount in respect of the obligation is deductible because of subparagraph 20(1)(l)(ii) in computing the taxpayer’s income for the year.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 16
- 1994, c. 7, Sch. VIII, s. 7, c. 21, s. 10
- 1998, c. 19, s. 78
- 2001, c. 17, s. 200
Marginal note:Leasing properties
16.1 (1) Where a taxpayer (in this section referred to as the “lessee”) leases tangible property (other than prescribed property) that would, if the lessee acquired the property, be depreciable property of the lessee, from a person resident in Canada other than a person whose taxable income is exempt from tax under this Part, or from a non-resident person who holds the lease in the course of carrying on a business through a permanent establishment in Canada, as defined by regulation, any income from which is subject to tax under this Part, who owns the property and with whom the lessee was dealing at arm’s length (in this section referred to as the “lessor”) for a term of more than one year, if the lessee and the lessor jointly elect in prescribed form filed with their returns of income for their respective taxation years that include the particular time when the lease began, the following rules apply for the purpose of computing the income of the lessee for the taxation year that includes the particular time and for all subsequent taxation years:
(a) in respect of amounts paid or payable for the use of, or for the right to use, the property, the lease shall be deemed not to be a lease;
(b) the lessee shall be deemed to have acquired the property from the lessor at the particular time at a cost equal to its fair market value at that time;
(c) the lessee shall be deemed to have borrowed money from the lessor at the particular time, for the purpose of acquiring the property, in a principal amount equal to the fair market value of the property at that time;
(d) interest shall be deemed to accrue on the principal amount of the borrowed money outstanding from time to time, compounded semi-annually, not in advance, at the prescribed rate in effect
(i) at the earlier of
(A) the time, if any, before the particular time, at which the lessee last entered into an agreement to lease the property, and
(B) the particular time, or
(ii) where the lease provides that the amount payable by the lessee for the use of, or the right to use, the property varies according to prevailing interest rates in effect from time to time, and the lessee so elects, in respect of all of the property that is subject to the lease, in the lessee’s return of income under this Part for the taxation year of the lessee in which the lease began, at the beginning of the period for which the interest is being calculated;
(e) all amounts paid or payable by or on behalf of the lessee for the use of, or the right to use, the property in the year shall be deemed to be blended payments, paid or payable by the lessee, of principal and interest on the borrowed money outstanding from time to time, calculated in accordance with paragraph 16.1(1)(d), applied firstly on account of interest on principal, secondly on account of interest on unpaid interest and thirdly on account of unpaid principal, if any, and the amount, if any, by which any such payment exceeds the total of those amounts shall be deemed to be paid or payable on account of interest, and any amount deemed by reason of this paragraph to be a payment of interest shall be deemed to have been an amount paid or payable, as the case may be, pursuant to a legal obligation to pay interest in respect of the year on the borrowed money;
(f) at the time of the expiration or cancellation of the lease, the assignment of the lease or the sublease of the property by the lessee, the lessee shall (except where subsection 16.1(4) applies) be deemed to have disposed of the property at that time for proceeds of disposition equal to the amount, if any, by which
(i) the total of
(A) the amount referred to in paragraph 16.1(1)(c), and
(B) all amounts received or receivable by the lessee in respect of the cancellation or assignment of the lease or the sublease of the property
exceeds
(ii) the total of
(A) all amounts deemed under paragraph 16.1(1)(e) to have been paid or payable, as the case may be, by the lessee on account of the principal amount of the borrowed money, and
(B) all amounts paid or payable by or on behalf of the lessee in respect of the cancellation or assignment of the lease or the sublease of the property;
(g) for the purposes of subsections 13(5.2) and 13(5.3), each amount paid or payable by or on behalf of the lessee that would, but for this subsection, have been an amount paid or payable for the use of, or the right to use, the property shall be deemed to have been deducted in computing the lessee’s income as an amount paid or payable by the lessee for the use of, or the right to use, the property after the particular time;
(h) any amount paid or payable by or on behalf of the lessee in respect of the granting or assignment of the lease or the sublease of the property that would, but for this paragraph, be the capital cost to the lessee of a leasehold interest in the property shall be deemed to be an amount paid or payable, as the case may be, by the lessee for the use of, or the right to use, the property for the remaining term of the lease; and
(i) where the lessee elects under this subsection in respect of a property and, at any time after the lease was entered into, the owner of the property is a non-resident person who does not hold the lease in the course of carrying on a business through a permanent establishment in Canada, as defined by regulation, any income from which is subject to tax under this Part, for the purposes of this subsection the lease shall be deemed to have been cancelled at that time.
Marginal note:Assignments and subleases
(2) Subject to subsections 16.1(3) and 16.1(4), where at any particular time a lessee who has made an election under subsection 16.1(1) in respect of a leased property assigns the lease or subleases the property to another person (in this section referred to as the “assignee”),
(a) subsection 16.1(1) shall not apply in computing the income of the lessee in respect of the lease for any period after the particular time; and
(b) if the lessee and the assignee jointly elect in prescribed form filed with their returns of income under this Part for their respective taxation years that include the particular time, subsection 16.1(1) shall apply to the assignee as if
(i) the assignee leased the property at the particular time from the owner of the property for a term of more than one year, and
(ii) the assignee and the owner of the property jointly elected under subsection 16.1(1) in respect of the property with their returns of income under this Part for their respective taxation years that include the particular time.
Marginal note:Idem
(3) Subject to subsection 16.1(4), where at any particular time a lessee who has made an election under subsection 16.1(1) in respect of a leased property assigns the lease or subleases the property to another person with whom the lessee is not dealing at arm’s length, the other person shall, for the purposes of subsection 16.1(1) and for the purposes of computing that person’s income in respect of the lease for any period after the particular time, be deemed to be the same person as, and a continuation of, the lessee, except that, notwithstanding paragraph 16.1(1)(b), that other person shall be deemed to have acquired the property from the lessee at the time that it was acquired by the lessee at a cost equal to the amount that would be the lessee’s proceeds of disposition of the property determined under paragraph 16.1(1)(f) if that amount were determined without reference to clauses 16.1(1)(f)(i)(B) and (ii)(B).
Marginal note:Amalgamations and windings-up
(4) Notwithstanding subsection 16.1(2), where at any time a particular corporation that has made an election under subsection 16.1(1) in respect of a lease assigns the lease
(a) by reason of an amalgamation (within the meaning assigned by subsection 87(1)), or
(b) in the course of the winding-up of a Canadian corporation in respect of which subsection 88(1) applies,
to another corporation with which it does not deal at arm’s length, the other corporation shall, for the purposes of subsection 16.1(1) and for the purposes of computing its income in respect of the lease after that time, be deemed to be the same person as, and a continuation of, the particular corporation.
Marginal note:Replacement property
(5) For the purposes of subsection 16.1(1), where at any time a property (in this subsection referred to as a “replacement property”) is provided by a lessor to a lessee as a replacement for a similar property of the lessor (in this subsection referred to as the “original property”) that was leased by the lessor to the lessee, and the amount payable by the lessee for the use of, or the right to use, the replacement property is the same as the amount that was so payable in respect of the original property, the replacement property shall be deemed to be the same property as the original property.
Marginal note:Additional property
(6) For the purposes of subsection 16.1(1), where at any particular time
(a) an addition or alteration (in this subsection referred to as “additional property”) is made by a lessor to a property (in this subsection referred to as the “original property”) of the lessor that is the subject of a lease,
(b) the lessor and the lessee of the original property have jointly elected under subsection 16.1(1) in respect of the original property, and
(c) as a consequence of the addition or alteration, the total amount payable by the lessee for the use of, or the right to use, the original property and the additional property exceeds the amount so payable in respect of the original property,
the following rules apply:
(d) the lessee shall be deemed to have leased the additional property from the lessor at the particular time,
(e) the term of the lease of the additional property shall be deemed to be greater than one year,
(f) the lessor and the lessee shall be deemed to have jointly elected under subsection 16.1(1) in respect of the additional property,
(g) the prescribed rate in effect at the particular time in respect of the additional property shall be deemed to be equal to the prescribed rate in effect in respect of the original property at the particular time,
(h) the additional property shall be deemed not to be prescribed property, and
(i) the excess referred to in paragraph 16.1(6)(c) shall be deemed to be an amount payable by the lessee for the use of, or the right to use, the additional property.
Marginal note:Renegotiation of lease
(7) For the purposes of subsection 16.1(1), where at any time
(a) a lease (in this subsection referred to as the “original lease”) of property is renegotiated in the course of a bona fide renegotiation, and
(b) as a result of the renegotiation, the amount payable by the lessee of the property for the use of, or the right to use, the property is altered in respect of a period after that time (otherwise than because of an addition or alteration to which subsection 16.1(6) applies),
the original lease shall be deemed to have expired and the renegotiated lease shall be deemed to be a new lease of the property entered into at that time.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 16.1
- 1994, c. 7, Sch. II, s. 12
- 1999, c. 22, s. 7
Marginal note:Amount owing by non-resident
17 (1) Where, at any time in a taxation year of a corporation resident in Canada, a non-resident person owes an amount to the corporation, that amount has been or remains outstanding for more than a year and the total determined under paragraph (b) for the year is less than the amount of interest that would be included in computing the corporation’s income for the year in respect of the amount owing if that interest were computed at a reasonable rate for the period in the year during which the amount was owing, the corporation shall include an amount in computing its income for the year equal to the amount, if any, by which
(a) the amount of interest that would be included in computing the corporation’s income for the year in respect of the amount owing if that interest were computed at the prescribed rate for the period in the year during which the amount was owing
exceeds
(b) the total of all amounts each of which is
(i) an amount included in computing the corporation’s income for the year as, on account of, in lieu of or in satisfaction of, interest in respect of the amount owing,
(ii) an amount received or receivable by the corporation from a trust that is included in computing the corporation’s income for the year or a subsequent year and that can reasonably be attributed to interest on the amount owing for the period in the year during which the amount was owing, or
(iii) an amount that is included in computing the corporation’s income for the year or a subsequent year under subsection 91(1) and that can reasonably be attributed to interest on the amount owing for the period in the year during which the amount was owing.
Marginal note:Anti-avoidance rule — indirect loan
(2) For the purpose of this section and subject to subsection (3), where
(a) a non-resident person owes an amount at any time to a particular person or partnership (other than a corporation resident in Canada), and
(b) it is reasonable to conclude that the particular person or partnership entered into the transaction under which the amount became owing or the particular person or partnership permitted the amount owing to remain outstanding because
(i) a corporation resident in Canada made a loan or transfer of property, or
(ii) the particular person or partnership anticipated that a corporation resident in Canada would make a loan or transfer of property,
either directly or indirectly, in any manner whatever, to or for the benefit of any person or partnership (other than an exempt loan or transfer),
the non-resident person is deemed at that time to owe to the corporation an amount equal to the amount owing to the particular person or partnership.
Marginal note:Exception to anti-avoidance rule — indirect loan
(3) Subsection (2) does not apply to an amount owing at any time by a non-resident person to a particular person or partnership where
(a) at that time, the non-resident person and the particular person or each member of the particular partnership, as the case may be, are controlled foreign affiliates of the corporation resident in Canada; or
(b) at that time,
(i) the non-resident person and the particular person are not related or the non-resident person and each member of the particular partnership are not related, as the case may be,
(ii) the terms or conditions made or imposed in respect of the amount owing, determined without reference to any loan or transfer of property by a corporation resident in Canada described in paragraph (2)(b) in respect of the amount owing, are such that persons dealing at arm’s length would have been willing to enter into them at the time that they were entered into, and
(iii) if there were an amount of interest payable on the amount owing at that time that would be required to be included in computing the income of a foreign affiliate of the corporation resident in Canada for a taxation year, that amount of interest would not be required to be included in computing the foreign accrual property income of the affiliate for that year.
Marginal note:Anti-avoidance rule — loan through partnership
(4) For the purpose of this section, where a non-resident person owes an amount at any time to a partnership and subsection (2) does not deem the non-resident person to owe an amount equal to that amount to a corporation resident in Canada, the non-resident person is deemed at that time to owe to each member of the partnership, on the same terms as those that apply in respect of the amount owing to the partnership, that proportion of the amount owing to the partnership at that time that
(a) the fair market value of the member’s interest in the partnership at that time
is of
(b) the fair market value of all interests in the partnership at that time.
Marginal note:Anti-avoidance rule — loan through trust
(5) For the purpose of this section, where a non-resident person owes an amount at any time to a trust and subsection (2) does not deem the non-resident person to owe an amount equal to that amount to a corporation resident in Canada,
(a) where the trust is a non-discretionary trust at that time, the non-resident person is deemed at that time to owe to each beneficiary of the trust, on the same terms as those that apply in respect of the amount owing to the trust, that proportion of the amount owing to the trust that
(i) the fair market value of the beneficiary’s interest in the trust at that time
is of
(ii) the fair market value of all the beneficial interests in the trust at that time; and
(b) in any other case, the non-resident person is deemed at that time to owe to each settlor in respect of the trust, on the same terms as those that apply in respect of the amount owing to the trust, an amount equal to the amount owing to the trust.
Marginal note:Anti-avoidance rule — loan to partnership
(6) For the purpose of this section, where a particular partnership owes an amount at any time to any person or any other partnership (in this subsection referred to as the “lender”), each member of the particular partnership is deemed to owe at that time to the lender, on the same terms as those that apply in respect of the amount owing by the particular partnership to the lender, that proportion of the amount owing to the lender that
(a) the fair market value of the member’s interest in the particular partnership at that time
is of
(b) the fair market value of all interests in the particular partnership at that time.
Marginal note:Exception
(7) Subsection (1) does not apply in respect of an amount owing to a corporation resident in Canada by a non-resident person if a tax has been paid under Part XIII on the amount owing, except that, for the purpose of this subsection, tax under Part XIII is deemed not to have been paid on that portion of the amount owing in respect of which an amount was repaid or applied under subsection 227(6.1).
Marginal note:Exception
(8) Subsection (1) does not apply to a corporation resident in Canada for a taxation year of the corporation in respect of an amount owing to the corporation by a non-resident person if the non-resident person is a controlled foreign affiliate of the corporation throughout the period in the year during which the amount is owing and it is established that the amount owing
(a) arose as a loan or advance of money to the affiliate that the affiliate has used, throughout the period that began when the loan or advance was made and that ended at the earlier of the end of the year and the time at which the amount was repaid,
(i) for the purpose of earning
(A) income from an active business, as defined in subsection 95(1), of the affiliate, or
(B) income that was included in computing the income from an active business of the affiliate under subsection 95(2), or
(ii) for the purpose of making a loan or advance to another controlled foreign affiliate of the corporation where, if interest became payable on the loan or advance at any time in the period and the affiliate was required to include the interest in computing its income for a taxation year, that interest would not be required to be included in computing the affiliate’s foreign accrual property income for that year; or
(b) arose in the course of an active business, as defined in subsection 95(1), carried on by the affiliate throughout the period that began when the amount owing arose and that ended at the earlier of the end of the year and the time at which the amount was repaid.
Marginal note:Exception
(9) Subsection (1) does not apply to a corporation resident in Canada for a taxation year of the corporation in respect of an amount owing to the corporation by a non-resident person if
(a) the corporation is not related to the non-resident person throughout the period in the year during which the amount owing is outstanding;
(b) the amount owing arose in respect of goods sold or services provided to the non-resident person by the corporation in the ordinary course of the business carried on by the corporation; and
(c) the terms and conditions in respect of the amount owing are such that persons dealing at arm’s length would have been willing to enter into them at the time that they were entered into.
Marginal note:Determination of whether related and controlled foreign affiliate status
(10) For the purpose of this section, in determining whether persons are related to each other and whether a non-resident corporation is a controlled foreign affiliate of a corporation resident in Canada at any time,
(a) each member of a partnership is deemed to own that proportion of the number of shares of a class of the capital stock of a corporation owned by the partnership at that time that
(i) the fair market value of the member’s interest in the partnership at that time
is of
(ii) the fair market value of all interests in the partnership at that time; and
(b) each beneficiary of a non-discretionary trust is deemed to own that proportion of the number of shares of a class of the capital stock of a corporation owned by the trust at that time that
(i) the fair market value of the beneficiary’s interest in the trust at that time
is of
(ii) the fair market value of all the beneficial interests in the trust at that time.
Marginal note:Determination of whether related
(11) For the purpose of this section, in determining whether persons are related to each other at any time, each settlor in respect of a trust, other than a non-discretionary trust, is deemed to own the shares of a class of the capital stock of a corporation owned by the trust at that time.
Marginal note:Determination of whether persons related
(11.1) For the purposes of this section, in determining whether persons are related to each other at any time, any rights referred to in subparagraph 251(5)(b)(i) that exist at that time are deemed not to exist at that time to the extent that the exercise of those rights is prohibited at that time under a law of the country under the law of which the corporation was formed or last continued and is governed, that restricts the foreign ownership or control of the corporation.
Marginal note:Back-to-back loans
(11.2) For the purposes of subsection (2) and paragraph (3)(b), where a non-resident person, or a partnership each member of which is non-resident, (in this subsection referred to as the “intermediate lender”) makes a loan to a non-resident person, or a partnership each member of which is non-resident, (in this subsection referred to as the “intended borrower”) because the intermediate lender received a loan from another non-resident person, or a partnership each member of which is non-resident, (in this subsection referred to as the “initial lender”)
(a) the loan made by the intermediate lender to the intended borrower is deemed to have been made by the initial lender to the intended borrower (to the extent of the lesser of the amount of the loan made by the initial lender to the intermediate lender and the amount of the loan made by the intermediate lender to the intended borrower) under the same terms and conditions and at the same time as it was made by the intermediate lender; and
(b) the loan made by the initial lender to the intermediate lender and the loan made by the intermediate lender to the intended borrower are deemed not to have been made to the extent of the amount of the loan deemed to have been made under paragraph (a).
Marginal note:Determination of whether persons related
(11.3) For the purpose of applying paragraph (3)(b) in respect of a corporation resident in Canada described in paragraph (2)(b), in determining whether persons described in subparagraph (3)(b)(i) are related to each other at any time, any rights referred to in paragraph 251(5)(b) that otherwise exist at that time are deemed not to exist at that time where, if the rights were exercised immediately before that time,
(a) all of those persons would at that time be controlled foreign affiliates of the corporation resident in Canada; and
(b) because of subsection (8), subsection (1) would not apply to the corporation resident in Canada in respect of the amount that would, but for this subsection, have been deemed to have been owing at that time to the corporation resident in Canada by the non-resident person described in subparagraph (3)(b)(i).
Marginal note:Determination of controlled foreign affiliate status
(12) For the purpose of this section, in determining whether a non-resident person is a controlled foreign affiliate of a corporation resident in Canada at any time, each settlor in respect of a trust, other than a non-discretionary trust, is deemed to own that proportion of the number of shares of a class of the capital stock of a corporation owned by the trust at that time that one is of the number of settlors in respect of the trust at that time.
Marginal note:Extended definition of controlled foreign affiliate
(13) For the purpose of this section, where, at any time, two corporations resident in Canada are related (otherwise than because of a right referred to in paragraph 251(5)(b)), any corporation that is a controlled foreign affiliate of one of the corporations at that time is deemed to be a controlled foreign affiliate of the other corporation at that time.
Marginal note:Anti-avoidance rule — where rights or shares issued, acquired or disposed of to avoid tax
(14) For the purpose of this section,
(a) where any person or partnership has a right under a contract, in equity or otherwise, either immediately or in the future and either absolutely or contingently, to, or to acquire, shares of the capital stock of a corporation and it can reasonably be considered that the principal purpose for the existence of the right is to avoid or reduce the amount of income that subsection (1) would otherwise require any corporation to include in computing its income for any taxation year, those shares are deemed to be owned by that person or partnership; and
(b) where any person or partnership acquires or disposes of shares of the capital stock of a corporation, either directly or indirectly, and it can reasonably be considered that the principal purpose for the acquisition or disposition of the shares is to avoid or reduce the amount of income that subsection (1) would otherwise require any corporation to include in computing its income for any taxation year, those shares are deemed not to have been acquired or disposed of, as the case may be, and where the shares were unissued by the corporation immediately before the acquisition, those shares are deemed not to have been issued.
Marginal note:Definitions
(15) The definitions in this subsection apply in this section.
controlled foreign affiliate
société étrangère affiliée contrôlée
controlled foreign affiliate has the meaning that would be assigned by the definition controlled foreign affiliate in subsection 95(1) if paragraphs (d) and (e) of that definition read as follows:
“(d) one or more persons resident in Canada with whom the taxpayer does not deal at arm’s length, or
(e) the taxpayer and one or more persons resident in Canada with whom the taxpayer does not deal at arm’s length.” (société étrangère affiliée contrôlée)
exempt loan or transfer
prêt ou transfert de biens exclu
exempt loan or transfer means
(a) a loan made by a corporation resident in Canada where the interest rate charged on the loan is not less than the interest rate that a lender and a borrower would have been willing to agree to if they were dealing at arm’s length with each other at the time the loan was made;
(b) a transfer of property (other than a transfer of property made for the purpose of acquiring shares of the capital stock of a foreign affiliate of a corporation or a foreign affiliate of a person resident in Canada with whom the corporation was not dealing at arm’s length) or payment of an amount owing by a corporation resident in Canada pursuant to an agreement made on terms and conditions that persons who were dealing at arm’s length at the time the agreement was entered into would have been willing to agree to;
(c) a dividend paid by a corporation resident in Canada on shares of a class of its capital stock; and
(d) a payment made by a corporation resident in Canada on a reduction of the paid-up capital in respect of shares of a class of its capital stock (not exceeding the total amount of the reduction). (prêt ou transfert de biens exclu)
non-discretionary trust
fiducie non discrétionnaire
non-discretionary trust, at any time, means a trust in which all interests were vested indefeasibly at the beginning of the trust’s taxation year that includes that time. (fiducie non discrétionnaire)
settlor
auteur
settlor in respect of a trust at any time means any person or partnership that has made a loan or transfer of property, either directly or indirectly, in any manner whatever, to or for the benefit of the trust at or before that time, other than, where the person or partnership deals at arm’s length with the trust at that time,
(a) a loan made by the person or partnership to the trust at a reasonable rate of interest; or
(b) a transfer made by the person or partnership to the trust for fair market value consideration. (auteur)
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 17
- 1999, c. 22, s. 8
- 2001, c. 17, s. 8
Deductions
Marginal note:General limitations
18 (1) In computing the income of a taxpayer from a business or property no deduction shall be made in respect of
Marginal note:General limitation
(a) an outlay or expense except to the extent that it was made or incurred by the taxpayer for the purpose of gaining or producing income from the business or property;
Marginal note:Capital outlay or loss
(b) an outlay, loss or replacement of capital, a payment on account of capital or an allowance in respect of depreciation, obsolescence or depletion except as expressly permitted by this Part;
Marginal note:Limitation re exempt income
(c) an outlay or expense to the extent that it may reasonably be regarded as having been made or incurred for the purpose of gaining or producing exempt income or in connection with property the income from which would be exempt;
Marginal note:Annual value of property
(d) the annual value of property except rent for property leased by the taxpayer for use in the taxpayer’s business;
Marginal note:Reserves, etc.
(e) an amount as, or on account of, a reserve, a contingent liability or amount or a sinking fund except as expressly permitted by this Part;
Marginal note:Unpaid claims under insurance policies
(e.1) an amount in respect of claims that were received by an insurer before the end of the year under insurance policies and that are unpaid at the end of the year, except as expressly permitted by this Part;
Marginal note:Payments on discounted bonds
(f) an amount paid or payable as or on account of the principal amount of any obligation described in paragraph 20(1)(f) except as expressly permitted by that paragraph;
Marginal note:Payments on income bonds
(g) an amount paid by a corporation as interest or otherwise to holders of its income bonds or income debentures unless the bonds or debentures have been issued or the income provisions thereof have been adopted since 1930
(i) to afford relief to the debtor from financial difficulties, and
(ii) in place of or as an amendment to bonds or debentures that at the end of 1930 provided unconditionally for a fixed rate of interest;
Marginal note:Personal and living expenses
(h) personal or living expenses of the taxpayer, other than travel expenses incurred by the taxpayer while away from home in the course of carrying on the taxpayer’s business;
Marginal note:Limitation re employer’s contribution under supplementary unemployment benefit plan
(i) an amount paid by an employer to a trustee under a supplementary unemployment benefit plan except as permitted by section 145;
Marginal note:Limitation re employer’s contribution under deferred profit sharing plan
(j) an amount paid by an employer to a trustee under a deferred profit sharing plan except as expressly permitted by section 147;
Marginal note:Limitation re employer’s contribution under profit sharing plan
(k) an amount paid by an employer to a trustee under a profit sharing plan that is not
(i) an employees profit sharing plan,
(ii) a deferred profit sharing plan, or
(iii) a registered pension plan;
Marginal note:Use of recreational facilities and club dues
(l) an outlay or expense made or incurred by the taxpayer after 1971,
(i) for the use or maintenance of property that is a yacht, a camp, a lodge or a golf course or facility, unless the taxpayer made or incurred the outlay or expense in the ordinary course of the taxpayer’s business of providing the property for hire or reward, or
(ii) as membership fees or dues (whether initiation fees or otherwise) in any club the main purpose of which is to provide dining, recreational or sporting facilities for its members;
(l.1) [Repealed, 2003, c. 28, s. 2(1)]
(m) [Repealed, 2003, c. 28, s. 2(3)]
Marginal note:Political contributions
(n) a political contribution;
Marginal note:Employee benefit plan contributions
(o) an amount paid or payable as a contribution to an employee benefit plan;
Marginal note:Salary deferral arrangement
(o.1) except as expressly permitted by paragraphs 20(1)(oo) and 20(1)(pp), an outlay or expense made or incurred under a salary deferral arrangement in respect of another person, other than such an arrangement established primarily for the benefit of one or more non-resident employees in respect of services to be rendered outside Canada;
Marginal note:Retirement compensation arrangement
(o.2) except as expressly permitted by paragraph 20(1)(r), contributions made under a retirement compensation arrangement;
Marginal note:Limitation re personal services business expenses
(p) an outlay or expense to the extent that it was made or incurred by a corporation in a taxation year for the purpose of gaining or producing income from a personal services business, other than
(i) the salary, wages or other remuneration paid in the year to an incorporated employee of the corporation,
(ii) the cost to the corporation of any benefit or allowance provided to an incorporated employee in the year,
(iii) any amount expended by the corporation in connection with the selling of property or the negotiating of contracts by the corporation if the amount would have been deductible in computing the income of an incorporated employee for a taxation year from an office or employment if the amount had been expended by the incorporated employee under a contract of employment that required the employee to pay the amount, and
(iv) any amount paid by the corporation in the year as or on account of legal expenses incurred by it in collecting amounts owing to it on account of services rendered
that would, if the income of the corporation were from a business other than a personal services business, be deductible in computing its income;
Marginal note:Limitation re cancellation of lease
(q) an amount paid or payable by the taxpayer for the cancellation of a lease of property of the taxpayer leased by the taxpayer to another person, except to the extent permitted by paragraph 20(1)(z) or 20(1)(z.1);
Marginal note:Certain automobile expenses
(r) an amount paid or payable by the taxpayer as an allowance for the use by an individual of an automobile to the extent that the amount exceeds an amount determined in accordance with prescribed rules, except where the amount so paid or payable is required to be included in computing the individual’s income;
Marginal note:Loans or lending assets
(s) any loss, depreciation or reduction in a taxation year in the value or amortized cost of a loan or lending asset of a taxpayer made or acquired by the taxpayer in the ordinary course of the taxpayer’s business of insurance or the lending of money and not disposed of by the taxpayer in the year, except as expressly permitted by this Part;
Marginal note:Payments under Act
(t) any amount paid or payable under this Act (other than tax paid or payable under Part XII.2 or Part XII.6);
Marginal note:RSP/RIF fees
(u) any amount paid or payable by the taxpayer for services in respect of a retirement savings plan or retirement income fund under which the taxpayer is the annuitant; and
Marginal note:Interest — authorized foreign bank
(v) where the taxpayer is an authorized foreign bank, an amount in respect of interest that would otherwise be deductible in computing the taxpayer’s income from a business carried on in Canada, except as provided in section 20.2.
Marginal note:Limit on certain interest and property tax
(2) Notwithstanding paragraph 20(1)(c), in computing the taxpayer’s income for a particular taxation year from a business or property, no amount shall be deductible in respect of any expense incurred by the taxpayer in the year as, on account or in lieu of payment of, or in satisfaction of,
(a) interest on debt relating to the acquisition of land, or
(b) property taxes (not including income or profits taxes or taxes computed by reference to the transfer of property) paid or payable by the taxpayer in respect of land to a province or to a Canadian municipality,
unless, having regard to all the circumstances (including the cost to the taxpayer of the land in relation to the taxpayer’s gross revenue, if any, from the land for the particular year or any preceding taxation year), the land can reasonably be considered to have been, in the year,
(c) used in the course of a business carried on in the particular year by the taxpayer, other than a business in the ordinary course of which land is held primarily for the purpose of resale or development, or
(d) held primarily for the purpose of gaining or producing income of the taxpayer from the land for the particular year,
except to the extent of the total of
(e) the amount, if any, by which the taxpayer’s gross revenue, if any, from the land for the particular year exceeds the total of all amounts deducted in computing the taxpayer’s income from the land for the year, and
(f) in the case of a corporation whose principal business is the leasing, rental or sale, or the development for lease, rental or sale, or any combination thereof, of real property owned by it, to or for a person with whom the corporation is dealing at arm’s length, the corporation’s base level deduction for the particular year.
Marginal note:Where taxpayer member of partnership
(2.1) Where a taxpayer who is a member of a partnership was obligated to pay any amount as, on account or in lieu of payment of, or in satisfaction of, interest (in this subsection referred to as an “interest amount”) on money that was borrowed by the taxpayer before April 1, 1977 and that was used to acquire land owned by the partnership before that day or on an obligation entered into by the taxpayer before April 1, 1977 to pay for land owned by the partnership before that day, and, in a taxation year of the taxpayer, either,
(a) the partnership has disposed of all or any portion of the land, or
(b) the taxpayer has disposed of all or any portion of the taxpayer’s interest in the partnership
to a person other than a person with whom the taxpayer does not deal at arm’s length, in computing the taxpayer’s income for the year or any subsequent year, there may be deducted such portion of the taxpayer’s interest amount
(c) that was, by virtue of subsection 18(2), not deductible in computing the income of the taxpayer for any previous taxation year,
(d) that was not deductible in computing the income of any other taxpayer for any taxation year,
(e) that was not included in computing the adjusted cost base to the taxpayer of any property, and
(f) that was not deductible under this subsection in computing the income of the taxpayer for any previous taxation year
as is reasonable having regard to the portion of the land or interest in the partnership, as the case may be, so disposed of.
Marginal note:Base level deduction
(2.2) For the purposes of this section, a corporation’s base level deduction for a taxation year is the amount that would be the amount of interest, computed at the prescribed rate, for the year in respect of a loan of $1,000,000 outstanding throughout the year, unless the corporation is associated in the year with one or more other corporations in which case, except as otherwise provided in this section, its base level deduction for the year is nil.
Marginal note:Associated corporations
(2.3) Notwithstanding subsection 18(2.2), if all of the corporations that are associated with each other in a taxation year have filed with the Minister in prescribed form an agreement whereby, for the purposes of this section, they allocate an amount to one or more of them for the taxation year and the amount so allocated or the total of the amounts so allocated, as the case may be, does not exceed $1,000,000, the base level deduction for the year for each of the corporations is the base level deduction that would be computed under subsection 18(2.2) in respect of the corporation if the reference in that subsection to $1,000,000 were read as a reference to the amount so allocated to it.
Marginal note:Failure to file agreement
(2.4) If any of the corporations that are associated with each other in a taxation year has failed to file with the Minister an agreement as contemplated by subsection 18(2.3) within 30 days after notice in writing by the Minister has been forwarded to any of them that such an agreement is required for the purpose of any assessment of tax under this Part, the Minister shall, for the purpose of this section, allocate an amount to one or more of them for the taxation year, which amount or the total of which amounts, as the case may be, shall equal $1,000,000 and in any such case, the amount so allocated to any corporation shall be deemed to be an amount allocated to the corporation pursuant to subsection 18(2.3).
Marginal note:Special rules for base level deduction
(2.5) Notwithstanding any other provision of this section,
(a) where a corporation, in this paragraph referred to as the “first corporation”, has more than one taxation year ending in the same calendar year and is associated in two or more of those taxation years with another corporation that has a taxation year ending in that calendar year, the base level deduction of the first corporation for each taxation year in which it is associated with the other corporation ending in that calendar year is, subject to the application of paragraph 18(2.5)(b), an amount equal to its base level deduction for the first such taxation year determined without reference to paragraph 18(2.5)(b); and
(b) where a corporation has a taxation year that is less than 51 weeks, its base level deduction for the year is that proportion of its base level deduction for the year determined without reference to this paragraph that the number of days in the year is of 365.
Marginal note:Definitions
(3) In subsection 18(2),
interest on debt relating to the acquisition of land
intérêts sur une dette concernant l’acquisition d’un fonds de terre
interest on debt relating to the acquisition of land includes
(a) interest paid or payable in a year in respect of borrowed money that cannot be identified with particular land but that may nonetheless reasonably be considered (having regard to all the circumstances) as interest on borrowed money used in respect of or for the acquisition of land, and
(b) interest paid or payable in the year by a taxpayer in respect of borrowed money that may reasonably be considered (having regard to all the circumstances) to have been used to assist, directly or indirectly,
(i) another person with whom the taxpayer does not deal at arm’s length,
(ii) a corporation of which the taxpayer is a specified shareholder, or
(iii) a partnership of which the taxpayer’s share of any income or loss is 10% or more,
to acquire land to be used or held by that person, corporation or partnership otherwise than as described in paragraph 18(2)(c) or 18(2)(d), except where the assistance is in the form of a loan to that person, corporation or partnership and a reasonable rate of interest on the loan is charged by the taxpayer; (intérêts sur une dette concernant l’acquisition d’un fonds de terre)
land
fonds de terre
land does not, except to the extent that it is used for the provision of parking facilities for a fee or charge, include
(a) any property that is a building or other structure affixed to land,
(b) the land subjacent to any property described in paragraph (a), or
(c) such land immediately contiguous to the land described in paragraph (b) that is a parking area, driveway, yard, garden or similar land as is necessary for the use of any property described in paragraph (a). (fonds de terre)
Marginal note:Costs relating to construction of building or ownership of land
(3.1) Notwithstanding any other provision of this Act, in computing a taxpayer’s income for a taxation year,
(a) no deduction shall be made in respect of any outlay or expense made or incurred by the taxpayer (other than an amount deductible under paragraph 20(1)(a), 20(1)(aa) or 20(1)(qq) or subsection 20(29)) that can reasonably be regarded as a cost attributable to the period of the construction, renovation or alteration of a building by or on behalf of the taxpayer, a person with whom the taxpayer does not deal at arm’s length, a corporation of which the taxpayer is a specified shareholder or a partnership of which the taxpayer’s share of any income or loss is 10% or more and relating to the construction, renovation or alteration, or a cost attributable to that period and relating to the ownership during that period of land
(i) that is subjacent to the building, or
(ii) that
(A) is immediately contiguous to the land subjacent to the building,
(B) is used, or is intended to be used, for a parking area, driveway, yard, garden or any other similar use, and
(C) is necessary for the use or intended use of the building; and
(b) the amount of such an outlay or expense shall, to the extent that it would otherwise be deductible in computing the taxpayer’s income for the year, be included in computing the cost or capital cost, as the case may be, of the building to the taxpayer, to the person with whom the taxpayer does not deal at arm’s length, to the corporation of which the taxpayer is a specified shareholder or to the partnership of which the taxpayer’s share of any income or loss is 10% or more, as the case may be.
Marginal note:Included costs
(3.2) For the purposes of subsection 18(3.1), costs relating to the construction, renovation or alteration of a building or to the ownership of land include
(a) interest paid or payable by a taxpayer in respect of borrowed money that cannot be identified with a particular building or particular land, but that can reasonably be considered (having regard to all the circumstances) as interest on borrowed money used by the taxpayer in respect of the construction, renovation or alteration of a building or the ownership of land; and
(b) interest paid or payable by a taxpayer in respect of borrowed money that may reasonably be considered (having regard to all the circumstances) to have been used to assist, directly or indirectly,
(i) another person with whom the taxpayer does not deal at arm’s length,
(ii) a corporation of which the taxpayer is a specified shareholder, or
(iii) a partnership of which the taxpayer’s share of any income or loss is 10% or more,
to construct, renovate or alter a building or to purchase land, except where the assistance is in the form of a loan to that other person, corporation or partnership and a reasonable rate of interest on the loan is charged by the taxpayer.
Marginal note:Completion
(3.3) For the purposes of subsection 18(3.1), the construction, renovation or alteration of a building is completed at the earlier of the day on which the construction, renovation or alteration is actually completed and the day on which all or substantially all of the building is used for the purpose for which it was constructed, renovated or altered.
Marginal note:Where s. (3.1) does not apply
(3.4) Subsection 18(3.1) does not apply to prohibit a deduction in a taxation year of the specified percentage of any outlay or expense described in that subsection made or incurred before 1992 by
(a) corporation whose principal business is throughout the year the leasing, rental or sale, or the development for lease, rental or sale, or any combination thereof, of real property owned by it to or for a person with whom the corporation is dealing at arm’s length, or
(b) a partnership
(i) each member of which is a corporation described in paragraph 18(3.4)(a), and
(ii) the principal business of which is throughout the year the leasing, rental or sale, or the development for lease, rental or sale, or any combination thereof, of real property held by it, to or for a person with whom each member of the partnership is dealing at arm’s length,
and for the purposes of this subsection, specified percentage means, in respect of an outlay or expense made or incurred in 1988, 80%, in 1989, 60%, in 1990, 40%, and in 1991, 20%.
Marginal note:Idem
(3.5) Subsection 18(3.1) does not apply in respect of an outlay or expense in respect of a building or the land described in subparagraph 18(3.1)(a)(i) or 18(3.1)(a)(ii) in respect of the building,
(a) where the construction, renovation or alteration of the building was in progress on November 12, 1981,
(b) where the installation of the footings or other base support of the building commenced after November 12, 1981 and before 1982,
(c) if, in the case of a new building being constructed in Canada or an existing building being renovated or altered in Canada, arrangements, evidenced in writing, for the construction, renovation or alteration were substantially advanced before November 13, 1981 and the installation of footings or other base support for the new building or the renovation or alteration of the existing building, as the case may be, commenced before June 1, 1982, or
(d) if, in the case of a new building being constructed in Canada, the taxpayer was obligated to construct the building under the terms of an agreement in writing entered into before November 13, 1981 and arrangements, evidenced in writing, respecting the construction of the building were substantially advanced before June 1, 1982 and the installation of footings or other base support for the building commenced before 1983,
and the construction, renovation or alteration, as the case may be, of the building proceeds after 1982 without undue delay (having regard to acts of God, labour disputes, fire, accidents or unusual delay by common carriers or suppliers of materials or equipment).
Marginal note:Undue delay
(3.6) For the purposes of subsection 18(3.5), where more than one building is being constructed under any of the circumstances described in that subsection on one site or on immediately contiguous sites, no undue delay shall be regarded as occurring in the construction of any such building if construction of at least one such building proceeds after 1982 without undue delay and continuous construction of all other such buildings proceeds after 1983 without undue delay.
Marginal note:Commencement of footings
(3.7) For the purposes of this section, the installation of footings or other base support for a building shall be deemed to commence on the first placement of concrete, pilings or other material that is to provide permanent support for the building.
Marginal note:Limitation re deduction of interest by certain corporations
(4) Notwithstanding any other provision of this Act, in computing the income for a taxation year of a corporation resident in Canada from a business or property, no deduction shall be made in respect of that proportion of any amount otherwise deductible in computing its income for the year in respect of interest paid or payable by it on outstanding debts to specified non-residents that
(a) the amount, if any, by which
(i) the average of all amounts each of which is, in respect of a calendar month that ends in the year, the greatest total amount at any time in the month of the corporation’s outstanding debts to specified non-residents,
exceeds
(ii) two times the total of
(A) the retained earnings of the corporation at the beginning of the year, except to the extent that those earnings include retained earnings of any other corporation,
(B) the average of all amounts each of which is the corporation’s contributed surplus at the beginning of a calendar month that ends in the year, to the extent that it was contributed by a specified non-resident shareholder of the corporation, and
(C) the average of all amounts each of which is the corporation’s paid-up capital at the beginning of a calendar month that ends in the year, excluding the paid-up capital in respect of shares of any class of the capital stock of the corporation owned by a person other than a specified non-resident shareholder of the corporation,
is of
(b) the amount determined under subparagraph 18(4)(a)(i) in respect of the corporation for the year.
Marginal note:Definitions
(5) Notwithstanding any other provision of this Act (other than subsection 18(5.1)), in this subsection and subsections 18(4) to 18(6),
outstanding debts to specified non-residents
dettes impayées envers des non-résidents déterminés
outstanding debts to specified non-residents of a corporation at any particular time in a taxation year means
(a) the total of all amounts each of which is an amount outstanding at that time as or on account of a debt or other obligation to pay an amount
(i) that was payable by the corporation to a person who was, at any time in the year,
(A) a specified non-resident shareholder of the corporation, or
(B) a non-resident person, or a non-resident-owned investment corporation, who was not dealing at arm’s length with a specified shareholder of the corporation, and
(ii) on which any amount in respect of interest paid or payable by the corporation is or would be, but for subsection 18(4), deductible in computing the corporation’s income for the year,
but does not include
(b) an amount outstanding at the particular time as or on account of a debt or other obligation to pay an amount to
(i) 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
(ii) an authorized foreign bank, if the bank uses or holds the obligation at the particular time in its Canadian banking business; (dettes impayées envers des non-résidents déterminés)
specified non-resident shareholder
actionnaire non-résident déterminé
specified non-resident shareholder of a corporation at any time means a specified shareholder of the corporation who was at that time a non-resident person or a non-resident-owned investment corporation; (actionnaire non-résident déterminé)
specified shareholder
actionnaire déterminé
specified shareholder of a corporation at any time means a person who at that time, either alone or together with persons with whom that person is not dealing at arm’s length, owns
(a) shares of the capital stock of the corporation that give the holders thereof 25% or more of the votes that could be cast at an annual meeting of the shareholders of the corporation, or
(b) shares of the capital stock of the corporation having a fair market value of 25% or more of the fair market value of all of the issued and outstanding shares of the capital stock of the corporation,
and for the purpose of determining whether a particular person is a specified shareholder of a corporation at any time, where the particular person or a person with whom the particular person is not dealing at arm’s length has at that time a right under a contract, in equity or otherwise, either immediately or in the future and either absolutely or contingently
(c) to, or to acquire, shares in a corporation or to control the voting rights of shares in a corporation, or
(d) to cause a corporation to redeem, acquire or cancel any of its shares (other than shares held by the particular person or a person with whom the particular person is not dealing at arm’s length),
the particular person or the person with whom the particular person is not dealing at arm’s length, as the case may be, shall be deemed at that time to own the shares referred to in paragraph (c) and the corporation referred to in paragraph (d) shall be deemed at that time to have redeemed, acquired or cancelled the shares referred to in paragraph (d), unless the right is not exercisable at that time because the exercise thereof is contingent on the death, bankruptcy or permanent disability of an individual. (actionnaire déterminé)
Marginal note:Person deemed not to be specified shareholder
(5.1) For the purposes of subsections 18(4) to 18(6), where
(a) a particular person would, but for this subsection, be a specified shareholder of a corporation at any time,
(b) there was in effect at that time an agreement or arrangement under which, on the satisfaction of a condition or the occurrence of an event that it is reasonable to expect will be satisfied or will occur, the particular person will cease to be a specified shareholder, and
(c) the purpose for which the particular person became a specified shareholder was the safeguarding of rights or interests of the particular person or a person with whom the particular person is not dealing at arm’s length in respect of any indebtedness owing at any time to the particular person or a person with whom the particular person is not dealing at arm’s length,
the particular person shall be deemed not to be a specified shareholder of the corporation at that time.
Marginal note:Loans made on condition
(6) Where any loan (in this subsection referred to as the “first loan”) has been made
(a) by a specified non-resident shareholder of a corporation, or
(b) by a non-resident person, or a non-resident-owned investment corporation, who was not dealing at arm’s length with a specified shareholder of a corporation,
to another person on condition that a loan (in this subsection referred to as the “second loan”) be made by any person to a particular corporation resident in Canada, for the purposes of subsections 18(4) and 18(5), the lesser of
(c) the amount of the first loan, and
(d) the amount of the second loan
shall be deemed to be a debt incurred by the particular corporation to the person who made the first loan.
(8) [Repealed, 2001, c. 17, s. 9(5)]
Marginal note:Limitation respecting prepaid expenses
(9) Notwithstanding any other provision of this Act,
(a) in computing a taxpayer’s income for a taxation year from a business or property (other than income from a business computed in accordance with the method authorized by subsection 28(1)), no deduction shall be made in respect of an outlay or expense to the extent that it can reasonably be regarded as having been made or incurred
(i) as consideration for services to be rendered after the end of the year,
(ii) as, on account of, in lieu of payment of or in satisfaction of, interest, taxes (other than taxes imposed on an insurer in respect of insurance premiums of a non-cancellable or guaranteed renewable accident and sickness insurance policy, or a life insurance policy other than a group term life insurance policy that provides coverage for a period of 12 months or less), rent or royalties in respect of a period that is after the end of the year, or
(iii) as consideration for insurance in respect of a period after the end of the year, other than
(A) where the taxpayer is an insurer, consideration for reinsurance, and
(B) consideration for insurance on the life of an individual under a group term life insurance policy where all or part of the consideration is for insurance that is (or would be if the individual survived) in respect of a period that ends more than 13 months after the consideration is paid;
(b) such portion of each outlay or expense (other than an outlay or expense of a corporation, partnership or trust as, on account of, in lieu of payment of or in satisfaction of, interest) made or incurred as would, but for paragraph 18(9)(a), be deductible in computing a taxpayer’s income for a taxation year shall be deductible in computing the taxpayer’s income for the subsequent year to which it can reasonably be considered to relate;
(c) for the purposes of section 37.1, such portion of each qualified expenditure (within the meaning assigned by subsection 37.1(5)) as was made by a taxpayer in a taxation year and as would, but for paragraph 18(9)(a), have been deductible in computing the taxpayer’s income for the year shall be deemed
(i) not to be a qualified expenditure made by the taxpayer in the year, and
(ii) to be a qualified expenditure made by the taxpayer in the subsequent year to which the expenditure can reasonably be considered to relate;
(d) for the purpose of paragraph 18(9)(a), an outlay or expense of a taxpayer is deemed not to include any payment referred to in subparagraph 37(1)(a)(ii) or 37(1)(a)(iii) that
(i) is made by the taxpayer to a person or partnership with which the taxpayer deals at arm’s length, and
(ii) is not an expenditure described in subparagraph 37(1)(a)(i); and
(e) for the purposes of section 37 and the definition qualified expenditure in subsection 127(9), the portion of an expenditure that is made or incurred by a taxpayer in a taxation year and that would, but for paragraph 18(9)(a), have been deductible under section 37 in computing the taxpayer’s income for the year, is deemed
(i) not to be made or incurred by the taxpayer in the year, and
(ii) to be made or incurred by the taxpayer in the subsequent taxation year to which the expenditure can reasonably be considered to relate.
Marginal note:Group term life insurance
(9.01) Where
(a) a taxpayer pays a premium after February 1994 and before 1997 under a group term life insurance policy for insurance on the life of an individual,
(b) the insurance is for the remainder of the individual’s lifetime, and
(c) no further premiums will be payable for the insurance,
no amount may be deducted in computing the taxpayer’s income for a taxation year from a business or property in respect of the premium except that there may be so deducted,
(d) where the year is the taxation year in which the premium was paid or a subsequent taxation year and the individual is alive at the end of the year, the lesser of
(i) the amount determined by the formula
A - B
and
(ii) 1/3 of the amount determined by the formula
(A × C)/365
where
- A
- is the amount that would, if this Act were read without reference to this subsection, be deductible in respect of the premium in computing the taxpayer’s income,
- B
- is the total amount deductible in respect of the premium in computing the taxpayer’s income for preceding taxation years, and
- C
- is the number of days in the year, and
(e) where the individual died in the year, the amount determined under subparagraph 18(9.01)(d)(i).
Marginal note:Application of subsection (9) to insurers
(9.02) For the purpose of subsection (9), an outlay or expense made or incurred by an insurer on account of the acquisition of an insurance policy (other than a non-cancellable or guaranteed renewable accident and sickness insurance policy or a life insurance policy other than a group term life insurance policy that provides coverage for a period of 12 months or less) is deemed to be an expense incurred as consideration for services rendered consistently throughout the period of coverage of the policy.
Marginal note:Penalties, bonuses and rate-reduction payments
(9.1) Subject to subsection 142.4(10), where at any time a payment, other than a payment that
(a) can reasonably be considered to have been made in respect of the extension of the term of a debt obligation or in respect of the substitution or conversion of a debt obligation to another debt obligation or share, or
(b) is contingent or dependent on the use of or production from property or is computed by reference to revenue, profit, cash flow, commodity price or any other similar criterion or by reference to dividends paid or payable to shareholders of any class of shares of the capital stock of a corporation,
is made to a person or partnership by a taxpayer in the course of carrying on a business or earning income from property in respect of borrowed money or on an amount payable for property acquired by the taxpayer (in this subsection referred to as a “debt obligation”)
(c) as consideration for a reduction in the rate of interest payable by the taxpayer on the debt obligation, or
(d) as a penalty or bonus payable by the taxpayer because of the repayment by the taxpayer of all or part of the principal amount of the debt obligation before its maturity,
the payment shall, to the extent that it can reasonably be considered to relate to, and does not exceed the value at that time of, an amount that, but for the reduction described in paragraph 18(9.1)(c) or the repayment described in paragraph 18(9.1)(d), would have been paid or payable by the taxpayer as interest on the debt obligation for a taxation year of the taxpayer ending after that time, be deemed,
(e) for the purposes of this Act, to have been paid by the taxpayer and received by the person or partnership at that time as interest on the debt obligation, and
(f) for the purpose of computing the taxpayer’s income in respect of the business or property for the year, to have been paid or payable by the taxpayer in that year as interest pursuant to a legal obligation to pay interest,
(i) in the case of a reduction described in paragraph 18(9.1)(c), on the debt obligation, and
(ii) in the case of a repayment described in paragraph 18(9.1)(d),
(A) where the repayment was in respect of all or part of the principal amount of the debt obligation that was borrowed money, except to the extent that the borrowed money was used by the taxpayer to acquire property, on borrowed money used in the year for the purpose for which the borrowed money that was repaid was used, and
(B) where the repayment was in respect of all or part of the principal amount of the debt obligation that was either borrowed money used to acquire property or an amount payable for property acquired by the taxpayer, on the debt obligation to the extent that the property or property substituted therefor is used by the taxpayer in the year for the purpose of gaining or producing income therefrom or for the purpose of gaining or producing income from a business.
Marginal note:Interest on debt obligations
(9.2) For the purposes of this Part, the amount of interest payable on borrowed money or on an amount payable for property (in this subsection and subsections 18(9.3) to 18(9.8) referred to as the “debt obligation”) by a corporation, partnership or trust (in this subsection and subsections 18(9.3) to 18(9.7) referred to as the “borrower”) in respect of a taxation year shall, notwithstanding subparagraph 18(9.1)(f)(i), be deemed to be an amount equal to the lesser of
(a) the amount of interest, not in excess of a reasonable amount, that would be payable on the debt obligation by the borrower in respect of the year if no amount had been paid before the end of the year in satisfaction of the obligation to pay interest on the debt obligation in respect of the year and if the amount outstanding at each particular time in the year that is after 1991 on account of the principal amount of the debt obligation were the amount, if any, by which
(i) the amount outstanding at the particular time on account of the principal amount of the debt obligation
exceeds the total of
(ii) all amounts each of which is an amount paid before the particular time in satisfaction, in whole or in part, of the obligation to pay interest on the debt obligation in respect of a period or part thereof that is after 1991, after the beginning of the year, and after the time the amount was so paid (other than a period or part thereof that is in the year where no such amount was paid before the particular time in respect of a period, or part of a period, that is after the end of the year), and
(iii) the amount, if any, by which
(A) the total of all amounts of interest payable on the debt obligation (determined without reference to this subsection) by the borrower in respect of taxation years ending after 1991 and before the year (to the extent that the interest does not exceed a reasonable amount)
exceeds
(B) the total of all amounts of interest deemed by this subsection to have been payable on the debt obligation by the borrower in respect of taxation years ending before the year, and
(b) the amount, if any, by which
(i) the total of all amounts of interest payable on the debt obligation (determined without reference to this subsection) by the borrower in respect of the year or taxation years ending after 1991 and before the year (to the extent that the interest does not exceed a reasonable amount)
exceeds
(ii) the total of all amounts of interest deemed by this subsection to have been payable on the debt obligation by the borrower in respect of taxation years ending before the year.
Marginal note:Interest on debt obligations
(9.3) Where at any time in a taxation year of a borrower a debt obligation of the borrower is settled or extinguished or the holder of the obligation acquires or reacquires property of the borrower in circumstances in which section 79 applies in respect of the debt obligation and the total of
(a) all amounts each of which is an amount paid at or before that time in satisfaction, in whole or in part, of the obligation to pay interest on the debt obligation in respect of a period or part of a period that is after that time, and
(b) all amounts of interest payable on the debt obligation (determined without reference to subsection 18(9.2)) by the borrower in respect of taxation years ending after 1991 and before that time, or in respect of periods, or parts of periods, that are in such years and before that time (to the extent that the interest does not exceed a reasonable amount),
exceeds the total of
(c) all amounts of interest deemed by subsection 18(9.2) to have been payable on the debt obligation by the borrower in respect of taxation years ending before that time, and
(d) the amount of interest that would be deemed by subsection 18(9.2) to have been payable on the debt obligation by the borrower in respect of the year if the year had ended immediately before that time,
(which excess is in this subsection referred to as the “excess amount”), the following rules apply:
(e) for the purpose of applying section 79 in respect of the borrower, the principal amount at that time of the debt obligation shall be deemed to be equal to the amount, if any, by which
(i) the principal amount at that time of the debt obligation
exceeds
(ii) the excess amount, and
(f) the excess amount shall be deducted at that time in computing the forgiven amount in respect of the obligation (within the meaning assigned by subsection 80(1)).
Marginal note:Idem
(9.4) Where an amount is paid at any time by a person or partnership in respect of a debt obligation of a borrower
(a) as, on account of, in lieu of payment of or in satisfaction of, interest on the debt obligation in respect of a period or part thereof that is after 1991 and after that time, or
(b) as consideration for a reduction in the rate of interest payable on the debt obligation (excluding, for greater certainty, a payment described in paragraph 18(9.1)(a) or 18(9.1)(b)) in respect of a period or part thereof that is after 1991 and after that time,
that amount shall be deemed, for the purposes of subsection 18(9.5) and, subject to that subsection, for the purposes of clause 18(9.2)(a)(iii)(A), subparagraph 18(9.2)(b)(i), paragraph 18(9.3)(b) and subsection 18(9.6), to be an amount of interest payable on the debt obligation by the borrower in respect of that period or part thereof and shall be deemed, for the purposes of subparagraph 18(9.2)(a)(ii) and paragraph 18(9.3)(a), to be an amount paid at that time in satisfaction of the obligation to pay interest on the debt obligation in respect of that period or part thereof.
Marginal note:Idem
(9.5) Where the amount of interest payable on a debt obligation (determined without reference to subsection 18(9.2)) by a borrower in respect of a particular period or part thereof that is after 1991 can reasonably be regarded as an amount payable as consideration for
(a) a reduction in the amount of interest that would otherwise be payable on the debt obligation in respect of a subsequent period, or
(b) a reduction in the amount that was or may be paid before the beginning of a subsequent period in satisfaction of the obligation to pay interest on the debt obligation in respect of that subsequent period
(determined without reference to the existence of, or the amount of any interest paid or payable on, any other debt obligation), that amount shall, for the purposes of clause 18(9.2)(a)(iii)(A), subparagraph 18(9.2)(b)(i), paragraph 18(9.3)(b) and subsection 18(9.6), be deemed to be an amount of interest payable on the debt obligation by the borrower in respect of the subsequent period and not to be an amount of interest payable on the debt obligation by the borrower in respect of the particular period and shall, when paid, be deemed for the purposes of subparagraph 18(9.2)(a)(ii) and paragraph 18(9.3)(a) to be an amount paid in satisfaction of the obligation to pay interest on the debt obligation in respect of the subsequent period.
Marginal note:Idem
(9.6) Where the liability in respect of a debt obligation of a person or partnership is assumed by a borrower at any time,
(a) the amount of interest payable on the debt obligation (determined without reference to subsection 18(9.2)) by any person or partnership in respect of a period shall, to the extent that that period is included in a taxation year of the borrower ending after 1991, be deemed, for the purposes of clause 18(9.2)(a)(iii)(A), subparagraph 18(9.2)(b)(i) and paragraph 18(9.3)(b), to be an amount of interest payable on the debt obligation by the borrower in respect of that year, and
(b) the application of subsections 18(9.2) and 18(9.3) to the borrower in respect of the debt obligation after that time shall be determined on the assumption that subsection 18(9.2) applied to the borrower in respect of the debt obligation before that time,
and, for the purposes of this subsection, where the borrower came into existence at a particular time that is after the beginning of the particular period beginning at the beginning of the first period in respect of which interest was payable on the debt obligation by any person or partnership and ending at the particular time, the borrower shall be deemed
(c) to have been in existence throughout the particular period, and
(d) to have had, throughout the particular period, taxation years ending on the day of the year on which its first taxation year ended.
Marginal note:Idem
(9.7) Where the amount paid by a borrower at any particular time, in satisfaction of the obligation to pay a particular amount of interest on a debt obligation in respect of a subsequent period or part thereof, exceeds the particular amount of that interest, discounted
(a) for the particular period beginning at the particular time and ending at the end of the subsequent period or part thereof, and
(b) at the rate or rates of interest applying under the debt obligation during the particular period (or, where the rate of interest of any part of the particular period is not fixed at the particular time, at the prescribed rate of interest in effect at the particular time),
that excess shall
(c) for the purposes of applying subsections 18(9.2) to 18(9.6) and 18(9.8), be deemed to be neither an amount of interest payable on the debt obligation nor an amount paid in satisfaction of the obligation to pay interest on the debt obligation, and
(d) be deemed to be a payment described in paragraph 18(9.1)(d) in respect of the debt obligation.
Marginal note:Idem
(9.8) Nothing in any of subsections 18(9.2) to 18(9.7) shall be construed as providing that
(a) the total of all amounts each of which is the amount of interest payable on a debt obligation by an individual (other than a trust), or deemed by subsection 18(9.2) to be payable on the debt obligation by a corporation, partnership or trust, in respect of a taxation year ending after 1991 and before any particular time,
may exceed
(b) the total of all amounts each of which is the amount of interest payable on the debt obligation (determined without reference to subsection 18(9.2)) by a person or partnership in respect of a taxation year ending after 1991 and before that particular time.
Marginal note:Employee benefit plan
(10) Paragraph 18(1)(o) does not apply in respect of a contribution to an employee benefit plan
(a) to the extent that the contribution
(i) is made in respect of services performed by an employee who is not resident in Canada and is regularly employed in a country other than Canada, and
(ii) cannot reasonably be regarded as having been made in respect of services performed or to be performed during a period when the employee is resident in Canada;
(b) the custodian of which is non-resident, to the extent that the contribution
(i) is in respect of an employee who is non-resident at the time the contribution is made, and
(ii) cannot reasonably be regarded as having been made in respect of services performed or to be performed during a period when the employee is resident in Canada; or
(c) the custodian of which is non-resident, to the extent that the contribution can reasonably be regarded as having been made in respect of services performed by an employee in a particular calendar month where
(i) the employee was resident in Canada throughout no more than 60 of the 72 calendar months ending with the particular month, and
(ii) the employee became a member of the plan before the end of the month following the month in which the employee became resident in Canada,
and for the purpose of this paragraph, where benefits provided to an employee under a particular employee benefit plan are replaced by benefits provided under another employee benefit plan, the other plan shall be deemed, in respect of the employee, to be the same plan as the particular plan.
Marginal note:Limitation
(11) Notwithstanding any other provision of this Act, in computing the income of a taxpayer for a taxation year, no amount is deductible under paragraph 20(1)(c), 20(1)(d), 20(1)(e), 20(1)(e.1) or 20(1)(f) in respect of borrowed money (or other property acquired by the taxpayer) in respect of any period after which the money (or other property) is used by the taxpayer for the purpose of
(a) making a payment after November 12, 1981 as consideration for an income-averaging annuity contract, unless the contract was acquired pursuant to an agreement in writing entered into before November 13, 1981;
(b) paying a premium (within the meaning assigned by subsection 146(1) read without reference to the portion of the definition premium in that subsection following paragraph (b) of that definition) under a registered retirement savings plan after November 12, 1981;
(c) making a contribution to a registered pension plan or a deferred profit sharing plan after November 12, 1981, other than
(i) a contribution described in subparagraph 8(1)(m)(ii) or 8(1)(m)(iii) (as they read in their application to the 1990 taxation year) that was required to be made pursuant to an obligation entered into before November 13, 1981, or
(ii) a contribution deductible under paragraph 20(1)(q) or 20(1)(y) in computing the taxpayer’s income;
(d) making a payment as consideration for an annuity the payment for which was deductible in computing the taxpayer’s income by virtue of paragraph 60(l;
(e) making a contribution to a retirement compensation arrangement where the contribution was deductible under paragraph 8(1)(m.2) in computing the taxpayer’s income;
(f) making a contribution to a net income stabilization account;
(g) making a contribution to any account under a provincial pension plan prescribed for the purpose of paragraph 60(v), or
(h) making a contribution into a registered education savings plan,
and, for the purposes of this subsection, to the extent that an indebtedness is incurred by a taxpayer in respect of a property and at any time that property or a property substituted therefor is used for any of the purposes referred to in this subsection, the indebtedness shall be deemed to be incurred at that time for that purpose.
Marginal note:Work space in home
(12) Notwithstanding any other provision of this Act, in computing an individual’s income from a business for a taxation year,
(a) no amount shall be deducted in respect of an otherwise deductible amount for any part (in this subsection referred to as the “work space”) of a self-contained domestic establishment in which the individual resides, except to the extent that the work space is either
(i) the individual’s principal place of business, or
(ii) used exclusively for the purpose of earning income from business and used on a regular and continuous basis for meeting clients, customers or patients of the individual in respect of the business;
(b) where the conditions set out in subparagraph 18(12)(a)(i) or 18(12)(a)(ii) are met, the amount for the work space that is deductible in computing the individual’s income for the year from the business shall not exceed the individual’s income for the year from the business, computed without reference to the amount and sections 34.1 and 34.2; and
(c) any amount not deductible by reason only of paragraph 18(12)(b) in computing the individual’s income from the business for the immediately preceding taxation year shall be deemed to be an amount otherwise deductible that, subject to paragraphs 18(12)(a) and 18(12)(b), may be deducted for the year for the work space in respect of the business.
Marginal note:When s. (15) applies to money lenders
(13) Subsection 18(15) applies, subject to subsection 142.6(7), when
(a) a taxpayer (in this subsection and subsection 18(15) referred to as the “transferor”) disposes of a particular property;
(b) the disposition is not described in any of paragraphs (c) to (g) of the definition superficial loss in section 54;
(c) the transferor is not an insurer;
(d) the ordinary business of the transferor includes the lending of money and the particular property was used or held in the ordinary course of that business;
(e) the particular property is a share, or a loan, bond, debenture, mortgage, hypothecary claim, note, agreement for sale or any other indebtedness;
(f) the particular property was, immediately before the disposition, not a capital property of the transferor;
(g) during the period that begins 30 days before and ends 30 days after the disposition, the transferor or a person affiliated with the transferor acquires a property (in this subsection and subsection 18(15) referred to as the “substituted property”) that is, or is identical to, the particular property; and
(h) at the end of the period, the transferor or a person affiliated with the transferor owns the substituted property.
Marginal note:When s. (15) applies to adventurers in trade
(14) Subsection 18(15) applies where
(a) a person (in this subsection and subsection 18(15) referred to as the “transferor”) disposes of a particular property;
(b) the particular property is described in an inventory of a business that is an adventure or concern in the nature of trade;
(c) the disposition is not a disposition that is deemed to have occurred by section 70, subsection 104(4), section 128.1, paragraph 132.2(1)(f) or subsection 1 38(11.3) or 149(10);
(d) during the period that begins 30 days before and ends 30 days after the disposition, the transferor or a person affiliated with the transferor acquires property (in this subsection and subsection 18(15) referred to as the “substituted property”) that is, or is identical to, the particular property; and
(e) at the end of the period, the transferor or a person affiliated with the transferor owns the substituted property.
Marginal note:Loss on certain properties
(15) If this subsection applies because of subsection 18(13) or 18(14) to a disposition of a particular property,
(a) the transferor’s loss, if any, from the disposition is deemed to be nil, and
(b) the amount of the transferor’s loss, if any, from the disposition (determined without reference to this subsection) is deemed to be a loss of the transferor from a disposition of the particular property at the first time, after the disposition,
(i) at which a 30-day period begins throughout which neither the transferor nor a person affiliated with the transferor owns
(A) the substituted property, or
(B) a property that is identical to the substituted property and that was acquired after the day that is 31 days before the period begins,
(ii) at which the substituted property would, if it were owned by the transferor, be deemed by section 128.1 or subsection 149(10) to have been disposed of by the transferor,
(iii) that is immediately before control of the transferor is acquired by a person or group of persons, where the transferor is a corporation, or
(iv) at which the winding-up of the transferor begins (other than a winding-up to which subsection 88(1) applies), where the transferor is a corporation,
and for the purpose of paragraph 18(15)(b), where a partnership otherwise ceases to exist at any time after the disposition, the partnership is deemed not to have ceased to exist, and each person who was a member of the partnership immediately before the partnership would, but for this subsection, have ceased to exist is deemed to remain a member of the partnership, until the time that is immediately after the first time described in subparagraphs 18(15)(b)(i) to (iv).
Marginal note:Deemed identical property
(16) For the purposes of subsections (13), (14) and (15), a right to acquire a property (other than a right, as security only, derived from a mortgage, hypothec, agreement for sale or similar obligation) is deemed to be a property that is identical to the property.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 18
- 1994, c. 7, Sch. II, s. 13, Sch. VIII, s. 8, c. 21, s. 11
- 1995, c. 3, s. 6, c. 21, ss. 5 and 48
- 1996, c. 21. s. 5
- 1997, c. 25, s. 4
- 1998, c. 19, ss. 3 and 79
- 2001, c. 17, ss. 9, 201
- 2003, c. 28, s. 2
Marginal note:Definitions
18.1 (1) The definitions in this subsection apply in this section.
matchable expenditure
dépense à rattacher
matchable expenditure of a taxpayer means the amount of an expenditure that is made by the taxpayer to
(a) acquire a right to receive production,
(b) fulfil a covenant or obligation arising in circumstances in which it is reasonable to conclude that a relationship exists between the covenant or obligation and a right to receive production, or
(c) preserve or protect a right to receive production,
but does not include an amount for which a deduction is provided under section 20 in computing the taxpayer’s income. (dépense à rattacher)
right to receive production
droit aux produits
right to receive production means a right under which a taxpayer is entitled, either immediately or in the future and either absolutely or contingently, to receive an amount all or a portion of which is computed by reference to use of property, production, revenue, profit, cash flow, commodity price, cost or value of property or any other similar criterion or by reference to dividends paid or payable to shareholders of any class of shares where the amount is in respect of another taxpayer’s activity, property or business but such a right does not include an income interest in a trust, a Canadian resource property or a foreign resource property. (droit aux produits)
tax benefit
avantage fiscal
tax benefit means a reduction, avoidance or deferral of tax or other amount payable under this Act or an increase in a refund of tax or other amount under this Act. (avantage fiscal)
tax shelter
abri fiscal
tax shelter means a property that would be a tax shelter (as defined in subsection 237.1(1)) if
(a) the cost of a right to receive production were the total of all amounts each of which is a matchable expenditure to which the right relates; and
(b) subsections 18.1(2) to 18.1(13) did not apply for the purpose of computing an amount, or in the case of a partnership a loss, represented to be deductible. (abri fiscal)
taxpayer
contribuable
taxpayer includes a partnership. (contribuable)
Marginal note:Limitation on the deductibility of matchable expenditure
(2) In computing a taxpayer’s income from a business or property for a taxation year, no amount of a matchable expenditure may be deducted except as provided by subsection 18.1(3).
Marginal note:Deduction of matchable expenditure
(3) If a taxpayer’s matchable expenditure would, but for subsection 18.1(2) and this subsection, be deductible in computing the taxpayer’s income, there may be deducted in respect of the matchable expenditure in computing the taxpayer’s income for a taxation year the amount that is determined under subsection 18.1(4) for the year in respect of the expenditure.
Marginal note:Amount of deduction
(4) For the purpose of subsection 18.1(3), the amount determined under this subsection for a taxation year in respect of a taxpayer’s matchable expenditure is the amount, if any, that is the least of
(a) the total of
(i) the lesser of
(A) 1/5 of the matchable expenditure, and
(B) the amount determined by the formula
(A/B) × C
where
- A
- is the number of months that are in the year and after the day on which the right to receive production to which the matchable expenditure relates is acquired,
- B
- is the lesser of 240 and the number of months that are in the period that begins on the day on which the right to receive production to which the matchable expenditure relates is acquired and that ends on the day the right is to terminate, and
- C
- is the amount of the matchable expenditure, and
(ii) the amount, if any, by which the amount determined under this paragraph for the preceding taxation year in respect of the matchable expenditure exceeds the amount of the matchable expenditure deductible in computing the taxpayer’s income for that preceding year,
(b) the total of
(i) all amounts each of which is included in computing the taxpayer’s income for the year (other than any portion of such amount that is the subject of a reserve claimed by the taxpayer for the year under this Act) in respect of the right to receive production to which the matchable expenditure relates, and
(ii) the amount by which the amount determined under this paragraph for the preceding taxation year in respect of the matchable expenditure exceeds the amount of the matchable expenditure deductible in computing the taxpayer’s income for that preceding year, and
(c) the amount, if any, by which
(i) the total of all amounts each of which is an amount of the matchable expenditure that would, but for this section, have been deductible in computing the taxpayer’s income for the year or a preceding taxation year
exceeds
(ii) the total of all amounts each of which is an amount of the matchable expenditure deductible under subsection 18.1(3) in computing the taxpayer’s income for a preceding taxation year.
Marginal note:Special rules
(5) For the purpose of this section,
(a) where a taxpayer’s matchable expenditure is made before the day on which the related right to receive production is acquired by the taxpayer, the expenditure is deemed to have been made on that day;
(b) where a taxpayer has one or more rights to renew a particular right to receive production to which a matchable expenditure relates for one or more additional terms, after the term that includes the time at which the particular right was acquired, the particular right is deemed to terminate on the latest day on which the latest possible such term could terminate if all rights to renew the particular right were exercised;
(c) where a taxpayer has 2 or more rights to receive production that can reasonably be considered to be related to each other, the rights are deemed to be one right; and
(d) where the term of a taxpayer’s right to receive production is for an indeterminate period, the right is deemed to terminate 240 months after it is acquired.
Marginal note:Proceeds of disposition considered income
(6) Where in a taxation year a taxpayer disposes of all or part of a right to receive production to which a matchable expenditure relates, the proceeds of the disposition shall be included in computing the taxpayer’s income for the year.
Marginal note:Arm’s length disposition
(7) Subject to subsections 18.1(8) to 18.1(10), where in a taxation year a taxpayer disposes (otherwise than in a disposition to which subsection 87(1) or 88(1) applies) of all of the taxpayer’s right to receive production to which a matchable expenditure (other than an expenditure no portion of which would, if this section were read without reference to this subsection, be deductible under subsection 18.1(3) in computing the taxpayer’s income) relates, or the taxpayer’s right expires, the amount deductible in respect of the expenditure under subsection 18.1(3) in computing the taxpayer’s income for the year is deemed to be the amount, if any, determined under paragraph 18.1(4)(c) for the year in respect of the expenditure.
Marginal note:Non-arm’s length disposition
(8) Subsection 18.1(10) applies where
(a) a taxpayer’s particular right to receive production to which a matchable expenditure (other than an expenditure no portion of which would, if this section were read without reference to subsections 18.1(7) and 18.1(10), be deductible under subsection 18.1(3) in computing the taxpayer’s income) relates has expired or the taxpayer has disposed of all of the right (otherwise than in a disposition to which subsection 87(1) or 88(1) applies);
(b) during the period that begins 30 days before and ends 30 days after the disposition or expiry, the taxpayer or a person affiliated, or who does not deal at arm’s length, with the taxpayer acquires a right to receive production (in this subsection and subsection 18.1(10) referred to as the “substituted property”) that is, or is identical to, the particular right; and
(c) at the end of the period, the taxpayer or a person affiliated, or who does not deal at arm’s length, with the taxpayer owns the substituted property.
Marginal note:Special case
(9) Subsection 18.1(10) applies where
(a) a taxpayer’s particular right to receive production to which a matchable expenditure (other than an expenditure no portion of which would, if this section were read without reference to subsections 18.1(7) and 18.1(10), be deductible under subsection 18.1(3) in computing the taxpayer’s income) relates has expired or the taxpayer has disposed of all of the right (otherwise than in a disposition to which subsection 87(1) or 88(1) applies); and
(b) during the period that begins at the time of the disposition or expiry and ends 30 days after that time, a taxpayer that had an interest, directly or indirectly, in the right has another interest, directly or indirectly, in another right to receive production, which other interest is a tax shelter or a tax shelter investment (as defined by section 143.2).
Marginal note:Amount of deduction if non-arm’s length disposition
(10) Where this subsection applies because of subsection 18.1(8) or 18.1(9) to a disposition or expiry in a taxation year or a preceding taxation year of a taxpayer’s right to receive production to which a matchable expenditure relates,
(a) the amount deductible under subsection 18.1(3) in respect of the expenditure in computing the taxpayer’s income for a taxation year that ends at or after the disposition or expiry of the right is the least of the amounts determined under subsection 18.1(4) for the year in respect of the expenditure; and
(b) the least of the amounts determined under subsection 18.1(4) in respect of the expenditure for a taxation year is deemed to be the amount, if any, determined under paragraph 18.1(4)(c) in respect of the expenditure for the year where the year includes the time that is immediately before the first time, after the disposition or expiry,
(i) at which the right would, if it were owned by the taxpayer, be deemed by section 128.1 or subsection 149(10) to have been disposed of by the taxpayer,
(ii) that is immediately before control of the taxpayer is acquired by a person or group of persons, if the taxpayer is a corporation,
(iii) at which winding-up of the taxpayer begins (other than a winding-up to which subsection 88(1) applies), if the taxpayer is a corporation,
(iv) if subsection 18.1(8) applies, at which a 30-day period begins throughout which neither the taxpayer nor a person affiliated, or who does not deal at arm’s length, with the taxpayer owns
(A) the substituted property, or
(B) a property that is identical to the substituted property and that was acquired after the day that is 31 days before the period began, or
(v) if subsection 18.1(9) applies, at which a 30-day period begins throughout which no taxpayer who had an interest, directly or indirectly, in the right has an interest, directly or indirectly, in another right to receive production if one or more of those direct or indirect interests in the other right is a tax shelter or tax shelter investment (as defined by section 143.2).
Marginal note:Partnerships
(11) For the purpose of paragraph 18.1(10)(b), where a partnership otherwise ceases to exist at any time after a disposition or expiry referred to in subsection 18.1(10), the partnership is deemed not to have ceased to exist, and each taxpayer who was a member of the partnership immediately before the partnership would, but for this subsection, have ceased to exist is deemed to remain a member of the partnership until the time that is immediately after the first of the times described in subparagraphs 18.1(10)(b)(i) to 18.1(10)(b)(v).
Marginal note:Identical property
(12) For the purposes of subsections (8) and (10), a right to acquire a particular right to receive production (other than a right, as security only, derived from a mortgage, hypothec, agreement of sale or similar obligation) is deemed to be a right to receive production that is identical to the particular right.
Marginal note:Application of section 143.2
(13) For the purpose of applying section 143.2 to an amount that would, if this section were read without reference to this subsection, be a matchable expenditure any portion of the cost of which is deductible under subsection 18.1(3), the expenditure is deemed to be a tax shelter investment and that section shall be read without reference to subparagraph 143.2(6)(b)(ii).
Marginal note:Debt obligations
(14) Where the rate of return on a taxpayer’s right to receive production to which a matchable expenditure (other than an expenditure no portion of which would, if this section were read without reference to this subsection, be deductible under subsection 18.1(3) in computing the taxpayer’s income) relates is reasonably certain at the time the taxpayer acquires the right,
(a) the right is, for the purposes of subsection 12(9) and Part LXX of the Income Tax Regulations, deemed to be a debt obligation in respect of which no interest is stipulated to be payable in respect of its principal amount and the obligation is deemed to be satisfied at the time the right terminates for an amount equal to the total of the return on the obligation and the amount that would otherwise be the matchable expenditure that is related to the right; and
(b) notwithstanding subsection 18.1(3), no amount may be deducted in computing the taxpayer’s income in respect of any matchable expenditure that relates to the right.
Marginal note:Non-applicability of section 18.1
(15) Subject to subsections (1) and (14), this section does not apply to a taxpayer’s matchable expenditure in respect of a right to receive production if
(a) no portion of the expenditure can reasonably be considered to have been paid to another taxpayer, or to a person with whom the other taxpayer does not deal at arm’s length, to acquire the right from the other taxpayer and
(i) the taxpayer’s expenditure cannot reasonably be considered to relate to a tax shelter or tax shelter investment (within the meaning assigned by subsection 143.2(1)) and none of the main purposes for making the expenditure is that the taxpayer, or a person with whom the taxpayer does not deal at arm’s length, obtain a tax benefit, or
(ii) before the end of the taxation year in which the expenditure is made, the total of all amounts each of which is included in computing the taxpayer’s income for the year (other than any portion of such an amount that is the subject of a reserve claimed by the taxpayer for the year under this Act) in respect of the right to receive production to which the matchable expenditure relates exceeds 80% of the expenditure; or
(b) the expenditure is in respect of commissions or other expenses related to the issuance of an insurance policy for which all or a portion of a risk has been ceded to the taxpayer (in this paragraph referred to as the “reinsurer”) and both the reinsurer and the person to whom the expenditure is made or is to be made are insurers subject to the supervision of
(i) the Superintendent of Financial Institutions, in the case of an insurer that is required by law to report to the Superintendent of Financial Institutions, or
(ii) in any other case, the Superintendent of Insurance or other similar officer or authority of the province under whose laws the insurer is incorporated.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- 1998, c. 19, s. 80
- 2001, c. 17, ss. 10, 202(E)
Marginal note:Limitation re advertising expense — newspapers
19 (1) In computing income, no deduction shall be made in respect of an otherwise deductible outlay or expense of a taxpayer for advertising space in an issue of a newspaper for an advertisement directed primarily to a market in Canada unless
(a) the issue is a Canadian issue of a Canadian newspaper; or
(b) the issue is an issue of a newspaper that would be a Canadian issue of a Canadian newspaper except that
(i) its type has been wholly set in the United States or has been partly set in the United States with the remainder having been set in Canada, or
(ii) it has been wholly printed in the United States or has been partly printed in the United States with the remainder having been printed in Canada.
Marginal note:Where s. (1) does not apply
(3) Subsection 19(1) does not apply with respect to an advertisement in a special issue or edition of a newspaper that is edited in whole or in part and printed and published outside Canada if that special issue or edition is devoted to features or news related primarily to Canada and the publishers thereof publish such an issue or edition not more frequently than twice a year.
Marginal note:Definitions
(5) In this section,
Canadian issue
édition canadienne
Canadian issue of a newspaper means an issue, including a special issue,
(a) the type of which, other than the type for advertisements or features, is set in Canada,
(b) all of which, exclusive of any comics supplement, is printed in Canada,
(c) that is edited in Canada by individuals resident in Canada, and
(d) that is published in Canada; (édition canadienne)
Canadian newspaper
journal canadien
Canadian newspaper means a newspaper the exclusive right to produce and publish issues of which is held by one or more of the following:
(a) a Canadian citizen,
(b) a partnership
(i) in which interests representing in value at least 3/4 of the total value of the partnership property are beneficially owned by, and
(ii) at least 3/4 of each income or loss of which from any source is included in the determination of the income of,
corporations described in paragraph (e) or Canadian citizens or any combination thereof,
(c) an association or society of which at least 3/4 of the members are Canadian citizens,
(d) Her Majesty in right of Canada or a province, or a municipality in Canada, or
(e) a corporation
(i) that is incorporated under the laws of Canada or a province,
(ii) of which the chairperson or other presiding officer and at least 3/4 of the directors or other similar officers are Canadian citizens, and
(iii) that, if it is a corporation having share capital, is
(A) a public corporation a class or classes of shares of the capital stock of which are listed on a prescribed stock exchange in Canada, other than a corporation controlled by citizens or subjects of a country other than Canada, or
(B) a corporation of which at least 3/4 of the shares having full voting rights under all circumstances, and shares having a fair market value in total of at least 3/4 of the fair market value of all of the issued shares of the corporation, are beneficially owned by Canadian citizens or by public corporations a class or classes of shares of the capital stock of which are listed on a prescribed stock exchange in Canada, other than a public corporation controlled by citizens or subjects of a country other than Canada,
and for the purposes of clause (B), where shares of a class of the capital stock of a corporation are owned, or deemed by this definition to be owned, at any time by another corporation (in this definition referred to as the “holding corporation”), other than a public corporation a class or classes of shares of the capital stock of which are listed on a prescribed stock exchange in Canada, each shareholder of the holding corporation shall be deemed to own at that time that proportion of the number of such shares of that class that
(C) the fair market value of the shares of the capital stock of the holding corporation owned at that time by the shareholder
is of
(D) the fair market value of all the issued shares of the capital stock of the holding corporation outstanding at that time,
and where at any time shares of a class of the capital stock of a corporation are owned, or are deemed by this definition to be owned, by a partnership, each member of the partnership shall be deemed to own at that time the least proportion of the number of such shares of that class that
(E) the member’s share of the income or loss of the partnership from any source for its fiscal period that includes that time
is of
(F) the income or loss of the partnership from that source for its fiscal period that includes that time,
and for this purpose, where the income and loss of a partnership from any source for a fiscal period are nil, the partnership shall be deemed to have had income from that source for that period in the amount of $1,000,000; (journal canadien)
- substantially the same
substantially the same[Repealed, 2001, c. 17, s. 11(2)]
United States
États-Unis
United States means
(a) the United States of America, but does not include Puerto Rico, the Virgin Islands, Guam or any other United States possession or territory, and
(b) any areas beyond the territorial sea of the United States within which, in accordance with international law and its domestic laws, the United States may exercise rights with respect to the seabed and subsoil and the natural resources of those areas. (États-Unis)
Marginal note:Interpretation
(5.1) In this section, each of the following is deemed to be a Canadian citizen:
(a) a trust or corporation described in paragraph 149(1)(o) or (o.1) formed in connection with a pension plan that exists for the benefit of individuals a majority of whom are Canadian citizens;
(b) a trust described in paragraph 149(1)(r) or (x), the annuitant in respect of which is a Canadian citizen;
(c) a mutual fund trust, within the meaning assigned by subsection 132(6), other than a mutual fund trust the majority of the units of which are held by citizens or subjects of a country other than Canada;
(d) a trust, each beneficiary of which is a person, partnership, association or society described in any of paragraphs (a) to (e) of the definition Canadian newspaper in subsection (5); and
(e) a person, association or society described in paragraph (c) or (d) of the definition Canadian newspaper in subsection (5).
Marginal note:Trust property
(6) Where the right that is held by any person, partnership, association or society described in the definition Canadian newspaper in subsection (5) to produce and publish issues of a newspaper is held as property of a trust or estate, the newspaper is not a Canadian newspaper unless each beneficiary under the trust or estate is a person, partnership, association or society described in that definition.
Marginal note:Grace period
(7) A Canadian newspaper that would, but for this subsection, cease to be a Canadian newspaper, is deemed to continue to be a Canadian newspaper until the end of the 12th month that follows the month in which it would, but for this subsection, have ceased to be a Canadian newspaper.
Marginal note:Non-Canadian newspaper
(8) Where at any time one or more persons or partnerships that are not described in any of paragraphs (a) to (e) of the definition Canadian newspaper in subsection (5) have any direct or indirect influence that, if exercised, would result in control in fact of a person or partnership that holds a right to produce or publish issues of a newspaper, the newspaper is deemed not to be a Canadian newspaper at that time.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 19
- 1994, c. 7, Sch. II, s. 14
- 1995, c. 46, s. 5
- 2001, c. 17, s. 11
Marginal note:Definitions
19.01 (1) The definitions in this subsection apply in this section.
- advertisement directed at the Canadian market
advertisement directed at the Canadian market has the same meaning as the expression directed at the Canadian market in section 2 of the Foreign Publishers Advertising Services Act and includes a reference to that expression made by or under that Act. (annonce destinée au marché canadien)
- original editorial content
original editorial content in respect of an issue of a periodical means non-advertising content
(a) the author of which is a Canadian citizen or a permanent resident of Canada within the meaning assigned by the Immigration Act and, for this purpose, “author” includes a writer, a journalist, an illustrator and a photographer; or
(b) that is created for the Canadian market and has not been published in any other edition of that issue of the periodical published outside Canada. (contenu rédactionnel original)
- periodical
periodical has the meaning assigned by section 2 of the Foreign Publishers Advertising Services Act. (périodique)
Marginal note:Limitation re advertising expenses — periodicals
(2) Subject to subsections (3) and (4), in computing income, no deduction shall be made by a taxpayer in respect of an otherwise deductible outlay or expense for advertising space in an issue of a periodical for an advertisement directed at the Canadian market.
Marginal note:100% deduction
(3) A taxpayer may deduct in computing income an outlay or expense of the taxpayer for advertising space in an issue of a periodical for an advertisement directed at the Canadian market if
(a) the original editorial content in the issue is 80% or more of the total non-advertising content in the issue; and
(b) the outlay or expense would, but for subsection (2), be deductible in computing the taxpayer’s income.
Marginal note:50% deduction
(4) A taxpayer may deduct in computing income 50% of an outlay or expense of the taxpayer for advertising space in an issue of a periodical for an advertisement directed at the Canadian market if
(a) the original editorial content in the issue is less than 80% of the total non-advertising content in the issue; and
(b) the outlay or expense would, but for subsection (2), be deductible in computing the taxpayer’s income.
Marginal note:Application
(5) For the purposes of subsections (3) and (4),
(a) the percentage that original editorial content is of total non-advertising content is the percentage that the total space occupied by original editorial content in the issue is of the total space occupied by non-advertising content in the issue; and
(b) the Minister may obtain the advice of the Department of Canadian Heritage for the purpose of
(i) determining the result obtained under paragraph (a), and
(ii) interpreting any expression defined in this section that is defined in the Foreign Publishers Advertising Services Act.
Marginal note:Editions of issues
(6) For the purposes of this section,
(a) where an issue of a periodical is published in several versions, each version is an edition of that issue; and
(b) where an issue of a periodical is published in only one version, that version is an edition of that issue.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- 2001, c. 17, s. 12
Marginal note:Limitation re advertising expense on broadcasting undertaking
19.1 (1) Subject to subsection 19.1(2), in computing income, no deduction shall be made in respect of an otherwise deductible outlay or expense of a taxpayer made or incurred after September 21, 1976 for an advertisement directed primarily to a market in Canada and broadcast by a foreign broadcasting undertaking.
Marginal note:Exception
(2) In computing income, a deduction may be made in respect of an outlay or expense made or incurred before September 22, 1977 for an advertisement directed primarily to a market in Canada and broadcast by a foreign broadcasting undertaking pursuant to
(a) a written agreement entered into on or before January 23, 1975; or
(b) a written agreement entered into after January 23, 1975 and before September 22, 1976 if the agreement is for a term of one year or less and by its express terms is not capable of being extended or renewed.
Marginal note:Definitions
(4) In this section,
- foreign broadcasting undertaking
foreign broadcasting undertaking means a network operation or a broadcasting transmitting undertaking located outside Canada or on a ship or aircraft not registered in Canada; (entreprise étrangère de radiodiffusion)
- network
network includes any operation involving two or more broadcasting undertakings whereby control over all or any part of the programs or program schedules of any of the broadcasting undertakings involved in the operation is delegated to a network operator. (réseau)
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- 1974-75-76, c. 106, s. 3
- 1977-78, c. 1, s. 13
- 1985, c. 45, s. 126(F)
Marginal note:Deductions permitted in computing income from business or property
20 (1) Notwithstanding paragraphs 18(1)(a), 18(1)(b) and 18(1)(h), in computing a taxpayer’s income for a taxation year from a business or property, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto
Marginal note:Capital cost of property
(a) such part of the capital cost to the taxpayer of property, or such amount in respect of the capital cost to the taxpayer of property, if any, as is allowed by regulation;
Marginal note:Cumulative eligible capital amount
(b) such amount as the taxpayer claims in respect of a business, not exceeding 7% of the taxpayer’s cumulative eligible capital in respect of the business at the end of the year except that, where the year is less than 12 months, the amount allowed as a deduction under this paragraph shall not exceed that proportion of the maximum amount otherwise allowable that the number of days in the taxation year is of 365;
Marginal note:Interest
(c) an amount paid in the year or payable in respect of the year (depending on the method regularly followed by the taxpayer in computing the taxpayer’s income), pursuant to a legal obligation to pay interest on
(i) borrowed money used for the purpose of earning income from a business or property (other than borrowed money used to acquire property the income from which would be exempt or to acquire a life insurance policy),
(ii) an amount payable for property acquired for the purpose of gaining or producing income from the property or for the purpose of gaining or producing income from a business (other than property the income from which would be exempt or property that is an interest in a life insurance policy),
(iii) an amount paid to the taxpayer under
(A) an appropriation Act and on terms and conditions approved by the Treasury Board for the purpose of advancing or sustaining the technological capability of Canadian manufacturing or other industry, or
(B) the Northern Mineral Exploration Assistance Regulations made under an appropriation Act that provides for payments in respect of the Northern Mineral Grants Program, or
(iv) borrowed money used to acquire an interest in an annuity contract in respect of which section 12.2 applies (or would apply if the contract had an anniversary day in the year at a time when the taxpayer held the interest) except that, where annuity payments have begun under the contract in a preceding taxation year, the amount of interest paid or payable in the year shall not be deducted to the extent that it exceeds the amount included under section 12.2 in computing the taxpayer’s income for the year in respect of the taxpayer’s interest in the contract,
or a reasonable amount in respect thereof, whichever is the lesser;
Marginal note:Compound interest
(d) an amount paid in the year pursuant to a legal obligation to pay interest on an amount that would be deductible under paragraph 20(1)(c) if it were paid in the year or payable in respect of the year;
Marginal note:Expenses re financing
(e) such part of an amount (other than an excluded amount) that is not otherwise deductible in computing the income of the taxpayer and that is an expense incurred in the year or a preceding taxation year
(i) in the course of an issuance or sale of units of the taxpayer where the taxpayer is a unit trust, of interests in a partnership or syndicate by the partnership or syndicate, as the case may be, or of shares of the capital stock of the taxpayer,
(ii) in the course of a borrowing of money used by the taxpayer for the purpose of earning income from a business or property (other than money used by the taxpayer for the purpose of acquiring property the income from which would be exempt),
(ii.1) in the course of incurring indebtedness that is an amount payable for property acquired for the purpose of gaining or producing income therefrom or for the purpose of gaining or producing income from a business (other than property the income from which would be exempt or property that is an interest in a life insurance policy), or
(ii.2) in the course of a rescheduling or restructuring of a debt obligation of the taxpayer or an assumption of a debt obligation by the taxpayer, where the debt obligation is
(A) in respect of a borrowing described in subparagraph 20(1)(e)(ii), or
(B) in respect of an amount payable described in subparagraph 20(1)(e)(ii.1),
and in the case of a rescheduling or restructuring, the rescheduling or restructuring, as the case may be, provides for the modification of the terms or conditions of the debt obligation or the conversion or substitution of the debt obligation to or with a share or another debt obligation,
(including a commission, fee, or other amount paid or payable for or on account of services rendered by a person as a salesperson, agent or dealer in securities in the course of the issuance, sale or borrowing) that is the lesser of
(iii) that proportion of 20% of the expense that the number of days in the year is of 365 and
(iv) the amount, if any, by which the expense exceeds the total of all amounts deductible by the taxpayer in respect of the expense in computing the taxpayer’s income for a preceding taxation year,
and for the purposes of this paragraph,
(iv.1) excluded amount means
(A) an amount paid or payable as or on account of the principal amount of a debt obligation or interest in respect of a debt obligation,
(B) an amount that is contingent or dependent on the use of, or production from, property, or
(C) an amount that is computed by reference to revenue, profit, cash flow, commodity price or any other similar criterion or by reference to dividends paid or payable to shareholders of any class of shares of the capital stock of a corporation,
(v) where in a taxation year all debt obligations in respect of a borrowing described in subparagraph 20(1)(e)(ii) or in respect of indebtedness described in subparagraph 20(1)(e)(ii.1) are settled or extinguished (otherwise than in a transaction made as part of a series of borrowings or other transactions and repayments), by the taxpayer for consideration that does not include any unit, interest, share or debt obligation of the taxpayer or any person with whom the taxpayer does not deal at arm’s length or any partnership or trust of which the taxpayer or any person with whom the taxpayer does not deal at arm’s length is a member or beneficiary, this paragraph shall be read without reference to the words “the lesser of” and to subparagraph 20(1)(e)(iii), and
(vi) where a partnership has ceased to exist at any particular time in a fiscal period of the partnership,
(A) no amount may be deducted by the partnership under this paragraph in computing its income for the period, and
(B) there may be deducted for a taxation year ending at or after that time by any person or partnership that was a member of the partnership immediately before that time, that proportion of the amount that would, but for this subparagraph, have been deductible under this paragraph by the partnership in the fiscal period ending in the year had it continued to exist and had the partnership interest not been redeemed, acquired or cancelled, that the fair market value of the member’s interest in the partnership immediately before that time is of the fair market value of all the interests in the partnership immediately before that time;
Marginal note:Annual fees, etc.
(e.1) an amount payable by the taxpayer (other than a payment that is contingent or dependent on the use of, or production from, property or is computed by reference to revenue, profit, cash flow, commodity price or any other similar criterion or by reference to dividends paid or payable to shareholders of any class of shares of the capital stock of a corporation) as a standby charge, guarantee fee, registrar fee, transfer agent fee, filing fee, service fee or any similar fee, that can reasonably be considered to relate solely to the year and that is incurred by the taxpayer
(i) for the purpose of borrowing money to be used by the taxpayer for the purpose of earning income from a business or property (other than borrowed money used by the taxpayer for the purpose of acquiring property the income from which would be exempt income),
(ii) in the course of incurring indebtedness that is an amount payable for property acquired for the purpose of gaining or producing income therefrom or for the purpose of gaining or producing income from a business (other than property the income from which would be exempt or property that is an interest in a life insurance policy), or
(iii) for the purpose of rescheduling or restructuring a debt obligation of the taxpayer or an assumption of a debt obligation by the taxpayer, where the debt obligation is
(A) in respect of a borrowing described in subparagraph 20(1)(e.1)(i), or
(B) in respect of an amount payable described in subparagraph 20(1)(e.1)(ii),
and in the case of a rescheduling or restructuring, the rescheduling or restructuring, as the case may be, provides for the modification of the terms or conditions of the debt obligation or the conversion or substitution of the debt obligation to or with a share or another debt obligation.
Marginal note:Premiums on life insurance used as collateral
(e.2) such portion of the lesser of
(i) the premiums payable by the taxpayer under a life insurance policy (other than an annuity contract) in respect of the year, where
(A) an interest in the policy is assigned to a restricted financial institution in the course of a borrowing from the institution,
(B) the interest payable in respect of the borrowing is or would, but for subsections 18(2) and 18(3.1) and sections 21 and 28, be deductible in computing the taxpayer’s income for the year, and
(C) the assignment referred to in clause 20(1)(e.2)(i)(A) is required by the institution as collateral for the borrowing
and
(ii) the net cost of pure insurance in respect of the year, as determined in accordance with the regulations, in respect of the interest in the policy referred to in clause 20(1)(e.2)(i)(A),
as can reasonably be considered to relate to the amount owing from time to time during the year by the taxpayer to the institution under the borrowing;
Marginal note:Discount on certain obligations
(f) an amount paid in the year in satisfaction of the principal amount of any bond, debenture, bill, note, mortgage, hypothecary claim or similar obligation issued by the taxpayer after June 18, 1971 on which interest was stipulated to be payable, to the extent that the amount so paid does not exceed,
(i) in any case where the obligation was issued for an amount not less than 97% of its principal amount, and the yield from the obligation, expressed in terms of an annual rate on the amount for which the obligation was issued (which annual rate shall, if the terms of the obligation or any agreement relating thereto conferred on its holder a right to demand payment of the principal amount of the obligation or the amount outstanding as or on account of its principal amount, as the case may be, before the maturity of the obligation, be calculated on the basis of the yield that produces the highest annual rate obtainable either on the maturity of the obligation or conditional on the exercise of any such right) does not exceed 4/3 of the interest stipulated to be payable on the obligation, expressed in terms of an annual rate on
(A) the principal amount of the obligation, if no amount is payable on account of the principal amount before the maturity of the obligation, or
(B) the amount outstanding from time to time as or on account of the principal amount of the obligation, in any other case,
the amount by which the lesser of the principal amount of the obligation and all amounts paid in the year or in any preceding year in satisfaction of its principal amount exceeds the amount for which the obligation was issued, and
(ii) in any other case, 1/2 of the lesser of the amount so paid and the amount by which the lesser of the principal amount of the obligation and all amounts paid in the year or in any preceding taxation year in satisfaction of its principal amount exceeds the amount for which the obligation was issued;
Marginal note:Share transfer and other fees
(g) where the taxpayer is a corporation,
(i) an amount payable in the year as a fee for services rendered by a person as a registrar of or agent for the transfer of shares of the capital stock of the taxpayer or as an agent for the remittance to shareholders of the taxpayer of dividends declared by it,
(ii) an amount payable in the year as a fee to a stock exchange for the listing of shares of the capital stock of the taxpayer, and
(iii) an expense incurred in the year in the course of printing and issuing a financial report to shareholders of the taxpayer or to any other person entitled by law to receive the report;
Marginal note:Repayment of loan by shareholder
(j) such part of any loan or indebtedness repaid by the taxpayer in the year as was by virtue of subsection 15(2) included in computing the taxpayer’s income for a preceding taxation year (except to the extent that the amount of the loan or indebtedness was deductible from the taxpayer’s income for the purpose of computing the taxpayer’s taxable income for that preceding taxation year), if it is established by subsequent events or otherwise that the repayment was not made as part of a series of loans or other transactions and repayments;
Marginal note:Doubtful or impaired debts
(l) a reserve determined as the total of
(i) a reasonable amount in respect of doubtful debts (other than a debt to which subparagraph 20(1)(l)(ii) applies) that have been included in computing the taxpayer’s income for the year or a preceding taxation year, and
(ii) where the taxpayer is a financial institution (as defined in subsection 142.2(1)) in the year or a taxpayer whose ordinary business includes the lending of money, an amount in respect of properties (other than mark-to-market properties, as defined in that subsection) that are
(A) impaired loans or lending assets that are specified debt obligations (as defined in that subsection) of the taxpayer, or
(B) impaired loans or lending assets that were made or acquired by the taxpayer in the ordinary course of the taxpayer’s business of insurance or the lending of money
equal to the total of
(C) the percentage (not exceeding 100%) that the taxpayer claims of the prescribed reserve amount for the taxpayer for the year, and
(D) in respect of loans, lending assets or specified debt obligations that are impaired and for which an amount is not deductible for the year because of clause 20(1)(l)(ii)(C) (each of which in this clause is referred to as a “loan”), the taxpayer’s specified percentage for the year of the lesser of
(I) the total of all amounts each of which is a reasonable amount as a reserve (other than any portion of which is in respect of a sectoral reserve) for a loan in respect of the amortized cost of the loan to the taxpayer at the end of the year, and
(II) the amount determined by the formula
0.9M - N
where
- M
- is the amount that is the taxpayer’s reserve or allowance for impairment (other than any portion of the amount that is in respect of a sectoral reserve) for all loans that is determined for the year in accordance with generally accepted accounting principles, and
- N
- is the total of all amounts each of which is the specified reserve adjustment for a loan (other than an income bond, an income debenture, a small business bond or small business development bond) for the year or a preceding taxation year;
Marginal note:Reserve for guarantees, etc.
(l.1) a reserve in respect of credit risks under guarantees, indemnities, letters of credit or other credit facilities, bankers’ acceptances, interest rate or currency swaps, foreign exchange or other future or option contracts, interest rate protection agreements, risk participations and other similar instruments or commitments issued, made or assumed by a taxpayer who was an insurer or whose ordinary business included the lending of money in favour of persons with whom the taxpayer deals at arm’s length in the ordinary course of the taxpayer’s business of insurance or the lending of money, equal to the lesser of
(i) a reasonable amount as a reserve for credit risk losses of the taxpayer expected to arise after the end of the year under or in respect of those instruments or commitments, and
(ii) 90% of the reserve for credit risk losses of the taxpayer expected to arise after the end of the year under or in respect of those instruments or commitments determined for the year in accordance with generally accepted accounting principles,
or such lesser amount as the taxpayer may claim;
Marginal note:Reserve in respect of certain goods and services
(m) subject to subsection 20(6), where amounts described in paragraph 12(1)(a) have been included in computing the taxpayer’s income from a business for the year or a previous year, a reasonable amount as a reserve in respect of
(i) goods that it is reasonably anticipated will have to be delivered after the end of the year,
(ii) services that it is reasonably anticipated will have to be rendered after the end of the year,
(iii) periods for which rent or other amounts for the possession or use of land or chattels have been paid in advance, or
(iv) repayments under arrangements or understandings of the class described in subparagraph 12(1)(a)(ii) that it is reasonably anticipated will have to be made after the end of the year on the return or resale to the taxpayer of articles other than bottles;
Marginal note:Manufacturer’s warranty reserve
(m.1) where an amount described in paragraph 12(1)(a) has been included in computing the taxpayer’s income from a business for the year or a preceding taxation year, a reasonable amount as a reserve in respect of goods or services that it is reasonably anticipated will have to be delivered or rendered after the end of the year pursuant to an agreement for an extended warranty
(i) entered into by the taxpayer with a person with whom the taxpayer was dealing at arm’s length, and
(ii) under which the only obligation of the taxpayer is to provide those goods or services with respect to property manufactured by the taxpayer or by a corporation related to the taxpayer,
not exceeding that portion of the amount paid or payable by the taxpayer to an insurer that carries on an insurance business in Canada to insure the taxpayer’s liability under the agreement in respect of an outlay or expense made or incurred after December 11, 1979 and in respect of the period after the end of the year;
Marginal note:Repayment of amount previously included in income
(m.2) a repayment in the year by the taxpayer of an amount required by paragraph 12(1)(a) to be included in computing the taxpayer’s income from a business for the year or a preceding taxation year;
Marginal note:Reserve for unpaid amounts
(n) where an amount included in computing the taxpayer’s income from the business for the year or for a preceding taxation year in respect of property sold in the course of the business is payable to the taxpayer after the end of the year and, except where the property is real property, all or part of the amount was, at the time of the sale, not due until at least 2 years after that time, a reasonable amount as a reserve in respect of such part of the amount as can reasonably be regarded as a portion of the profit from the sale;
Marginal note:Reserve for quadrennial survey
(o) such amount as may be prescribed as a reserve for expenses to be incurred by the taxpayer by reason of quadrennial or other special surveys required under the Canada Shipping Act, or the regulations under that Act, or under the rules of any society or association for the classification and registry of shipping approved by the Minister of Transport for the purposes of the Canada Shipping Act;
Marginal note:Bad debts
(p) the total of
(i) all debts owing to the taxpayer that are established by the taxpayer to have become bad debts in the year and that have been included in computing the taxpayer’s income for the year or a preceding taxation year, and
(ii) all amounts each of which is that part of the amortized cost to the taxpayer at the end of the year of a loan or lending asset (other than a mark-to-market property, as defined in subsection 142.2(1)) that is established in the year by the taxpayer to have become uncollectible and that,
(A) where the taxpayer is an insurer or a taxpayer whose ordinary business includes the lending of money, was made or acquired in the ordinary course of the taxpayer’s business of insurance or the lending of money, or
(B) where the taxpayer is a financial institution (as defined in subsection 142.2(1)) in the year, is a specified debt obligation (as defined in that subsection) of the taxpayer;
Marginal note:Employer’s contributions to registered pension plan
(q) such amount in respect of employer contributions to registered pension plans as is permitted by subsection 147.2(1);
Marginal note:Employer’s contributions under retirement compensation arrangement
(r) amounts paid by the taxpayer in the year as contributions under a retirement compensation arrangement in respect of services rendered by an employee or former employee of the taxpayer, other than where it is established, by subsequent events or otherwise, that the amounts were paid as part of a series of payments and refunds of contributions under the arrangement;
Marginal note:Patronage dividends
(u) such amounts in respect of payments made by the taxpayer pursuant to allocations in proportion to patronage as are permitted by section 135;
Marginal note:Mining taxes
(v) such amount as is allowed by regulation in respect of taxes on income for the year from mining operations;
(v.1) [Repealed, 2003, c. 28, s. 3(1)]
Marginal note:Employer’s contributions under profit sharing plan
(w) an amount paid by the taxpayer to a trustee in trust for employees of the taxpayer or of a corporation with whom the taxpayer does not deal at arm’s length, under an employees profit sharing plan as permitted by section 144;
Marginal note:Employer’s contributions under registered supplementary unemployment benefit plan
(x) an amount paid by the taxpayer to a trustee under a registered supplementary unemployment benefit plan as permitted by section 145;
Marginal note:Employer’s contributions under deferred profit sharing plan
(y) an amount paid by the taxpayer to a trustee under a deferred profit sharing plan as permitted by subsection 147(8);
Marginal note:Cancellation of lease
(z) the proportion of an amount not otherwise deductible that was paid or that became payable by the taxpayer before the end of the year to a person for the cancellation of a lease of property of the taxpayer leased by the taxpayer to that person that
(i) the number of days that remained in the term of the lease (including all renewal periods of the lease), not exceeding 40 years, immediately before its cancellation and that were in the year
is of
(ii) the number of days that remained in the term of the lease (including all renewal periods of the lease), not exceeding 40 years, immediately before its cancellation,
in any case where the property was owned at the end of the year by the taxpayer or by a person with whom the taxpayer was not dealing at arm’s length and no part of the amount was deductible by the taxpayer under paragraph 20(1)(z.1) in computing the taxpayer’s income for a preceding taxation year;
Marginal note:Idem
(z.1) an amount not otherwise deductible that was paid or that became payable by the taxpayer before the end of the year to a person for the cancellation of a lease of property of the taxpayer leased by the taxpayer to that person, in any case where
(i) the property was not owned at the end of the year by the taxpayer or by a person with whom the taxpayer was not dealing at arm’s length, and
(ii) no part of the amount was deductible by the taxpayer under this paragraph in computing the taxpayer’s income for any preceding taxation year,
to the extent of the amount thereof (or in the case of capital property, 1/2 of the amount thereof) that was not deductible by the taxpayer under paragraph 20(1)(z) in computing the taxpayer’s income for any preceding taxation year;
Marginal note:Landscaping of grounds
(aa) an amount paid by the taxpayer in the year for the landscaping of grounds around a building or other structure of the taxpayer that is used by the taxpayer primarily for the purpose of gaining or producing income therefrom or from a business;
Marginal note:Fees paid to investment counsel
(bb) an amount other than a commission paid by the taxpayer in the year to a person
(i) for advice as to the advisability of purchasing or selling a specific share or security of the taxpayer, or
(ii) for services in respect of the administration or management of shares or securities of the taxpayer,
if that person’s principal business
(iii) is advising others as to the advisability of purchasing or selling specific shares or securities, or
(iv) includes the provision of services in respect of the administration or management of shares or securities.
Marginal note:Expenses of representation
(cc) an amount paid by the taxpayer in the year as or on account of expenses incurred by the taxpayer in making any representation relating to a business carried on by the taxpayer,
(i) to the government of a country, province or state or to a municipal or public body performing a function of government in Canada, or
(ii) to an agency of a government or of a municipal or public body referred to in subparagraph 20(1)(cc)(i) that had authority to make rules, regulations or by-laws relating to the business carried on by the taxpayer,
including any representation for the purpose of obtaining a licence, permit, franchise or trade-mark relating to the business carried on by the taxpayer;
Marginal note:Investigation of site
(dd) an amount paid by the taxpayer in the year for investigating the suitability of a site for a building or other structure planned by the taxpayer for use in connection with a business carried on by the taxpayer;
Marginal note:Utilities service connection
(ee) an amount paid by the taxpayer in the year to a person (other than a person with whom the taxpayer was not dealing at arm’s length) for the purpose of making a service connection to the taxpayer’s place of business for the supply, by means of wires, pipes or conduits, of electricity, gas, telephone service, water or sewers supplied by that person, to the extent that the amount so paid was not paid
(i) to acquire property of the taxpayer, or
(ii) as consideration for the goods or services for the supply of which the service connection was undertaken or made;
Marginal note:Payments by farmers
(ff) an amount paid by the taxpayer in the year as a levy under the Western Grain Stabilization Act, as a premium in respect of the gross revenue insurance program established under the Farm Income Protection Act or as an administration fee in respect of a net income stabilization account;
(gg) [Repealed, 1994, c. 7, Sch. VIII, s. 157(1)]
Marginal note:Repayments of inducements, etc.
(hh) an amount repaid by the taxpayer in the year pursuant to a legal obligation to repay all or part of a particular amount
(i) included under paragraph 12(1)(x) in computing the taxpayer’s income for the year or a preceding taxation year, or
(ii) that is, by reason of subparagraph 12(1)(x)(vi) or subsection 12(2.2), not included under paragraph 12(1)(x) in computing the taxpayer’s income for the year or a preceding taxation year, where the particular amount relates to an outlay or expense (other than an outlay or expense that is in respect of the cost of property of the taxpayer or that is or would be, if amounts deductible by the taxpayer were not limited by reason of paragraph 66(4)(b), subsection 66.1(2), subparagraph 66.2(2)(a)(ii), the words “30% of” in clause 66.21(4)(a)(ii)(B), clause 66.21(4)(a)(ii)(C) or (D) or subparagraph 66.4(2)(a)(ii), deductible under section 66, 66.1, 66.2, 66.21 or 66.4) that would, if the particular amount had not been received, have been deductible in computing the taxpayer’s income for the year or a preceding taxation year;
Marginal note:Repayment of obligation
(hh.1) 3/4 of any amount (other than an amount to which paragraph 14(10)(b) applies in respect of the taxpayer) repaid by the taxpayer in the year under a legal obligation to repay all or part of an amount to which paragraph 14(10)(c) applies in respect of the taxpayer;
Marginal note:Inventory adjustment
(ii) the amount required by paragraph 12(1)(r) to be included in computing the taxpayer’s income for the immediately preceding taxation year;
Marginal note:Reinsurance commission
(jj) the amount required by paragraph 12(1)(s) to be included in computing the taxpayer’s income for the immediately preceding taxation year;
Marginal note:Exploration and development grants
(kk) the amount of any assistance or benefit received by the taxpayer in the year as a deduction from or reimbursement of an expense that is a tax (other than the goods and services tax) or royalty to the extent that
(i) the tax or royalty is, by reason of the receipt of the amount by the taxpayer, not deductible in computing the taxpayer’s income for a taxation year, and
(ii) the deduction or reimbursement was included by the taxpayer in the amount determined for J in the definition cumulative Canadian exploration expense in subsection 66.1(6), for M in the definition cumulative Canadian development expense in subsection 66.2(5) or for I in the definition cumulative Canadian oil and gas property expense in subsection 66.4(5);
Marginal note:Repayment of interest
(ll) such part of any amount payable by the taxpayer because of a provision of this Act, or of an Act of a province that imposes a tax similar to the tax imposed under this Act, as was paid in the year and as can reasonably be considered to be a repayment of interest that was included in computing the taxpayer’s income for the year or a preceding taxation year;
Marginal note:Cost of substances injected in reservoir
(mm) the portion claimed by the taxpayer of an amount that is an outlay or expense made or incurred by the taxpayer before the end of the year that is a cost to the taxpayer of any substance injected before that time into a natural reservoir to assist in the recovery of petroleum, natural gas or related hydrocarbons to the extent that that portion was not
(i) otherwise deducted in computing the taxpayer’s income for the year, or
(ii) deducted in computing the taxpayer’s income for any preceding taxation year,
except that where the year is less than 51 weeks, the amount that may be claimed under this paragraph by the taxpayer for the year shall not exceed the greater of
(iii) that proportion of the maximum amount that may otherwise be claimed under this paragraph by the taxpayer for the year that the number of days in the year is of 365, and
(iv) the amount of such outlay or expense that was made or incurred by the taxpayer in the year and not otherwise deducted in computing the taxpayer’s income for the year;
Marginal note:Part XII.6 tax
(nn) the tax, if any, under Part XII.6 paid in the year or payable in respect of the year by the taxpayer (depending on the method regularly followed by the taxpayer in computing the taxpayer’s income);
Marginal note:Salary deferral arrangement
(oo) any deferred amount under a salary deferral arrangement in respect of another person to the extent that it was
(i) included under paragraph 6(1)(a) as a benefit in computing the income of the other person for the taxation year of the other person that ends in the taxpayer’s taxation year, and
(ii) in respect of services rendered to the taxpayer;
Marginal note:Idem
(pp) any amount under a salary deferral arrangement in respect of another person (other than an arrangement established primarily for the benefit of one or more non-resident employees in respect of services to be rendered outside Canada) to the extent that it was
(i) included under paragraph 6(1)(i) in computing the income of the other person for the taxation year of the other person that ends in the taxpayer’s taxation year, and
(ii) in respect of services rendered to the taxpayer;
Marginal note:Disability-related modifications to buildings
(qq) an amount paid by the taxpayer in the year for prescribed renovations or alterations to a building used by the taxpayer primarily for the purpose of gaining or producing income from the building or from a business that are made to enable individuals who have a mobility impairment to gain access to the building or to be mobile within it;
Marginal note:Disability-related equipment
(rr) an amount paid by the taxpayer in the year for any prescribed disability-specific device or equipment;
Marginal note:Qualifying environmental trusts
(ss) a contribution made in the year by the taxpayer to a qualifying environmental trust under which the taxpayer is a beneficiary;
Marginal note:Acquisition of interests in qualifying environmental trusts
(tt) the consideration paid by the taxpayer in the year for the acquisition from another person or partnership of all or part of the taxpayer’s interest as a beneficiary under a qualifying environmental trust, other than consideration that is the assumption of a reclamation obligation in respect of the trust;
Marginal note:Debt forgiveness
(uu) any amount deducted in computing the taxpayer’s income for the year because of paragraph 80(15)(a) or subsection 80.01(10);
Marginal note:Countervailing or anti-dumping duty
(vv) an amount paid in the year by the taxpayer as or on account of an existing or proposed countervailing or anti-dumping duty in respect of property (other than depreciable property); and
Marginal note:Split income
(ww) where the taxpayer is a specified individual in relation to the year, the individual’s split income for the year.
Marginal note:Application of s. 13(21)
(1.1) The definitions in subsection 13(21) apply to any regulations made under paragraph 20(1)(a).
Marginal note:Application of s. 12.2(11)
(1.2) The definitions in subsection 12.2(11) apply to paragraph 20(1)(c).
Marginal note:Borrowed money
(2) For the purposes of paragraph 20(1)(c), where a person has borrowed money in consideration of a promise by the person to pay a larger amount and to pay interest on the larger amount,
(a) the larger amount shall be deemed to be the amount borrowed; and
(b) where the amount actually borrowed has been used in whole or in part for the purpose of earning income from a business or property, the proportion of the larger amount that the amount actually so used is of the amount actually borrowed shall be deemed to be the amount so used.
Marginal note:Limitation of expression “interest”
(2.1) For the purposes of paragraphs 20(1)(c) and 20(1)(d), “interest” does not include an amount that is paid after the taxpayer’s 1977 taxation year or payable in respect of a period after the taxpayer’s 1977 taxation year, depending on the method regularly followed by the taxpayer in computing the taxpayer’s income, in respect of interest on a policy loan made by an insurer except to the extent that the amount of that interest is verified by the insurer in prescribed form and within the prescribed time to be
(a) interest paid in the year on that loan; and
(b) interest (other than interest that would, but for paragraph 20(2.2)(b), be interest on money borrowed before 1978 to acquire a life insurance policy or on an amount payable for property acquired before 1978 that is an interest in a life insurance policy) that is not added to the adjusted cost basis (within the meaning given that expression in subsection 148(9)) to the taxpayer of the taxpayer’s interest in the policy.
Marginal note:Limitation of expression “life insurance policy”
(2.2) For the purposes of paragraphs 20(1)(c) and 20(1)(d), a “life insurance policy” does not include a policy
(a) that is or is issued pursuant to a registered pension plan, a registered retirement savings plan, an income-averaging annuity contract or a deferred profit sharing plan;
(b) that was an annuity contract issued before 1978 that provided for annuity payments to commence not later than the day on which the policyholder attains 75 years of age; or
(c) that is an annuity contract all of the insurer’s reserves for which vary in amount depending on the fair market value of a specified group of properties.
Marginal note:Sectoral reserve
(2.3) For the purpose of clause 20(1)(l)(ii)(D), a sectoral reserve is a reserve or an allowance for impairment for a loan that is determined on a sector-by-sector basis (including a geographic sector, an industrial sector or a sector of any other nature) and not on a property-by-property basis.
Marginal note:Specified Percentage
(2.4) For the purpose of clause 20(1)(l)(ii)(D), a taxpayer’s specified percentage for a taxation year is
(a) where the taxpayer has a prescribed reserve amount for the year, the percentage that is the percentage of the prescribed reserve amount of the taxpayer for the year claimed by the taxpayer under clause 20(1)(l)(ii)(C) for the year, and
(b) in any other case, 100%.
Marginal note:Borrowed money
(3) For greater certainty, it is hereby declared that where a taxpayer has used borrowed money
(a) to repay money previously borrowed, or
(b) to pay an amount payable for property described in subparagraph 20(1)(c)(ii) previously acquired,
subject to subsection 20.1(6), the borrowed money shall, for the purposes of paragraphs 20(1)(c), 20(1)(e) and 20(1)(e.1), subsections 20.1(1) and 20.1(2), section 21 and subparagraph 95(2)(a)(ii) and for the purpose of paragraph 20(1)(k) of theIncome Tax Act, Chapter 148 of the Revised Statutes of Canada, 1952, be deemed to have been used for the purpose for which the money previously borrowed was used or was deemed by this subsection to have been used, or to acquire the property in respect of which the amount was payable, as the case may be.
Marginal note:Bad debts from dispositions of depreciable property
(4) Where an amount that is owing to a taxpayer as or on account of the proceeds of disposition of depreciable property (other than a timber resource property or a passenger vehicle having a cost to the taxpayer in excess of $20,000 or such other amount as may be prescribed) of the taxpayer of a prescribed class is established by the taxpayer to have become a bad debt in a taxation year, there may be deducted in computing the taxpayer’s income for the year the lesser of
(a) the amount so owing to the taxpayer, and
(b) the amount, if any, by which the capital cost to the taxpayer of that property exceeds the total of the amounts, if any, realized by the taxpayer on account of the proceeds of disposition.
Marginal note:Idem
(4.1) Where an amount that is owing to a taxpayer as or on account of the proceeds of disposition of a timber resource property of the taxpayer is established by the taxpayer to have become a bad debt in a taxation year, the amount so owing to the taxpayer may be deducted in computing the taxpayer’s income for the year.
Marginal note:Bad debts re eligible capital property
(4.2) Where, in respect of one or more dispositions of eligible capital property by a taxpayer, an amount that is described in paragraph (a) of the description of E in the definition cumulative eligible capital in subsection 14(5) in respect of the taxpayer is established by the taxpayer to have become a bad debt in a taxation year, there shall be deducted in computing the taxpayer’s income for the year the amount determined by the formula
(A + B) - (C + D + E + F + G + H)
where
- A
- is the lesser of
(a) 1/2 of the total of all amounts each of which is such an amount that was so established to have become a bad debt in the year or a preceding taxation year, and
(b) the amount that is
(i) where the year ended after February 27, 2000, the amount, if any, that would be the total of all amounts determined by the formula in paragraph 14(1)(b) (if that formula were read without reference to the description of D) for the year, or for a preceding taxation year that ended after February 27, 2000, and
(ii) where the year ended before February 28, 2000, nil;
- B
- is the amount, if any, by which
(a) 3/4 of the total of all amounts each of which is such an amount that was so established to be a bad debt in the year or a preceding taxation year
exceeds the total of
(b) 3/2 of the amount by which
(i) the value of A
exceeds
(ii) the amount included in the value of A because of subparagraph (b)(i) of the description of A in respect of taxation years that ended after February 27, 2000 and before October 18, 2000, and
(c) 9/8 of the amount included in the value of A because of subparagraph (b)(i) of the description of A in respect of taxation years that ended after February 27, 2000 and before October 18, 2000;
- C
- is the total of all amounts each of which is an amount determined under subsection 14(1) or (1.1) for the year, or a preceding taxation year, that ends after October 17, 2000 and in respect of which a deduction can reasonably be considered to have been claimed under section 110.6 by the taxpayer;
- D
- is the total of all amounts each of which is an amount determined under subsection 14(1) or (1.1) for the year, or a preceding taxation year, that ended after February 27, 2000 and before October 18, 2000 and in respect of which a deduction can reasonably be considered to have been claimed under section 110.6 by the taxpayer;
- E
- is the total of all amounts each of which is an amount determined under subsection 14(1) or (1.1) for a preceding taxation year that ended before February 28, 2000 and in respect of which a deduction can reasonably be considered to have been claimed under section 110.6 by the taxpayer;
- F
- is the total of
(a) 2/3 of the total of all amounts each of which is the value determined in respect of the taxpayer for D in the formula in paragraph 14(1)(b) for the year, or a preceding taxation year, that ends after October 17, 2000, and
(b) 8/9 of the total of all amounts each of which is the value determined in respect of the taxpayer for D in the formula in paragraph 14(1)(b) for the year, or a preceding taxation year, that ended after February 27, 2000 and before October 18, 2000;
- G
- is the total of all amounts each of which is the value determined in respect of the taxpayer for D in the formula in subparagraph 14(1)(a)(v) (as that subparagraph applied for taxation years that ended before February 28, 2000) for a preceding taxation year; and
- H
- is the total of all amounts deducted by the taxpayer under this subsection for preceding taxation years.
Marginal note:Deemed allowable capital loss
(4.3) Where, in respect of one or more dispositions of eligible capital property by a taxpayer, an amount that is described in paragraph (a) of the description of E in the definition cumulative eligible capital in subsection 14(5) in respect of the taxpayer is established by the taxpayer to have become a bad debt in a taxation year, the taxpayer is deemed to have an allowable capital loss from a disposition of capital property in the year equal to the lesser of
(a) the total of the value determined for A and 2/3 of the value determined for B in the formula in subsection (4.2) in respect of the taxpayer for the year; and
(b) the total of all amounts each of which is
(i) the value determined for C or paragraph (a) of the description of F in the formula in subsection (4.2) in respect of the taxpayer for the year,
(ii) 3/4 of the value determined for D or paragraph (b) of the description of F in the formula in subsection (4.2) in respect of the taxpayer for the year, or
(iii) 2/3 of the value determined for E or G in the formula in subsection (4.2) in respect of the taxpayer for the year.
Marginal note:Sale of agreement for sale, mortgage or hypothecary claim included in proceeds of disposition
(5) Where depreciable property, other than a timber resource property, of a taxpayer has, in a taxation year, been disposed of to a person with whom the taxpayer was dealing at arm’s length, and the proceeds of disposition include an agreement for the sale of, or a mortgage or hypothecary claim on, land that the taxpayer has, in a subsequent taxation year, sold to a person with whom the taxpayer was dealing at arm’s length, there may be deducted in computing the income of the taxpayer for the subsequent year an amount equal to the lesser of
(a) the amount, if any, by which the principal amount of the agreement for sale, mortgage or hypothecary claim outstanding at the time of the sale exceeds the consideration paid by the purchaser to the taxpayer for the agreement for sale, mortgage or hypothecary claim, and
(b) the amount determined under paragraph 20(5)(a) less the amount, if any, by which the proceeds of disposition of the depreciable property exceed the capital cost to the taxpayer of that property.
Marginal note:Sale of agreement for sale, mortgage or hypothecary claim included in proceeds of disposition
(5.1) Where a timber resource property of a taxpayer has, in a taxation year, been disposed of to a person with whom the taxpayer was dealing at arm’s length, and the proceeds of disposition include an agreement for sale of, or a mortgage or hypothecary claim on, land that the taxpayer has, in a subsequent taxation year, sold to a person with whom the taxpayer was dealing at arm’s length, there may be deducted in computing the income of the taxpayer for the subsequent year the amount, if any, by which the principal amount of the agreement for sale, mortgage or hypothecary claim outstanding at the time of the sale exceeds the consideration paid by the purchaser to the taxpayer for the agreement for sale, mortgage or hypothecary claim.
Marginal note:Special reserves
(6) Where an amount is deductible in computing income for a taxation year under paragraph 20(1)(m) as a reserve in respect of
(a) articles of food or drink that it is reasonably anticipated will have to be delivered after the end of the year, or
(b) transportation that it is reasonably anticipated will have to be provided after the end of the year,
there shall be substituted for the amount determined under that paragraph an amount not exceeding the total of amounts included in computing the taxpayer’s income from the business for the year that were received or receivable (depending on the method regularly followed by the taxpayer in computing the taxpayer’s profit) in the year in respect of
(c) articles of food or drink not delivered before the end of the year, or
(d) transportation not provided before the end of the year, as the case may be.
Marginal note:Where para. (1)(m) does not apply
(7) Paragraph 20(1)(m) does not apply to allow a deduction
(a) as a reserve in respect of guarantees, indemnities or warranties;
(b) in computing the income of a taxpayer for a taxation year from a business in any case where the taxpayer’s income for the year from that business is computed in accordance with the method authorized by subsection 28(1); or
(c) as a reserve in respect of insurance, except that in computing an insurer’s income for a taxation year from an insurance business, other than a life insurance business, carried on by it, there may be deducted as a policy reserve any amount that the insurer claims not exceeding the amount prescribed in respect of the insurer for the year.
Marginal note:No deduction in respect of property in certain circumstances
(8) Paragraph 20(1)(n) does not apply to allow a deduction in computing the income of a taxpayer for a taxation year from a business in respect of a property sold in the course of the business if
(a) the taxpayer, at the end of the year or at any time in the immediately following taxation year,
(i) was exempt from tax under any provision of this Part, or
(ii) was not resident in Canada and did not carry on the business in Canada; or
(b) the sale occurred more than 36 months before the end of the year.
Marginal note:Application of para. (1)(cc)
(9) In lieu of making any deduction of an amount permitted by paragraph 20(1)(cc) in computing a taxpayer’s income for a taxation year from a business, the taxpayer may, if the taxpayer so elects in prescribed manner, make a deduction of 1/10 of that amount in computing the taxpayer’s income for that taxation year and a like deduction in computing the taxpayer’s income for each of the 9 immediately following taxation years.
Marginal note:Convention expenses
(10) Notwithstanding paragraph 18(1)(b), there may be deducted in computing a taxpayer’s income for a taxation year from a business an amount paid by the taxpayer in the year as or on account of expenses incurred by the taxpayer in attending, in connection with the business, not more than two conventions held during the year by a business or professional organization at a location that may reasonably be regarded as consistent with the territorial scope of that organization.
Marginal note:Foreign taxes on income from property exceeding 15%
(11) In computing the income of an individual from a property other than real property for a taxation year after 1975 that is income from a source outside Canada, there may be deducted the amount, if any, by which,
(a) such part of any income or profits tax paid by the taxpayer to the government of a country other than Canada for the year as may reasonably be regarded as having been paid in respect of an amount that has been included in computing the taxpayer’s income for the year from the property,
exceeds
(b) 15% of the amount referred to in paragraph 20(11)(a).
Marginal note:Foreign non-business income tax
(12) In computing a taxpayer’s income for a taxation year from a business or property, there may be deducted such amount as the taxpayer claims not exceeding the non-business income tax paid by the taxpayer for the year to the government of a country other than Canada (within the meaning assigned by subsection 126(7) read without reference to paragraphs (c) and (e) of the definition non-business-income tax in that subsection) in respect of that income, other than any such tax, or part thereof, that can reasonably be regarded as having been paid by a corporation in respect of income from a share of the capital stock of a foreign affiliate of the corporation.
Marginal note:Foreign tax where no economic profit
(12.1) In computing a taxpayer’s income for a taxation year from a business, there may be deducted the amount that the taxpayer claims not exceeding the lesser of
(a) the amount of foreign tax (within the meaning assigned by subsection 126(4.1)) that
(i) is in respect of a property used in the business for a period of ownership by the taxpayer or in respect of a related transaction (as defined in subsection 126(7)),
(ii) is paid by the taxpayer for the year,
(iii) is, because of subsection 126(4.1), not included in computing the taxpayer’s business-income tax or non-business-income tax, and
(iv) where the taxpayer is a corporation, is not an amount that can reasonably be regarded as having been paid in respect of income from a share of the capital stock of a foreign affiliate of the taxpayer, and
(b) the portion of the taxpayer’s income for the year from the business that is attributable to the property for the period or to a related transaction (as defined in subsection 126(7)).
Marginal note:Dividend on share from foreign affiliate of taxpayer
(13) In computing the income for a taxation year of a taxpayer resident in Canada, there may be deducted such amount in respect of a dividend received by the taxpayer in the year on a share owned by the taxpayer of the capital stock of a foreign affiliate of the taxpayer as is provided by subdivision i.
Marginal note:Accrued bond interest
(14) Where, by virtue of an assignment or other transfer of a debt obligation, other than an income bond, an income debenture, a small business development bond or a small business bond, the transferee has become entitled to an amount of interest that accrued on the debt obligation for a period commencing before the time of transfer and ending at that time that is not payable until after that time, that amount
(a) shall be included as interest in computing the transferor’s income for the transferor’s taxation year in which the transfer occurred, except to the extent that it was otherwise included in computing the transferor’s income for the year or a preceding taxation year; and
(b) may be deducted in computing the transferee’s income for a taxation year to the extent that the amount was included as interest in computing the transferee’s income for the year.
Marginal note:Interest on debt obligation
(14.1) Where a person who has issued a debt obligation, other than an income bond, an income debenture, a small business development bond or a small business bond, is obligated to pay an amount that is stipulated to be interest on that debt obligation in respect of a period before its issue (in this subsection referred to as the “unearned interest amount”) and it is reasonable to consider that the person to whom the debt obligation was issued paid to the issuer consideration for the debt obligation that included an amount in respect of the unearned interest amount,
(a) for the purposes of subsection 20(14) and section 12, the issue of the debt obligation shall be deemed to be an assignment of the debt obligation from the issuer, as transferor, to the person to whom the obligation was issued, as transferee, and an amount equal to the unearned interest amount shall be deemed to be interest that accrued on the obligation for a period commencing before the issue and ending at the time of issue; and
(b) notwithstanding paragraph 20(14.1)(a) or any other provision of this Act, no amount that can reasonably be considered to be an amount in respect of the unearned interest amount shall be deducted or included in computing the income of the issuer.
(15) [Repealed, 2003, c. 28, s. 3(2)]
Marginal note:Terminal loss
(16) Notwithstanding paragraphs 18(1)(a), 18(1)(b) and 18(1)(h), where at the end of a taxation year,
(a) the total of all amounts used to determine A to D in the definition undepreciated capital cost in subsection 13(21) in respect of a taxpayer’s depreciable property of a particular class exceeds the total of all amounts used to determine E to J in that definition in respect of that property, and
(b) the taxpayer no longer owns any property of that class,
in computing the taxpayer’s income for the year
(c) there shall be deducted the amount of the excess determined under paragraph 20(16)(a), and
(d) no amount shall be deducted for the year under paragraph 20(1)(a) in respect of property of that class.
Marginal note:Idem
(16.1) Subsection 20(16) does not apply in respect of a passenger vehicle of a taxpayer that has a cost to the taxpayer in excess of $20,000 or such other amount as is prescribed.
Marginal note:Reference to “taxation year” and “year” of individual
(16.2) Where a taxpayer is an individual and the taxpayer’s income for a taxation year includes income from a business the fiscal period of which does not coincide with the calendar year, if depreciable property acquired for the purpose of gaining or producing income from the business has been disposed of, each reference in subsections 20(16) and 20(16.1) to a “taxation year” and “year” shall, for greater certainty, be read as a reference to a “fiscal period”.
Marginal note:Disposition after ceasing business
(16.3) Where a taxpayer, after ceasing to carry on a business, has disposed of depreciable property of the taxpayer of a prescribed class that was acquired by the taxpayer for the purpose of gaining or producing income from the business and that was not subsequently used by the taxpayer for some other purpose, in applying subsection 20(16) or 20(16.1), each reference in that subsection to a “taxation year” and “year” shall, notwithstanding anything in subsection 20(16.2), not be read as a reference to a “fiscal period”.
Marginal note:Reduction of inventory allowance deduction
(17) Notwithstanding paragraph 20(1)(gg) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, the deduction allowed under that paragraph to a taxpayer for a taxation year shall be reduced by 3% of that proportion of the lesser of
(a) the cost amount to the taxpayer of the taxpayer’s qualifying inventory that was disposed of during the year by the taxpayer in a specified transaction to a person with whom the taxpayer was not dealing at arm’s length, and
(b) the cost amount to the taxpayer of the taxpayer’s qualifying inventory at the beginning of the year,
that the number of days in the year and after the date of disposition is of 365.
Marginal note:Definitions
(18) For the purposes of this subsection and subsection 20(17),
qualifying inventory
biens à porter à l’inventaire admissibles
qualifying inventory means tangible property described in subparagraphs 20(1)(gg)(i) and (ii) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, other than real property or an interest therein or property of a taxpayer that becomes property of a new corporation by virtue of an amalgamation or merger; (biens à porter à l’inventaire admissibles)
specified transaction
opération désignée
specified transaction means
(a) a distribution by a corporation of qualifying inventory on or in the course of its winding-up,
(b) a disposition by a taxpayer of all or a substantial part of the taxpayer’s qualifying inventory, or
(c) a disposition at a particular time of qualifying inventory by a taxpayer one of the principal purposes of which was to permit a person with whom the taxpayer does not deal at arm’s length to obtain a deduction in respect thereof under paragraph 20(1)(gg) of theIncome Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, for that person’s first taxation year commencing after the particular time,
but does not include any such distribution or disposition by a taxpayer to another person during a taxation year of that other person that ends at least 11 months after the commencement of the taxation year of the taxpayer during which the distribution or disposition occurs. (opération désignée)
Marginal note:Annuity contract
(19) Where a taxpayer has in a particular taxation year received a payment under an annuity contract in respect of which an amount was by virtue of subsection 12(3) included in computing the taxpayer’s income for a taxation year commencing before 1983, there may be deducted in computing the taxpayer’s income for the particular year such amount, if any, as is allowed by regulation.
Marginal note:Life insurance policy
(20) Where in a taxation year a taxpayer disposes of an interest in a life insurance policy that is not an annuity contract (otherwise than as a consequence of a death) or of an interest in an annuity contract (other than a prescribed annuity contract), there may be deducted in computing the taxpayer’s income for the year an amount equal to the lesser of
(a) the total of all amounts in respect of the interest in the policy that were included under section 12.2 of this Act or paragraph 56(1)(d.1) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, in computing the taxpayer’s income for the year or a preceding taxation year, and
(b) the amount, if any, by which the adjusted cost basis (within the meaning assigned by section 148) to the taxpayer of that interest immediately before the disposition exceeds the proceeds of the disposition (within the meaning assigned by section 148) of the interest that the policyholder, a beneficiary or an assignee became entitled to receive.
Marginal note:Debt obligation
(21) Where a taxpayer has in a particular taxation year disposed of a property that is an interest in a debt obligation for consideration equal to its fair market value at the time of disposition, there may be deducted in computing the taxpayer’s income for the particular year the amount, if any, by which
(a) the total of all amounts each of which is an amount that was included in computing the taxpayer’s income for the particular year or a preceding taxation year as interest in respect of that property
exceeds the total of all amounts each of which is
(b) the portion of an amount that was received or became receivable by the taxpayer in the particular year or a preceding taxation year that can reasonably be considered to be in respect of an amount described in paragraph 20(21)(a) and that was not repaid by the taxpayer to the issuer of the debt obligation because of an adjustment in respect of interest received before the time of disposition by the taxpayer, or
(c) an amount in respect of that property that was deductible by the taxpayer by virtue of paragraph 20(14)(b) in computing the taxpayer’s income for the particular year or a preceding taxation year.
Marginal note:Deduction for negative reserves
(22) In computing an insurer’s income for a taxation year, there may be deducted the amount included under paragraph 12(1)(e.1) in computing the insurer’s income for the preceding taxation year.
Marginal note:Amounts paid for undertaking future obligations
(24) Where an amount is included under paragraph 12(1)(a) in computing a taxpayer’s income for a taxation year in respect of an undertaking to which that paragraph applies and the taxpayer paid a reasonable amount in a particular taxation year to another person as consideration for the assumption by that other person of the taxpayer’s obligations in respect of the undertaking, if the taxpayer and the other person jointly so elect,
(a) the payment may be deducted in computing the taxpayer’s income for the particular year and no amount is deductible under paragraph 20(1)(m) or 20(1)(m.1) in computing the taxpayer’s income for that or any subsequent taxation year in respect of the undertaking; and
(b) where the amount was received by the other person in the course of business, it shall be deemed to be an amount described in paragraph 12(1)(a).
Marginal note:Manner of election
(25) An election under subsection 20(24) shall be made by notifying the Minister in writing on or before the earlier of the days on or before which either the payer or the recipient is required to file a return of income pursuant to section 150 for the taxation year in which the payment to which the election relates was made.
Marginal note:Transition deduction re unpaid claims reserve
(26) An insurer may deduct, in computing its income for its taxation year that includes February 23, 1994, such amount as the insurer claims not exceeding the amount prescribed to be the insurer’s unpaid claims reserve adjustment.
Marginal note:Loans, etc., acquired in ordinary course of business
(27) For the purposes of computing a deduction under paragraph 20(1)(l), 20(1)(l.1) or 20(1)(p) from the income for a taxation year of a taxpayer who was an insurer or whose ordinary business included the lending of money, a loan or lending asset or an instrument or commitment described in paragraph 20(1)(l.1) acquired from a person with whom the taxpayer did not deal at arm’s length for an amount equal to its fair market value shall be deemed to have been acquired by the taxpayer in the ordinary course of the taxpayer’s business of insurance or the lending of money where
(a) the person from whom the loan or lending asset or instrument or commitment was acquired carried on the business of insurance or the lending of money; and
(b) the loan or lending asset was made or acquired or the instrument or commitment was issued, made or assumed by the person in the ordinary course of the person’s business of insurance or the lending of money.
Marginal note:Application of ss. 13(21) and 138(12)
(27.1) The definitions in subsections 13(21) and 138(12) apply to this section.
Marginal note:Deduction before available for use
(28) In computing a taxpayer’s income from a business or property for a taxation year ending before the time a building or a part thereof acquired after 1989 by the taxpayer becomes available for use by the taxpayer, there may be deducted an amount not exceeding the amount by which the lesser of
(a) the amount that would be deductible under paragraph 20(1)(a) for the year in respect of the building if subsection 13(26) did not apply, and
(b) the taxpayer’s income for the year from renting the building, computed without reference to this subsection and before deducting any amount in respect of the building under paragraph 20(1)(a)
exceeds
(c) the amount deductible under paragraph 20(1)(a) for the year in respect of the building, computed without reference to this subsection,
and any amount so deducted shall be deemed to be an amount deducted by the taxpayer under paragraph 20(1)(a) in computing the taxpayer’s income for the year.
Marginal note:Idem
(29) Where, because of subsection 18(3.1), a deduction would, but for this subsection, not be allowed to a taxpayer in respect of an outlay or expense in respect of a building, or part thereof, and the outlay or expense would, but for that subsection and without reference to this subsection, be deductible in computing the taxpayer’s income for a taxation year, there may be deducted in respect of such outlays and expenses in computing the taxpayer’s income for the year an amount equal to the lesser of
(a) the total of all such outlays or expenses, and
(b) the taxpayer’s income for the year from renting the building or the part thereof computed without reference to subsection 20(28) and this subsection.
Marginal note:Specified reserve adjustment
(30) For the purpose of the description of N in subclause 20(1)(l)(ii)(D)(II), the specified reserve adjustment for a loan of a taxpayer for a taxation year is the amount determined by the formula
0.1(A × B × C/365)
where
- A
- is the carrying amount of the impaired loan that is used or would be used in determining the interest income on the loan for the year in accordance with generally accepted accounting principles;
- B
- is the effective interest rate on the loan for the year determined in accordance with generally accepted accounting principles; and
- C
- is the number of days in the year on which the loan is impaired.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 20
- 1994, c. 7, Sch. II, s. 15, Sch. VIII, ss. 9, 157, c. 8, s. 3, c. 21, s. 12
- 1995, c. 3, s. 7, c. 21, ss. 6, 45
- 1997, c. 25, s. 5
- 1998, c. 19, ss. 4, 81
- 1999, c. 22, s. 9
- 2000, c. 19, s. 2
- 2001, c. 17, ss. 13, 203
- 2003, c. 28, s. 3
Marginal note:PHSP premiums
20.01 (1) Notwithstanding paragraphs 18(1)(a) and (h) and subject to subsection (2), there may be deducted in computing an individual’s income for a taxation year from a business carried on by the individual and in which the individual is actively engaged on a regular and continuous basis, directly or as a member of a partnership, an amount payable by the individual or partnership in respect of the year as a premium, contribution or other consideration under a private health services plan in respect of the individual, the individual’s spouse or common-law partner or any person who is a member of the individual’s household if
(a) in the year or in the preceding taxation year
(i) the total of all amounts each of which is the individual’s income from such a business for a fiscal period that ends in the year exceeds 50% of the individual’s income for the year, or
(ii) the individual’s income for the year does not exceed the total of $10,000 and the total referred to in subparagraph (i) in respect of the individual for the year,
on the assumption that the individual’s income from each business is computed without reference to this subsection and the individual’s income is computed without reference to this subsection and subdivision e; and
(b) the amount is payable under a contract between the individual or partnership and
(i) a person licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada an insurance business or the business of offering to the public its services as trustee,
(ii) a person or partnership engaged in the business of offering to the public its services as an administrator of private health services plans, or
(iii) a person the taxable income of which is exempt under section 149 and that is a business or professional organization of which the individual is a member or a trade union of which the individual or a majority of the individual’s employees are members.
Marginal note:Limit
(2) For the purpose of calculating the amount deductible under subsection (1) in computing an individual’s income for a taxation year from a particular business,
(a) no amount may be deducted to the extent that
(i) it is deducted under this section in computing another individual’s income for any taxation year, or
(ii) it is included in calculating a deduction under section 118.2 in computing an individual’s tax payable under this Part for any taxation year;
(b) where an amount payable under a private health services plan relates to a period in the year throughout which
(i) each of one or more persons
(A) is employed on a full-time basis (other than on a temporary or seasonal basis) in the particular business or in another business carried on by
(I) the individual (otherwise than as a member of a partnership),
(II) a partnership of which the individual is a majority interest partner, or
(III) a corporation affiliated with the individual, and
(B) has accumulated not less than three months of service in that employment since the person last became so employed, and
(ii) the total number of persons employed in a business described in clause (i)(A), with whom the individual deals at arm’s length and to whom coverage is extended under the plan, is not less than 50% of the total number of persons each of whom is a person
(A) who carries on the particular business or is employed in a business described in clause (i)(A), and
(B) to whom coverage is extended under the plan,
the amount so deductible in relation to the period shall not exceed the individual’s cost of equivalent coverage under the plan in respect of each employed person who deals at arm’s length with the individual and who is described in subparagraph (i) in relation to the period;
(c) subject to paragraph (d), where an amount payable under a private health services plan relates to a particular period in the year, other than a period described in paragraph (b), the amount so deductible in relation to the particular period shall not exceed the amount determined by the formula
(A/365) × (B + C)
where
- A
- is the number of days in the year that are included in the particular period,
- B
- is the product obtained when $1,500 is multiplied by the number of persons each of whom is covered under the plan, and
(i) is the individual or the individual’s spouse or common-law partner, or
(ii) is a member of the individual’s household and has attained the age of 18 years before the beginning of the particular period, and
- C
- is the product obtained when $750 is multiplied by the number of members of the individual’s household who, but for the fact that they have not attained the age of 18 years before the particular period began, would be included in computing the product under the description of B; and
(d) where an amount payable under a private health services plan relates to a particular period in the year (other than a period described in paragraph (b)) and one or more persons with whom the individual deals at arm’s length are described in subparagraph (b)(i) in relation to the particular period, the amount so deductible in relation to the particular period shall not exceed the lesser of the amount determined under the formula set out in paragraph (c) and the individual’s cost of equivalent coverage in respect of any such person in relation to the particular period.
Marginal note:Equivalent coverage
(3) For the purpose of subsection (2), an amount payable in respect of an individual under a private health services plan in relation to a period does not exceed the individual’s cost of equivalent coverage under the plan in respect of another person in relation to the period to the extent that, in relation to the period, the amount does not exceed the product obtained when
(a) the amount that would be the individual’s cost of coverage under the plan if the benefits and coverage in respect of the individual, the individual’s spouse or common-law partner and the members of the individual’s household were identical to the benefits and coverage made available in respect of the other person, the other person’s spouse or common-law partner and the members of the other person’s household
is multiplied by
(b) the percentage of the cost of coverage under the plan in respect of the other person that is payable by the individual or a partnership of which the individual is a member.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- 1999, c. 22, s. 10
- 2000, c. 12, s. 142
Marginal note:Borrowed money used to earn income from property
20.1 (1) Where
(a) at any time after 1993 borrowed money ceases to be used by a taxpayer for the purpose of earning income from a capital property (other than real property or depreciable property), and
(b) the amount of the borrowed money that was so used by the taxpayer immediately before that time exceeds the total of
(i) where the taxpayer disposed of the property at that time for an amount of consideration that is not less than the fair market value of the property at that time, the amount of the borrowed money used to acquire the consideration,
(ii) where the taxpayer disposed of the property at that time and subparagraph 20.1(1)(b)(i) does not apply, the amount of the borrowed money that, if the taxpayer had received as consideration an amount of money equal to the amount by which the fair market value of the property at that time exceeds the amount included in the total by reason of subparagraph 20.1(1)(b)(iii), would be considered to be used to acquire the consideration,
(iii) where the taxpayer disposed of the property at that time for consideration that includes a reduction in the amount of the borrowed money, the amount of the reduction, and
(iv) where the taxpayer did not dispose of the property at that time, the amount of the borrowed money that, if the taxpayer had disposed of the property at that time and received as consideration an amount of money equal to the fair market value of the property at that time, would be considered to be used to acquire the consideration,
an amount of the borrowed money equal to the excess shall, to the extent that the amount is outstanding after that time, be deemed to be used by the taxpayer for the purpose of earning income from the property.
Marginal note:Borrowed money used to earn income from business
(2) Where at any particular time after 1993 a taxpayer ceases to carry on a business and, as a consequence, borrowed money ceases to be used by the taxpayer for the purpose of earning income from the business, the following rules apply:
(a) where, at any time (in this paragraph referred to as the “time of disposition”) at or after the particular time, the taxpayer disposes of property that was last used by the taxpayer in the business, an amount of the borrowed money equal to the lesser of
(i) the fair market value of the property at the time of disposition, and
(ii) the amount of the borrowed money outstanding at the time of disposition that is not deemed by this paragraph to have been used before the time of disposition to acquire any other property
shall be deemed to have been used by the taxpayer immediately before the time of disposition to acquire the property;
(b) subject to paragraph 20.1(2)(a), the borrowed money shall, after the particular time, be deemed not to have been used to acquire property that was used by the taxpayer in the business;
(c) the portion of the borrowed money outstanding at any time after the particular time that is not deemed by paragraph 20.1(2)(a) to have been used before that subsequent time to acquire property shall be deemed to be used by the taxpayer at that subsequent time for the purpose of earning income from the business; and
(d) the business shall be deemed to have fiscal periods after the particular time that coincide with the taxation years of the taxpayer, except that the first such fiscal period shall be deemed to begin at the end of the business’s last fiscal period that began before the particular time.
Marginal note:Deemed dispositions
(3) For the purpose of paragraph 20.1(2)(a),
(a) where a property was used by a taxpayer in a business that the taxpayer has ceased to carry on, the taxpayer shall be deemed to dispose of the property at the time at which the taxpayer begins to use the property in another business or for any other purpose;
(b) where a taxpayer, who has at any time ceased to carry on a business, regularly used a property in part in the business and in part for some other purpose,
(i) the taxpayer shall be deemed to have disposed of the property at that time, and
(ii) the fair market value of the property at that time shall be deemed to equal the proportion of the fair market value of the property at that time that the use regularly made of the property in the business was of the whole use regularly made of the property; and
(c) where the taxpayer is a trust, subsections 104(4) to 104(5.2) do not apply.
Marginal note:Amount payable for property
(4) Where an amount is payable by a taxpayer for property, the amount shall be deemed, for the purposes of this section and, where subsection 20.1(2) applies with respect to the amount, for the purposes of this Act, to be payable in respect of borrowed money used by the taxpayer to acquire the property.
Marginal note:Interest in partnership
(5) For the purposes of this section, where borrowed money that has been used to acquire an interest in a partnership is, as a consequence, considered to be used at any time for the purpose of earning income from a business or property of the partnership, the borrowed money shall be deemed to be used at that time for the purpose of earning income from property that is the interest in the partnership and not to be used for the purpose of earning income from the business or property of the partnership.
Marginal note:Refinancings
(6) Where at any time a taxpayer uses borrowed money to repay money previously borrowed that was deemed by paragraph 20.1(2)(c) immediately before that time to be used for the purpose of earning income from a business,
(a) paragraphs 20.1(2)(a) to 20.1(2)(c) apply with respect to the borrowed money; and
(b) subsection 20(3) does not apply with respect to the borrowed money.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- 1994, c. 21, s. 13
Marginal note:Interest — authorized foreign bank — interpretation
20.2 (1) The following definitions apply in this section.
- branch advance
branch advance of an authorized foreign bank means an amount allocated or provided by, or on behalf of, the bank to, or for the benefit of, its Canadian banking business under terms that were documented, before the amount was so allocated or provided, to the same extent as, and in a form similar to the form in which, the bank would ordinarily document a loan by it to a person with whom it deals at arm’s length. (avance de succursale)
- branch financial statements
branch financial statements of an authorized foreign bank for a taxation year means the unconsolidated statements of assets and liabilities and of income and expenses for the year, in respect of its Canadian banking business,
(a) that form part of the bank’s annual report for the year filed with the Superintendent of Financial Institutions as required under section 601 of the Bank Act, and accepted by the Superintendent, and
(b) if no filing is so required for the taxation year, that are prepared in a manner consistent with the statements in the annual report or reports so filed and accepted for the period or periods in which the taxation year falls,
except if the Minister demonstrates that the statements are not prepared in accordance with generally-accepted accounting principles in Canada as modified by any specifications applicable to the bank made by the Superintendent of Financial Institutions under subsection 308(4) of the Bank Act (in this definition referred to as “modified GAAP”), in which case it means the statements subject to such modifications as are required to make them comply with modified GAAP. (états financiers de succursale)
- calculation period
calculation period of an authorized foreign bank for a taxation year means any one of a series of regular periods into which the year is divided in a designation by the bank in its return of income for the year or, in the absence of such a designation, by the Minister,
(a) none of which is longer than 31 days;
(b) the first of which commences at the beginning of the year and the last of which ends at the end of the year; and
(c) that are, unless the Minister otherwise agrees in writing, consistent with the calculation periods designated for the bank’s preceding taxation year. (période de calcul)
Marginal note:Formula elements
(2) The following descriptions apply for the purposes of the formulae in subsection (3) for any calculation period in a taxation year of an authorized foreign bank:
- A
- is the amount of the bank’s assets at the end of the period;
- BA
- is the amount of the bank’s branch advances at the end of the period;
- IBA
- is the total of all amounts each of which is a reasonable amount on account of notional interest for the period, in respect of a branch advance, that would be deductible in computing the bank’s income for the year if it were interest payable by, and the advance were indebtedness of, the bank to another person and if this Act were read without reference to paragraph 18(1)(v) and this section;
- IL
- is the total of all amounts each of which is an amount on account of interest for the period in respect of a liability of the bank to another person or partnership that would be deductible in computing the bank’s income for the year if this Act were read without reference to paragraph 18(1)(v) and this section; and
- L
- is the amount of the bank’s liabilities to other persons and partnerships at the end of the period.
Marginal note:Interest deduction
(3) In computing the income of an authorized foreign bank from its Canadian banking business for a taxation year, there may be deducted on account of interest for each calculation period of the bank for the year,
(a) where the total amount at the end of the period of its liabilities to other persons and partnerships and branch advances is 95% or more of the amount of its assets at that time, an amount not exceeding
(i) if the amount of liabilities to other persons and partnerships at that time is less than 95% of the amount of its assets at that time, the amount determined by the formula
IL + IBA × (0.95 × A - L)/BA
and
(ii) if the amount of those liabilities at that time is greater than or equal to 95% of the amount of its assets at that time, the amount determined by the formula
IL × (0.95 × A)/L
and
(b) in any other case, the total of
(i) the amount determined by the formula
IL + IBA
and
(ii) the product of
(A) the amount claimed by the bank, in its return of income for the year, not exceeding the amount determined by the formula
(0.95 × A) - (L + BA)
and
(B) the average, based on daily observations, of the Bank of Canada bank rate for the period.
Marginal note:Branch amounts
(4) Only amounts that are in respect of an authorized foreign bank’s Canadian banking business, and that are recorded in the books of account of the business in a manner consistent with the manner in which they are required to be treated for the purposes of the branch financial statements, shall be used to determine
(a) the amounts in subsection (2); and
(b) the amounts in subsection (3) of an authorized foreign bank’s assets, liabilities to other persons and partnerships, and branch advances.
Marginal note:Notional interest
(5) For the purposes of the description of IBA in subsection (2), a reasonable amount on account of notional interest for a calculation period in respect of a branch advance is the amount that would be payable on account of interest for the period by a notional borrower, having regard to the duration of the advance, the currency in which repayment is required and all other terms, as adjusted by paragraph (c), of the advance, if
(a) the borrower were a person that dealt at arm’s length with the bank, that carried on the bank’s Canadian banking business and that had the same credit-worthiness and borrowing capacity as the bank;
(b) the advance were a loan by the bank to the borrower; and
(c) any of the terms of the advance (excluding the rate of interest, but including the structure of the interest calculation, such as whether the rate is fixed or floating and the choice of any reference rate referred to) that are not terms that would be made between the bank as lender and the borrower, having regard to all the circumstances, including the nature of the Canadian banking business, the use of the advanced funds in the business and normal risk management practices for banks, were instead terms that would be agreed to by the bank and the borrower.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- 2001, c. 17, s. 14
Marginal note:Weak currency debt — interpretation
20.3 (1) The definitions in this subsection apply in this section.
- exchange date
exchange date in respect of a debt of a taxpayer that is at any time a weak currency debt means, if the debt is incurred or assumed by the taxpayer
(a) in respect of borrowed money that is denominated in the final currency, the day that the debt is incurred or assumed by the taxpayer; and
(b) in respect of borrowed money that is not denominated in the final currency, or in respect of the acquisition of property, the day on which the taxpayer uses the borrowed money or the acquired property, directly or indirectly, to acquire funds that are, or to settle an obligation that is, denominated in the final currency. (date de l’échange)
- hedge
hedge in respect of a debt of a taxpayer that is at any time a weak currency debt means any agreement made by the taxpayer
(a) that can reasonably be regarded as having been made by the taxpayer primarily to reduce the taxpayer’s risk, with respect to payments of principal or interest in respect of the debt, of fluctuations in the value of the weak currency; and
(b) that is identified by the taxpayer as a hedge in respect of the debt in a designation in prescribed form filed with the Minister on or before the 30th day after the day the taxpayer enters into the agreement. (opération de couverture)
- weak currency debt
weak currency debt of a taxpayer at a particular time means a particular debt in a foreign currency (in this section referred to as the “weak currency”), incurred or assumed by the taxpayer at a time (in this section referred to as the “commitment time”) after February 27, 2000, in respect of a borrowing of money or an acquisition of property, where
(a) any of the following applies, namely,
(i) the borrowed money is denominated in a currency (in this section referred to as the “final currency”) other than the weak currency, is used for the purpose of earning income from a business or property and is not used to acquire funds in a currency other than the final currency,
(ii) the borrowed money or the acquired property is used, directly or indirectly, to acquire funds that are denominated in a currency (in this section referred to as the “final currency”) other than the weak currency, that are used for the purpose of earning income from a business or property and that are not used to acquire funds in a currency other than the final currency,
(iii) the borrowed money or the acquired property is used, directly or indirectly, to settle an obligation that is denominated in a currency (in this section referred to as the “final currency”) other than the weak currency, that is incurred or assumed for the purpose of earning income from a business or property and that is not incurred or assumed to acquire funds in a currency other than the final currency, or
(iv) the borrowed money or the acquired property is used, directly or indirectly, to settle another debt of the taxpayer that is at any time a weak currency debt in respect of which the final currency (which is deemed to be the final currency in respect of the particular debt) is a currency other than the currency of the particular debt;
(b) the amount of the particular debt (together with any other debt that would, but for this paragraph, be at any time a weak currency debt, and that can reasonably be regarded as having been incurred or assumed by the taxpayer as part of a series of transactions that includes the incurring or assumption of the particular debt) exceeds $500,000; and
(c) either of the following applies, namely,
(i) if the rate at which interest is payable at the particular time in the weak currency in respect of the particular debt is determined under a formula based on the value from time to time of a reference rate (other than a reference rate the value of which is established or materially influenced by the taxpayer), the interest rate at the commitment time, as determined under the formula as though interest were then payable, exceeds by more than two percentage points the rate at which interest would have been payable at the commitment time in the final currency if
(A) the taxpayer had, at the commitment time, instead incurred or assumed an equivalent amount of debt in the final currency on the same terms as the particular debt (excluding the rate of interest but including the structure of the interest calculation, such as whether the rate is fixed or floating) with those modifications that the difference in currency requires, and
(B) interest on the equivalent amount of debt referred to in clause (A) was payable at the commitment time, or
(ii) in any other case, the rate at which interest is payable at the particular time in the weak currency in respect of the particular debt exceeds by more than two percentage points the rate at which interest would have been payable at the particular time in the final currency if at the commitment time the taxpayer had instead incurred or assumed an equivalent amount of debt in the final currency on the same terms as the particular debt (excluding the rate of interest but including the structure of the interest calculation, such as whether the rate is fixed or floating), with those modifications that the difference in currency requires. (dette en devise faible)
Marginal note:Interest and gain
(2) Notwithstanding any other provision of this Act, the following rules apply in respect of a particular debt of a taxpayer (other than a corporation described in one or more of paragraphs (a), (b), (c) and (e) of the definition specified financial institution in subsection 248(1)) that is at any time a weak currency debt:
(a) no deduction on account of interest that accrues on the debt for any period that begins after the day that is the later of June 30, 2000 and the exchange date during which it is a weak currency debt shall exceed the amount of interest that would, if at the commitment time the taxpayer had instead incurred or assumed an equivalent amount of debt, the principal and interest in respect of which were denominated in the final currency, on the same terms as the particular debt (excluding the rate of interest but including the structure of the interest calculation, such as whether the rate is fixed or floating) have accrued on the equivalent debt during that period, with those modifications that the difference in currency requires;
(b) the amount, if any, of the taxpayer’s gain or loss (in this section referred to as a “foreign exchange gain or loss”) for a taxation year on the settlement or extinguishment of the debt that arises because of the fluctuation in the value of any currency shall be included or deducted, as the case may be, in computing the taxpayer’s income for the year from the business or the property to which the debt relates; and
(c) the amount of any interest on the debt that was, because of this subsection, not deductible is deemed, for the purpose of computing the taxpayer’s foreign exchange gain or loss on the settlement or extinguishment of the debt, to be an amount paid by the taxpayer to settle or extinguish the debt.
Marginal note:Hedges
(3) In applying subsection (2) in circumstances where a taxpayer has entered into a hedge in respect of a debt of the taxpayer that is at any time a weak currency debt, the amount paid or payable in the weak currency for a taxation year on account of interest on the debt, or paid in the weak currency in the year on account of the debt’s principal, shall be decreased by the amount of any foreign exchange gain, or increased by the amount of any foreign exchange loss, on the hedge in respect of the amount so paid or payable.
Marginal note:Repayment of principal
(4) If the amount (expressed in the weak currency) outstanding on account of principal in respect of a debt of the taxpayer that is at any time a weak currency debt is reduced before maturity (whether by repayment or otherwise), the amount (expressed in the weak currency) of the reduction is deemed, except for the purposes of determining the rate of interest that would have been charged on an equivalent loan in the final currency and applying paragraph (b) of the definition weak currency debt in subsection (1), to have been a separate debt from the commitment time.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- 2001, c. 17, s. 14
Marginal note:Cost of borrowed money
21 (1) Where in a taxation year a taxpayer has acquired depreciable property, if the taxpayer elects under this subsection in the taxpayer’s return of income under this Part for the year,
(a) in computing the taxpayer’s income for the year and for such of the 3 immediately preceding taxation years as the taxpayer had, paragraphs 20(1)(c), 20(1)(d), 20(1)(e) and 20(1)(e.1) do not apply to the amount or to the part of the amount specified in the taxpayer’s election that, but for an election under this subsection in respect thereof, would be deductible in computing the taxpayer’s income (other than exempt income) for any such year in respect of borrowed money used to acquire the depreciable property or the amount payable for the depreciable property; and
(b) the amount or the part of the amount, as the case may be, described in paragraph 21(1)(a) shall be added to the capital cost to the taxpayer of the depreciable property so acquired by the taxpayer.
Marginal note:Borrowed money used for exploration or development
(2) Where in a taxation year a taxpayer has used borrowed money for the purpose of exploration, development or the acquisition of property and the expenses incurred by the taxpayer in respect of those activities are Canadian exploration and development expenses, Canadian exploration expenses, Canadian development expenses, Canadian oil and gas property expenses, foreign resource expenses in respect of a country, or foreign exploration and development expenses, as the case may be, if the taxpayer so elects under this subsection in the taxpayer’s return of income for the year,
(a) in computing the taxpayer’s income for the year and for such of the three immediately preceding taxation years as the taxpayer had, paragraphs 20(1)(c), (d), (e) and (e.1) do not apply to the amount or to the part of the amount specified in the taxpayer’s election that, but for that election, would be deductible in computing the taxpayer’s income (other than exempt income or income that is exempt from tax under this Part) for any such year in respect of the borrowed money used for the exploration, development or acquisition of property, as the case may be; and
(b) the amount or the part of the amount, as the case may be, described in paragraph (a) is deemed to be Canadian exploration and development expenses, Canadian exploration expenses, Canadian development expenses, Canadian oil and gas property expenses, foreign resource expenses in respect of a country, or foreign exploration and development expenses, as the case may be, incurred by the taxpayer in the year.
Marginal note:Borrowing for depreciable property
(3) In computing the income of a taxpayer for a particular taxation year, where the taxpayer
(a) in any preceding taxation year
(i) made an election under subsection 21(1) in respect of borrowed money used to acquire depreciable property or an amount payable for depreciable property acquired by the taxpayer, or
(ii) was, by virtue of subsection 18(3.1), required to include an amount in respect of the construction of a depreciable property in computing the capital cost to the taxpayer of the depreciable property, and
(b) in each taxation year, if any, after that preceding taxation year and before the particular year, made an election under this subsection covering the total amount that, but for an election under this subsection in respect thereof, would have been deductible in computing the taxpayer’s income (other than exempt income) for each such year in respect of the borrowed money used to acquire the depreciable property or the amount payable for the depreciable property acquired by the taxpayer,
if an election under this subsection is made in the taxpayer’s return of income under this Part for the particular year, paragraphs 20(1)(c), 20(1)(d), 20(1)(e) and 20(1)(e.1) do not apply to the amount or to the part of the amount specified in the election that, but for an election under this subsection in respect thereof, would be deductible in computing the taxpayer’s income (other than exempt income) for the particular year in respect of the borrowed money used to acquire the depreciable property or the amount payable for the depreciable property acquired by the taxpayer, and the amount or part of the amount, as the case may be, shall be added to the capital cost to the taxpayer of the depreciable property.
Marginal note:Borrowing for exploration, etc.
(4) In computing the income of a taxpayer for a particular taxation year, where the taxpayer
(a) in any preceding taxation year made an election under subsection 21(2) in respect of borrowed money used for the purpose of exploration, development or acquisition of property,
(b) in each taxation year, if any, after that preceding taxation year and before the particular year, made an election under this subsection covering the total amount that, but for that election, would have been deductible in computing the taxpayer’s income (other than exempt income or income that is exempt from tax under this Part) for each such year in respect of the borrowed money used for the exploration, development or acquisition of property, as the case may be, and
(c) so elects in the taxpayer’s return of income for the particular year,
the following rules apply:
(d) paragraphs 20(1)(c), (d), (e) and (e.1) do not apply to the amount or to the part of the amount specified in the election that, but for the election, would be deductible in computing the taxpayer’s income (other than exempt income or income that is exempt from tax under this Part) for the particular year in respect of the borrowed money used for the exploration, development or acquisition of property, and
(e) the amount or part of the amount, as the case may be, is deemed to be Canadian exploration and development expenses, Canadian exploration expenses, Canadian development expenses, Canadian oil and gas property expenses, foreign resource expenses in respect of a country, or foreign exploration and development expenses, as the case may be, incurred by the taxpayer in the particular year.
Marginal note:Reassessments
(5) Notwithstanding any other provision of this Act, where a taxpayer has made an election in accordance with the provisions of subsection 21(1) or 21(2), such reassessments of tax, interest or penalties shall be made as are necessary to give effect thereto.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 21
- 1994, c. 7, Sch. II, s. 16
- 2001, c. 17, s. 15
Ceasing to carry on business
Marginal note:Sale of accounts receivable
22 (1) Where a person who has been carrying on a business has, in a taxation year, sold all or substantially all the property used in carrying on the business, including the debts that have been or will be included in computing the person’s income for that year or a previous year and that are still outstanding, and including the debts arising from loans made in the ordinary course of the person’s business if part of the person’s ordinary business was the lending of money and that are still outstanding, to a purchaser who proposes to continue the business which the vendor has been carrying on, if the vendor and the purchaser have executed jointly an election in prescribed form to have this section apply, the following rules are applicable:
(a) there may be deducted in computing the vendor’s income for the taxation year an amount equal to the difference between the face value of the debts so sold (other than debts in respect of which the vendor has made deductions under paragraph 20(1)(p)), and the consideration paid by the purchaser to the vendor for the debts so sold;
(b) an amount equal to the difference described in paragraph 22(1)(a) shall be included in computing the purchaser’s income for the taxation year;
(c) the debts so sold shall be deemed, for the purposes of paragraphs 20(1)(l) and 20(1)(p), to have been included in computing the purchaser’s income for the taxation year or a previous year but no deduction may be made by the purchaser under paragraph 20(1)(p) in respect of a debt in respect of which the vendor has previously made a deduction; and
(d) each amount deducted by the vendor in computing income for a previous year under paragraph 20(1)(p) in respect of any of the debts so sold shall be deemed, for the purpose of paragraph 12(1)(i), to have been so deducted by the purchaser.
Marginal note:Statement by vendor and purchaser
(2) An election executed for the purposes of subsection 22(1) shall contain a statement by the vendor and the purchaser jointly as to the consideration paid for the debts sold by the vendor to the purchaser and that statement shall, subject to subsection 69(1), as against the Minister, be binding on the vendor and the purchaser in so far as it may be relevant in respect of any matter arising under this Act.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- 1970-71-72, c. 63, s. 1“22”
- 1974-75-76, c. 26, s. 10
Marginal note:Sale of inventory
23 (1) Where, on or after disposing of or ceasing to carry on a business or a part of a business, a taxpayer has sold all or any part of the property that was included in the inventory of the business, the property so sold shall, for the purposes of this Part, be deemed to have been sold by the taxpayer in the course of carrying on the business.
Marginal note:Reference to property in inventory
(3) A reference in this section to property that was included in the inventory of a business shall be deemed to include a reference to property that would have been so included if the income from the business had not been computed in accordance with the method authorized by subsection 28(1) or paragraph 34(a).
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- 1970-71-72, c. 63, s. 1“23”
- 1974-75-76, c. 26, s. 11
- 1985, c. 45, s. 13
Marginal note:Ceasing to carry on business
24 (1) Notwithstanding paragraph 18(1)(b), where at any time after a taxpayer ceases to carry on a business the taxpayer no longer owns any property that was eligible capital property in respect of the business and that has value, in computing the taxpayer’s income for taxation years ending after that time,
(a) there shall be deducted, for the first such taxation year, the amount of the taxpayer’s cumulative eligible capital in respect of the business at that time;
(b) no amount may be deducted under paragraph 20(1)(b) in respect of the business;
(c) for the purposes of determining the value of P in the definition cumulative eligible capital in subsection 14(5), the amount deducted by the taxpayer under paragraph 24(1)(a) shall be deemed to be an amount deducted under paragraph 20(1)(b) in computing the taxpayer’s income from the business for the taxation year that included that time; and
(d) for the purposes of subsection 14(1), section 14 shall be read without reference to subsection 14(4).
Marginal note:Business carried on by spouse or common-law partner or controlled corporation
(2) Notwithstanding subsection 24(1), where at any time an individual ceases to carry on a business and thereafter the individual’s spouse or common-law partner, or a corporation controlled directly or indirectly in any manner whatever by the individual, carries on the business and acquires all of the property that was eligible capital property in respect of the business owned by the individual before that time and that had value at that time,
(a) in computing the individual’s income for the individual’s first taxation year ending after that time, subsection 24(1) shall be read without reference to paragraph 24(1)(a) and the reference in paragraph 24(1)(c) to “the amount deducted by the taxpayer under paragraph (a)” shall be read as a reference to “an amount equal to the taxpayer’s cumulative eligible capital in respect of the business immediately before that time”;
(b) in computing the cumulative eligible capital of the spouse or common-law partner or the corporation, as the case may be, in respect of the business, the spouse or common-law partner or corporation shall be deemed to have acquired an eligible capital property and to have made an eligible capital expenditure at that time at a cost equal to 4/3 of the total of
(i) the cumulative eligible capital of the taxpayer in respect of the business immediately before that time, and
(ii) the amount, if any, determined for F in the definition cumulative eligible capital in subsection 14(5) in respect of the business of the individual at that time;
(c) for the purposes of determining the cumulative eligible capital in respect of the business of the spouse or common-law partner or corporation after that time, an amount equal to the amount determined under subparagraph 24(2)(b)(ii) shall be added to the amount otherwise determined in respect thereof for P in the definition cumulative eligible capital in subsection 14(5); and
(d) for the purpose of determining after that time the amount required to be included under paragraph 14(1)(b) in computing the income of the spouse, the common-law partner or the corporation in respect of any subsequent disposition of property of the business, there shall be added to the amount otherwise determined for Q in the definition cumulative eligible capital in subsection 14(5) the amount, if any, determined for Q in that definition in respect of the business of the individual immediately before the individual ceased to carry on business.
Marginal note:Where partnership has ceased to exist
(3) Notwithstanding subsection 24(1), where at any time a partnership ceases to exist in circumstances to which neither subsection 98(3) nor subsection 98(5) applies, there may be deducted, in computing the income for the first taxation year beginning after that time of a taxpayer who was a member of the partnership immediately before that time, an amount determined by the formula
A × B/C
where
- A
- is the amount that would, had the partnership continued to exist, have been deductible under subsection 24(1) in computing its income;
- B
- is the fair market value of the taxpayer’s interest in the partnership immediately before that time; and
- C
- is the fair market value of all interests in the partnership immediately before that time.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 24
- 1994, c. 7, Sch. II, s. 17, Sch. VIII, s. 10
- 1995, c. 3, s. 8
- 2000, c. 12, s. 142
- 2001, c. 17, s. 16
24.1 [Repealed, 1996, c. 21, s. 6(1)]
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 24.1
- 1996, c. 21, s. 6
Marginal note:Fiscal period of business disposed of by individual
25 (1) Where an individual was the proprietor of a business and disposed of it during a fiscal period of the business, the fiscal period may, if the individual so elects and subsection 249.1(4) does not apply in respect of the business, be deemed to have ended at the time it would have ended if the individual had not disposed of the business during the fiscal period.
Marginal note:Election
(2) An election under subsection 25(1) is not valid unless the individual, at the time when the fiscal period of the business would, if the election were valid, be deemed to have ended, is resident in Canada.
Marginal note:Dispositions in the extended fiscal period
(3) Where subsection 25(1) applies in respect of a fiscal period of a business of an individual, for the purpose of computing the individual’s income for the fiscal period,
(a) section 13 shall be read without reference to subsection 13(8); and
(b) section 24 shall be read without reference to paragraph 24(1)(d).
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 25
- 1996, c. 21, s. 7
Special Cases
Marginal note:Banks — inclusions in income
26 (1) There shall be included in computing the income of a bank for its first taxation year that commences after June 17, 1987 and ends after 1987 the total of
(a) the total of the specific provisions of the bank, as determined, or as would be determined if such a determination were required, under the Minister’s rules, as at the end of its immediately preceding taxation year,
(b) the total of the general provisions of the bank, as determined, or as would be determined if such a determination were required, under the Minister’s rules, as at the end of its immediately preceding taxation year,
(c) the amount, if any, by which
(i) the amount of the special provision for losses on trans-border claims of the bank, as determined, or as would be determined if such a determination were required, under the Minister’s rules, that was deductible by the bank under subsection 26(2) in computing its income for its immediately preceding taxation year
exceeds
(ii) that part of the amount determined under subparagraph 26(1)(c)(i) that was a realized loss of the bank for that immediately preceding taxation year, and
(d) the amount, if any, of the tax allowable appropriations account of the bank, as determined, or as would be determined if such a determination were required, under the Minister’s rules, at the end of its immediately preceding taxation year.
Marginal note:Banks — deductions from income
(2) In computing the income for a taxation year of a bank, there may be deducted an amount not exceeding the total of
(a) that part of the total of the amounts of the five-year average loan loss experiences of the bank, as determined, or as would be determined if such a determination were required, under the Minister’s rules, for all taxation years before its first taxation year that commences after June 17, 1987 and ends after 1987 that is specified by the bank for the year and was not deducted by the bank in computing its income for any preceding taxation year,
(b) that part of the total of the amounts transferred by the bank to its tax allowable appropriations account, as permitted under the Minister’s rules, for all taxation years before its first taxation year that commences after June 17, 1987 and ends after 1987 that is specified by the bank for the year and was not deducted by the bank in computing its income for any preceding taxation year,
(c) that part of the amount, if any, by which
(i) the amount of the special provision for losses on trans-border claims, as determined, or as would be determined if such a determination were required, under the Minister’s rules, that was deductible by the bank under this subsection in computing its income for its last taxation year before its first taxation year that commences after June 17, 1987 and ends after 1987
exceeds
(ii) that part of the amount determined under subparagraph 26(2)(c)(i) that was a realized loss of the bank for that last taxation year
that is specified by the bank for the year and was not deducted by the bank in computing its income for any preceding taxation year,
(d) where the tax allowable appropriations account of the bank at the end of its last taxation year before its first taxation year that commences after June 17, 1987 and ends after 1987, as determined, or as would be determined if such a determination were required, under the Minister’s rules, is a negative amount, that part of such amount expressed as a positive number that is specified by the bank for the year and was not deducted by the bank in computing its income for any preceding taxation year, and
(e) that part of the total of the amounts calculated in respect of the bank for the purposes of the Minister’s rules, or that would be calculated for the purposes of those rules if such a calculation were required, under Procedure 8 of the Procedures for the Determination of the Provision for Loan Losses as set out in Appendix 1 of those rules, for all taxation years before its first taxation year that commences after June 17, 1987 and ends after 1987 that is specified by the bank for the year and was not deducted by the bank in computing its income for any preceding taxation year.
Marginal note:Write-offs and recoveries
(3) In computing the income of a bank, the following rules apply:
(a) any amount that was recorded by the bank as a realized loss or a write-off of an asset that was included by the bank in the calculation of an amount deductible under the Minister’s rules, or would have been included in the calculation of such an amount if such a calculation had been required, for any taxation year before its first taxation year that commences after June 17, 1987 and ends after 1987, shall, for the purposes of paragraph 12(1)(i) and section 12.4, be deemed to have been deducted by the bank under paragraph 20(1)(p) in computing its income for the year for which it was so recorded; and
(b) any amount that was recorded by the bank as a recovery of a realized loss or a write-off of an asset that was included by the bank in the calculation of an amount deductible under the Minister’s rules, or would have been included in the calculation of such an amount if such a calculation had been required, for any taxation year before its first taxation year that commences after June 17, 1987 and ends after 1987 shall, for the purposes of section 12.4, be deemed to have been included by the bank under paragraph 12(1)(i) in computing its income for the year for which it was so recorded.
Definition of Minister’s rules
(4) For the purposes of this section, Minister’s rules means the Rules for the Determination of the Appropriations for Contingencies of a Bank issued under the authority of the Minister of Finance pursuant to section 308 of the Bank Act for the purposes of subsections (1) and (2) of this section.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 26
- 1994, c. 7, Sch. III, s. 14(F)
Marginal note:Application of Part I to Crown corporation
27 (1) This Part applies to a federal Crown corporation as if
(a) any income or loss from a business carried on by the corporation as agent of Her Majesty, or from a property of Her Majesty administered by the corporation, were an income or loss of the corporation from the business or the property, as the case may be; and
(b) any property, obligation or debt of any kind whatever held, administered, entered into or incurred by the corporation as agent of Her Majesty were a property, obligation or debt, as the case may be, of the corporation.
Marginal note:Presumption
(2) Notwithstanding any other provision of this Act, a prescribed federal Crown corporation and any corporation controlled by such a corporation are each deemed not to be a private corporation and paragraphs 149(1)(d) to (d.4) do not apply to those corporations.
Marginal note:Transfers of land for disposition
(3) Where land of Her Majesty has been transferred to a prescribed federal Crown corporation for purposes of disposition, the acquisition of the property by the corporation and any disposition thereof shall be deemed not to have been in the course of the business carried on by the 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. 27
- 1998, c. 19, s. 82
- 2001, c. 17, s. 17
Marginal note:Farming or fishing business
28 (1) For the purpose of computing the income of a taxpayer for a taxation year from a farming or fishing business, the income from the business for that year may, if the taxpayer so elects, be computed in accordance with a method (in this section referred to as the “cash method”) whereby the income therefrom for that year shall be deemed to be an amount equal to the total of
(a) all amounts that
(i) were received in the year, or are deemed by this Act to have been received in the year, in the course of carrying on the business, and
(ii) were in payment of or on account of an amount that would, if the income from the business were not computed in accordance with the cash method, be included in computing income therefrom for that or any other year, and
(b) with respect to a farming business, such amount, if any, as is specified by the taxpayer in respect of the business in the taxpayer’s return of income under this Part for the year, not exceeding the amount, if any, by which
(i) the fair market value at the end of the year of inventory owned by the taxpayer in connection with the business at that time
exceeds
(ii) the amount determined under paragraph 28(1)(c) for the year,
(c) with respect to a farming business, the amount, if any, that is the lesser of
(i) the taxpayer’s loss from the business for the year computed without reference to this paragraph and to paragraph 28(1)(b), and
(ii) the value of inventory purchased by the taxpayer that was owned by the taxpayer in connection with the business at the end of the year, and
(d) the total of all amounts each of which is an amount included in computing the taxpayer’s income for the year from the business because of subsection 13(1), 14(1), 80(13) or 80.3(3) or 80.3(5),
minus the total of
(e) all amounts, other than amounts described in section 30, that
(i) were paid in the year, or are deemed by this Act to have been paid in the year, in the course of carrying on the business,
(ii) in the case of amounts paid, or deemed by this Act to have been paid, for inventory, were in payment of or on account of an amount that would be deductible in computing the income from the business for the year or any other taxation year if that income were not computed in accordance with the cash method, and
(iii) in any other case, were in payment of or on account of an amount that would be deductible in computing the income from the business for a preceding taxation year, the year or the following taxation year if that income were not computed in accordance with the cash method,
(e.1) all amounts, other than amounts described in section 30, that
(i) would be deductible in computing the income from the business for the year if that income were not computed in accordance with the cash method,
(ii) are not deductible in computing the income from the business for any other taxation year, and
(iii) were paid in a preceding taxation year in the course of carrying on the business,
(f) the total of all amounts each of which is the amount, if any, included under paragraph 28(1)(b) or 28(1)(c) in computing the taxpayer’s income from the business for the immediately preceding taxation year, and
(g) the total of all amounts each of which is an amount deducted for the year under paragraph 20(1)(a), 20(1)(b) or 20(1)(uu), subsection 20(16) or 24(1), section 30 or subsection 80.3(2) or 80.3(4) in respect of the business,
except that paragraphs 28(1)(b) and 28(1)(c) do not apply in computing the income of the taxpayer for the taxation year in which the taxpayer dies.
Marginal note:Acquisition of inventory
(1.1) Where at any time, and in circumstances where paragraph 69(1)(a) or 69(1)(c) applies, a taxpayer acquires inventory that is owned by the taxpayer in connection with a farming business the income from which is computed in accordance with the cash method, for the purposes of this section an amount equal to the cost to the taxpayer of the inventory shall be deemed
(a) to have been paid by the taxpayer at that time and in the course of carrying on that business, and
(b) to be the only amount so paid for the inventory by the taxpayer,
and the taxpayer shall be deemed to have purchased the inventory at the time it was so acquired.
Marginal note:Valuation of inventory
(1.2) For the purpose of paragraph 28(1)(c) and notwithstanding section 10, inventory of a taxpayer shall be valued at any time at the lesser of the total amount paid by the taxpayer at or before that time to acquire it (in this section referred to as its “cash cost”) and its fair market value, except that an animal (in this section referred to as a “specified animal”) that is a horse or, where the taxpayer has so elected in respect thereof for the taxation year that includes that time or for any preceding taxation year, is a bovine animal registered under the Animal Pedigree Act, shall be valued
(a) at any time in the taxation year in which it is acquired, at such amount as is designated by the taxpayer not exceeding its cash cost to the taxpayer and not less than 70% of its cash cost to the taxpayer; and
(b) at any time in a subsequent taxation year, at such amount as is designated by the taxpayer not exceeding its cash cost to the taxpayer and not less than 70% of the total of
(i) its value determined under this subsection at the end of the preceding taxation year, and
(ii) the total amount paid on account of the purchase price of the animal during the year.
Marginal note:Short fiscal period
(1.3) For each taxation year that is less than 51 weeks, the reference in subsection 28(1.2) to “70” shall be read as a reference to the number determined by the formula
100 - (30 × A/365)
where
- A
- is the number of days in the taxation year.
Marginal note:Where joint farming or fishing business
(2) Subsection 28(1) does not apply for the purpose of computing the income of a taxpayer for a taxation year from a farming or fishing business carried on by the taxpayer jointly with one or more other persons, unless each of the other persons by whom the business is jointly carried on has elected to have his or her income from the business for that year computed in accordance with the cash method.
Marginal note:Concurrence of Minister
(3) Where a taxpayer has filed a return of income under this Part for a taxation year wherein the taxpayer’s income for that year from a farming or fishing business has been computed in accordance with the cash method, income from the business for each subsequent taxation year shall, subject to the other provisions of this Part, be computed in accordance with that method unless the taxpayer, with the concurrence of the Minister and on such terms and conditions as are specified by the Minister, adopts some other method.
Marginal note:Non-resident
(4) Notwithstanding subsections 28(1) and 28(5), where at the end of a taxation year a taxpayer who carried on a business the income from which was computed in accordance with the cash method is non-resident and does not carry on that business in Canada, an amount equal to the total of all amounts each of which is the fair market value of an amount outstanding during the year as or on account of a debt owing to the taxpayer that arose in the course of carrying on the business and that would have been included in computing the taxpayer’s income for the year if the amount had been received by the taxpayer in the year, shall (to the extent that the amount was not otherwise included in computing the taxpayer’s income for the year or a preceding taxation year) be included in computing the taxpayer’s income from the business
(a) for the year, if the taxpayer was non-resident throughout the year; and
(b) for the part of the year throughout which the taxpayer was resident in Canada, if the taxpayer was resident in Canada at any time in the year.
(4.1) [Repealed, 2001, c. 17, s. 18(2)]
Marginal note:Accounts receivable
(5) There shall be included in computing the income of a taxpayer for a taxation year such part of an amount received by the taxpayer in the year, on or after disposing of or ceasing to carry on a business or a part of a business, for, on account or in lieu of payment of, or in satisfaction of debts owing to the taxpayer that arose in the course of carrying on the business as would have been included in computing the income of the taxpayer for the year had the amount so received been received by the taxpayer in the course of carrying on the business.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 28
- 1994, c. 7, Sch. II, s. 18
- 1995, c. 21, s. 7
- 1998, c. 19, s. 83
- 2001, c. 17, s. 18
Marginal note:Disposition of animal of basic herd class
29 (1) Where a taxpayer has a basic herd of a class of animals and disposes of an animal of that class in the course of carrying on a farming business in a taxation year, if the taxpayer so elects in the taxpayer’s return of income under this Part for the year the following rules apply:
(a) there shall be deducted in computing the taxpayer’s basic herd of that class at the end of the year such number as is designated by the taxpayer in the taxpayer’s election, not exceeding the least of
(i) the number of animals of that class so disposed of by the taxpayer in that year,
(ii) 1/10 of the taxpayer’s basic herd of that class on December 31, 1971, and
(iii) the taxpayer’s basic herd of that class of animal at the end of the immediately preceding taxation year; and
(b) there shall be deducted in computing the taxpayer’s income from the farming business for the taxation year the product obtained when
(i) the number determined under paragraph 29(1)(a) in respect of the taxpayer’s basic herd of that class for the year
is multiplied by
(ii) the quotient obtained when the fair market value on December 31, 1971 of the taxpayer’s animals of that class on that day is divided by the number of the taxpayer’s animals of that class on that day.
Marginal note:Reduction in basic herd
(2) Where a taxpayer carries on a farming business in a taxation year and the taxpayer’s basic herd of any class at the end of the immediately preceding year, minus the deduction, if any, required by paragraph 29(1)(a) to be made in computing the taxpayer’s basic herd of that class at the end of the year, exceeds the number of animals of that class owned by the taxpayer at the end of the year,
(a) there shall be deducted in computing the taxpayer’s basic herd of that class at the end of the year the number of animals comprising the excess; and
(b) there shall be deducted in computing the taxpayer’s income from the farming business for the taxation year the product obtained when
(i) the number of animals comprising the excess
is multiplied by
(ii) the quotient obtained when the fair market value on December 31, 1971 of the taxpayer’s animals of that class on that day is divided by the number of the taxpayer’s animals of that class on that day.
Marginal note:Interpretation
(3) For the purposes of this section,
(a) a taxpayer’s basic herd of any class of animals at a particular time means such number of the animals of that class that the taxpayer had on hand at the end of his 1971 taxation year as were, for the purpose of assessing the taxpayer’s tax under this Part for that year, accepted by the Minister, as a consequence of an application made by the taxpayer, to be capital properties and not to be stock-in-trade, minus the numbers, if any, required by virtue of this section to be deducted in computing the taxpayer’s basic herd of that class at the end of taxation years of the taxpayer ending before the particular time;
(b) class of animals means animals of a particular species, namely, cattle, horses, sheep or swine, that are
(i) purebred animals of that species for which a certificate of registration has been issued by a person recognized by breeders in Canada of purebred animals of that species to be the registrar of the breed to which such animals belong, or issued by the Canadian Livestock Records Corporation, or
(ii) animals of that species other than purebred animals described in subparagraph 29(3)(b)(i),
each of which descriptions in subparagraphs 29(3)(b)(i) and 29(3)(b)(ii) shall be deemed to be of separate classes, except that where the number of the taxpayer’s animals described in subparagraph 29(3)(b)(i) or 29(3)(b)(ii), as the case may be, of a particular species is not greater than 10% of the total number of the taxpayer’s animals of that species that would otherwise be of two separate classes by virtue of this paragraph, the taxpayer’s animals described in subparagraphs 29(3)(b)(i) and 29(3)(b)(ii) of that species shall be deemed to be of a single class; and
(c) in determining the number of animals of any class on hand at any time, an animal shall not be included if it was acquired for a feeder operation, and an animal shall be included only if its actual age is not less than,
(i) in the case of cattle, 2 years,
(ii) in the case of horses, 3 years, and
(iii) in the case of sheep or swine, one year,
except that 2 animals of a class under the age specified in subparagraph 29(3)(c)(i), 29(3)(c)(ii) or 29(3)(c)(iii), as the case may be, shall be counted as one animal of the age so specified.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- 1970-71-72, c. 63, s. 1 “29”
- 1985, c. 45, s. 126(F)
Marginal note:Improving land for farming
30 Notwithstanding paragraphs 18(1)(a) and 18(1)(b), there may be deducted in computing a taxpayer’s income for a taxation year from a farming business any amount paid by the taxpayer before the end of the year for clearing land, levelling land or installing a land drainage system for the purposes of the business, to the extent that the amount has not been deducted in a preceding taxation year.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- 1970-71-72, c. 63, s. 1“30”
- 1988, c. 55, s. 15
Marginal note:Loss from farming where chief source of income not farming
31 (1) Where a taxpayer’s chief source of income for a taxation year is neither farming nor a combination of farming and some other source of income, for the purposes of sections 3 and 111 the taxpayer’s loss, if any, for the year from all farming businesses carried on by the taxpayer shall be deemed to be the total of
(a) the lesser of
(i) the amount by which the total of the taxpayer’s losses for the year, determined without reference to this section and before making any deduction under section 37 or 37.1, from all farming businesses carried on by the taxpayer exceeds the total of the taxpayer’s incomes for the year, so determined from all such businesses, and
(ii) $2,500 plus the lesser of
(A) 1/2 of the amount by which the amount determined under subparagraph 31(1)(a)(i) exceeds $2,500, and
(B) $6,250, and
(b) the amount, if any, by which
(i) the amount that would be determined under subparagraph 31(1)(a)(i) if it were read as though the words “and before making any deduction under section 37 or 37.1” were deleted,
exceeds
(ii) the amount determined under subparagraph 31(1)(a)(i).
Marginal note:Restricted farm loss
(1.1) For the purposes of this Act, a taxpayer’s “restricted farm loss” for a taxation year is the amount, if any, by which
(a) the amount determined under subparagraph 31(1)(a)(i) in respect of the taxpayer for the year
exceeds
(b) the total of the amount determined under subparagraph 31(1)(a)(ii) in respect of the taxpayer for the year and all amounts each of which is an amount by which the taxpayer’s restricted farm loss for the year is required to be reduced because of section 80.
Marginal note:Determination by Minister
(2) For the purpose of this section, the Minister may determine that a taxpayer’s chief source of income for a taxation year is neither farming nor a combination of farming and some other source of income.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 31
- 1995, c. 21, s. 8
Marginal note:Insurance agents and brokers
32 (1) In computing a taxpayer’s income for a taxation year from the taxpayer’s business as an insurance agent or broker, no amount may be deducted under paragraph 20(1)(m) for the year in respect of unearned commissions from the business, but in computing the taxpayer’s income for the year from the business there may be deducted, as a reserve in respect of such commissions, an amount equal to the lesser of
(a) the total of all amounts each of which is that proportion of an amount that has been included in computing the taxpayer’s income for the year or a preceding taxation year as a commission in respect of an insurance contract (other than a life insurance contract) that
(i) the number of days in the period provided for in the insurance contract that are after the end of the taxation year
is of
(ii) the number of days in that period, and
(b) the total of all amounts each of which is the amount that would, but for this subsection, be deductible under paragraph 20(1)(m) for the year in respect of a commission referred to in paragraph 32(1)(a).
Marginal note:Reserve to be included
(2) There shall be included as income of a taxpayer for a taxation year from a business as an insurance agent or broker, the amount deducted under subsection 32(1) in computing the taxpayer’s income therefrom for the immediately preceding year.
Marginal note:Additional reserve
(3) In computing a taxpayer’s income for a taxation year ending after 1990 from a business carried on by the taxpayer throughout the year as an insurance agent or broker, there may be deducted as an additional reserve an amount not exceeding
(a) where the year ends in 1991, 90%,
(b) where the year ends in 1992, 80%,
(c) where the year ends in 1993, 70%,
(d) where the year ends in 1994, 60%,
(e) where the year ends in 1995, 50%,
(f) where the year ends in 1996, 40%,
(g) where the year ends in 1997, 30%,
(h) where the year ends in 1998, 20%,
(i) where the year ends in 1999, 10%, and
(j) where the year ends after 1999, 0%
of the amount, if any, by which
(k) the reserve that was deducted by the taxpayer under subsection 32(1) for the taxpayer’s last taxation year ending before 1991
exceeds
(l) the amount deductible by the taxpayer under subsection 32(1) for the taxpayer’s first taxation year ending after 1990,
and any amount so deducted by the taxpayer for a taxation year shall be deemed for the purposes of subsection 32(2) to have been deducted for that year under subsection 32(1).
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 32
- 1994, c. 7, Sch. II, s. 19
Marginal note:Employee benefit plan deductions
32.1 (1) Where a taxpayer has made contributions to an employee benefit plan in respect of the taxpayer’s employees or former employees, the taxpayer may deduct in computing the taxpayer’s income for a taxation year
(a) such portion of an amount allocated to the taxpayer for the year under subsection 32.1(2) by the custodian of the plan as does not exceed the amount, if any, by which
(i) the total of all amounts each of which is a contribution by the taxpayer to the plan for the year or a preceding year
exceeds the total of all amounts each of which is
(ii) an amount in respect of the plan deducted by the taxpayer in computing the taxpayer’s income for a preceding year, or
(iii) an amount received by the taxpayer in the year or a preceding year that was a return of amounts contributed by the taxpayer to the plan; and
(b) where at the end of the year all of the obligations of the plan to the taxpayer’s employees and former employees have been satisfied and no property of the plan will thereafter be paid to or otherwise be available for the benefit of the taxpayer, the amount, if any, by which
(i) the total of all amounts each of which is a contribution by the taxpayer to the plan for the year or a preceding year
exceeds the total of all amounts each of which is
(ii) an amount in respect of the plan deducted by the taxpayer in computing the taxpayer’s income for a preceding year, or, by virtue of paragraph 32.1(1)(a), for the year, or
(iii) an amount received by the taxpayer in the year or a preceding year that was a return of amounts contributed by the taxpayer to the plan.
Marginal note:Allocation
(2) Every custodian of an employee benefit plan shall each year allocate to persons who have made contributions to the plan in respect of their employees or former employees the amount, if any, by which the total of
(a) all payments made in the year out of or under the plan to or for the benefit of their employees or former employees (other than the portion thereof that, by virtue of subparagraph 6(1)(g)(ii), is not required to be included in computing the income of a taxpayer), and
(b) all payments made in the year out of or under the plan to the heirs or the legal representatives of their employees or former employees
exceeds the income of the plan for the year.
Marginal note:Income of employee benefit plan
(3) For the purposes of subsection 32.1(2), the income of an employee benefit plan for a year
(a) in the case of a plan that is a trust, is the amount that would be its income for the year if section 104 were read without reference to subsections 104(4) to 104(24); and
(b) in any other case, is the total of all amounts each of which is the amount, if any, by which a payment under the plan by the custodian thereof in the year exceeds
(i) in the case of an annuity, that part of the payment determined in prescribed manner to have been a return of capital, and
(ii) in any other case, that part of the payment that could, but for paragraph 6(1)(g), reasonably be regarded as being a payment of a capital nature.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- 1980-81-82-83, c. 48, s. 14, c. 140, s. 15
Marginal note:International banking centres — definitions
33.1 (1) In this section,
eligible deposit
dépôt admissible
eligible deposit, at any particular time, means a debt owing at the particular time by a taxpayer that is a prescribed financial institution as or on account of an amount deposited with the taxpayer by
(a) a non-resident person with whom the taxpayer is dealing at arm’s length at the particular time, where
(i) at the particular time, the deposit is recorded in the books of account of an international banking centre business of the taxpayer,
(ii) at the particular time, the taxpayer is not obligated, either immediately or in the future and either absolutely or contingently, to repay any portion of the debt to a person other than a non-resident person, and
(iii) before the deposit was recorded in the books of account of the international banking centre business, the taxpayer made reasonable inquiries and had no reasonable cause to believe that any portion of the amount was deposited on behalf of, for the benefit of or as a condition of any transaction with, a person (other than a non-resident person with whom the taxpayer was dealing at arm’s length), or
(b) another prescribed financial institution with whom the taxpayer is dealing at arm’s length at the particular time, where
(i) at or before the time at which the deposit was made, the prescribed financial institution provided written notice to the taxpayer that the deposit was being made from deposits recorded in the books of account of an international banking centre business of that prescribed financial institution, and
(ii) a reasonable rate of interest is paid or payable by the taxpayer in respect of the deposit; (dépôt admissible)
eligible loan
prêt admissible
eligible loan, at any particular time, means
(a) a loan or deposit (in this paragraph referred to as a “loan”) made by a taxpayer that is a prescribed financial institution to a non-resident person (in this paragraph referred to as the “borrower”) with whom the taxpayer is dealing at arm’s length at the particular time, where
(i) at the particular time, neither a person other than a non-resident person nor a person with whom the taxpayer is not dealing at arm’s length is obligated to the taxpayer, either immediately or in the future and either absolutely or contingently, to pay to the taxpayer any amount in respect of the loan,
(ii) the loan was recorded in the books of account of an international banking centre business of the taxpayer throughout the period commencing with the later of
(A) the time at which the loan was made, and
(B) the earliest of
(I) the time at which the loan was first recorded in the books of account of a branch or office of the taxpayer located in Canada,
(II) the end of the first taxation year in respect of which the taxpayer has made any designation under subsection 33.1(3), and
(III) the end of 1992
and ending at the particular time,
(iii) in the case of a loan made before the end of the first taxation year in respect of which the taxpayer has made any designation under subsection 33.1(3) (other than a loan recorded in the books of account of an international banking centre business of the taxpayer at the time at which the loan was made) or a loan made to a foreign bank, the taxpayer made reasonable inquiries before the loan was recorded in the books of account of the international banking centre business and had no reasonable cause to believe that the borrower had used or would use any proceeds of the loan, directly or indirectly, for the purpose of
(A) earning income in Canada, or
(B) making a loan to a person other than a non-resident person, and
(iv) in the case of any other loan, the taxpayer, before the loan was recorded in the books of account of the international banking centre business,
(A) obtained a statement signed by or on behalf of the borrower that the borrower would not use any proceeds of the loan, directly or indirectly, for a purpose described in subparagraph 33.1(1) eligible loan (a)(iii), and
(B) had no reasonable cause to believe that the borrower would use any proceeds of the loan, directly or indirectly, for a purpose described in subparagraph (iii),
(b) a loan acquired by a taxpayer that is a prescribed financial institution from a foreign bank with which the taxpayer is not dealing at arm’s length at the time the loan was acquired, where the conditions described in subparagraphs (i) to (iii) are met at the particular time, or
(c) a deposit made by a taxpayer that is a prescribed financial institution with another prescribed financial institution with whom the taxpayer is dealing at arm’s length at the particular time where, at or before the time at which the deposit was made, the taxpayer provided written notice to the prescribed financial institution that the deposit was being made from deposits recorded in the books of account of an international banking centre business of the taxpayer; (prêt admissible)
foreign bank
banque étrangère
foreign bank has the meaning assigned by the definition foreign bank in section 2 of the Bank Act (read without reference to paragraph (g)), except that an authorized foreign bank is not considered to be a foreign bank in respect of its Canadian banking business; (banque étrangère)
non-resident person
personne non-résidente
non-resident person at any time, with respect to a taxpayer, includes a person that the taxpayer, based on reasonable inquiries, believes at that time to be a person not resident in Canada. (personne non-résidente)
Marginal note:Interpretation
(2) For the purposes of this section,
(a) a partnership shall be deemed to be a person;
(b) where a member of a partnership and a person do not deal with each other at arm’s length, the partnership and the person shall be deemed not to deal with each other at arm’s length;
(c) a partnership is a non-resident person only where all of its members are non-resident non-resident persons; and
(d) a deposit made by or to a non-resident person or a loan made to a non-resident person does not include a deposit made by or to, or a loan made to, as the case may be, a fixed place of business in Canada of the non-resident person.
Marginal note:Designation and exemption
(3) Where a taxpayer that was, throughout a taxation year, a prescribed financial institution has designated in respect of the year, by filing a prescribed form with the Minister on or before the day that is 90 days after the commencement of the year, a branch or office of the taxpayer in the metropolitan area of Montreal in the Province of Quebec or in the metropolitan area of Vancouver in the Province of British Columbia as a branch or office in which an international banking centre business of the taxpayer is to be carried on and has not revoked that designation by filing a prescribed form with the Minister on or before that day, in computing the income of the taxpayer for the year no amount shall be added or deducted in respect of the taxpayer’s income or loss, as the case may be, for the year from the international banking centre business.
Marginal note:Income or loss from an international banking centre business
(4) Subject to subsection 33.1(5), the amount of a taxpayer’s income or loss, as the case may be, for a taxation year from an international banking centre business shall be determined on the assumption that
(a) the international banking centre business was a separate business carried on by the taxpayer the only income or loss of which was derived from eligible loans for the period in the year during which they were recorded in the books of account of the business; and
(b) the only amount payable for the year by the taxpayer in respect of interest on money borrowed for the purpose of earning income from the business was equal to the total of
(i) the total of all amounts each of which is the interest payable by the taxpayer in respect of an eligible deposit for the period in the year during which it was recorded in the books of account of the business, and
(ii) the amount equal to that proportion of
(A) the total of all amounts each of which is the amount determined in respect of a day in the year equal to the amount, if any, by which
(I) 96% of the total of all amounts each of which is the amount outstanding on account of the principal amount of an eligible loan recorded in the books of account of the business at the end of the day
exceeds
(II) the total of all amounts each of which is the amount outstanding on account of the principal amount of an eligible deposit recorded in the books of account of the business at the end of the day
that
(B) the total determined under subparagraph 33.1(4)(b)(i)
is of
(C) the total of all amounts each of which is the amount outstanding on account of the principal amount of an eligible deposit recorded in the books of account of the business at the end of a day in the year.
Marginal note:Restriction
(5) A taxpayer’s income for a taxation year from an international banking centre business shall not exceed that proportion of that income determined in accordance with subsection 33.1(4) that
(a) the total of all amounts each of which is an amount determined in respect of a day in the year equal to the lesser of
(i) 96% of the total of all amounts each of which is the amount outstanding on account of the principal amount of an eligible loan recorded in the books of account of the business at the end of the day, and
(ii) the total of all amounts each of which is the amount outstanding on account of the principal amount of an eligible deposit recorded in the books of account of the business at the end of the day
is of
(b) 96% of the total of all amounts each of which is the amount outstanding on account of the principal amount of an eligible loan recorded in the books of account of the business at the end of a day in the year.
Marginal note:Election
(6) For the purposes of subsections 33.1(4) and 33.1(5), where a taxpayer so elects in the taxpayer’s return of income for a taxation year or in a prescribed form filed with the Minister within 90 days after the day of mailing of a notice of assessment for the year or a notification that no tax is payable for the year, an eligible deposit recorded in the books of account of an international banking centre business of the taxpayer at the end of a day in the year shall be deemed not to have been recorded at any time in the day in the books of account of that business and shall be deemed to have been recorded throughout that day in the books of account of another international banking centre business of the taxpayer designated by the taxpayer in the election.
Marginal note:Election restriction
(7) A taxpayer may elect, as provided in subsection 33.1(6), only in respect of eligible deposits recorded in the books of account of an international banking centre business at the end of a day to the extent that the total of those deposits exceeds 96% of the total of all amounts outstanding on account of the principal amounts of eligible loans recorded in the books of account of the business at the end of the day.
Marginal note:Limitation
(8) In computing the income of a taxpayer for a taxation year, an amount paid or payable by the taxpayer on a deposit for the period in the year during which it was an eligible deposit shall, notwithstanding any other provision of this Act, be deductible only in computing the income or loss of the taxpayer from an international banking centre business.
Marginal note:Exception
(9) Where less than 90% of the revenue of a taxpayer for a taxation year from loans or deposits for the period in the year during which they were recorded in the books of account of an international banking centre business was derived from eligible loans in respect of which employees of the taxpayer actively participated in the solicitation, negotiation, analysis or management thereof while employed at a branch or office designated under subsection 33.1(3) as a branch or office in which an international banking centre business of the taxpayer is to be carried on, the amount, if any, of the taxpayer’s income for the year from the international banking centre business shall, notwithstanding subsection 33.1(3), be included in computing the taxpayer’s income for the year.
Marginal note:No deduction permitted
(10) Notwithstanding any other provision of this Act, in computing the income of a taxpayer no deduction shall be made in respect of any amount paid or payable in respect of indebtedness of the taxpayer to any person where, under an arrangement of which the taxpayer was aware or ought to have been aware at the time the indebtedness was incurred by the taxpayer, any portion of the indebtedness may reasonably be regarded as having been provided directly or indirectly from proceeds of a loan recorded in the books of account of an international banking centre business of a prescribed financial institution and any person has, in respect of that loan, signed a statement described in subparagraph (a)(iv) of the definition eligible loan in subsection 33.1(1).
Marginal note:Application
(11) For greater certainty,
(a) where at any time a loan or deposit of a taxpayer ceases to be an eligible loan otherwise than by virtue of its disposition to another person, the taxpayer shall be deemed to have disposed of the loan or deposit in the course of carrying on an international banking centre business and to have received proceeds of disposition therefor equal to the fair market value of the loan or deposit at that time and to have reacquired the loan or deposit immediately after that time at a cost equal to its fair market value at that time;
(b) a taxpayer’s loss for a taxation year from an international banking centre business shall not be included in determining the taxpayer’s non-capital loss for the year; and
(c) the amount, if any, by which
(i) the amount that would be a taxpayer’s income for a taxation year from an international banking centre business if this section were read without reference to subsection 33.1(5)
exceeds
(ii) the taxpayer’s income for the year from the international banking centre business
shall be added in computing the income of the taxpayer for the year.
Marginal note:Return
(12) Every taxpayer that has, in respect of a taxation year, designated a branch or office under subsection 33.1(3) as a branch or office in which an international banking centre business of the taxpayer is to be carried on shall, within six months after the end of the year, file with the Minister a return in prescribed form containing prescribed information.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 33.1
- 1994, c. 7, Sch. II, s. 20
- 2001, c. 17, s. 19
Marginal note:Professional business
34 In computing the income of a taxpayer for a taxation year from a business that is the professional practice of an accountant, dentist, lawyer, medical doctor, veterinarian or chiropractor, the following rules apply:
(a) where the taxpayer so elects in the taxpayer’s return of income under this Part for the year, there shall not be included any amount in respect of work in progress at the end of the year; and
(b) where the taxpayer has made an election under this section, paragraph 34(a) shall apply in computing the taxpayer’s income from the business for all subsequent taxation years unless the taxpayer, with the concurrence of the Minister and on such terms and conditions as are specified by the Minister, revokes the election to have that paragraph apply.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- 1970-71-72, c. 63, s. 1“34”
- 1973-74, c. 14, s. 8
- 1980-81-82-83, c. 140, s. 16
- 1985, c. 45, s. 13
Marginal note:Additional Business Income
34.1 (1) Where
(a) an individual (other than a testamentary trust) carries on a business in a taxation year,
(b) a fiscal period of the business begins in the year and ends after the end of the year (in this subsection referred to as the “particular period”), and
(c) the individual has elected under subsection 249.1(4) in respect of the business and the election has not been revoked,
there shall be included in computing the individual’s income for the year from the business, the amount determined by the formula
(A - B) × C/D
where
- A
- is the total of the individual’s income from the business for the fiscal periods of the business that end in the year,
- B
- is the lesser of
(i) the total of all amounts each of which is an amount included in the value of A in respect of the business and that is deemed to be a taxable capital gain for the purpose of section 110.6, and
(ii) the total of all amounts deducted under section 110.6 in computing the individual’s taxable income for the year,
- C
- is the number of days on which the individual carries on the business that are both in the year and in the particular period, and
- D
- is the number of days on which the individual carries on the business that are in fiscal periods of the business that end in the year.
Marginal note:Additional income election
(2) Where
(a) an individual (other than a testamentary trust) 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
(b) the individual has elected under subsection 249.1(4) in respect of the business and the election has not been revoked,
there shall be included in computing the individual’s income for the year from the business the lesser of
(c) the amount designated in the individual’s return of income for the year, and
(d) the amount determined by the formula
(A - B) × C/D
where
- A
- is the individual’s income from the business for the particular period,
- B
- is the lesser of
(i) the total of all amounts each of which is an amount included in the value of A in respect of the business and that is deemed to be a taxable capital gain for the purpose of section 110.6, and
(ii) the total of all amounts deducted under section 110.6 in computing the individual’s taxable income for the taxation year that includes the end of the particular period,
- C
- is the number of days on which the individual carries on the business that are both in the year and in the particular period, and
- D
- is the number of days on which the individual carries on the business that are in the particular period.
Marginal note:Deduction
(3) There shall be deducted in computing an individual’s income for a taxation year from a business the amount, if any, included under subsection 34.1(1) or 34.1(2) in computing the individual’s income for the preceding taxation year from the business.
Marginal note:Deemed December 31, 1995 income
(4) For the purpose of section 34.2, where
(a) at the end of 1994 an individual carried on a particular business no fiscal period of which ended at that time, and
(b) an amount is included under subsection 34.1(1) in computing the individual’s income for the 1995 taxation year in respect of
(i) the particular business, or
(ii) another business that would, if subsection 34.2(3) applied for the purpose of this subparagraph, be included in the particular business,
subject to subsection 34.1(7), the December 31, 1995 income of the individual in respect of the particular business or the other business, as the case may be, is deemed to be the amount that would have been so included if the descriptions of A and B in subsection 34.1(1) were read as follows:
- “A
- is the total of the individual’s income from the business for the fiscal periods of the business that end in the year (determined as if paragraphs 34.2(2)(a) to 34.2(2)(d) applied in computing that income),
- B
- is the lesser of
(i) the total of all amounts each of which is an amount included in the value of A in respect of the business and that is deemed to be a taxable capital gain for the purpose of section 110.6, and
(ii) the total of the maximum amounts deductible under section 110.6 in computing the individual’s taxable income for the year,”.
Marginal note:Deemed December 31, 1995 income
(5) For the purpose of section 34.2, where
(a) at the end of 1994 an individual carried on a particular business no fiscal period of which ended at that time, and
(b) an amount is included under subsection 34.1(2) in computing the individual’s income for the 1995 taxation year in respect of another business that would, if subsection 34.2(3) applied for the purpose of this paragraph, be included in the particular business,
the December 31, 1995 income of the individual in respect of the other business is deemed to be the amount that would have been so included if the descriptions of A and B in paragraph 34.1(2)(d) were read as follows:
- “A
- is the individual’s income from the business for the particular period (determined as if paragraphs 34.2(2)(a) to 34.2(2)(d) applied in computing that income),
- B
- is the lesser of
(i) the total of all amounts each of which is an amount included in the value of A in respect of the business and that is deemed to be a taxable capital gain for the purpose of section 110.6, and
(ii) the total of the maximum amounts deductible under section 110.6 in computing the individual’s taxable income for the taxation year that includes the end of the particular period,”.
Marginal note:Deemed December 31, 1995 income
(6) For the purpose of section 34.2, where
(a) at the end of 1995 an individual carries on a business as a member of a partnership no fiscal period of which ended at the end of 1994,
(b) the business was carried on by a professional corporation as a member of the partnership at the end of 1994,
(c) the professional corporation transferred its interest in the partnership to the individual before the end of 1995,
(d) the individual is a practising member of the professional body under the authority of which the professional corporation practised the profession,
(e) the individual was a specified shareholder of the professional corporation immediately before the transfer,
(f) the professional corporation does not have a share of the income or loss of the partnership for the first fiscal period of the partnership that ends after the end of 1995, and
(g) an amount is included under subsection 34.1(2) in computing the individual’s income for the 1995 taxation year in respect of the business,
the December 31, 1995 income of the individual in respect of the business is deemed to be the amount that would have been so included if the descriptions of A and B in paragraph 34.1(2)(d) were read as follows:
- “A
- is the individual’s income from the business for the particular period (determined as if paragraphs 34.2(2)(a) to 34.2(2)(d) applied in computing that income),
- B
- is the lesser of
(i) the total of all amounts each of which is an amount included in the value of A in respect of the business and that is deemed to be a taxable capital gain for the purpose of section 110.6, and
(ii) the total of the maximum amounts deductible under section 110.6 in computing the individual’s taxable income for the taxation year that includes the end of the particular period,”
and, for the purpose of computing the values of C and D in paragraph 34.1(2)(d), the individual is deemed to carry on the business on the days on which the corporation carried on the business.
Marginal note:Maximum December 31, 1995 income
(7) Where an amount was included under subsection 34.1(1) in computing an individual’s income for the 1995 taxation year from a business and
(a) the individual’s December 31, 1995 income otherwise determined under subsection 34.1(4) in respect of the business for the purpose of section 34.2
exceeds
(b) the amount that would be described under paragraph 34.1(7)(a) if the descriptions of A, B and D in subsection 34.1(1) were read as follows:
- “A
- is the individual’s income from the business for the particular period (determined as if paragraphs 34.2(2)(a) to 34.2(2)(d) applied in computing that income),
- B
- is the lesser of
(i) the total of all amounts each of which is an amount included in the value of A in respect of the business and that is deemed to be a taxable capital gain for the purpose of section 110.6, and
(ii) the total of the maximum amounts deductible under section 110.6 in computing the individual’s taxable income for the taxation year that includes the end of the particular period,
- D
- is the number of days on which the individual carries on the business that are in the particular period.”,
for the purpose of applying subsection 34.2(4) to the 1996 and subsequent taxation years, the December 31, 1995 income of the individual in respect of the business is deemed to be the amount determined under paragraph 34.1(7)(b).
Marginal note:No additional income inclusion
(8) Subsections 34.1(1) and 34.1(2) do not apply in computing an individual’s income for a taxation year from a business where
(a) the individual dies or otherwise ceases to carry on the business in the year; or
(b) the individual becomes a bankrupt in the calendar year in which the taxation year ends.
Marginal note:Death of partner or proprietor
(9) Where
(a) an individual carries on a business in a taxation year,
(b) the individual dies in the year and after the end of a fiscal period of the business that ends in the year,
(c) another fiscal period of the business ends because of the individual’s death (in this subsection referred to as the “short period”), and
(d) the individual’s legal representative
(i) elects that this subsection apply in computing the individual’s income for the year, or
(ii) files a separate return of income under subsection 150(4) in respect of the individual’s business,
notwithstanding subsection 34.1(8), there shall be included in computing the individual’s income for the year from the business, the amount determined by the formula
(A - B) × C/D
where
- A
- is the total of the individual’s income from the business for fiscal periods (other than the short period) of the business that end in the year,
- B
- is the lesser of
(i) the total of all amounts, each of which is an amount included in the value of A in respect of the business that is deemed to be a taxable capital gain for the purpose of section 110.6, and
(ii) the total of all amounts deducted under section 110.6 in computing the individual’s taxable income for the year,
- C
- is the number of days in the short period, and
- D
- is the total number of days in fiscal periods of the business (other than the short period) that end in the year.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- 1996, c. 21, s. 8
- 1998, c. 19, s. 84
Marginal note:Definitions
34.2 (1) The definitions in this subsection apply in this section.
December 31, 1995 income
revenu au 31 décembre 1995
December 31, 1995 income in respect of a business carried on by a taxpayer means the amount determined by the formula
(A - B - C + D) × E
where
- A
- is the total of all amounts each of which is the taxpayer’s income from the business for a qualifying fiscal period,
- B
- is the total of all amounts each of which is the taxpayer’s loss from the business for a qualifying fiscal period,
- C
- is the lesser of
(a) the total of all amounts each of which is an amount included in computing the taxpayer’s income or loss from the business for a qualifying fiscal period and that is deemed to be a taxable capital gain for the purpose of section 110.6, and
(b) the total of the maximum amounts deductible under section 110.6 in computing the taxpayer’s taxable income for the taxation year in which the qualifying fiscal periods end,
- D
- is
(a) where the taxpayer is a professional corporation, the total salary or wages deductible in computing the value of A or B in respect of the business that is payable by the corporation to an individual
(i) who is a practising member of the professional body under the authority of which the corporation practised the profession, and
(ii) who is a specified shareholder of the corporation, and
(b) in any other case, nil, and
- E
- is
(a) where the taxpayer is a professional corporation a taxation year of which ended at the end of 1995 because of the application of paragraph 249.1(1)(b), the amount determined by the formula
(F - G)/F
where
- F
- is the number of days in all qualifying fiscal periods of the business, and
- G
- is the number of days in the year, and
(b) in any other case, 1. (revenu au 31 décembre 1995)
qualifying fiscal period
exercice admissible
qualifying fiscal period of a business of a taxpayer means
(a) where at the end of 1994 the taxpayer carried on the business and no fiscal period of the business ended at that time, a fiscal period of the business that
(i) begins after the beginning of the taxpayer’s taxation year that includes the end of 1995, and
(ii) ends
(A) at the end of 1995 because of the application of paragraph 249.1(1)(b) or because of the application of section 25 and paragraph 249.1(1)(b), or
(B) immediately before the end of 1995 because of the application of subsection 99(2) and paragraph 249.1(1)(b),
(b) a fiscal period of the business that ends at the end of 1995 because of the application of paragraph 249.1(1)(b) where
(i) the taxpayer is an individual who carries on the business as a member of a partnership at the end of 1995,
(ii) the individual acquired the individual’s interest in the partnership in 1995 from a professional corporation,
(iii) the professional corporation carried on the business at the end of 1994 as a member of the partnership and does not have a share of the income or loss of the partnership for the fiscal period,
(iv) the individual is a practising member of the professional body under the authority of which the professional corporation practised the profession, and
(v) the individual was a specified shareholder of the professional corporation immediately before acquiring the interest, and
(c) where
(i) the taxpayer is a professional corporation that has a taxation year that ends at the end of 1995 because of the application of paragraph 249.1(1)(b), and
(ii) at the end of 1994 the business was carried on by the professional corporation as a member of a partnership, or by an individual
(A) who transferred an interest in the partnership to the professional corporation before the end of 1995,
(B) who is a practising member of the professional body under the authority of which the professional corporation practises the profession,
(C) who was a specified shareholder of the professional corporation immediately after the transfer, and
(D) who does not have a share of the income or loss of the partnership for the first fiscal period of the partnership that ends in 1995,
a fiscal period of the business that ends in that taxation year. (exercice admissible)
specified percentage
pourcentage déterminé
specified percentage of a taxpayer for a particular taxation year in respect of a business means
(a) where the first taxation year in which a qualifying fiscal period of the business ends is 1995, or subsection 34.1(4), 34.1(5) or 34.1(6) applies in respect of the business, and the particular year ends in
(i) 1995, 95%,
(ii) 1996, 85%,
(iii) 1997, 75%,
(iv) 1998, 65%,
(v) 1999, 55%,
(vi) 2000, 45%,
(vii) 2001, 35%,
(viii) 2002, 25%,
(ix) 2003, 15%, and
(x) any other year, 0%, and
(b) where the first taxation year in which a qualifying fiscal period of a business of the taxpayer ends is 1996 and the particular year ends in
(i) 1996, 95%,
(ii) 1997, 85%,
(iii) 1998, 75%,
(iv) 1999, 65%,
(v) 2000, 55%,
(vi) 2001, 45%,
(vii) 2002, 35%,
(viii) 2003, 25%,
(ix) 2004, 15%, and
(x) any other year, 0%. (pourcentage déterminé)
Marginal note:Computation of December 31, 1995 income
(2) For the purpose of the definition December 31, 1995 income in subsection 34.2(1), a taxpayer’s income or loss from a business for a qualifying fiscal period shall be computed as if
(a) this Act were read without reference to paragraph 28(1)(b);
(b) the taxpayer had made the election referred to in paragraph 34(a) in respect of the business for the period;
(c) the maximum amount deductible in respect of any reserve, allowance or other amount were deducted; and
(d) the taxpayer had not received any taxable dividend.
Marginal note:Business defined
(3) For the purposes of the definition qualifying fiscal period in subsection 34.2(1) and subparagraphs 34.2(6)(b)(i) and 34.2(6)(c)(i), a reference to a particular business of a taxpayer includes another business substituted therefor, or for which the particular business was substituted, by the taxpayer where
(a) all or substantially all of the gross revenue of the particular business is derived from the sale, leasing, rental or development of properties or the rendering of services; and
(b) all or substantially all of the gross revenue of the other business is derived from the sale, leasing, rental or development, as the case may be, of similar properties or the rendering of similar services.
Marginal note:Reserve
(4) Subject to subsection 34.2(6), where a taxpayer carries on a business in a particular taxation year, there may be deducted in computing the taxpayer’s income for the year from the business, as a reserve in respect of December 31, 1995 income, such amount as the taxpayer claims not exceeding the least of
(a) the specified percentage for the particular year of the taxpayer’s December 31, 1995 income in respect of the business;
(b) where an amount was deductible under this subsection in computing the taxpayer’s income for a preceding taxation year from the business, the amount included under subsection 34.2(5) in computing the taxpayer’s income for the particular year from the business; and
(c) the taxpayer’s income for the particular year computed before deducting any amount under this subsection in respect of the business or under any of paragraph 60(w), sections 61.2 to 61.4 and subsection 80(17).
Marginal note:Reserve included in income
(5) There shall be included in computing a taxpayer’s income for a taxation year from a business the amount deducted under subsection 34.2(4) in computing the taxpayer’s income therefrom for the preceding taxation year.
Marginal note:No reserve
(6) No deduction shall be made under subsection 34.2(4) in computing a taxpayer’s income for a taxation year from a business where
(a) at the end of the year or at any time in the following taxation year,
(i) the taxpayer’s income from the business is exempt from tax under this Part, or
(ii) the taxpayer is non-resident and does not carry on the business through a permanent establishment (as defined by regulation) in Canada;
(b) the taxpayer is a corporation and the year ends immediately before another taxation year
(i) at the beginning of which the business is not carried on principally by the corporation nor by members of a partnership of which the corporation is a member,
(ii) in which the corporation becomes a bankrupt, or
(iii) in which the corporation is dissolved or wound up (other than in circumstances to which subsection 88(1) applies); or
(c) the taxpayer is an individual, and
(i) at the beginning of the year, the business is not carried on principally by the individual nor by members of a partnership of which the individual is a member,
(ii) the individual dies or becomes a bankrupt in the calendar year in which the taxation year ends, or
(iii) the individual is a trust that ceases to exist in the year.
Marginal note:Anti-avoidance rule
(7) Where it is reasonable to conclude that one of the main reasons a person carries on a business or is a member of a partnership is to avoid the application of subparagraph 34.2(6)(b)(i) or 34.2(6)(c)(i), the person is deemed not to carry on the business, and not to be a member of the partnership, for the purposes of those subparagraphs.
Marginal note:Death of partner or proprietor
(8) Where
(a) an individual carries on a business in a taxation year,
(b) the individual dies in the year,
(c) an amount is included under subsection 34.2(5) in computing the individual’s income for the year from the business, and
(d) the individual’s legal representative
(i) elects that this subsection apply in computing the individual’s income for the year, or
(ii) files a separate return of income under subsection 150(4) in respect of the individual’s business,
there shall be deducted in computing the individual’s income for the year from the business the lesser of
(e) the greatest amount that would have been deductible under subsection 34.2(4) in computing the individual’s income for the year from the business if the individual had not died, and
(f) any amount that the representative claims.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- 1996, c. 21, s. 8
- 1998, c. 19, s. 85
Marginal note:Prospectors and grubstakers
35 (1) Where a share of the capital stock of a corporation
(a) is received in a taxation year by an individual as consideration for the disposition by the individual to the corporation of a mining property or interest therein acquired by the individual as a result of the individual’s efforts as a prospector, either alone or with others, or
(b) is received in a taxation year
(i) by a person who has, either under an arrangement with a prospector made before the prospecting, exploration or development work or as an employer of a prospector, advanced money for, or paid part or all of, the expenses of prospecting or exploring for minerals or of developing a property for minerals, and
(ii) as consideration for the disposition by the person referred to in subparagraph 35(1)(b)(i) to the corporation of a mining property or interest therein acquired under the arrangement under which that person made the advance or paid the expenses, or if the prospector was the person’s employee, acquired by the person through the employee’s efforts,
the following rules apply:
(c) notwithstanding any other provision of this Act, no amount in respect of the receipt of the share shall be included
(i) in computing the income for the year of the individual or person, as the case may be, except as provided in paragraph 35(1)(d), or
(ii) in computing at any time the amount to be determined for F in the definition cumulative Canadian development expense in subsection 66.2(5) in respect of the individual or person, as the case may be,
(d) in the case of an individual or partnership (other than a partnership each member of which is a taxable Canadian corporation), an amount in respect of the receipt of the share equal to the lesser of its fair market value at the time of acquisition and its fair market value at the time of disposition or exchange of the share shall be included in computing the income of the individual or partnership, as the case may be, for the year in which the share is disposed of or exchanged,
(e) notwithstanding subdivision c, in computing the cost to the individual, person or partnership, as the case may be, of the share, no amount shall be included in respect of the disposition of the mining property or the interest therein, as the case may be,
(f) notwithstanding sections 66 and 66.2, in computing the cost to the corporation of the mining property or the interest therein, as the case may be, no amount shall be included in respect of the share, and
(g) for the purpose of paragraph 35(1)(d), an individual or partnership shall be deemed to have disposed of or exchanged shares that are identical properties in the order in which they were acquired.
Marginal note:Definitions
(2) In this section,
mining property
bien minier
mining property means
(a) a right, licence or privilege to prospect, explore, drill or mine for minerals in a mineral resource in Canada, or
(b) real property in Canada (other than depreciable property) the principal value of which depends on its mineral resource content; (bien minier)
prospector
prospecteur
prospector means an individual who prospects or explores for minerals or develops a property for minerals on behalf of the individual, on behalf of the individual and others or as an employee. (prospecteur)
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 35
- 2001, c. 17, s. 20
Marginal note:Railway companies
36 Where any amount in respect of an expenditure incurred by a taxpayer on or in respect of the repair, replacement, alteration or renovation of depreciable property of the taxpayer of a prescribed class is, under a uniform classification and system of accounts and returns prescribed by the National Transportation Agency pursuant to the Railway Act, required to be entered in the books of the taxpayer otherwise than as an expense,
(a) no deduction may be made in respect of that expenditure in computing the income of the taxpayer for a taxation year; and
(b) for the purposes of section 13 and regulations made under paragraph 20(1)(a), the taxpayer shall be deemed to have acquired, at the time the expenditure was incurred, depreciable property of a class prescribed by regulation at a capital cost equal to that amount.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- 1970-71-72, c. 63, s. 1“36”
- 1976-77, c. 4, s. 8
- 1987, c. 34, s. 368
Marginal note:Scientific research and experimental development
37 (1) Where a taxpayer carried on a business in Canada in a taxation year, there may be deducted in computing the taxpayer’s income from the business for the year such amount as the taxpayer claims not exceeding the amount, if any, by which the total of
(a) the total of all amounts each of which is an expenditure of a current nature made by the taxpayer in the year or in a preceding taxation year ending after 1973
(i) on scientific research and experimental development carried on in Canada, directly undertaken by or on behalf of the taxpayer, and related to a business of the taxpayer,
(i.1) by payments to a corporation resident in Canada to be used for scientific research and experimental development carried on in Canada that is related to a business of the taxpayer, but only where the taxpayer is entitled to exploit the results of that scientific research and experimental development,
(ii) by payments to
(A) an approved association that undertakes scientific research and experimental development,
(B) an approved university, college, research institute or other similar institution,
(C) a corporation resident in Canada and exempt from tax under paragraph 149(1)(j), or
(D) [Repealed, 1996, c. 21, s. 9(4)]
(E) an approved organization that makes payments to an association, institution or corporation described in any of clauses A to (C)
to be used for scientific research and experimental development carried on in Canada that is related to a business of the taxpayer, but only where the taxpayer is entitled to exploit the results of that scientific research and experimental development, or
(iii) where the taxpayer is a corporation, by payments to a corporation resident in Canada and exempt from tax because of paragraph 149(1)(j), for scientific research and experimental development that is basic research or applied research carried on in Canada
(A) the primary purpose of which is the use of results therefrom by the taxpayer in conjunction with other scientific research and experimental development activities undertaken or to be undertaken by or on behalf of the taxpayer that relate to a business of the taxpayer, and
(B) that has the technological potential for application to other businesses of a type unrelated to that carried on by the taxpayer, and
(b) the lesser of
(i) the total of all amounts each of which is an expenditure of a capital nature made by the taxpayer (in respect of property acquired that would be depreciable property of the taxpayer if this section were not applicable in respect of the property, other than land or a leasehold interest in land) in the year or in a preceding taxation year ending after 1958 on scientific research and experimental development carried on in Canada, directly undertaken by or on behalf of the taxpayer, and related to a business of the taxpayer, and
(ii) the undepreciated capital cost to the taxpayer of the property so acquired as of the end of the taxation year (before making any deduction under this paragraph in computing the income of the taxpayer for the taxation year),
(c) the total of all amounts each of which is an expenditure made by the taxpayer in the year or in a preceding taxation year ending after 1973 by way of repayment of amounts described in paragraph 37(1)(d),
(c.1) all amounts included by virtue of paragraph 12(1)(v), in computing the taxpayer’s income for any previous taxation year,
(c.2) all amounts added because of subsection 127(27), (29) or (34) to the taxpayer’s tax otherwise payable under this Part for any preceding taxation year, and
(c.3) in the case of a partnership, all amounts each of which is an excess referred to in subsection 127(30) in respect of the partnership for any preceding fiscal period,
exceeds the total of
(d) the total of all amounts each of which is the amount of any government assistance or non-government assistance (within the meanings assigned to those expressions by subsection 127(9)) in respect of an expenditure described in paragraph 37(1)(a) or 37(1)(b) that, at the taxpayer’s filing-due date for the year, the taxpayer has received, is entitled to receive or can reasonably be expected to receive,
(d.1) the total of all amounts each of which is the super-allowance benefit amount (within the meaning assigned by subsection 127(9)) for the year or for a preceding taxation year in respect of the taxpayer in respect of a province,
(e) that part of the total of all amounts each of which is an amount deducted under subsection 127(5) in computing the tax payable under this Part by the taxpayer for a preceding taxation year where the amount can reasonably be attributed to
(i) a prescribed proxy amount for a preceding taxation year,
(ii) an expenditure of a current nature incurred in a preceding taxation year that was a qualified expenditure incurred in that preceding year in respect of scientific research and experimental development for the purposes of section 127, or
(iii) an amount included because of paragraph 127(13)(e) in the taxpayer’s SR&ED qualified expenditure pool at the end of a preceding taxation year within the meaning assigned by subsection 127(9),
(f) the total of all amounts each of which is an amount deducted under this subsection in computing the taxpayer’s income for a preceding taxation year, except amounts described in subsection 37(6),
(f.1) the total of all amounts each of which is the lesser of
(i) the amount deducted under section 61.3 in computing the taxpayer’s income for a preceding taxation year, and
(ii) the amount, if any, by which the amount that was deductible under this subsection in computing the taxpayer’s income for that preceding year exceeds the amount claimed under this subsection in computing the taxpayer’s income for that preceding year,
(g) the total of all amounts each of which is an amount equal to twice the amount claimed under subparagraph 194(2)(a)(ii) by the taxpayer for the year or any preceding taxation year, and
(h) where the taxpayer is a corporation control of which has been acquired by a person or group of persons before the end of the year, the amount determined for the year under subsection 37(6.1) with respect to the corporation.
Marginal note:Business of related corporations
(1.1) Notwithstanding paragraph 37(8)(c), for the purposes of subsection 37(1), where a taxpayer is a corporation, scientific research and experimental development, related to a business carried on by another corporation to which the taxpayer is related (otherwise than by reason of a right referred to in paragraph 251(5)(b)) and in which that other corporation is actively engaged, at the time at which an expenditure or payment in respect of the scientific research and experimental development is made by the taxpayer, shall be considered to be related to a business of the taxpayer at that time.
Marginal note:Deemed time of capital expenditure
(1.2) For the purposes of paragraph 37(1)(b), an expenditure made by a taxpayer in respect of property shall be deemed not to have been made before the property is considered to have become available for use by the taxpayer.
Marginal note:SR&ED in the exclusive economic zone
(1.3) For the purposes of this section and section 127 of this Act and Part XXIX of the Income Tax Regulations, an expenditure is deemed to have been made by a taxpayer in Canada if the expenditure is
(a) made by the taxpayer in the course of a business carried on by the taxpayer in Canada; and
(b) made for the prosecution of scientific research and experimental development in the exclusive economic zone of Canada, within the meaning of the Oceans Act, or in the airspace above that zone or the seabed or subsoil below that zone.
Marginal note:Research outside Canada
(2) In computing the income of a taxpayer for a taxation year from a business of the taxpayer, there may be deducted expenditures of a current nature made by the taxpayer in the year
(a) on scientific research and experimental development carried on outside Canada, directly undertaken by or on behalf of the taxpayer, and related to the business; or
(b) by payments to an approved association, university, college, research institute or other similar institution to be used for scientific research and experimental development carried on outside Canada related to the business provided that the taxpayer is entitled to exploit the results of that scientific research and experimental development.
Marginal note:Minister may obtain advice
(3) The Minister may obtain the advice of the Department of Industry, the National Research Council of Canada, the Defence Research Board or any other agency or department of the Government of Canada carrying on activities in the field of scientific research as to whether any particular activity constitutes scientific research and experimental development.
Marginal note:Where no deduction allowed under section
(4) No deduction may be made under this section in respect of an expenditure made to acquire rights in, or arising out of, scientific research and experimental development.
Marginal note:Where no deduction allowed under ss. 110.1 and 118.1
(5) Where, in respect of an expenditure on scientific research and experimental development made by a taxpayer in a taxation year, an amount is otherwise deductible under this section and under section 110.1 or 118.1, no deduction may be made in respect of the expenditure under section 110.1 or 118.1 in computing the taxable income of, or the tax payable by, the taxpayer for any taxation year.
Marginal note:Expenditures of a capital nature
(6) An amount claimed under subsection 37(1) that may reasonably be considered to be in respect of a property described in paragraph 37(1)(b) shall, for the purpose of section 13, be deemed to be an amount allowed to the taxpayer in respect of the property under regulations made under paragraph 20(1)(a), and for that purpose the property shall be deemed to be of a separate prescribed class.
Marginal note:Amount referred to in para. (1)(h)
(6.1) Where a taxpayer is a corporation control of which was last acquired by a person or group of persons at any time (in this subsection referred to as “that time”) before the end of a taxation year of the corporation, the amount determined for the purposes of paragraph 37(1)(h) for the year with respect to the corporation in respect of a business is the amount, if any, by which
(a) the amount, if any, by which
(i) the total of all amounts each of which is
(A) an expenditure described in paragraph 37(1)(a) or 37(1)(c) that was made by the corporation before that time,
(B) the lesser of the amounts determined in respect of the corporation under subparagraphs 37(1)(b)(i) and 37(1)(b)(ii) immediately before that time, or
(C) an amount determined in respect of the corporation under paragraph 37(1)(c.1) for its taxation year ending immediately before that time
exceeds the total of all amounts each of which is
(ii) the total of all amounts determined in respect of the corporation under paragraphs 37(1)(d) to 37(1)(g) for its taxation year ending immediately before that time, or
(iii) the amount deducted by virtue of subsection 37(1) in computing the corporation’s income for its taxation year ending immediately before that time
exceeds
(b) the total of
(i) where the business to which the amounts described in clause (a)(i)(A), (B) or (C) may reasonably be considered to have been related was carried on by the corporation for profit or with a reasonable expectation of profit throughout the year, the total of
(A) the corporation’s income for the year from the business before making any deduction under subsection 37(1), and
(B) where properties were sold, leased, rented or developed, or services were rendered, in the course of carrying on the business before that time, the corporation’s income for the year, before making any deduction under subsection 37(1), from any other business substantially all the income of which was derived from the sale, leasing, rental or development, as the case may be, of similar properties or the rendering of similar services, and
(ii) the total of all amounts each of which is an amount determined in respect of a preceding taxation year of the corporation that ended after that time equal to the lesser of
(A) the amount determined under subparagraph 37(6.1)(b)(i) with respect to the corporation in respect of the business for that preceding year, and
(B) the amount in respect of the business deducted by virtue of subsection 37(1) in computing the corporation’s income for that preceding year.
Marginal note:Definitions
(7) In this section,
approved
agréé
approved means approved by the Minister after the Minister has, if the Minister considers it necessary, obtained the advice of the Department of Industry or the National Research Council of Canada; (agréé)
- scientific research and experimental development
scientific research and experimental development[Repealed, 1996, c. 21, s. 9(8)]
Marginal note:Interpretation
(8) In this section,
(a) references to expenditures on or in respect of scientific research and experimental development
(i) where the references occur in subsection 37(2), include only
(A) expenditures each of which was an expenditure incurred for and all or substantially all of which was attributable to the prosecution of scientific research and experimental development, and
(B) expenditures of a current nature that were directly attributable, as determined by regulation, to the prosecution of scientific research and experimental development, and
(ii) where the references occur other than in subsection 37(2), include only
(A) expenditures incurred by a taxpayer in a taxation year (other than a taxation year for which the taxpayer has elected under clause (B)), each of which is
(I) an expenditure of a current nature all or substantially all of which was attributable to the prosecution, or to the provision of premises, facilities or equipment for the prosecution, of scientific research and experimental development in Canada,
(II) an expenditure of a current nature directly attributable, as determined by regulation, to the prosecution, or to the provision of premises, facilities or equipment for the prosecution, of scientific research and experimental development in Canada, or
(III) an expenditure of a capital nature that at the time it was incurred was for the provision of premises, facilities or equipment, where at that time it was intended
1. that it would be used during all or substantially all of its operating time in its expected useful life for, or
2. that all or substantially all of its value would be consumed in,
the prosecution of scientific research and experimental development in Canada, and
(B) where a taxpayer has elected in prescribed form and in accordance with subsection 37(10) for a taxation year, expenditures incurred by the taxpayer in the year each of which is
(I) an expenditure of a current nature for, and all or substantially all of which was attributable to, the lease of premises, facilities or equipment for the prosecution of scientific research and experimental development in Canada, other than an expenditure in respect of general purpose office equipment or furniture,
(II) an expenditure in respect of the prosecution of scientific research and experimental development in Canada directly undertaken on behalf of the taxpayer,
(III) an expenditure described in subclause (A)(III), other than an expenditure in respect of general purpose office equipment or furniture,
(IV) that portion of an expenditure made in respect of an expense incurred in the year for salary or wages of an employee who is directly engaged in scientific research and experimental development in Canada that can reasonably be considered to relate to such work having regard to the time spent by the employee thereon, and, for this purpose, where that portion is all or substantially all of the expenditure, that portion shall be deemed to be the amount of the expenditure,
(V) the cost of materials consumed in the prosecution of scientific research and experimental development in Canada, or
(VI) 1/2 of any other expenditure of a current nature in respect of the lease of premises, facilities or equipment used primarily for the prosecution of scientific research and experimental development in Canada, other than an expenditure in respect of general purpose office equipment or furniture;
(b) for greater certainty, references to scientific research and experimental development related to a business include any scientific research and experimental development that may lead to or facilitate an extension of that business;
(c) except in the case of a taxpayer who derives all or substantially all of the taxpayer’s revenue from the prosecution of scientific research and experimental development (including the sale of rights arising out of scientific research and experimental development carried on by the taxpayer), the prosecution of scientific research and experimental development shall not be considered to be a business of the taxpayer to which scientific research and experimental development is related; and
(d) notwithstanding paragraph 37(8)(a), references to expenditures on or in respect of scientific research and experimental development shall not include
(i) any capital expenditure made in respect of the acquisition of a building, other than a prescribed special-purpose building, including a leasehold interest therein,
(ii) any outlay or expense made or incurred for the use of, or the right to use, a building other than a prescribed special-purpose building, and
(iii) payments made by a taxpayer to
(A) a corporation resident in Canada and exempt from tax under paragraph 149(1)(j), an approved research institute or an approved association, with which the taxpayer does not deal at arm’s length,
(B) a corporation other than a corporation referred to in clause (A), or
(C) an approved university, college or organization
to be used for scientific research and experimental development
(D) in the case of such a payment to a person described in clause (A) or (B), to the extent that the amount of the payment may reasonably be considered to have been made to enable the recipient to acquire a building or a leasehold interest in a building or to pay an amount in respect of the rental expense in respect of a building, and
(E) in the case of a payment to a person described in clause (C), to the extent that the amount of the payment may reasonably be considered to have been made to enable the recipient to acquire a building, or a leasehold interest in a building, in which the taxpayer has, or may reasonably be expected to acquire, an interest.
Marginal note:Salary or wages
(9) For the purposes of clauses (8)(a)(ii)(A) and (B), an expenditure of a taxpayer does not include remuneration based on profits or a bonus, where the remuneration or bonus, as the case may be, is in respect of a specified employee of the taxpayer.
Marginal note:Limitation re specified employees
(9.1) For the purposes of clauses (8)(a)(ii)(A) and (B), expenditures incurred by a taxpayer in a taxation year do not include expenses incurred in the year in respect of salary or wages of a specified employee of the taxpayer to the extent that those expenses exceed the amount determined by the formula
A × B/365
where
- A
- is 5 times the Year’s Maximum Pensionable Earnings (as determined under section 18 of the Canada Pension Plan) for the calendar year in which the taxation year ends; and
- B
- is the number of days in the taxation year on which the employee is a specified employee of the taxpayer.
Marginal note:Associated corporations
(9.2) Where
(a) in a taxation year of a corporation that ends in a calendar year, the corporation employs an individual who is a specified employee of the corporation,
(b) the corporation is associated with another corporation (in this subsection and subsection 37(9.3) referred to as the “associated corporation”) in a taxation year of the associated corporation that ends in the calendar year, and
(c) the individual is a specified employee of the associated corporation in the taxation year of the associated corporation that ends in the calendar year,
for the purposes of clauses (8)(a)(ii)(A) and (B), the expenditures incurred by the corporation in its taxation year or years that end in the calendar year and by each associated corporation in its taxation year or years that end in the calendar year do not include expenses incurred in those taxation years in respect of salary or wages of the specified employee unless the corporation and all of the associated corporations have filed with the Minister an agreement referred to in subsection 37(9.3) in respect of those years.
Marginal note:Agreement among associated corporations
(9.3) Where all of the members of a group of associated corporations of which an individual is a specified employee file, in respect of their taxation years that end in a particular calendar year, an agreement with the Minister in which they allocate an amount in respect of the individual to one or more of them for those years and the amount so allocated or the total of the amounts so allocated, as the case may be, does not exceed the amount determined by the formula
A × B/365
where
- A
- is 5 times the Year’s Maximum Pensionable Earnings (as determined under section 18 of the Canada Pension Plan) for the particular calendar year, and
- B
- is the lesser of 365 and the number of days in those taxation years on which the individual was a specified employee of one or more of the corporations,
the maximum amount that may be claimed in respect of salary or wages of the individual for the purposes of clauses (8)(a)(ii)(A) and (B) by each of the corporations for each of those years is the amount so allocated to it for each of those years.
Marginal note:Filing
(9.4) An agreement referred to in subsection 37(9.3) is deemed not to have been filed by a taxpayer unless
(a) it is in prescribed form; and
(b) where the taxpayer is a corporation, it is accompanied by
(i) where its directors are legally entitled to administer its affairs, a certified copy of their resolution authorizing the agreement to be made, and
(ii) where its directors are not legally entitled to administer its affairs, a certified copy of the document by which the person legally entitled to administer its affairs authorized the agreement to be made.
Marginal note:Deemed corporation
(9.5) For the purposes of subsections 37(9.2) and 37(9.3) and this subsection, each
(a) individual related to a particular corporation,
(b) partnership of which a majority interest partner is
(i) an individual related to a particular corporation, or
(ii) a corporation associated with a particular corporation, and
(c) limited partnership of which a member whose liability as a member is not limited is
(i) an individual related to a particular corporation, or
(ii) a corporation associated with a particular corporation,
is deemed to be a corporation associated with the particularcorporation.
Marginal note:Time for election
(10) Any election made under clause (8)(a)(ii)(B) for a taxation year by a taxpayer shall be filed by the taxpayer on the day on which the taxpayer first files a prescribed form referred to in subsection 37(11) for the year.
Marginal note:Filing requirement
(11) Subject to subsection 37(12), no amount in respect of an expenditure that would be incurred by a taxpayer in a taxation year that begins after 1995 if this Act were read without reference to subsection 78(4) may be deducted under subsection 37(1) unless the taxpayer files with the Minister a prescribed form containing prescribed information in respect of the expenditure on or before the day that is 12 months after the taxpayer’s filing-due date for the year.
Marginal note:Misclassified expenditures
(12) If a taxpayer has not filed a prescribed form in respect of an expenditure in accordance with subsection 37(11), for the purposes of this Act, the expenditure is deemed not to be an expenditure on or in respect of scientific research and experimental development.
Marginal note:Non-arm’s length contract — linked work
(13) For the purposes of this section and sections 127 and 127.1, where
(a) work is performed by a taxpayer for a person or partnership at a time when the person or partnership does not deal at arm’s length with the taxpayer, and
(b) the work would be scientific research and experimental development if it were performed by the person or partnership,
the work is deemed to be scientific research and experimental development.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 37
- 1994, c. 7, Sch. II, s. 21, c. 8, s. 4
- 1995, c. 1, s. 63, c. 3, s. 9, c. 21, s. 9
- 1996, c. 21, s. 9
- 1997, c. 25, ss. 6, 74
- 1998, c. 19, ss. 5, 86
- 1999, c. 22, s. 11
- 2001, c. 17, s. 21
- 2005, c. 30, s. 2
37.1 [Repealed, 1998, c. 19, s. 87(1)]
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 37.1
- 1998, c. 19, s. 87
37.2 [Repealed, 1998, c. 19, s. 87(1)]
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 37.2
- 1998, c. 19, s. 87
37.3 [Repealed, 1998, c. 19, s. 87(1)]
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 37.3
- 1998, c. 19, s. 87
SUBDIVISION cTaxable Capital Gains and Allowable Capital Losses
Marginal note:Taxable capital gain and allowable capital loss
38 For the purposes of this Act,
(a) subject to paragraphs (a.1) and (a.2), a taxpayer’s taxable capital gain for a taxation year from the disposition of any property is 1/2 of the taxpayer’s capital gain for the year from the disposition of the property;
(a.1) a taxpayer’s taxable capital gain for a taxation year from the disposition of a property is equal to zero if
(i) the disposition is the making of a gift to a qualified donee (other than a private foundation) of a share, debt obligation or right listed on a prescribed stock exchange, a share of the capital stock of a mutual fund corporation, a unit of a mutual fund trust, an interest in a related segregated fund trust (within the meaning assigned by paragraph 138.1(1)(a)) or a prescribed debt obligation, or
(ii) the disposition is deemed by section 70 to have occurred and the taxpayer is deemed by subsection 118.1(5) to have made a gift described in subparagraph (i) of the property;
(a.2) a taxpayer’s taxable capital gain for a taxation year from the disposition of a property is equal to zero if
(i) the disposition is the making of a gift to a qualified donee (other than a private foundation) of a property described, in respect of the taxpayer, in paragraph 110.1(1)(d) or in the definition total ecological gifts in subsection 118.1(1), or
(ii) the disposition is deemed by section 70 to have occurred and the taxpayer is deemed by subsection 118.1(5) to have made a gift described in subparagraph (i) of the property;
(b) a taxpayer’s allowable capital loss for a taxation year from the disposition of any property is 1/2 of the taxpayer’s capital loss for the year from the disposition of that property; and
(c) a taxpayer’s allowable business investment loss for a taxation year from the disposition of any property is 1/2 of the taxpayer’s business investment loss for the year from the disposition of that property.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 38
- 1998, c. 19, s. 6
- 2001, c. 17, s. 22
- 2002, c. 9, s. 22
- 2006, c. 4, s. 51
Marginal note:Meaning of capital gain and capital loss
39 (1) For the purposes of this Act,
(a) a taxpayer’s capital gain for a taxation year from the disposition of any property is the taxpayer’s gain for the year determined under this subdivision (to the extent of the amount thereof that would not, if section 3 were read without reference to the expression “other than a taxable capital gain from the disposition of a property” in paragraph 3(a) and without reference to paragraph 3(b), be included in computing the taxpayer’s income for the year or any other taxation year) from the disposition of any property of the taxpayer other than
(i) eligible capital property,
(i.1) an object that the Canadian Cultural Property Export Review Board has determined meets the criteria set out in paragraphs 29(3)(b) and (c) of the Cultural Property Export and Import Act and that has been disposed of,
(A) in the case of a gift to which subsection 118.1(5) applies, within the period ending 36 months after the death of the taxpayer or, where written application therefor has been made to the Minister by the taxpayer’s legal representative within that period, within such longer period as the Minister considers reasonable in the circumstances, and
(B) in any other case, at any time,
to an institution or a public authority in Canada that was, at the time of the disposition, designated under subsection 32(2) of that Act either generally or for a specified purpose related to that object,
(ii) a Canadian resource property,
(ii.1) a foreign resource property,
(ii.2) a property to the disposition of which subsection 142.4(4) or 142.4(5) or 142.5(1) applies,
(iii) an insurance policy, including a life insurance policy, except for that part of a life insurance policy in respect of which a policyholder is deemed by paragraph 138.1(1)(e) to have an interest in a related segregated fund trust,
(iv) a timber resource property; or
(v) an interest of a beneficiary under a qualifying environmental trust;
(b) a taxpayer’s capital loss for a taxation year from the disposition of any property is the taxpayer’s loss for the year determined under this subdivision (to the extent of the amount thereof that would not, if section 3 were read in the manner described in paragraph (a) of this subsection and without reference to the expression “or the taxpayer’s allowable business investment loss for the year” in paragraph 3(d), be deductible in computing the taxpayer’s income for the year or any other taxation year) from the disposition of any property of the taxpayer other than
(i) depreciable property, or
(ii) property described in any of subparagraphs 39(1)(a)(i), (ii) to (iii) and (v); and
(c) a taxpayer’s business investment loss for a taxation year from the disposition of any property is the amount, if any, by which the taxpayer’s capital loss for the year from a disposition after 1977
(i) to which subsection 50(1) applies, or
(ii) to a person with whom the taxpayer was dealing at arm’s length
of any property that is
(iii) a share of the capital stock of a small business corporation, or
(iv) a debt owing to the taxpayer by a Canadian-controlled private corporation (other than, where the taxpayer is a corporation, a debt owing to it by a corporation with which it does not deal at arm’s length) that is
(A) a small business corporation,
(B) a bankrupt (within the meaning assigned by subsection 128(3)) that was a small business corporation at the time it last became a bankrupt, or
(C) a corporation referred to in section 6 of the Winding-up Act that was insolvent (within the meaning of that Act) and was a small business corporation at the time a winding-up order under that Act was made in respect of the corporation,
exceeds the total of
(v) in the case of a share referred to in subparagraph 39(1)(c)(iii), the amount, if any, of the increase after 1977 by virtue of the application of subsection 85(4) in the adjusted cost base to the taxpayer of the share or of any share (in this subparagraph referred to as a “replaced share”) for which the share or a replaced share was substituted or exchanged,
(vi) in the case of a share referred to in subparagraph 39(1)(c)(iii) that was issued before 1972 or a share (in this subparagraph and subparagraph 39(1)(c)(vii) referred to as a “substituted share”) that was substituted or exchanged for such a share or for a substituted share, the total of all amounts each of which is an amount received after 1971 and before or on the disposition of the share or an amount receivable at the time of such a disposition by
(A) the taxpayer,
(B) where the taxpayer is an individual, the taxpayer’s spouse or common-law partner, or
(C) a trust of which the taxpayer or the taxpayer’s spouse or common-law partner was a beneficiary
as a taxable dividend on the share or on any other share in respect of which it is a substituted share, except that this subparagraph shall not apply in respect of a share or substituted share that was acquired after 1971 from a person with whom the taxpayer was dealing at arm’s length,
(vii) in the case of a share to which subparagraph 39(1)(c)(vi) applies and where the taxpayer is a trust referred to in paragraph 104(4)(a), the total of all amounts each of which is an amount received after 1971 or receivable at the time of the disposition by the settlor (within the meaning assigned by subsection 108(1)) or by the settlor’s spouse as a taxable dividend on the share or on any other share in respect of which it is a substituted share, and
(viii) the amount determined in respect of the taxpayer under subsection 39(9) or 39(10), as the case may be.
Marginal note:Capital gains and losses in respect of foreign currencies
(2) Notwithstanding subsection 39(1), where, by virtue of any fluctuation after 1971 in the value of the currency or currencies of one or more countries other than Canada relative to Canadian currency, a taxpayer has made a gain or sustained a loss in a taxation year, the following rules apply:
(a) the amount, if any, by which
(i) the total of all such gains made by the taxpayer in the year (to the extent of the amounts thereof that would not, if section 3 were read in the manner described in paragraph (1)(a) of this section, be included in computing the taxpayer’s income for the year or any other taxation year)
exceeds
(ii) the total of all such losses sustained by the taxpayer in the year (to the extent of the amounts thereof that would not, if section 3 were read in the manner described in paragraph (1)(a) of this section, be deductible in computing the taxpayer’s income for the year or any other taxation year), and
(iii) if the taxpayer is an individual, $200,
shall be deemed to be a capital gain of the taxpayer for the year from the disposition of currency of a country other than Canada, the amount of which capital gain is the amount determined under this paragraph; and
(b) the amount, if any, by which
(i) the total determined under subparagraph 39(2)(a)(ii),
exceeds
(ii) the total determined under subparagraph 39(2)(a)(i), and
(iii) if the taxpayer is an individual, $200,
shall be deemed to be a capital loss of the taxpayer for the year from the disposition of currency of a country other than Canada, the amount of which capital loss is the amount determined under this paragraph.
Marginal note:Gain in respect of purchase of bonds, etc., by issuer
(3) Where a taxpayer has issued any bond, debenture or similar obligation and has at any subsequent time in a taxation year and after 1971 purchased the obligation in the open market, in the manner in which any such obligation would normally be purchased in the open market by any member of the public,
(a) the amount, if any, by which the amount for which the obligation was issued by the taxpayer exceeds the purchase price paid or agreed to be paid by the taxpayer for the obligation shall be deemed to be a capital gain of the taxpayer for the taxation year from the disposition of a capital property, and
(b) the amount, if any, by which the purchase price paid or agreed to be paid by the taxpayer for the obligation exceeds the greater of the principal amount of the obligation and the amount for which it was issued by the taxpayer shall be deemed to be a capital loss of the taxpayer for the taxation year from the disposition of a capital property,
to the extent that the amount determined under paragraph 39(3)(a) or 39(3)(b) would not, if section 3 were read in the manner described in paragraph 39(1)(a) and this Act were read without reference to subsections 80(12) and 80(13), be included or be deductible, as the case may be, in computing the taxpayer’s income for the year or any other taxation year.
Marginal note:Election concerning disposition of Canadian securities
(4) Except as provided in subsection 39(5), where a Canadian security has been disposed of by a taxpayer in a taxation year and the taxpayer so elects in prescribed form in the taxpayer’s return of income under this Part for that year,
(a) every Canadian security owned by the taxpayer in that year or any subsequent taxation year shall be deemed to have been a capital property owned by the taxpayer in those years; and
(b) every disposition by the taxpayer of any such Canadian security shall be deemed to be a disposition by the taxpayer of a capital property.
Marginal note:Members of partnerships
(4.1) For the purpose of determining the income of a taxpayer who is a member of a partnership, subsections 39(4) and 39(5) apply as if
(a) every Canadian security owned by the partnership were owned by the taxpayer; and
(b) every Canadian security disposed of by the partnership in a fiscal period of the partnership were disposed of by the taxpayer at the end of that fiscal period.
Marginal note:Exception
(5) An election under subsection 39(4) does not apply to a disposition of a Canadian security by a taxpayer (other than a mutual fund corporation or a mutual fund trust) who at the time of the disposition is
(a) a trader or dealer in securities,
(b) a financial institution (as defined in subsection 142.2(1)),
(c) to (e) [Repealed, 1995, c. 21, s. 49(3)]
(f) a corporation whose principal business is the lending of money or the purchasing of debt obligations or a combination thereof, or
(g) a non-resident,
or any combination thereof.
Definition of Canadian security
(6) For the purposes of this section, Canadian security means a security (other than a prescribed security) that is a share of the capital stock of a corporation resident in Canada, a unit of a mutual fund trust or a bond, debenture, bill, note, mortgage, hypothecary claim or similar obligation issued by a person resident in Canada.
Marginal note:Unused share-purchase tax credit
(7) The amount of any unused share-purchase tax credit of a taxpayer for a particular taxation year, to the extent that it was not deducted from the taxpayer’s tax otherwise payable under this Part for the immediately preceding taxation year, shall be deemed to be a capital loss of the taxpayer from a disposition of property for the year immediately following the particular taxation year.
Marginal note:Unused scientific research and experimental development tax credit
(8) The amount of any unused scientific research and experimental development tax credit of a taxpayer for a particular taxation year, to the extent that it was not deducted from the taxpayer’s tax otherwise payable under this Part for the immediately preceding taxation year, shall be deemed to be a capital loss of the taxpayer from a disposition of property for the year immediately following the particular taxation year, except that where the taxpayer is an individual the capital loss shall be deemed to be 147% of that amount.
Marginal note:Deduction from business investment loss
(9) In computing the business investment loss of a taxpayer who is an individual (other than a trust) for a taxation year from the disposition of a particular property, there shall be deducted an amount equal to the lesser of
(a) the amount that would be the taxpayer’s business investment loss for the year from the disposition of that particular property if paragraph 39(1)(c) were read without reference to subparagraph 39(1)(c)(viii), and
(b) the amount, if any, by which the total of
(i) the total of all amounts each of which is twice the amount deducted by the taxpayer under section 110.6 in computing the taxpayer’s taxable income for a preceding taxation year that
(A) ended before 1988, or
(B) begins after October 17, 2000,
(i.1) the total of all amounts each of which is
(A) 3/2 of the amount deducted under section 110.6 in computing the taxpayer’s taxable income for a preceding taxation year that
(I) ended after 1987 and before 1990, or
(II) began after February 27, 2000 and ended before October 18, 2000, or
(B) the amount determined by multiplying the reciprocal of the fraction in paragraph 38(a) that applies to the taxpayer for each of the taxpayer’s taxation years that includes February 28, 2000 or October 18, 2000 by the amount deducted under section 110.6 in computing the taxpayer’s taxable income for that year, and
(i.2) the total of all amounts each of which is 4/3 of the amount deducted under section 110.6 in computing the taxpayer’s taxable income for a preceding taxation year that ended after 1989 and before February 28, 2000
exceeds
(ii) the total of all amounts each of which is an amount deducted by the taxpayer under paragraph 39(1)(c) by virtue of subparagraph 39(1)(c)(viii) in computing the taxpayer’s business investment loss
(A) from the disposition of property in taxation years preceding the year, or
(B) from the disposition of property other than the particular property in the year,
except that, where a particular amount was included under subparagraph 14(1)(a)(v) in the taxpayer’s income for a taxation year that ended after 1987 and before 1990, the reference in subparagraph 39(9)(b)(i.1) to “3/2” shall, in respect of that portion of any amount deducted under section 110.6 in respect of the particular amount, be read as “4/3”.
Marginal note:Idem, of a trust
(10) In computing the business investment loss of a trust for a taxation year from the disposition of a particular property, there shall be deducted an amount equal to the lesser of
(a) the amount that would be the trust’s business investment loss for the year from the disposition of that particular property if paragraph 39(1)(c) were read without reference to subparagraph 39(1)(c)(viii), and
(b) the amount, if any, by which the total of
(i) the total of all amounts each of which is twice the amount designated by the trust under subsection 104(21.2) in respect of a beneficiary in its return of income for a preceding taxation year that
(A) ended before 1988, or
(B) begins after October 17, 2000,
(i.1) the total of all amounts each of which is
(A) 3/2 of the amount designated by the trust under subsection 104(21.2) in respect of a beneficiary in its return of income for a preceding taxation year that
(I) ended after 1987 and before 1990, or
(II) began after February 27, 2000 and ended before October 18, 2000, or
(B) the amount determined by multiplying the reciprocal of the fraction in paragraph 38(a) that applies to the trust for each of the trust’s taxation years that includes February 28, 2000 or October 18, 2000 by the amount designated by the trust under subsection 104(21.2) in respect of a beneficiary in its return of income for that year, and
(i.2) the total of all amounts each of which is 4/3 of the amount designated by the trust under subsection 104(21.2) in respect of a beneficiary in its return of income for a preceding taxation year that ended after 1989 and before February 28, 2000
exceeds
(ii) the total of all amounts each of which is an amount deducted by the trust under paragraph 39(1)(c) by virtue of subparagraph 39(1)(c)(viii) in computing its business investment loss
(A) from the disposition of property in taxation years preceding the year, or
(B) from the disposition of property other than the particular property in the year,
except that, where a particular amount was included under subparagraph 14(1)(a)(v) in the trust’s income for a taxation year that ended after 1987 and before 1990, the reference in subparagraph 39(10)(b)(i.1) to “3/2” shall, in respect of that portion of any amount deducted under section 110.6 in respect of the particular amount, be read as “4/3”.
Marginal note:Recovery of bad debt
(11) Where an amount is received in a taxation year on account of a debt (in this subsection referred to as the “recovered amount”) in respect of which a deduction for bad debts had been made under subsection 20(4.2) in computing a taxpayer’s income for a preceding taxation year, the amount, if any, by which 1/2 of the recovered amount exceeds the amount determined under paragraph 12(1)(i.1) in respect of the recovered amount is deemed to be a taxable capital gain of the taxpayer from a disposition of capital property in the year.
Marginal note:Guarantees
(12) For the purpose of paragraph 39(1)(c), where
(a) an amount was paid by a taxpayer in respect of a debt of a corporation under an arrangement under which the taxpayer guaranteed the debt,
(b) the amount was paid to a person with whom the taxpayer was dealing at arm’s length, and
(c) the corporation was a small business corporation
(i) at the time the debt was incurred, and
(ii) at any time in the 12 months before the time an amount first became payable by the taxpayer under the arrangement in respect of a debt of the corporation,
that part of the amount that is owing to the taxpayer by the corporation shall be deemed to be a debt owing to the taxpayer by a small business corporation.
Marginal note:Repayment of assistance
(13) The total of all amounts paid by a taxpayer in a taxation year each of which is
(a) such part of any assistance described in subparagraph 53(2)(k)(i) in respect of, or for the acquisition of, a capital property (other than depreciable property) by the taxpayer that was repaid by the taxpayer in the year where the repayment is made after the disposition of the property by the taxpayer and under an obligation to repay all or any part of that assistance, or
(b) an amount repaid by the taxpayer in the year in respect of a capital property (other than depreciable property) acquired by the taxpayer that is repaid after the disposition thereof by the taxpayer and that would have been an amount described in subparagraph 53(2)(s)(ii) had the repayment been made before the disposition of the property,
shall be deemed to be a capital loss of the taxpayer for the year from the disposition of property by the taxpayer in the year and, for the purpose of section 110.6, that property shall be deemed to have been disposed of by the taxpayer in the year.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 39
- 1994, c. 7, Sch. II, s. 22, Sch. VIII, s. 11, c. 21, s. 14
- 1995, c. 3, s. 10, c. 21, ss. 10, 49
- 1998, c. 19, s. 7
- 2000, c. 12, s. 142
- 2001, c. 17, ss. 23, 204
Marginal note:Definitions
39.1 (1) In this section,
exempt capital gains balance
solde des gains en capital exonérés
exempt capital gains balance of an individual for a taxation year that ends before 2005 in respect of a flow-through entity means the amount determined by the formula
A - B - C - F
where
- A
- is
(a) if the entity is a trust referred to in any of paragraphs (f) to (j) of the definition flow-through entity in this subsection, the amount determined under paragraph 110.6(19)(c) in respect of the individual’s interest or interests therein, and
(b) in any other case, the lesser of
(i) 4/3 of the total of the taxable capital gains that resulted from elections made under subsection 110.6(19) in respect of the individual’s interests in or shares of the capital stock of the entity, and
(ii) the amount that would be determined under subparagraph (i) if
(A) the amount designated in the election in respect of each interest or share were equal to the amount determined by the formula
D - E
where
- D
- is the fair market value of the interest or share at the end of February 22, 1994, and
- E
- is the amount, if any, by which the amount designated in the election that was made in respect of the interest or share exceeds 11/10 of its fair market value at the end of February 22, 1994, and
(B) this Act were read without reference to subsection 110.6(20),
- B
- is the total of all amounts each of which is the amount by which the individual’s capital gain for a preceding taxation year, determined without reference to subsection 39.1(2), from the disposition of an interest in or a share of the capital stock of the entity was reduced under that subsection,
- C
- is
(a) if the entity is a trust described in any of paragraphs (d) and (h) to (j) of the definition flow-through entity in this subsection, the total of
(i) 3/2 of the total of all amounts each of which is the amount by which the individual’s taxable capital gain (determined without reference to this section), for a preceding taxation year that began after February 27, 2000 and ended before October 18, 2000 that resulted from a designation made under subsection 104(21) by the trust, was reduced under subsection (3),
(ii) 4/3 of the total of all amounts each of which is the amount by which the individual’s taxable capital gain (determined without reference to this section), for a preceding taxation year that ended before February 28, 2000 and that resulted from a designation made under subsection 104(21) by the trust, was reduced under subsection (3),
(iii) the amount claimed by the individual under subparagraph 104(21.4)(a)(ii) or (21.7)(b)(ii) for a preceding taxation year, and
(iv) twice the total of all amounts each of which is the amount by which the individual’s taxable capital gain (determined without reference to this section) for a preceding taxation year that began after October 17, 2000 and that resulted from a designation made under subsection 104(21) by the trust, was reduced under subsection (3),
(b) if the entity is a partnership, the total of
(i) 3/2 of the total of
(A) the total of all amounts each of which is the amount by which the individual’s share of the partnership’s taxable capital gains (determined without reference to this section), for its fiscal period that began after February 27, 2000 and ended before October 18, 2000, was reduced under subsection (4), and
(B) the total of all amounts each of which is the amount by which the individual’s share of the partnership’s income from a business (determined without reference to this section), for its fiscal period that began after February 27, 2000 and ended before October 18, 2000, was reduced under subsection (5),
(ii) 4/3 of the total of
(A) the total of all amounts each of which is the amount by which the individual’s share of the partnership’s taxable capital gains (determined without reference to this section), for its fiscal period that ended before February 28, 2000 and in a preceding taxation year was reduced under subsection (4), and
(B) the total of all amounts each of which is the amount by which the individual’s share of the partnership’s income from a business (determined without reference to this section), for its fiscal period that ended before February 28, 2000 and in a preceding taxation year, was reduced under subsection (5),
(iii) the product obtained when the reciprocal of the fraction in paragraph 38(a) that applies to the partnership for its fiscal period that includes February 28, 2000 or October 17, 2000 is multiplied by the total of
(A) the total of all amounts each of which is the amount by which the individual’s share of the partnership’s taxable capital gains (determined without reference to this section), for its fiscal period that includes February 28, 2000 or October 17, 2000 and ended in a preceding taxation year, was reduced under subsection (4), and
(B) the total of all amounts each of which is the amount by which the individual’s share of the partnership’s income from a business (determined without reference to this section), for its fiscal period that includes February 28, 2000 or October 17, 2000 and ended in a preceding taxation year was reduced under subsection (5), and
(iv) twice the total of
(A) the total of all amounts each of which is the amount by which the individual’s share of the partnership’s taxable capital gains (determined without reference to this section), for its fiscal period that began after October 17, 2000 and ended in a preceding taxation year, was reduced under subsection (4), and
(B) the total of all amounts each of which is the amount by which the individual’s share of the partnership’s income from a business (determined without reference to this section), for its fiscal period that began after October 17, 2000 and ended in a preceding taxation year, was reduced under subsection (5), and
(c) in any other case, the total of all amounts each of which is the amount by which the total of the individual’s capital gains otherwise determined under subsection 130.1(4) or 131(1), subsections 138.1(3) and 138.1(4) or subsection 144(4), as the case may be, for a preceding taxation year in respect of the entity was reduced under subsection 39.1(6); and
- F
- is
(a) if the entity is a trust described in any of paragraphs (g) to (j) of the definition flow-through entity in this subsection, the total of all amounts each of which is an amount included before the year in the cost to the individual of a property under subsection 107(2.2) or paragraph 144(7.1)(c) because of the individual’s exempt capital gains balance in respect of the entity, and
(b) in any other case, nil; (solde des gains en capital exonérés)
flow-through entity
entité intermédiaire
flow-through entity means
(a) an investment corporation,
(b) a mortgage investment corporation,
(c) a mutual fund corporation,
(d) a mutual fund trust,
(e) a partnership,
(f) a related segregated fund trust for the purpose of section 138.1,
(g) a trust governed by an employees profit sharing plan,
(h) a trust maintained primarily for the benefit of employees of a corporation or 2 or more corporations that do not deal at arm’s length with each other, where one of the main purposes of the trust is to hold interests in shares of the capital stock of the corporation or corporations, as the case may be, or any corporation not dealing at arm’s length therewith,
(i) a trust established exclusively for the benefit of one or more persons each of whom was, at the time the trust was created, either a person from whom the trust received property or a creditor of that person, where one of the main purposes of the trust is to secure the payments required to be made by or on behalf of that person to such creditor, and
(j) a trust all or substantially all of the properties of which consist of shares of the capital stock of a corporation, where the trust was established pursuant to an agreement between 2 or more shareholders of the corporation and one of the main purposes of the trust is to provide for the exercise of voting rights in respect of those shares pursuant to that agreement. (entité intermédiaire)
Marginal note:Reduction of capital gain
(2) Where at any time after February 22, 1994 an individual disposes of an interest in or a share of the capital stock of a flow-through entity, the individual’s capital gain, if any, otherwise determined for a taxation year from the disposition shall be reduced by such amount as the individual claims, not exceeding the amount determined by the formula
A - B - C
where
- A
- is the exempt capital gains balance of the individual for the year in respect of the entity,
- B
- is
(a) if the entity made a designation under subsection 104(21) in respect of the individual for the year, twice the amount, if any, claimed under subsection 39.1(3) by the individual for the year in respect of the entity,
(b) if the entity is a partnership, twice the total of
(i) the amount, if any, claimed under subsection 39.1(4) by the individual for the year in respect of the entity, and
(ii) the amount, if any, claimed under subsection 39.1(5) by the individual for the year in respect of the entity, and
(c) in any other case, the amount, if any, claimed under subsection 39.1(6) by the individual for the year in respect of the entity, and
- C
- is the total of all reductions under this subsection in the individual’s capital gains otherwise determined for the year from the disposition of other interests in or shares of the capital stock of the entity.
Marginal note:Reduction of taxable capital gain
(3) The taxable capital gain otherwise determined under subsection 104(21) of an individual for a taxation year as a result of a designation made under that subsection by a flow-through entity shall be reduced by such amount as the individual claims, not exceeding 1/2 of the individual’s exempt capital gains balance for the year in respect of the entity.
Marginal note:Reduction in share of partnership’s taxable capital gains
(4) An individual’s share otherwise determined for a taxation year of a taxable capital gain of a partnership from the disposition of a property (other than property acquired by the partnership after February 22, 1994 in a transfer to which subsection 97(2) applied) for its fiscal period that ends after February 22, 1994 and in the year shall be reduced by such amount as the individual claims, not exceeding the amount determined by the formula
A - B
where
- A
- is 1/2 of the individual’s exempt capital gains balance for the year in respect of the partnership, and
- B
- is the total of amounts claimed by the individual under this subsection in respect of other taxable capital gains of the partnership for that fiscal period.
Marginal note:Reduction in share of partnership’s income from a business
(5) An individual’s share otherwise determined for a taxation year of the income of a partnership from a business for the partnership’s fiscal period that ends in the year and the individual’s share of the partnership’s taxable capital gain, if any, arising under paragraph 14(1)(b) shall be reduced by such amount as the individual claims, not exceeding the lesser of
(a) the amount, if any, by which 1/2 of the individual’s exempt capital gains balance for the year in respect of the partnership exceeds the total of
(i) the amount, if any, claimed under subsection (4) by the individual for the year in respect of the partnership, and
(ii) all amounts, if any, claimed under this subsection by the individual for the year in respect of other businesses of the partnership, and
(b) the amount determined by the formula
A × (B/C)
where
- A
- is the amount included under paragraph 14(1)(b) in computing the income of the partnership from the business for the fiscal period,
- B
- is the amount that would otherwise be the individual’s share of the partnership’s income from the business for the fiscal period, and
- C
- is the partnership’s income from the business for the fiscal period.
Marginal note:Reduction of capital gains
(6) The total capital gains otherwise determined under subsection 130.1(4) or 131(1), subsections 138.1(3) and 138.1(4) or subsection 144(4), as the case may be, of an individual for a taxation year as a result of one or more elections, allocations or designations made after February 22, 1994 by a flow-through entity shall be reduced by such amount as the individual claims, not exceeding the individual’s exempt capital gains balance for the year in respect of the entity.
Marginal note:Nil exempt capital gains balance
(7) Notwithstanding subsection 39.1(1), where at any time an individual ceases to be a member or shareholder of, or a beneficiary under, a flow-through entity, the exempt capital gains balance of the individual in respect of the entity for each taxation year that begins after that time is deemed to be nil.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- 1995, c. 3, s. 11
- 1998, c. 19, s. 88
- 2001, c. 17, s. 24
Marginal note:General rules
40 (1) Except as otherwise expressly provided in this Part
(a) a taxpayer’s gain for a taxation year from the disposition of any property is the amount, if any, by which
(i) if the property was disposed of in the year, the amount, if any, by which the taxpayer’s proceeds of disposition exceed the total of the adjusted cost base to the taxpayer of the property immediately before the disposition and any outlays and expenses to the extent that they were made or incurred by the taxpayer for the purpose of making the disposition, or
(ii) if the property was disposed of before the year, the amount, if any, claimed by the taxpayer under subparagraph 40(1)(a)(iii) in computing the taxpayer’s gain for the immediately preceding year from the disposition of the property,
exceeds
(iii) subject to subsection 40(1.1), such amount as the taxpayer may claim
(A) in the case of an individual (other than a trust) in prescribed form filed with the taxpayer’s return of income under this Part for the year, and
(B) in any other case, in the taxpayer’s return of income under this Part for the year,
as a deduction, not exceeding the lesser of
(C) a reasonable amount as a reserve in respect of such of the proceeds of disposition of the property that are payable to the taxpayer after the end of the year as can reasonably be regarded as a portion of the amount determined under subparagraph 40(1)(a)(i) in respect of the property, and
(D) an amount equal to the product obtained when 1/5 of the amount determined under subparagraph 40(1)(a)(i) in respect of the property is multiplied by the amount, if any, by which 4 exceeds the number of preceding taxation years of the taxpayer ending after the disposition of the property; and
(b) a taxpayer’s loss for a taxation year from the disposition of any property is,
(i) if the property was disposed of in the year, the amount, if any, by which the total of the adjusted cost base to the taxpayer of the property immediately before the disposition and any outlays and expenses to the extent that they were made or incurred by the taxpayer for the purpose of making the disposition, exceeds the taxpayer’s proceeds of disposition of the property, and
(ii) in any other case, nil.
Marginal note:Gift of non-qualifying security
(1.01) A taxpayer’s gain for a particular taxation year from a disposition of a non-qualifying security of the taxpayer (as defined in subsection 118.1(18)) that is the making of a gift (other than an excepted gift, within the meaning assigned by subsection 118.1(19)) to a qualified donee (as defined in subsection 149.1(1)) is the amount, if any, by which
(a) where the disposition occurred in the particular year, the amount, if any, by which the taxpayer’s proceeds of disposition exceed the total of the adjusted cost base to the taxpayer of the security immediately before the disposition and any outlays and expenses to the extent they were made or incurred by the taxpayer for the purpose of making the disposition, and
(b) where the disposition occurred in the 60-month period that ends at the beginning of the particular year, the amount, if any, deducted under paragraph 40(1.01)(c) in computing the taxpayer’s gain for the preceding taxation year from the disposition of the security
exceeds
(c) the amount that the taxpayer claims in prescribed form filed with the taxpayer’s return of income for the particular year, where the taxpayer is not deemed by subsection 118.1(13) to have made a gift of property before the end of the particular year as a consequence of a disposition of the security by the donee or as a consequence of the security ceasing to be a non-qualifying security of the taxpayer before the end of the particular year.
Marginal note:Property disposed of to a child
(1.1) Where the property referred to in subparagraph 40(1)(a)(iii) is property that the taxpayer disposed of to the taxpayer’s child, who was resident in Canada immediately before the disposition, and was
(a) any land in Canada or depreciable property in Canada of a prescribed class that was, immediately before the disposition, used by the taxpayer, the taxpayer’s spouse or common-law partner, or any of the taxpayer’s children in the business of farming,
(b) immediately before the disposition, a share of the capital stock of a family farm corporation of the taxpayer or an interest in a family farm partnership of the taxpayer, or
(c) immediately before the disposition, a share of the capital stock of a small business corporation of the taxpayer,
in computing the amount of any claim in respect of that property under subparagraph 40(1)(a)(iii), that subparagraph shall be read as if the references therein to “1/5” and “4” were references to “1/10” and “9” respectively.
Marginal note:Limitations
(2) Notwithstanding subsection 40(1),
(a) subparagraph 40(1)(a)(iii) does not apply to permit a taxpayer to claim any amount under that subparagraph in computing a gain for a taxation year if
(i) the taxpayer, at the end of the year or at any time in the immediately following year, was not resident in Canada or was exempt from tax under any provision of this Part, or
(ii) the purchaser of the property sold is a corporation that, immediately after the sale,
(A) was controlled, directly or indirectly, in any manner whatever, by the taxpayer,
(B) was controlled, directly or indirectly, in any manner whatever, by a person or group of persons by whom the taxpayer was controlled, directly or indirectly, in any manner whatever, or
(C) controlled the taxpayer, directly or indirectly, in any manner whatever, where the taxpayer is a corporation;
(b) where the taxpayer is an individual, the taxpayer’s gain for a taxation year from the disposition of a property that was the taxpayer’s principal residence at any time after the date (in this section referred to as the “acquisition date”) that is the later of December 31, 1971 and the day on which the taxpayer last acquired or reacquired it, as the case may be, is the amount determined by the formula
A - (A × B/C) - D
where
- A
- is the amount that would, if this Act were read without reference to this paragraph and subsections 110.6(19) and 110.6(21), be the taxpayer’s gain therefrom for the year,
- B
- is one plus the number of taxation years that end after the acquisition date for which the property was the taxpayer’s principal residence and during which the taxpayer was resident in Canada,
- C
- is the number of taxation years that end after the acquisition date during which the taxpayer owned the property whether jointly with another person or otherwise, and
- D
- is
(i) where the acquisition date is before February 23, 1994 and the taxpayer or a spouse or common-law partner of the taxpayer elected under subsection 110.6(19) in respect of the property or an interest therein that was owned, immediately before the disposition, by the taxpayer, 4/3 of the lesser of
(A) the total of all amounts each of which is the taxable capital gain of the taxpayer or of a spouse of the taxpayer that would have resulted from an election by the taxpayer or spouse under subsection 110.6(19) in respect of the property or interest if
(I) this Act were read without reference to subsection 110.6(20), and
(II) the amount designated in the election were equal to the amount, if any, by which the fair market value of the property or interest at the end of February 22, 1994 exceeds the amount determined by the formula
E - 1.1F
where
- E
- is the amount designated in the election that was made in respect of the property or interest, and
- F
- is the fair market value of the property or interest at the end of February 22, 1994, and
(B) the total of all amounts each of which is the taxable capital gain of the taxpayer or of a spouse of the taxpayer that would have resulted from an election that was made under subsection 110.6(19) in respect of the property or interest if the property were the principal residence of neither the taxpayer nor the spouse for each particular taxation year unless the property was designated, in a return of income for the taxation year that includes February 22, 1994 or for a preceding taxation year, to be the principal residence of either of them for the particular taxation year, and
(ii) in any other case, zero;
(c) where the taxpayer is an individual, the taxpayer’s gain for a taxation year from the disposition of land used in a farming business carried on by the taxpayer that includes property that was at any time the taxpayer’s principal residence is
(i) the taxpayer’s gain for the year, otherwise determined, from the disposition of the portion of the land that does not include the property that was the taxpayer’s principal residence, plus the taxpayer’s gain for the year, if any, determined under paragraph 40(2)(b) from the disposition of the property that was the taxpayer’s principal residence, or
(ii) if the taxpayer so elects in prescribed manner in respect of the land, the taxpayer’s gain for the year from the disposition of the land including the property that was the taxpayer’s principal residence, determined without regard to paragraph 40(2)(b) or subparagraph (i) of this paragraph, less the total of
(A) $1,000, and
(B) $1,000 for each taxation year ending after the acquisition date for which the property was the taxpayer’s principal residence and during which the taxpayer was resident in Canada;
(d) where the taxpayer is a corporation, its loss for a taxation year from the disposition of a bond or debenture is its loss therefrom for the year otherwise determined, less the total of such amounts received by it as, on account or in lieu of payment of, or in satisfaction of interest thereon as were, by virtue of paragraph 81(1)(m), not included in computing its income;
(e) [Repealed, 1998, c. 19, s. 89(1)]
(e.1) a taxpayer’s loss, if any, from the disposition at any time to a particular person or partnership of an obligation that was, immediately after that time, payable by another person or partnership to the particular person or partnership is nil where the taxpayer, the particular person or partnership and the other person or partnership are related to each other at that time or would be related to each other at that time if paragraph 80(2)(j) applied for the purpose of this paragraph;
(e.2) a taxpayer’s loss on the settlement or extinguishment of a particular commercial obligation (in this paragraph having the meaning assigned by subsection 80(1)) issued by a person or partnership and payable to the taxpayer shall, where any part of the consideration given by the person or partnership for the settlement or extinguishment of the particular obligation consists of one or more other commercial obligations issued by the person or partnership to the taxpayer, be deemed to be the amount determined by the formula
A × (B - C)/B
where
- A
- is the amount, if any, that would be the taxpayer’s loss from the disposition of the particular obligation if this Act were read without reference to this paragraph,
- B
- is the total fair market value of all the consideration given by the person or partnership for the settlement or extinguishment of the particular obligation, and
- C
- is the total fair market value of the other obligations;
(f) a taxpayer’s gain or loss from the disposition of
(i) a chance to win a prize or bet, or
(ii) a right to receive an amount as a prize or as winnings on a bet,
in connection with a lottery scheme or a pool system of betting referred to in section 205 of the Criminal Code is nil;
(g) a taxpayer’s loss, if any, from the disposition of a property, to the extent that it is
(i) a superficial loss,
(ii) a loss from the disposition of a debt or other right to receive an amount, unless the debt or right, as the case may be, was acquired by the taxpayer for the purpose of gaining or producing income from a business or property (other than exempt income) or as consideration for the disposition of capital property to a person with whom the taxpayer was dealing at arm’s length,
(iii) a loss from the disposition of any personal-use property of the taxpayer (other than listed personal property or a debt referred to in subsection 50(2)), or
(iv) a loss from the disposition of property to
(A) a trust governed by a deferred profit sharing plan, an employees profit sharing plan or a registered retirement income fund under which the taxpayer is a beneficiary or immediately after the disposition becomes a beneficiary, or
(B) a trust governed by a registered retirement savings plan under which the taxpayer or the taxpayer’s spouse or common-law partner is an annuitant or becomes, within 60 days after the end of the taxation year, an annuitant,
is nil;
(h) where the taxpayer is a corporation, its loss otherwise determined from the disposition at any time in a taxation year of shares of the capital stock of a corporation (in this paragraph referred to as the “controlled corporation”) that was controlled, directly or indirectly in any manner whatever, by it at any time in the year, is its loss therefrom otherwise determined less the amount, if any, by which
(i) all amounts added under paragraph 53(1)(f.1) to the cost to a corporation, other than the controlled corporation, of property disposed of to that corporation by the controlled corporation that were added to the cost of the property during the period while the controlled corporation was controlled by the taxpayer and that can reasonably be attributed to losses on the property that accrued during the period while the controlled corporation was controlled by the taxpayer,
exceeds
(ii) all amounts by which losses have been reduced by virtue of this paragraph in respect of dispositions before that time of shares of the capital stock of the controlled corporation; and
(i) where at a particular time a taxpayer has disposed of a share of the capital stock of a corporation that was at any time a prescribed venture capital corporation or a prescribed labour-sponsored venture capital corporation or a share of the capital stock of a taxable Canadian corporation that was held in a prescribed stock savings plan or of a property substituted for such a share, the taxpayer’s loss from the disposition thereof shall be deemed to be the amount, if any, by which
(i) the loss otherwise determined
exceeds
(ii) the amount, if any, by which
(A) the amount of prescribed assistance that the taxpayer (or a person with whom the taxpayer was not dealing at arm’s length) received or is entitled to receive in respect of the share
exceeds
(B) the total of all amounts determined under subparagraph 40(2)(i)(i) in respect of any disposition of the share or of the property substituted for the share before the particular time by the taxpayer or by a person with whom the taxpayer was not dealing at arm’s length.
Marginal note:Deemed gain where amounts to be deducted from adjusted cost base exceed cost plus amounts to be added to adjusted cost base
(3) Where
(a) the total of all amounts required by subsection 53(2) (except paragraph 53(2)(c)) to be deducted in computing the adjusted cost base to a taxpayer of any property at any time in a taxation year
exceeds
(b) the total of
(i) the cost to the taxpayer of the property determined for the purpose of computing the adjusted cost base to the taxpayer of that property at that time, and
(ii) all amounts required by subsection 53(1) to be added to the cost to the taxpayer of the property in computing the adjusted cost base to the taxpayer of that property at that time,
the following rules apply:
(c) subject to paragraph 93(1)(b), the amount of the excess shall be deemed to be a gain of the taxpayer for the year from a disposition at that time of the property,
(d) for the purposes of section 93, the definition foreign accrual property income in subsection 95(1) and section 110.6, the property shall be deemed to have been disposed of by the taxpayer in the year, and
(e) for the purposes of section 93, the amount of the excess shall be deemed to be proceeds of disposition of the property to the taxpayer.
Marginal note:Deemed gain for certain partners
(3.1) Where, at the end of a fiscal period of a partnership, a member of the partnership is a limited partner of the partnership, or is a member of the partnership who was a specified member of the partnership at all times since becoming a member, except where the member’s partnership interest was held by the member on February 22, 1994 and is an excluded interest at the end of the fiscal period,
(a) the amount determined under subsection 40(3.11) is deemed to be a gain from the disposition, at the end of the fiscal period, of the member’s interest in the partnership; and
(b) for the purpose of section 110.6, the interest is deemed to have been disposed of by the member at that time.
Marginal note:Amount of gain
(3.11) For the purpose of subsection 40(3.1), the amount determined at any time under this subsection in respect of a member’s interest in a partnership is the amount determined by the formula
A - B
where
- A
- is the total of all amounts required by subsection 53(2) to be deducted in computing the adjusted cost base to the member of the interest in the partnership at that time, and
- B
- is the total of
(a) the cost to the member of the interest determined for the purpose of computing the adjusted cost base to the member of the interest at that time, and
(b) all amounts required by subsection 53(1) to be added to the cost to the member of the interest in computing the adjusted cost base to the member of the interest at that time.
Marginal note:Deemed loss for certain partners
(3.12) Where a corporation, an individual (other than a trust) or a testamentary trust (each of which is referred to in this subsection as the “taxpayer”) is a member of a partnership at the end of a fiscal period of the partnership, the taxpayer shall be deemed to have a loss from the disposition at that time of the member’s interest in the partnership equal to the amount that the taxpayer elects in the taxpayer’s return of income under this Part for the taxation year that includes that time, not exceeding the lesser of
(a) the amount, if any, by which
(i) the total of all amounts each of which was an amount deemed by subsection 40(3.1) to be a gain of the taxpayer from a disposition of the interest before that time
exceeds
(ii) the total of all amounts each of which was an amount deemed by this subsection to be a loss of the taxpayer from a disposition of the interest before that time, and
(b) the adjusted cost base to the taxpayer of the interest at that time.
Marginal note:Artificial transactions
(3.13) For the purpose of applying section 53 at any time to a member of a partnership who would be a member described in subsection (3.1) of the partnership if the fiscal period of the partnership that includes that time ended at that time, where at any time after February 21, 1994 the member of the partnership makes a contribution of capital to the partnership and
(a) the partnership or a person or partnership with whom the partnership does not deal at arm’s length
(i) makes a loan to the member or to a person with whom the member does not deal at arm’s length, or
(ii) pays an amount as, on account of, in lieu of payment of or in satisfaction of, a distribution of the member’s share of the partnership profits or partnership capital, or
(b) the member or a person with whom the member does not deal at arm’s length becomes indebted to the partnership or a person or partnership with whom the partnership does not deal at arm’s length,
and it is established, by subsequent events or otherwise, that the loan, payment or indebtedness, as the case may be, was made or arose as part of a series of contributions and such loans, payments or other transactions, the contribution of capital shall be deemed not to have been made.
Marginal note:Specified member of a partnership
(3.131) Where it can reasonably be considered that one of the main reasons that a member of a partnership was not a specified member of the partnership at all times since becoming a member of the partnership is to avoid the application of subsection 40(3.1) to the member’s interest in the partnership, the member is deemed for the purpose of that subsection to have been a specified member of the partnership at all times since becoming a member of the partnership.
Marginal note:Limited partner
(3.14) For the purpose of subsection 40(3.1), a member of a partnership at a particular time is a limited partner of the partnership at that time if, at that time or within 3 years after that time,
(a) by operation of any law governing the partnership arrangement, the liability of the member as a member of the partnership is limited (except by operation of a provision of a statute of Canada or a province that limits the member’s liability only for debts, obligations and liabilities of the partnership, or any member of the partnership, arising from negligent acts or omissions or misconduct that another member of the partnership or an employee, agent or representative of the partnership commits in the course of the partnership business while the partnership is a limited liability partnership);
(b) the member or a person not dealing at arm’s length with the member is entitled, either immediately or in the future and either absolutely or contingently, to receive an amount or to obtain a benefit that would be described in paragraph 96(2.2)(d) if that paragraph were read without reference to subparagraphs 40(3.14)(b)(ii) and 40(3.14)(b)(vi);
(c) one of the reasons for the existence of the member who owns the interest
(i) can reasonably be considered to be to limit the liability of any person with respect to that interest, and
(ii) cannot reasonably be considered to be to permit any person who has an interest in the member to carry on the person’s business (other than an investment business) in the most effective manner; or
(d) there is an agreement or other arrangement for the disposition of an interest in the partnership and one of the main reasons for the agreement or arrangement can reasonably be considered to be to attempt to avoid the application of this subsection to the member.
Marginal note:Excluded interest
(3.15) For the purpose of subsection 40(3.1), an excluded interest in a partnership at any time means an interest in a partnership that actively carries on a business that was carried on by it throughout the period beginning February 22, 1994 and ending at that time, or that earns income from a property that was owned by it throughout that period, unless in that period there was a substantial contribution of capital to the partnership or a substantial increase in the indebtedness of the partnership.
Marginal note:Amounts considered not to be substantial
(3.16) For the purpose of subsection 40(3.15), an amount will be considered not to be substantial where
(a) the amount
(i) was raised pursuant to the terms of a written agreement entered into by a partnership before February 22, 1994 to issue an interest in the partnership and was expended on expenditures contemplated by the agreement before 1995 (or before March 2, 1995 in the case of amounts expended to acquire a film production prescribed for the purpose of subparagraph 96(2.2)(d)(ii) the principal photography of which or, in the case of such a production that is a television series, one episode of the series, commences before 1995 and the production is completed before March 2, 1995, or an interest in one or more partnerships all or substantially all of the property of which is such a film production),
(ii) was raised pursuant to the terms of a written agreement (other than an agreement referred to in subparagraph 40(3.16)(a)(i)) entered into by a partnership before February 22, 1994 and was expended on expenditures contemplated by the agreement before 1995 (or before March 2, 1995 in the case of amounts expended to acquire a film production prescribed for the purpose of subparagraph 96(2.2)(d)(ii) the principal photography of which or, in the case of such a production that is a television series, one episode of the series, commences before 1995 and the production is completed before March 2, 1995, or an interest in one or more partnerships all or substantially all of the property of which is such a film production),
(iii) was used by the partnership before 1995 (or before March 2, 1995 in the case of amounts expended to acquire a film production prescribed for the purpose of subparagraph 96(2.2)(d)(ii) the principal photography of which or, in the case of such a production that is a television series, one episode of the series, commences before 1995 and the production is completed before March 2, 1995, or an interest in one or more partnerships all or substantially all of the property of which is such a film production) to make an expenditure required to be made pursuant to the terms of a written agreement entered into by the partnership before February 22, 1994, or
(iv) was used to repay a loan, debt or contribution of capital that had been received or incurred in respect of any such expenditure;
(b) the amount was raised before 1995 pursuant to the terms of a prospectus, preliminary prospectus, offering memorandum or registration statement filed before February 22, 1994 with a public authority in Canada pursuant to and in accordance with the securities legislation of Canada or of a province and, where required by law, accepted for filing by the public authority, and expended before 1995 (or before March 2, 1995 in the case of amounts expended to acquire a film production prescribed for the purpose of subparagraph 96(2.2)(d)(ii), or an interest in one or more partnerships all or substantially all of the property of which is such a film production) on expenditures contemplated by the document that was filed before February 22, 1994;
(c) the amount was raised before 1995 pursuant to the terms of an offering memorandum distributed as part of an offering of securities where
(i) the memorandum contained a complete or substantially complete description of the securities contemplated in the offering as well as the terms and conditions of the offering,
(ii) the memorandum was distributed before February 22, 1994,
(iii) solicitations in respect of the sale of the securities contemplated by the memorandum were made before February 22, 1994,
(iv) the sale of the securities was substantially in accordance with the memorandum, and
(v) the funds are expended in accordance with the memorandum before 1995 (except that the funds may be expended before March 2, 1995 in the case of a partnership all or substantially all of the property of which is a film production prescribed for the purpose of subparagraph 96(2.2)(d)(ii) the principal photography of which or, in the case of such a production that is a television series, one episode of the series, commences before 1995 and the production is completed before March 2, 1995, or an interest in one or more partnerships all or substantially all of the property of which is such a film production); or
(d) the amount was used for an activity that was carried on by the partnership on February 22, 1994 but not for a significant expansion of the activity nor for the acquisition or production of a film production.
Marginal note:Whether carrying on business before February 22, 1994
(3.17) For the purpose of subsection 40(3.15), a partnership in respect of which paragraph 40(3.16)(a), 40(3.16)(b) or 40(3.16)(c) applies shall be considered to have actively carried on the business, or earned income from the property, contemplated in the document referred to in that paragraph throughout the period beginning February 22, 1994 and ending on the earlier of the closing date, if any, stipulated in the document and January 1, 1995.
Marginal note:Deemed partner
(3.18) For the purpose of subsection 40(3.1), a member of a partnership who acquired an interest in the partnership after February 22, 1994 shall be deemed to have held the interest on February 22, 1994 where the member acquired the interest
(a) in circumstances in which
(i) paragraph 70(6)(d.1) applied,
(ii) where the member is an individual, the member’s spouse or common-law partner held the partnership interest on February 22, 1994,
(iii) where the member is a trust, the taxpayer by whose will the trust was created held the partnership interest on February 22, 1994, and
(iv) the partnership interest was, immediately before the death of the spouse or common-law partner or the taxpayer, as the case may be, an excluded interest;
(b) in circumstances in which
(i) paragraph 70(9.2)(c) applied,
(ii) the member’s parent held the partnership interest on February 22, 1994, and
(iii) the partnership interest was, immediately before the parent’s death, an excluded interest;
(c) in circumstances in which
(i) paragraph 70(9.3)(e) applied,
(ii) the trust referred to in subsection 70(9.3) or the taxpayer by whose will the trust was created held the partnership interest on February 22, 1994, and
(iii) the partnership interest was, immediately before the death of the spouse or common-law partner referred to in subsection 70(9.3), an excluded interest; or
(d) before 1995 pursuant to a document referred to in subparagraph 40(3.16)(a)(i) or paragraph 40(3.16)(b) or 40(3.16)(c).
Marginal note:Non-application of subsection (3)
(3.19) Subsection 40(3) does not apply in any case where subsection 40(3.1) applies.
Marginal note:Non-application of subsection (3.1)
(3.2) Subsection 40(3.1) does not apply in any case where paragraph 98(1)(c) or 98.1(1)(c) applies.
Marginal note:When subsection (3.4) applies
(3.3) Subsection 40(3.4) applies when
(a) a corporation, trust or partnership (in this subsection and subsection 40(3.4) referred to as the “transferor”) disposes of a particular capital property (other than depreciable property of a prescribed class) otherwise than in a disposition described in any of paragraphs (c) to (g) of the definition superficial loss in section 54;
(b) during the period that begins 30 days before and ends 30 days after the disposition, the transferor or a person affiliated with the transferor acquires a property (in this subsection and subsection 40(3.4) referred to as the “substituted property”) that is, or is identical to, the particular property; and
(c) at the end of the period, the transferor or a person affiliated with the transferor owns the substituted property.
Marginal note:Loss on certain properties
(3.4) If this subsection applies because of subsection 40(3.3) to a disposition of a particular property,
(a) the transferor’s loss, if any, from the disposition is deemed to be nil, and
(b) the amount of the transferor’s loss, if any, from the disposition (determined without reference to paragraph 40(2)(g) and this subsection) is deemed to be a loss of the transferor from a disposition of the particular property at the time that is immediately before the first time, after the disposition,
(i) at which a 30-day period begins throughout which neither the transferor nor a person affiliated with the transferor owns
(A) the substituted property, or
(B) a property that is identical to the substituted property and that was acquired after the day that is 31 days before the period begins,
(ii) at which the property would, if it were owned by the transferor, be deemed by section 128.1 or subsection 149(10) to have been disposed of by the transferor,
(iii) that is immediately before control of the transferor is acquired by a person or group of persons, where the transferor is a corporation,
(iv) at which the transferor or a person affiliated with the transferor is deemed by section 50 to have disposed of the property, where the substituted property is a debt or a share of the capital stock of a corporation, or
(v) at which the winding-up of the transferor begins (other than a winding-up to which subsection 88(1) applies), where the transferor is a corporation,
and for the purpose of paragraph 40(3.4)(b), where a partnership otherwise ceases to exist at any time after the disposition, the partnership is deemed not to have ceased to exist, and each person who was a member of the partnership immediately before the partnership would, but for this subsection, have ceased to exist is deemed to remain a member of the partnership, until the time that is immediately after the first time described in subparagraphs 40(3.4)(b)(i) to 40(3.4)(b)(v).
Marginal note:Deemed identical property
(3.5) For the purposes of subsections 40(3.3) and 40(3.4),
(a) right to acquire a property (other than a right, as security only, derived from a mortgage, hypothec, agreement for sale or similar obligation) is deemed to be a property that is identical to the property;
(b) a share of the capital stock of a corporation that is acquired in exchange for another share in a transaction to which section 51, 85.1, 86 or 87 applies is deemed to be a property that is identical to the other share;
(c) where subsections 40(3.3) and 40(3.4) apply to the disposition by a transferor of a share of the capital stock of a corporation, and after the disposition the corporation is merged with one or more other corporations, otherwise than in a transaction in respect of which paragraph 40(3.5)(b) applies to the share, or is wound up in a winding-up to which subsection 88(1) applies, the corporation formed on the merger or the parent (within the meaning assigned by subsection 88(1)), as the case may be, is deemed to own the share while it is affiliated with the transferor; and
(d) where subsections 40(3.3) and 40(3.4) apply to the disposition by a transferor of a share of the capital stock of a corporation, and after the disposition the share is redeemed, acquired or cancelled by the corporation, otherwise than in a transaction in respect of which paragraph 40(3.5)(b) or 40(3.5)(c) applies to the share, the transferor is deemed to own the share while the corporation is affiliated with the transferor.
Marginal note:Loss on shares
(3.6) Where at any time a taxpayer disposes, to a corporation that is affiliated with the taxpayer immediately after the disposition, of a share of a class of the capital stock of the corporation (other than a share that is a distress preferred share as defined in subsection 80(1)),
(a) the taxpayer’s loss, if any, from the disposition is deemed to be nil; and
(b) in computing the adjusted cost base to the taxpayer after that time of a share of a class of the capital stock of the corporation owned by the taxpayer immediately after the disposition, there shall be added the proportion of the amount of the taxpayer’s loss from the disposition (determined without reference to paragraph 40(2)(g) and this subsection) that
(i) the fair market value, immediately after the disposition, of the share
is of
(ii) the fair market value, immediately after the disposition, of all shares of the capital stock of the corporation owned by the taxpayer.
Marginal note:Exception — estate loss carried back
(3.61) If, in the course of administering the estate of a deceased taxpayer, the taxpayer’s legal representative elects in accordance with subsection 164(6) to treat all or any portion of the estate’s capital loss (determined without reference to subsections (3.4) and (3.6)) from the disposition of a share of the capital stock of a corporation as a capital loss of the deceased taxpayer from the disposition of the share, subsections (3.4) and (3.6) apply to the estate in respect of the loss only to the extent that the amount of the loss exceeds the portion of the loss to which the election applies.
Marginal note:Losses of non-resident
(3.7) If an individual disposes of a property at any time after having ceased to be resident in Canada, for the purposes of applying subsections 100(4), 107(1) and 112(3) to (3.32) and (7) in computing the individual’s loss from the disposition,
(a) the individual is deemed to be a corporation in respect of dividends received by the individual, or deemed under Part XIII to have been paid to the individual, at a particular time that is after the time at which the individual last acquired the property and at which the individual was non-resident; and
(b) an amount on account of
(i) each taxable dividend received by the individual at a particular time described in paragraph (a), and
(ii) each amount deemed under Part XIII to have been paid to the individual at a particular time described in paragraph (a), as a dividend from a corporation resident in Canada, to the extent that the amount can reasonably be considered to relate to the property,
is deemed to be a taxable dividend that was received by the individual and that was deductible under section 112 in computing the individual’s taxable income or taxable income earned in Canada for the taxation year that includes that particular time.
Marginal note:Disposal of principal residence to spouse or trust for spouse
(4) Where a taxpayer has, after 1971, disposed of property to an individual in circumstances to which subsection 70(6) or 73(1) applied, for the purposes of computing the individual’s gain from the disposition of the property under paragraph 40(2)(b) or 40(2)(c), as the case may be,
(a) the individual shall be deemed to have owned the property throughout the period during which the taxpayer owned it;
(b) the property shall be deemed to have been the individual’s principal residence
(i) in any case where subsection 70(6) is applicable, for any taxation year for which it would, if the taxpayer had designated it in prescribed manner to have been the taxpayer’s principal residence for that year, have been the taxpayer’s principal residence, and
(ii) in any case where subsection 73(1) is applicable, for any taxation year for which it was the taxpayer’s principal residence; and
(c) where the individual is a trust, the trust shall be deemed to have been resident in Canada during each taxation year during which the taxpayer was resident in Canada.
(5) [Repealed, 1994, Sch. VIII, c. 7, s. 12(1)]
Marginal note:Special rule concerning principal residence
(6) Where a property was owned by a taxpayer, whether jointly with another person or otherwise, at the end of 1981 and continuously thereafter until disposed of by the taxpayer, the amount of the gain determined under paragraph 40(2)(b) in respect of the disposition shall not exceed the amount, if any, by which the total of
(a) the taxpayer’s gain calculated in accordance with paragraph 40(2)(b) on the assumption that the taxpayer had disposed of the property on Dec ember 31, 1981 for proceeds of disposition equal to its fair market value on that date, and
(b) the taxpayer’s gain calculated in accordance with paragraph 40(2)(b) on the assumption that that paragraph applies and that
(i) the taxpayer acquired the property on January 1, 1982 at a cost equal to its proceeds of disposition as determined under paragraph 40(6)(a), and
(ii) the description of B in paragraph 40(2)(b) is read without reference to “one plus”
exceeds
(c) the amount, if any, by which the fair market value of the property on December 31, 1981 exceeds the proceeds of disposition of the property determined without reference to this subsection.
Marginal note:Property in satisfaction of interest in trust
(7) Where property has been acquired by a taxpayer in satisfaction of all or any part of the taxpayer’s capital interest in a trust, in circumstances to which subsection 107(2) applies and subsection 107(4) does not apply, for the purposes of paragraph 40(2)(b) and the definition principal residence in section 54 the taxpayer shall be deemed to have owned the property continuously since the trust last acquired it.
Marginal note:Effect of election under subsection 110.6(19)
(7.1) Where an election was made under subsection 110.6(19) in respect of a property of a taxpayer that was the taxpayer’s principal residence for the 1994 taxation year or that, in the taxpayer’s return of income for the taxation year in which the taxpayer disposes of the property or grants an option to acquire the property, is designated as the taxpayer’s principal residence, in determining, for the purposes of paragraph 40(2)(b) and subsections 40(4) to 40(7), the day on which the property was last acquired or reacquired by the taxpayer and the period throughout which the property was owned by the taxpayer this Act shall be read without reference to subsection 110.6(19).
Marginal note:Application of s. 70(10)
(8) The definitions in subsection 70(10) apply to this section.
Marginal note:Additions to taxable Canadian property
(9) If a non-resident person disposes of a taxable Canadian property
(a) that the person last acquired before April 27, 1995,
(b) that would not be a taxable Canadian property immediately before the disposition if section 115 were read as it applied to dispositions that occurred on April 26, 1995, and
(c) that would be a taxable Canadian property immediately before the disposition if section 115 were read as it applied to dispositions that occurred on January 1, 1996,
the person’s gain or loss from the disposition is deemed to be the amount determined by the formula
A × B/C
where
- A
- is the amount of the gain or loss determined without reference to this subsection;
- B
- is the number of calendar months in the period that begins with May 1995 and ends with the calendar month that includes the time of the disposition; and
- C
- is the number of calendar months in the period that begins with the calendar month in which the person last acquired the property and ends with the calendar month that includes the time of the disposition.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 40
- 1994, c. 7, Sch. II, s. 23, Sch. VIII, s. 12, c. 21, s. 15
- 1995, c. 3, s. 12, c. 21, s. 11
- 1998, c. 19, ss. 8, 89
- 2000, c. 12, s. 142
- 2001, c. 17, ss. 25, 205(E)
- 2005, c. 19, s. 13
Marginal note:Taxable net gain from disposition of listed personal property
41 (1) For the purposes of this Part, a taxpayer’s taxable net gain for a taxation year from dispositions of listed personal property is 1/2 of the amount determined under subsection 41(2) to be the taxpayer’s net gain for the year from dispositions of such property.
Marginal note:Determination of net gain
(2) A taxpayer’s net gain for a taxation year from dispositions of listed personal property is an amount determined as follows:
(a) determine the amount, if any, by which the total of the taxpayer’s gains for the year from the disposition of listed personal property, other than property described in subparagraph 39(1)(a)(i.1), exceeds the total of the taxpayer’s losses for the year from dispositions of listed personal property, and
(b) deduct from the amount determined under paragraph 41(2)(a) such portion as the taxpayer may claim of the taxpayer’s listed-personal-property losses for the 7 taxation years immediately preceding and the 3 taxation years immediately following the taxation year, except that for the purposes of this paragraph
(i) an amount in respect of a listed-personal-property loss is deductible for a taxation year only to the extent that it exceeds the total of amounts deducted under this paragraph in respect of that loss for preceding taxation years,
(ii) no amount is deductible in respect of the listed-personal-property loss of any year until the deductible listed-personal-property losses for previous years have been deducted, and
(iii) no amount is deductible in respect of listed-personal-property losses from the amount determined under paragraph 41(2)(a) for a taxation year except to the extent of the amount so determined for the year,
and the remainder determined under paragraph 41(2)(b) is the taxpayer’s net gain for the year from dispositions of listed personal property.
Definition of listed-personal-property loss
(3) In this section, listed-personal-property loss of a taxpayer for a taxation year means the amount, if any, by which the total of the taxpayer’s losses for the year from dispositions of listed personal property exceeds the total of the taxpayer’s gains for the year from dispositions of listed personal property, other than property described in subparagraph 39(1)(a)(i.1).
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 41
- 2001, c. 17, s. 26
Marginal note:Dispositions subject to warranty
42 In computing a taxpayer’s proceeds of disposition of any property for the purposes of this subdivision, there shall be included all amounts received or receivable by the taxpayer as consideration for warranties, covenants or other conditional or contingent obligations given or incurred by the taxpayer in respect of the disposition, and in computing the taxpayer’s income for the taxation year in which the property was disposed of and for each subsequent taxation year, any outlay or expense made or incurred by the taxpayer in any such year pursuant to or by reason of any such obligation shall be deemed to be a loss of the taxpayer for that year from a disposition of a capital property and for the purposes of section 110.6, that capital property shall be deemed to have been disposed of by the taxpayer in that year.
- [NOTE: Application provisions are not included in the consolidated text