Short Title

Marginal note:Short Title

1 This Act may be cited as the Income Tax Act.

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.

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.

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 (o), (p), (r) and (v) to (z), 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)]

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.

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, or by a person who does not deal at arm’s length with the taxpayer, in the year in respect of, in the course of, or by virtue of the taxpayer’s office or employment, except any benefit

    • (i) derived from the contributions of the taxpayer’s employer to or under a deferred profit sharing plan, an employee life and health trust, a group sickness or accident insurance plan, a group term life insurance policy, a pooled registered pension plan, a private health services plan, a registered pension plan or a supplementary unemployment benefit plan,

    • (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,

    • (v) under a salary deferral arrangement, except to the extent that the benefit is included under this paragraph because of subsection (11), or

    • (vi) that is received or enjoyed by an individual other than the taxpayer under a program provided by the taxpayer’s employer that is designed to assist individuals to further their education, if the taxpayer deals with the employer at arm’s length and it is reasonable to conclude that the benefit is not a substitute for salary, wages or other remuneration of the taxpayer;

  • 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,

    • (v.1) allowances for board and lodging of the taxpayer, to a maximum total of $300 for each month of the year, if

      • (A) the taxpayer is, in that month, a registered participant with, or member of, a sports team or recreation program of the employer in respect of which membership or participation is restricted to persons under 21 years of age,

      • (B) the allowance is in respect of the taxpayer’s participation or membership and is not attributable to services of the taxpayer as a coach, instructor trainer, referee, administrator or other similar occupation,

      • (C) the employer is a registered charity or a non-profit organization described in paragraph 149(1)(l), and

      • (D) the allowance is reasonably attributable to the cost to the taxpayer of living away from the place where the employee would, but for the employment, ordinarily reside,

    • (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]

    • (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;

  • Marginal note:Group sickness or accident insurance plans

    (e.1) the total of all amounts contributed in the year in respect of the taxpayer by the taxpayer’s employer to a group sickness or accident insurance plan, except to the extent that the contributions are attributable to benefits under the plan that, if received by the taxpayer, would be included in the taxpayer’s income under paragraph (f) in the year the benefits are received if that paragraph were read without regard to its subparagraph (v);

  • 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,

    • (iii) an income maintenance insurance plan, or

    • (iii.1) a plan described in any of subparagraphs (i) to (iii) that is administered or provided by an employee life and health trust,

    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 career impact 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, to the extent that the amounts were not deducted in computing the taxable income of the taxpayer or the deceased employee for any taxation year,

    • (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, or

    • (iv) a designated employee benefit (as defined in subsection 144.1(1));

  • 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:Where standby charge does not apply

    (l) the value of a benefit in respect of the operation of an automobile (other than a benefit to which paragraph (k) applies or would apply but for subparagraph (k)(iii)) received or enjoyed by the taxpayer, or by a person related to 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:Deeming rule — amount received

  (1.2) For the purposes of paragraph (1)(g), an amount received by an individual out of or under an employee benefit plan is deemed to have been received by a taxpayer and not by the individual if

  • (a) the individual does not deal at arm’s length with the taxpayer;

  • (b) the amount is received in respect of an office or employment of the taxpayer; and

  • (c) the taxpayer is living at the time the amount is received by the individual.

• 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 salesperson

  (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]

• 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:Amount receivable for covenant

  (3.1) If an amount (other than an amount to which paragraph (1)(a) applies because of subsection (11)) is receivable at the end of a taxation year by a taxpayer in respect of a covenant, agreed to by the taxpayer more than 36 months before the end of that taxation year, with reference to what the taxpayer is, or is not, to do, and the amount would be included in the taxpayer’s income for the year under this subdivision if it were received by the taxpayer in the year, the amount

  • (a) is deemed to be received by the taxpayer at the end of the taxation year for services rendered as an officer or during the period of employment; and

  • (b) is deemed not to be received at any other time.

• 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]

• 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

  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

  employer of an individual includes a former employer of the individual. (employeur)

  top-up disability payment

  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.

Marginal note:Agreement to issue securities to employees

• 7 (1) Subject to subsection (1.1), where a particular qualifying person has agreed to sell or issue securities of the particular qualifying person (or of a qualifying person with which the particular qualifying person 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;

  • (b.1) if the employee has transferred or otherwise disposed of rights under the agreement in respect of some or all of the securities to the particular qualifying person (or a qualifying person with which the particular qualifying person does not deal at arm’s length) with whom the employee was not 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

    is 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

  • (d.1) 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 a particular qualifying person (or a qualifying person with which the particular qualifying person does not deal at arm’s length) with whom the particular person was not 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

    is 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 of the disposition the employee was deceased, in which case such a benefit is 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, subsection (1.1), 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), 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) if a taxpayer acquires a particular security (other than under circumstances to which subsection (1.1) 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 subsection (1.1) 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) if a taxpayer acquires, at the same time, two or more identical securities under circumstances to which subsection (1.1) 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,

    • (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

    • (vi) if the disposition is before 2013 and the old securities were equity in a SIFT wind-up entity that was at the time of the disposition a mutual fund trust, a SIFT wind-up corporation in respect of the SIFT wind-up entity

    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 subsection (1.1) 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 subsections (1) and 110(1), if 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 is deemed to have been 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 following definitions apply in this section and in subsection 47(3), paragraphs 53(1)(j) and 110(1)(d) and (d.01) and subsections 110(1.1), (1.2), (1.5) to (1.8) and (2.1).

  qualifying person

  qualifying person means a corporation or a mutual fund trust. (personne admissible)

  security

  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)

• (8) to (15) [Repealed, 2010, c. 25, s. 3]

• 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).

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 to establish a right to, an amount owed to the taxpayer that, if received by the taxpayer, would be required by this Subdivision to be included in computing the taxpayer’s income;

  • 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) an amount paid by the taxpayer in the year, or on behalf of the taxpayer in the year if the amount paid on behalf of the taxpayer is required to be included in the taxpayer’s income for 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:Quebec parental insurance plan

    (l.2) an amount payable by the taxpayer in the year as an employer’s premium under the Act respecting parental insurance, R.S.Q., c. A-29.011 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 (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:Excess EPSP amounts

    (o.2) an amount that is an excess EPSP amount (as defined in subsection 207.8(1)) of the taxpayer for the year, other than any portion of the excess EPSP amount for which the taxpayer’s tax for the year under subsection 207.8(2) is waived or cancelled;

  • 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;

  • 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

        • (I) the amount that is the total of $500 and the amount determined for the taxation year for B in subsection 118(10), and

        • (II) 5% of the total of

          • 1. 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

          • 2. the amount, if any, by which the amount required by paragraph 56(1)(n.1) to be included in computing the taxpayer’s income for the taxation year exceeds the amount required by paragraph 60(p) to be deducted in computing that income, 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; and

  • Marginal note:Deduction — tradesperson’s tools

    (s) if the taxpayer is employed as a trades­person at any time in the taxation year, the lesser of $500 and the amount determined by the formula

    A - $1,000

    where

    A

    is the lesser of

    • (i) the total of all amounts each of which is the cost of an eligible tool acquired by the taxpayer in the year, and

    • (ii) the total of

      • (A) the amount that would, if this subsection were read without reference to this paragraph, be the taxpayer’s income for the taxation year from employment as a trades­person in the taxation year, and

      • (B) the amount, if any, by which the amount required by paragraph 56(1)(n.1) to be included in computing the taxpayer’s income for the taxation year exceeds the amount required by paragraph 60(p) to be deducted in computing that income.

• 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 Canada or 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,

    • (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

    • (iv) is, unless the device or equipment can be used only for the purpose of measuring, locating or calculating, not an electronic communication device or electronic data processing equipment; 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:Eligible tool of tradesperson

  (6.1) For the purposes of paragraph (1)(s), an eligible tool of a taxpayer is a tool (including ancillary equipment) that

  • (a) is acquired by the taxpayer on or after May 2, 2006 for use in connection with the taxpayer’s employment as a tradesperson;

  • (b) has not been used for any purpose before it is acquired by the taxpayer;

  • (c) 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 a tradesperson; and

  • (d) is, unless the device or equipment can be used only for the purpose of measuring, locating or calculating, not an electronic communication device or electronic data processing equipment.

• Marginal note:Cost of tool

  (7) Except for the purposes of the description of A in subparagraph (1)(r)(ii) and the description of A in paragraph (1)(s), the cost to a taxpayer of an eligible tool the cost of which was included in determining the value of one or both of those descriptions 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

  • (a) if the tool is a tool to which only paragraph (1)(r) applies in the taxation year, 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,

  • (b) if the tool is a tool to which only paragraph (1)(s) applies in the taxation year, the amount determined under that paragraph to be deductible by the taxpayer in the taxation year, or

  • (c) if the tool is a tool to which both paragraphs (1)(r) and (s) apply in the taxation year, the amount that is the total of

    • (i) 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

    • (ii) the amount determined under paragraph (1)(s) to be deductible by the taxpayer in the taxation year; and

  M

  is the amount that is

  • (a) if the tool is a tool to which only paragraph (1)(r) applies in the taxation year, the value of A determined under subparagraph (1)(r)(ii) in respect of the taxpayer for the taxation year,

  • (b) if the tool is a tool to which only paragraph (1)(s) applies in the taxation year, the amount determined under subparagraph (i) of the description of A in paragraph (1)(s) in respect of the taxpayer for the taxation year, and

  • (c) if the tool is a tool to which both paragraphs (1)(r) and (s) apply in the taxation year, the amount that is the greater of the value of A determined under subparagraph (1)(r)(ii) in respect of the taxpayer for the taxation year and the amount determined under subparagraph (i) of the description of A in paragraph (1)(s) 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.

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.

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:Loss restriction event

  (10) Notwithstanding subsection (1.01), property described in an inventory of a taxpayer’s business that is an adventure or concern in the nature of trade at the end of the taxpayer’s taxation year that ends immediately before the time at which the taxpayer is subject to a loss restriction event is to be valued at the cost at which the taxpayer 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 taxpayer acquired the property is, subject to a subsequent application of this subsection, deemed to be that lower amount.

• Marginal note:Loss restriction event

  (11) For the purposes of subsections 88(1.1) and 111(5), a taxpayer’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 taxpayer.

• 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.

• Marginal note:Work in progress — transitional

  (14.1) If paragraph 34(a) applies in computing a taxpayer’s income from a business for the last taxation year of the taxpayer that begins before March 22, 2017, then

  • (a) for the purpose of computing the income of the taxpayer from the business, at the end of the first taxation year that begins after March 21, 2017,

    • (i) the amount of the cost of the taxpayer’s work in progress is deemed to be one-fifth of the amount of its cost determined without reference to this paragraph, and

    • (ii) the amount of the fair market value of the taxpayer’s work in progress is deemed to be one-fifth of the amount of its fair market value determined without reference to this paragraph;

  • (b) for the purpose of computing the income of the taxpayer from the business, at the end of the second taxation year that begins after March 21, 2017,

    • (i) the amount of the cost of the taxpayer’s work in progress is deemed to be two-fifths of the amount of its cost determined without reference to this paragraph, and

    • (ii) the amount of the fair market value of the taxpayer’s work in progress is deemed to be two-fifths of the amount of its fair market value determined without reference to this paragraph;

  • (c) for the purpose of computing the income of the taxpayer from the business, at the end of the third taxation year that begins after March 21, 2017,

    • (i) the amount of the cost of the taxpayer’s work in progress is deemed to be three-fifths of the amount of its cost determined without reference to this paragraph, and

    • (ii) the amount of the fair market value of the taxpayer’s work in progress is deemed to be three-fifths of the amount of its fair market value determined without reference to this paragraph; and

  • (d) for the purpose of computing the income of the taxpayer from the business, at the end of the fourth taxation year that begins after March 21, 2017,

    • (i) the amount of the cost of the taxpayer’s work in progress is deemed to be four-fifths of the amount of its cost determined without reference to this paragraph, and

    • (ii) the amount of the fair market value of the taxpayer’s work in progress is deemed to be four-fifths of the amount of its fair market value determined without reference to this paragraph.

• Marginal note:Derivatives

  (15) For the purposes of this section, property of a taxpayer that is a swap agreement, a forward purchase or sale agreement, a forward rate agreement, a futures agreement, an option agreement, or any similar agreement is deemed not to be inventory of the taxpayer.

Marginal note:Mark-to-market election

• 10.1 (1) Subsection (4) applies to a taxpayer in respect of a taxation year and subsequent taxation years if the taxpayer elects to have subsection (4) apply to the taxpayer and has filed that election in prescribed form on or before its filing-due date for the taxation year.

• Marginal note:Revocation

  (2) The Minister may, on application by the taxpayer in prescribed form, grant permission to the taxpayer to revoke its election under subsection (1). The revocation applies to each taxation year of the taxpayer that begins after the day on which the taxpayer is notified in writing that the Minister concurs with the revocation, on such terms and conditions as are specified by the Minister.

• Marginal note:Subsequent election

  (3) Notwithstanding subsection (1), if a taxpayer has, under subsection (2), revoked an election, any subsequent election under subsection (1) shall result in subsection (4) applying to the taxpayer in respect of each taxation year that begins after the day on which the prescribed form in respect of the subsequent election is filed by the taxpayer.

• Marginal note:Application

  (4) If this subsection applies to a taxpayer in respect of a taxation year,

  • (a) if the taxpayer is a financial institution (as defined in subsection 142.2(1)) in the taxation year, each eligible derivative held by the taxpayer at any time in the taxation year is, for the purpose of applying the provisions of this Act and with such modifications as the context requires, deemed to be mark-to-market property (as defined in subsection 142.2(1)) of the taxpayer for the taxation year; and

  • (b) in any other case, subsection (6) applies to the taxpayer in respect of each eligible derivative held by the taxpayer at the end of the taxation year.

• Marginal note:Definition of eligible derivative

  (5) For the purposes of this section, an eligible derivative, of a taxpayer for a taxation year, means a swap agreement, a forward purchase or sale agreement, a forward rate agreement, a futures agreement, an option agreement or a similar agreement, held at any time in the taxation year by the taxpayer, if

  • (a) the agreement is not a capital property, a Canadian resource property, a foreign resource property or an obligation on account of capital of the taxpayer;

  • (b) either

    • (i) the taxpayer has produced audited financial statements prepared in accordance with generally accepted accounting principles in respect of the taxation year, or

    • (ii) if the taxpayer has not produced audited financial statements described in subparagraph (i), the agreement has a readily ascertainable fair market value; and

  • (c) where the agreement is held by a financial institution (as defined in subsection 142.2(1)), the agreement is not a tracking property (as defined in subsection 142.2(1)), other than an excluded property (as defined in subsection 142.2(1)), of the financial institution.

• Marginal note:Deemed disposition

  (6) If this subsection applies to a taxpayer in respect of each eligible derivative held by the taxpayer at the end of a taxation year, for each eligible derivative held by the taxpayer at the end of the taxation year, the taxpayer is deemed

  • (a) to have disposed of the eligible derivative immediately before the end of the year and received proceeds or paid an amount, as the case may be, equal to its fair market value at the time of disposition; and

  • (b) to have reacquired, or reissued or renewed, the eligible derivative at the end of the year at an amount equal to the proceeds or the amount, as the case may be, determined under paragraph (a).

• Marginal note:Election year — gains and losses

  (7) If a taxpayer holds, at the beginning of its first taxation year in respect of which an election referred to in subsection (1) applies (in this subsection referred to as the “election year”), an eligible derivative and, in the taxation year immediately preceding the election year, the taxpayer did not compute its profit or loss in respect of that eligible derivative in accordance with a method of profit computation that produces a substantially similar effect to subsection (6), then

  • (a) the taxpayer is deemed

    • (i) to have disposed of the eligible derivative immediately before the beginning of the election year and received proceeds or paid an amount, as the case may be, equal to its fair market value at that time, and

    • (ii) to have reacquired, or reissued or renewed, the eligible derivative at the beginning of the election year at an amount equal to the proceeds or the amount, as the case may be, determined under subparagraph (i);

  • (b) the profit or loss that would arise (determined without reference to this paragraph) on the deemed disposition in subparagraph (a)(i)

    • (i) is deemed not to arise in the taxation year immediately preceding the election year, and

    • (ii) is deemed to arise in the taxation year in which the taxpayer disposes of the eligible derivative (otherwise than because of paragraphs (6)(a) or 142.5(2)(a)); and

  • (c) for the purpose of applying subsection 18(15) in respect of the disposition of the eligible derivative referred to in subparagraph (b)(ii), the profit or loss deemed to arise because of that subparagraph is included in determining the amount of the transferor’s loss, if any, from the disposition.

• Marginal note:Default realization method

  (8) If subsection (4) does not apply to a taxpayer referred to in paragraph (4)(b) in respect of a taxation year, a method of profit computation that produces a substantially similar effect to subsection (6) shall not be used for the purpose of computing the taxpayer’s income from a business or property in respect of a swap agreement, a forward purchase or sale agreement, a forward rate agreement, a futures agreement, an option agreement or a similar agreement for the taxation year.

• Marginal note:Interpretation

  (9) For the purposes of subsections (4) to (7), if an agreement that is an eligible derivative of a taxpayer is not a property of the taxpayer, the taxpayer is deemed

  • (a) to hold the eligible derivative at any time while the taxpayer is a party to the agreement; and

  • (b) to have disposed of the eligible derivative when it is settled or extinguished in respect of the taxpayer.

Marginal note:Proprietor of business

• 11 (1) Subject to section 34.1, if 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.

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;

  • (d.2) any amount deducted under paragraph 20(1)(m.3) 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 of a dividend in respect of a share of the capital stock of a corporation resident in Canada that is required by Subdivision H to be included in computing the taxpayer’s income for the year;

  • Marginal note:Foreign corporations, trusts and investment entities

    (k) any amount required by Subdivision I to be included in computing the taxpayer’s income for the year;

  • 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:Partnership — interest deduction add back

    (l.1) the total of all amounts, each of which is the amount, if any, determined in respect of a partnership by the formula

    A × B/C – D

    where

    A

    is the total of all amounts each of which is an amount of interest that is

    • (i) deductible by the partnership, and

    • (ii) paid by the partnership in, or payable by the partnership in respect of, the taxation year of the taxpayer (depending on the method regularly followed by the taxpayer in computing the taxpayer’s income) on a debt amount included in the taxpayer’s outstanding debts to specified non-residents (as defined in subsection 18(5)),

    B

    is the amount determined under paragraph 18(4)(a) in respect of the taxpayer for the year,

    C

    is the amount determined under paragraph 18(4)(b) in respect of the taxpayer for the year, and

    D

    is the total of all amounts each of which is an amount included under subsection 91(1) in computing the income of the taxpayer for the year or a subsequent taxation year, or of the partnership for a fiscal period, that may reasonably be considered to be in respect of interest described in A;

  • 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;

  • (s) [Repealed, 2013, c. 34, s. 173]

  • 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,

    • (v.1) is not an amount received by the taxpayer in respect of a restrictive covenant, as defined by subsection 56.4(1), that was included, under subsection 56.4(2), in computing the income of a person related to the taxpayer,

    • (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, an interest in, or for civil law a right in, the taxpayer’s business or an interest in, or for civil law a real right in, the taxpayer’s 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;

  • Marginal note:TFSA amounts

    (z.5) any amount required by subsection 146.2(9) or section 207.061 to be included in computing the taxpayer’s income for the year;

  • 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; and

  • Marginal note:Derivative forward agreement

    (z.7) the total of all amounts each of which is

    • (i) if the taxpayer acquires a property under a derivative forward agreement in the year, the portion of the amount by which the fair market value of the property at the time it is acquired by the taxpayer exceeds the cost to the taxpayer of the property that is attributable to an underlying interest other than an underlying interest referred to in subparagraphs (b)(i) to (iii) of the definition derivative forward agreement in subsection 248(1), or

    • (ii) if the taxpayer disposes of a property under a derivative forward agreement in the year, the portion of the amount by which the proceeds of disposition (within the meaning assigned by Subdivision C) of the property exceeds the fair market value of the property at the time the agreement is entered into by the taxpayer that is attributable to an underlying interest other than an underlying interest referred to in clauses (c)(i)(A) to (C) of the definition derivative forward agreement in subsection 248(1).

• 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:No deferral of section 9 income under paragraph (1)(g)

  (2.01) Paragraph (1)(g) does not defer the inclusion in income of any amount that would, if this section were read without reference to that paragraph, be included in computing the taxpayer’s income in accordance with section 9.

• Marginal note:Source of income

  (2.02) For the purposes of this Act, if an amount is included in computing the income of a taxpayer for a taxation year because of paragraph (1)(l.1) and the amount is in respect of interest that is deductible by a partnership in computing its income from a particular source or from sources in a particular place, the amount is deemed to be from the particular source or from sources in the particular place, as the case may be.

• 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 (4.1), if in a taxation year a taxpayer (other than a taxpayer to whom subsection (3) applies) holds an interest in, or for civil law a right 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 (3), (4) and (11) and 20(14) and (21), if a taxpayer acquires an interest in, or for civil law a right in, a prescribed debt obligation, an amount determined in prescribed manner is deemed to accrue to the taxpayer as interest on the obligation in each taxation year during which the taxpayer holds the interest or the right in the obligation.

• Marginal note:Exclusion of proceeds of disposition

  (9.1) If a taxpayer disposes of an interest in, or for civil law a right 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, the portion of the proceeds of disposition received by the taxpayer that can reasonably be considered to represent a recovery of the cost to the taxpayer of the interest or the right in the debt obligation shall, notwithstanding any other provision of this Act, not be included in computing the taxpayer’s income, 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

    • (i) deemed by subsection (10.4) or 104(5.1) or (14.1) (as it read for the taxpayer’s 2015 taxation year) to have been paid out of the taxpayer’s NISA Fund No. 2 before the particular time, or

    • (ii) 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:Acquisition of control — corporate NISA Fund No. 2

  (10.4) For the purpose of subsection (10.2), if at any time there is an acquisition of control of a corporation, the balance of the corporation’s NISA Fund No. 2, if any, at that time is deemed to be paid out to the corporation immediately before that time.

• Marginal note:Definitions

  (11) In this section,

  anniversary day

  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

  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,

  • (d.1) a TFSA,

  • (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 (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, or for civil law a right in, the obligation, the income accrued on it for those 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)

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.

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.

12.3 [Repealed, 2013, c. 34, s. 174]

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.

Marginal note:Definitions

• 12.5 (1) The definitions in this section apply for the purposes of this section and section 20.4.

  base year

  base year of an insurer means the insurer’s taxation year that immediately precedes its transition year. (année de base)

  insurance business

  insurance business of an insurer, is an insurance business carried on by the insurer, other than a life insurance business. (entreprise d’assurance)

  reserve transition amount

  reserve transition amount of an insurer, in respect of an insurance business carried on by it in Canada in its transition year, is the positive or negative amount determined by the formula

  A – B

  where

  A

  is the maximum amount that the insurer would be permitted to claim under paragraph 20(7)(c) (and that would be prescribed by section 1400 of the Regulations for the purpose of paragraph 20(7)(c)) as a policy reserve for its base year in respect of its insurance policies if

  • (a) the generally accepted accounting principles that applied to the insurer in valuing its assets and liabilities for its transition year had applied to it for its base year, and

  • (b) section 1400 of the Regulations were read in respect of the insurer’s base year as it reads in respect of its transition year; and

  B

  is the maximum amount that the insurer is permitted to claim under paragraph 20(7)(c) as a policy reserve for its base year. (montant transitoire)

  transition year

  transition year of an insurer means the insurer’s first taxation year that begins after September 2006. (année transitoire)

• Marginal note:Transition year income inclusion

  (2) There shall be included in computing an insurer’s income for its transition year from an insurance business carried on by it in Canada in the transition year, the positive amount, if any, of the insurer’s reserve transition amount in respect of that insurance business.

• Marginal note:Transition year income deduction reversal

  (3) If an amount has been deducted under subsection 20.4(2) in computing an insurer’s income for its transition year from an insurance business carried on by it in Canada, there shall be included in computing the insurer’s income, for each particular taxation year of the insurer that ends after the beginning of the transition year, from that insurance business, the amount determined by the formula

  A × B/1825

  where

  A

  is the amount deducted under subsection 20.4(2) in computing the insurer’s income for the transition year from that insurance business; and

  B

  is the number of days in the particular taxation year that are before the day that is 1825 days after the first day of the transition year.

• Marginal note:Winding-up

  (4) If an insurer has, in a winding-up to which subsection 88(1) has applied, been wound-up into another corporation (referred to in this subsection as the “parent”), and immediately after the winding-up the parent carries on an insurance business, in applying subsections (3) and 20.4(3) in computing the incomes of the insurer and of the parent for particular taxation years that end on or after the first day (referred to in this subsection as the “start day”) on which assets of the insurer were distributed to the parent on the winding-up,

  • (a) the parent is, on and after the start day, deemed to be the same corporation as and a continuation of the insurer in respect of

    • (i) any amount included under subsection (2) or deducted under subsection 20.4(2) in computing the insurer’s income from an insurance business for its transition year,

    • (ii) any amount included under subsection (3) or deducted under subsection 20.4(3) in computing the insurer’s income from an insurance business for a taxation year of the insurer that begins before the start day, and

    • (iii) any amount that would — in the absence of this subsection and if the insurer existed and carried on an insurance business on each day that is the start day or a subsequent day and on which the parent carries on an insurance business — be required to be included or deducted, in respect of any of those days, under subsection (3) or 20.4(3) in computing the insurer’s income from an insurance business; and

  • (b) the insurer is, in respect of each of its particular taxation years, to determine the value for B in the formulas in subsections (3) and 20.4(3) without reference to the start day and days after the start day.

• Marginal note:Amalgamations

  (5) If there is an amalgamation (within the meaning assigned by subsection 87(1)) of an insurer with one or more other corporations to form one corporation (referred to in this subsection as the “new corporation”), and immediately after the amalgamation the new corporation carries on an insurance business, in applying subsections (3) and 20.4(3) in computing the new corporation’s income for particular taxation years that begin on or after the day on which the amalgamation occurred, the new corporation is, on and after that day, deemed to be the same corporation as and a continuation of the insurer in respect of

  • (a) any amount included under subsection (2) or deducted under subsection 20.4(2) in computing the insurer’s income from an insurance business for its transition year;

  • (b) any amount included under subsection (3) or deducted under subsection 20.4(3) in computing the insurer’s income from an insurance business for a taxation year of the insurer that begins before the day on which the amalgamation occurred; and

  • (c) any amount that would — in the absence of this subsection and if the insurer existed and carried on an insurance business on each day that is the day on which the amalgamation occurred or a subsequent day and on which the new corporation carries on an insurance business — be required to be included or deducted, in respect of any of those days, under subsection (3) or 20.4(3) in computing the insurer’s income from an insurance business.

• Marginal note:Application of subsection (7)

  (6) Subsection (7) applies if, at any time, an insurer (referred to in this subsection and subsection (7) as the “transferor”) transfers, to a corporation (referred to in this subsection and subsection (7) as the “transferee”) that is related to the transferor, property in respect of an insurance business carried on by the transferor in Canada (referred to in this subsection and subsection (7) as the “transferred business”) and

  • (a) subsection 138(11.5) or (11.94) applies to the transfer; or

  • (b) subsection 85(1) applies to the transfer, the transfer includes all or substantially all of the property and liabilities of the transferred business and, immediately after the transfer, the transferee carries on an insurance business.

• Marginal note:Transfer of insurance business

  (7) If this subsection applies in respect of the transfer, at any time, of property

  • (a) the transferee is, at and after that time, deemed to be the same corporation as and a continuation of the transferor in respect of

    • (i) any amount included under subsection (2) or deducted under subsection 20.4(2) in computing the transferor’s income for its transition year that can reasonably be attributed to the transferred business,

    • (ii) any amount included under subsection (3) or deducted under subsection 20.4(3) in computing the transferor’s income for a taxation year of the transferor that begins before that time that can reasonably be attributed to the transferred business,

    • (iii) any amount that would — in the absence of this subsection and if the transferor existed and carried on an insurance business on each day that includes that time or is a subsequent day and on which the transferee carries on an insurance business — be required to be included or deducted, in respect of any of those days, under subsection (3) or 20.4(3) in computing the transferor’s income that can reasonably be attributed to the transferred business; and

  • (b) in determining, in respect of the day that includes that time or any subsequent day, any amount that is required under subsection (3) or 20.4(3) to be included or deducted in computing the transferor’s income for each particular taxation year from the transferred business, the description of A in the formulas in those subsections is deemed to be nil.

• Marginal note:Ceasing to carry on business

  (8) If at any time an insurer ceases to carry on all or substantially all of an insurance business (referred to in this subsection as the “discontinued business”), and none of subsections (4) to (6) apply, there shall be included in computing the insurer’s income from the discontinued business for the insurer’s taxation year that includes the time that is immediately before that time, the amount determined by the formula

  A – B

  where

  A

  is the amount deducted under subsection 20.4(2) in computing the insurer’s income from the discontinued business for its transition year; and

  B

  is the total of all amounts each of which is an amount included under subsection (3) in computing the insurer’s income from the discontinued business for a taxation year that began before that time.

• Marginal note:Ceasing to exist

  (9) If at any time an insurer that carried on an insurance business ceases to exist (otherwise than as a result of a winding-up or amalgamation described in subsection (4) or (5)), for the purposes of subsections (8) and 20.4(4), the insurer is deemed to have ceased to carry on the insurance business at the earlier of

  • (a) the time (determined without reference to this subsection) at which the insurer ceased to carry on the insurance business, and

  • (b) the time that is immediately before the end of the last taxation year of the insurer that ended at or before the time at which the insurer ceased to exist.

Marginal note:Definitions

• 12.6 (1) The definitions in section 18.3 apply in this section.

• Marginal note:Where subsection (3) applies

  (2) Subsection (3) applies for a taxation year of an entity in respect of a security of the entity if

  • (a) the security becomes, at a particular time in the year, a stapled security of the entity and, as a consequence, amounts described in paragraphs 18.3(3)(a) and (b) are not deductible because of subsection 18.3(3);

  • (b) the security (or any security for which the security was substituted) ceased, at an earlier time, to be a stapled security of any entity and, as a consequence, subsection 18.3(3) ceased to apply to deny the deductibility of amounts that would be described in paragraphs 18.3(3)(a) and (b) if the security were a stapled security; and

  • (c) throughout the period that began immediately after the most recent time referred to in paragraph (b) and that ends at the particular time, the security (or any security for which the security was substituted) was not a stapled security of any entity.

• Marginal note:Income inclusion

  (3) If this subsection applies for a taxation year of an entity in respect of a security of the entity, the entity shall include in computing its income for the year each amount that

  • (a) was deducted by the entity (or by another entity that issued a security for which the security was substituted) in computing its income for a taxation year that includes any part of the period described in paragraph (2)(c); and

  • (b) would not have been deductible if subsection 18.3(3) had applied in respect of the amount.

• Marginal note:Deemed excess

  (4) For the purposes of subsection 161(1), if an amount described in paragraph (3)(a) is included in the income of an entity for a taxation year under subsection (3), the entity is deemed to have an excess immediately after the entity’s balance-due day for the year computed as if

  • (a) the entity were resident in Canada throughout the year;

  • (b) the entity’s tax payable for the year were equal to the tax payable by the entity on its taxable income for the year;

  • (c) the amount were the entity’s only taxable income for the year;

  • (d) the entity claimed no deductions under Division E for the year;

  • (e) the entity had not paid any amounts on account of its tax payable for the year; and

  • (f) the tax payable determined under paragraph (b) had been outstanding throughout the period that begins immediately after the end of the taxation year for which the amount was deducted and that ends on the entity’s balance-due day for the year.

Marginal note:Recaptured depreciation

• 13 (1) If, at the end of a taxation year, the total of the amounts determined for E to K in the definition undepreciated capital cost in subsection (21) in respect of a taxpayer’s depreciable property of a particular prescribed class exceeds the total of the amounts determined for A to D.1 in that definition in respect of that property, the excess shall be included in computing the taxpayer’s income of 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) if the former property is described in paragraph (a), before the later of the end of the second taxation year following the initial year and 24 months after the end of the initial year, or

      • (B) in any other case, before the later of the end of the first taxation year following the initial year and 12 months after the end of 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:Election — limited period franchise, concession or license

  (4.2) Subsection (4.3) applies if

  • (a) a taxpayer (in this subsection and subsection (4.3) referred to as the “transferor”) has, pursuant to a written agreement with a person or partnership (in this subsection and subsection (4.3) referred to as the “transferee”), at any time disposed of or terminated a former property that is a franchise, concession or licence for a limited period that is wholly attributable to the carrying on of a business at a fixed place;

  • (b) the transferee acquired the former property from the transferor or, on the termination, acquired a similar property in respect of the same fixed place from another person or partnership; and

  • (c) the transferor and the transferee jointly elect in their returns of income for their taxation years that include that time to have subsection (4.3) apply in respect of the acquisition and the disposition or termination.

• Marginal note:Effect of election

  (4.3) If this subsection applies in respect of an acquisition and a disposition or termination,

  • (a) if the transferee acquired a similar property referred to in paragraph (4.2)(b), the transferee is deemed to have also acquired the former property at the time that the former property was terminated and to own the former property until the transferee no longer owns the similar property;

  • (b) if the transferee acquired the former property referred to in paragraph (4.2)(b), the transferee is deemed to own the former property until such time as the transferee owns neither the former property nor a similar property in respect of the same fixed place to which the former property related;

  • (c) for the purpose of calculating the amount deductible under paragraph 20(1)(a) in respect of the former property in computing the transferee’s income, the life of the former property remaining on its acquisition by the transferee is deemed to be equal to the period that was the life of the former property remaining on its acquisition by the transferor; and

  • (d) any amount that would, if this Act were read without reference to this subsection, be included in the cost of a property of the transferor included in Class 14.1 of Schedule II to the Income Tax Regulations (including a deemed acquisition under subsection (35)) or included in the proceeds of disposition of a property of the transferee included in that Class (including a deemed disposition under subsection (37)) in respect of the disposition or termination of the former property by the transferor is deemed to be

    • (i) neither included in the cost nor the proceeds of disposition of property included in that Class,

    • (ii) an amount required to be included in computing the capital cost to the transferee of the former property, and

    • (iii) an amount required to be included in computing the proceeds of disposition to the transferor in respect of a disposition of the former property.

• 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:Deemed cost and depreciation

  (5.2) If, at any time, a taxpayer has acquired a capital property that is depreciable property or real or immovable 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 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:Deemed recapture

  (5.3) If, 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 or immovable 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 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 is deemed to be an excess referred to in subsection (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) if a taxpayer 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 taxpayer of the property at the time of the reacquisition is deemed to be equal to the total of

    • (i) the capital cost to the taxpayer of the property at the time of the disposition, and

    • (ii) 1/2 of the amount, if any, by which the taxpayer’s proceeds of disposition of the property exceed the capital cost to the taxpayer 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

  (7.41) Subsection (38) applies in respect of an amount repaid after 2016 as if that amount was repaid immediately before 2017, if

  • (a) the amount is repaid by the taxpayer under a legal obligation to repay all or part of an amount the taxpayer received or was entitled to receive that was 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) in respect of, or for the acquisition of, property the cost of which was an eligible capital expenditure of the taxpayer in respect of the business;

  • (b) the amount of an eligible capital expenditure of the taxpayer in respect of the business was reduced by paragraph 14(10)(c) because of the assistance referred to in paragraph (a); and

  • (c) paragraph 20(1)(hh.1) does not apply in respect of the amount repaid.

• Marginal note:Timing of deduction

  (7.42) No amount may be deducted under paragraph 20(1)(a) in respect of an amount of repaid assistance referred to in subsection (7.41) for any taxation year prior to the taxation year in which the assistance is repaid.

• 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) if a taxpayer acquires an intangible property, or for civil law an incorporeal property, as a consequence of making a payment to which paragraph (a) applies or incurring a cost to which paragraph (b) applies,

    • (i) the property referred to in paragraph (a) or (b) is deemed to include the intangible or incorporeal property, and

    • (ii) the portion of the capital cost referred to in paragraph (a) or (b) that applies to the intangible or incorporeal 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 or incorporeal 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 or incorporeal 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 Income Tax Regulations in respect of prescribed energy conservation property, the Technical Guide to Class 43.1 and 43.2, 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

  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, in respect of a vessel, means a conversion or major alteration in Canada by a taxpayer; (conversion)

  conversion cost

  conversion cost, in respect of a vessel, means the cost of a conversion; (frais de conversion)

  depreciable property

  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]

  proceeds of 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

  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

  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

  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, including, if the taxpayer is an insurer, depreciation deemed to have been allowed before that time under subsection (22) or (23) as they read in their application to the taxpayer’s last taxation year that began before November 2011,

  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; (fraction non amortie du coût en capital)

  vessel

  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 — other than, for the purposes of computing the exempt surplus or exempt deficit and taxable surplus or taxable deficit of a foreign affiliate of a taxpayer, in respect of the taxpayer, where the transferor is the affiliate or is a partnership of which the affiliate is a member, depreciable property that is, or would be, if the transferor were a foreign affiliate of the taxpayer, excluded property (within the meaning assigned by subsection 95(1)) of the transferor — 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 the transferor is subject to a loss restriction event, or

      • (E) if the transferor is a corporation,

        • (I) for the purposes of computing the transferor’s foreign accrual property income, exempt surplus or exempt deficit, and taxable surplus or taxable deficit, in respect of a taxpayer for a taxation year of the transferor where the transferor is a foreign affiliate of the taxpayer, at which the liquidation and dissolution of the transferor begins, unless the liquidation and dissolution is

          1 a qualifying liquidation and dissolution (within the meaning assigned by subsection 88(3.1)) of the transferor, or

          2 a designated liquidation and dissolution (within the meaning assigned by subsection 95(1)) of the transferor, and

        • (II) for any other purposes, at which the winding-up (other than a winding-up to which subsection 88(1) applies) of the transferor begins, 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.

• (22) to (23.1) [Repealed, 2013, c. 34, s. 175]

• Marginal note:Loss restriction event

  (24) If at any time a taxpayer is subject to a loss restriction event and, within the 12-month period that ended immediately before that time, the taxpayer, a partnership of which the taxpayer was a majority-interest partner or a trust of which the taxpayer was a majority-interest beneficiary (as defined in subsection 251.1(3)) acquired depreciable property (other than property that was held, by the taxpayer, partnership or trust or by a person that would be affiliated with the taxpayer if section 251.1 were read without reference to the definition controlled in subsection 251.1(3), throughout the period that began immediately before the 12-month period began and ended at the time the property was acquired by the taxpayer, partnership or trust) that was not used, or acquired for use, by the taxpayer, partnership or trust in a business that was carried on by it immediately before the 12-month period began

  • (a) subject to paragraph (b), for the purposes of the description of A in the definition undepreciated capital cost in subsection (21) and of sections 127 and 127.1, the property is deemed

    • (i) not to have been acquired by the taxpayer, partnership or trust, as the case may be, before that time, and

    • (ii) to have been acquired by it immediately after that time; and

  • (b) if the property was disposed of by the taxpayer, partnership or trust, as the case may be, before that time and was not reacquired by it before that time, for the purposes of the description of A in that definition, the property is deemed to have been acquired by it immediately before the property was disposed of.

• Marginal note:Affiliation — subsection (24)

  (25) For the purposes of subsection (24), if the taxpayer referred to in that subsection was formed or created in the 12-month period referred to in that subsection, the taxpayer is deemed to have been, throughout the period that began immediately before the 12-month period and ended immediately after it was formed or created,

  • (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 formed or created and that ended immediately before the time at which the taxpayer was subject to the loss restriction event referred to in that subsection.

• 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 designated 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:Goodwill

  (34) Where a taxpayer carries on a particular business,

  • (a) there is deemed to be a single goodwill property in respect of the particular business;

  • (b) if at any time the taxpayer acquires goodwill as part of an acquisition of all or a part of another business that is carried on, after the acquisition, as part of the particular business — or is deemed by subsection (35) to acquire goodwill in respect of the particular business — the cost of the goodwill is added at that time to the cost of the goodwill property in respect of the particular business;

  • (c) if at any time the taxpayer disposes of goodwill as part of the disposition of part of the particular business, receives proceeds of disposition a portion of which is attributable to goodwill and continues to carry on the particular business or is deemed by subsection (37) to dispose of goodwill in respect of the particular business,

    • (i) the taxpayer is deemed to dispose at that time of a portion of the goodwill property in respect of the particular business having a cost equal to the lesser of the cost of the goodwill property in respect of the particular business otherwise determined and the portion of the proceeds attributable to goodwill, and

    • (ii) the cost of the goodwill property in respect of the particular business is reduced at that time by the amount determined under subparagraph (i); and

  • (d) if paragraph (c) applies to more than one disposition of goodwill at the same time, that paragraph and subsection (39) apply as if each disposition had occurred separately in the order designated by the taxpayer or, if the taxpayer does not designate an order, in the order designated by the Minister.

• Marginal note:Outlays not relating to property

  (35) If at any time a taxpayer makes or incurs an outlay or expense on account of capital for the purpose of gaining or producing income from a business carried on by the taxpayer, the taxpayer is deemed to acquire at that time goodwill in respect of the business with a cost equal to the amount of the outlay or expense if no portion of the amount is

  • (a) the cost, or any part of the cost, of a property;

  • (b) deductible in computing the taxpayer’s income from the business (determined without reference to this subsection);

  • (c) not deductible in computing the taxpayer’s income from the business because of any provision of this Act (other than paragraph 18(1)(b)) or the Income Tax Regulations;

  • (d) paid or payable to a creditor of the taxpayer as, on account of or in lieu of payment of, any debt, or on account of the redemption, cancellation or purchase of any bond or debenture; or

  • (e) where the taxpayer is a corporation, partnership or trust, paid or payable to a person as a shareholder, partner or beneficiary, as the case may be, of the taxpayer.

• Marginal note:No addition to goodwill

  (36) For greater certainty, no amount paid or payable may be included in Class 14.1 of Schedule II to the Income Tax Regulations, if the amount is

  • (a) in consideration for the purchase of shares; or

  • (b) in consideration for the cancellation or assignment of an obligation to pay consideration referred to in paragraph (a).

• Marginal note:Receipts not relating to property

  (37) If at any time in a taxation year a taxpayer has or may become entitled to receive an amount (in this subsection referred to as the receipt) on account of capital in respect of a business that is or was carried on by the taxpayer, the taxpayer is deemed to dispose, at that time, of goodwill in respect of the business for proceeds of disposition equal to the amount by which the receipt exceeds the total of all outlays or expenses that were made or incurred by the taxpayer for the purpose of obtaining the receipt and that were not otherwise deductible in computing the taxpayer’s income, if the following conditions are satisfied (determined without reference to this subsection):

  • (a) the receipt is not 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 taxation year or a preceding taxation year;

  • (b) the receipt does not reduce the cost or capital cost of a property or the amount of an outlay or expense; and

  • (c) the receipt is not included in computing any gain or loss of the taxpayer from a disposition of a capital property.

• Marginal note:Class 14.1 — transitional rules

  (38) If a taxpayer has incurred an eligible capital expenditure in respect of a business before January 1, 2017,

  • (a) at the beginning of that day, the total capital cost of all property of the taxpayer included in Class 14.1 of Schedule II to the Income Tax Regulations in respect of the business, each of which was an eligible capital property of the taxpayer immediately before that day or is the goodwill property in respect of the business, is deemed to be the amount determined by the formula

    4/3 × (A + B – C)

    where

    A

    is the amount that is the cumulative eligible capital in respect of the business at the beginning of that day,

    B

    is the amount determined for F in the definition cumulative eligible capital in subsection 14(5) (as that subsection applied immediately before that day) in respect of the business at the beginning of that day, and

    C

    is the amount by which the total of all amounts determined, in respect of the business, for E or F in the definition cumulative eligible capital in subsection 14(5) (as that subsection applied immediately before that day), exceeds the total of all amounts determined for A to D.1 in that definition in respect of the business at the beginning of that day, including any adjustment required by subparagraph (d)(i);

  • (b) at the beginning of that day, the capital cost of each property of the taxpayer included in the class in respect of the business, each of which was an eligible capital property of the taxpayer immediately before that day or is the goodwill property in respect of the business, is to be determined as follows:

    • (i) the taxpayer shall designate the order in which the capital cost of each property that is not the goodwill property is determined and, if the taxpayer does not designate an order, the Minister may designate the order,

    • (ii) the capital cost of a particular property that is not the goodwill property in respect of the business is deemed to be the lesser of the eligible capital expenditure of the taxpayer in respect of the particular property and the amount by which the total capital cost of the class determined under paragraph (a) exceeds the total of all amounts each of which is an amount deemed by this subparagraph to be the capital cost of a property that is determined in advance of the determination of the capital cost of the particular property, and

    • (iii) the capital cost of the goodwill property is deemed to be the amount by which the total capital cost of the class exceeds the total of all amounts each of which is an amount deemed by subparagraph (ii) to be the capital cost of a property;

  • (c) an amount is deemed to have been allowed to the taxpayer in respect of property of the class under regulations made under paragraph 20(1)(a) in computing the taxpayer’s income for taxation years ending before that day equal to the amount by which

    • (i) the total of the total capital cost of the class and the amount determined for C in paragraph (a)

    exceeds

    • (ii) the amount determined for A in paragraph (a); and

  • (d) if no taxation year of the taxpayer ends immediately before that day and the taxpayer would have had a particular amount included, because of paragraph 14(1)(b) (as that paragraph applied immediately before that day), in computing the taxpayer’s income from the business for the particular taxation year that includes that day if the particular year had ended immediately before that day,

    • (i) for the purposes of the formula in paragraph (a), 3/2 of the particular amount is to be included in computing the amount for B of the definition cumulative eligible capital in subsection 14(5) (as that subsection applied immediately before that day),

    • (ii) the taxpayer is deemed to dispose of a capital property in respect of the business immediately before that day for proceeds of disposition equal to twice the particular amount,

    • (iii) if the taxpayer elects in writing to have this subparagraph apply and files that election with the Minister on or before the filing-due date for the particular year, subparagraph (ii) does not apply and an amount equal to the particular amount is to be included in computing the taxpayer’s income from the business for the particular year,

    • (iv) if, on or after that day and in the particular year, the taxpayer acquires a property included in the class in respect of the business, or is deemed by subsection (35) to acquire goodwill in respect of the business, and the taxpayer elects in writing to have this subparagraph apply and files that election with the Minister on or before the filing-due date for the particular year,

      • (A) for the purposes of subparagraphs (ii) and (iii), the particular amount is to be reduced by the lesser of the particular amount otherwise determined and 1/2 of the capital cost of the property or goodwill acquired (determined without reference to clause (B)), and

      • (B) the capital cost of the property or goodwill acquired, as the case may be, is to be reduced by twice the amount by which the particular amount is reduced under clause (A), and

    • (v) if, in the particular year and before that day, the taxpayer disposed of a qualified farm or fishing property (as defined in subsection 110.6(1)) that was an eligible capital property of the taxpayer, the capital property disposed of under subparagraph (ii), if any, is deemed to be a qualified farm or fishing property to the extent of the lesser of

      • (A) the proceeds of disposition of the capital property, and

      • (B) the amount by which the proceeds of disposition of the qualified farm or fishing property exceed its cost.

• Marginal note:Class 14.1 — transitional rule

  (39) If at any time a taxpayer disposes of a particular property included in Class 14.1 of Schedule II to the Income Tax Regulations in respect of a business and none of subsections 24(2), 70(5.1), 73(3.1), 85(1), 88(1), 98(3) and (5), 107(2) and 107.4(3) apply to the disposition, then for the purpose of determining the undepreciated capital cost of the class, the taxpayer is deemed to have acquired a property of the class immediately before that time with a capital cost equal to the least of 1/4 of the proceeds of disposition of the particular property, 1/4 of the capital cost of the particular property and

  • (a) if the particular property is not goodwill and is acquired before January 1, 2017 by the taxpayer, 1/4 of the capital cost of the particular property;

  • (b) if the particular property is not goodwill, is acquired on or after that day by the taxpayer and subsection (40) deems an amount to have been allowed under paragraph 20(1)(a) in respect of the taxpayer’s acquisition of the particular property, that amount;

  • (c) if the particular property (other than a property to which paragraph (b) applies) is not goodwill and is acquired on or after that day by the taxpayer — in circumstances under which any of subsections 24(2), 70(5.1), 73(3.1), 85(1), 88(1), 98(3) and (5), 107(2) and 107.4(3) apply — from a person or partnership that would have been deemed under this subsection to have acquired a property if none of those subsections had applied, the capital cost of the property that would have been deemed under this subsection to have been acquired by the person or partnership;

  • (d) if the particular property is goodwill, the amount by which

    • (i) the total of all amounts each of which is

      • (A) 1/4 of the amount determined under subparagraph (38)(b)(iii) in respect of the business,

      • (B) if goodwill is acquired on or after that day by the taxpayer and subsection (40) deems an amount to have been allowed under paragraph 20(1)(a) in respect of the taxpayer’s acquisition of the goodwill, that amount, or

      • (C) if goodwill is acquired (other than an acquisition in respect of which clause (B) applies) on or after that day by the taxpayer — in circumstances under which any of subsections 24(2), 70(5.1), 73(3.1), 85(1), 88(1), 98(3) and (5), 107(2) and 107.4(3) apply — from a person or partnership that would have been deemed under this subsection to have acquired a property if none of those subsections had applied, the capital cost of the property that would have been deemed under this subsection to have been acquired by the person or partnership

    exceeds

    • (ii) the total of all amounts each of which is the capital cost of a property deemed by this subsection to have been acquired by the taxpayer at or before that time in respect of another disposition of goodwill in respect of the business; and

  • (e) in any other case, nil.

• Marginal note:Class 14.1 — transitional rule

  (40) If at any time a taxpayer acquires a particular property included in Class 14.1 of Schedule II to the Income Tax Regulations in respect of a business, the acquisition of the particular property is part of a transaction or series of transactions or events that includes a disposition (in this subsection referred to as the prior disposition) at or before that time of the particular property, or a similar property, by the taxpayer or a person or partnership that does not deal at arm’s length with the taxpayer and subsection (39) applies in respect of the prior disposition, then for the purpose of determining the undepreciated capital cost of the class, an amount is deemed to have been allowed under paragraph 20(1)(a) to the taxpayer in respect of the particular property in computing the taxpayer’s income for taxation years ending before the acquisition equal to the lesser of the capital cost of the property deemed by subsection (39) to be acquired in respect of the prior disposition and 1/4 of the capital cost of the particular property.

• Marginal note:Class 14.1 — transitional rule

  (41) For the purposes of subsections (38) to (40) and (42), paragraph 20(1)(hh.1), subsections 40(13) to (16) and paragraph 79(4)(b), cumulative eligible capital, eligible capital expenditure, eligible capital property and exempt gains balance have the meanings that would be assigned to those expressions if the Act read as it did immediately before 2017.

• Marginal note:Class 14.1 — transitional rules

  (42) If a taxpayer owns property included in Class 14.1 of Schedule II to the Income Tax Regulations in respect of a business at the beginning of 2017, that was an eligible capital property in respect of the business immediately before 2017,

  • (a) for the purposes of the Act and its regulations (other than this section, section 20 and any regulations made for the purposes of paragraph 20(1)(a)), if the amount determined for A in the definition cumulative eligible capital in subsection 14(5) would have been increased immediately before 2017 if the property had been disposed of immediately before that time, the capital cost of the property is deemed to be increased by 4/3 of the amount of that increase;

  • (b) for purposes of this section, section 20 and any regulations made for the purposes of paragraph 20(1)(a), if the taxpayer was deemed by subsection 14(12) to continue to own eligible capital property in respect of the business and not to have ceased to carry on the business until a time that is after 2016, the taxpayer is deemed to continue to own the property and to continue to carry on the business until the time that is immediately before the first time one of the events that would be described in any of paragraphs 14(12)(c) to (g) (as they read immediately before 2017, if the reference to “eligible capital property” in paragraph 14(12)(d) were read as “eligible capital property or capital property”) occurs;

  • (c) for the purposes of the descriptions of D.1 and K in the definition undepreciated capital cost in subsection (21), the taxpayer is deemed not to have paid or received any amounts before 2017 as or on account of an existing or proposed countervailing or anti-dumping duty in respect of depreciable property of the class; and

  • (d) subsection (7.1) does not apply to assistance that a taxpayer received or is entitled to receive before 2017 in respect of a property that was an eligible capital property immediately before 2017.

14 [Repealed, 2016, c. 12, s. 4]

Marginal note:Benefit conferred on shareholder

• 15 (1) If, at any time, a benefit is conferred by a corporation on a shareholder of the corporation, on a member of a partnership that is a shareholder of the corporation or on a contemplated shareholder of the corporation, then the amount or value of the benefit is to be included in computing the income of the shareholder, member or contemplated shareholder, as the case may be, for its taxation year that includes the time, except to the extent that the amount or value of the benefit is deemed by section 84 to be a dividend or that the benefit is conferred on the shareholder

  • (a) where the corporation is resident in Canada at the time,

    • (i) by the reduction of the paid-up capital of the corporation,

    • (ii) by the redemption, acquisition or cancellation by the corporation of shares of its capital stock,

    • (iii) on the winding-up, discontinuance or reorganization of the corporation’s business, or

    • (iv) by way of a transaction to which subsection 88(1) or (2) applies;

  • (a.1) where the corporation is not resident in Canada at the time,

    • (i) by way of a distribution to which subsection 86.1(1) applies,

    • (ii) by a reduction of the paid-up capital of the corporation to which subclause 53(2)(b)(i)(B)(II) or subparagraph 53(2)(b)(ii) applies,

    • (iii) by the redemption, acquisition or cancellation by the corporation of shares of its capital stock, or

    • (iv) on the winding-up, or liquidation and dissolution, of the corporation;

  • (b) by the payment of a dividend or a stock dividend;

  • (c) by 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 purposes of this paragraph,

    • (i) the shares of a particular class of common shares of the capital stock of the corporation are deemed to be property that is identical to the shares of another class of common shares of the capital stock of the corporation if

      • (A) the voting rights attached to the particular class differ from the voting rights attached to the other class, 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, and

    • (ii) rights are not considered identical if the cost of acquiring the rights differs; or

  • (d) by an action to which paragraph 84(1)(c.1), (c.2) or (c.3) applies.

• Marginal note:Conferring of benefit

  (1.1) Notwithstanding subsection (1), if 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 any of paragraphs 82(1)(a), (a.1) and (c) to (e), 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.

• Marginal note:Interpretation — subsection (1)

  (1.4) For the purposes of this subsection and subsection (1),

  • (a) a contemplated shareholder of a corporation is

    • (i) a person or partnership on whom a benefit is conferred by the corporation in contemplation of the person or partnership becoming a shareholder of the corporation, or

    • (ii) a member of a partnership on whom a benefit is conferred by the corporation in contemplation of the partnership becoming a shareholder of the corporation;

  • (b) a person or partnership that is (or is deemed by this paragraph to be) a member of a particular partnership that is a member of another partnership is deemed to be a member of the other partnership;

  • (c) a benefit conferred by a corporation on an individual is a benefit conferred on a shareholder of the corporation, a member of a partnership that is a shareholder of the corporation or a contemplated shareholder of the corporation — except to the extent that the amount or value of the benefit is included in computing the income of the individual or any other person — if the individual is an individual, other than an excluded trust in respect of the corporation, who does not deal at arm’s length with, or is affiliated with, the shareholder, member of the partnership or contemplated shareholder, as the case may be;

  • (d) for the purposes of paragraph (c), an excluded trust in respect of a corporation is a trust in which no individual (other than an excluded trust in respect of the corporation) who does not deal at arm’s length with, or is affiliated with, a shareholder of the corporation, a member of a partnership that is a shareholder of the corporation or a contemplated shareholder of the corporation, is beneficially interested; and

  • (e) if a non-resident corporation (in this paragraph referred to as the “original corporation”) governed by the laws of a foreign jurisdiction is divided under those laws into two or more non-resident corporations and, as a consequence of the division, a shareholder of the original corporation acquires at any time one or more shares of another corporation (in this paragraph referred to as the “new corporation”), the original corporation is deemed at that time to have conferred a benefit on the shareholder equal to the value at that time of the shares of the new corporation acquired by the shareholder except to the extent that any of subparagraphs (1)(a.1)(i) to (iii) and paragraph (1)(b) applies to the acquisition of the shares.

• 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 become indebted to (otherwise than by way of a pertinent loan or indebtedness) 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:Meaning of connected

  (2.1) For the purposes of subsection (2), a person or partnership is connected with a shareholder of a particular corporation if that person or partnership does not deal at arm’s length with, or is affiliated with, the shareholder, unless, in the case of a person, that person is

  • (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:Pertinent loan or indebtedness

  (2.11) For the purposes of subsection (2) and subject to subsection 17.1(3), pertinent loan or indebtedness means a loan received, or an indebtedness incurred, at any time, by a non-resident corporation (in this subsection referred to as the “subject corporation”), or by a partnership of which the subject corporation is, at that time, a member, that is an amount owing to a corporation resident in Canada (in this subsection and subsections (2.12) and (2.14) referred to as the “CRIC”) or to a qualifying Canadian partnership in respect of the CRIC and in respect of which amount owing all of the following apply:

  • (a) subsection (2) would, in the absence of this subsection, apply to the amount owing;

  • (b) the amount becomes owing after March 28, 2012;

  • (c) at that time, the CRIC is controlled by a non-resident corporation that

    • (i) is the subject corporation, or

    • (ii) does not deal at arm’s length with the subject corporation; and

  • (d) either

    • (i) in the case of an amount owing to the CRIC, the CRIC and a non-resident corporation that controls the CRIC jointly elect in writing under this subparagraph in respect of the amount owing and file the election with the Minister on or before the filing-due date of the CRIC for the taxation year that includes that time, or

    • (ii) in the case of an amount owing to the qualifying Canadian partnership, all the members of the qualifying Canadian partnership and a non-resident corporation that controls the CRIC jointly elect in writing under this subparagraph in respect of the amount owing and file the election with the Minister on or before the filing-due date of the CRIC for its taxation year in which ends the fiscal period of the qualifying Canadian partnership that includes that time.

• Marginal note:Late-filed elections

  (2.12) Where an election referred to in paragraph (2.11)(d) was not made on or before the day on or before which the election was required by that paragraph to be made, the election is deemed to have been made on that day if the election is made on or before the day that is three years after that day and the penalty in respect of the election is paid by the CRIC when the election is made.

• Marginal note:Penalty for late-filed election

  (2.13) For the purposes of subsection (2.12), the penalty in respect of an election referred to in that subsection is the amount equal to the product obtained by multiplying $100 by the number of months each of which is a month all or part of which is during the period commencing with the day on or before which the election is required by paragraph (2.11)(d) to be made and ending on the day the election is made.

• Marginal note:Partnerships

  (2.14) For purposes of this subsection, subsection (2.11), section 17.1 and subsection 18(5),

  • (a) a qualifying Canadian partnership, at any time in respect of a CRIC, means a partnership each member of which is, at that time, the CRIC or another corporation resident in Canada to which the CRIC is, at that time, related; and

  • (b) a person or partnership that is (or is deemed by this paragraph to be) a member of a particular partnership that is a member of another partnership is deemed to be a member of the other partnership.

• Marginal note:Mergers

  (2.15) For the purposes of subsections (2.11) and (2.14),

  • (a) if there has been an amalgamation to which subsection 87(1) applies, the new corporation referred to in that subsection is deemed to be the same corporation as, and a continuation of, each predecessor corporation referred to in that subsection; and

  • (b) if there has been a winding-up to which subsection 88(1) applies, the parent referred to in that subsection is deemed to be the same corporation as, and a continuation of, the subsidiary referred to in that subsection.

• Marginal note:Back-to-back arrangement — application

  (2.16) Subsection (2.17) applies at any time if

  • (a) at that time, a person or partnership (referred to in this subsection and subsections (2.17) to (2.192) as the intended borrower) has an amount outstanding as or on account of a debt or other obligation to pay an amount (in this subsection and subsections (2.17) to (2.192) referred to as the shareholder debt) to a person or partnership (in this subsection and subsections (2.17) to (2.192) referred to as the immediate funder);

  • (b) subsection (2) would not, in the absence of this subsection and subsection (2.17), apply to the shareholder debt;

  • (c) at that time, a funder, in respect of a particular funding arrangement,

    • (i) has an amount outstanding as or on account of a debt or other obligation to pay an amount (other than a debt or other obligation to pay an amount to which subsection (2) applies or would apply if it were not a pertinent loan or indebtedness, as defined in subsection (2.11)) to a person or partnership that meets either of the following conditions:

      • (A) recourse in respect of the debt or other obligation is limited in whole or in part, either immediately or in the future and either absolutely or contingently, to a funding arrangement, or

      • (B) it can reasonably be concluded that all or a portion of the particular funding arrangement was entered into or was permitted to remain outstanding because

        • (I) all or a portion of the debt or other obligation was entered into or was permitted to remain outstanding, or

        • (II) the funder anticipated that all or a portion of the debt or other obligation would become owing or remain outstanding, or

    • (ii) has a specified right in respect of a particular property that was granted directly or indirectly by a person or partnership and

      • (A) the existence of the specified right is required under the terms and conditions of the particular funding arrangement, or

      • (B) it can reasonably be concluded that all or a portion of the particular funding arrangement was entered into, or was permitted to remain in effect, because

        • (I) the specified right was granted, or

        • (II) the funder anticipated that the specified right would be granted; and

  • (d) at that time, one or more funders is an ultimate funder.

• Marginal note:Back-to-back arrangement — consequences

  (2.17) If this subsection applies at a particular time, then for the purposes of this section and section 80.4, the intended borrower is deemed to receive a loan from each particular ultimate funder at the particular time, the amount of which is equal to the amount determined by the formula

  A × B/C – (D – E)

  where

  A

  is the lesser of

  • (a) the amount outstanding as or on account of the shareholder debt at the particular time, and

  • (b) the total of all amounts, each of which is, at the particular time,

    • (i) an amount outstanding as or on account of a debt or other obligation that is owed by a funder (other than an ultimate funder) to an ultimate funder under a funding arrangement in respect of the shareholder debt, or

    • (ii) the fair market value of a particular property in respect of which an ultimate funder has granted a specified right to a funder (other than an ultimate funder) under a funding arrangement in respect of the shareholder debt;

  B

  is the total of all amounts, each of which is, at the particular time,

  • (a) an amount outstanding as or on account of a debt or other obligation that is owed by a funder (other than an ultimate funder) to the particular ultimate funder under a funding arrangement in respect of the shareholder debt, or

  • (b) the fair market value of a particular property in respect of which the particular ultimate funder has granted a specified right to a funder (other than an ultimate funder) under a funding arrangement in respect of the shareholder debt;

  C

  is the total amount determined under paragraph (b) of the description of A;

  D

  is the total of all amounts, each of which is, in respect of the shareholder debt, an amount that the intended borrower has been deemed by this subsection to have received from the particular ultimate funder as a loan at any time before the particular time; and

  E

  is the total amount of any repayments deemed by subsections (2.19) and (2.191) to have occurred before the particular time, in respect of any deemed loans from the particular ultimate funder that are referred to in the description of D.

• Marginal note:Back-to-back arrangement — conditions for deemed repayment

  (2.18) Subsection (2.19) applies in respect of an intended borrower and a particular ultimate funder at a particular time if

  • (a) prior to the particular time, subsection (2.17) has applied in respect of a shareholder debt to deem one or more loans to have been received by the intended borrower from the particular ultimate funder; and

  • (b) at the particular time,

    • (i) an amount owing in respect of the shareholder debt is repaid in whole or in part,

    • (ii) an amount owing in respect of a debt or other obligation owing to the particular ultimate funder by a funder (other than an ultimate funder) under a funding arrangement in respect of the shareholder debt is repaid in whole or in part, or

    • (iii) either

      • (A) there is a decrease in the fair market value of a property in respect of which a specified right was granted by the particular ultimate funder to a funder (other than an ultimate funder) under a funding arrangement in respect of the shareholder debt, or

      • (B) a right described in clause (A) is extinguished.

• Marginal note:Back-to-back arrangement — deemed repayment

  (2.19) If this subsection applies in respect of an intended borrower and a particular ultimate funder at a particular time,

  • (a) the intended borrower is deemed, for the purposes of this section, paragraph 20(1)(j), section 80.4 and subsection 227(6.1), to repay, in whole or in part, one or more of the deemed loans referred to in paragraph (2.18)(a) at the particular time; and

  • (b) the total amount of the deemed repayments referred to in paragraph (a) is to be determined by the following formula:

    A – B – C

    where

    A

    is the total of all amounts, each of which is the amount of a loan deemed by subsection (2.17) to have been received, at any time before the particular time, by the intended borrower from the particular ultimate funder in respect of the shareholder debt,

    B

    is the total of all amounts deemed by this subsection to have been repaid, at any time before the particular time, by the intended borrower in respect of any loans referred to in the description of A, and

    C

    is the amount determined by the formula

    D × E/F

    where

    D

    is the lesser of

    • (i) the amount outstanding as or on account of the shareholder debt, immediately after the particular time, and

    • (ii) the total of all amounts, each of which is, immediately after the particular time,

      • (A) an amount outstanding as or on account of a debt or other obligation that is owed by a funder (other than an ultimate funder) to an ultimate funder under a funding arrangement in respect of the shareholder debt, or

      • (B) the fair market value of a particular property in respect of which an ultimate funder has granted a specified right to a funder (other than an ultimate funder) under a funding arrangement in respect of the shareholder debt,

    E

    is the total of all amounts, each of which is, immediately after the particular time

    • (i) an amount outstanding as or on account of a debt or other obligation that is owed by a funder (other than an ultimate funder) to the particular ultimate funder under a funding arrangement in respect of the shareholder debt, or

    • (ii) the fair market value of a particular property in respect of which the particular ultimate funder has granted a specified right to a funder (other than an ultimate funder) under a funding arrangement in respect of the shareholder debt, and

    F

    is the amount determined under subparagraph (ii) in the description of D.

• Marginal note:Negative amounts

  (2.191) If, in the absence of section 257, the formula in subsection (2.17) would result in a negative amount at a particular time,

  • (a) the intended borrower is deemed, for the purposes of this section, paragraph 20(1)(j), section 80.4 and subsection 227(6.1), to repay, in whole or in part, one or more of the loans deemed by subsection (2.17) to have been received by the intended borrower from the particular ultimate funder before the particular time; and

  • (b) the total amount of the deemed repayments referred to in paragraph (a) is equal to the absolute value of that negative amount.

• Marginal note:Back-to-back arrangement — definitions

  (2.192) The following definitions apply in this subsection and subsections (2.16) to (2.191).

  funder

  funder, in respect of a funding arrangement, means

  • (a) if the funding arrangement is described in paragraph (a) of the definition funding arrangement, the immediate funder;

  • (b) if the funding arrangement is described in paragraph (b) of the definition funding arrangement, the creditor in respect of the debt or other obligation or the grantor of the specified right, as the case may be; and

  • (c) a person or partnership that does not deal at arm’s length with a person or partnership referred to in paragraph (a) or (b). (bailleur de fonds)

  funding arrangement

  funding arrangement means

  • (a) the shareholder debt; and

  • (b) each debt or other obligation or specified right, owing by or granted to a funder, in respect of a particular funding arrangement, if the debt or other obligation or specified right meets the conditions in subparagraph (2.16)(c)(i) or (ii) in respect of a funding arrangement. (mécanisme de financement)

  specified right

  specified right has the same meaning as in subsection 18(5). (droit déterminé)

  ultimate funder

  ultimate funder means a funder, if subsection (2) would apply to the shareholder debt if the creditor under the shareholder debt were the funder instead of the immediate funder. (bailleur de fonds ultime)

• 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.

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)]

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)]

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.

Marginal note:Leasing properties

• 16.1 (1) Where a taxpayer (in this section referred to as the “lessee”) leases tangible property, or for civil law corporeal property, that is not prescribed property and 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.

Marginal note:Amount owing by non-resident

• 17 (1) If this subsection applies to a corporation resident in Canada in respect of an amount owing to the corporation (in this subsection referred to as the “debt”), the corporation shall include in computing its income for a taxation year the amount determined by the formula

  A – B

  where

  A

  is the amount of interest that would be included in computing the corporation’s income for the year in respect of the debt if interest on the debt were computed at the prescribed rate for the period in the year during which the debt was outstanding; and

  B

  is the total of all amounts each of which is

  • (a) 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 debt,

  • (b) 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 taxation year and that can reasonably be attributed to interest on the debt for the period in the year during which the debt was outstanding, or

  • (c) an amount included in computing the corporation’s income for the year or a subsequent taxation year under subsection 91(1) that can reasonably be attributed to interest on an amount owing (in this paragraph referred to as the “original debt”) — or if the amount of the original debt exceeds the amount of the debt, a portion of the original debt that is equal to the amount of the debt  — for the period in the year during which the debt was outstanding if

    • (i) without the existence of the original debt, subsection (2) would not have deemed the debt to be owed by the non-resident person referred to in paragraph (1.1)(a),

    • (ii) the original debt was owed by a non-resident person or a partnership each member of which is a non-resident person, and

    • (iii) where subsection (11.2) applies to the original debt,

      • (A) an amount determined under paragraph (11.2)(a) or (b) in respect of the original debt is an amount referred to in paragraph (2)(a), and because of the amount referred to in paragraph (2)(a), the debt is deemed to be owed by the non-resident person referred to in paragraph (1.1)(a), and

      • (B) the original debt was owing by an intermediate lender to an initial lender or by an intended borrower to an intermediate lender (within the meanings of those terms assigned by subsection (11.2)).

• Marginal note:Amount owing by non-resident

  (1.1) Subsection (1) applies to a corporation resident in Canada in respect of an amount owing to the corporation if, at any time in a taxation year of the corporation,

  • (a) a non-resident person owes the amount to the corporation;

  • (b) the amount has been or remains outstanding for more than a year; and

  • (c) the amount that would be determined for B in subsection (1), if that subsection applied, for the year in respect of the amount owing 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 outstanding.

• 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 amount or a portion of the amount became owing, or was permitted to remain owing, to the particular person or partnership 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, or the portion of the amount, as the case may be, 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 to the extent that 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:Borrowed money

  (8.1) Subsection (8.2) applies in respect of money (referred to in this subsection and in subsection (8.2) as “new borrowings”) that a controlled foreign affiliate of a particular corporation resident in Canada has borrowed from the particular corporation to the extent that the affiliate has used the new borrowings

  • (a) to repay money (referred to in this subsection and in subsection (8.2) as “previous borrowings”) previously borrowed from any person or partnership, if

    • (i) the previous borrowings became owing after the last time at which the affiliate became a controlled foreign affiliate of the particular corporation, and

    • (ii) the previous borrowings were, at all times after they became owing, used for a purpose described in subparagraph (8)(a)(i) or (ii); or

  • (b) to pay an amount owing (referred to in this subsection and in subsection (8.2) as the “unpaid purchase price”) by the affiliate for property previously acquired from any person or partnership, if

    • (i) the property was acquired, and the unpaid purchase price became owing, by the affiliate after the last time at which it became a controlled foreign affiliate of the particular corporation,

    • (ii) the unpaid purchase price is in respect of the property, and

    • (iii) throughout the period that began when the unpaid purchase price became owing by the affiliate and ended when the unpaid purchase price was so paid, the property had been used principally to earn income described in clause (8)(a)(i)(A) or (B).

• Marginal note:Deemed use

  (8.2) To the extent that this subsection applies in respect of new borrowings, the new borrowings are, for the purpose of subsection (8), deemed to have been used for the purpose for which the proceeds from the previous borrowings were used or were deemed by this subsection to have been used, or to acquire the property in respect of which the unpaid purchase price was payable, as the case may be.

• 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

  controlled foreign affiliate, at any time, of a taxpayer resident in Canada, means a corporation that would, at that time, be a controlled foreign affiliate of the taxpayer within the meaning assigned by the definition controlled foreign affiliate in subsection 95(1) if the word “or” were added at the end of paragraph (a) of that definition and

  • (a) subparagraph (b)(ii) of that definition were read as “all of the shares of the capital stock of the foreign affiliate that are owned at that time by persons resident in Canada who do not deal at arm’s length with the taxpayer,”; and

  • (b) subparagraph (b)(iv) of that definition were read as “all of the shares of the capital stock of the foreign affiliate that are owned at that time by persons resident in Canada who do not deal at arm’s length with any relevant Canadian shareholder;”. (société étrangère affiliée contrôlée)

  exempt loan or transfer

  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

  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

  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)

Marginal note:Deemed interest income — sections 15 and 212.3

• 17.1 (1) Subject to subsection (2), if — at any time in a taxation year of a corporation resident in Canada (in this section referred to as the “CRIC”) or in a fiscal period of a qualifying Canadian partnership in respect of the CRIC — a non-resident corporation, or a partnership of which the non-resident corporation is a member, owes an amount to the CRIC or the qualifying Canadian partnership and the amount owing is a pertinent loan or indebtedness (as defined in subsection 15(2.11) or 212.3(11)),

  • (a) section 17 does not apply in respect of the amount owing; and

  • (b) the amount, if any, determined by the following formula is to be included in computing the income of the CRIC for the year or of the qualifying Canadian partnership for the fiscal period, as the case may be:

    A – B

    where

    A

    is the amount that is the greater of

    • (i) the amount of interest that would be included in computing the income of the CRIC for the year or of the qualifying Canadian partnership for the fiscal period, as the case may be, in respect of the amount owing for the particular period in the year, or the fiscal period, during which the amount owing was a pertinent loan or indebtedness if that interest were computed at the prescribed rate for the particular period, and

    • (ii) the total of all amounts of interest payable in respect of the period in the year, or the fiscal period, during which the amount owing was a pertinent loan or indebtedness, by the CRIC, the qualifying Canadian partnership, a person resident in Canada with which the CRIC did not, at the time the amount owing arose, deal at arm’s length or a partnership of which the CRIC or the person is a member, in respect of a debt obligation — entered into as part of a series of transactions or events that includes the transaction by which the amount owing arose — to the extent that the proceeds of the debt obligation can reasonably be considered to have directly or indirectly funded, in whole or in part, the amount owing, and

    B

    is an amount included in computing the income of the CRIC for the year or of the qualifying Canadian partnership for the fiscal period, as the case may be, as, on account of, in lieu of or in satisfaction of, interest in respect of the amount owing for the period in the year, or the fiscal period, during which the amount owing was a pertinent loan or indebtedness.

• Marginal note:Acquisition of control

  (2) If at any time a parent referred to in section 212.3 acquires control of a CRIC and the CRIC was not controlled by a non-resident corporation immediately before that time, no amount is to be included under subsection (1) in computing the income of the CRIC in respect of a pertinent loan or indebtedness (as defined in subsection 212.3(11)) for the period that begins at that time and ends on the day that is 180 days after that time.

• Marginal note:Tax treaties

  (3) A particular loan or indebtedness that would, in the absence of this subsection, be a pertinent loan or indebtedness is deemed not to be a pertinent loan or indebtedness if, because of a provision of a tax treaty, the amount included in computing the income of the CRIC for any taxation year or of the qualifying Canadian partnership for any fiscal period, as the case may be, in respect of the particular loan or indebtedness is less than it would be if no tax treaty applied.

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 pooled registered pension plan or 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;

  • Marginal note:Safety deposit box

    (l.1) an amount paid or payable in respect of the use of a safety deposit box of a financial institution;

  • Marginal note:Limitation re employee stock option expenses

    (m) an amount in respect of which an election was made by or on behalf of the taxpayer under subsection 110(1.1);

  • 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:Employee life and health trust

    (o.3) except as expressly permitted by paragraph 20(1)(s), contributions to an employee life and health trust;

  • 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 different acts

    (t) any amount paid or payable

    • (i) under this Act (other than tax paid or payable under Part XII.2 or Part XII.6),

    • (ii) as interest under Part IX of the Excise Tax Act, or

    • (iii) as interest under the Air Travellers Security Charge Act;

  • Marginal note:Fees — individual saving plans

    (u) any amount paid or payable by the taxpayer for services in respect of a retirement savings plan, retirement income fund or TFSA under or of which the taxpayer is the annuitant or holder;

  • 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:Underlying payments on qualified securities

    (w) except as expressly permitted, an amount that is deemed by subsection 260(5.1) to have been received by another person as an amount described in any of paragraphs 260(5.1)(a) to (c); and

  • Marginal note:Derivatives — lower of cost and market

    (x) any reduction in a taxation year in the value of a property if

    • (i) the method used by the taxpayer to value the property at the end of the year for purposes of computing the taxpayer’s profit from a business or property is the cost at which the taxpayer acquired it or its fair market value at the end of the year, whichever is lower,

    • (ii) the property is described in subsection 10(15), and

    • (iii) the property is not disposed of by the taxpayer in the year; and

  • Marginal note:Payment for shares

    (y) an amount referred to in subsection 13(36).

• 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 or immovable 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

  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

  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) 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 or immovable 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 (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 or immovable 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 on deduction of interest

  (4) Notwithstanding any other provision of this Act (other than subsection (8)), in computing the income for a taxation year of a corporation or a trust from a business (other than the Canadian banking business of an authorized foreign bank) 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 outstanding debts to specified non-residents of the corporation or trust,

    exceeds

    • (ii) 1.5 times the equity amount of the corporation or trust for the year,

  is of

  • (b) the amount determined under subparagraph (a)(i) in respect of the corporation or trust for the year.

• Marginal note:Definitions

  (5) Notwithstanding any other provision of this Act (other than subsection (5.1)), in this subsection and subsections (4) and (5.1) to (6.1),

  beneficiary

  beneficiary has the same meaning as in subsection 108(1); (bénéficiaire)

  equity amount

  equity amount, of a corporation or trust for a taxation year, means

  • (a) in the case of a corporation resident in Canada, the total of

    • (i) 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,

    • (ii) the average of all amounts each of which is the corporation’s contributed surplus (other than any portion of that contributed surplus that arose in connection with an investment, as defined in subsection 212.3(10), to which subsection 212.3(2) applies) 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

    • (iii) 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,

  • (b) in the case of a trust resident in Canada, the amount, if any, by which

    • (i) the total of

      • (A) the average of all amounts each of which is the total amount of all equity contributions to the trust made before a calendar month that ends in the year, to the extent that the contributions were made by a specified non-resident beneficiary of the trust, and

      • (B) the tax-paid earnings of the trust for the year,

    exceeds

    • (ii) the average of all amounts each of which is the total of all amounts that were paid or became payable by the trust to a beneficiary of the trust in respect of the beneficiary’s interest under the trust before a calendar month that ends in the year except to the extent that the amount is

      • (A) included in the beneficiary’s income for a taxation year because of subsection 104(13),

      • (B) an amount from which tax was deducted under Part XIII because of paragraph 212(1)(c), or

      • (C) paid or payable to a person other than a specified non-resident beneficiary of the trust, and

  • (c) in the case of a corporation or trust that is not resident in Canada, including a corporation or trust that files a return under this Part in accordance with subsection 216(1) in respect of the year, 40% of the amount, if any, by which

    • (i) the average of all amounts each of which is the cost of a property, other than an interest as a member of a partnership, owned by the corporation or trust at the beginning of a calendar month that ends in the year

      • (A) that is used by the corporation or trust in the year in, or held by it in the year in the course of, carrying on business in Canada, or

      • (B) that is an interest in real property, or a real right in immovables, in Canada, or an interest in, or for civil law a right in, timber resource properties and timber limits, in Canada, and in respect of which the corporation or trust files a return under this Part in accordance with subsection 216(1) in respect of the year,

    exceeds

    • (ii) the average of all amounts each of which is the total of all amounts outstanding, at the beginning of a calendar month that ends in the year, as or on account of a debt or other obligation to pay an amount that was payable by the corporation or trust that may reasonably be regarded as relating to a business carried on by it in Canada or to an interest or right described in clause (i)(B), other than a debt or obligation that is included in the outstanding debts to specified non-residents of the corporation or trust; (montant des capitaux propres)

  equity contribution

  equity contribution, to a trust, means a transfer of property to the trust that is made

  • (a) in exchange for an interest as a beneficiary under the trust,

  • (b) in exchange for a right to acquire an interest as a beneficiary under the trust, or

  • (c) for no consideration by a person beneficially interested in the trust; (apport de capitaux propres)

  outstanding debts to specified non-residents

  outstanding debts to specified non-residents, of a corporation or trust 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 or trust to a person who was, at any time in the year,

      • (A) a specified non-resident shareholder of the corporation or a specified non-resident beneficiary of the trust, or

      • (B) a non-resident person who was not dealing at arm’s length with a specified shareholder of the corporation or a specified beneficiary of the trust, as the case may be, and

    • (ii) on which any amount in respect of interest paid or payable by the corporation or trust is or would be, but for subsection (4), deductible in computing the income of the corporation or trust 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

    • (i) to pay an amount to

      • (A) a non-resident insurance corporation to the extent that the obligation was, for the non-resident insurance corporation’s taxation year that included the particular time, designated insurance property in respect of an insurance business carried on in Canada through a permanent establishment as defined by regulation, or

      • (B) an authorized foreign bank, if the bank uses or holds the obligation at the particular time in its Canadian banking business, or

    • (ii) that is a debt obligation described in subparagraph (ii) of the description of A in paragraph 17.1(1)(b) to the extent that the proceeds of the debt obligation can reasonably be considered to directly or indirectly fund at the particular time, in whole or in part, a pertinent loan or indebtedness (as defined in subsection 212.3(11)) owing to the corporation or another corporation resident in Canada that does not, at the particular time, deal at arm’s length with the corporation; (dettes impayées envers des non-résidents déterminés)

  security interest

  security interest, in respect of a property, means an interest in, or for civil law a right in, the property that secures payment of an obligation; (garantie)

  specified beneficiary

  specified beneficiary, of a trust at any time, means a person who at that time, either alone or together with persons with whom that person does not deal at arm’s length, has an interest as a beneficiary under the trust with a fair market value that is not less than 25% of the fair market value of all interests as a beneficiary under the trust and for the purpose of determining whether a particular person is a specified beneficiary of a trust,

  • (a) if the particular person, or a person with whom the particular person does not deal 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, to, or to acquire, an interest as a beneficiary under a trust, the particular person or the person with whom the particular person does not deal at arm’s length, as the case may be, is deemed at that time to own the interest,

  • (b) if the particular person, or a person with whom the particular person does not deal 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 to cause a trust to redeem, acquire or terminate any interest in it as a beneficiary (other than an interest held by the particular person or a person with whom the particular person does not deal at arm’s length), the trust is deemed at that time to have redeemed, acquired or terminated the interest, unless the right is not exercisable at that time because the exercise of the right is contingent on the death, bankruptcy or permanent disability of an individual, and

  • (c) if the amount of income or capital of the trust that the particular person, or a person with whom the particular person does not deal at arm’s length, may receive as a beneficiary of the trust depends on the exercise by any person of, or the failure by any person to exercise, a discretionary power, that person is deemed to have fully exercised, or to have failed to exercise, the power, as the case may be; (bénéficiaire déterminé)

  specified non-resident beneficiary

  specified non-resident beneficiary, of a trust at any time, means a specified beneficiary of the trust who at that time is a non-resident person; (bénéficiaire non-résident déterminé)

  specified non-resident shareholder

  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 proportion

  specified proportion[Repealed, 2013, c. 34, s. 427]

  specified right

  specified right, at any time in respect of a property, means a right to, at that time, mortgage, hypothecate, assign, pledge or in any way encumber the property to secure payment of an obligation — other than the particular debt or other obligation described in paragraph (6)(a) or a debt or other obligation described in subparagraph (6)(d)(ii) — or to use, invest, sell or otherwise dispose of, or in any way alienate, the property unless it is established by the taxpayer that all of the proceeds (net of costs, if any) received, or that would be received, from exercising the right must first be applied to reduce an amount described in subparagraph (6)(d)(i) or (ii); (droit déterminé)

  specified shareholder

  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)

  tax-paid earnings

  tax-paid earnings, of a trust resident in Canada for a taxation year, means the total of all amounts each of which is the amount in respect of a particular taxation year of the trust that ended before the year determined by the formula

  A – B

  where

  A

  is the taxable income of the trust under this Part for the particular year, and

  B

  is the total of tax payable under this Part by the trust, and all income taxes payable by the trust under the laws of a province, for the particular year. (bénéfices libérés d’impôt)

• Marginal note:Specified shareholder or specified beneficiary

  (5.1) For the purposes of subsections (4) to (6), if

  • (a) a particular person would, but for this subsection, be a specified shareholder of a corporation or a specified beneficiary of a trust 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 of the corporation or a specified beneficiary of the trust, and

  • (c) the purpose for which the particular person became a specified shareholder or specified beneficiary 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 is deemed not to be a specified shareholder of the corporation or a specified beneficiary of the trust, as the case may be, at that time.

• Marginal note:Specified shareholder or specified beneficiary

  (5.2) For the purposes of subsections (4) to (6), a non-resident corporation is deemed to be a specified shareholder of itself and a non-resident trust is deemed to be a specified beneficiary of itself.

• Marginal note:Property used in business — cost attribution

  (5.3) For the purposes of subparagraph (c)(i) of the definition equity amount in subsection (5),

  • (a) if a property is partly used or held by a taxpayer in a taxation year in the course of carrying on business in Canada, the cost of the property to the taxpayer is deemed for the year to be equal to the same proportion of the cost to the taxpayer of the property (determined without reference to this subsection) that the proportion of the use or holding made of the property in the course of carrying on business in Canada in the year is of the whole use or holding made of the property in the year; and

  • (b) if a corporation or trust is deemed to own a portion of a property of a partnership because of subsection (7) at any time,

    • (i) the property is deemed to have, at that time, a cost to the corporation or trust equal to the same proportion of the cost of the property to the partnership as the proportion of the debts and other obligations to pay an amount of the partnership allocated to it under subsection (7) is of the total amount of all debts and other obligations to pay an amount of the partnership, and

    • (ii) in the case of a partnership that carries on business in Canada, the corporation or trust is deemed to use or hold the property in the course of carrying on business in Canada to the extent the partnership uses or holds the property in the course of carrying on business in Canada for the fiscal period of the partnership that includes that time.

• Marginal note:Rules — trust income

  (5.4) For the purposes of this Act, a trust resident in Canada may designate in its return of income under this Part for a taxation year that all or any portion of an amount paid or credited as interest by the trust, or by a partnership, in the year to a non-resident person is deemed to be income of the trust that has been paid to the non-resident person as a beneficiary of the trust, and not to have been paid or credited by the trust or the partnership as interest, to the extent that an amount in respect of the interest

  • (a) is included in computing the income of the trust for the year under paragraph 12(1)(l.1); or

  • (b) is not deductible in computing the income of the trust for the year because of subsection (4).

• Marginal note:Back-to-back loan arrangement

  (6) Subsection (6.1) applies at any time in respect of a taxpayer if at that time

  • (a) the taxpayer has a particular amount outstanding as or on account of a particular debt or other obligation to pay an amount to a person (in this subsection and subsection (6.1) referred to as the “intermediary”);

  • (b) the intermediary is neither

    • (i) a person resident in Canada with whom the taxpayer does not deal at arm’s length, nor

    • (ii) a person that is, in respect of the taxpayer, described in subparagraph (a)(i) of the definition outstanding debts to specified non-residents in subsection (5);

  • (c) the intermediary or a person that does not deal at arm’s length with the intermediary

    • (i) has an amount outstanding as or on account of a debt or other obligation to pay an amount to a particular non-resident person that is, in respect of the taxpayer, described in subparagraph (a)(i) of the definition outstanding debts to specified non-residents in subsection (5) that meets any of the following conditions (in this subsection and subsection (6.1) referred to as the “intermediary debt”):

      • (A) recourse in respect of the debt or other obligation is limited in whole or in part, either immediately or in the future and either absolutely or contingently, to the particular debt or other obligation, or

      • (B) it can reasonably be concluded that all or a portion of the particular amount became owing, or was permitted to remain owing, because

        • (I) all or a portion of the debt or other obligation was entered into or was permitted to remain outstanding, or

        • (II) the intermediary anticipated that all or a portion of the debt or other obligation would become owing or remain outstanding, or

    • (ii) has a specified right in respect of a particular property that was granted directly or indirectly by a person that is, in respect of the taxpayer, a particular non-resident person described in subparagraph (a)(i) of the definition outstanding debts to specified non-residents in subsection (5) and

      • (A) the existence of the specified right is required under the terms and conditions of the particular debt or other obligation, or

      • (B) it can reasonably be concluded that all or a portion of the particular amount became owing, or was permitted to remain owing, because

        • (I) the specified right was granted, or

        • (II) the intermediary anticipated that the specified right would be granted; and

  • (d) the total of all amounts — each of which is, in respect of the particular debt or other obligation, an amount outstanding as or on account of an intermediary debt or the fair market value of a particular property described in subparagraph (c)(ii) — is equal to at least 25% of the total of

    • (i) the particular amount, and

    • (ii) the total of all amounts each of which is an amount (other than the particular amount) that the taxpayer, or a person that does not deal at arm’s length with the taxpayer, has outstanding as or on account of a debt or other obligation to pay an amount to the intermediary under the agreement, or an agreement that is connected to the agreement, under which the particular debt or other obligation was entered into if

      • (A) the intermediary is granted a security interest in respect of a property that is the intermediary debt or the particular property, as the case may be, and the security interest secures the payment of two or more debts or other obligations that include the debt or other obligation and the particular debt or other obligation, and

      • (B) each security interest that secures the payment of a debt or other obligation referred to in clause (A) secures the payment of every debt or other obligation referred to in that clause.

• Marginal note:Back-to-back loan arrangement

  (6.1) If this subsection applies at any time in respect of a taxpayer,

  • (a) then for the purpose of applying subsections (4) and (5),

    • (i) the portion of the particular amount, at that time, referred to in paragraph (6)(a) that is equal to the lesser of the following amounts is deemed to be an amount outstanding as or on account of a debt or other obligation to pay an amount to the particular non-resident person referred to in subparagraph (6)(c)(i) or (ii), as the case may be, and not to the intermediary:

      • (A) the amount outstanding as or on account of the intermediary debt or the fair market value of the particular property referred to in subparagraph (6)(c)(ii), as the case may be, and

      • (B) the proportion of the particular amount that the amount outstanding or the fair market value, as the case may be, is of the total of all amounts each of which is

        • (I) an amount outstanding as or on account of an intermediary debt in respect of the particular debt or other obligation, owed to the particular non-resident or any other non-resident person that is, in respect of the taxpayer, described in the definition outstanding debts to specified non-residents in subsection (5), or

        • (II) the fair market value of a particular property referred to in subparagraph (6)(c)(ii) in respect of the particular debt or other obligation, and

    • (ii) the portion of the interest paid or payable by the taxpayer, in respect of a period throughout which subparagraph (a)(i) applies, on the particular debt or other obligation referred to in paragraph (6)(a) that is equal to the amount determined by the following formula is deemed to be paid or payable by the taxpayer to the particular non-resident, and not to the intermediary, as interest for the period on the amount deemed by subparagraph (a)(i) to be outstanding to the particular non-resident:

      A × B/C

      where

      A

      is the interest paid or payable,

      B

      is the average of all amounts each of which is an amount that is deemed by subparagraph (a)(i) to be outstanding to the particular non-resident at a time during the period, and

      C

      is the average of all amounts each of which is the particular amount outstanding at a time during the period; and

  • (b) for the purposes of Part XIII and subject to subsections 214(16) and (17), interest deemed under subparagraph (a)(ii) to be paid or payable to the particular non-resident in respect of a period is, to the extent that the interest is not deductible in computing the income of the taxpayer for the year because of subsection 18(4), deemed to be paid or payable by the taxpayer to the particular non-resident, and not to the intermediary, in respect of the period.

• Marginal note:Partnership debts and property

  (7) For the purposes of this subsection, paragraph (4)(a), subsections (5) to (6.1) and paragraph 12(1)(l.1), each member of a partnership at any time is deemed at that time

  • (a) to owe the portion (in this subsection and paragraph 12(1)(l.1) referred to as the “debt amount”) of each debt or other obligation to pay an amount of the partnership and to own the portion of each property of the partnership that is equal to

    • (i) the member’s specified proportion for the last fiscal period, if any, of the partnership ending

      • (A) at or before the end of the taxation year referred to in subsection (4), and

      • (B) at a time when the member is a member of the partnership, and

    • (ii) if the member does not have a specified proportion described in subparagraph (i), the proportion 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;

  • (b) to owe the debt amount to the person to whom the partnership owes the debt or other obligation to pay an amount; and

  • (c) to have paid interest on the debt amount that is deductible in computing the member’s income to the extent that an amount in respect of interest paid or payable on the debt amount by the partnership is deductible in computing the partnership’s income.

• Marginal note:Exception — foreign accrual property income

  (8) An amount in respect of interest paid or payable to a controlled foreign affiliate of a corporation resident in Canada that would otherwise not be deductible by the corporation for a taxation year because of subsection (4) may be deducted to the extent that an amount included under subsection 91(1) in computing the corporation’s income for the year or a subsequent year can reasonably be considered to be in respect of the interest.

• 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,

    • (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, or

    • (iv) subject to clause (iii)(B) and subsections 144.1(4) to (7), as consideration for a designated employee benefit (as defined in subsection 144.1(1)) to be provided after the end of the year (other than consideration payable in the year, to a corporation that is licensed to provide insurance, for insurance coverage in respect of the year);

  • (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.

  • (f) [Repealed, 2017, c. 20, s. 3]

• 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 deferred profit sharing plan, a pooled registered pension plan or a registered pension plan, 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) [Repealed, 2011, c. 24, s. 2]

  • (h) making a contribution into a registered education savings plan;

  • (i) making a contribution to a registered disability savings plan; or

  • (j) making a contribution under a TFSA,

  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) if the conditions set out in subparagraph (a)(i) or (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 section 34.1; 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 (15) referred to as the “transferor”) disposes of a particular property (other than, for the purposes of computing the exempt surplus or exempt deficit and taxable surplus or taxable deficit of a foreign affiliate of a taxpayer, in respect of the taxpayer, where the transferor is the affiliate or is a partnership of which the affiliate is a member, property that is, or would be, if the transferor were a foreign affiliate of the taxpayer, excluded property (within the meaning assigned by subsection 95(1)) of the transferor);

  • (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 subsection 10.1(6) or (7), section 70, subsection 104(4), section 128.1, paragraph 132.2(3)(a) or (c) or subsection 138(11.3) or 138.2(4) 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 the transferor is subject to a loss restriction event, or

    • (iv) if the transferor is a corporation,

      • (A) for the purposes of computing the transferor’s foreign accrual property income, exempt surplus or exempt deficit, and taxable surplus or taxable deficit, in respect of a taxpayer for a taxation year of the transferor where the transferor is a foreign affiliate of the taxpayer, at which the liquidation and dissolution of the transferor begins, unless the liquidation and dissolution is

        • (I) a qualifying liquidation and dissolution (within the meaning assigned by subsection 88(3.1)) of the transferor, or

        • (II) a designated liquidation and dissolution (within the meaning assigned by subsection 95(1)) of the transferor, and

      • (B) for any other purposes, at which the winding-up (other than a winding-up to which subsection 88(1) applies) of the transferor begins, and

    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.

• Marginal note:Definitions

  (17) The following definitions apply in this subsection and subsections (18) to (23).

  offsetting position

  offsetting position, in respect of a particular position of a person or partnership (in this definition referred to as the “holder”), means one or more positions that

  • (a) are held by

    • (i) the holder,

    • (ii) a person or partnership that does not deal at arm’s length with, or is affiliated with, the holder (in this subsection and subsections (20), (22) and (23) referred to as the “connected person”), or

    • (iii) for greater certainty, by any combination of the holder and one or more connected persons;

  • (b) have the effect, or would have the effect if each of the positions held by a connected person were held by the holder, of eliminating all or substantially all of the holder’s risk of loss and opportunity for gain or profit in respect of the particular position; and

  • (c) if held by a connected person, can reasonably be considered to have been held with the purpose of obtaining the effect described in paragraph (b). (position compensatoire)

  position

  position, of a person or partnership, means one or more properties, obligations or liabilities of the person or partnership, if

  • (a) each property, obligation or liability is

    • (i) a share in the capital stock of a corporation,

    • (ii) an interest in a partnership,

    • (iii) an interest in a trust,

    • (iv) a commodity,

    • (v) foreign currency,

    • (vi) a swap agreement, a forward purchase or sale agreement, a forward rate agreement, a futures agreement, an option agreement or a similar agreement,

    • (vii) a debt owed to or owing by the person or partnership that, at any time,

      • (A) is denominated in a foreign currency,

      • (B) would be described in paragraph 7000(1)(d) of the Income Tax Regulations if that paragraph were read without reference to the words “other than one described in paragraph (a), (b) or (c)”, or

      • (C) is convertible into or exchangeable for an interest, or for civil law a right, in any property that is described in any of subparagraphs (i) to (iv),

    • (viii) an obligation to transfer or return to another person or partnership a property identical to a particular property described in any of subparagraphs (i) to (vii) that was previously transferred or lent to the person or partnership by that other person or partnership, or

    • (ix) an interest, or for civil law a right, in any property that is described in any of subparagraphs (i) to (vii); and

  • (b) it is reasonable to conclude that, if there is more than one property, obligation or liability, each of them is held in connection with each other. (position)

  successor position

  successor position, in respect of a position (in this definition referred to as the “initial position”), means a particular position if

  • (a) the particular position is an offsetting position in respect of a second position;

  • (b) the second position was an offsetting position in respect of the initial position that was disposed of at a particular time; and

  • (c) the particular position was entered into during the period that begins 30 days before, and ends 30 days after, the particular time. (position remplaçante)

  unrecognized loss

  unrecognized loss, in respect of a position of a person or partnership at a particular time in a taxation year, means the loss, if any, that would be deductible in computing the income of the person or partnership for the year with respect to the position if it were disposed of immediately before the particular time at its fair market value at the time of disposition. (perte non constatée)

  unrecognized profit

  unrecognized profit, in respect of a position of a person or partnership at a particular time in a taxation year, means the profit, if any, that would be included in computing the income of the person or partnership for the year with respect to the position if it were disposed of immediately before the particular time at its fair market value at the time of disposition. (bénéfice non constaté)

• Marginal note:Application of subsection (19)

  (18) Subject to subsection (20), subsection (19) applies in respect of a disposition of a particular position by a person or partnership (in this subsection and subsections (19), (20) and (22) referred to as the “transferor”), if

  • (a) the disposition is not a disposition that is deemed to have occurred by section 70, subsection 104(4), section 128.1 or subsection 138(11.3) or 149(10);

  • (b) the transferor is not a financial institution (as defined in subsection 142.2(1)), a mutual fund corporation or a mutual fund trust; and

  • (c) the particular position was, immediately before the disposition, not a capital property, or an obligation or liability on account of capital, of the transferor.

• Marginal note:Straddle losses

  (19) If this subsection applies in respect of a disposition of a particular position by a transferor, the portion of the transferor’s loss, if any, from the disposition of the particular position that is deductible in computing the transferor’s income for a particular taxation year is the amount determined by the formula

  A + B − C

  where

  A

  is

  • (a) if the particular taxation year is the taxation year in which the disposition occurs, the amount of the loss determined without reference to this subsection (which is, for greater certainty, subject to subsection (15)), and

  • (b) in any other taxation year, nil;

  B

  is

  • (a) if the disposition occurred in a preceding taxation year, the amount determined for C in respect of the disposition for the immediately preceding taxation year, and

  • (b) in any other case, nil; and

  C

  is the lesser of

  • (a) the amount determined for A for the taxation year in which the disposition occurs, and

  • (b) the amount determined by the formula

    D − (E + F)

    where

    D

    is the total of all amounts each of which is the amount of unrecognized profit at the end of the particular taxation year in respect of

    • (i) the particular position,

    • (ii) positions that are offsetting positions in respect of the particular position (or would be, to the extent that there is no successor position in respect of the particular position, if the particular position continued to be held by the transferor),

    • (iii) successor positions in respect of the particular position (for this purpose, a successor position in respect of a position includes a successor position that is in respect of a successor position in respect of the position), and

    • (iv) positions that are offsetting positions in respect of any successor position referred to in subparagraph (iii) (or would be, if any such successor position continued to be held by the holder),

    E

    is the total of all amounts each of which is the amount of unrecognized loss at the end of the particular taxation year in respect of positions referred to in subparagraphs (i) to (iv) of the description of D, and

    F

    is the total of all amounts each of which is an amount determined by the formula

    G − H

    where

    G

    is the amount determined for A for the taxation year in which the disposition occurs in respect of any position that was disposed of prior to the disposition of the particular position, if

    • (i) the particular position was a successor position in respect of that position (for this purpose, a successor position in respect of a position includes a successor position that is in respect of a successor position in respect of the position), and

    • (ii) that position was

      • (A) an offsetting position in respect of the particular position,

      • (B) an offsetting position in respect of a position in respect of which the particular position was a successor position (for this purpose, a successor position in respect of a position includes a successor position that is in respect of a successor position in respect of the position), or

      • (C) the particular position, and

    H

    is the total of all amounts each of which is, in respect of a position described in G, an amount determined under the first formula in this subsection for the particular taxation year or a preceding taxation year.

• Marginal note:Exceptions

  (20) Subsection (19) does not apply in respect of a particular position of a transferor if

  • (a) it is the case that

    • (i) either the particular position, or the offsetting position in respect of the particular position, consists of

      • (A) commodities that the holder of the position manufactures, produces, grows, extracts or processes, or

      • (B) debt that the holder of the position incurs in the course of a business that consists of one or any combination of the activities described in clause (A), and

    • (ii) it can reasonably be considered that the position not described in subparagraph (i) — the particular position if the offsetting position is described in subparagraph (i) or the offsetting position if the particular position is described in that subparagraph — is held to reduce the risk, with respect to the position described in subparagraph (i), from

      • (A) in the case of a position described in clause (i)(A), price changes or fluctuations in the value of currency with respect to the goods described in clause (i)(A), or

      • (B) in the case of a position described in clause (i)(B), fluctuations in interest rates or in the value of currency with respect to the debt described in clause (i)(B);

  • (b) the transferor or a connected person (in this paragraph referred to as the “holder”) continues to hold a position — that would be an offsetting position in respect of the particular position if the particular position continued to be held by the transferor — throughout a 30-day period beginning on the date of disposition of the particular position, and at no time during the period

    • (i) is the holder’s risk of loss or opportunity for gain or profit with respect to the position reduced in any material respect by another position entered into or disposed of by the holder, or

    • (ii) would the holder’s risk of loss or opportunity for gain or profit with respect to the position be reduced in any material respect by another position entered into or disposed of by a connected person, if the other position were entered into or disposed of by the holder; or

  • (c) it can reasonably be considered that none of the main purposes of the series of transactions or events, or any of the transactions or events in the series, of which the holding of both the particular position and offsetting position are part, is to avoid, reduce or defer tax that would otherwise be payable under this Act.

• Marginal note:Application

  (21) For the purposes of subsections (17) to (23),

  • (a) if a position of a person or partnership is not a property of the person or partnership, the person or partnership is deemed

    • (i) to hold the position at any time while it is a position of the person or partnership, and

    • (ii) to have disposed of the position when the position is settled or extinguished in respect of the person or partnership;

  • (b) a disposition of a position is deemed to include a disposition of a portion of the position;

  • (c) a position held by one or more persons or partnerships referred to in paragraph (a) of the definition offsetting position in subsection (17) is deemed to be an offsetting position in respect of a particular position of a person or partnership if

    • (i) there is a high degree of negative correlation between changes in value of the position and the particular position, and

    • (ii) it can reasonably be considered that the principal purpose of the series of transactions or events, or any of the transactions in the series, of which the holding of both the position and the particular position are part, is to avoid, reduce or defer tax that would otherwise be payable under this Act; and

  • (d) one or more positions held by one or more persons or partnerships referred to in paragraph (a) of the definition offsetting position in subsection (17) are deemed to be a successor position in respect of a particular position of a person or partnership if

    • (i) a portion of the particular position was disposed of at a particular time,

    • (ii) the position is, or the positions include, as the case may be, a position that consists of the portion of the particular position that was not disposed of (in this paragraph referred to as the “remaining portion of the particular position”),

    • (iii) where there is more than one position, the position or positions that do not consist of the remaining portion of the particular position were entered into during the period that begins 30 days before, and ends 30 days after, the particular time,

    • (iv) the position is, or the positions taken together would be, as the case may be, an offsetting position in respect of a second position (within the meaning of the definition successor position in subsection (17)),

    • (v) the second position was an offsetting position in respect of the particular position, and

    • (vi) it can reasonably be considered that the principal purpose of the series of transactions or events, or any of the transactions in the series, of which the disposition of a portion of the particular position and the holding of one or more positions are part, is to avoid, reduce or defer tax that would otherwise be payable under this Act.

• Marginal note:Different taxation years

  (22) Subsection (23) applies if

  • (a) at any time in a particular taxation year of a transferor, a position referred to in any of subparagraphs (ii) to (iv) of the description of D in subsection (19) (in this subsection and subsection (23) referred to as the “gain position”) is held by a connected person;

  • (b) the connected person disposes of the gain position in the particular taxation year; and

  • (c) the taxation year of the connected person in which the disposition referred to in paragraph (b) occurs ends after the end of the particular taxation year.

• Marginal note:Different taxation years

  (23) If this subsection applies, for the purposes of the definition unrecognized profit in subsection (17) and subsection (19), the portion of the profit, if any, realized from the disposition of the gain position referred to in paragraph (22)(b) that is determined by the following formula is deemed to be unrecognized profit in respect of the gain position until the end of the taxation year of the connected person in which the disposition occurs:

  A × B/C

  where

  A

  is the amount of the profit otherwise determined;

  B

  is the number of days in the taxation year of the connected person in which the disposition referred to in paragraph (22)(b) occurs that are after the end of the particular taxation year; and

  C

  is the total number of days in the taxation year of the connected person in which the disposition referred to in paragraph (22)(b) occurs.