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

Full Document:  

Act current to 2019-04-25 and last amended on 2019-04-01. Previous Versions

PART IIncome Tax (continued)

DIVISION EComputation of Tax (continued)

SUBDIVISION ARules Applicable to Individuals (continued)

 [Repealed, 2000, c. 19, s. 28]

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 120.1
  • 1994, c. 7, Sch. II, s. 97
  • 2000, c. 19, s. 28

Marginal note:Minimum tax carry-over

  •  (1) There may be deducted from the amount that, but for this section, section 120 and subsection 120.4(2), would be an individual’s tax payable under this Part for a particular taxation year such amount as the individual claims not exceeding the lesser of

    • (a) the portion of the total of the individual’s additional taxes determined under subsection 120.2(3) for the 7 taxation years immediately preceding the particular year that was not deducted in computing the individual’s tax payable under this Part for a taxation year preceding the particular year, and

    • (b) the amount, if any, by which

      • (i) the amount that, but for this section, section 120 and subsection 120.4(2), would be the individual’s tax payable under this Part for the particular year if the individual were not entitled to any deduction under any of sections 126, 127 and 127.4

      exceeds

      • (ii) the individual’s minimum amount for the particular year determined under section 127.51.

  • Marginal note:Additional tax determined

    (3) For the purposes of subsection 120.2(1), additional tax of an individual for a taxation year is the amount, if any, by which

    • (a) the individual’s minimum amount for the year determined under section 127.51

    exceeds the total of

    • (b) the amount that, if this Act were read without reference to section 120, would be the individual’s tax payable under this Part for the year if the individual were not entitled to any deduction under any of sections 126, 127 and 127.4, and

    • (c) that proportion of the amount, if any, by which

      • (i) the individual’s special foreign tax credit for the year determined under section 127.54

      exceeds

      • (ii) the total of all amounts deductible under section 126 from the individual’s tax for the year

      that

      • (iii) the amount of the individual’s foreign taxes for the year within the meaning assigned by subsection 127.54(1)

      is of

      • (iv) the amount that would be the individual’s foreign taxes for the year within the meaning assigned by subsection 127.54(1) if the definition foreign taxes in that subsection were read without reference to “2/3 of”.

  • Marginal note:Where subsection (1) does not apply

    (4) Subsection (1) does not apply in respect of an individual’s return of income filed under subsection 70(2), paragraph 104(23)(d) or 128(2)(f) or subsection 150(4).

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 120.2
  • 1998, c. 19, s. 137
  • 2000, c. 19, s. 29
  • 2001, c. 17, s. 104
  • 2013, c. 34, s. 254

Marginal note:CPP/QPP disability benefits for previous years

 There shall be added in computing an individual’s tax payable under this Part for a particular taxation year the total of all amounts each of which is the amount, if any, by which

  • (a) the amount that would have been the tax payable under this Part by the individual for a preceding taxation year if that portion of any amount not included in computing the individual’s income for the particular year because of subsection 56(8) and that relates to the preceding year had been included in computing the individual’s income for the preceding year

exceeds

  • (b) the tax payable under this Part by the individual for the preceding year.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 1994, c. 7, Sch. II, s. 98
Lump-sum Payments

Marginal note:Definitions

  •  (1) The definitions in subsection 110.2(1) apply in this section.

  • Marginal note:Addition to tax payable

    (2) There shall be added in computing an individual’s tax payable under this Part for a particular taxation year the total of all amounts each of which is the amount, if any, by which

    • (a) the individual’s notional tax payable for an eligible taxation year to which a specified portion of a qualifying amount received by the individual relates and in respect of which an amount is deducted under section 110.2 in computing the individual’s taxable income for the particular year

    exceeds

    • (b) the individual’s tax payable under this Part for the eligible taxation year.

  • Marginal note:Notional tax payable

    (3) For the purpose of subsection (2), an individual’s notional tax payable for an eligible taxation year, calculated for the purpose of computing the individual’s tax payable under this Part for a taxation year (in this subsection referred to as “the year of receipt”) in which the individual received a qualifying amount, is the total of

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

      • (i) the amount that would be the individual’s tax payable under this Part for the eligible taxation year if the total of all amounts, each of which is the specified portion, in relation to the eligible taxation year, of a qualifying amount received by the individual before the end of the year of receipt, were added in computing the individual’s taxable income for the eligible taxation year

      exceeds

      • (ii) the total of all amounts each of which is an amount, in respect of a qualifying amount received by the individual before the year of receipt, that was included because of this paragraph in computing the individual’s notional tax payable under this Part for the eligible taxation year, and

    • (b) if the eligible taxation year ended before the taxation year preceding the year of receipt, an amount equal to the amount that would be calculated as interest payable on the amount, if any, by which the amount determined under paragraph (a) in respect of the eligible taxation year exceeds the taxpayer’s tax payable under this Part for that year, if the amount that would be calculated as interest payable on that excess were calculated

      • (i) for the period that began on May 1 of the year following the eligible taxation year and that ended immediately before the year of receipt, and

      • (ii) at the prescribed rate that is applicable for the purpose of subsection 164(3) with respect to the period.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 2000, c. 19, s. 30
  • 2013, c. 34, s. 255
Tax on Split Income

Marginal note:Definitions

  •  (1) The definitions in this subsection apply in this section.

    arm’s length capital

    arm’s length capital, of a specified individual, means property of the individual if the property, or property for which it is a substitute, was not

    • (a) acquired as income from, or a taxable capital gain or profit from the disposition of, another property that was derived directly or indirectly from a related business in respect of the specified individual;

    • (b) borrowed by the specified individual under a loan or other indebtedness; or

    • (c) transferred, directly or indirectly by any means whatever, to the specified individual from a person who was related to the specified individual (other than as a consequence of the death of a person). (capital indépendant)

    excluded amount

    excluded amount, in respect of an individual for a taxation year, means an amount that is the individual’s income for the year from, or the individual’s taxable capital gain or profit for the year from the disposition of, a property to the extent that the amount

    • (a) if the individual has not attained the age of 24 years before the year, is from a property that was acquired by, or for the benefit of, the individual as a consequence of the death of a person who is

      • (i) a parent of the individual, or

      • (ii) any person, if the individual is

        • (A) enrolled as a full-time student during the year at a post-secondary educational institution (as defined in subsection 146.1(1)), or

        • (B) an individual in respect of whom an amount may be deducted under section 118.3 in computing a taxpayer’s tax payable under this Part for the year;

    • (b) is from a property acquired by the individual under a transfer described in subsection 160(4);

    • (c) is a taxable capital gain that arises because of subsection 70(5);

    • (d) is a taxable capital gain for the year from the disposition by the individual of property that is, at the time of the disposition, qualified farm or fishing property or qualified small business corporation shares (as those terms are defined in subsection 110.6(1)), unless the amount would be deemed to be a dividend under subsection 120.4(4) or (5) if this definition were read without reference to this paragraph;

    • (e) if the individual has attained the age of 17 years before the year, is

      • (i) not derived directly or indirectly from a related business in respect of the individual for the year, or

      • (ii) derived directly or indirectly from an excluded business of the individual for the year;

    • (f) if the individual has attained the age of 17 years but not the age of 24 years before the year, is

      • (i) a safe harbour capital return of the individual, or

      • (ii) a reasonable return in respect of the individual, having regard only to the contributions of arm’s length capital by the individual; or

    • (g) if the individual has attained the age of 24 years before the year, is

      • (i) income from, or a taxable capital gain from the disposition of, excluded shares of the individual, or

      • (ii) a reasonable return in respect of the individual. (montant exclu)

    excluded business

    excluded business, of a specified individual for a taxation year, means a business if the specified individual is actively engaged on a regular, continuous and substantial basis in the activities of the business in either

    • (a) the taxation year, except in respect of an amount described in paragraph (e) of the definition split income; or

    • (b) any five prior taxation years of the specified individual. (entreprise exclue)

    excluded shares

    excluded shares, of a specified individual at any time, means shares of the capital stock of a corporation owned by the specified individual if

    • (a) the following conditions are met:

      • (i) less than 90% of the business income of the corporation for the last taxation year of the corporation that ends at or before that time (or, if no such taxation year exists, for the taxation year of the corporation that includes that time) was from the provision of services, and

      • (ii) the corporation is not a professional corporation;

    • (b) immediately before that time, the specified individual owns shares of the capital stock of the corporation that

      • (i) give the holders thereof 10% or more of the votes that could be cast at an annual meeting of the shareholders of the corporation, and

      • (ii) have a fair market value of 10% or more of the fair market value of all of the issued and outstanding shares of the capital stock of the corporation; and

    • (c) all or substantially all of the income of the corporation for the relevant taxation year in subparagraph (a)(i) is income that is not derived, directly or indirectly, from one or more related businesses in respect of the specified individual other than a business of the corporation. (actions exclues)

    reasonable return

    reasonable return, in respect of a specified individual for a taxation year, means a particular amount derived directly or indirectly from a related business in respect of the specified individual that

    • (a) would, if this subsection were read without reference to subparagraph (f)(ii) or (g)(ii) of the definition excluded amount, be an amount described in the definition split income in respect of the specified individual for the year; and

    • (b) is reasonable having regard to the following factors relating to the relative contributions of the specified individual, and each source individual in respect of the specified individual, in respect of the related business:

      • (i) the work they performed in support of the related business,

      • (ii) the property they contributed, directly or indirectly, in support of the related business,

      • (iii) the risks they assumed in respect of the related business,

      • (iv) the total of all amounts that were paid or that became payable, directly or indirectly, by any person or partnership to, or for the benefit of, them in respect of the related business, and

      • (v) such other factors as may be relevant. (rendement raisonnable)

    related business

    related business, in respect of a specified individual for a taxation year, means

    • (a) a business carried on by

      • (i) a source individual in respect of the specified individual at any time in the year, or

      • (ii) a partnership, corporation or trust if a source individual in respect of the specified individual at any time in the year is actively engaged on a regular basis in the activities of the partnership, corporation or trust related to earning income from the business;

    • (b) a business of a particular partnership, if a source individual in respect of the specified individual at any time in the year has an interest — including directly or indirectly — in the particular partnership; and

    • (c) a business of a corporation, if the following conditions are met at any time in the year:

      • (i) a source individual in respect of the specified individual owns

        • (A) shares of the capital stock of the corporation, or

        • (B) property that derives, directly or indirectly, all or part of its fair market value from shares of the capital stock of the corporation, and

      • (ii) it is the case that

        0.1A ≤ B + C

        where

        A
        is the total fair market value of all of the issued and outstanding shares of the capital stock of the corporation,
        B
        is the total fair market value of property described in clause (i)(A), and
        C
        is the portion of the total fair market value of property described in clause (i)(B) that is derived from shares of the capital stock of the corporation. (entreprise liée)
    safe harbour capital return

    safe harbour capital return, of a specified individual for a taxation year, means an amount that does not exceed the amount determined by the formula

    A × B

    where

    A
    is the rate equal to the highest rate of interest prescribed under paragraph 4301(c) of the Income Tax Regulations in effect for a quarter in the year; and
    B
    is the total of all amounts each of which is determined by the formula

    C × D/E

    where

    C
    is the fair market value of property contributed by the specified individual in support of a related business at the time it was contributed,
    D
    is the number of days in the year that the property (or property substituted for it) is used in support of the related business and has not directly or indirectly, in any manner whatever, been returned to the specified individual, and
    E
    is the number of days in the year. (rendement exonéré)
    source individual

    source individual, in respect of a specified individual for a taxation year, means an individual (other than a trust) who, at any time in the year, is

    • (a) resident in Canada; and

    • (b) related to the specified individual. (particulier source)

    specified individual

    specified individual, for a taxation year, means an individual (other than a trust) who

    • (a) is resident in Canada

      • (i) in the case where the individual dies in the year, immediately before the death, and

      • (ii) in any other case, at the end of the year; and

    • (b) if the individual has not attained the age of 17 years before the year, has a parent resident in Canada at any time in the year. (particulier déterminé)

    split income

    split income, of a specified individual for a taxation year, means the total of all amounts (other than excluded amounts) each of which is

    • (a) an amount required to be included in computing the individual’s income for the year

      • (i) in respect of taxable dividends received by the individual in respect of shares of the capital stock of a corporation (other than shares of a class listed on a designated stock exchange or shares of the capital stock of a mutual fund corporation), or

      • (ii) because of the application of section 15 in respect of the ownership by any person of shares of the capital stock of a corporation (other than shares of a class listed on a designated stock exchange),

    • (b) a portion of an amount included because of the application of paragraph 96(1)(f) in computing the individual’s income for the year, to the extent that the portion

      • (i) is not included in an amount described in paragraph (a), and

      • (ii) can reasonably be considered to be income derived directly or indirectly from

        • (A) one or more related businesses in respect of the individual for the year, or

        • (B) the rental of property by a particular partnership or trust, if a person who is related to the individual at any time in the year

          • (I) is actively engaged on a regular basis in the activities of the particular partnership or trust related to the rental of property, or

          • (II) in the case of a particular partnership, has an interest in the particular partnership directly or indirectly through one or more other partnerships,

    • (c) a portion of an amount included because of the application of subsection 104(13) or 105(2) in respect of a trust (other than a mutual fund trust or a trust that is deemed to be in existence by subsection 143(1)) in computing the individual’s income for the year, to the extent that the portion

      • (i) is not included in an amount described in paragraph (a), and

      • (ii) can reasonably be considered

        • (A) to be in respect of taxable dividends received in respect of shares of the capital stock of a corporation (other than shares of a class listed on a designated stock exchange or shares of the capital stock of a mutual fund corporation),

        • (B) to arise because of the application of section 15 in respect of the ownership by any person of shares of the capital stock of a corporation (other than shares of a class listed on a designated stock exchange),

        • (C) to be income derived directly or indirectly from one or more related businesses in respect of the individual for the year, or

        • (D) to be income derived from the rental of property by a particular partnership or trust, if a person who is related to the individual at any time in the year is actively engaged on a regular basis in the activities of the particular partnership or trust related to the rental of property,

    • (d) an amount included in computing the individual’s income for the year to the extent that the amount is in respect of a debt obligation that

      • (i) is of a corporation (other than a mutual fund corporation or a corporation shares of a class of the capital stock of which are listed on a designated stock exchange), partnership or trust (other than a mutual fund trust), and

      • (ii) is not

        • (A) described in paragraph (a) of the definition fully exempt interest in subsection 212(3),

        • (B) listed or traded on a public market, or

        • (C) a deposit, standing to the credit of the individual,

    • (e) an amount in respect of a property, to the extent that

      • (i) the amount

        • (A) is a taxable capital gain, or a profit, of the individual for the year from the disposition after 2017 of the property, or

        • (B) is included under subsection 104(13) or 105(2) in computing the individual’s income for the year and can reasonably be considered to be attributable to a taxable capital gain, or a profit, of any person or partnership for the year from the disposition after 2017 of the property, and

      • (ii) the property is

        • (A) a share of the capital stock of a corporation (other than a share of a class listed on a designated stock exchange or a share of the capital stock of a mutual fund corporation), or

        • (B) a property in respect of which the following conditions are met:

          • (I) the property is

            1 an interest in a partnership,

            2 an interest as a beneficiary under a trust (other than a mutual fund trust or a trust that is deemed to be in existence by subsection 143(1)), or

            3 a debt obligation (other than a debt obligation described in any of clauses (d)(ii)(A) to (C)), and

          • (II) either

            1 in respect of the property an amount is included in the individual’s split income for the year or an earlier taxation year, or

            2 all or any part of the fair market value of the property, immediately before the disposition referred to in clause (i)(A) or (B), as the case may be, is derived, directly or indirectly, from a share described in clause (A). (revenu fractionné)

  • Marginal note:Additional rules — specified individual

    (1.1) For the purpose of applying this section in respect of a specified individual in respect of a taxation year,

    • (a) an individual is deemed to be actively engaged on a regular, continuous and substantial basis in the activities of a business in a taxation year of the individual if the individual works in the business at least an average of 20 hours per week during the portion of the year in which the business operates;

    • (b) if an amount would — if this section were read without reference to this paragraph — be split income of a specified individual who has attained the age of 17 years before the year in respect of a property, and that property was acquired by, or for the benefit of, the specified individual as a consequence of the death of another person, then

      • (i) for the purpose of applying paragraph (b) of the definition reasonable return in subsection (1), to the extent that the particular amount referred to in that paragraph is in respect of the property, then the factors referred to in that paragraph in respect of the other person are to be included for the purpose of determining a reasonable return in respect of the individual,

      • (ii) for the purposes of this subparagraph and the definition excluded business in subsection (1), if the other person was actively engaged on a regular, substantial and continuous basis in the activities of a business throughout five previous taxation years, then the individual is deemed to have been actively engaged on a regular, substantial and continuous basis in the business throughout those five years, and

      • (iii) for the purpose of applying paragraph (g) of the definition excluded amount in subsection (1) in respect of that property, the individual is deemed to have attained the age of 24 years before the year if the other person had attained the age of 24 years before the year;

    • (c) an amount that is a specified individual’s income for a taxation year from, or the specified individual’s taxable capital gain or profit for the year from the disposition of, a property is deemed to be an excluded amount in respect of the specified individual for the taxation year if

      • (i) the following conditions are met:

        • (A) the amount would be an excluded amount in respect of the specified individual’s spouse or common-law partner for the year, if the amount were included in computing the spouse or common-law partner’s income for the year, and

        • (B) the spouse or common law partner has attained the age of 64 years before the year, or

      • (ii) the amount would have been an excluded amount in respect of an individual who was, immediately before their death, the specified individual’s spouse or common-law partner, if the amount were included in computing the spouse or common-law partner’s income for their last taxation year (determined as if this section applies in respect of that year);

    • (d) for greater certainty, an amount derived directly or indirectly from a business includes

      • (i) an amount that

        • (A) is derived from the provision of property or services to, or in support of, the business, or

        • (B) arises in connection with the ownership or disposition of an interest in the person or partnership carrying on the business, and

      • (ii) an amount derived from an amount described in this paragraph; and

    • (e) for the purposes of this section, an individual is deemed not to be related to their spouse or common-law partner at any time in a year if, at the end of the year, the individual is living separate and apart from their spouse or common-law partner because of a breakdown of their marriage or common-law partnership.

  • Marginal note:Tax on split income

    (2) There shall be added to a specified individual’s tax payable under this Part for a taxation year the highest individual percentage for the year multiplied by the individual’s split income for the year.

  • Marginal note:Tax payable by a specified individual

    (3) Notwithstanding any other provision of this Act, if an individual is a specified individual for a taxation year, the individual’s tax payable under this Part for the year shall not be less than the amount by which the amount added under subsection (2) to the individual’s tax payable under this Part for the year exceeds the amount determined by the formula

    A + B

    where

    A
    is the amount deducted under section 118.3 in computing the individual’s tax payable under this Part for the year; and
    B
    is the total of all amounts each of which is the amount that
    • (a) may be deducted under section 121 or 126 in computing the individual’s tax payable under this Part for the year, and

    • (b) can reasonably be considered to be in respect of an amount included in computing the individual’s split income for the year.

  • Marginal note:Taxable capital gain

    (4) If a specified individual who has not attained the age of 17 years before a taxation year would have for the taxation year, if this Act were read without reference to this section, a taxable capital gain (other than an excluded amount) from a disposition of shares (other than shares of a class listed on a designated stock exchange or shares of a mutual fund corporation) that are transferred, either directly or indirectly, in any manner whatever, to a person with whom the specified individual does not deal at arm’s length, then the amount of that taxable capital gain is deemed not to be a taxable capital gain and twice the amount is deemed to be received by the specified individual in the year as a taxable dividend that is not an eligible dividend.

  • Marginal note:Taxable capital gain of trust

    (5) If a specified individual who has not attained the age of 17 years before a taxation year would be, if this Act were read without reference to this section, required under subsection 104(13) or 105(2) to include an amount in computing the specified individual’s income for the taxation year, then to the extent that the amount can reasonably be considered to be attributable to a taxable capital gain (other than an excluded amount) of a trust from a disposition of shares (other than shares of a class listed on a designated stock exchange or shares of a mutual fund corporation) that are transferred, either directly or indirectly, in any manner whatever, to a person with whom the specified individual does not deal at arm’s length, subsections 104(13) and 105(2) do not apply in respect of the amount and twice the amount is deemed to be received by the specified individual in the year as a taxable dividend that is not an eligible dividend.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 2000, c. 19, s. 30
  • 2007, c. 35, s. 68
  • 2011, c. 24, s. 36
  • 2013, c. 34, s. 256(E)
  • 2014, c. 39, s. 37
  • 2016, c. 11, s. 4
  • 2018, c. 12, s. 13
 
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