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

Mutual Fund Corporations

Marginal note:Election re capital gains dividend

• 131 (1) Where at any particular time a dividend became payable by a corporation, that was throughout the taxation year in which the dividend became payable a mutual fund corporation, to shareholders of any class of its capital stock, if the corporation so elects in respect of the full amount of the dividend in prescribed manner and at or before the earlier of the particular time and the first day on which any part of the dividend was paid,

  • (a) the dividend shall be deemed to be a capital gains dividend payable out of the corporation’s capital gains dividend account to the extent that it does not exceed the corporation’s capital gains dividend account atthe particular time; and

  • (b) notwithstanding any other provision of this Act (other than paragraph (5.1)(b)), if an amount is received by a taxpayer in a taxation year as, on account of, in lieu of payment of or in satisfaction of, the dividend, the amount

    • (i) shall not be included in computing the taxpayer’s income for the year as income from a share of the capital stock of the corporation, and

    • (ii) is deemed to be a capital gain of the taxpayer from the disposition of capital property in the year.

• Marginal note:Deemed date of election

  (1.1) Where at any particular time a dividend has become payable by a mutual fund corporation to shareholders of any class of shares of its capital stock and subsection 131(1) would have applied to the dividend except that the election referred to in that subsection was not made on or before the day on or before which the election was required by that subsection to be made, the election shall be deemed to have been made at the particular time or on the first day on which any part of the dividend was paid, whichever is the earlier, if

  • (a) the election is thereafter made in prescribed manner and prescribed form;

  • (b) an estimate of the penalty in respect of the election is paid by the corporation when the election is made; and

  • (c) the directors or other person or persons legally entitled to administer the affairs of the corporation have, before the time the election is made, authorized the election to be made.

• Marginal note:Request to make election

  (1.2) The Minister may at any time, by written request served personally or by registered mail, request that an election referred to in paragraph 131(1.1)(a) be made by a mutual fund corporation and where the mutual fund corporation on which such a request is served does not comply therewith within 90 days after service of the request, subsection 131(1.1) does not apply to such an election made thereafter by it.

• Marginal note:Penalty

  (1.3) For the purposes of this section, the penalty in respect of an election referred to in paragraph 131(1.1)(b) is an amount equal to the lesser of

  • (a) 1% per annum of the amount of the dividend referred to in the election for each month or part of a month during the period commencing with the time that the dividend became payable, or the first day on which any part of the dividend was paid if that day is earlier, and ending with the day on which the election was made, and

  • (b) the product obtained when $500 is multiplied by the proportion that the number of months or parts of months during the period referred to in paragraph 131(1.3)(a) bears to 12.

• Marginal note:Assessment and payment of penalty

  (1.4) The Minister shall, with all due dispatch, examine each election referred to in paragraph 131(1.1)(a), assess the penalty payable and send a notice of assessment to the mutual fund corporation and the corporation shall pay forthwith to the Receiver General, the amount, if any, by which the penalty so assessed exceeds the total of all amounts previously paid on account of that penalty.

• (1.5) to (1.9) [Repealed, 2013, c. 34, s. 277]

• Marginal note:Capital gains refund to mutual fund corporation

  (2) Where a corporation was, throughout a taxation year, a mutual fund corporation and a return of its income for the year has been made within 3 years from the end of the year, the Minister

  • (a) may, on sending the notice of assessment for the year, refund an amount (in this subsection referred to as its “capital gains refund” for the year) equal to the lesser of

    • (i) the total of

      • (A) 14% of the total of

        • (I) all capital gains dividends paid by the corporation in the period commencing 60 days after the beginning of the year and ending 60 days after the end of the year, and

        • (II) its capital gains redemptions for the year, and

      • (B) the amount, if any, that the Minister determines to be reasonable in the circumstances, after giving consideration to the percentages applicable in determining the corporation’s capital gains refund for the year and preceding taxation years and the percentages applicable in determining the corporation’s refundable capital gains tax on hand at the end of the year, and

    • (ii) the corporation’s refundable capital gains tax on hand at the end of the year; and

  • (b) shall, with all due dispatch, make that capital gains refund after sending the notice of assessment if an application for it has been made in writing by the corporation within the period within which the Minister would be allowed under subsection 152(4) to assess tax payable under this Part by the corporation for the year if that subsection were read without reference to paragraph 152(4)(a).

• Marginal note:Application to other liability

  (3) Instead of making a refund that might otherwise be made under subsection 131(2), the Minister may, where the corporation is liable or about to become liable to make any payment under this Act, apply the amount that would otherwise be refunded to that other liability and notify the corporation of that action.

• Marginal note:Interest on capital gains refund

  (3.1) Where a capital gains refund for a taxation year is paid to, or applied to a liability of, a corporation, the Minister shall pay or apply interest on the refund at the prescribed rate for the period beginning on the day that is the later of

  • (a) the day that is 120 days after the end of the year, and

  • (b) the day that is 30 days after the day on which the corporation’s return of income under this Part for the year was filed under section 150, unless the return was filed on or before the day on or before which it was required to be filed,

  and ending on the day the refund is paid or applied.

• Marginal note:Excess interest on capital gains refund

  (3.2) Where at any particular time interest has been paid to, or applied to a liability of, a corporation under subsection 131(3.1) in respect of a capital gains refund and it is determined at a subsequent time that the capital gains refund was less than that in respect of which interest was so paid or applied,

  • (a) the amount by which the interest that was so paid or applied exceeds the interest, if any, computed in respect of the amount that is determined at the subsequent time to be the capital gains refund shall be deemed to be an amount (in this subsection referred to as the “amount payable”) that became payable under this Part by the corporation at the particular time;

  • (b) the corporation shall pay to the Receiver General interest at the prescribed rate on the amount payable, computed from the particular time to the day of payment; and

  • (c) the Minister may at any time assess the corporation in respect of the amount payable and, where the Minister makes such an assessment, the provisions of Divisions I and J apply, with such modifications as the circumstances require, in respect of the assessment as though it had been made under section 152.

• Marginal note:Application of s. 84

  (4) Section 84 does not apply to deem a dividend to have been paid by a corporation to any of its shareholders, or to deem any of the shareholders of a corporation to have received a dividend on any shares of the capital stock of the corporation, if at the time the dividend would, but for this subsection, be deemed by that section to have been so paid or received, as the case may be, the corporation was a mutual fund corporation.

• Marginal note:Sections not applicable

  (4.1) Sections 51, 85, 85.1, 86 and 87 do not apply to a taxpayer that holds a share (in this subsection referred to as the old share) of a class of shares, that is recognized under securities legislation as or as part of an investment fund, of a mutual fund corporation if the taxpayer exchanges or otherwise disposes of the old share for another share (in this subsection referred to as the new share) of a mutual fund corporation, unless

  • (a) if the exchange or disposition occurs in the course of a transaction, event or series of transactions or events described in subsections 86(1) or 87(1),

    • (i) all shares of the class (determined without reference to subsection 248(6)) that includes the old share at the time of the exchange or disposition are exchanged for shares of the class that includes the new share,

    • (ii) the old share and the new share derive their value in the same proportion from the same property or group of properties, and

    • (iii) the transaction, event or series was undertaken solely for bona fide purposes and not to cause this paragraph to apply;

  • (b) if the old share and the new share are shares of the same class (determined without reference to subsection 248(6)) of shares of the same mutual fund corporation,

    • (i) the old share and the new share derive their value in the same proportion from the same property or group of properties held by the corporation that is allocated to that class, and

    • (ii) that class is recognized under securities legislation as or as part of a single investment fund; or

  • (c) if the old share and the new share are not shares of the same class but are shares of Capital régional et coopératif Desjardins,

    • (i) the old share and the new share derive their value in the same proportion from the same property or group of properties, and

    • (ii) the shares are recognized under securities legislation as or as part of the same investment fund.

• Marginal note:Dividend refund to mutual fund corporation

  (5) A corporation that was a mutual fund corporation throughout a taxation year

  • (a) is deemed for the purposes of paragraph 87(2)(aa) and section 129 to have been a private corporation throughout the year, except that its non-eligible refundable dividend tax on hand (as defined in subsection 129(4)) at the end of the year shall be determined without reference to paragraph (a) of that definition; and

  • (b) where it was not an investment corporation throughout the year, is deemed for the purposes of Part IV to have been a private corporation throughout the year except that, in applying subsection 186(1) to the corporation in respect of the year, that subsection shall be read without reference to paragraph 186(1)(b).

• Marginal note:TCP gains distribution

  (5.1) If a mutual fund corporation elects under subsection (1) to treat a dividend as a capital gains dividend, for the purposes of this Part and Part XIII,

  • (a) each shareholder to whom the dividend is paid is deemed to receive from the corporation, at the time the dividend is paid, a TCP gains distribution equal to the lesser of the amount of the dividend and the shareholder’s pro rata portion at that time of the mutual fund corporation’s TCP gains balance; and

  • (b) where the dividend is paid to a shareholder who is a non-resident person or a partnership that is not a Canadian partnership,

    • (i) subparagraph (1)(b)(ii) does not apply in respect of the dividend, to the extent of the TCP gains distribution, and

    • (ii) the TCP gains distribution is a taxable dividend that, except for the purpose of the definition of capital gains dividend account in subsection (6), is not a capital gains dividend.

• Marginal note:Application of subsection (5.1)

  (5.2) Subsection (5.1) applies to a dividend paid by a mutual fund corporation in a taxation year only if more than 5% of the dividend is received by or on behalf of shareholders each of whom is a non-resident person or is a partnership that is not a Canadian partnership.

• Marginal note:Definitions

  (6) In this section,

  capital gains dividend account

  capital gains dividend account of a mutual fund corporation at any time means the amount, if any, by which

  • (a) the total of

    • (i) its capital gains, for all taxation years that began more than 60 days before that time, from dispositions of property after 1971 and before that time while it was a mutual fund corporation, and

    • (ii) all amounts each of which is an amount in respect of a distribution made by a trust to the corporation, at a time that is after its 2004 taxation year and at which it is a mutual fund corporation, in respect of capital gains of the trust equal to twice the amount determined by the following formula:

      A – B

      where

      A

      is the amount of the distribution, and

      B

      is the amount designated under subsection 104(21) by the trust in respect of the net taxable capital gains of the trust attributable to those capital gains

  exceeds

  • (b) the total of

    • (i) its capital losses, for all taxation years that began more than 60 days before that time, from dispositions of property after 1971 and before that time while it was a mutual fund corporation,

    • (ii) all capital gains dividends that became payable by the corporation before that time and more than 60 days after the end of the last taxation year that ended more than 60 days before that time, and

    • (iii) an amount equal to 100/14 of its capital gains refund for any taxation year throughout which it was a mutual fund corporation where the year ended more than 60 days before that time; (compte de dividendes sur les gains en capital)

  capital gains redemptions

  capital gains redemptions of a mutual fund corporation for a taxation year means the amount determined by the formula

  A/B × (C + D)

  where

  A

  is the sum of

  • (a) the total of all amounts paid by the corporation in the year on the redemption of shares of its capital stock, and

  • (b) the total of all amounts each of which is an amount equal to the fair market value of the shares of the corporation’s capital stock that were exchanged in the year for other shares of the corporation’s capital stock if

    • (i) paragraph (4.1) applies to the exchange, and

    • (ii) the amount is not included in the amount determined for paragraph (a),

  B

  is the total of the fair market value at the end of the year of all the issued shares of its capital stock and the amount determined for A in respect of the corporation for the year,

  C

  is 100/14 of the corporation’s refundable capital gains tax on hand at the end of the year, and

  D

  is the amount determined by the formula

  (K + L) - (M + N)

  where

  K

  is the amount of the fair market value at the end of the year of all the issued shares of the corporation’s capital stock,

  L

  is the total of all amounts each of which is the amount of any debt owing by the corporation, or of any other obligation of the corporation to pay an amount, that was outstanding at that time,

  M

  is the total of the cost amounts to the corporation at that time of all its properties, and

  N

  is the amount of any money of the corporation on hand at that time; (rachats au titre des gains en capital)

  non-qualifying real property

  non-qualifying real property[Repealed, 1995, c. 3, s. 41]

  non-qualifying real property capital gains dividend account

  non-qualifying real property capital gains dividend account[Repealed, 1995, c. 3, s. 41]

  pro rata portion

  pro rata portion, of a shareholder at any time, of a mutual fund corporation’s TCP gains balance, in respect of a dividend paid by the mutual fund corporation on a class of shares of its capital stock, means the amount determined by the formula

  A x B/C

  where

  A

  is the mutual fund corporation’s TCP gains balance immediately before that time,

  B

  is the amount received in respect of the dividend by the shareholder, and

  C

  is the total amount of the dividend; (partie proportionnelle)

  refundable capital gains tax on hand

  refundable capital gains tax on hand of a mutual fund corporation at the end of a taxation year means the amount determined by the formula

  A - B

  where

  A

  is the total of all amounts each of which is an amount in respect of that or any previous taxation year throughout which the corporation was a mutual fund corporation, equal to the least of

  • (a) 28% of its taxable income for the year,

  • (b) 28% of its taxed capital gains for the year, and

  • (c) the tax payable by it under this Part for the year determined without reference to section 123.2, and

  B

  is the total of all amounts each of which is an amount in respect of any previous taxation year throughout which the corporation was a mutual fund corporation, equal to its capital gains refund for the year; (impôt en main remboursable au titre des gains en capital)

  TCP gains balance

  TCP gains balance, of a mutual fund corporation at any time, means the amount, if any, by which

  • (a) the total of

    • (i) the mutual fund corporation’s capital gains from dispositions, after March 22, 2004 and at or before that time, of taxable Canadian properties, and

    • (ii) the TCP gains distributions (including those defined in section 132) received by the mutual fund corporation at or before that time

  exceeds

  • (b) the total of

    • (i) the mutual fund corporation’s capital losses from dispositions, after March 22, 2004 and at or before that time, of taxable Canadian properties, and

    • (ii) the total of all amounts deemed, in respect of dividends paid by the mutual fund corporation before that time, to be TCP gains distributions received by shareholders from the mutual fund corporation; (solde des gains provenant de BCI)

  TCP gains distribution

  TCP gains distribution means a TCP gains distribution described in subsection (5.1). (distribution de gains provenant de BCI)

• Marginal note:Definition of taxed capital gains

  (7) In subsection 131(6), taxed capital gains of a taxpayer for a taxation year has the meaning assigned by subsection 130(3).

• Marginal note:Meaning of mutual fund corporation

  (8) Subject to subsection 131(8.1), a corporation is, for the purposes of this section, a mutual fund corporation at any time in a taxation year if, at that time, it was a prescribed labour-sponsored venture capital corporation or

  • (a) it was a Canadian corporation that was a public corporation;

  • (b) its only undertaking was

    • (i) the investing of its funds in property (other than real property or an interest in real property or an immovable or a real right in an immovable),

    • (ii) the acquiring, holding, maintaining, improving, leasing or managing of any real property (or interest in real property) or of any immovable (or real right in immovables) that is capital property of the corporation, or

    • (iii) any combination of the activities described in subparagraphs 131(8)(b)(i) and 131(8)(b)(ii), and

  • (c) the issued shares of the capital stock of the corporation included shares

    • (i) having conditions attached thereto that included conditions requiring the corporation to accept, at the demand of the holder thereof and at prices determined and payable in accordance with the conditions, the surrender of the shares, or fractions or parts thereof, that are fully paid, or

    • (ii) qualified in accordance with prescribed conditions relating to the redemption of the shares,

    and the fair market value of such of the issued shares of its capital stock as had conditions attached thereto that included such conditions or as were so qualified, as the case may be, was not less than 95% of the fair market value of all of the issued shares of the capital stock of the corporation (such fair market values being determined without regard to any voting rights attaching to shares of the capital stock of the corporation).

• Marginal note:Election to be a mutual fund corporation

  (8.01) A corporation is deemed to be a mutual fund corporation, from the date it was incorporated until the earlier of the date the corporation meets the conditions to qualify as a mutual fund corporation under subsection (8) and December 31, 2017, if the corporation

  • (a) was incorporated after 2014 and before March 22, 2016;

  • (b) would have been a mutual fund corporation on March 22, 2016 if it could have elected on or before that date to be a public corporation under paragraph (b) of the definition public corporation in subsection 89(1), had the conditions prescribed in paragraph 4800(1)(b) of the Income Tax Regulations been satisfied;

  • (c) on March 22, 2016, had at least one class of shares that was recognized under securities legislation as an investment fund; and

  • (d) elects to have this subsection apply in the corporation’s return of income for the corporation’s first taxation year that ends after March 21, 2016.

• Marginal note:Idem

  (8.1) Where, at any time, it can reasonably be considered that a corporation, having regard to all the circumstances, including the terms and conditions of the shares of its capital stock, was established or is maintained primarily for the benefit of non-resident persons, the corporation shall be deemed not to be a mutual fund corporation after that time unless

  • (a) throughout the period that begins on the later of February 21, 1990 and the day of its incorporation and ends at that time, all or substantially all of its property consisted of property other than property that would be taxable Canadian property if the definition taxable Canadian property in subsection 248(1) were read without reference to paragraph (b) of that definition; or

  • (b) it has not issued a share (other than a share issued as a stock dividend) of its capital stock after February 20, 1990 and before that time to a person who, after reasonable inquiry, it had reason to believe was non-resident, except where the share was issued to that person under an agreement in writing entered into before February 21, 1990.

• Marginal note:Reduction of refundable capital gains tax on hand

  (9) Notwithstanding any other provision of this section, the amount determined for A in the definition refundable capital gains tax on hand in subsection 131(6) in respect of the 1972 or 1973 taxation year of a corporation is,

  • (a) in respect of its 1972 taxation year, 91.25% of the amount so determined; and

  • (b) in respect of its 1973 taxation year, the total of

    • (i) 91.25% of that proportion of the amount so determined that the number of days in that portion of the year that is before 1973 is of the number of days in the whole year, and

    • (ii) 100% of that proportion of the amount so determined that the number of days in that portion of the year that is after 1972 is of the number of days in the whole year.

• Marginal note:Restricted financial institution

  (10) Notwithstanding any other provision of this Act, a mutual fund corporation or an investment corporation that at any time would, but for this subsection, be a restricted financial institution shall, if it has so elected in prescribed manner and prescribed form before that time, be deemed not to be a restricted financial institution at that time.

• Marginal note:Rules respecting prescribed labour-sponsored venture capital corporations

  (11) Notwithstanding any other provision of this Act, in applying this Act to a corporation that was at any time a prescribed labour-sponsored venture capital corporation,

  • (a) for the purposes of subparagraphs (a)(i) and (ii) of the definition non-eligible refundable dividend tax on hand in subsection 129(4), the amount deducted under paragraph 111(1)(b) from the corporation’s income for each taxation year ending after that time shall be deemed to be nil;

  • (b) the definition aggregate investment income in subsection 129(4) shall be read without reference to paragraph (a) of that definition in its application to taxation years that end after that time;

  • (c) notwithstanding subsection 131(4), if it so elects in its return of income under this Part for a taxation year ending after that time, subsection 84(1) applies for that year and all subsequent taxation years;

  • (d) subsection 131(5) does not apply for taxation years ending after that time; and

  • (e) the amount of the corporation’s capital dividend account at any time after that time shall be deemed to be nil.