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

Marginal note:Non-resident-owned corporation not a Canadian corporation, etc.

134 Notwithstanding any other provision of this Act, a non-resident-owned investment corporation that would, but for this section, be a Canadian corporation, taxable Canadian corporation or private corporation shall be deemed not to be a Canadian corporation, taxable Canadian corporation or private corporation, as the case may be, except for the purposes of section 87, subsection 88(2) and sections 212.1 and 219.

Marginal note:NRO — transition

• 134.1 (1) This section applies to a corporation that

  • (a) was a non-resident-owned investment corporation in a taxation year;

  • (b) is not a non-resident-owned investment corporation in the following taxation year (in this section referred to as the corporation’s “first non-NRO year”); and

  • (c) elects in writing filed with the Minister on or before the corporation’s filing-due date for its first non-NRO year to have this section apply.

• Marginal note:Application

  (2) For the purposes of applying subsections 104(10) and (11) and 133(6) to (9) (other than the definition non-resident-owned investment corporation in subsection 133(8)), section 212 and any tax treaty, a corporation described in subsection (1) is deemed to be a non-resident-owned investment corporation in its first non-NRO year in respect of dividends paid in that year on shares of its capital stock to a non-resident person, to a trust for the benefit of non-resident persons or their unborn issue or to a non-resident-owned investment corporation.

Marginal note:Revocation

• 134.2 (1) This section applies to a corporation that

  • (a) revokes at any time (in this section described as the “revocation time”) its election to be taxed under section 133;

  • (b) elects to have this section apply, by filing an election in writing with the Minister on or before the corporation’s filing-due date for the taxation year of the corporation (in this section referred to as the “revocation year”) that would have included the revocation time if the corporation had not so elected; and

  • (c) specifies in the election a time (in this section referred to as the “elected time”) that is in the revocation year and is not after the revocation time.

• Marginal note:Consequences

  (2) Where this section applies to a corporation,

  • (a) the corporation’s taxation year that would have included the elected time, if the corporation had not elected to have this section apply, is deemed to end immediately before the elected time;

  • (b) a new taxation year of the corporation is deemed to begin at the elected time; and

  • (c) notwithstanding paragraph (f) of the definition non-resident-owned investment corporation in subsection 133(8), the corporation is deemed to be a non-resident-owned investment corporation for the period that begins at the beginning of the revocation year and ends immediately before the elected time.

Patronage Dividends

Marginal note:Deduction in computing income

• 135 (1) Notwithstanding anything in this Part, other than subsections (1.1) to (2.1) and 135.1(3), there may be deducted, in computing the income of a taxpayer for a taxation year, the total of the payments made, pursuant to allocations in proportion to patronage, by the taxpayer

  • (a) within the year or within 12 months thereafter to the taxpayer’s customers of the year; and

  • (b) within the year or within 12 months thereafter to the taxpayer’s customers of a previous year, the deduction of which from income of a previous taxation year was not permitted.

• Marginal note:Limitation where non-arm’s length customer

  (1.1) Subsection (1) applies to a payment made by a taxpayer to a customer with whom the taxpayer does not deal at arm’s length only if

  • (a) the taxpayer is a cooperative corporation described in subsection 136(2) or a credit union; or

  • (b) the payment is prescribed.

• Marginal note:Limitation where non-member customer

  (2) If a taxpayer has not made allocations in proportion to patronage in respect of all of the taxpayer’s customers of the year, at the same rate, with appropriate differences for different types, classes, grades or qualities of goods, products or services, the amount that may be deducted by the taxpayer under subsection (1) is an amount equal to the lesser of

  • (a) the total of the payments mentioned in that subsection, and

  • (b) the total of

    • (i) the part of the income of the taxpayer for the year attributable to business done with members, and

    • (ii) the allocations in proportion to patronage made to non-member customers of the year.

• Marginal note:Deduction carried over

  (2.1) Where, in a taxation year ending after 1985, all or a portion of a payment made by a taxpayer pursuant to an allocation in proportion to patronage to the taxpayer’s customers who are members is not deductible in computing the taxpayer’s income for the year because of the application of subsection 135(2) (in this subsection referred to as the “undeducted amount”), there may be deducted in computing the taxpayer’s income for a subsequent taxation year, an amount equal to the lesser of

  • (a) the undeducted amount, except to the extent that that amount was deducted in computing the taxpayer’s income for any preceding taxation year, and

  • (b) the amount, if any, by which

    • (i) the taxpayer’s income for the subsequent taxation year (computed without reference to this subsection) attributable to business done with the taxpayer’s customers of that year who are members

    exceeds

    • (ii) the amount deducted in computing the taxpayer’s income for the subsequent taxation year by virtue of subsection 135(1) in respect of payments made by the taxpayer pursuant to allocations in proportion to patronage to the taxpayer’s customers of that year who are members.

• Marginal note:Amount to be deducted or withheld from payment to customer

  (3) Subject to subsection 135.1(6), a taxpayer who makes at any particular time in a calendar year a payment pursuant to an allocation in proportion to patronage to a person who is resident in Canada and is not exempt from tax under section 149 shall, notwithstanding any agreement or any law to the contrary, deduct or withhold from the payment an amount equal to 15% of the lesser of the amount of the payment and the amount, if any, by which

  • (a) the total of the amount of the payment and the amounts of all other payments pursuant to allocations in proportion to patronage made by the taxpayer to that person in the calendar year and before the particular time

  exceeds

  • (b) $100,

  and forthwith remit that amount to the Receiver General on behalf of that person on account of that person’s tax under this Part.

• Marginal note:Definitions

  (4) For the purposes of this section and section 135.1,

  allocation in proportion to patronage

  allocation in proportion to patronage for a taxation year means an amount credited by a taxpayer to a customer of that year on terms that the customer is entitled to or will receive payment thereof, computed at a rate in relation to the quantity, quality or value of the goods or products acquired, marketed, handled, dealt in or sold, or services rendered by the taxpayer from, on behalf of or to the customer, whether as principal or as agent of the customer or otherwise, with appropriate differences in the rate for different classes, grades or qualities thereof, if

  • (a) the amount was credited

    • (i) within the year or within 12 months thereafter, and

    • (ii) at the same rate in relation to quantity, quality or value aforesaid as the rate at which amounts were similarly credited to all other customers of that year who were members or to all other customers of that year, as the case may be, with appropriate differences aforesaid for different classes, grades or qualities, and

  • (b) the prospect that amounts would be so credited was held out by the taxpayer to the taxpayer’s customers of that year who were members or non-member customers of that year, as the case may be; (répartition proportionnelle à l’apport commercial)

  consumer goods or services

  consumer goods or services means goods or services the cost of which was not deductible by the taxpayer in computing the income from a business or property; (marchandises de consommation ou services)

  customer

  customer means a customer of a taxpayer and includes a person who sells or delivers goods or products to the taxpayer, or for whom the taxpayer renders services; (client)

  income of the taxpayer attributable to business done with members

  income of the taxpayer attributable to business done with members of any taxation year means that proportion of the income of the taxpayer for the year (before making any deduction under this section) that the value of the goods or products acquired, marketed, handled, dealt in or sold or services rendered by the taxpayer from, on behalf of, or for members, is of the total value of goods or products acquired, marketed, handled, dealt in or sold or services rendered by the taxpayer from, on behalf of, or for all customers during the year; (revenu du contribuable attribuable aux affaires faites avec ses membres)

  member

  member means a person who is entitled as a member or shareholder to full voting rights in the conduct of the affairs of the taxpayer (being a corporation) or of a corporation of which the taxpayer is a subsidiary wholly-owned corporation; (membre)

  non-member customer

  non-member customer means a customer who is not a member; (client non membre)

  payment

  payment includes

  • (a) the issue of a certificate of indebtedness or shares of the taxpayer or of a corporation of which the taxpayer is a subsidiary wholly-owned corporation if the taxpayer or that corporation has in the year or within 12 months thereafter disbursed an amount of money equal to the total face value of all certificates or shares so issued in the course of redeeming or purchasing certificates of indebtedness or shares of the taxpayer or that corporation previously issued,

  • (b) the application by the taxpayer of an amount to a member’s liability to the taxpayer (including, without restricting the generality of the foregoing, an amount applied in fulfilment of an obligation of the member to make a loan to the taxpayer and an amount applied on account of payment for shares issued to a member) pursuant to a by-law of the taxpayer, pursuant to statutory authority or at the request of the member, or

  • (c) the amount of a payment or transfer by the taxpayer that, under subsection 56(2), is required to be included in computing the income of a member. (paiement)

• Marginal note:Holding out prospect of allocations

  (5) For the purpose of this section a taxpayer shall be deemed to have held out the prospect that amounts would be credited to a customer of a taxation year by way of allocation in proportion to patronage, if

  • (a) throughout the year the statute under which the taxpayer was incorporated or registered, its charter, articles of association or by-laws or its contract with the customer held out the prospect that amounts would be so credited to customers who are members or non-member customers, as the case may be; or

  • (b) prior to the commencement of the year or prior to such other day as may be prescribed for the class of business in which the taxpayer is engaged, the taxpayer has published an advertisement in prescribed form in a newspaper or newspapers of general circulation throughout the greater part of the area in which the taxpayer carried on business holding out that prospect to customers who are members or non-member customers, as the case may be, and has filed copies of the newspapers with the Minister before the end of the 30th day of the taxation year or within 30 days from the prescribed day, as the case may be.

• Marginal note:Amount of payment to customer

  (6) For greater certainty, the amount of any payment pursuant to an allocation in proportion to patronage is the amount thereof determined before deducting any amount required by subsection 135(3) to be deducted or withheld from that payment.

• Marginal note:Payment to customer to be included in income

  (7) Where a payment pursuant to an allocation in proportion to patronage (other than an allocation in respect of consumer goods or services) has been received by a taxpayer, the amount of the payment shall, subject to subsection 135.1(2), be included in computing the recipient’s income for the taxation year in which the payment was received and, without restricting the generality of the foregoing, where a certificate of indebtedness or a share was issued to a person pursuant to an allocation in proportion to patronage, the amount of the payment by virtue of that issuance shall be included in computing the recipient’s income for the taxation year in which the certificate or share was received and not in computing the recipient’s income for the year in which the indebtedness was subsequently discharged or the share was redeemed.

• Marginal note:Patronage dividends

  (8) For the purposes of this section, where

  • (a) a person has sold or delivered a quantity of goods or products to a marketing board established by or pursuant to a law of Canada or a province,

  • (b) the marketing board has sold or delivered the same quantity of goods or products of the same class, grade or quality to a taxpayer of which the person is a member, and

  • (c) the taxpayer has credited that person with an amount based on the quantity of goods or products of that class, grade or quality sold or delivered to it by the marketing board,

  the quantity of goods or products referred to in paragraph 135(8)(c) shall be deemed to have been sold or delivered by that person to the taxpayer and to have been acquired by the taxpayer from that person.

Agricultural Cooperatives — Tax-deferred Patronage Dividends

Marginal note:Definitions

• 135.1 (1) The following definitions apply in this section and section 135.

  agricultural business

  agricultural business means a business, carried on in Canada, that consists of one or any combination of

  • (a) farming (including, if the person carrying on the business is a corporation described in paragraph (a) of the definition agricultural cooperative corporation, the production, processing, storing and wholesale marketing of the products of its members’ farming activities); or

  • (b) the provision of goods or services (other than financial services) that are required for farming. (entreprise d’agriculture)

  agricultural cooperative corporation

  agricultural cooperative corporation at any time means a corporation

  • (a) that was incorporated or continued by or under the provisions of a law, of Canada or of a province, that provide for the establishment of the corporation as a cooperative corporation or that provide for the establishment of cooperative corporations; and

  • (b) that has at that time

    • (i) as its principal business an agricultural business, or

    • (ii) members, making up at least 75% of all members of the corporation, each of whom

      • (A) is an agricultural cooperative corporation, or

      • (B) has as their principal business a farming business. (coopérative agricole)

  allowable disposition

  allowable disposition means a disposition by a taxpayer of a tax deferred cooperative share less than five years after the day on which the share was issued if

  • (a) before the disposition,

    • (i) the agricultural cooperative corporation is notified in writing that the taxpayer has after the share was issued become disabled and permanently unfit for work, or termi­nally ill, or

    • (ii) the taxpayer ceases to be a member of the agricultural cooperative corporation; or

  • (b) the agricultural cooperative corporation is notified in writing that the share is held by a person on whom the share has devolved as a consequence of the death of the taxpayer. (disposition admissible)

  eligible member

  eligible member of an agricultural cooperative corporation means a member who carries on an agricultural business and who is

  • (a) an individual resident in Canada;

  • (b) an agricultural cooperative corporation;

  • (c) a corporation resident in Canada that carries on the business of farming in Canada; or

  • (d) a partnership that carries on the business of farming in Canada, all of the members of which are described in any of paragraphs (a) to (c) or this paragraph. (membre admissible)

  tax deferred cooperative share

  tax deferred cooperative share at any time means a share

  • (a) issued, after 2005 and before 2026, by an agricultural cooperative corporation to a person or partnership that is at the time the share is issued an eligible member of the agricultural cooperative corporation, pursuant to an allocation in proportion to patronage;

  • (b) the holder of which is not entitled to receive on the redemption, cancellation or acquisition of the share by the agricultural cooperative corporation or by any person with whom the agricultural cooperative corporation does not deal at arm’s length an amount that is greater than the amount that would, if this Act were read without reference to this section, be included under subsection 135(7) in computing the eligible member’s income for their taxation year in which the share was issued;

  • (c) that has not before that time been deemed by subsection (4) to have been disposed of; and

  • (d) that is of a class

    • (i) the terms of which provide that the agricultural cooperative corporation shall not, otherwise than pursuant to an allowable disposition, redeem, acquire or cancel a share of the class before the day that is five years after the day on which the share was issued, and

    • (ii) that is identified by the agricultural cooperative corporation in prescribed form and manner as a class of tax deferred cooperative shares. (part à imposition différée)

  tax paid balance

  tax paid balance of a taxpayer at the end of a particular taxation year of the taxpayer means the amount, if any, by which

  • (a) the total of

    • (i) the taxpayer’s tax paid balance at the end of the immediately preceding taxation year, and

    • (ii) the amount, if any, that is included in computing the taxpayer’s income under this Part for the particular taxation year because of an election described in subparagraph (2)(a)(ii),

  exceeds

  • (b) the total of all amounts each of which is the taxpayer’s proceeds of disposition of a tax deferred cooperative share that the taxpayer disposed of in the particular taxation year. (solde libéré d’impôt)

• Marginal note:Income inclusion

  (2) In computing the income of a taxpayer for a particular taxation year, there shall be included under subsection 135(7), in respect of the taxpayer’s receipt, as an eligible member, of tax deferred cooperative shares of an agricultural cooperative corporation in the particular taxation year, only the total of

  • (a) the lesser of

    • (i) the total of all amounts, in respect of the taxpayer’s receipt in the particular taxation year of tax deferred cooperative shares, that would, if this Act were read without reference to this section, be included under subsection 135(7) in computing the taxpayer’s income for the particular taxation year, and

    • (ii) the greater of nil and the amount, if any, specified by the taxpayer in an election in prescribed form that is filed with the taxpayer’s return of income for the particular taxation year, and

  • (b) the amount, if any, by which

    • (i) the total of all amounts each of which is the taxpayer’s proceeds of disposition of a tax deferred cooperative share disposed of by the taxpayer in the particular taxation year

    exceeds

    • (ii) the total of

      • (A) the taxpayer’s tax paid balance at the end of the immediately preceding taxation year, and

      • (B) the amount, if any, that is included in computing the taxpayer’s income for the particular taxation year because of an election described in subparagraph (a)(ii).

• Marginal note:Deductibility limit

  (3) The amount that may be deducted under subsection 135(1) for a particular taxation year by an agricultural cooperative corporation in respect of payments, in the form of tax deferred cooperative shares, made pursuant to allocations in proportion to patronage shall not exceed 85% of the agricultural cooperative corporation’s income of the taxation year attributable to business done with members.

• Marginal note:Deemed disposition

  (4) A taxpayer who holds a tax deferred cooperative share is deemed to have disposed of the share, for proceeds of disposition equal to the amount that would, if this Act were read without reference to this section, have been included under subsection 135(7), in respect of the share, in computing the taxpayer’s income for the taxation year in which the share was issued, at the earliest time at which

  • (a) the paid-up capital of the share is reduced otherwise than by way of a redemption of the share; or

  • (b) the taxpayer pledges, or for civil law hypothecates, assigns or in any way alienates the share as security for indebtedness of any kind.

• Marginal note:Reacquisition

  (5) A taxpayer who is deemed by subsection (4) to have disposed at any time of a tax deferred cooperative share is deemed to have reacquired the share, immediately after that time, at a cost equal to the taxpayer’s proceeds of disposition from that disposition.

• Marginal note:Exclusion from withholding obligation

  (6) Subsection 135(3) does not apply to a payment pursuant to an allocation in proportion to patronage that is paid by an agricultural cooperative corporation through the issuance of a tax deferred cooperative share.

• Marginal note:Withholding on redemption

  (7) A person or partnership (in this subsection referred to as the “redeeming entity”) that redeems, acquires or cancels a shareholder’s share shall withhold and forthwith remit to the Receiver General, on account of the shareholder’s tax liability, 15% from the amount otherwise payable on the redemption, acquisition or cancellation, if

  • (a) the share was, at the time it was issued, a tax deferred cooperative share;

  • (b) the redeeming entity is the corporation that issued the share, or a person or partnership with whom the corporation does not deal at arm’s length; and

  • (c) the shareholder is not a trust whose taxable income is exempt from tax under this Part because of paragraph 149(1)(r) or (x).

• Marginal note:Application of subsections 84(2) and (3)

  (8) Subsections 84(2) and (3) do not apply to a tax deferred cooperative share.

• Marginal note:Application of subsection (10)

  (9) Subsection (10) applies in respect of the disposition, after September 28, 2009, by a taxpayer of a tax deferred cooperative share (in this subsection and subsection (10) referred to as the “old share”) of an agricultural cooperative corporation if

  • (a) the disposition results from the acquisition, cancellation or redemption of the old share in the course of a reorganization of the capital of the corporation;

  • (b) in exchange for the old share the corporation issues to the taxpayer a share (in this subsection and subsection (10) referred to as the “new share”) that is described in all of paragraphs (b) to (d) of the definition tax deferred cooperative share in subsection (1); and

  • (c) the amount of paid-up capital, and the amount, if any, that the taxpayer is entitled to receive on a redemption, acquisition or cancellation, of the new share are equal to those amounts, respectively, in respect of the old share.

• Marginal note:Shares issued on corporate reorganizations

  (10) If this subsection applies in respect of an exchange of a taxpayer’s old share for a new share, for the purposes of this section (other than subsection (9)),

  • (a) the new share issued in exchange for the old share is deemed to have been issued, pursuant to an allocation in proportion to patronage, at the time the old share was issued; and

  • (b) provided that no person or partnership receives at any time any consideration (other than the new share) in exchange for the old share, for the purposes of subsections (2) and (7) the taxpayer is deemed to have disposed of the old share for nil proceeds.