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

Marginal note:Group ratio — definitions

• 18.21 (1) The following definitions apply in this section.

  acceptable accounting standards

  acceptable accounting standards means International Financial Reporting Standards and the generally accepted accounting principles of

  • (a) Canada;

  • (b) Australia;

  • (c) Brazil;

  • (d) member states of the European Union;

  • (e) member states of the European Economic Area;

  • (f) Hong Kong (China);

  • (g) Japan;

  • (h) Mexico;

  • (i) New Zealand;

  • (j) the People’s Republic of China;

  • (k) the Republic of India;

  • (l) the Republic of Korea;

  • (m) Singapore;

  • (n) Switzerland;

  • (o) the United Kingdom; and

  • (p) the United States. (principes comptables acceptables)

  consolidated financial statements

  consolidated financial statements means financial statements prepared in accordance with a relevant acceptable accounting standard in which the assets, liabilities, income, expenses and cash flows of two or more entities are presented as those of a single economic entity and, for greater certainty, the financial statements include the notes to the financial statements. (états financiers consolidés)

  consolidated group

  consolidated group means two or more entities, other than an equity-accounted entity but including an ultimate parent, (each such entity referred to in this section as a “member of the consolidated group”) in respect of which consolidated financial statements are required to be prepared for financial reporting purposes or would be so required if the entities were subject to International Financial Reporting Standards. (groupe consolidé)

  equity-accounted entity

  equity-accounted entity means an entity the net income or loss of which is included in the consolidated financial statements of a consolidated group under the equity method of accounting. (entité comptabilisée à la valeur de consolidation)

  equity interest

  equity interest means

  • (a) a share of the capital stock of a corporation;

  • (b) an interest as a beneficiary under a trust;

  • (c) an interest as a member of a partnership; or

  • (d) any similar interest in respect of any entity. (participation au capital)

  fair value amount

  fair value amount means any amount reflected in the net income or net loss reported in the consolidated financial statements of a consolidated group for a relevant period where

  • (a) the carrying value of any asset or liability of the consolidated group is measured using the fair value method of accounting; and

  • (b) the amount reflects a change in the carrying value of the asset or liability during the relevant period and is included in either the description of C or H in the definition group adjusted net book income. (montant de la juste valeur)

  group adjusted net book income

  group adjusted net book income, of a consolidated group for a relevant period, means the amount determined by the formula

  A − B

  where

  A

  is the amount determined by the formula

  C + D + E + F + G

  where

  C

  is the amount, if any, of net income reported in the consolidated financial statements of the group for the period,

  D

  is the amount, if any, of income tax expense reported in those statements,

  E

  is the amount that would be the specified interest expense of the group for the period if the definition specified interest expense were read without reference to paragraph (b) of the description of A,

  F

  is the total of all amounts used in determining the amounts reported in those statements each of which is the amount of

  • (a) a depreciation or amortization expense in respect of an asset,

  • (b) a charge in respect of the impairment or write-off of an asset referred to in paragraph (a),

  • (c) a loss on the disposal of an asset referred to in paragraph (a),

  • (d) if an election is made under subsection (4) and the net fair value amount for the period is negative, the absolute value of the net fair value amount, and

  • (e) an expense, charge, deduction or loss that is similar to any of those referred to in paragraphs (a) to (d), and

  G

  is the total of all amounts referred to in the description of D or F that are included in the determination of the net income or loss of an equity-accounted entity, to the extent of the consolidated group’s share of that net income or loss; and

  B

  is the amount determined by the formula

  H + I + J + K + L + M + N

  where

  H

  is the amount, if any, of net loss reported in those statements,

  I

  is the amount, if any, of income tax recoverable reported in those statements,

  J

  is the specified interest income of the group for the period,

  K

  if an election is made under subsection (4) and the net fair value amount for the period is positive, the net fair value amount,

  L

  is the total of all amounts used in determining the amounts reported in those statements each of which is the amount of a gain on the disposal of an asset referred to in paragraph (a) of the description of F, to the extent that the sale proceeds do not exceed the original cost of the asset,

  M

  is the total of all amounts referred to in the descriptions of I, K and L that is included in the determination of the net income or loss of an equity-accounted entity, to the extent of the consolidated group’s share of that net income or loss, and

  N

  is the total of all amounts, each of which is the portion of net income reported in those statements that can reasonably be considered to be earned by a borrower (within the meaning of the definition exempt interest and financing expenses in subsection 18.2(1)) in respect of a borrowing (within the meaning of the definition exempt interest and financing expenses in subsection 18.2(1)) that results in exempt interest and financing expenses of the borrower. (bénéfice net comptable rajusté du groupe)

  group net interest expense

  group net interest expense, of a consolidated group for a relevant period, means the amount determined by the formula

  A − B

  where

  A

  is the amount determined by the formula

  C − D

  where

  C

  is the specified interest expense of the group for the period, and

  D

  is the specified interest income of the group for the period; and

  B

  is the total of all amounts each of which is an amount determined, in respect of a specified non-member of the group, by the formula

  E − F

  where

  E

  is the portion of the amount of the specified interest expense of the group for the period that is paid or payable to the specified non-member, and

  F

  is the portion of the amount of the specified interest income of the group for the period that is received or receivable from the specified non-member. (dépenses nettes d’intérêts du groupe)

  group ratio

  group ratio, of a consolidated group for a relevant period, means

  • (a) except where paragraph (b) applies, the percentage determined by the formula

    1.1 × A ÷ B

    where

    A

    is the group net interest expense of the consolidated group for the relevant period, and

    B

    is the group adjusted net book income of the consolidated group for the relevant period; and

  • (b) if the group adjusted net book income of the consolidated group for the relevant period is nil, nil. (ratio de groupe)

  net fair value amount

  net fair value amount means the positive or negative amount that is the total of all amounts, each of which is a positive or negative fair value amount in the consolidated financial statements of the consolidated group for a relevant period. (montant de la juste valeur net)

  relevant period

  relevant period means a period in respect of which the consolidated financial statements of a consolidated group are presented. (période pertinente)

  specified interest expense

  specified interest expense, of a consolidated group for a relevant period, means the amount determined by the formula

  A − B

  where

  A

  is the total of all amounts (other than amounts that are included in exempt interest and financing expenses), each of which is

  • (a) an amount of interest expense used in determining the amounts reported in the consolidated financial statements of the consolidated group for the relevant period,

  • (b) an amount of capitalized interest used in determining the amounts reported in those statements,

  • (c) the amount of a guarantee fee, standby charge, arrangement fee or similar fee paid or payable that is used in determining the amounts reported in those statements and that is not included in paragraph (a) or (b), or

  • (d) an amount referred to in any of paragraphs (a) to (c) that is included in the determination of the net income or loss of an equity-accounted entity, to the extent of the consolidated group’s share of that net income or loss; and

  B

  is the total of all amounts each of which is the amount of a dividend included in the determination of an amount referred to in any of paragraphs (a) to (d) of the description of A. (dépenses d’intérêts déterminées)

  specified interest income

  specified interest income, of a consolidated group for a relevant period, means the amount determined by the formula

  A − B

  where

  A

  is the total of all amounts, each of which is

  • (a) an amount of interest income used in determining the amounts reported in the consolidated financial statements of the consolidated group for the relevant period,

  • (b) the amount of a guarantee fee, standby charge, arrangement fee or similar fee received or receivable that is used in determining the amounts reported in those statements and that is not included in paragraph (a), or

  • (c) an amount referred to in paragraph (a) or (b) that is included in the determination of the net income or loss of an equity-accounted entity, to the extent of the consolidated group’s share of that income or loss; and

  B

  is the total of all amounts each of which is the amount of a dividend included in the determination of an amount referred to in any of paragraphs (a) to (c) of the description of A. (revenus d’intérêts déterminés)

  specified non-member

  specified non-member, of a consolidated group for a relevant period, means a particular person or partnership that is not a member of the consolidated group and that, at any time in the period,

  • (a) does not deal at arm’s length with a member of the group;

  • (b) alone or together with persons or partnerships with whom the particular person or partnership does not deal at arm’s length owns, or has the right to acquire, one or more equity interests in a member of the group that

    • (i) provide 25% or more of the votes that could be cast at an annual meeting of the shareholders of the member, if the member is a corporation, or

    • (ii) have 25% or more of the fair market value of all equity interests in the member; or

  • (c) is a person or partnership in respect of which a member of the group — alone or together with persons or partnerships with whom the member does not deal at arm’s length — owns, or has the right to acquire, one or more equity interests in the particular person or partnership that

    • (i) provide 25% or more of the votes that could be cast at an annual meeting of the shareholders of the particular person, if the particular person is a corporation, or

    • (ii) have 25% or more of the fair market value of all equity interests in the particular person or partnership. (non-membre déterminé)

  ultimate parent

  ultimate parent means a particular entity if

  • (a) the particular entity is not His Majesty in right of Canada, His Majesty in right of a province or an entity referred to in any of paragraphs 149(1)(c) to (d.6);

  • (b) it holds directly or indirectly an interest in one or more other entities in respect of which it is required to prepare consolidated financial statements for financial reporting purposes, or would be so required if it was subject to International Financial Reporting Standards; and 

  • (c) no entity (other than an entity described in paragraph (a)) holds, directly or indirectly, in the particular entity an interest that is described in paragraph (b). (mère ultime)

• Marginal note:Allocated group ratio amount

  (2) A taxpayer and each corporation or trust that is, throughout the relevant period, an eligible group entity in respect of that taxpayer and a member of the same consolidated group as the taxpayer (the taxpayer and each of the corporations or trusts being referred to in this subsection and subsection (4) as a “Canadian group member”) may, if the taxpayer is a taxpayer described in subsection (7), elect, and otherwise jointly elect in respect of their taxation years ending in the relevant period (each referred to in this subsection and subsection (4) as a “relevant taxation year”) to allocate amounts in respect of each relevant taxation year and the amount allocated to a member for a relevant taxation year is the amount determined in respect of that member for that relevant taxation year for the purposes of this section and subsection 18.2(2), if

  • (a) the consolidated financial statements of the consolidated group for the relevant period are audited financial statements;

  • (b) the election or amended election

    • (i) specifies the amount allocated to each Canadian group member for each relevant taxation year, and

    • (ii) is filed with the Minister by the taxpayer or a Canadian group member of the taxpayer on or before

      • (A) the latest filing-due date of a Canadian group member for a relevant taxation year, or

      • (B) the day that is 90 days after the sending of

        • (I) a notice of assessment of tax payable under this Part by a Canadian group member for a relevant taxation year, or

        • (II) a notification that no tax is payable under this Part by a Canadian group member for a relevant taxation year;

  • (c) the total of all amounts, each of which is an amount allocated to a Canadian group member for a relevant taxation year, does not exceed the least of

    • (i) the total of all amounts in respect of a member each of which is determined by the formula

      A × B

      where

      A

      is the group ratio of the consolidated group for the relevant period, and

      B

      is the adjusted taxable income of the member for each relevant taxation year,

    • (ii) the group net interest expense of the consolidated group in respect of the relevant period, and

    • (iii) the total of all amounts, each of which would, in the absence of section 257, be the adjusted taxable income of a member for each relevant taxation year;

  • (d) an amended election has not been filed in accordance with this section; and

  • (e) where the election is an amended election,

    • (i) the following conditions are met:

      • (A) in the absence of any assessment, the condition set out in paragraph (c) would be met in respect of a prior election under this subsection made by the Canadian group members for a relevant taxation year under this subsection, and

      • (B) subsection 18.2(9) does not apply to a tax benefit in respect of a prior election for the relevant period, or

    • (ii) the Minister grants permission to amend the prior election under subsection (3).

• Marginal note:Late or amended election

  (3) The Minister may extend the time for making an election or grant permission to amend or revoke an election under subsection (2) if

  • (a) the Canadian group members demonstrate to the satisfaction of the Minister that

    • (i) they made reasonable efforts to determine all amounts that may reasonably be considered relevant in making the election, and

    • (ii) the election or amended election, as the case may be, is filed as soon as circumstances permit; and

  • (b) in the opinion of the Minister, the circumstances are such that it would be just and equitable to permit the election to be made, amended or revoked.

• Marginal note:Fair value adjustments — election

  (4) For the purposes of calculating group adjusted net book income, the following rules apply:

  • (a) no amounts may be included in paragraph (d) of the description of F or in the description of K in the definition group adjusted net book income for any relevant period unless the Canadian group members jointly elect, for the first relevant taxation year in respect of which the Canadian group members jointly elect under subsection (2), to include net fair value amounts in calculating group adjusted net book income for the relevant period in which the first relevant taxation year ends;

  • (b) if an election to include net fair value amounts in the calculation is not made in the first relevant taxation year, each Canadian group member is deemed not to have so elected in that taxation year and any subsequent taxation year; and

  • (c) if an election to include net fair value amounts in the calculation is made in the first relevant taxation year, each Canadian group member is deemed to have so elected in that taxation year and any subsequent taxation year.

• Marginal note:Assessment

  (5) If an election or amended election has been made under subsection (2), the Minister shall, notwithstanding subsections 152(4) and (5), assess or reassess the tax, interest or penalties payable under this Act by any taxpayer for any relevant taxation year as is necessary to give effect to the election or amended election.

• Marginal note:Use of accounting terms

  (6) For the purposes of the definitions consolidated financial statements, consolidated group, equity-accounted entity, fair value amount, group adjusted net book income, specified interest expense, specified interest income and ultimate parent in subsection (1), a term that is not defined under this Act has the meaning assigned to the term for financial reporting purposes under the relevant acceptable accounting standards.

• Marginal note:Single member group

  (7) For the purposes of this section, if a taxpayer resident in Canada is not a member of a consolidated group for a relevant period,

  • (a) the taxpayer is deemed to be an eligible group entity in respect of itself;

  • (b) the taxpayer is deemed to be

    • (i) a member of a consolidated group that comprises only itself, and

    • (ii) the ultimate parent of the group; and

  • (c) the taxpayer’s financial statements are deemed to be consolidated financial statements.

• Marginal note:Anti-avoidance — specified non-member

  (8) A particular person or partnership that is not a member of a consolidated group for a relevant period is deemed to be a specified non-member in respect of the group for the period if a portion of the amount of the specified interest expense of the group is paid or payable by a member of the group to the particular person or partnership as part of a transaction or series of transactions where it can reasonably be considered that one of the main purposes of the transaction or series is to avoid the inclusion of that portion in the determination of the amount for E in the definition group net interest expense in subsection (1).