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

Marginal note:Definitions

• 142.51 (1) The following definitions apply for the purposes of this section and subsections 142.5(8.1) and (8.2).

  base year

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

  transition amount

  transition amount of a taxpayer for the taxpayer’s transition year is the positive or negative amount determined by the formula

  A – B

  where

  A

  is the total of all amounts each of which is the fair market value, at the end of the taxpayer’s base year, of a transition property of the taxpayer; and

  B

  is the total of all amounts each of which is the cost amount to the taxpayer, at the end of the taxpayer’s base year, of a transition property of the taxpayer. (montant transitoire)

  transition property

  transition property of a taxpayer means a property that

  • (a) was a specified debt obligation held by the taxpayer at the end of the taxpayer’s base year;

  • (b) was not a mark-to-market property of the taxpayer for the taxpayer’s base year, but would have been a mark-to-market property of the taxpayer for the taxpayer’s base year if the property had been carried at the property’s fair market value in the taxpayer’s balance sheet as at the end of each taxation year of the taxpayer that ends after the taxpayer last acquired the property (otherwise than by reason of a reacquisition under subsection 142.5(2)) and before the commencement of the taxpayer’s transition year; and

  • (c) was a mark-to-market property of the taxpayer for the transition year of the taxpayer. (bien transitoire)

  transition year

  transition year of a taxpayer means the taxpayer’s first taxation year that begins after 2022. (année transitoire)

• Marginal note:Transition year income inclusion

  (2) If a taxpayer is an insurer in its transition year, there shall be included in computing the taxpayer’s income for its transition year the absolute value of the negative amount, if any, of the taxpayer’s transition amount.

• Marginal note:Transition year income deduction

  (3) If a taxpayer is an insurer in its transition year, there shall be deducted in computing the taxpayer’s income for its transition year the positive amount, if any, of the taxpayer’s transition amount.

• Marginal note:Transition year income inclusion reversal

  (4) If an amount has been included under subsection (2) in computing a taxpayer’s income for its transition year, there shall be deducted in computing the taxpayer’s income for each particular taxation year of the taxpayer that ends after the beginning of the transition year, and in which particular taxation year the taxpayer is an insurer, the amount determined by the formula

  A × B/1825

  where

  A

  is the amount included under subsection (2) in computing the taxpayer’s income for the transition year; and

  B

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

• Marginal note:Transition year income deduction reversal

  (5) If an amount has been deducted under subsection (3) in computing a taxpayer’s income for its transition year, there shall be included in computing the taxpayer’s income, for each particular taxation year of the taxpayer ending after the beginning of the transition year, and in which particular taxation year the taxpayer is an insurer, the amount determined by the formula

  A × B/1825

  where

  A

  is the amount deducted under subsection (3) in computing the taxpayer’s income for the transition year; and

  B

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

• Marginal note:Winding-up

  (6) If a taxpayer has, in a winding-up to which subsection 88(1) has applied, been wound-up into another corporation (referred to in this subsection as the “parent”), and immediately after the winding-up the parent is an insurer, in applying subsections (4) and (5) in computing the income of the taxpayer and of the parent for particular taxation years that end on or after the first day (referred to in this subsection as the “start day”) on which assets of the taxpayer were distributed to the parent on the winding-up,

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

    • (i) any amount included under subsection (2) or deducted under subsection (3) by the taxpayer in computing the taxpayer’s income for its transition year,

    • (ii) any amount deducted under subsection (4) or included under subsection (5) in computing the taxpayer’s income for a taxation year of the taxpayer that begins before the start day, and

    • (iii) any amount that would — in the absence of this subsection and if the taxpayer existed and was an insurer on each day that is the start day or a subsequent day and on which the parent is an insurer — be required to be deducted or included, in respect of any of those days, under subsection (4) or (5) in computing the taxpayer’s income for its transition year; and

  • (b) the taxpayer is, in respect of each of its particular taxation years, to determine the value for B in the formulas in subsections (4) and (5) without reference to the start day and days after the start day.

• Marginal note:Amalgamations

  (7) If there is an amalgamation (within the meaning assigned by subsection 87(1)) of a taxpayer with one or more other corporations to form one corporation (referred to in this subsection as the “new corporation”), and immediately after the amalgamation the new corporation is an insurer, in applying subsections (4) and (5) in computing the income of the new corporation for particular taxation years of the new corporation that begin on or after the day on which the amalgamation occurred, the new corporation is, on and after that day, deemed to be the same corporation as and a continuation of the taxpayer in respect of

  • (a) any amount included under subsection (2) or deducted under subsection (3) in computing the taxpayer’s income for its transition year of the taxpayer;

  • (b) any amount deducted under subsection (4) or included under subsection (5) in computing the taxpayer’s income for a taxation year of the taxpayer that begins before the day on which the amalgamation occurred; and

  • (c) any amount that would — in the absence of this subsection and if the taxpayer existed and was an insurer on each day that is the day on which the amalgamation occurred or a subsequent day and on which the new corporation is an insurer — be required to be deducted or included, in respect of any of those days, under subsection (4) or (5) in computing the taxpayer’s income.

• Marginal note:Application of subsection (9)

  (8) Subsection (9) applies if, at any time, a taxpayer (referred to in this subsection and subsection (9) as the “transferor”) transfers, to a corporation (referred to in this subsection and subsection (9) as the “transferee”) that is related to the transferor, property in respect of a business carried on by the transferor in Canada (referred to in this subsection and subsection (9) as the “transferred business”) and

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

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

• Marginal note:Transfer of a business

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

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

    • (i) any amount included under subsection (2) or deducted under subsection (3) in computing the transferor’s income for its transition year that can reasonably be attributed to the transferred business,

    • (ii) any amount deducted under subsection (4) or included under subsection (5) in computing the transferor’s income for a taxation year of the transferor that begins before that time that can reasonably be attributed to the transferred business, and

    • (iii) any amount that would — in the absence of this subsection and if the transferor existed and was an insurer on each day that includes that time or is a subsequent day and on which the transferee is an insurer — be required to be deducted or included, in respect of any of those days, under subsection (4) or (5) in computing the transferor’s income that can reasonably be attributed to the transferred business; and

  • (b) in determining, in respect of the day that includes that time or any subsequent day, any amount that is required under subsection (4) or (5) to be deducted or included in computing the transferor’s income for each particular taxation year from the transferred business, the description of A in the formulas in those subsections is deemed to be nil.

• (10) [Repealed, 2022, c. 19, s. 28]

• Marginal note:Ceasing to carry on a business

  (11) If at any time, a taxpayer ceases to be an insurer

  • (a) there shall be deducted, in computing the income of the taxpayer for the taxation year of the taxpayer that includes the time that is immediately before that time, the amount determined by the formula

    A – B

    where

    A

    is the amount included under subsection (2) in computing the taxpayer’s income for its transition year, and

    B

    is the total of all amounts each of which is an amount deducted under subsection (4) in computing the income of the taxpayer for a taxation year that began before that time; and

  • (b) there shall be included, in computing the income of the taxpayer for the taxation year of the taxpayer that includes the time that is immediately before that time, the amount determined by the formula

    C – D

    where

    C

    is the amount deducted under subsection (3) in computing the taxpayer’s income for its transition year, and

    D

    is the total of all amounts each of which is an amount included under subsection (5) in computing the taxpayer’s income for a taxation year that began before that time.

• Marginal note:Ceasing to exist

  (12) If at any time a taxpayer ceases to exist (otherwise than as a result of a merger to which subsection 87(2) applies or a winding-up to which subsection 88(1) applies), for the purposes of subsection (11), the taxpayer is deemed to have ceased to be an insurer at the earlier of

  • (a) the time (determined without reference to this subsection) at which the taxpayer ceased to be an insurer, and

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

• Marginal note:Application of subsection (13.1)

  (13) Subsection (13.1) applies to a taxpayer for a particular taxation year of the taxpayer if

  • (a) the taxpayer holds a transition property in the particular taxation year;

  • (b) the property was a mark-to-market property of the taxpayer for the taxation year preceding the particular taxation year; and

  • (c) the property is not a mark-to-market property of the taxpayer for the particular taxation year.

• Marginal note:Ceasing to be mark-to-market property

  (13.1) If this subsection applies to a taxpayer for a particular taxation year of the taxpayer, for purposes of this section

  • (a) the taxpayer is deemed to have ceased to be an insurer at the particular time that is the beginning of the particular taxation year; and

  • (b) the time immediately before the particular time shall be deemed to be the end of the taxation year that ends immediately before the particular taxation year.

Additional Rules

Marginal note:Becoming or ceasing to be a financial institution

• 142.6 (1) Where, at a particular time after February 22, 1994, a taxpayer becomes or ceases to be a financial institution,

  • (a) where a taxation year of the taxpayer would not, but for this paragraph, end immediately before the particular time,

    • (i) except for the purpose of subsection 132(6.1), the taxpayer’s taxation year that would otherwise have included the particular time is deemed to have ended immediately before that time and a new taxation year of the taxpayer is deemed to have begun at that time, and

    • (ii) for the purpose of determining the taxpayer’s fiscal period after the particular time, the taxpayer shall be deemed not to have established a fiscal period before that time;

  • (b) if the taxpayer becomes a financial institution, the taxpayer is deemed to have disposed, immediately before the end of its particular taxation year that ends immediately before the particular time, of each of the following properties held by the taxpayer for proceeds equal to the property’s fair market value at the time of that disposition:

    • (i) a specified debt obligation, or

    • (ii) a mark-to-market property of the taxpayer for the particular taxation year or for the taxpayer’s taxation year that includes the particular time;

  • (c) where the taxpayer ceases to be a financial institution, the taxpayer shall be deemed to have disposed, immediately before the end of its taxation year that ends immediately before the particular time, of each property held by the taxpayer that is a specified debt obligation (other than a mark-to-market property of the taxpayer for the year), for proceeds equal to its fair market value at the time of disposition; and

  • (d) the taxpayer is deemed to have reacquired, at the end of its taxation year that ends immediately before the particular time, each property deemed by paragraph (b) or (c) to have been disposed of by the taxpayer, at a cost equal to the proceeds of disposition of the property.

• Marginal note:Ceasing to use property in Canadian business

  (1.1) If at a particular time in a taxation year a taxpayer that is a non-resident financial institution (other than a life insurance corporation) ceases to use, in connection with a business or part of a business carried on by the taxpayer in Canada immediately before the particular time, a property that is a mark-to-market property of the taxpayer for the year or a specified debt obligation, but that is not a property that was disposed of by the taxpayer at the particular time,

  • (a) the taxpayer is deemed

    • (i) to have disposed of the property immediately before the time that was immediately before the particular time for proceeds equal to its fair market value at the time of disposition and to have received those proceeds at the time of disposition in the course of carrying on the business or the part of the business, as the case may be, and

    • (ii) to have reacquired the property at the particular time at a cost equal to those proceeds; and

  • (b) in determining the consequences of the disposition in subparagraph (a)(i), subsection 142.4(11) does not apply to any payment received by the taxpayer after the particular time.

• Marginal note:Beginning to use property in a Canadian business

  (1.2) If at a particular time a taxpayer that is a non-resident financial institution (other than a life insurance corporation) begins to use, in connection with a business or part of a business carried on by the taxpayer in Canada, a property that is a mark-to-market property of the taxpayer for the year that includes the particular time or a specified debt obligation, but that is not a property that was acquired by the taxpayer at the particular time, the taxpayer is deemed

  • (a) to have disposed of the property immediately before the time that was immediately before the particular time for proceeds equal to its fair market value at the time of disposition; and

  • (b) to have reacquired the property at the particular time at a cost equal to those proceeds.

• Marginal note:Specified debt obligation marked to market

  (1.3) In applying subsection (1.1) to a taxpayer in respect of a property in a taxation year,

  • (a) the definition mark-to-market property in subsection 142.2(1) shall be applied as if the year ended immediately before the particular time referred to in subsection (1.1); and

  • (b) if the taxpayer does not have financial statements for the period ending immediately before the particular time referred to in subsection (1.1), references in the definition to financial statements for the year shall be read as references to the financial statements that it is reasonable to expect would have been prepared if the year had ended immediately before the particular time.

• Marginal note:Change in status — prescribed payment card corporation share

  (1.4) If, at any particular time in a taxation year of a taxpayer that is a financial institution for the taxation year, a property becomes a mark-to-market property of the taxpayer for the taxation year because it ceased, at the particular time, to be a prescribed payment card corporation share of the taxpayer,

  • (a) the taxpayer is deemed

    • (i) to have disposed of the property immediately before the particular time for proceeds of disposition equal to its fair market value immediately before the particular time, and

    • (ii) to have acquired the property, at the particular time, at a cost equal to those proceeds; and

  • (b) subsection 142.5(1) does not apply to the disposition under subparagraph (a)(i).

• Marginal note:Change in status — prescribed securities exchange investment

  (1.5) If, at any particular time in a taxation year of a taxpayer that is a financial institution for the taxation year, a property becomes a mark-to-market property of the taxpayer for the taxation year because it ceased, at the particular time, to be a prescribed securities exchange investment of the taxpayer,

  • (a) the taxpayer is deemed

    • (i) to have disposed of the property immediately before the particular time for proceeds of disposition equal to its fair market value immediately before the particular time, and

    • (ii) to have acquired the property, at the particular time, at a cost equal to those proceeds; and

  • (b) subsection 142.5(1) does not apply to the disposition under subparagraph (a)(i).

• Marginal note:Change in status — significant interest

  (1.6) If, at the end of a particular taxation year of a taxpayer that is a financial institution for the taxation year, the taxpayer holds a share of the capital stock of a corporation, the taxpayer has a significant interest in that corporation at any time in the particular taxation year and the share is mark-to-market property of the taxpayer for the immediately following taxation year, the taxpayer is deemed to have,

  • (a) disposed of the share immediately before the end of the particular taxation year for proceeds of disposition equal to the fair market value, at that time, of the share; and

  • (b) acquired the share at the end of the particular taxation year at a cost equal to those proceeds.

• Marginal note:Deemed disposition not applicable

  (2) For the purposes of this Act, the determination of when a taxpayer acquired a share shall be made without regard to a disposition or acquisition that occurred because of subsection 142.5(2) or subsection (1), (1.1), (1.2), (1.4), (1.5) or (1.6).

• Marginal note:Property not inventory

  (3) Where a taxpayer is a financial institution in a taxation year, inventory of the taxpayer in the year does not include property that is

  • (a) a specified debt obligation (other than a mark-to-market property for the year); or

  • (b) where the year begins after October 1994, a mark-to-market property for the year.

• Marginal note:Property that ceases to be inventory

  (4) Where a taxpayer that was a financial institution in its particular taxation year that includes February 23, 1994 held, on that day, a specified debt obligation (other than a mark-to-market property for the year) that was inventory of the taxpayer at the end of its preceding taxation year,

  • (a) the taxpayer shall be deemed to have disposed of the property at the beginning of the particular year for proceeds equal to

    • (i) where subparagraph 142.6(4)(a)(ii) does not apply, the amount at which the property was valued at the end of the preceding taxation year for the purpose of computing the taxpayer’s income for the year, and

    • (ii) where the taxpayer is a bank and the property is prescribed property for the particular year, the cost of the property to the taxpayer (determined without reference to paragraph 142.6(4)(b));

  • (b) for the purpose of determining the taxpayer’s profit or loss from the disposition, the cost of the property to the taxpayer shall be deemed to be the amount referred to in subparagraph 142.6(4)(a)(i); and

  • (c) the taxpayer shall be deemed to have reacquired the property, immediately after the beginning of the particular year, at a cost equal to the proceeds of disposition of the property.

• Marginal note:Debt obligations acquired in rollover transactions

  (5) Where,

  • (a) on February 23, 1994, a financial institution that is a corporation held a specified debt obligation (other than a mark-to-market property for the taxation year that includes that day) that was at any particular time before that day held by another corporation, and

  • (b) between the particular time and February 23, 1994, the only transactions affecting the ownership of the property were rollover transactions,

  the financial institution shall be deemed, in respect of that obligation, to be the same corporation as, and a continuation of, the other corporation.

• Definition of rollover transaction

  (6) For the purpose of subsection 142.6(5), rollover transaction means a transaction to which subsection 87(2), 88(1) or 138(11.5) or 138(11.94) applies, other than a transaction to which paragraph 138(11.5)(e) requires the provisions of subsection 85(1) to be applied.

• Marginal note:Superficial loss rule not applicable

  (7) Subsection 18(13) does not apply to the disposition of a property by a taxpayer after October 30, 1994 where

  • (a) the taxpayer is a financial institution when the disposition occurs and the property is a specified debt obligation or a mark-to-market property for the taxation year in which the disposition occurs; or

  • (b) the disposition occurs because of paragraph 142.6(1)(b).

• Marginal note:Accrued capital gains and losses election

  (8) Where a taxpayer that is a financial institution in its first taxation year that ends after February 22, 1994 so elects by notifying the Minister in writing before July 1998 or within 90 days after the day on which a notice of assessment of tax payable under this Part for the year, notification that no tax is payable under this Part for the year or notification that an election made by the taxpayer under this subsection is deemed by subsection 142.6(9) or 142.6(10) not to have been made is mailed to the taxpayer,

  • (a) each property of the taxpayer

    • (i) that was a capital property (other than a depreciable property) of the taxpayer at the end of the taxpayer’s last taxation year that ended before February 23, 1994,

    • (ii) that was a mark-to-market property for, or a specified debt obligation in, the taxpayer’s first taxation year that begins after that time,

    • (iii) that had a fair market value at that time greater than its adjusted cost base to the taxpayer at that time, and

    • (iv) that is designated by the taxpayer in the election

    is deemed to have been disposed of by the taxpayer at that time for proceeds of disposition equal to, and to have been reacquired by the taxpayer immediately after that time at a cost equal to, the lesser of

    • (v) the fair market value of the property at that time, and

    • (vi) the greater of the adjusted cost base to the taxpayer of the property immediately before that time and the amount designated by the taxpayer in the election in respect of the property;

  • (b) each property of the taxpayer

    • (i) that was a capital property (other than a depreciable property) of the taxpayer at the end of the taxpayer’s last taxation year that ended before February 23, 1994,

    • (ii) that was not a mark-to-market property for, or a specified debt obligation in, the taxpayer’s first taxation year that begins after that time,

    • (iii) that had an adjusted cost base to the taxpayer at that time greater than its fair market value at that time, and

    • (iv) that is designated by the taxpayer in the election

    is deemed to have been disposed of by the taxpayer at that time for proceeds of disposition equal to, and to have been reacquired by the taxpayer immediately after that time at a cost equal to, the greater of

    • (v) the fair market value of the property at that time, and

    • (vi) the lesser of the adjusted cost base to the taxpayer of the property immediately before that time and the amount designated by the taxpayer in the election in respect of the property; and

  • (c) notwithstanding subsections 152(4) to 152(5), such assessment of the taxpayer’s tax payable under this Act for the taxpayer’s last taxation year that ended before February 23, 1994 shall be made as is necessary to take the election into account.

• Marginal note:Accrued capital gains election limit

  (9) Where a taxpayer has made an election under subsection 142.6(8) in which a property was designated under subparagraph 142.6(8)(a)(iv), the election is deemed not to have been made where

  • (a) the amount that would be the taxpayer’s taxable capital gains from dispositions of property for the taxpayer’s last taxation year that ended before February 23, 1994 if this subsection and subsection 142.6(10) did not apply

  exceeds the total of

  • (b) the amount that would be the taxpayer’s allowable capital losses for the year from dispositions of property if this subsection and subsection 142.6(10) did not apply,

  • (c) the maximum amount that would have been deductible in computing the taxpayer’s taxable income for the year in respect of the taxpayer’s net capital losses for preceding taxation years if there were sufficient taxable capital gains for the year from dispositions of property, and

  • (d) the amount, if any, by which

    • (i) the amount that would be the taxpayer’s taxable capital gains for the taxpayer’s last taxation year that ended before February 23, 1994 from dispositions of property if no election were made under subsection 142.6(8)

    exceeds the total of

    • (ii) the amount that would be the taxpayer’s allowable capital losses for the year from dispositions of property if no election were made under subsection 142.6(8), and

    • (iii) the maximum amount that would have been deductible in computing the taxpayer’s taxable income for the year in respect of the taxpayer’s net capital losses for preceding taxation years if no election were made under subsection 142.6(8).

• Marginal note:Accrued capital losses election limit

  (10) Where a taxpayer has made an election under subsection 142.6(8) in which a property was designated under subparagraph 142.6(8)(b)(iv), the election is deemed not to have been made where

  • (a) the total of the amounts determined under paragraphs 142.6(9)(b) and 142.6(9)(c) in respect of the taxpayer exceeds the amount determined under paragraph 142.6(9)(a) in respect of the taxpayer; or

  • (b) the total of all amounts each of which would, if this subsection did not apply, be the taxpayer’s allowable capital loss for the taxpayer’s last taxation year that ended before February 23, 1994 from the disposition of a property deemed to have been disposed of under paragraph 142.6(8)(b) exceeds the total of all amounts each of which is the taxpayer’s taxable capital gain for the year from the disposition of a property deemed to have been disposed of under paragraph 142.6(8)(a).