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

Full Document:  

Act current to 2019-07-01 and last amended on 2019-06-21. Previous Versions

PART IIncome Tax (continued)

DIVISION FSpecial Rules Applicable in Certain Circumstances (continued)

Changes in Residence (continued)

Marginal note:Cross-border mergers

  •  (1) Where a corporation formed at a particular time by the amalgamation or merger of, or by a plan of arrangement or other corporate reorganization in respect of, 2 or more corporations (each of which is referred to in this section as a “predecessor”) is at the particular time resident in Canada, a predecessor that was not immediately before the particular time resident in Canada shall be deemed to have become resident in Canada immediately before the particular time.

  • Marginal note:Idem

    (2) Where a corporation formed at a particular time by the amalgamation or merger of, or by a plan of arrangement or other corporate reorganization in respect of, 2 or more corporations is at the particular time not resident in Canada, a predecessor that was immediately before the particular timeresident in Canada shall be deemed to have ceased to be resident in Canada immediately before the particular time.

  • Marginal note:Windings-up excluded

    (3) For greater certainty, subsections 128.2(1) and (2) do not apply to reorganizations occurring solely because of the acquisition of property of one corporation by another corporation, pursuant to the purchase of the property by the other corporation or because of the distribution of the property to the other corporation on the winding-up of the corporation.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 1994, c. 21, s. 62

Marginal note:Former resident — replaced shares

 If, in a transaction to which section 51, subparagraphs 85.1(1)(a)(i) and (ii), subsection 85.1(8) or section 86 or 87 applies, a person acquires a share (in this section referred to as the “new share”) in exchange for another share or equity in a SIFT wind-up entity (in this section referred to as the “old share”), for the purposes of section 119, subsections 126(2.21) to (2.23), subparagraph 128.1(4)(b)(iv) and subsections 128.1(6) to (8), 180.1(1.4) and 220(4.5) and (4.6), the person is deemed not to have disposed of the old share, and the new share is deemed to be the same share as the old share.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 2001, c. 17, s. 125
  • 2009, c. 2, s. 43
  • 2013, c. 34, s. 274

Private Corporations

Marginal note:Dividend refund to private corporation

  •  (1) Where a return of a corporation’s income under this Part for a taxation year is made within 3 years after the end of the year, the Minister

    • (a) may, on sending the notice of assessment for the year, refund without application an amount (in this Act referred to as its “dividend refund” for the year) in respect of taxable dividends paid by the corporation on shares of its capital stock in the year, and at a time when it was a private corporation, equal to the total of

      • (i) in respect of eligible dividends, an amount equal to the lesser of

        • (A) 38 1/3% of the total of all eligible dividends paid by it in the year, and

        • (B) its eligible refundable dividend tax on hand at the end of the year, and

      • (ii) in respect of taxable dividends (other than eligible dividends), an amount equal to the total of

        • (A) the lesser of

          • (I) 38 1/3% of the total of all taxable dividends (other than eligible dividends) paid by it in the year, and

          • (II) its non-eligible refundable dividend tax on hand at the end of the year, and

        • (B) either

          • (I) if the amount determined under subclause (A)(I) exceeds the amount determined under subclause (A)(II), the lesser of

            1 the amount of the excess, and

            2 the amount by which the corporation’s eligible refundable dividend tax on hand at the end of the year exceeds the amount, if any, determined under subparagraph (i) for the year, and

          • (II) in any other case, nil; and

    • (b) shall, with all due dispatch, make the dividend 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:Dividends paid to bankrupt controlling corporation

    (1.1) In determining the dividend refund for a taxation year ending after 1977 of a particular corporation, no amount may be included under clause (1)(a)(i)(A), subclause (1)(a)(ii)(A)(I) or sub-subclause (1)(a)(ii)(B)(I)1 in respect of a taxable dividend paid to a shareholder that

    • (a) was a corporation that controlled (within the meaning assigned by subsection 186(2)) the particular corporation at the time the dividend was paid; and

    • (b) was a bankrupt at any time during that taxation year of the particular corporation.

  • Marginal note:Dividends deemed not to be taxable dividends

    (1.2) Where a dividend is paid on a share of the capital stock of a corporation and the share (or another share for which the share was substituted) was acquired by its holder in a transaction or as part of a series of transactions one of the main purposes of which was to enable the corporation to obtain a dividend refund, the dividend shall, for the purpose of subsection 129(1), be deemed not to be a taxable dividend.

  • Marginal note:Application to other liability

    (2) Instead of making a refund that might otherwise be made under subsection 129(1), 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 refundable to that other liability and notify the corporation of that action.

  • Marginal note:Interest on dividend refund

    (2.1) Where a dividend 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 on which the refund is paid or applied.

  • Marginal note:Excess interest on dividend refund

    (2.2) Where, at any particular time, interest has been paid to, or applied to a liability of, a corporation under subsection 129(2.1) in respect of a dividend refund and it is determined at a subsequent time that the dividend 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 dividend 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.

  • (3) [Repealed, 2018, c. 12, s. 22]

  • Marginal note:Application

    (3.1) Where, in a taxation year that begins after November 12, 1981, a corporation that last became a private corporation on or before that date and that was throughout the year a private corporation, other than a Canadian-controlled private corporation, has included in its income for the year an amount in respect of property that the corporation

    • (a) disposed of before November 13, 1981,

    • (b) was obligated to dispose of under the terms of an agreement in writing entered into before November 13, 1981, or

    • (c) is deemed by subsection 44(2) to have disposed of at any time after November 12, 1981 because of an event referred to in paragraph (b), (c) or (d) of the definition proceeds of disposition in section 54 in respect of the disposition that occurred before November 13, 1981,

    paragraph 3(a) shall apply as if the corporation were a Canadian-controlled private corporation throughout the year, except that the total of the amounts determined under that paragraph in respect of the corporation for the year shall not exceed the amount that would be so determined if the only income of the corporation for the year were the amount included in respect of the disposition of such property.

  • (3.2) to (3.5) [Repealed, 1996, c. 21, s. 32]

  • Marginal note:Definitions

    (4) The definitions in this subsection apply in this section.

    aggregate investment income

    aggregate investment income of a corporation for a taxation year means the amount, if any, by which the total of all amounts, each of which is

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

      • (i) the eligible portion of the corporation’s taxable capital gains for the year

      exceeds the total of

      • (ii) the eligible portion of its allowable capital losses for the year, and

      • (iii) the amount, if any, deducted under paragraph 111(1)(b) in computing its taxable income for the year, or

    • (b) the corporation’s income for the year from a source that is a property, other than

      • (i) exempt income,

      • (ii) an amount included under subsection 12(10.2) in computing the corporation’s income for the year,

      • (iii) the portion of any dividend that was deductible in computing the corporation’s taxable income for the year, and

      • (iv) income that, but for paragraph 108(5)(a), would not be income from a property,

    exceeds the total of all amounts, each of which is the corporation’s loss for the year from a source that is a property. (revenu de placement total)

    Canadian investment income

    Canadian investment income[Repealed, 1996, c. 21, s. 32]

    eligible portion

    eligible portion of a corporation’s taxable capital gains or allowable capital losses for a taxation year is the total of all amounts each of which is the portion of a taxable capital gain or an allowable capital loss, as the case may be, of the corporation for the year from a disposition of a property that, except where the property was a designated property (within the meaning assigned by subsection 89(1)), cannot reasonably be regarded as having accrued while the property, or a property for which it was substituted, was property of a corporation other than a Canadian-controlled private corporation, an investment corporation, a mortgage investment corporation or a mutual fund corporation. (fraction admissible)

    eligible refundable dividend tax on hand

    eligible refundable dividend tax on hand, of a particular corporation at the end of a taxation year, means the amount, if any, by which the total of

    • (a) the total of the taxes payable under Part IV by the particular corporation for the year in respect of

      • (i) eligible dividends received by the particular corporation in the year from corporations other than corporations with which the particular corporation is connected (in this paragraph, within the meaning assigned by subsection 186(4) on the assumption that the other corporation is at that time a payer corporation within the meaning of that subsection), and

      • (ii) taxable dividends received by the particular corporation in the year from corporations that are connected with the particular corporation to the extent that such dividends caused a dividend refund to those corporations from their eligible refundable dividend tax on hand, and

    • (b) where the particular corporation was a private corporation at the end of its preceding taxation year, the particular corporation’s eligible refundable dividend tax on hand at the end of that preceding year

    exceeds

    • (c) the total of all amounts each of which is the portion, if any, of the particular corporation’s dividend refund from its eligible refundable dividend tax on hand determined, for its preceding taxation year, under

      • (i) subparagraph (1)(a)(i), and

      • (ii) clause (1)(a)(ii)(B). (impôt en main remboursable au titre de dividendes déterminés)

    foreign investment income

    foreign investment income of a corporation for a taxation year is the amount that would be its aggregate investment income for the year if

    • (a) every amount of its income, loss, capital gain or capital loss for the year that can reasonably be regarded as being from a source in Canada were nil,

    • (b) no amount were deducted under paragraph 111(1)(b) in computing its taxable income for the year, and

    • (c) this Act were read without reference to paragraph (a) of the definition income or loss in this subsection. (revenu de placement étranger)

    income

    income or loss of a corporation for a taxation year from a source that is a property

    • (a) includes the income or loss from a specified investment business carried on by it in Canada other than income or loss from a source outside Canada, but

    • (b) does not include the income or loss from any property

      • (i) that is incident to or pertains to an active business carried on by it, or

      • (ii) that is used or held principally for the purpose of gaining or producing income from an active business carried on by it. (perte ou revenu)

    non-eligible refundable dividend tax on hand

    non-eligible refundable dividend tax on hand, of a corporation at the end of a taxation year, means the amount, if any, by which the total of

    • (a) if the corporation was a Canadian-controlled private corporation throughout the year, the least of

      • (i) the amount determined by the formula

        A − B

        where

        A
        is 30 2/3% of the corporation’s aggregate investment income for the year, and
        B
        is the amount, if any, by which
        • (A) the amount deducted under subsection 126(1) from the tax for the year otherwise payable by it under this Part

        exceeds

        • (B) 8% of its foreign investment income for the year,

      • (ii) 30 2/3% of the amount, if any, by which the corporation’s taxable income for the year exceeds the total of

        • (A) the least of the amounts determined under paragraphs 125(1)(a) to (c) in respect of the corporation for the year,

        • (B) 100/(38 2/3) of the total of amounts deducted under subsection 126(1) from its tax for the year otherwise payable under this Part, and

        • (C) the amount determined by multiplying the total of amounts deducted under subsection 126(2) from its tax for the year otherwise payable under this Part, by the relevant factor for the year, and

      • (iii) the corporation’s tax for the year payable under this Part,

    • (b) the total of the taxes payable under Part IV by the corporation for the year less the amount determined under paragraph (a) of the definition eligible refundable dividend tax on hand in respect of the corporation for the year, and

    • (c) if the corporation was a private corporation at the end of its preceding taxation year, the corporation’s non-eligible refundable dividend tax on hand at the end of that preceding year

    exceeds

    • (d) the portion, if any, of the corporation’s dividend refund from its non-eligible refundable dividend tax on hand determined, for its preceding taxation year, under clause (1)(a)(ii)(A). (impôt en main remboursable au titre de dividendes non déterminés)

  • Marginal note:Conditions for subsection (4.2)

    (4.1) Subsection (4.2) applies in respect of a particular taxation year of a particular corporation if the following conditions are met:

    • (a) the particular corporation has an amount of tax payable for the year under Part IV;

    • (b) the particular corporation has claimed amounts under paragraph 186(1)(c) or (d) in respect of the year; and

    • (c) the particular corporation would, in the absence of paragraphs 186(1)(c) and (d), have an amount determined, at the end of the year, under both paragraph (a) of the definition eligible refundable dividend tax on hand and paragraph (b) of the definition non-eligible refundable dividend tax on hand in subsection (4).

  • Marginal note:Part IV tax — allocation of losses

    (4.2) If this subsection applies in respect of a particular taxation year of a corporation, for the purpose of determining the amount under paragraph (a) of the definition eligible refundable dividend tax on hand in subsection (4), in respect of the corporation at the end of the year, the amount determined under subsection 186(1) in respect of the corporation for the year is deemed to be the amount determined by the formula

    A + B − C

    where

    A
    is the amount determined under paragraph 186(1)(a) in respect of the corporation for the year in respect of eligible dividends;
    B
    is the amount determined under paragraph 186(1)(b) in respect of the corporation for the year in respect of dividends that resulted in dividend refunds from the eligible refundable dividend tax on hand of other corporations; and
    C
    is the amount determined by the formula

    38 1/3% (D + E) − (F + G)

    where

    D
    is the amount claimed by the corporation under paragraph 186(1)(c) for the year,
    E
    is the amount claimed by the corporation under paragraph 186(1)(d) for the year,
    F
    is the amount determined under paragraph 186(1)(a) in respect of the corporation for the year in respect of taxable dividends (other than eligible dividends), and
    G
    is the amount determined under paragraph 186(1)(b) in respect of the corporation for the year in respect of dividends that resulted in dividend refunds from the non-eligible refundable dividend tax on hand of other corporations.
  • (4.3) [Repealed, 1996, c. 21, s. 32]

  • Marginal note:2019 transitional RDTOH

    (5) The following rules apply to a corporation’s first taxation year in respect of which the definition eligible refundable dividend tax on hand in subsection (4) applies:

    • (a) if the corporation is a Canadian-controlled private corporation throughout the taxation year and its preceding taxation year and is not a corporation in respect of which an election under subsection 89(11) applies to the taxation year or the preceding taxation year,

      • (i) for the purpose of applying paragraph (b) of the definition eligible refundable dividend tax on hand in respect of the corporation at the end of the taxation year, the corporation’s eligible refundable dividend tax on hand at the end of its preceding taxation year is deemed to be the amount, if any, that is the lesser of

        • (A) the amount determined by the formula

          A − B

          where

          A
          is the corporation’s refundable dividend tax on hand at the end of its preceding taxation year, and
          B
          is the corporation’s dividend refund for its preceding taxation year, and
        • (B) the amount determined by the formula

          (C − D) × E

          where

          C
          is the corporation’s general rate income pool at the end of its preceding taxation year,
          D
          is the amount, if any, by which
          • (I) the total of all amounts each of which is an eligible dividend paid by the corporation in its preceding taxation year

          exceeds

          • (II) the total of all amounts each of which is an excessive eligible dividend designation made by the corporation in its preceding taxation year, and

          E
          is 38 1/3%, and
      • (ii) for the purpose of applying paragraph (c) of the definition non-eligible refundable dividend tax on hand in respect of the corporation at the end of the taxation year, the corporation’s non-eligible refundable dividend tax on hand at the end of its preceding taxation year is deemed to be the amount determined by the formula

        A − B

        where

        A
        is the amount determined under clause (a)(i)(A) in respect of the corporation at the end of the preceding taxation year, and
        B
        is the amount determined under clause (a)(i)(B) in respect of the corporation at the end of the preceding taxation year; and
    • (b) in any other case, for the purpose of applying paragraph (b) of the definition eligible refundable dividend tax on hand in respect of the corporation at the end of the taxation year, the corporation’s eligible refundable dividend tax on hand at the end of its preceding taxation year is deemed to be the amount that would be determined for clause (a)(i)(A) if paragraph (a) applied to the corporation in respect of the taxation year.

  • Marginal note:2019 transitional RDTOH — amalgamations

    (5.1) Subsection (5) applies with such modifications as are necessary for the purpose of applying paragraph 87(2)(aa) in respect of a corporation if

    • (a) the corporation is a predecessor corporation (within the meaning assigned by subsection 87(1)) in respect of an amalgamation (within the meaning assigned by subsection 87(1));

    • (b) the corporation has an amount of refundable dividend tax on hand at the end of its taxation year that ends because of paragraph 87(2)(a); and

    • (c) the first taxation year of the new corporation (within the meaning assigned by subsection 87(1)) in respect of the amalgamation is one to which the definition eligible refundable dividend tax on hand in subsection (4) applies.

  • Marginal note:Investment income from associated corporation deemed to be active business income

    (6) Where any particular amount paid or payable to a corporation (in this subsection referred to as the “recipient corporation”) by another corporation (in this subsection referred to as the “associated corporation”) with which the recipient corporation was associated in any particular taxation year commencing after 1972, would otherwise be included in computing the income of the recipient corporation for the particular year from a source in Canada that is a property, the following rules apply:

    • (a) for the purposes of subsection 129(4), in computing the recipient corporation’s income for the year from a source in Canada that is a property,

      • (i) there shall not be included any portion (in this subsection referred to as the “deductible portion”) of the particular amount that was or may be deductible in computing the income of the associated corporation for any taxation year from an active business carried on by it in Canada, and

      • (ii) no deduction shall be made in respect of any outlay or expense, to the extent that that outlay or expense may reasonably be regarded as having been made or incurred by the recipient corporation for the purpose of gaining or producing the deductible portion; and

    • (b) for the purposes of this subsection and section 125,

      • (i) the deductible portion shall be deemed to be income of the recipient corporation for the particular year from an active business carried on by it in Canada, and

      • (ii) any outlay or expense, to the extent described in subparagraph 129(6)(a)(ii), shall be deemed to have been made or incurred by the recipient corporation for the purpose of gaining or producing that income.

  • Marginal note:Meaning of taxable dividend

    (7) For the purposes of this section, taxable dividend does not include a capital gains dividend within the meaning assigned by subsection 131(1).

  • Marginal note:Application of s. 125

    (8) Expressions used in this section and not otherwise defined for the purposes of this section have the same meanings as in section 125.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 129
  • 1994, c. 7, Sch. II, s. 108, Sch. VIII, s. 73
  • 1996, c. 21, s. 32
  • 1998, c. 19, s. 154
  • 2001, c. 17, s. 126
  • 2003, c. 15, s. 111
  • 2010, c. 25, s. 29
  • 2013, c. 34, s. 275
  • 2016, c. 11, s. 7
  • 2017, c. 33, s. 51
  • 2018, c. 12, s. 22, c. 27, s. 15
 
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