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

Marginal note:Taxable capital employed in Canada of non-resident

181.4 The taxable capital employed in Canada for a taxation year of a corporation (other than a financial institution) that was throughout the year not resident in Canada is the amount, if any, by which

• (a) the total of all amounts each of which is the carrying value at the end of the year of an asset of the corporation used by it in the year in, or held by it in the year in the course of, carrying on any business carried on by it during the year through a permanent establishment in Canada

exceeds the total of

• (b) the amount of the corporation’s indebtedness at the end of the year (other than indebtedness described in any of paragraphs 181.2(3)(c) to 181.2(3)(f)) that may reasonably be regarded as relating to a business carried on by it during the year through a permanent establishment in Canada,

• (c) the total of all amounts each of which is the carrying value at the end of the year of an asset described in subsection 181.2(4) of the corporation that was used by it in the year in, or held by it in the year in the course of, carrying on any business carried on by it during the year through a permanent establishment in Canada, and

• (d) the total of all amounts each of which is the carrying value at the end of the year of an asset of the corporation that

  • (i) is a ship or aircraft operated by the corporation in international traffic or is personal or movable property used in its business of transporting passengers or goods by ship or aircraft in international traffic, and

  • (ii) was used by the corporation in the year in, or held by it in the year in the course of, carrying on any business during the year through a permanent establishment in Canada,

  if the country in which the corporation is resident imposed neither a capital tax for the year on similar assets nor a tax for the year on the income from the operation of a ship or aircraft in international traffic, of any corporation resident in Canada during the year.

Marginal note:Capital deduction

• 181.5 (1) Subject to subsection (1.1), the capital deduction of a corporation for a taxation year is $50 million unless the corporation is related to another corporation at any time in the taxation year, in which case, subject to subsection (4), its capital deduction for the year is nil.

• Marginal note:Exceptions

  (1.1) For the purposes of applying subsection 125(5.1), the definitions unused surtax credit in subsections 181.1(6) and 190.1(5), and subsection 225.1(8), the amount of tax in respect of a corporation under subsection 181.1(1) for a taxation year is to be determined as if the reference to “$50 million” in subsection (1) were a reference to “$10 million”.

• Marginal note:Related corporations

  (2) Subject to subsection (4.1), a corporation that is related to any other corporation at any time in a taxation year of the corporation that ends in a calendar year may file with the Minister in prescribed form an agreement on behalf of the related group of which the corporation is a member under which an amount that does not exceed $50 million is allocated among all corporations that are members of the related group for each taxation year of each such corporation ending in the calendar year and at a time when it was a member of the related group.

• Marginal note:Allocation by Minister

  (3) Subject to subsection (4.1), the Minister may request a corporation that is related to any other corporation at the end of a taxation year to file with the Minister an agreement referred to in subsection (2) and, if the corporation does not file such an agreement within 30 days after receiving the request, the Minister may allocate an amount among the members of the related group of which the corporation is a member for the taxation year not exceeding $50 million.

• Marginal note:Idem

  (4) The least amount allocated for a taxation year to a member of a related group under an agreement described in subsection 181.5(2) or by the Minister pursuant to subsection 181.5(3) is the capital deduction of that member for that taxation year.

• Marginal note:Exceptions

  (4.1) For the purposes of applying subsection 125(5.1), the definitions unused surtax credit in subsections 181.1(6) and 190.1(5), and subsection 225.1(8), subsections (2) to (4) are to be read as if the amount determined under subsection (2) or (3), as the case may be, in respect of the corporation for the taxation year were that proportion of $10 million that the amount otherwise determined in respect of the corporation for the taxation year under that subsection is of $50 million.

• Marginal note:Idem

  (5) Where a corporation (in this subsection referred to as the “first corporation”) has more than one taxation year ending in the same calendar year and is related in 2 or more of those taxation years to another corporation that has a taxation year ending in that calendar year, the capital deduction of the first corporation for each such taxation year at the end of which it is related to the other corporation is an amount equal to its capital deduction for the first such taxation year.

• Marginal note:Idem

  (6) Two corporations that would, but for this subsection, be related to each other by reason only of

  • (a) the control of any corporation by Her Majesty in right of Canada or a province, or

  • (b) a right referred to in paragraph 251(5)(b),

  are, for the purposes of this section and subsection 181.3(4), deemed not to be related to each other except that, where at any time a taxpayer has a right referred to in paragraph 251(5)(b) with respect to shares and it can reasonably be considered that one of the main purposes for the acquisition of the right was to avoid any limitation on the amount of a corporation’s capital deduction for a taxation year, for the purpose of determining whether a corporation is related to any other corporation, the corporations are, for the purposes of this section, deemed to be in the same position in relation to each other as if the right were immediate and absolute and as if the taxpayer had exercised the right at that time.

• Marginal note:Related corporations that are not associated

  (7) For the purposes of subsection 181.3(4) and this section, a Canadian-controlled private corporation and another corporation to which it would, but for this subsection, be related at any time shall be deemed not to be related to each other at that time where the corporations are not associated with each other at that time.

Marginal note:Return

181.6 Every corporation that is or would, but for subsection 181.1(4), be liable to pay tax under this Part for a taxation year shall file with the Minister, not later than the day on or before which the corporation is required by section 150 to file its return of income for the year under Part I, a return of capital for the year in prescribed form containing an estimate of the tax payable under this Part by it for the year.

Marginal note:Provisions applicable to Part

181.7 Sections 152, 158 and 159, subsection 161(11), sections 162 to 167 and Division J of Part I apply to this Part with such modifications as the circumstances require and, for the purpose of this section, paragraph 152(6)(a) shall be read as follows:

• “(a) a deduction under section 181.1(4) in respect of any unused surtax credit (within the meaning assigned by subsection 181.1(6)) for a subsequent taxation year.”

Marginal note:Provisions applicable — Crown corporations

181.71 Section 27 applies to this Part with any modifications that the circumstances require.

181.8 [Repealed, 1994, c. 7, Sch. VIII, s. 109(1)]

181.9 [Repealed, 1994, c. 7, Sch. VIII, s. 109(1)]

PART II[Repealed, 2017, c. 20, s. 27]

182 [Repealed, 2017, c. 20, s. 27]

183 [Repealed, 2017, c. 20, s. 27]

PART II.1Tax on Corporate Distributions

Marginal note:Application of Part

• 183.1 (1) This Part applies to a corporation (other than a mutual fund corporation) for a taxation year in which the corporation, at any time in the year,

  • (a) was a public corporation; or

  • (b) was resident in Canada and had a class of shares outstanding that were purchased and sold in the manner in which such shares normally are purchased and sold by any member of the public in the open market.

• Marginal note:Tax payable

  (2) Where, as a part of a transaction or series of transactions or events,

  • (a) a corporation, or any person with whom the corporation was not dealing at arm’s length, has, at any time, paid an amount, directly or indirectly, to any person as proceeds of disposition of any property, and

  • (b) all or any portion of the amount may reasonably be considered, having regard to all the circumstances, to have been paid as a substitute for dividends that would otherwise have been paid in the normal course by the corporation,

  the corporation shall, on or before its balance-due day for its taxation year that includes that time, pay tax of 45% of that amount or portion of it, as the case may be.

• Marginal note:Stock dividend

  (3) Where, as a part of a transaction or series of transactions or events,

  • (a) a share was issued by a corporation as a stock dividend and the amount of the stock dividend was less than the fair market value of the share at the time that it was issued, and

  • (b) the share or any other share of the capital stock of the corporation was purchased, directly or indirectly, by the corporation, or by a person with whom the corporation was not dealing at arm’s length, for an amount in excess of its paid-up capital,

  that excess shall, for the purposes of subsection 183.1(2), be deemed to have been paid as a substitute for dividends that would otherwise have been paid in the normal course by the corporation.

• Marginal note:Purchase of shares

  (4) Where, as a part of a transaction or series of transactions or events,

  • (a) a share of the capital stock of a corporation was purchased, directly or indirectly, by the corporation, or by any person with whom the corporation was not dealing at arm’s length, and

  • (b) any portion of the amount paid for the share may reasonably be considered, having regard to all the circumstances, as consideration for a dividend that had been declared, but not yet paid, on the share,

  that portion of the amount shall, for the purposes of subsection 183.1(2), be deemed to have been paid as a substitute for dividends that would otherwise have been paid in the normal course by the corporation notwithstanding that the dividend was actually paid thereafter.

• Marginal note:Indirect payment

  (5) Where, as a part of a transaction or series of transactions or events, a person received a payment from a corporation, or from any person with whom the corporation was not dealing at arm’s length, in consideration, in whole or in part, for paying an amount to any other person as proceeds of disposition of any property, the corporation shall, for the purposes of subsection 183.1(2), be deemed to have paid the amount indirectly to the other person.

• Marginal note:Where s. (2) does not apply

  (6) Subsection 183.1(2) does not apply if none of the purposes of the transaction or series of transactions or events referred to therein may reasonably be considered, having regard to all the circumstances, to have been to enable shareholders of a corporation who are individuals or non-resident persons to receive an amount, directly or indirectly, as proceeds of disposition of property rather than as a dividend on a share that was of a class that was listed on a stock exchange or that was purchased and sold in the manner in which shares are normally purchased and sold by any member of the public in the open market.

• Marginal note:Where s. 110.6(8) does not apply

  (7) Where this section has been applied in respect of an amount, subsection 110.6(8) does not apply to the capital gain in respect of which the amount formed all or a part of the proceeds of disposition.

Marginal note:Return

• 183.2 (1) Every corporation liable to pay tax under this Part for a taxation year shall, on or before the day on or before which it is required to file its return of income under Part I for the year, file with the Minister a return for the year under this Part in prescribed form.

• Marginal note:Provisions applicable to Part

  (2) Subsections 150(2) and 150(3), sections 152, 158 and 159, subsections 160.1(1) and 161(1) and 161(11), sections 162 to 167 and Division J of Part I are applicable to this Part with such modifications as the circumstances require.

PART II.2Tax on Repurchases of Equity

Marginal note:Definitions

• 183.3 (1) The following definitions apply in this Part.

  covered entity

  covered entity for a taxation year, means an entity that is a corporation, trust or partnership if at any time in the taxation year

  • (a) equity of the entity is listed on a designated stock exchange; and

  • (b) the entity is

    • (i) a corporation resident in Canada (other than a mutual fund corporation),

    • (ii) a trust that

      • (A) is a real estate investment trust (as defined in subsection 122.1(1)),

      • (B) is a SIFT trust, or

      • (C) would be a SIFT trust (other than a mutual fund trust that has one or more classes of units in continuous distribution) if

        • (I) each reference in paragraph (a) of the definition non-portfolio property in subsection 122.1(1) to “subject entity” were read as “corporation, partnership or trust” and paragraph (c) of that definition were read without reference to the words “in Canada”,

        • (II) paragraph (a) of the definition Canadian real, immovable or resource property in subsection 248(1) were read without reference to the words “situated in Canada”, and

        • (III) the definitions timber resource property in subsection 13(21) and Canadian resource property in subsection 66(15) were read without references to the words “in Canada”, or

    • (iii) a partnership that

      • (A) is a SIFT partnership, or

      • (B) would be a SIFT partnership if

        • (I) each reference in paragraph (a) of the definition non-portfolio property in subsection 122.1(1) to “subject entity” were read as “corporation, partnership or trust” and paragraph (c) of that definition were read without reference to the words “in Canada”,

        • (II) paragraph (a) of the definition Canadian real, immovable or resource property in subsection 248(1) were read without reference to the words “situated in Canada”, and

        • (III) the definitions timber resource property in subsection 13(21) and Canadian resource property in subsection 66(15) were read without references to the words “in Canada”. (entité visée)

  equity

  equity of an entity, means, if the entity is

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

  • (b) a trust, an income or capital interest in the trust; and

  • (c) a partnership, an interest as a member of the partnership. (capitaux propres)

  qualifying issuance

  qualifying issuance means any portion of an issuance that is made

  • (a) in exchange for

    • (i) cash,

    • (ii) a bond, debenture, note or other security (other than equity) of the covered entity that was issued solely for cash consideration, the terms of which confer on the holder the right to make the exchange, or

    • (iii) any combination of properties described in subparagraph (i) or (ii);

  • (b) to an employee of the covered entity (or an entity related to the covered entity) in the course of the employee’s employment; or

  • (c) to a person or partnership, with which the covered entity deals at arm’s length and is not affiliated, in exchange for property used in the covered entity’s active business. (émission admissible)

  reorganization transaction

  reorganization transaction means a redemption, acquisition or cancellation of equity by a covered entity that is made

  • (a) on an exchange of equity by a holder for consideration that includes equity (other than substantive debt) of

    • (i) the covered entity,

    • (ii) another entity that is related to the covered entity immediately before the exchange and is a covered entity immediately after the exchange, or

    • (iii) another covered entity that controls the covered entity (or an amalgamated successor entity of the covered entity) immediately after the exchange;

  • (b) on an amalgamation of the covered entity with one or more other predecessor corporations to which subsection 87(1) applies if a holder of that equity, immediately before the amalgamation, receives consideration that includes equity (other than substantive debt) of the new corporation (within the meaning of subsection 87(1)) for the disposition of their equity on the amalgamation;

  • (b.1) on an amalgamation (as defined in subsection 87(1)) to which subsection 87(11) applies;

  • (c) on a winding-up of the covered entity during which all or substantially all of the property owned by the covered entity is distributed to the equity holders of the covered entity;

  • (d) in the course of a reorganization to which paragraph 55(3)(a) or (b) applies;

  • (e) on a qualifying disposition (as defined in subsection 107.4(1));

  • (f) on a qualifying exchange (as defined in subsection 132.2(1));

  • (g) at the demand of a holder in accordance with the conditions referred to in paragraph 108(2)(a), included in the issued units of the trust, for an amount that does not exceed the fair market value of the equity at the time of the redemption, acquisition or cancellation; or

  • (h) pursuant to the exercise of a statutory right of dissent by a holder of the equity. (opération de réorganisation)

  specified affiliate

  specified affiliate at any time, of a covered entity, means a corporation, trust or partnership (in this definition referred to as an “affiliate”) where, at that time,

  • (a) if the affiliate is a corporation, the covered entity

    • (i) controls the corporation, or

    • (ii) has a direct or indirect interest in the equity of the corporation having a fair market value equal to more than 50% of the fair market value of the total equity of the corporation;

  • (b) if the affiliate is a trust, the covered entity

    • (i) is a majority-interest beneficiary (as defined in subsection 251.1(3)) of the trust, or

    • (ii) has a direct or indirect interest in the equity of the trust having a fair market value equal to more than 50% of the fair market value of the total equity of the trust; and

  • (c) if the affiliate is a partnership, the covered entity

    • (i) is a majority-interest partner of the partnership, or

    • (ii) has a direct or indirect interest in the equity of the partnership having a fair market value equal to more than 50% of the fair market value of the total equity of the partnership. (entité affiliée déterminée)

  substantive debt

  substantive debt of a covered entity means equity that, in accordance with its terms

  • (a) is not convertible or exchangeable other than for

    • (i) equity that if issued would be substantive debt of the same covered entity,

    • (ii) a bond, debenture or note of the covered entity, the fair market value of which does not exceed the total of the amounts referred to in subparagraphs (d)(i) to (iv), or

    • (iii) equity that would be issued only after the occurrence of a trigger event pursuant to a non-viability contingent capital provision included in the terms of the equity to satisfy regulatory capital requirements applicable to the covered entity;

  • (b) is non-voting in respect of the election of the board of directors, the trustees or the general partner (as applicable) of the covered entity, except in the event of a failure or default under the terms or conditions of the equity;

  • (c) requires the amount of any dividend or other distribution payable to be calculated

    • (i) as a fixed amount, or

    • (ii) by reference to a percentage of an amount equal to the fair market value of the consideration for which the equity was issued if the percentage is

      • (A) fixed, or

      • (B) determined by reference to a market interest rate (including a Government of Canada Treasury Bill) plus a fixed amount, if any; and

  • (d) entitles any holder of the equity to receive, on the redemption, cancellation or acquisition of the equity by the covered entity or by a person or partnership with whom the covered entity does not deal at arm’s length or is affiliated, an amount that does not exceed the total of the following amounts:

    • (i) the fair market value of the consideration for which the equity was issued,

    • (ii) any unpaid distributions or dividends on the equity that are payable to the holder,

    • (iii) any premium that is payable to the holder solely due to the early redemption, cancellation or acquisition of the equity, and

    • (iv) any other amount in respect of an amount described in subparagraphs (i) to (iii) that is attributable to an increase in the value of a currency other than Canadian currency relative to Canadian currency. (dette substantielle)

• Marginal note:Tax payable

  (2) Each person or partnership that is a covered entity for a taxation year shall pay a tax for the taxation year equal to the amount determined by the formula

  0.02 × (A + B − C)

  where

  A

  is the total fair market value of equity (other than substantive debt) of the covered entity that is redeemed, acquired or cancelled in the taxation year by the covered entity, other than equity that is

  • (a) redeemed, acquired or cancelled in a reorganization transaction, or

  • (b) acquired from a specified affiliate, if that equity was previously deemed by subsection (5) to have been acquired by the covered entity and was previously included in the description of A;

  B

  is

  • (a) if equity of a covered entity (other than substantive debt) is redeemed, acquired or cancelled in the taxation year pursuant to a reorganization transaction described in paragraph (a) or (b) of that definition and any portion of the consideration received by a holder for the equity is not equity consideration described in paragraph (a) or (b) of the definition reorganization transaction, the amount determined by the formula

    D − E

    where

    D

    is the total fair market value of the equity of the covered entity (other than substantive debt) that is redeemed, acquired or cancelled in a reorganization transaction described in this paragraph; and

    E

    is the total fair market value of any equity consideration described in paragraph (a) or (b) of the definition reorganization transaction that is received by a holder as consideration for the equity that is redeemed, acquired or cancelled in a reorganization transaction described in this paragraph; and

  • (b) in any other case, nil; and

  C

  is the total fair market value of equity (other than substantive debt) of the covered entity that is

  • (a) issued in a qualifying issuance in the taxation year, or

  • (b) disposed of in the taxation year by a specified affiliate of the covered entity (except a disposition to the covered entity or another specified affiliate of the covered entity), if that equity was previously deemed by subsection (5) to have been acquired by the covered entity and was previously included in the description of A.

• Marginal note:Tax payable — anti-avoidance

  (3) Equity that is redeemed, acquired or cancelled, or that is issued by a covered entity, as part of a transaction (as defined in subsection 245(1)) or series of transactions shall be included in the description of A or B or excluded from the description of C in subsection (2) (as the case may be) if it is reasonable to consider that the primary purpose of the transaction or series is to cause a decrease in the amount referred to in the description of A or B in that subsection or an increase in the amount referred to in the description of C in that subsection.

• Marginal note:De minimis rule

  (4) Despite subsection (2), if the total of the amounts determined for A and B in subsection (2) for a taxation year is less than $1,000,000 (prorated based upon the number of days in the taxation year if the taxation year is less than 365 days), no tax is payable under this Part for the taxation year.

• Marginal note:Similar transactions

  (5) For the purposes of subsection (2), if a specified affiliate of a covered entity acquires equity of the covered entity, the equity is deemed to be acquired by the covered entity unless the specified affiliate is

  • (a) a registered securities dealer that

    • (i) acquires the equity in the capacity of an agent in the ordinary course of business, and

    • (ii) disposes of the equity, other than to the covered entity or another specified affiliate of the covered entity, within a reasonable period of time that is consistent with the holding of equity in the ordinary course of business;

  • (b) a trust established for the benefit of employees and former employees of the covered entity (or of a specified affiliate of the covered entity) that satisfies the following conditions

    • (i) the trust is an employee benefit plan, and

    • (ii) the terms of the trust provide that any equity of the covered entity acquired or held by the trust cannot be transferred to, or otherwise be available for the benefit of, the covered entity or any specified affiliate of the covered entity;

  • (c) a trust governed by an employees profit sharing plan; or

  • (d) a trust governed by a deferred profit sharing plan.

• Marginal note:Similar transactions — anti-avoidance

  (6) If it is reasonable to consider that one of the main purposes of a transaction (as defined in subsection 245(1)) or series of transactions is to cause a person or partnership to acquire equity of a covered entity to avoid the tax otherwise payable under this Part, the person or partnership shall be deemed to be a specified affiliate of the covered entity from the time that the transaction or series commenced until immediately after the time the transaction or series ends.