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

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Act current to 2022-06-20 and last amended on 2022-06-09. Previous Versions

PART XVIIInterpretation (continued)

Definition of affiliated persons

  •  (1) For the purposes of this Act, affiliated persons, or persons affiliated with each other, are

    • (a) an individual and a spouse or common-law partner of the individual;

    • (b) a corporation and

      • (i) a person by whom the corporation is controlled,

      • (ii) each member of an affiliated group of persons by which the corporation is controlled, and

      • (iii) a spouse or common-law partner of a person described in subparagraph (i) or (ii);

    • (c) two corporations, if

      • (i) each corporation is controlled by a person, and the person by whom one corporation is controlled is affiliated with the person by whom the other corporation is controlled,

      • (ii) one corporation is controlled by a person, the other corporation is controlled by a group of persons, and each member of that group is affiliated with that person, or

      • (iii) each corporation is controlled by a group of persons, and each member of each group is affiliated with at least one member of the other group;

    • (d) a corporation and a partnership, if the corporation is controlled by a particular group of persons each member of which is affiliated with at least one member of a majority-interest group of partners of the partnership, and each member of that majority-interest group is affiliated with at least one member of the particular group;

    • (e) a partnership and a majority-interest partner of the partnership;

    • (f) two partnerships, if

      • (i) the same person is a majority-interest partner of both partnerships,

      • (ii) a majority-interest partner of one partnership is affiliated with each member of a majority-interest group of partners of the other partnership, or

      • (iii) each member of a majority-interest group of partners of each partnership is affiliated with at least one member of a majority-interest group of partners of the other partnership;

    • (g) a person and a trust, if the person

      • (i) is a majority-interest beneficiary of the trust, or

      • (ii) would, if this subsection were read without reference to this paragraph, be affiliated with a majority-interest beneficiary of the trust; and

    • (h) two trusts, if a contributor to one of the trusts is affiliated with a contributor to the other trust and

      • (i) a majority-interest beneficiary of one of the trusts is affiliated with a majority-interest beneficiary of the other trust,

      • (ii) a majority-interest beneficiary of one of the trusts is affiliated with each member of a majority-interest group of beneficiaries of the other trust, or

      • (iii) each member of a majority-interest group of beneficiaries of each of the trusts is affiliated with at least one member of a majority-interest group of beneficiaries of the other trust.

  • Marginal note:Affiliation where amalgamation or merger

    (2) Where at any time 2 or more corporations (in this subsection referred to as the “predecessors”) amalgamate or merge to form a new corporation, the new corporation and any predecessor are deemed to have been affiliated with each other where they would have been affiliated with each other immediately before that time if

    • (a) the new corporation had existed immediately before that time; and

    • (b) the persons who were the shareholders of the new corporation immediately after that time had been the shareholders of the new corporation immediately before that time.

  • Marginal note:Definitions

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

    affiliated group of persons

    affiliated group of persons means a group of persons each member of which is affiliated with every other member. (groupe de personnes affiliées)

    beneficiary

    beneficiary, under a trust, includes a person beneficially interested in the trust. (bénéficiaire)

    contributor

    contributor, to a trust, means a person who has at any time made a loan or transfer of property, either directly or indirectly, in any manner whatever, to or for the benefit of the trust other than, if the person deals at arm’s length with the trust at that time and is not immediately after that time a majority-interest beneficiary of the trust,

    • (a) a loan made at a reasonable rate of interest; or

    • (b) a transfer made for fair market value consideration. (cotisant)

    controlled

    controlled means controlled, directly or indirectly in any manner whatever. (contrôlé)

    majority-interest beneficiary

    majority-interest beneficiary, of a trust at any time, means a person whose interest as a beneficiary, if any, at that time

    • (a) in the income of the trust has, together with the interests as a beneficiary in the income of the trust of all persons with whom the person is affiliated, a fair market value that is greater than 50% of the fair market value of all the interests as a beneficiary in the income of the trust; or

    • (b) in the capital of the trust has, together with the interests as a beneficiary in the capital of the trust of all persons with whom the person is affiliated, a fair market value that is greater than 50% of the fair market value of all the interests as a beneficiary in the capital of the trust. (bénéficiaire détenant une participation majoritaire)

    majority-interest group of beneficiaries

    majority-interest group of beneficiaries, of a trust at any time, means a group of persons each of whom is a beneficiary under the trust at that time such that

    • (a) if one person held the interests as a beneficiary of all of the members of the group, that person would be a majority-interest beneficiary of the trust; and

    • (b) if any member of the group were not a member, the test described in paragraph (a) would not be met. (groupe de bénéficiaires détenant une participation majoritaire)

    majority-interest group of partners

    majority-interest group of partners of a partnership means a group of persons each of whom has an interest in the partnership such that

    • (a) if one person held the interests of all members of the group, that person would be a majority-interest partner of the partnership; and

    • (b) if any member of the group were not a member, the test described in paragraph (a) would not be met. (groupe d’associés détenant une participation majoritaire)

  • Marginal note:Interpretation

    (4) For the purposes of this section,

    • (a) persons are affiliated with themselves;

    • (b) a person includes a partnership;

    • (c) notwithstanding subsection 104(1), a reference to a trust does not include a reference to the trustee or other persons who own or control the trust property; and

    • (d) in determining whether a person is affiliated with a trust,

      • (i) if the amount of income or capital of the trust that a person may receive as a beneficiary under the trust depends on the exercise by any person of, or the failure by any person to exercise, a discretionary power, that person is deemed to have fully exercised, or to have failed to exercise, the power, as the case may be,

      • (ii) the interest of a person in a trust as a beneficiary is disregarded in determining whether the person deals at arm’s length with the trust if the person would, in the absence of the interest as a beneficiary, be considered to deal at arm’s length with the trust,

      • (iii) a trust is not a majority interest beneficiary of another trust unless the trust has an interest as a beneficiary in the income or capital, as the case may be, of the other trust, and

      • (iv) in determining whether a contributor to one trust is affiliated with a contributor to another trust, individuals connected by blood relationship, marriage, common-law partnership or adoption are deemed to be affiliated with one another.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 1998, c. 19, s. 243
  • 2000, c. 12, s. 142
  • 2005, c. 19, s. 54
  • 2013, c. 40, s. 91(E)

Marginal note:Definitions

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

    beneficiary

    beneficiary has the same meaning as in subsection 251.1(3). (bénéficiaire)

    equity

    equity has the same meaning as in subsection 122.1(1) read without reference to paragraph (e) of the definition equity in that subsection. (capitaux propres)

    equity value

    equity value has the same meaning as in subsection 122.1(1). (valeur des capitaux propres)

    fixed interest

    fixed interest, at any time of a person in a trust, means an interest of the person as a beneficiary (in this definition, determined without reference to subsection 248(25)) under the trust provided that no amount of the income or capital of the trust to be distributed at any time in respect of any interest in the trust depends on the exercise by any person of, or the failure by any person to exercise, any discretionary power, other than a power in respect of which it is reasonable to conclude that

    • (a) the power is consistent with normal commercial practice;

    • (b) the power is consistent with terms that would be acceptable to the beneficiaries under the trust if the beneficiaries were dealing with each other at arm’s length; and

    • (c) the exercise of, or failure to exercise, the power will not materially affect the value of an interest as a beneficiary under the trust relative to the value of other such interests under the trust. (participation fixe)

    investment fund

    investment fund, at any time, means a trust, if

    • (a) at all times throughout the period that begins at the later of March 21, 2013 and the end of the calendar year in which it is created and that ends at that time, the trust has a class of units outstanding that complies with the conditions prescribed for the purposes of paragraph 132(6)(c) determined without reference to paragraph 4801(b) of the Income Tax Regulations; and

    • (b) at all times throughout the period that begins at the later of March 21, 2013 and the time of its creation and that ends at that time, the trust

      • (i) is resident in Canada,

      • (ii) has no beneficiaries who may for any reason receive directly from the trust any of the income or capital of the trust, other than beneficiaries whose interests as beneficiaries under the trust are fixed interests described by reference to units of the trust,

      • (iii) follows a reasonable policy of investment diversification,

      • (iv) limits its undertaking to the investing of its funds in property,

      • (v) does not alone, or as a member of a group of persons, control a corporation, and

      • (vi) does not hold

        • (A) property that the trust, or a person with which the trust does not deal at arm’s length, uses in carrying on a business,

        • (B) real or immovable property, an interest in real property or an immovable, or a real right in an immovable,

        • (C) Canadian resource property, foreign resource property, or an interest or right in Canadian resource property or foreign resource property, or

        • (D) more than 20% of the securities of any class of securities of a person (other than an investment fund or a mutual fund corporation that would meet the conditions in this paragraph, other than in subparagraph (ii), if it were a trust), unless at that time

          • (I) the securities (other than liabilities) of the person held by the trust have a total fair market value that is no more than 10% of the equity value of the person, and

          • (II) the liabilities of the person held by the trust have a total fair market value that is no more than 10% of the fair market value of all of the liabilities of the person. (fiducie de placement déterminée)

    majority-interest beneficiary

    majority-interest beneficiary has the same meaning as in subsection 251.1(3) read without reference to the expression “, if any,” in the definition majority-interest beneficiary in that subsection. (bénéficiaires détenant une participation majoritaire)

    majority-interest group of beneficiaries

    majority-interest group of beneficiaries has the same meaning as in subsection 251.1(3). (groupe de bénéficiaires détenant une participation majoritaire)

    majority-interest group of partners

    majority-interest group of partners has the same meaning as in subsection 251.1(3). (groupe d’associés détenant une participation majoritaire)

    person

    person includes a partnership. (personne)

    portfolio investment fund

    portfolio investment fund[Repealed, 2016, c. 12, s. 65]

    specified right

    specified right, held at any time by a person in respect of a trust, means a right under a contract, in equity or otherwise, to acquire, either immediately or in the future and either absolutely or contingently, equity of the trust, or to cause the trust to redeem or cancel equity of the trust, unless the right is not exercisable at that time because its exercise is contingent on the death, bankruptcy or permanent disability of an individual. (droit déterminé)

    subsidiary

    subsidiary, of a particular person at any time, means a corporation, partnership or trust (in this definition referred to as the “subject entity”) where

    • (a) the particular person holds at that time property

      • (i) that is equity of the subject entity, or

      • (ii) that derives all or part of its fair market value, directly or indirectly, from equity of the subject entity; and

    • (b) the total of the following amounts is at that time equal to more than 50% of the equity value of the subject entity:

      • (i) each amount that is the fair market value at that time of equity of the subject entity that is held at that time by the particular person or a person with whom the particular person is affiliated, and

      • (ii) each amount (other than an amount described in subparagraph (i)) that is the portion of the fair market value at that time — derived directly or indirectly from equity of the subject entity — of a property that is held at that time by the particular person or a person with whom the particular person is affiliated. (filiale)

  • Marginal note:Loss restriction event

    (2) For the purposes of this Act, a taxpayer is at any time subject to a loss restriction event if

    • (a) the taxpayer is a corporation and at that time control of the corporation is acquired by a person or group of persons; or

    • (b) the taxpayer is a trust and

      • (i) that time is after March 20, 2013 and after the time at which the trust is created, and

      • (ii) at that time a person becomes a majority-interest beneficiary, or a group of persons becomes a majority-interest group of beneficiaries, of the trust.

  • Marginal note:Trusts — exceptions

    (3) For the purposes of paragraph (2)(b), a person is deemed not to become a majority-interest beneficiary, and a group of persons is deemed not to become a majority-interest group of beneficiaries, as the case may be, of a particular trust solely because of

    • (a) the acquisition of equity of the particular trust by

      • (i) a particular person from another person with whom the particular person was affiliated immediately before the acquisition,

      • (ii) a particular person who was affiliated with the particular trust immediately before the acquisition,

      • (iii) an estate from an individual, if the estate arose on and as a consequence of the death of the individual and the estate acquired the equity from the individual as a consequence of the death, or

      • (iv) a particular person from an estate that arose on and as a consequence of the death of an individual, if the estate acquired the equity from the individual as a consequence of the death and the individual was affiliated with the particular person immediately before the death;

    • (b) a variation in the terms of the particular trust, the satisfaction of, or failure to satisfy, a condition under the terms of the particular trust, the exercise by any person of, or the failure by any person to exercise, a power, or (without limiting the generality of the foregoing) the redemption, surrender or termination of equity of the particular trust at any time, if each majority-interest beneficiary, and each member of a majority-interest group of beneficiaries, of the particular trust immediately after that time was affiliated with the particular trust immediately before

      • (i) that time, or

      • (ii) in the case of the redemption or surrender of equity of the particular trust that was held, immediately before that time, by an estate and that was acquired by the estate from an individual as described in subparagraph (a)(iii), the individual’s death;

    • (c) the transfer at any time of all the equity of the particular trust to a corporation, partnership or another trust (in this paragraph referred to as the “acquirer”), if

      • (i) the only consideration for the transfer is equity (determined without reference to paragraph (d) of the definition equity in subsection 122.1(1)) of the acquirer,

      • (ii) at all times before that time the acquirer held no property or held only property having a nominal value, and

      • (iii) immediately after that time the acquirer is neither

        • (A) a subsidiary of any person, nor

        • (B) a corporation controlled, directly or indirectly in any manner whatever, by a person or group of persons;

    • (d) the transfer at any time of equity of the particular trust to a corporation, partnership or another trust (in this paragraph referred to as the “acquirer”), if

      • (i) immediately before that time a person was a majority-interest beneficiary, or a group of persons was a majority-interest group of beneficiaries, of the particular trust,

      • (ii) immediately after that time the person, or group of persons, as the case may be, described in subparagraph (i) in respect of the particular trust, and no other person or group of persons, is

        • (A) if the acquirer is a corporation, a person by whom, or a group of persons by which, the corporation is controlled directly or indirectly in any manner whatever,

        • (B) if the acquirer is a partnership, a majority-interest partner, or a majority-interest group of partners, of the partnership, and

        • (C) if the acquirer is a trust, a majority-interest beneficiary, or a majority-interest group of beneficiaries, of the trust, and

      • (iii) at no time during a series of transactions or events that includes the transfer does the person or group of persons, as the case may be, described in subparagraph (i) in respect of the particular trust, cease to be a person or group of persons described in any of clauses (ii)(A) to (C) in respect of the acquirer;

    • (e) a transaction (other than a transaction one or more of the parties to which may be excused from completing as a result of changes to this Act) the parties to which are obligated to complete under the terms of an agreement in writing between the parties entered into before March 21, 2013; or

    • (f) the acquisition or disposition of equity of the particular trust at any time if

      • (i) the particular trust is an investment fund immediately before that time, and

      • (ii) the acquisition or disposition, as the case may be, is not part of a series of transactions or events that includes the particular trust ceasing to be an investment fund.

  • Marginal note:Trusts — additional cases

    (4) For the purposes of paragraph (2)(b) and subject to subsection (3), a person is deemed to become at a particular time a majority-interest beneficiary of a particular trust if

    • (a) a particular person is at and immediately before the particular time a majority-interest beneficiary, or a member of a majority-interest group of beneficiaries, of the particular trust, and the particular person is at the particular time, but is not immediately before the particular time, a subsidiary of another person (in this paragraph referred to as the “acquirer”), unless

      • (i) the acquirer is immediately before the particular time affiliated with the particular trust, or

      • (ii) this paragraph previously applied to deem a person to become a majority-interest beneficiary of the particular trust because the particular person became, as part of a series of transactions or events that includes the particular person becoming at the particular time a subsidiary of the acquirer, a subsidiary of another person that is at the particular time a subsidiary of the acquirer; or

    • (b) at the particular time, as part of a series of transactions or events, two or more persons acquire equity of the particular trust in exchange for or upon a redemption or surrender of equity of, or as a consequence of a distribution from, a corporation, partnership or another trust, unless

      • (i) a person affiliated with the corporation, partnership or other trust was immediately before the particular time a majority-interest beneficiary of the particular trust,

      • (ii) if all the equity of the particular trust that was acquired at or before the particular time as part of the series were acquired by one person, the person would not at the particular time be a majority-interest beneficiary of the particular trust, or

      • (iii) this paragraph previously applied to deem a person to become a majority-interest beneficiary of the particular trust because of an acquisition of equity of the particular trust that was part of the series.

  • Marginal note:Trusts — special rules of application

    (5) For the purposes of this section,

    • (a) in determining whether persons are affiliated with each other

      • (i) except for the purposes of paragraph (b) of the definition subsidiary in subsection (1), section 251.1 is to be read without reference to the definition controlled in subsection 251.1(3),

      • (ii) in determining whether an individual (other than a trust) is affiliated with another individual (other than a trust), individuals connected by blood relationship, marriage or common-law partnership or adoption are deemed to be affiliated with one another, and

      • (iii) if, at any time as part of a series of transactions or events a person acquires equity of a corporation, partnership or trust, and it can reasonably be concluded that one of the reasons for the acquisition, or for making any agreement or undertaking in respect of the acquisition, is to cause a condition in paragraph (3)(a) or (b) or subparagraph (4)(a)(i) or (b)(i) regarding affiliation to be satisfied at a particular time, the condition is deemed not to be satisfied at the particular time;

    • (b) in determining whether a particular person becomes at any time a majority-interest beneficiary, or a particular group of persons becomes at any time a majority-interest group of beneficiaries, of a trust, the fair market value of each person’s equity of the trust is to be determined at and immediately before that time

      • (i) without reference to the portion of that fair market value that is attributable to property acquired if it can reasonably be concluded that one of the reasons for the acquisition is to cause paragraph (2)(b), or any provision that applies by reference to a trust being subject to a loss restriction event at any time, not to apply,

      • (ii) without reference to the portion of that fair market value that is attributable to a change in the fair market value of all or part of any equity of the trust if it can reasonably be concluded that one of the reasons for the change is to cause paragraph (2)(b), or any provision that applies by reference to a trust being subject to a loss restriction event at any time, not to apply, and

      • (iii) as if each specified right held immediately before that time by the particular person, or by a member of the particular group, in respect of the trust is at that time exercised if it can reasonably be concluded that one of the reasons for the acquisition of the right is to cause paragraph (2)(b), or any provision that applies by reference to a trust being subject to a loss restriction event at any time, not to apply; and

    • (c) if, at any time as part of a series of transactions or events a person acquires a security (as defined in subsection 122.1(1)) and it can reasonably be concluded that one of the reasons for the acquisition, or for making any agreement or undertaking in respect of the acquisition, is to cause a condition in subparagraph (b)(v) or clause (b)(vi)(D) of the definition investment fund in subsection (1) to be satisfied at a particular time in respect of a trust, the condition is deemed not to be satisfied at the particular time in respect of the trust.

  • Marginal note:Trusts — time of day

    (6) For the purposes of this Act, if a trust is subject to a loss restriction event at a particular time during a day, the trust is deemed to be subject to the loss restriction event at the beginning of that day and not at the particular time unless the trust elects in its return of income under Part I filed for its taxation year that ends immediately before the loss restriction event to have this subsection not apply.

  • Marginal note:Filing and other deadlines

    (7) If at any time a trust is subject to a loss restriction event, in respect of the trust for its taxation year that ends immediately before that time,

    • (a) the reference in paragraph 132(2.1)(a) to “the day that is 90 days after the end of the year” is to be read as “the balance-due day of the trust for the year”;

    • (b) the reference in subsection 132(6.1) to “before the 91st day after the end of” is to be read as “on or before the balance-due day of the trust for”;

    • (c) the reference in paragraph 150(1)(c) to “within 90 days from the end of” is to be read as “on or before the balance-due day of the trust for”;

    • (d) the reference in subsection 204.7(1) to “Within 90 days from the end of each taxation year commencing after 1980” is to be read as “On or before the balance-due day of the trust for each taxation year”;

    • (e) the reference in subsection 210.2(5), and in subsection 221(2) of the Income Tax Regulations, to “within 90 days after the end of” is to be read as “on or before the balance-due day of the trust for”; and

    • (f) the references in subsections 202(8) and 204(2) of the Income Tax Regulations to “within 90 days from the end of” are to be read as “on or before the balance-due day of the trust for”.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 2013, c. 40, s. 92
  • 2014, c. 39, s. 75
  • 2016, c. 12, s. 65
 
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