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

Full Document:  

Act current to 2023-01-25 and last amended on 2023-01-01. Previous Versions

PART IIncome Tax (continued)

DIVISION BComputation of Income (continued)

SUBDIVISION FRules Relating to Computation of Income (continued)

Marginal note:Transfers for fair market consideration

  •  (1) Notwithstanding any other provision of this Act, subsections 74.1(1) and (2) and section 74.2 do not apply to any income, gain or loss derived in a particular taxation year from transferred property or from property substituted therefor if

    • (a) at the time of the transfer the fair market value of the transferred property did not exceed the fair market value of the property received by the transferor as consideration for the transferred property;

    • (b) where the consideration received by the transferor included indebtedness,

      • (i) interest was charged on the indebtedness at a rate equal to or greater than the lesser of

        • (A) the prescribed rate that was in effect at the time the indebtedness was incurred, and

        • (B) the rate that would, having regard to all the circumstances, have been agreed on, at the time the indebtedness was incurred, between parties dealing with each other at arm’s length,

      • (ii) the amount of interest that was payable in respect of the particular year in respect of the indebtedness was paid not later than 30 days after the end of the particular year, and

      • (iii) the amount of interest that was payable in respect of each taxation year preceding the particular year in respect of the indebtedness was paid not later than 30 days after the end of each such taxation year; and

    • (c) where the property was transferred to or for the benefit of the transferor’s spouse or common-law partner, the transferor elected in the transferor’s return of income under this Part for the taxation year in which the property was transferred not to have the provisions of subsection 73(1) apply.

  • Marginal note:Loans for value

    (2) Notwithstanding any other provision of this Act, subsections 74.1(1) and (2) and section 74.2 do not apply to any income, gain or loss derived in a particular taxation year from lent property or from property substituted therefor if

    • (a) interest was charged on the loan at a rate equal to or greater than the lesser of

      • (i) the prescribed rate that was in effect at the time the loan was made, and

      • (ii) the rate that would, having regard to all the circumstances, have been agreed on, at the time the loan was made, between parties dealing with each other at arm’s length;

    • (b) the amount of interest that was payable in respect of the particular year in respect of the loan was paid not later than 30 days after the end of the particular year; and

    • (c) the amount of interest that was payable in respect of each taxation year preceding the particular year in respect of the loan was paid not later than 30 days after the end of each such taxation year.

  • Marginal note:Spouses or common-law partners living apart

    (3) Notwithstanding subsection 74.1(1) and section 74.2, where an individual has lent or transferred property, either directly or indirectly, by means of a trust or by any other means whatever, to or for the benefit of a person who is the individual’s spouse or common-law partner or who has since become the individual’s spouse or common-law partner,

    • (a) subsection 74.1(1) does not apply with respect to any income or loss from the property, or property substituted therefor, that relates to the period throughout which the individual is living separate and apart from that person by reason of a breakdown of their marriage or common-law partnership; and

    • (b) section 74.2 does not apply to a disposition of the property, or property substituted therefor, occurring at any time while the individual is living separate and apart from that person because of a breakdown of their marriage or common-law partnership, if an election completed jointly with that person not to have that section apply is filed with the individual’s return of income under this Part for the taxation year that includes that time or for any preceding taxation year.

  • Marginal note:Idem

    (4) No amount shall be included in computing the income of an individual under subsection 74.4(2) in respect of a designated person in respect of the individual who is the spouse or common-law partner of the individual for any period throughout which the individual is living separate and apart from the designated person by reason of a breakdown of their marriage or common-law partnership.

  • Definition of designated person

    (5) For the purposes of this section, designated person, in respect of an individual, means a person

    • (a) who is the spouse or common-law partner of the individual; or

    • (b) who is under 18 years of age and who

      • (i) does not deal with the individual at arm’s length, or

      • (ii) is the niece or nephew of the individual.

  • Marginal note:Back to back loans and transfers

    (6) Where an individual has lent or transferred property

    • (a) to another person and that property, or property substituted therefor, is lent or transferred by any person (in this subsection referred to as a “third party”) directly or indirectly to or for the benefit of a specified person with respect to the individual, or

    • (b) to another person on condition that property be lent or transferred by any person (in this subsection referred to as a “third party”) directly or indirectly to or for the benefit of a specified person with respect to the individual,

    the following rules apply:

    • (c) for the purposes of sections 74.1, 74.2, 74.3 and 74.4, the property lent or transferred by the third party shall be deemed to have been lent or transferred, as the case may be, by the individual to or for the benefit of the specified person, and

    • (d) for the purposes of subsection 74.5(1), the consideration received by the third party for the transfer of the property shall be deemed to have been received by the individual.

  • Marginal note:Guarantees

    (7) Where an individual is obligated, either absolutely or contingently, to effect any undertaking including any guarantee, covenant or agreement given to ensure the repayment, in whole or in part, of a loan made by any person (in this subsection referred to as the “third party”) directly or indirectly to or for the benefit of a specified person with respect to the individual or the payment, in whole or in part, of any interest payable in respect of the loan, the following rules apply:

    • (a) for the purposes of sections 74.1, 74.2, 74.3 and 74.4, the property lent by the third party shall be deemed to have been lent by the individual to or for the benefit of the specified person; and

    • (b) for the purposes of paragraphs 74.5(2)(b) and (c), the amount of interest that is paid in respect of the loan shall be deemed not to include any amount paid by the individual to the third party as interest on the loan.

  • Definition of specified person

    (8) For the purposes of subsections 74.5(6) and (7), specified person, with respect to an individual, means

    • (a) a designated person in respect of the individual; or

    • (b) a corporation, other than a small business corporation, of which a designated person in respect of the individual would have been a specified shareholder if the definition specified shareholder in subsection 248(1) were read without reference to paragraphs (a) and (d) of that definition.

  • Marginal note:Transfers or loans to a trust

    (9) Where a taxpayer has lent or transferred property, either directly or indirectly, by means of a trust or by any other means whatever, to a trust in which another taxpayer is beneficially interested, the taxpayer shall, for the purposes of this section and sections 74.1 to 74.4, be deemed to have lent or transferred the property, as the case may be, to or for the benefit of the other taxpayer.

  • (10) [Repealed, 1994, c. 7, Sch. VIII, s. 30]

  • Marginal note:Artificial transactions

    (11) Notwithstanding any other provision of this Act, sections 74.1 to 74.4 do not apply to a transfer or loan of property where it may reasonably be concluded that one of the main reasons for the transfer or loan was to reduce the amount of tax that would, but for this subsection, be payable under this Part on the income and gains derived from the property or from property substituted therefor.

  • Marginal note:Where ss. 74.1 to 74.3 do not apply

    (12) Sections 74.1, 74.2 and 74.3 do not apply in respect of a transfer by an individual of property

    • (a) as a payment of a premium under a registered retirement savings plan under which the individual’s spouse or common-law partner is, immediately after the transfer, the annuitant (within the meaning of subsection 146(1)) to the extent that the premium is deductible in computing the income of the individual for a taxation year;

    • (a.1) [Repealed, 2011, c. 24, s. 17]

    • (a.2) as a payment of a contribution under a registered disability savings plan;

    • (b) as or on account of an amount paid by the individual to another individual who is the individual’s spouse or common-law partner or a person who was under 18 years of age in a taxation year and who

      • (i) does not deal with the individual at arm’s length, or

      • (ii) is the niece or nephew of the individual,

      that is deductible in computing the individual’s income for the year and is required to be included in computing the income of the other individual; or

    • (c) to the individual’s spouse or common-law partner,

      • (i) while the property, or property substituted for it, is held under a TFSA of which the spouse or common-law partner is the holder, and

      • (ii) to the extent that the spouse or common-law partner does not, at the time of the contribution of the property under the TFSA, have an excess TFSA amount (as defined in subsection 207.01(1)).

  • Marginal note:Exception from attribution rules

    (13) Subsections 74.1(1) and (2), 74.3(1) and 75(2) of this Act and section 74 of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, do not apply to any amount that is included in computing a specified individual’s split income for a taxation year.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 74.5
  • 1994, c. 7, Sch. II, s. 53, Sch. VIII, s. 30
  • 2000, c. 12, s. 142, c. 19, s. 11
  • 2007, c. 35, s. 106
  • 2008, c. 28, s. 6
  • 2011, c. 24, s. 17

Marginal note:Trusts

  •  (2) If a trust, that is resident in Canada and that was created in any manner whatever since 1934, holds property on condition

    • (a) that it or property substituted therefor may

      • (i) revert to the person from whom the property or property for which it was substituted was directly or indirectly received (in this subsection referred to as “the person”), or

      • (ii) pass to persons to be determined by the person at a time subsequent to the creation of the trust, or

    • (b) that, during the existence of the person, the property shall not be disposed of except with the person’s consent or in accordance with the person’s direction,

    any income or loss from the property or from property substituted for the property, and any taxable capital gain or allowable capital loss from the disposition of the property or of property substituted for the property, shall, during the existence of the person while the person is resident in Canada, be deemed to be income or a loss, as the case may be, or a taxable capital gain or allowable capital loss, as the case may be, of the person.

  • Marginal note:Exceptions

    (3) Subsection 75(2) does not apply to property held in a taxation year

    • (a) by a trust governed by a deferred profit sharing plan, an employee benefit plan, an employees profit sharing plan, a pooled registered pension plan, a registered disability savings plan, a registered education savings plan, a registered pension plan, a registered retirement income fund, a registered retirement savings plan, a registered supplementary unemployment benefit plan, a retirement compensation arrangement or a TFSA;

    • (b) by an employee life and health trust, an employee trust, a private foundation that is a registered charity, a related segregated fund trust (within the meaning assigned by paragraph 138.1(1)(a)), a trust described by paragraph (a.1) of the definition trust in subsection 108(1), or a trust described by paragraph 149(1)(y);

    • (c) by a qualifying environmental trust; or

    • (c.1) to (c.3) [Repealed, 2013, c. 40, s. 35]

    • (d) by a trust if

      • (i) the trust acquired the property, or other property for which the property is a substitute, from a particular individual,

      • (ii) the particular individual acquired the property or the other property, as the case may be, in respect of another individual as a consequence of the operation of subsection 122.61(1) or under section 4 of the Universal Child Care Benefit Act, and

      • (iii) the trust has no beneficiaries (as defined in subsection 108(1)) who may for any reason receive directly from the trust any of the income or capital of the trust other than individuals in respect of whom the particular individual acquired property as a consequence of the operation of a provision described in subparagraph (ii).

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 75
  • 1995, c. 3, s. 21
  • 1998, c. 19, s. 13
  • 2001, c. 17, s. 55
  • 2007, c. 35, s. 107
  • 2008, c. 28, s. 7
  • 2010, c. 25, s. 14
  • 2012, c. 31, s. 15
  • 2013, c. 34, ss. 5, 212, c. 40, s. 35
  • 2017, c. 33, s. 21

Marginal note:Gain or loss deemed that of transferor

  •  (1) Where

    • (a) subsection 73(3) or (4) applied to the transfer of property (in this subsection referred to as “transferred property”) by a taxpayer to a child of the taxpayer,

    • (b) the transfer was made at less than the fair market value of the transferred property immediately before the time of the transfer, and

    • (c) in a taxation year, the transferee disposed of the transferred property and did not, before the end of that year, attain the age of 18 years,

    the following rules apply:

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

      • (i) the total of the transferee’s taxable capital gains for the year from dispositions of transferred property

      exceeds

      • (ii) the total of the transferee’s allowable capital losses for the year from dispositions of transferred property,

      shall during the lifetime of the transferor while the transferor is resident in Canada, be deemed to be a taxable capital gain of the transferor for the year from the disposition of property,

    • (e) the amount, if any, by which the total determined under subparagraph 75.1(1)(d)(ii) exceeds the total determined under subparagraph 75.1(1)(d)(i) shall, during the lifetime of the transferor while the transferor is resident in Canada, be deemed to be an allowable capital loss of the transferor for the year from the disposition of property, and

    • (f) any taxable capital gain or allowable capital loss taken into account in computing an amount described in paragraph 75.1(1)(d) or the amount described in paragraph 75.1(1)(e) shall, except for the purposes of those paragraphs, to the extent that the amount so described is deemed by virtue of this subsection to be a taxable capital gain or an allowable capital loss of the transferor, be deemed not to be a taxable capital gain or an allowable capital loss, as the case may be, of the transferee.

  • Definition of child

    (2) For the purposes of this section, child of a taxpayer includes a child of the taxpayer’s child and a child of the taxpayer’s child’s child.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 75.1
  • 1994, c. 7, Sch. II, s. 54
 
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