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

Marginal note:Transfers and loans to spouse or common-law partner

• 74.1 (1) If an individual has transferred or lent property (otherwise than by an assignment of any portion of a retirement pension under section 65.1 of the Canada Pension Plan or a comparable provision of a provincial pension plan as defined in section 3 of that Act), 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, any income or loss, as the case may be, of that person for a taxation year from the property or from property substituted therefor, that relates to the period in the year throughout which the individual is resident in Canada and that person is the individual’s spouse or common-law partner, is deemed to be income or a loss, as the case may be, of the individual for the year and not of that person.

• Marginal note:Transfers and loans to minors

  (2) If an individual has transferred or lent 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 was under 18 years of age (other than an amount received in respect of that person either as a consequence of the operation of subsection 122.61(1) or under section 4 of the Universal Child Care Benefit Act) and who

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

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

  any income or loss, as the case may be, of that person for a taxation year from the property or from property substituted for that property, that relates to the period in the taxation year throughout which the individual is resident in Canada, is deemed to be income or a loss, as the case may be, of the individual and not of that person unless that person has, before the end of the taxation year, attained the age of 18 years.

• Marginal note:Repayment of existing indebtedness

  (3) For the purposes of subsections 74.1(1) and (2), where, at any time, an individual has lent or transferred property (in this subsection referred to as the “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, and the lent or transferred property or property substituted therefor is used

  • (a) to repay, in whole or in part, borrowed money with which other property was acquired, or

  • (b) to reduce an amount payable for other property,

  there shall be included in computing the income from the lent or transferred property, or from property substituted therefor, that is so used, that proportion of the income or loss, as the case may be, derived after that time from the other property or from property substituted therefor that the fair market value at that time of the lent or transferred property, or property substituted therefor, that is so used is of the cost to that person of the other property at the time of its acquisition, but for greater certainty nothing in this subsection shall affect the application of subsections 74.1(1) and (2) to any income or loss derived from the other property or from property substituted therefor.

Marginal note:Gain or loss deemed that of lender or transferor

• 74.2 (1) Where an individual has lent or transferred property (in this section referred to as “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 (in this subsection referred to as the “recipient”) who is the individual’s spouse or common-law partner or who has since become the individual’s spouse or common-law partner, the following rules apply for the purposes of computing the income of the individual and the recipient for a taxation year:

  • (a) the amount, if any, by which

    • (i) the total of the recipient’s taxable capital gains for the year from dispositions of property (other than listed personal property) that is lent or transferred property or property substituted therefor occurring in the period (in this subsection referred to as the “attribution period”) throughout which the individual is resident in Canada and the recipient is the individual’s spouse or common-law partner

    exceeds

    • (ii) the total of the recipient’s allowable capital losses for the year from dispositions occurring in the attribution period of property (other than listed personal property) that is lent or transferred property or property substituted therefor

    shall be deemed to be a taxable capital gain of the individual for the year from the disposition of property other than listed personal property;

  • (b) the amount, if any, by which the total determined under subparagraph 74.2(1)(a)(ii) exceeds the total determined under subparagraph 74.2(1)(a)(i) shall be deemed to be an allowable capital loss of the individual for the year from the disposition of property other than listed personal property;

  • (c) the amount, if any, by which

    • (i) the amount that the total of the recipient’s gains for the year from dispositions occurring in the attribution period of listed personal property that is lent or transferred property or property substituted therefor would be if the recipient had at no time owned listed personal property other than listed personal property that was lent or transferred property or property substituted therefor

    exceeds

    • (ii) the amount that the total of the recipient’s losses for the year from dispositions of listed personal property that is lent or transferred property or property substituted therefor would be if the recipient had at no time owned listed personal property other than listed personal property that was lent or transferred property or property substituted therefor,

    shall be deemed to be a gain of the individual for the year from the disposition of listed personal property;

  • (d) the amount, if any, by which the total determined under subparagraph 74.2(1)(c)(ii) exceeds the total determined under subparagraph 74.2(1)(c)(i) shall be deemed to be a loss of the individual for the year from the disposition of listed personal property; and

  • (e) any taxable capital gain or allowable capital loss or any gain or loss taken into account in computing an amount described in paragraph 74.2(1)(a), 74.2(1)(b), 74.2(1)(c) or 74.2(1)(d) shall, except for the purposes of those paragraphs and 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 or a gain or loss of the individual, be deemed not to be a taxable capital gain or an allowable capital loss or a gain or loss, as the case may be, of the recipient.

• Marginal note:Deemed gain or loss

  (2) Where an amount is deemed by subsection 74.2(1) or 75(2) or section 75.1 of this Act, or subsection 74(2) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, to be a taxable capital gain or an allowable capital loss of an individual for a taxation year,

  • (a) for the purposes of sections 3 and 111, as they apply for the purposes of section 110.6, such portion of the gain or loss as may reasonably be considered to relate to the disposition of a property by another person in the year shall be deemed to arise from the disposition of that property by the individual in the year; and

  • (b) for the purposes of section 110.6, that property shall be deemed to have been disposed of by the individual on the day on which it was disposed of by the other person.

• Marginal note:Election for subsection (1) to apply

  (3) Subsection (1) does not apply to a disposition at any particular time (in this subsection referred to as the “emigration disposition”) under paragraph 128.1(4)(b), by a taxpayer who is a recipient referred to in subsection (1), unless the recipient and the individual referred to in that subsection, in their returns of income for the taxation year that includes the first time, after the particular time, at which the recipient disposes of the property, jointly elect that subsection (1) apply to the emigration disposition.

• Marginal note:Application of subsection (3)

  (4) For the purpose of applying subsection (3) and notwithstanding subsections 152(4) to (5), any assessment of tax payable under this Act by the recipient or the individual referred to in subsection (1) shall be made that is necessary to take an election under subsection (3) into account except that no such assessment shall affect the computation of

  • (a) interest payable under this Act to or by a taxpayer in respect of any period that is before the taxpayer’s filing-due date for the taxation year that includes the first time, after the particular time referred to in subsection (3), at which the recipient disposes of the property referred to in that subsection; or

  • (b) any penalty payable under this Act.

Marginal note:Transfers or loans to a trust

• 74.3 (1) Where an individual has lent or transferred property (in this section referred to as “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 individual who is at any time a designated person in respect of the individual is beneficially interested at any time, the following rules apply:

  • (a) for the purposes of section 74.1, the income of the designated person for a taxation year from the lent or transferred property shall be deemed to be an amount equal to the lesser of

    • (i) the amount in respect of the trust that was included by virtue of paragraph 12(1)(m) in computing the income for the year of the designated person, and

    • (ii) that proportion of the amount that would be the income of the trust for the year from the lent or transferred property or from property substituted therefor if no deduction were made under subsection 104(6) or (12) that

      • (A) the amount determined under subparagraph 74.3(1)(a)(i) in respect of the designated person for the year

      is of

      • (B) the total of all amounts each of which is an amount determined under subparagraph 74.3(1)(a)(i) for the year in respect of the designated person or any other person who is throughout the year a designated person in respect of the individual; and

  • (b) for the purposes of section 74.2, an amount equal to the lesser of

    • (i) the amount that was designated under subsection 104(21) in respect of the designated person in the trust’s return of income for the year, and

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

      • (A) the total of all amounts each of which is a taxable capital gain for the year from the disposition by the trust of the lent or transferred property or property substituted therefor

      exceeds

      • (B) the total of all amounts each of which is an allowable capital loss for the year from the disposition by the trust of the lent or transferred property or property substituted therefor,

    shall be deemed to be a taxable capital gain of the designated person for the year from the disposition of property (other than listed personal property) that is lent or transferred property.

• Definition of designated person

  (2) In this section, designated person, in respect of an individual, has the meaning assigned by subsection 74.5(5).

Marginal note:Definitions

• 74.4 (1) In this section,

  designated person

  designated person, in respect of an individual, has the meaning assigned by subsection 74.5(5); (personne désignée)

  excluded consideration

  excluded consideration, at any time, means consideration received by an individual that is

  • (a) indebtedness,

  • (b) a share of the capital stock of a corporation, or

  • (c) a right to receive indebtedness or a share of the capital stock of a corporation. (contrepartie exclue)

• Marginal note:Transfers and loans to corporations

  (2) Where an individual has transferred or lent property, either directly or indirectly, by means of a trust or by any other means whatever, to a corporation and one of the main purposes of the transfer or loan may reasonably be considered to be to reduce the income of the individual and to benefit, either directly or indirectly, by means of a trust or by any other means whatever, a person who is a designated person in respect of the individual, in computing the income of the individual for any taxation year that includes a period after the loan or transfer throughout which

  • (a) the person is a designated person in respect of the individual and would have been a specified shareholder of the corporation if the definition specified shareholder in subsection 248(1) were read without reference to paragraphs (a) and (d) of that definition and if the reference therein to “any other corporation that is related to the corporation” were read as a reference to “any other corporation (other than a small business corporation) that is related to the corporation”,

  • (b) the individual was resident in Canada, and

  • (c) the corporation was not a small business corporation,

  the individual shall be deemed to have received as interest in the year the amount, if any, by which

  • (d) the amount that would be interest on the outstanding amount of the loan or transfer of the property for such periods in the year if the interest were computed thereon at the prescribed rate of interest for such periods

  exceeds the total of

  • (e) any interest received in the year by the individual in respect of the transfer or loan (other than amounts deemed by this subsection to be interest),

  • (f) all amounts included in the individual’s income for the taxation year pursuant to subsection 82(1) or 90(1) in respect of taxable dividends received (other than dividends deemed by section 84 to have been received) by the individual in the year on shares that were received from the corporation as consideration for the transfer or as repayment for the loan that were excluded consideration at the time the dividends were received or on shares substituted therefor that were excluded consideration at that time, and

  • (g) where the designated person is a specified individual in relation to the year, the amount required to be included in computing the designated person’s income for the year in respect of all taxable dividends received by the designated person that

    • (i) can reasonably be considered to be part of the benefit sought to be conferred, and

    • (ii) are included in computing the designated person’s split income for any taxation year.

• Marginal note:Outstanding amount

  (3) For the purposes of subsection 74.4(2), the outstanding amount of a transferred property or loan at a particular time is

  • (a) in the case of a transfer of property to a corporation, the amount, if any, by which the fair market value of the property at the time of the transfer exceeds the total of

    • (i) the fair market value, at the time of the transfer, of the consideration (other than consideration that is excluded consideration at the particular time) received by the transferor for the property, and

    • (ii) the fair market value, at the time of receipt, of any consideration (other than consideration that is excluded consideration at the particular time) received by the transferor at or before the particular time from the corporation or from a person with whom the transferor deals at arm’s length, in exchange for excluded consideration previously received by the transferor as consideration for the property or for excluded consideration substituted for such consideration;

  • (b) in the case of a loan of money or property to a corporation, the amount, if any, by which

    • (i) the principal amount of the loan of money at the time the loan was made, or

    • (ii) the fair market value of the property lent at the time the loan was made,

    as the case may be, exceeds the fair market value, at the time the repayment is received by the lender, of any repayment of the loan (other than a repayment that is excluded consideration at the particular time).

• Marginal note:Benefit not granted to a designated person

  (4) For the purposes of subsection 74.4(2), one of the main purposes of a transfer or loan by an individual to a corporation shall not be considered to be to benefit, either directly or indirectly, a designated person in respect of the individual, where

  • (a) the only interest that the designated person has in the corporation is a beneficial interest in shares of the corporation held by a trust;

  • (b) by the terms of the trust, the designated person may not receive or otherwise obtain the use of any of the income or capital of the trust while being a designated person in respect of the individual; and

  • (c) the designated person has not received or otherwise obtained the use of any of the income or capital of the trust, and no deduction has been made by the trust in computing its income under subsection 104(6) or (12) in respect of amounts paid or payable to, or included in the income of, that person while being a designated person in respect of the individual.