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

Full Document:  

Act current to 2019-06-20 and last amended on 2019-06-17. Previous Versions

PART IIncome Tax (continued)

DIVISION BComputation of Income (continued)

SUBDIVISION FRules Relating to Computation of Income (continued)

Marginal note:Definitions

  •  (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.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 74.4
  • 1994, c. 7, Sch. II, s. 52
  • 2000, c. 19, s. 10
  • 2007, c. 2, s. 43.1

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
 
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