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

Full Document:  

Act current to 2024-02-06 and last amended on 2024-01-22. Previous Versions

PART IIncome Tax (continued)

DIVISION BComputation of Income (continued)

SUBDIVISION IShareholders of Corporations Not Resident in Canada (continued)

Marginal note:Shares held by partnership

  •  (1) For the purpose of determining whether a non-resident corporation is a foreign affiliate of a corporation resident in Canada for the purposes of a specified provision, if, based on the assumptions contained in paragraph 96(1)(c), at any time shares of a class of the capital stock of a corporation are owned by a partnership or are deemed under this subsection to be owned by a partnership, then each member of the partnership is deemed to own at that time the number of those shares that is equal to the proportion of all those shares that

    • (a) the fair market value of the member’s interest in the partnership at that time

    is of

    • (b) the fair market value of all members’ interests in the partnership at that time.

  • Marginal note:Specified provisions for subsection (1)

    (1.1) For the purposes of subsection (1), the specified provisions are

    • (a) subsections (2), (5), 20(12) and 39(2.1), sections 90, 93, 93.3 and 113, paragraphs 128.1(1)(c.3) and (d), section 212.3, subsection 219.1(2) and section 233.4;

    • (b) section 95 to the extent that section is applied for the purposes of the provisions referred to in paragraph (a);

    • (c) any regulations made for the purposes of the provisions referred to in paragraph (a); and

    • (d) paragraph 95(2)(g.04), subsections 95(2.2) and (8) to (12) and section 126.

  • Marginal note:Where dividends received by a partnership

    (2) Where, based on the assumptions contained in paragraph 96(1)(c), at any time shares of a class of the capital stock of a foreign affiliate of a corporation resident in Canada (in this subsection referred to as “affiliate shares”) are owned by a partnership and at that time the affiliate pays a dividend on affiliate shares to the partnership (in this subsection referred to as the “partnership dividend”),

    • (a) for the purposes of sections 93 and 113 and any regulations made for the purposes of those sections, each member of the partnership (other than another partnership) is deemed to have received the proportion of the partnership dividend that

      • (i) the fair market value of the member’s interest held, directly or indirectly through one or more other partnerships, in the partnership at that time

      is of

      • (ii) the fair market value of all the interests in the partnership held directly by members of the partnership at that time;

    • (b) for the purposes of sections 93 and 113 and any regulations made for the purposes of those sections, the proportion of the partnership dividend deemed by paragraph (a) to have been received by a member of the partnership at that time is deemed to have been received by the member in equal proportions on each affiliate share that is property of the partnership at that time;

    • (c) for the purpose of applying section 113, in respect of the dividend referred to in paragraph (a), each affiliate share referred to in paragraph (b) is deemed to be owned by each member of the partnership; and

    • (d) notwithstanding paragraphs (a) to (c),

      • (i) where the corporation resident in Canada is a member of the partnership, the amount deductible by it under section 113 in respect of the dividend referred to in paragraph (a) shall not exceed the portion of the amount of the dividend included in its income pursuant to subsection 96(1), and

      • (ii) where another foreign affiliate of the corporation resident in Canada is a member of the partnership, the amount included in that other affiliate’s income in respect of the dividend referred to in paragraph (a) shall not exceed the amount that would be included in its income pursuant to subsection 96(1) in respect of the partnership dividend received by the partnership if the value for H in the definition foreign accrual property income in subsection 95(1) were nil and this Act were read without reference to this subsection.

  • Marginal note:Tiered partnerships

    (3) A person or partnership that is (or is deemed by this subsection to be) a member of a particular partnership that is a member of another partnership is deemed to be a member of the other partnership, and the person or partnership is deemed to have, directly, rights to the income or capital of the other partnership to the extent of the person or partnership’s direct and indirect rights to that income or capital, for the purposes of applying

    • (a) except to the extent that the context otherwise requires, a provision of this Subdivision;

    • (b) any of paragraphs 13(21.2)(a), 14(12)(a), 18(13)(a), 40(2)(e.1), (e.3) and (g) and (3.3)(a); and

    • (c) subsections 39(2.1), 40(3.6) and 87(8.3).

  • Marginal note:Partnership deemed to be corporation

    (4) For the purpose of applying clause 95(2)(a)(ii)(D) in respect of an amount paid or payable by a partnership to a foreign affiliate, of a taxpayer, that is a member of the partnership or to another foreign affiliate of the taxpayer,

    • (a) if, at any time, all the members (in this subsection referred to as “member affiliates”) of the partnership are foreign affiliates of the taxpayer,

      • (i) the partnership is deemed to be, at that time in respect of the taxpayer and the member affiliates, a non-resident corporation without share capital, and

      • (ii) all the membership interests in the partnership are deemed to be, at that time, equity interests in the corporation held by the member affiliates; and

    • (b) if, at any time, all the member affiliates are resident in a particular country and the partnership does not carry on business outside the particular country, the partnership is deemed to be, at that time, resident in the particular country.

  • Marginal note:Computing FAPI in respect of partnership

    (5) For the purpose of applying a relevant provision in respect of a foreign affiliate of a taxpayer resident in Canada, if at any time the taxpayer is a partnership of which a particular corporation resident in Canada, or a foreign affiliate of the particular corporation, is a member and if, based on the relevant assumptions, the particular corporation and the taxpayer would be related, then

    • (a) a non-resident corporation that is, at that time, a foreign affiliate of the particular corporation is deemed to be, at that time, a foreign affiliate of the taxpayer; and

    • (b) the taxpayer is deemed to have, at that time, a qualifying interest in respect of that foreign affiliate if the particular corporation has, at that time, a qualifying interest in respect of the non-resident corporation.

  • Marginal note:Relevant provisions and assumptions

    (6) For the purposes of subsection (5),

    • (a) the relevant provisions are

      • (i) paragraph (b) of the description of A in the definition foreign accrual property income in subsection 95(1),

      • (ii) in determining whether a property of a foreign affiliate of a taxpayer is excluded property of the affiliate, the description of B in the definition foreign accrual property income in subsection 95(1),

      • (iii) paragraphs 95(2)(a) and (g), and

      • (iv) subsections 95(2.2) and (2.21); and

    • (b) the relevant assumptions are that

      • (i) the partnership is a non-resident corporation having capital stock of a single class divided into 100 issued shares that each have full voting rights, and

      • (ii) each member of the partnership (other than another partnership) owns, at any time, the proportion of the issued shares of that class that

        • (A) the fair market value of the member’s interest held, directly or indirectly through one or more partnerships, in the partnership at that time

        is of

        • (B) the fair market value of all the interests in the partnership held directly by members of the partnership at that time.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 2001, c. 17, s. 71
  • 2012, c. 31, s. 20
  • 2013, c. 34, ss. 69, 427
  • 2014, c. 39, s. 21
  • 2018, c. 27, s. 6

Marginal note:Definitions

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

    equity interest

    equity interest, in a non-resident corporation without share capital, means any right, whether absolute or contingent, conferred by the non-resident corporation to receive, either immediately or in the future, an amount that can reasonably be regarded as all or any part of the capital, revenue or income of the non-resident corporation, but does not include a right as creditor.  (participation)

    non-resident corporation without share capital

    non-resident corporation without share capital means a non-resident corporation that, determined without reference to this section, does not have capital divided into shares. (société non-résidente sans capital-actions)

  • Marginal note:Non-resident corporation without share capital

    (2) For the purposes of this Act,

    • (a) equity interests in a non-resident corporation without share capital that have identical rights and obligations, determined without reference to proportionate differences in all of those rights and obligations, are deemed to be shares of a separate class of the capital stock of the corporation;

    • (b) the corporation is deemed to have 100 issued and outstanding shares of each class of its capital stock;

    • (c) each person or partnership that holds, at any time, an equity interest in a particular class of the capital stock of the corporation is deemed to own, at that time, that number of shares of the particular class that is equal to the proportion of 100 that

      • (i) the fair market value, at that time, of all the equity interests of the particular class held by the person or partnership

      is of

      • (ii) the fair market value, at that time, of all the equity interests of the particular class; and

    • (d) shares of a particular class of the capital stock of the corporation are deemed to have rights and obligations that are the same as those of the corresponding equity interests.

  • Marginal note:Non-resident corporation without share capital

    (3) For the purposes of section 51, subsection 85.1(3), section 86 and paragraph 95(2)(c),

    • (a) subject to paragraph (b), if at any time a taxpayer resident in Canada or a foreign affiliate of the taxpayer (in this subsection referred to as the “vendor”) disposes of capital property that is shares of the capital stock of a foreign affiliate of the taxpayer, or a debt obligation owing to the taxpayer by the affiliate, to — or exchanges the shares or debt for shares of the capital stock of — a non-resident corporation without share capital, that is immediately after that time a foreign affiliate of the taxpayer, in a manner that increases the fair market value of a class of shares of the capital stock of the non-resident corporation, the non-resident corporation is deemed to have issued, and the vendor is deemed to have received, new shares of the class as consideration in respect of the disposition or exchange; and

    • (b) if the taxpayer elects under this paragraph and files the election in writing with the Minister on or before its filing-due date for the taxation year that includes the day on which the disposition or exchange occurs, paragraph (a) does not apply to the disposition or exchange.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 2014, c. 39, s. 22

Marginal note:Definition of specified trust

  •  (1) In this section, specified trust, at any time, means a trust in respect of which the following apply at that time:

    • (a) in the absence of subsection (3), the trust would be described in paragraph (h) of the definition exempt foreign trust in subsection 94(1);

    • (b) the trust is resident in Australia or India (in this section referred to as the “specified jurisdiction”);

    • (c) the interest of each beneficiary under the trust is described by reference to units of the trust; and

    • (d) the liability of each beneficiary under the trust is limited by the operation of any law governing the trust.

  • Marginal note:Conditions for subsection (3)

    (2) Subsection (3) applies at any time to a taxpayer resident in Canada in respect of a trust if

    • (a) a non-resident corporation is at that time beneficially interested in the trust;

    • (b) the non-resident corporation is at that time a foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest;

    • (c) the trust is at that time a specified trust;

    • (d) the total fair market value at that time of all fixed interests (in this section as defined in subsection 94(1)) of a class in the trust held by the non-resident corporation, or persons or partnerships that do not deal at arm’s length with the non-resident corporation, is at least 10% of the total fair market value at that time of all fixed interests of the class; and

    • (e) unless the non-resident corporation first acquires a beneficial interest in the trust at that time or the non-resident corporation first becomes a foreign affiliate of the taxpayer at that time, immediately before that time (referred to in this paragraph as the “preceding time”) subsection (3) applied

      • (i) to the taxpayer in respect of the trust, or

      • (ii) to a corporation resident in Canada, that at the preceding time did not deal at arm’s length with the taxpayer, in respect of the trust.

  • Marginal note:Specified trusts

    (3) If this subsection applies at any time to a taxpayer resident in Canada in respect of a trust, the following rules apply at that time for the specified purposes:

    • (a) the trust is deemed to be a non-resident corporation that is resident in the specified jurisdiction and not to be a trust;

    • (b) each particular class of fixed interests in the trust is deemed to be a separate class of 100 issued shares, of the capital stock of the non-resident corporation, that have the same attributes as the interests of the particular class;

    • (c) each beneficiary under the trust is deemed to hold the number of shares of each separate class described in paragraph (b) equal to the proportion of 100 that the fair market value at that time of that beneficiary’s fixed interests in the corresponding particular class of fixed interests in the trust is of the fair market value at that time of all fixed interests in the particular class;

    • (d) the non-resident corporation is deemed to be controlled by the taxpayer resident in Canada  — a foreign affiliate of which is referred to in paragraph (2)(b) and is beneficially interested in the trust  —  that has the greatest equity percentage in the non-resident corporation;

    • (e) a particular foreign affiliate of the taxpayer in which the taxpayer has a direct equity percentage (as defined in subsection 95(4)) at a particular time, and that is not a controlled foreign affiliate of the taxpayer at that time, is deemed to be a controlled foreign affiliate of the taxpayer at that time if, at that time,

      • (i) the particular affiliate has an equity percentage (as defined in subsection 95(4)) in the foreign affiliate referred to in paragraph (2)(b), or

      • (ii) the particular affiliate is the foreign affiliate referred to in paragraph (2)(b); and

    • (f) section 94.2 does not apply to the taxpayer in respect of the trust.

  • Marginal note:Specified purposes

    (4) For the purposes of subsection (3), the specified purposes are

    • (a) the determination, in respect of an interest in a specified trust, of the Canadian tax results (as defined in subsection 261(1)) of the taxpayer resident in Canada referred to in subsection (3) for a taxation year in respect of shares of the capital stock of a foreign affiliate of the taxpayer;

    • (b) the filing obligations of the taxpayer under section 233.4; and

    • (c) if the taxpayer is a corporation resident in Canada, the application of section 212.3 in respect of an investment (as defined in subsection 212.3(10)) by the taxpayer.

  • Marginal note:Mergers

    (5) For the purposes of this section,

    • (a) if there has been an amalgamation to which subsection 87(1) applies, the new corporation referred to in that subsection is deemed to be the same corporation as, and a continuation of, each predecessor corporation referred to in that subsection; and

    • (b) if there has been a winding-up to which subsection 88(1) applies, the parent referred to in that subsection is deemed to be the same corporation as, and a continuation of, the subsidiary referred to in that subsection.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 2014, c. 39, s. 22
  • 2023, c. 26, s. 19
 

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