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

Marginal note:Definitions

• 207.9 (1) The following definitions apply in this Part.

  participating employer

  participating employer of an employee life and health trust means an employer that provides designated employee benefits for its employees through a trust that meets the conditions described in subsection 144.1(2). (employeur participant)

  prohibited investment

  prohibited investment, at any time for an employee life and health trust, means property that is at that time

  • (a) a share of the capital stock of, an interest in or a debt of

    • (i) a participating employer of the employee life and health trust, or

    • (ii) a person or partnership that does not deal at arm’s length with a participating employer of the employee life and health trust; or

  • (b) an interest (or, for civil law, a right) in, or a right to acquire, a share, interest or debt described in paragraph (a). (placement interdit)

• Marginal note:Tax payable on prohibited investment

  (2) A trust shall pay a tax under this Part for a calendar year if, at any time in the year while the trust is an employee life and health trust,

  • (a) the trust acquires property that is a prohibited investment for the trust; or

  • (b) income is received or becomes receivable by the trust from, or the trust has a taxable capital gain from the disposition of, a prohibited investment for the trust.

• Marginal note:Amount of tax payable

  (3) The amount of tax payable under subsection (2) is

  • (a) if paragraph (2)(a) applies, 50% of the fair market value of the property at the time it is acquired; and

  • (b) if paragraph (2)(b) applies, 50% of the income or the taxable capital gain.

• Marginal note:Refund

  (4) If in a calendar year a trust disposes of a property in respect of which a tax is imposed on the trust under subsection (2), the trust is entitled to a refund for the year of an amount equal to

  • (a) the amount of the tax so imposed, unless paragraph (b) applies; or

  • (b) nil, if

    • (i) it is reasonable to consider that the trustees knew, or ought to have known, at the time the property was acquired that it was, or would become, a property described in subsection (2), or

    • (ii) the property is not disposed of by the trust before the end of the calendar year following the calendar year in which the tax arose, or any later time that the Minister considers reasonable in the circumstances.

• Marginal note:Deemed disposition and reacquisition

  (5) If, at any time, a property held by an employee life and health trust ceases to be, or becomes, a prohibited investment for the employee life and health trust, the employee life and health trust is deemed to have disposed of the property immediately before that time for proceeds of disposition equal to the fair market value of the property at that time and to have reacquired the property at that time at a cost equal to that fair market value.