Income Tax Act
Marginal note:Foreign affiliate dumping — conditions for application
212.3 (1) Subsection (2) applies to an investment in a non-resident corporation (in this section referred to as the “subject corporation”) made at any time (in this section referred to as the “investment time”) by a corporation resident in Canada (in this section referred to as the “CRIC”) if
(a) the subject corporation is immediately after the investment time, or becomes as part of a transaction or event or series of transactions or events that includes the making of the investment, a foreign affiliate of
(i) the CRIC, or
(ii) a corporation that does not deal at arm’s length with the CRIC (if the condition in this paragraph is satisfied because of this subparagraph and not because of subparagraph (i), such a corporation is referred to in paragraph (b) as an “other Canadian corporation”);
(b) the CRIC or an other Canadian corporation is immediately after the investment time, or becomes after the investment time and as part of a transaction or event or series of transactions or events that includes the making of the investment, controlled by one non-resident person or, if no single non-resident person controls the CRIC, by a group of non-resident persons not dealing with each other at arm’s length (in this section, that one non-resident person, or each member of the group of non-resident persons, as the case may be, is referred to as a “parent”, and the group of non-resident persons, if any, is referred to as the “group of parents”), and any of the following conditions is satisfied:
(i) if, at the investment time, a parent owned all shares of the capital stock of the CRIC and the other Canadian corporation, if applicable, that are owned — determined without reference to paragraph (25)(b) in the case of partnerships referred to in this subparagraph and as if all rights referred to in paragraph 251(5)(b), of the parent, each person that does not deal at arm’s length with the parent and all of those partnerships, were immediate and absolute and the parent and each of the other persons and partnerships had exercised those rights at the investment time — by the parent, persons that are not dealing at arm’s length with the parent and partnerships of which the parent or a person that is not dealing at arm’s length with the parent is a member (other than a limited partner within the meaning assigned by subsection 96(2.4)), the parent would own shares of the capital stock of the CRIC or the other Canadian corporation that
(A) give the holders of those shares 25% or more of all of the votes that could be cast at any annual meeting of the shareholders in respect of all shares of the capital stock of the CRIC or the other Canadian corporation, as the case may be, or
(B) have a fair market value of 25% or more of the fair market value of all of the issued and outstanding shares of the capital stock of the CRIC or the other Canadian corporation, as the case may be,
(ii) the investment is an acquisition of shares of the capital stock of a subject corporation by a CRIC to which this subparagraph applies because of subsection (19), or
(iii) under an arrangement entered into in connection with the investment, a person or partnership, other than the CRIC or a person related to the CRIC, has in any material respect the risk of loss or opportunity for gain or profit in respect of a property that can reasonably be considered to relate to the investment; and
(c) neither subsection (16) nor (18) applies in respect of the investment.
Marginal note:Foreign affiliate dumping — consequences
(2) If this subsection applies to an investment in a subject corporation made by a CRIC,
(a) for the purposes of this Part and subject to subsections (3) and (7), the CRIC is deemed to have paid to each parent, and each parent is deemed to have received from the CRIC, at the dividend time, a dividend in an amount determined by the formula
A × B/C
where
- A
- is the total of all amounts each of which is the portion of the fair market value at the investment time of any property (not including shares of the capital stock of the CRIC) transferred, any obligation assumed or incurred, or any benefit otherwise conferred, by the CRIC, or of any property transferred to the CRIC which transfer results in the reduction of an amount owing to the CRIC, that can reasonably be considered to relate to the investment,
- B
- is
(i) if there is one parent, one, and
(ii) if there is a group of parents, the fair market value at the dividend time of the shares of the capital stock of the CRIC that are held, directly or indirectly, by the parent, and
- C
- is
(i) if there is one parent, one, and
(ii) if there is a group of parents, the total of all amounts each of which is the fair market value at the dividend time of the shares of the capital stock of the CRIC that are held, directly or indirectly, by a parent; and
(b) in computing the paid-up capital in respect of any class of shares of the capital stock of the CRIC at any time that is at or after the investment time, there is to be deducted the amount of any increase in the paid-up capital in respect of the class, determined without reference to this section, that can reasonably be considered to relate to the investment.
Marginal note:Dividend substitution election
(3) If a CRIC (or a CRIC and a corporation that is a qualifying substitute corporation in respect of the CRIC at the dividend time) and a parent (or a parent and another non-resident person that at the dividend time is related to the parent) jointly elect in writing under this subsection in respect of an investment, and the election is filed with the Minister on or before the filing-due date of the CRIC for its taxation year that includes the dividend time, then the dividend that would, in the absence of this subsection, be deemed under paragraph (2)(a) to have been paid by the CRIC to the parent and received by the parent from the CRIC is deemed to have instead been
(a) paid by the CRIC or the qualifying substitute corporation, as agreed on in the election; and
(b) paid to, and received by, the parent or the other non-resident person, as agreed on in the election.
Marginal note:Definitions
(4) The following definitions apply in this section.
- cross-border class
cross-border class, in respect of an investment, means a class of shares of the capital stock of a CRIC or qualifying substitute corporation if, immediately after the dividend time in respect of the investment,
(a) a parent, or a non-resident person that does not deal at arm’s length with a parent, owns at least one share of the class; and
(b) no more than 30% of the issued and outstanding shares of the class are owned by one or more persons resident in Canada that do not deal at arm’s length with a parent. (catégorie transfrontalière)
- dividend time
dividend time, in respect of an investment, means
(a) if the CRIC is controlled by a parent or group of parents at the investment time, the investment time; and
(b) in any other case, the earlier of
(i) the first time, after the investment time, at which the CRIC is controlled by a parent or group of parents, as the case may be, and
(ii) the day that is one year after the day that includes the investment time. (moment du dividende)
- qualifying substitute corporation
qualifying substitute corporation, at any time in respect of a CRIC, means a corporation resident in Canada
(a) that is, at that time, controlled by
(i) a parent,
(ii) a group of parents, or
(iii) a non-resident person that does not deal at arm’s length with a parent;
(b) that has, at that time, an equity percentage (as defined in subsection 95(4)) in the CRIC; and
(c) shares of the capital stock of which are, at that time, owned by a parent or another non-resident person with which the parent does not, at that time, deal at arm’s length. (société de substitution admissible)
Marginal note:Modification of terms — paragraph (10)(e)
(5) In the case of an investment described in paragraph (10)(e), the CRIC is deemed for the purposes of paragraph (2)(a) to transfer to the subject corporation property that relates to the investment, the fair market value of which property is
(a) if the investment is described in subparagraph (10)(e)(i), the amount owing in respect of the debt obligation referred to in that subparagraph immediately after the investment time, or
(b) if the investment is described in subparagraph (10)(e)(ii), the fair market value of the shares referred to in that subparagraph immediately after the investment time.
Marginal note:Sequential investments — paragraph (10)(f)
(5.1) In the case of an investment (in this subsection referred to as the “second investment”) in a subject corporation by a CRIC described in paragraph (10)(f), the amount determined for A in paragraph (2)(a) in respect of the second investment is to be reduced by the amount determined for A in paragraph (2)(a) in respect of a prior investment (in this subsection referred to as the “first investment”) in the subject corporation by another corporation resident in Canada if
(a) the first investment is an investment that is described in paragraph (10)(a) or (b) and to which paragraph (2)(a) applies;
(b) immediately after the investment time in respect of the first investment, the other corporation is not controlled by
(i) if there is one parent in respect of the CRIC, the parent, and
(ii) if there is a group of parents in respect of the CRIC, the group of parents; and
(c) the other corporation becomes, after the time that is immediately after the investment time in respect of the first investment and as part of a transaction or event or series of transactions or events that includes the making of the first investment, controlled by the parent or group of parents, as the case may be, because of the second investment.
Marginal note:Anti-avoidance rule — cross-border class
(6) A particular class of shares of the capital stock of a CRIC or a qualifying substitute corporation that, in the absence of this subsection, would be a cross-border class in respect of an investment is deemed not to be a cross-border class in respect of the investment if
(a) a particular corporation resident in Canada that does not deal at arm’s length with a parent
(i) acquires shares of the particular class (or shares that are substituted for those shares) as part of a transaction or event or series of transactions or events that includes the investment, or
(ii) owns shares of the particular class (or shares that are substituted for those shares) and, as part of a transaction or event or series of transactions or events that includes the investment,
(A) the paid-up capital in respect of the particular class is increased otherwise than as a result of an acquisition described in subparagraph (i), and
(B) the increase in paid-up capital in respect of the particular class can reasonably be considered to be connected to funding provided to the particular corporation or another corporation resident in Canada (other than the corporation that issued the particular class) by a parent or a non-resident person that does not deal at arm’s length with a parent, unless
(I) the funding results in an increase, equal to the amount funded, in the paid-up capital of shares of a class of the capital stock of the particular corporation, or the other corporation, that is a cross-border class in respect of the investment, and
(II) the increase referred to in subclause (I) occurred at or before the time of the increase to the paid-up capital in respect of the particular class; and
(b) it can reasonably be considered that one of the main reasons for the acquisition or for the funding, as the case may be, was to increase the amount of a deduction required under paragraph (7)(b) or (c) in computing the paid-up capital in respect of shares of the particular class held by the particular corporation.
Marginal note:Reduction of deemed dividend
(7) If paragraph (2)(a) applies to an investment in a subject corporation made by a CRIC,
(a) where the CRIC demonstrates — in respect of one or more classes of shares of the capital stock of the CRIC, or of a qualifying substitute corporation, all the issued and outstanding shares of which are owned, immediately after the dividend time in respect of the investment, by persons that deal at arm’s length with the CRIC — that an amount of paid-up capital in respect of each of the classes arose as a consequence of one or more transfers of property, directly or indirectly, to the CRIC and that all of the property transferred was used by the CRIC to make, in whole or in part, the investment (or, in the case of an investment described in paragraph (10)(f), the direct acquisition referred to in that paragraph), then
(i) the amount determined, without reference to this subsection, for A in paragraph (2)(a), is reduced by the lesser of
(A) that amount, and
(B) the total of all amounts of paid-up capital so demonstrated by the CRIC, and
(ii) in computing the paid-up capital in respect of each class described in this paragraph, at any time after the dividend time, there is to be deducted an amount equal to the portion of the amount determined under subparagraph (i) that can reasonably be considered to relate to that class;
(b) where the amount determined, without reference to this paragraph, for A in paragraph (2)(a) is equal to or greater than the total of all amounts each of which is an amount of paid-up capital immediately after the dividend time, determined without reference to this paragraph, of a cross-border class in respect of the investment, then
(i) the amount determined, without reference to this paragraph, for A in paragraph (2)(a) is reduced by the total referred to in this paragraph, and
(ii) in computing, at any time after the dividend time, the paid-up capital in respect of each cross-border class in respect of the investment, there is to be deducted an amount equal to the paid-up capital in respect of that class immediately after the dividend time, determined without reference to this paragraph;
(c) where paragraph (b) does not apply and there is at least one cross-border class in respect of the investment,
(i) the amount determined, without reference to this paragraph, for A in paragraph (2)(a) is reduced to nil,
(ii) in computing, at any time after the dividend time, the paid-up capital in respect of a particular cross-border class in respect of the investment, there is to be deducted the amount, if any, that when added to the total of all amounts that are deducted under this paragraph in computing the paid-up capital of other cross-border classes, results in the greatest total reduction because of this paragraph, immediately after the dividend time, of the paid-up capital in respect of shares of cross-border classes that are owned by a parent or another non-resident person with which a parent does not, at the dividend time, deal at arm’s length,
(iii) if the proportion of the shares of a particular class owned, in aggregate, by parents and non-resident persons that do not deal at arm’s length with parents is equal to the proportion so owned of one or more other cross-border classes (in this subparagraph all those classes, together with the particular class, referred to as the “relevant classes”), then the proportion that the reduction under subparagraph (ii) to the paid-up capital in respect of the particular class is of the paid-up capital, determined immediately after the dividend time and without reference to this paragraph, in respect of that class is to be equal to the proportion that the total reduction under subparagraph (ii) to the paid-up capital in respect of all the relevant classes is of the total paid-up capital, determined immediately after the dividend time and without reference to this paragraph, of all the relevant classes, and
(iv) the total of all amounts each of which is an amount to be deducted under subparagraph (ii) in computing the paid-up capital of a cross-border class is to be equal to the amount by which the amount determined for A in paragraph (2)(a) is reduced under subparagraph (i); and
(d) if the amount determined for A in paragraph (2)(a) is reduced because of any of subparagraphs (a)(i), (b)(i) and (c)(i),
(i) the CRIC shall file with the Minister in prescribed manner a form containing prescribed information and the amounts of the paid-up capital, determined immediately after the dividend time and without reference to this subsection, of each class of shares that is described in paragraph (a) or that is a cross-border class in respect of the investment, the paid-up capital of the shares of each of those classes that are owned by a parent or another non-resident person that does not, at the dividend time, deal at arm’s length with a parent, and the reduction under any of subparagraphs (a)(ii), (b)(ii) and (c)(ii) in respect of each of those classes, and
(ii) if the form is not filed on or before the CRIC’s filing-due date for its taxation year that includes the dividend time, the CRIC is deemed to have paid to each parent, and each parent is deemed to have received from the CRIC, on the filing-due date, a dividend equal to the total of all amounts each of which is the amount of a reduction because of any of subparagraphs (a)(i), (b)(i) and (c)(i) in the amount the CRIC is deemed under paragraph (2)(a) to have paid to the parent.
Marginal note:Election to not reduce deemed dividend
(7.1) Subsection (7) does not apply in respect of an investment made by a CRIC if
(a) the investment was made after March 28, 2012 and before August 16, 2013;
(b) at the investment time, each share of the capital stock of the CRIC, and each qualifying substitute corporation in respect of the CRIC, that was not owned by the parent was owned by persons or partnerships with which the parent did not deal at arm’s length; and
(c) the CRIC files an election with the Minister before 2017 to have this subsection apply in respect of the investment.
Marginal note:Paid-up capital adjustment
(8) In computing the paid-up capital at any time after March 28, 2012 in respect of a class of shares of the capital stock of a corporation, there is to be added an amount equal to the lesser of
(a) the amount, if any, by which
(i) the total of all amounts deemed by subsection 84(3), (4) or (4.1) to be a dividend on shares of the class paid after March 28, 2012 and before that time by the corporation
exceeds
(ii) the total that would be determined under subparagraph (i) if this Act were read without reference to paragraph (2)(b) and subsections (7) and (9), and
(b) the amount, if any, by which
(i) the total of all amounts required by paragraph (2)(b) or subsection (7) to be deducted in computing the paid-up capital in respect of the class before that time
exceeds
(ii) the total of all amounts required by subsection (9) to be added in computing the paid-up capital in respect of the class before that time.
Marginal note:Paid-up capital reinstatement
(9) If, in respect of an investment in a subject corporation made by a CRIC that is described in any of paragraphs (10)(a) to (f), an amount is deducted under paragraph (2)(b) or subsection (7) in computing the paid-up capital in respect of a class of shares of the capital stock of a particular corporation and, at a time subsequent to the investment time, there is a reduction of paid-up capital referred to in subparagraph (b)(i) or a receipt of property referred to in the description of A in subparagraph (b)(ii), then the paid-up capital in respect of the class is to be increased, immediately before the subsequent time, by the lesser of
(a) the amount, if any, by which
(i) the total of all amounts deducted, before the subsequent time, under paragraph (2)(b) or subsection (7), in respect of the investment, in computing the paid-up capital in respect of the class
exceeds
(ii) the total of all amounts added under this subsection, in respect of the investment, to the paid-up capital in respect of the class before the time that is immediately before the subsequent time, and
(b) an amount that
(i) if the investment is described in paragraph (10)(a), (b) or (f), the paid-up capital in respect of the class is reduced at the subsequent time as part of or because of a distribution of property by the particular corporation and the property (in this paragraph referred to as the “distributed shares”) is shares of the capital stock of the subject corporation or shares of the capital stock of a foreign affiliate of the particular corporation that were substituted for shares of the capital stock of the subject corporation, is equal to the amount determined by the formula
A/B
where
- A
- is
(A) if the investment is described in paragraph (10)(b), the portion of the fair market value, immediately before the subsequent time, of the distributed shares that can reasonably be considered to relate to the contribution of capital that is the investment, and
(B) if the investment is described in paragraph (10)(a) or (f), the lesser of
(I) the portion of the fair market value, immediately before the subsequent time, of the distributed shares that can reasonably be considered to relate to the shares (in this paragraph referred to as the “acquired shares”) of the capital stock of the subject corporation that were acquired on the investment (other than any portion described in clause (A)), and
(II) the proportion of the amount determined under subparagraph (a)(i) that the amount determined under subclause (I) is of the fair market value, immediately before the subsequent time, of the acquired shares, or the portion of the fair market value of shares that were substituted for the acquired shares that can reasonably be considered to relate to the acquired shares, and
- B
- is
(A) if the particular corporation is, immediately after the dividend time, a qualifying substitute corporation in respect of the CRIC, the particular corporation’s equity percentage (as defined in subsection 95(4)) in the CRIC immediately after the dividend time, and
(B) in any other case, 100%, and
(ii) in any other case, is equal to the amount determined by the formula
A × B/C
where
- A
- is the amount that is equal to the fair market value of property that the particular corporation demonstrates has been received at the subsequent time by it or by a corporation resident in Canada that was not dealing at arm’s length with the particular corporation at that time (in this subparagraph referred to as the “recipient corporation”)
(A) as proceeds from the disposition of the acquired shares, or other shares to the extent that the proceeds from the disposition of those other shares can reasonably be considered to relate to the acquired shares or to shares of the capital stock of the subject corporation in respect of which an investment described in paragraph (10)(b) was made, other than
(I) the fair market value of shares of the capital stock of another foreign affiliate of the taxpayer acquired by the recipient corporation as consideration for the disposition and as an investment to which subsection (16) or (18) applies, and
(II) proceeds from a disposition of shares to a corporation resident in Canada for which the acquisition of the shares is an investment to which subsection (16) or (18) applies,
(B) as a reduction of paid-up capital or dividend in respect of a class of shares of the capital stock of the subject corporation or the portion, of a reduction of paid-up capital or dividend in respect of a class of shares of the capital stock of a foreign affiliate of the particular corporation that were substituted for shares of the capital stock of the subject corporation, that can reasonably be considered to relate to the subject shares, or
(C) if the investment is described in paragraph (10)(c) or (d) or subparagraph (10)(e)(i),
(I) as a repayment of or as proceeds from the disposition of the debt obligation or amount owing, other than
1 if the debt obligation or amount owing was acquired by another foreign affiliate of the taxpayer, the portion of the fair market value of property received by the particular corporation as a result of an investment by the particular corporation that is described in paragraphs (10)(a) to (f) to which subsection (16) or (18) applies, or
2 as proceeds from a disposition to a corporation resident in Canada and that is affiliated with the particular corporation, and where subsection (16) or (18) applies to the other corporation in respect of its acquisition, or
(II) as interest on the debt obligation or amount owing,
- B
- is the amount determined under paragraph (a) in respect of the class, and
- C
- is the total of all amounts each of which is an amount determined under paragraph (a) in respect of all classes of shares of the capital stock of the particular corporation or of any corporation that does not deal at arm’s length with the particular corporation.
Marginal note:Exchange of debt obligation for shares
(9.1) For the purposes of subsection (9), if at any time a debt obligation that relates to a particular investment described in paragraph (10)(c) or (d) or subparagraph (10)(e)(i) is exchanged for shares of a subject corporation and as part of the exchange there is an acquisition of shares described in subparagraph (18)(b)(i) or paragraph 18(d), then all amounts, in respect of the particular investment, deducted under paragraph (2)(b) or subsection (7) from, or added under subsection (9) to, the paid-up capital in respect of a class of shares before that time are deemed to have been deducted or added, as the case may be, in respect of the acquisition of the shares and not the particular investment.
Marginal note:Continuity for paid-up capital reinstatement
(9.2) If at any particular time shares (in this subsection referred to as the “new shares”) of a class of the capital stock of a corporation resident in Canada are acquired, in a transaction to which any of sections 51, 85, 85.1, 86 and 87 apply, in exchange for a share (in this subsection referred to as the “old share”) of a class of the capital stock of a particular corporation that is either the corporation or another corporation resident in Canada, then for the purposes of subsections (8) and (9),
(a) if the corporation that issues the new shares is not the particular corporation, it is deemed to be the same corporation as, and a continuation of, the particular corporation;
(b) the new shares are deemed to be the same share, and of the same class of the capital stock of the particular corporation, as the old share; and
(c) if the old share remains outstanding after the exchange, it is deemed to be a share of a different class of the capital stock of the particular corporation.
Marginal note:Investment in subject corporation
(10) In this section, investment, in a subject corporation made by a CRIC, means any of
(a) an acquisition of shares of the capital stock of the subject corporation by the CRIC;
(b) a contribution of capital to the subject corporation by the CRIC, which is deemed to include any transaction or event under which a benefit is conferred on the subject corporation by the CRIC;
(c) a transaction under which an amount becomes owing by the subject corporation to the CRIC, other than an amount owing
(i) that arises in the ordinary course of the business of the CRIC and that is repaid, other than as part of a series of loans or other transactions and repayments, within 180 days after the day on which the amount becomes owing,
(ii) that is a pertinent loan or indebtedness immediately after the time of the transaction, or
(iii) because a dividend has been declared, but not yet paid, by the subject corporation;
(d) an acquisition of a debt obligation of the subject corporation by the CRIC from a person, other than
(i) if the acquisition is made in the ordinary course of the business of the CRIC, a debt obligation acquired from a person with which the CRIC deals at arm’s length at the time of the acquisition, or
(ii) a debt obligation that is a pertinent loan or indebtedness immediately after the time of the acquisition;
(e) an extension of
(i) the maturity date of a debt obligation (other than a debt obligation that is a pertinent loan or indebtedness immediately after the time of the extension) owing by the subject corporation to the CRIC, or
(ii) the redemption, acquisition or cancellation date of shares of the capital stock of the subject corporation owned by the CRIC;
(f) an indirect acquisition by the CRIC of shares of the capital stock of the subject corporation that results from a direct acquisition by the CRIC of shares of the capital stock of another corporation resident in Canada, of which the subject corporation is a foreign affiliate, if the total fair market value of all the shares that are held directly or indirectly by the other corporation and are shares of foreign affiliates of the other corporation exceeds 75% of the total fair market value (determined without reference to debt obligations of any corporation resident in Canada in which the other corporation has a direct or indirect interest) of all of the properties owned by the other corporation; and
(g) an acquisition by the CRIC of an option in respect of, or an interest in, or for civil law a right in, shares of the capital stock of, an amount owing by (other than an amount owing described in subparagraph (c)(i) or (ii)), or a debt obligation of (other than a debt obligation described in subparagraph (d)(i) or (ii)), the subject corporation.
Marginal note:Pertinent loan or indebtedness
(11) For the purposes of subsection (10) and subject to subsection 17.1(3), pertinent loan or indebtedness, at any time, means an amount owing at that time by the subject corporation to the CRIC in respect of which all of the following apply:
(a) either
(i) the amount became owing after March 28, 2012, or
(ii) the amount became owing before March 29, 2012 and is a debt obligation for which the maturity date was extended after March 28, 2012 and at or before that time;
(b) the amount owing is not an amount owing described in subparagraph (10)(c)(i) or a debt obligation described in subparagraph (10)(d)(i); and
(c) the CRIC and each parent jointly elect in writing under this paragraph in respect of the amount owing and file the election with the Minister on or before the filing-due date of the CRIC
(i) in the case of an amount owing described in subparagraph (a)(i), for the year in which the amount became owing, or
(ii) in the case of an amount owing described in subparagraph (a)(ii), for the year in which the extension was made.
Marginal note:Late-filed elections
(12) Where an election referred to in subsection (3) or paragraph (11)(c) was not made on or before the day on or before which the election was required by that paragraph to be made, the election is deemed to have been made on that day if the election is made on or before the day that is three years after that day and the penalty in respect of the election is paid by the CRIC when the election is made.
Marginal note:Penalty for late-filed election
(13) For the purposes of subsection (12), the penalty in respect of an election referred to in that subsection is the amount equal to the product obtained by multiplying $100 by the number of months each of which is a month all or part of which is during the period commencing with the day on or before which the election is required by subsection (3) or paragraph (11)(c), as the case may be, to be made and ending on the day on which the election is made.
Marginal note:Rules for paragraph (10)(f)
(14) For the purposes of paragraph (10)(f),
(a) the condition in that paragraph is deemed to be satisfied at the time of the acquisition if
(i) any property (other than shares of foreign affiliates of the other corporation that is referred to in that paragraph) held directly or indirectly by that other corporation is disposed of, after the time of the acquisition, directly or indirectly by that corporation as part of a series of transactions or events that includes the acquisition, and
(ii) at any time that is subsequent to the time of the acquisition and that is in the period during which the series occurs, the condition in that paragraph would have been satisfied had the acquisition occurred at the subsequent time; and
(b) the fair market value of properties held directly or indirectly by the other corporation is not to be taken into account more than once in determining whether the condition in that paragraph is satisfied.
Marginal note:Control
(15) For the purposes of this section and paragraph 128.1(1)(c.3),
(a) a CRIC or a taxpayer to which paragraph 128.1(1)(c.3) applies (in this subsection referred to as the “specific corporation”), that would, in the absence of this subsection, be controlled at any time
(i) by more than one non-resident person, is deemed not to be controlled at that time by any such person that controls at that time another non-resident person that controls at that time the specific corporation, unless the application of this paragraph would otherwise result in no non-resident person controlling the specific corporation, and
(ii) by a particular non-resident corporation is deemed not to be controlled at that time by the particular non-resident corporation if the particular non-resident corporation is controlled at that time by another corporation that is at that time
(A) resident in Canada, and
(B) not controlled by any non-resident person or group of non-resident persons not dealing with each other at arm’s length; and
(b) a non-resident person is deemed not to be a member of a particular group of non-resident persons not dealing with each other at arm’s length that controls the specific corporation if
(i) the non-resident person would, absent the application of this paragraph, be a member of the particular group, and
(ii) the non-resident person is a member of the particular group solely because it controls, or is a member of a group that controls, another member of the particular group.
Marginal note:Exception — more closely connected business activities
(16) Subject to subsection (19), subsection (2) does not apply to an investment in a subject corporation made by a CRIC if the CRIC demonstrates that all of the following conditions are met:
(a) the business activities carried on by the subject corporation and all other corporations (those other corporations in this subsection and subsection (17) referred to as the “subject subsidiary corporations”) in which the subject corporation has, at the investment time, an equity percentage (as defined in subsection 95(4)) are at the investment time, and are expected to remain, on a collective basis, more closely connected to the business activities carried on in Canada by the CRIC, or by any corporation resident in Canada with which the CRIC does not, at the investment time, deal at arm’s length, than to the business activities carried on by any non-resident person with which the CRIC, at the investment time, does not deal at arm’s length, other than
(i) the subject corporation,
(ii) the subject subsidiary corporations, and
(iii) any corporation that is, immediately before the investment time, a controlled foreign affiliate of the CRIC for the purposes of section 17,
(b) officers of the CRIC, or of a corporation resident in Canada that did not, at the investment time, deal at arm’s length with the CRIC, had and exercised the principal decision-making authority in respect of the making of the investment and a majority of those officers were, at the investment time, persons each of whom was resident, and working principally,
(i) in Canada, or
(ii) in a country in which a particular corporation is resident if the particular corporation (in this subsection and subsection (17) referred to as a “connected affiliate”) is a controlled foreign affiliate of the CRIC for the purposes of section 17 and carries on business activities that are, at the investment time, and are expected to remain, at least as closely connected to those of the subject corporation and the subject subsidiary corporations, on a collective basis, as the business activities carried on in Canada by the CRIC, or any corporation resident in Canada with which the CRIC does not, at the investment time, deal at arm’s length, as the case may be, are to those of the subject corporation and the subject subsidiary corporations, on a collective basis; and
(c) at the investment time, it is reasonably expected that
(i) officers of the CRIC, or of a corporation resident in Canada that does not deal at arm’s length with the CRIC, will have and exercise the ongoing principal decision-making authority in respect of the investment,
(ii) a majority of those officers will be persons each of whom will be resident, and working principally, in Canada or in a country in which a connected affiliate is resident, and
(iii) the performance evaluation and compensation of the officers of the CRIC, or of the corporation resident in Canada that does not deal at arm’s length with the CRIC, who are resident, and work principally, in Canada, or in a country in which a connected affiliate is resident, will be based on the results of operations of the subject corporation to a greater extent than will be the performance evaluation and compensation of any officer of a non-resident corporation (other than the subject corporation, a corporation controlled by the subject corporation or a connected affiliate) that does not deal at arm’s length with the CRIC.
Marginal note:Dual officers
(17) For the purposes of paragraphs (16)(b) and (c), any person who is an officer of the CRIC, or of a corporation resident in Canada that does not deal at arm’s length with the CRIC, and of a non-resident corporation that does not, at the investment time, deal at arm’s length with the CRIC (other than the subject corporation, a subject subsidiary corporation or a connected affiliate) is deemed to not be resident, and to not work principally, in a country in which a connected affiliate is resident.
Marginal note:Exception — corporate reorganizations
(18) Subject to subsections (18.1) to (20), subsection (2) does not apply to an investment in a subject corporation made by a CRIC if
(a) the investment is described in paragraph (10)(a) or (d) and is an acquisition of shares of the capital stock, or a debt obligation, of the subject corporation
(i) from a corporation resident in Canada (in this paragraph referred to as the “disposing corporation”) to which the CRIC is, immediately before the investment time, related (determined without reference to paragraph 251(5)(b)), and
(A) each shareholder of the disposing corporation immediately before the investment time is
(I) if there is only one parent in respect of the CRIC,
1 either the CRIC or a corporation resident in Canada that is, immediately before the investment time, related to the parent, and
2 at no time that is in the period during which the series of transactions or events that includes the making of the investment occurs and that is before the investment time, dealing at arm’s length (determined without reference to paragraph 251(5)(b)) with the parent or a non-resident person that participates in the series and is, at any time that is in the period and that is before the investment time, related to the parent, and
(II) if there is a group of parents in respect of the CRIC,
1 either the CRIC or a corporation resident in Canada that is, immediately before the investment time, controlled by the group of parents, and
2 at all times that are in the period during which the series of transactions or events that includes the making of the investment occurs and that are before the investment time, controlled by the group of parents, or
(B) the disposing corporation is
(I) if there is only one parent in respect of the CRIC, at no time that is in the period and that is before the investment time, dealing at arm’s length (determined without reference to paragraph 251(5)(b)) with the parent or a non-resident person that participates in the series and is, at any time that is in the period and that is before the investment time, related to the parent, and
(II) if there is a group of parents in respect of the CRIC, at all times that are in the period during which the series of transactions or events that includes the making of the investment occurs and that are before the investment time, controlled by the group of parents, or
(ii) on an amalgamation described in subsection 87(1) of two or more corporations (each of which is in this subparagraph referred to as a “predecessor corporation”) to form the CRIC if all of the predecessor corporations are, immediately before the amalgamation, related to each other (determined without reference to paragraph 251(5)(b)) and
(A) either
(I) if there is only one parent in respect of the CRIC, none of the predecessor corporations are, at any time that is in the period during which the series of transactions or events that includes the making of the investment occurs and that is before the investment time, dealing at arm’s length (determined without reference to paragraph 251(5)(b)) with the parent or a non-resident person that participates in the series and is, at any time that is in the period and that is before the investment time, related to the parent, or
(II) if there is a group of parents in respect of the CRIC, all of the predecessor corporations are, at all times that are in the period during which the series of transactions or events that includes the making of the investment occurs and that are before the investment time, controlled by the group of parents, or
(B) if the condition in clause (A) is not satisfied in respect of a predecessor corporation, each shareholder of that predecessor immediately before the investment time is
(I) if there is only one parent in respect of the CRIC,
1 either the CRIC or a corporation resident in Canada that is, immediately before the investment time, related to the parent, and
2 at no time that is in the period and that is before the investment time, dealing at arm’s length (determined without reference to paragraph 251(5)(b)) with the parent or a non-resident person that participates in the series and is, at any time that is in the period and that is before the investment time, related to the parent, and
(II) if there is a group of parents in respect of the CRIC,
1 either the CRIC or a corporation resident in Canada that is, immediately before the investment time, controlled by the group of parents, and
2 at all times that are in the period during which the series of transactions or events that includes the making of the investment occurs and that are before the investment time, controlled by the group of parents;
(b) the investment is described in paragraph (10)(a) and is an acquisition of shares of the capital stock of the subject corporation in which the shares are acquired by the CRIC
(i) in an exchange to which subsection 51(1) applies,
(ii) as consideration for a disposition of shares to which subsection 85.1(3) applies (determined without reference to subsection 85.1(4)),
(iii) in the course of a reorganization of the capital of the subject corporation to which subsection 86(1) applies,
(iv) as a result of a foreign merger (as defined in subsection 87(8.1)) under which the subject corporation was formed,
(v) on a liquidation and dissolution to which subsection 88(3) applies,
(vi) on a redemption of shares of another non-resident corporation that is, immediately before the investment time, a foreign affiliate of the CRIC,
(vii) as a dividend or a qualifying return of capital, within the meaning assigned by subsection 90(3), in respect of the shares of another non-resident corporation that is, immediately before the investment time, a foreign affiliate of the CRIC, or
(viii) as a result of a disposition of the shares by the CRIC to a partnership and to which subsection 97(2) applies;
(c) the investment is an indirect acquisition referred to in paragraph (10)(f) that results from a direct acquisition of shares of the capital stock of another corporation resident in Canada
(i) from a corporation (in this paragraph referred to as the “disposing corporation”) to which the CRIC is, immediately before the investment time, related (determined without reference to paragraph 251(5)(b)) and
(A) each shareholder of the disposing corporation immediately before the investment time is
(I) if there is only one parent in respect of the CRIC,
1 either the CRIC or a corporation resident in Canada that, immediately before the investment time, is related to the parent, and
2 at no time that is in the period during which the series of transactions or events that includes the making of the investment occurs and that is before the investment time, dealing at arm’s length (determined without reference to paragraph 251(5)(b)) with the parent or a non-resident person that participates in the series and is, at any time that is in the period and that is before the investment time, related to the parent, and
(II) if there is a group of parents in respect of the CRIC,
1 either the CRIC or a corporation resident in Canada that is, immediately before the investment time, controlled by the group of parents, and
2 at all times that are in the period during which the series of transactions or events that includes the making of the investment occurs and that are before the investment time, controlled by the group of parents, or
(B) the disposing corporation is
(I) if there is only one parent in respect of the CRIC, at no time that is in the period and that is before the investment time, dealing at arm’s length (determined without reference to paragraph 251(5)(b)) with the parent or a non-resident person that participates in the series and is, at any time that is in the period and that is before the investment time, related to the parent, and
(II) if there is a group of parents in respect of the CRIC, at all times that are in the period during which the series of transactions or events that includes the making of the investment occurs and that are before the investment time, controlled by the group of parents, or
(ii) on an amalgamation described in subsection 87(1) of two or more corporations (each of which is in this subparagraph referred to as a “predecessor corporation”) to form the CRIC, or a corporation of which the CRIC is a shareholder, if all of the predecessor corporations are, immediately before the amalgamation, related to each other (determined without reference to paragraph 251(5)(b)) and
(A) either
(I) if there is only one parent in respect of the CRIC, none of the predecessor corporations are, at any time that is in the period during which the series of transactions or events that includes the making of the investment occurs and that is before the investment time, dealing at arm’s length (determined without reference to paragraph 251(5)(b)) with the parent or a non-resident person that participates in the series and is, at any time that is in the period and that is before the investment time, related to the parent, or
(II) if there is a group of parents in respect of the CRIC, all of the predecessor corporations are, at all times that are in the period during which the series of transactions or events that includes the making of the investment occurs and that are before the investment time, controlled by the group of parents, or
(B) if the condition in clause (A) is not satisfied in respect of a predecessor corporation, each shareholder of that predecessor immediately before the investment time is
(I) if there is only one parent in respect of the CRIC,
1 either the CRIC or a corporation resident in Canada that is, immediately before the investment time, related to the parent, and
2 at no time that is in the period and that is before the investment time, dealing at arm’s length (determined without reference to paragraph 251(5)(b)) with the parent or a non-resident person that participates in the series and is, at any time that is in the period and that is before the investment time, related to the parent, and
(II) if there is a group of parents in respect of the CRIC,
1 either the CRIC or a corporation resident in Canada that is, immediately before the investment time, controlled by the group of parents, and
2 at all times that are in the period during which the series of transactions or events that includes the making of the investment occurs and that are before the investment time, controlled by the group of parents,
(iii) in an exchange to which subsection 51(1) applies,
(iv) in the course of a reorganization of the capital of the other corporation to which subsection 86(1) applies,
(v) to the extent that an investment (other than one described in paragraph (10)(f)) is made in the subject corporation by the other corporation, or by a particular corporation resident in Canada to which the CRIC and the other corporation are related at the investment time, using property transferred, directly or indirectly, by the CRIC to the other corporation or the particular corporation, as the case may be, if the two investments
(A) occur within 90 days of each other, and
(B) are part of the same series of transactions or events, or
(vi) as a result of a disposition of the shares by the CRIC to a partnership and to which subsection 97(2) applies; or
(d) the investment is an acquisition of shares of the capital stock of the subject corporation that is described in paragraph (10)(a), or an indirect acquisition referred to in paragraph (10)(f) that results from a direct acquisition of shares of the capital stock of another corporation resident in Canada, if
(i) the shares are acquired by the CRIC in exchange for a bond, debenture or note, and
(ii) subsection 51(1) would apply to the exchange if the terms of the bond, debenture or note conferred on the holder the right to make the exchange.
Marginal note:Exchange — pertinent loan or indebtedness
(18.1) Subsection (18) does not apply to an investment that is an acquisition of property if the property can reasonably be considered to have been received by the CRIC as repayment in whole or in part, or in settlement, of a pertinent loan or indebtedness.
Marginal note:Preferred shares
(19) Subparagraph (1)(b)(ii) applies, and subsection (16) and paragraphs (18)(b) and (d) do not apply, to an acquisition of shares of the capital stock of a subject corporation by a CRIC if, having regard to all the terms and conditions of the shares and any agreement in respect of the shares, the shares cannot reasonably be considered to fully participate in the profits of the subject corporation and any appreciation in the value of the subject corporation, unless the subject corporation would be a subsidiary wholly-owned corporation of the CRIC throughout the period during which the series of transactions or events that includes the acquisition occurs if the CRIC owned all of the shares of the capital stock of the subject corporation that are owned by any of
(a) the CRIC;
(b) a corporation resident in Canada that is a subsidiary wholly-owned corporation of the CRIC; and
(c) a corporation resident in Canada of which the CRIC is a subsidiary wholly-owned corporation.
Marginal note:Assumption of debt on liquidation or distribution
(20) Subsection (2) applies to an investment in a subject corporation made by a CRIC that is an acquisition of shares of the capital stock of the subject corporation described in any of subparagraphs (18)(b)(v) to (vii) to the extent of the lesser of
(a) the total of all amounts each of which is the amount of a debt obligation assumed by the CRIC in respect of the liquidation and dissolution, redemption, dividend or qualifying return of capital, as the case may be, and
(b) the fair market value of the shares at the investment time.
Marginal note:Persons deemed not to be related
(21) If it can reasonably be considered that one of the main purposes of one or more transactions or events is to cause two or more persons to be related to each other, or a person or group of persons to control another person, so that, in the absence of this subsection, subsection (2) would not apply because of subsection (18) to an investment in a subject corporation made by a CRIC, those persons are deemed not to be related to each other, or that person or group of persons is deemed not to control that other person, as the case may be, for the purposes of subsection (18).
Marginal note:Mergers
(22) For the purposes of this section and subsections 219.1(3) and (4),
(a) if there has been an amalgamation to which subsection 87(11) applies,
(i) the new corporation referred to in that subsection is deemed to be the same corporation as, and a continuation of, the parent and each subsidiary referred to in that subsection,
(ii) the new corporation is deemed not to acquire any property of the parent, or of any subsidiary, as a result of the amalgamation, and
(iii) each shareholder of the new corporation is deemed not to acquire indirectly any shares as a result of the amalgamation; and
(b) if there has been a winding-up to which subsection 88(1) applies,
(i) 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, and
(ii) the parent is deemed not to acquire any property of the subsidiary as a result of the winding-up.
Marginal note:Indirect investment
(23) Subsection (2) applies to an investment in a subject corporation made by a CRIC to which, in the absence of this subsection, subsection (2) would not apply because of subsection (16) or (24), to the extent that one or more properties received by the subject corporation from the CRIC as a result of the investment, or property substituted for any such property, may reasonably be considered to have been used by the subject corporation, directly or indirectly as part of a series of transactions or events that includes the making of the investment, in a transaction or event to which subsection (2) would have applied if the CRIC had entered into the transaction, or participated in the event, as the case may be, instead of the subject corporation.
Marginal note:Indirect funding
(24) Subsection (2) does not apply to an investment in a subject corporation made by a CRIC to which, in the absence of this subsection, subsection (2) would apply, if the CRIC demonstrates that
(a) all the properties received by the subject corporation from the CRIC as a result of the investment were used, at a particular time that is within 30 days after the investment time and at all times after the particular time, by the subject corporation
(i) to derive income from activities that can reasonably be considered to be directly related to active business activities carried on by a particular corporation and all of the income is income from an active business because of subparagraph 95(2)(a)(i), or
(ii) to make a loan or acquire a property, all or substantially all of the income from which is, or would be, if there were income from the loan or property, derived from amounts paid or payable, directly or indirectly, to the subject corporation by a particular corporation and is, or would be, income from an active business because of subparagraph 95(2)(a)(ii);
(b) the particular corporation was, at the particular time, a controlled foreign affiliate of the CRIC for the purposes of section 17; and
(c) the particular corporation is, throughout the period that begins at the investment time and during which the series of transactions or events that includes the activities of, or the making of the loan or acquisition of property by, the subject corporation occurs, a corporation in which an investment made by the CRIC would not be subject to subsection (2) because of subsection (16).
Marginal note:Partnerships
(25) For the purposes of this section, subsection 17.1(1) (as it applies in respect of a pertinent loan or indebtedness as defined in subsection (11)), paragraph 128.1(1)(c.3) and subsection 219.1(2),
(a) any transaction entered into, or event participated in, by a partnership is deemed to have been entered into, or participated in, as the case may be, by each member of the partnership in the proportion that the fair market value, at the time of the transaction or event, of the member’s interest — held directly or indirectly through one or more other partnerships — in the partnership is of the fair market value, at that time, of all direct interests in the partnership;
(b) if at any time, based on the assumptions contained in paragraph 96(1)(c), property would be owned by a partnership, that property is deemed to be owned at that time by each member of the partnership in the proportion that the fair market value, at that time, of the member’s interest — held directly or indirectly through one or more other partnerships — in the partnership is of the fair market value, at that time, of all direct interests in the partnership;
(c) if at any time there is an increase (including, for greater certainty, as a result of a particular acquisition of an interest in a partnership in which, immediately prior to the particular acquisition, the member did not have an interest) in the portion of a property that is deemed under paragraph (b) to be owned by a member of a partnership, the member is deemed at that time
(i) to acquire the additional portion of the property, and
(ii) to transfer property that relates to the acquisition of the additional portion and that has a fair market value equal to the fair market value at that time of the additional portion;
(d) if at any time, based on the assumptions contained in paragraph 96(1)(c), an amount would be owing by a partnership, that amount is deemed to be owed by each member of the partnership in the proportion that the fair market value, at that time, of the member’s interest — held directly or indirectly through one or more other partnerships — in the partnership is of the fair market value, at that time, of all direct interests in the partnership;
(e) if a member of a partnership enters into a transaction, or participates in an event, with the partnership, paragraph (a) does not apply to the transaction or event to the extent that the transaction or event would, in the absence of this paragraph, be deemed by paragraph (a) to have been entered into, or participated in, as the case may be, by the member; and
(f) a person or partnership that is (or is deemed by this paragraph 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.
Marginal note:Trusts
(26) For the purposes of this section, subsection 17.1(1) (as it applies in respect of a pertinent loan or indebtedness as defined in subsection (11)), paragraph 128.1(1)(c.3) and subsection 219.1(2), and for the purpose of paragraph 251(1)(a) as it applies for the purposes of those provisions,
(a) in determining, at any time, whether two persons are related to each other or whether any person is controlled by any other person or group of persons, it shall be assumed that
(i) each trust is a corporation having a capital stock of a single class of voting shares divided into 100 issued shares, and
(ii) each beneficiary under a trust owned at that time the number of issued shares of that class determined by the formula
A/B × 100
where
- A
- is the fair market value at that time of the beneficiary’s interest in the trust, and
- B
- is the total fair market value at that time of all beneficiaries’ interests in the trust;
(b) in determining, at any time, the extent to which any person owns shares of the capital stock of a corporation, if at that time a trust resident in Canada owns (determined without reference to this paragraph) shares of the capital stock of the corporation, each beneficiary of the trust is deemed to own, and the trust is deemed not to own, at that time, the shares of each class of the capital stock of the corporation that are owned (determined without reference to this paragraph) by the trust, the number of which is determined by the formula
A × B/C
where
- A
- is the total number of shares of the class of the capital stock of the corporation that are owned (determined without reference to this paragraph) by the trust at that time,
- B
- is the fair market value, at that time, of the beneficiary’s interest in the trust, and
- C
- is the total fair market value, at that time, of all beneficiaries’ interests in the trust; and
(c) if a beneficiary’s share of the income or capital of a trust depends on the exercise by any person of, or the failure by any person to exercise, any discretionary power, then the amounts determined for A and B in paragraph (a), and for B and C in paragraph (b), in respect of the beneficiary are deemed to be equal to one, unless
(i) the trust is resident in Canada, and
(ii) it cannot reasonably be considered that one of the main reasons for the discretionary power is to avoid or limit the application of paragraph 128.1(1)(c.3) or subsection 212.3(2) or 219.1(2).
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- 2012, c. 31, s. 49
- 2013, c. 34, s. 427
- 2014, c. 39, s. 65
- 2017, c. 33, s. 75
- 2021, c. 23, s. 53
- Date modified: