Income Tax Act

Marginal note:Definitions

• 260 (1) In this section

  qualified security

  titre admissible

  qualified security means

  • (a) a share of a class of the capital stock of a corporation that is listed on a stock exchange or of a class of the capital stock of a corporation that is a public corporation by reason of the designation of the class by the corporation in an election made under subparagraph (b)(i) of the definition public corporation in subsection 89(1) or by the Minister in a notice to the corporation under subparagraph (b)(ii) of that definition,

  • (b) a bond, debenture, note or similar obligation of a corporation described in paragraph (a) or of a corporation that is controlled by such a corporation,

  • (c) a bond, debenture, note or similar obligation of or guaranteed by the government of any country, province, state, municipality or other political subdivision, or a corporation, commission, agency or association controlled by any such person, or

  • (d) a warrant, right, option or similar instrument with respect to a share described in paragraph (a); (titre admissible)

  securities lending arrangement

  mécanisme de prêt de valeurs mobilières

  securities lending arrangement means an arrangement under which

  • (a) a person (in this section referred to as the “lender”) transfers or lends at any particular time a qualified security to another person (in this section referred to as the “borrower”) with whom the lender deals at arm’s length,

  • (b) it may reasonably be expected, at the particular time, that the borrower will transfer or return after the particular time to the lender a security (in this section referred to as an “identical security”) that is identical to the security so transferred or lent,

  • (c) where the qualified security is a share of the capital stock of a corporation, the borrower is obligated to pay to the lender amounts equal to and as compensation for all dividends, if any, paid on the security that would have been received by the borrower if the borrower had held the security throughout the period beginning after the particular time and ending at the time an identical security is transferred or returned to the lender, and

  • (d) the lender’s risk of loss or opportunity for gain or profit with respect to the security is not changed in any material respect,

  but does not include an arrangement one of the main purposes of which may reasonably be considered to be to avoid or defer the inclusion in income of any gain or profit with respect to the security. (mécanisme de prêt de valeurs mobilières)

• Marginal note:Eligible dividend

  (1.1) This subsection applies to an amount if the amount is received by a person who is resident in Canada, the amount is deemed under subsection (5) to be a taxable dividend, and the amount is either

  • (a) received as compensation for an eligible dividend, within the meaning assigned by subsection 89(1); or

  • (b) received as compensation for a taxable dividend (other than an eligible dividend) paid by a corporation to a non-resident shareholder in circumstances where it is reasonable to consider that the corporation would, if that shareholder were resident in Canada, have designated the dividend to be an eligible dividend under subsection 89(14).

• Marginal note:Non-disposition

  (2) Subject to subsections 260(3) and 260(4), for the purposes of this Act, any transfer or loan by a lender of a security under a securities lending arrangement shall be deemed not to be a disposition of the security and the security shall be deemed to continue to be property of the lender and, for the purposes of this subsection, a security shall be deemed to include an identical security that has been transferred or returned to the lender under the arrangement.

• Marginal note:Disposition of right

  (3) Where, at any time, a lender receives property (other than an identical security or an amount deemed by subsection 260(4) to have been received as proceeds of disposition) in satisfaction of or in exchange for the lender’s right under a securities lending arrangement to receive the transfer or return of an identical security, for the purposes of this Act the lender shall be deemed to have disposed at that time of the security that was transferred or lent for proceeds of disposition equal to the fair market value of the property received for the disposition of the right (other than any portion thereof that is deemed to have been received by the lender as a taxable dividend), except that section 51, 85.1, 86 or 87, as the case may be, shall apply in computing the income of the lender with respect to any such disposition as if the security transferred or lent had continued to be the lender’s property and the lender had received the property directly.

• Marginal note:Idem

  (4) Where, at any time, it may reasonably be considered that a lender would have received proceeds of disposition for a security that was transferred or lent under a securities lending arrangement, if the security had not been transferred or lent, the lender shall be deemed to have disposed of the security at that time for those proceeds of disposition.

• Marginal note:Deemed dividend

  (5) For the purposes of this Act, any amount received (other than an amount received as proceeds of disposition or an amount received by a corporation under an arrangement where it may reasonably be considered that one of the main reasons for the corporation entering into the arrangement was to enable it to receive an amount that would otherwise have been deemed by this subsection to be a dividend)

  • (a) under a securities lending arrangement from a person resident in Canada, or a person not resident in Canada where the amount was paid in the course of carrying on business in Canada through a permanent establishment as defined by regulation, or

  • (b) by or from a person who is a registered securities dealer resident in Canada, where the amount is received or paid, as the case may be, in the ordinary course of the business of trading in securities carried on by the dealer,

  as compensation for a taxable dividend paid on a share of the capital stock of a public corporation that is a qualified security shall, to the extent of the amount of that dividend, be deemed to have been received as a taxable dividend and, if subsection (1.1) applies to the amount, as an eligible dividend on the share from the corporation.

• Marginal note:Non-deductibility

  (6) In computing a taxpayer’s income under Part I from a business or property

  • (a) where the taxpayer is not a registered securities dealer, no deduction shall be made in respect of an amount that, if paid, would be deemed by subsection 260(5) to have been received by another person as a taxable dividend; and

  • (b) where the taxpayer is a registered securities dealer, no deduction shall be made in respect of more than 2/3 of that amount.

• Marginal note:Deductible amount

  (6.1) Notwithstanding subsection 260(6), there may be deducted in computing a corporation’s income under Part I from a business or property for a taxation year an amount equal to the lesser of

  • (a) the amount that the corporation is obligated to pay to another person under an arrangement described in paragraphs (c) and (d) of the definition dividend rental arrangement in subsection 248(1) that, if paid, would be deemed by subsection 260(5) to have been received by another person as a taxable dividend, and

  • (b) the amount of the dividends received by the corporation under the arrangement that were identified in its return of income under Part I for the year as an amount in respect of which no amount was deductible because of subsection 112(2.3) in computing the taxpayer’s taxable income or taxable income earned in Canada.

• Marginal note:Dividend refund

  (7) For the purposes of section 129,

  • (a) any amount paid by a corporation that is not a registered securities dealer (other than an amount for which a deduction in computing income may be claimed under subsection 260(6.1)), and

  • (b) 1/3 of any amount paid by a corporation that is a registered securities dealer (other than an amount for which a deduction in computing income may be claimed under subsection 260(6.1))

  that is deemed by subsection 260(5) to have been received by another person as a taxable dividend shall be deemed to have been paid by the corporation as a taxable dividend.

• Marginal note:Non-resident withholding tax

  (8) For the purposes of Part XIII,

  • (a) any amount paid or credited under a securities lending arrangement by or on behalf of the borrower to the lender as compensation for any interest or dividend paid in respect of the security shall be deemed to be a payment made by the borrower to the lender of interest, except that where, throughout the term of the securities lending arrangement, the borrower has provided the lender under the arrangement with money in an amount of, or securities described in paragraph (c) of the definition qualified security in subsection 260(1) that have a fair market value of, not less than 95% of the fair market value of the security and the borrower is entitled to enjoy, directly or indirectly, the benefits of all or substantially all income derived from, and opportunity for gain in respect of, the money or securities,

    • (i) the amount paid or credited shall, to the extent of the amount of the interest or dividend paid in respect of the security, be deemed to be a payment made by the borrower to the lender of interest or a dividend, as the case may be, payable on the security, and

    • (ii) the security is deemed to be a security described in paragraph (a) of the definition fully exempt interest in subsection 212(3) if the security is described in paragraph (c) of the definition qualified security in subsection (1), and

    • (iii) [Repealed, 2007, c. 35, s. 66]

  • (b) any amount paid or credited under a securities lending arrangement by or on behalf of the borrower to the lender as, on account of, in lieu of payment of or in satisfaction of, a fee for the use of the security shall be deemed to be a payment made by the borrower to the lender of interest and, for the purpose of this paragraph, where the borrower has at any time provided the lender with money, either as collateral or consideration for the security, and the borrower does not under the arrangement pay or credit a reasonable amount to the lender as, on account of, in lieu of payment of or in satisfaction of, a fee for the use of the security, the amount, if any, by which

    • (i) interest on the money computed at the prescribed rates in effect during the term of the arrangement

    exceeds

    • (ii) the amount, if any, by which any amount that the lender pays or credits to the borrower under the arrangement exceeds the amount of the money

  shall be deemed to be an amount paid under the arrangement by the borrower to the lender as a fee for the use of the security, at the time that an identical security is or can reasonably be expected to be transferred or returned to the lender, and, for the purposes of Part XIII and any agreement or convention between the Government of Canada and the government of another country that has the force of law in Canada, any amount deemed by this subsection (other than subparagraph 260(8)(a)(i) or 260(8)(a)(ii)) to be a payment of interest shall be deemed not to be payable on or in respect of the security.

• Marginal note:Restricted financial institution

  (9) For the purposes of subsection 187.3(1), where at any time a dividend is received by a restricted financial institution on a share that was last acquired before that time pursuant to an obligation of a borrower to return or transfer a share under a securities lending arrangement, an acquisition of the share under the arrangement shall be deemed at and after that time not to be an acquisition of the share.

• Marginal note:Non-arm’s length compensation payment

  (10) For the purpose of Part XIII, where the lender under a securities lending arrangement is not dealing at arm’s length with either the borrower under the arrangement or the issuer of the security that is transferred or lent under the arrangement, or both, and subsection (8) deems an amount to be a payment of interest by a person to the lender in respect of that security, the lender is deemed, in respect of that payment, not to be dealing at arm’s length with that person.