Income Tax Act

Marginal note:Definitions

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

  adjusted stub period accrual

  adjusted stub period accrual of a corporation in respect of a partnership — in which the corporation has a significant interest at the end of the last fiscal period of the partnership that ends in the corporation’s taxation year in circumstances where another fiscal period (in this definition referred to as the “particular period”) of the partnership begins in the year and ends after the year — means

  • (a) if paragraph (b) does not apply, the amount determined by the formula

    [(A – B) × C/D] – (E + F)

    where

    A

    is the total of all amounts each of which is the corporation’s share of an income or taxable capital gain of the partnership for a fiscal period of the partnership that ends in the year (other than any amount for which a deduction is available under section 112 or 113),

    B

    is the total of all amounts each of which is the corporation’s share of a loss or allowable capital loss — to the extent that the total of all allowable capital losses does not exceed the total of all taxable capital gains included in the description of A — of the partnership for a fiscal period of the partnership that ends in the year,

    C

    is the number of days that are in both the year and the particular period,

    D

    is the number of days in fiscal periods of the partnership that end in the year,

    E

    is the amount of the qualified resource expense in respect of the particular period of the partnership that is designated by the corporation for the year under subsection (6) in its return of income for the year filed with the Minister on or before its filing-due date for the year, and

    F

    is an amount designated by the corporation in its return of income for the year (other than an amount included in the description of E) and filed with the Minister on or before its filing-due date for the year; and

  • (b) if a fiscal period of the partnership ends in the corporation’s taxation year and the year is the first taxation year in which the fiscal period of the partnership is aligned with the fiscal period of one or more other partnerships under a multi-tier alignment (in this paragraph referred to as the “eligible fiscal period”),

    • (i) where a fiscal period of the partnership ends in the year and before the eligible fiscal period, the amount determined by the formula

      [(A – B) × C/D] – (E + F)

      where

      A

      is the total of all amounts each of which is the corporation’s share of an income or taxable capital gain of the partnership for the first fiscal period of the partnership that ends in the year (other than any amount for which a deduction is available under section 112 or 113),

      B

      is the total of all amounts each of which is the corporation’s share of a loss or allowable capital loss — to the extent that the total of all allowable capital losses does not exceed the total of all taxable capital gains included in the description of A — of the partnership for the first fiscal period of the partnership that ends in the year,

      C

      is the number of days that are in both the year and the particular period,

      D

      is the number of days in the first fiscal period of the partnership that ends in the year,

      E

      is the amount of the qualified resource expense in respect of the particular period of the partnership that is designated by the corporation for the year under subsection (6) in its return of income for the year filed with the Minister on or before its filing-due date for the year, and

      F

      is an amount designated by the corporation in its return of income for the year (other than an amount included in the description of E) and filed with the Minister on or before its filing-due date for the year, and

    • (ii) where the eligible fiscal period of the partnership is the first fiscal period of the partnership that ends in the corporation’s taxation year, the amount determined by the formula

      (A – B – C) × D/E – (F + G)

      where

      A

      is the total of all amounts each of which is the corporation’s share of an income or taxable capital gain of the partnership for the eligible fiscal period (other than any amount for which a deduction is available under section 112 or 113),

      B

      is the total of all amounts each of which is the corporation’s share of a loss or allowable capital loss — to the extent that the total of all allowable capital losses does not exceed the total of all taxable capital gains included in the description of A — of the partnership for the eligible fiscal period,

      C

      is the corporation’s eligible alignment income for the eligible fiscal period,

      D

      is the number of days that are in both the year and the particular period,

      E

      is the number of days that are in the eligible fiscal period that ends in the year,

      F

      is the amount of the qualified resource expense in respect of the particular period of the partnership that is designated by the corporation for the year under subsection (6) in its return of income for the year filed with the Minister on or before its filing-due date for the year, and

      G

      is an amount designated by the corporation in its return of income for the year (other than an amount included in the description of F) and filed with the Minister on or before its filing-due date for the year. (montant comptabilisé ajusté pour la période tampon)

  eligible alignment income

  eligible alignment income, of a corporation, means

  • (a) if a partnership is subject to a single-tier alignment, the first aligned fiscal period of the partnership ends in the first taxation year of the corporation ending after March 22, 2011 (in this paragraph referred to as the “eligible fiscal period”) and the corporation is a member of the partnership at the end of the eligible fiscal period,

    • (i) where the eligible fiscal period is preceded by another fiscal period of the partnership that ends in the corporation’s first taxation year that ends after March 22, 2011 and the corporation is a member of the partnership at the end of that preceding fiscal period, the amount determined by the formula

      A – B – C

      where

      A

      is the total of all amounts each of which is the corporation’s share of an income or taxable capital gain of the partnership for the eligible fiscal period (other than any amount for which a deduction is available under section 112 or 113),

      B

      is the total of all amounts each of which is the corporation’s share of a loss or allowable capital loss — to the extent that the total of all allowable capital losses does not exceed the total of all taxable capital gains included in the description of A — of the partnership for the eligible fiscal period, and

      C

      is, where an outlay or expense of the partnership is deemed by subsection 66(18) to be made or incurred by the corporation at the end of the eligible fiscal period, the total of all amounts each of which is an amount that would be deductible by the corporation for the taxation year under any of sections 66.1, 66.2, 66.21 and 66.4 determined as if each such outlay or expense were the only amount relevant in determining the amount deductible, or

    • (ii) where the eligible fiscal period is the first fiscal period of the partnership that ends in the corporation’s first taxation year ending after March 22, 2011, nil; and

  • (b) if a partnership is subject to a multi-tier alignment, the first aligned fiscal period of the partnership ends in the taxation year of the corporation (in this paragraph referred to as the “eligible fiscal period”) and the corporation is a member of the partnership at the end of the eligible fiscal period, the amount determined by the formula

    A – B – C

    where

    A

    is the total of all amounts each of which is the corporation’s share of an income or taxable capital gain of the partnership for the eligible fiscal period, other than any amount

    • (i) for which a deduction is available under section 112 or 113, or

    • (ii) that would be included in computing the income of the corporation for the year if there were no multi-tier alignment,

    B

    is the total of all amounts each of which is the corporation’s share of a loss or allowable capital loss — to the extent that the total of all allowable capital losses does not exceed the total of all taxable capital gains included in the description of A — of a partnership for the eligible fiscal period, and

    C

    is, where an outlay or expense of the partnership is deemed by subsection 66(18) to be made or incurred by the corporation at the end of the eligible fiscal period, the total of all amounts each of which is an amount that would be deductible by the corporation for the taxation year under any of sections 66.1, 66.2, 66.21 and 66.4 determined as if each such outlay or expense were the only amount relevant in determining the amount deductible. (revenu d’alignement admissible)

  multi-tier alignment

  multi-tier alignment, in respect of a partnership, means the alignment under subsection 249.1(9) or (11) of the fiscal period of the partnership and the fiscal period of one or more other partnerships.  (alignement pour paliers multiples)

  qualified resource expense

  qualified resource expense, of a corporation for a taxation year in respect of a fiscal period of a partnership that begins in the year and ends after the year, means an expense incurred by the partnership in the portion of the fiscal period that is in the year and that is described in any of the following definitions:

  • (a) Canadian exploration expense in subsection 66.1(6);

  • (b) Canadian development expense in subsection 66.2(5);

  • (c) foreign resource expense in subsection 66.21(1); and

  • (d) Canadian oil and gas property expense in subsection 66.4(5). (dépense admissible relative à des ressources)

  qualifying transitional income

  qualifying transitional income, of a corporation that is a member of a partnership on March 22, 2011, means the amount that is the total of the following amounts, computed in accordance with subsection (15),

  • (a) the corporation’s eligible alignment income in respect of the partnership, and

  • (b) the corporation’s adjusted stub period accrual in respect of the partnership for

    • (i) if there is a multi-tier alignment in respect of the partnership, the corporation’s taxation year during which ends the fiscal period of the partnership that is aligned with the fiscal period of one or more other partnerships under the multi-tier alignment, or

    • (ii) in any other case, the corporation’s first taxation year that ends after March 22, 2011. (revenu admissible à l’allègement)

  significant interest

  significant interest, of a corporation in a partnership at any time, means a membership interest of the corporation in the partnership if the corporation, or the corporation together with one or more persons or partnerships related to or affiliated with the corporation, is entitled at that time to more than 10% of

  • (a) the income or loss of the partnership; or

  • (b) the assets (net of liabilities) of the partnership if it were to cease to exist. (participation importante)

  single-tier alignment

  single-tier alignment, in respect of a partnership, means the ending of a fiscal period of the partnership under subsection 249.1(8). (alignement pour palier unique)

  specified percentage

  specified percentage, of a corporation for a particular taxation year in respect of a partnership, means

  • (a) if the first taxation year for which the corporation has qualifying transitional income ends in 2011 and the particular year ends in

    • (i) 2011, 100%,

    • (ii) 2012, 85%,

    • (iii) 2013, 65%,

    • (iv) 2014, 45%,

    • (v) 2015, 25%, and

    • (vi) 2016, 0%;

  • (b) if the first taxation year for which the corporation has qualifying transitional income ends in 2012 and the particular year ends in

    • (i) 2012, 100%,

    • (ii) 2013, 85%,

    • (iii) 2014, 65%,

    • (iv) 2015, 45%,

    • (v) 2016, 25%, and

    • (vi) 2017, 0%; and

  • (c) if the first taxation year for which the corporation has qualifying transitional income ends in 2013 and the particular year ends in

    • (i) 2013, 85%,

    • (ii) 2014, 65%,

    • (iii) 2015, 45%,

    • (iv) 2016, 25%, and

    • (v) 2017, 0%. (pourcentage déterminé)

• Marginal note:Income inclusion — adjusted stub period accrual

  (2) Subject to subsections (5) and (9), a corporation (other than a professional corporation) shall include in computing its income for a taxation year its adjusted stub period accrual in respect of a partnership if

  • (a) the corporation has a significant interest in the partnership at the end of the last fiscal period of the partnership that ends in the year;

  • (b) another fiscal period of the partnership begins in the year and ends after the year; and

  • (c) at the end of the year, the corporation is entitled to a share of an income, loss, taxable capital gain or allowable capital loss of the partnership for the fiscal period referred to in paragraph (b).

• Marginal note:Income inclusion — new partner designation

  (3) Subject to subsection (5), if a corporation (other than a professional corporation) becomes a member of a partnership during a fiscal period of the partnership (in this subsection referred to as the “particular period”) that begins in the corporation’s taxation year and ends after the taxation year but on or before the filing-due date for the taxation year and the corporation has a significant interest in the partnership at the end of the particular period, the corporation may include in computing its income for the taxation year the lesser of

  • (a) the amount, if any, designated by the corporation in its return of income for the taxation year, and

  • (b) the amount determined by the formula

    A × B/C

    where

    A

    is the corporation’s income from the partnership for the particular period (other than any amount for which a deduction is available under section 112 or 113),

    B

    is the number of days that are both in the corporation’s taxation year and the particular period, and

    C

    is the number of days in the particular period.

• Marginal note:Treatment in following year

  (4) If an amount was included in computing the income of a corporation in respect of a partnership for the immediately preceding taxation year under subsection (2) or (3),

  • (a) the portion of the amount that, because of subparagraph (5)(a)(i) or (ii), was income for that preceding year is deductible in computing the income of the corporation for the current taxation year; and

  • (b) the portion of the amount that, because of subparagraph (5)(a)(i) or (ii), was taxable capital gains for that preceding year is deemed to be an allowable capital loss of the corporation for the current taxation year from the disposition of property.

• Marginal note:Character of amounts

  (5) For the purposes of this Act, the following rules apply:

  • (a) in computing the income of a corporation for a taxation year,

    • (i) an adjusted stub period accrual included under subsection (2) in respect of a partnership for the year is deemed to be income, and taxable capital gains from the disposition of property, having the same character and to be in the same proportions as any income and taxable capital gains that were allocated by the partnership to the corporation for all fiscal periods of the partnership ending in the year,

    • (ii) an amount included under subsection (3) in respect of a partnership for the year is deemed to be income, and taxable capital gains from the disposition of property, having the same character and to be in the same proportions as any income and taxable capital gains that were allocated by the partnership to the corporation for the particular period referred to in that subsection,

    • (iii) an amount, a portion of which is deductible or is an allowable capital loss under subsection (4) in respect of a partnership for the year, is deemed to have the same character and to be in the same proportions as the income and taxable capital gains included in the corporation’s income for the immediately preceding taxation year under subsection (2) or (3) in respect of the partnership,

    • (iv) an amount claimed as a reserve under subsection (11) in respect of a partnership for the year is deemed to have the same character and to be in the same proportions as the qualifying transitional income in respect of the partnership for the year, and

    • (v) an amount, a portion of which is included in income under paragraph (12)(a), or is deemed to be a taxable capital gain under paragraph (12)(b), in respect of a partnership for the year, is deemed to have the same character and to be in the same proportions as the amount claimed as a reserve under subsection (11) in respect of the partnership for the immediately preceding taxation year;

  • (b) a corporation’s capital dividend account, as defined in subsection 89(1), is to be determined without reference to this section; and

  • (c) the reference in subparagraph 53(2)(c)(i.4) to an amount deducted under subsection (11) by a taxpayer includes an amount deemed to be an allowable capital loss under subparagraph (11)(b)(ii).

• Marginal note:Designation — qualified resource expense

  (6) A corporation may designate an amount for a taxation year in respect of a qualified resource expense under the definition adjusted stub period accrual in subsection (1) subject to the following rules:

  • (a) the corporation cannot designate an amount for the year in respect of a qualified resource expense in respect of a partnership except to the extent the corporation obtains from the partnership, before the corporation’s filing-due date for the year, information in writing identifying the corporation’s qualified resource expenses described

    • (i) in paragraph (h) of the definition Canadian exploration expense in subsection 66.1(6), determined as if those expenses had been incurred by the partnership in its last fiscal period that ended in the year,

    • (ii) in paragraph (f) of the definition Canadian development expense in subsection 66.2(5), determined as if those expenses had been incurred by the partnership in its last fiscal period that ended in the year,

    • (iii) in paragraph (e) of the definition foreign resource expense in subsection 66.21(1), determined as if those expenses had been incurred by the partnership in its last fiscal period that ended in the year, and

    • (iv) in paragraph (b) of the definition Canadian oil and gas property expense in subsection 66.4(5), determined as if those expenses had been incurred by the partnership in its last fiscal period that ended in the year; and

  • (b) the amount designated for the year by the corporation is not to exceed the maximum amount that would be deductible by the corporation under any of sections 66.1, 66.2, 66.21 and 66.4 in computing its income for the year if

    • (i) the amounts referred to in paragraph (a) in respect of the partnership were the only amounts relevant in determining the maximum amount, and

    • (ii) the fiscal period of the partnership that begins in the year and ends after the year had ended at the end of the year and each qualified resource expense were deemed under subsection 66(18) to be incurred by the corporation at the end of the year.

• Marginal note:No additional income — bankrupt

  (7) Subsections (2) and (3) do not apply in computing a corporation’s income for a taxation year in respect of a partnership if the corporation becomes a bankrupt in the year.

• Marginal note:Foreign affiliates

  (8) This section does not apply for the purposes of computing, for a taxation year of a foreign affiliate of a corporation resident in Canada,

  • (a) the foreign accrual property income of the affiliate in respect of the corporation; and

  • (b) except to the extent that the context otherwise requires, the exempt surplus or exempt deficit, the hybrid surplus or hybrid deficit, and the taxable surplus or taxable deficit (as those terms are defined in subsection 5907(1) of the Income Tax Regulations) of the affiliate in respect of the corporation.

• Marginal note:Special case — multi-tier alignment

  (9) If a corporation is a member of a partnership subject to a multi-tier alignment, subsection (2) does not apply to the corporation in respect of the partnership for taxation years preceding the taxation year that includes the end of the first aligned fiscal period of the partnership under the multi-tier alignment.

• Marginal note:Designations

  (10) Once a corporation makes a designation in calculating its adjusted stub period accrual in respect of a partnership for a taxation year under any of the description of E or F of paragraph (a), the description of E or F of subparagraph (b)(i) and the description of F or G of subparagraph (b)(ii) of the definition adjusted stub period accrual in subsection (1), the designation cannot be amended or revoked.

• Marginal note:Transitional reserve

  (11) If a corporation has qualifying transitional income in respect of a partnership for a particular taxation year,

  • (a) the corporation may, in computing its income for the particular year, claim an amount, as a reserve, not exceeding the least of

    • (i) the specified percentage for the particular year of the corporation’s qualifying transitional income in respect of the partnership,

    • (ii) if, for the immediately preceding taxation year, an amount was claimed under this subsection in computing the corporation’s income in respect of the partnership, the amount that is the total of

      • (A) the amount included under subsection (12) in computing the corporation’s income for the particular year in respect of the partnership, and

      • (B) the amount by which the corporation’s qualifying transitional income in respect of the partnership is increased in the particular year because of the application of subsections (16) and (17), and

    • (iii) the amount determined by the formula

      A – B

      where

      A

      is the corporation’s income for the particular year computed before deducting or claiming any amount under this subsection in respect of the partnership or under section 61.3 and 61.4, and

      B

      is the total of all amounts each of which is an amount deductible by the corporation for the year under section 112 or 113 in respect of a dividend received by the corporation after December 20, 2012; and

  • (b) the portion of the amount claimed under paragraph (a) for the particular year that, because of subparagraph (5)(a)(iv), has

    • (i) a character other than capital is deductible in computing the income of the corporation for the particular year, and

    • (ii) the character of capital is deemed to be an allowable capital loss of the corporation for the particular year from the disposition of property.

• Marginal note:Inclusion of prior year reserve

  (12) Subject to subsection (5), if a reserve was claimed by a corporation under subsection (11) in respect of a partnership for the immediately preceding taxation year,

  • (a) the portion of the reserve that was deducted under subparagraph (11)(b)(i) for that preceding year is to be included in computing the income of the corporation for the current taxation year; and

  • (b) the portion of the reserve that was deemed by subparagraph (11)(b)(ii) to be an allowable capital loss of the corporation for that preceding year is deemed to be a taxable capital gain of the corporation for the current taxation year from the disposition of property.

• Marginal note:No reserve

  (13) No claim shall be made under subsection (11) in computing a corporation’s income for a taxation year in respect of a partnership

  • (a) unless,

    • (i) in the case of a corporation that is a member of a partnership in respect of which there is a multi-tier alignment, the corporation has been a member of the partnership continuously since before March 22, 2011 to the end of the year,

    • (ii) in the case of a corporation that is a member of a partnership in respect of which there is no multi-tier alignment, the corporation is a member of the partnership

      • (A) at the end of the partnership’s fiscal period that begins before March 22, 2011 and ends in the year of the corporation that includes March 22, 2011,

      • (B) at the end of the partnership’s fiscal period commencing immediately after the fiscal period referred to in clause (A) and continues to be a member until after the end of the year of the corporation that includes March 22, 2011, and

      • (C) continuously since before March 22, 2011 until the end of the year;

  • (b) if at the end of the year or at any time in the following taxation year,

    • (i) the corporation’s income is exempt from tax under this Part, or

    • (ii) the corporation is non-resident and the partnership does not carry on business through a permanent establishment (as defined for the purpose of subsection 16.1(1)) in Canada; or

  • (c) if the year ends immediately before another taxation year

    • (i) at the beginning of which the partnership no longer principally carries on the activities to which the reserve relates,

    • (ii) in which the corporation becomes a bankrupt, or

    • (iii) in which the corporation is dissolved or wound up (other than in circumstances to which subsection 88(1) applies).

• Marginal note:Deemed partner

  (14) A corporation that cannot claim an amount under subsection (11) for a taxation year in respect of a partnership solely because it has disposed of its interest in the partnership is deemed for the purposes of paragraph (13)(a) to be a member of a partnership continuously until the end of the taxation year if

  • (a) the corporation disposed of its interest to another corporation related to, or affiliated with, the corporation at the time of the disposition; and

  • (b) a corporation related to, or affiliated with, the corporation has the partnership interest referred to in paragraph (a) at the end of the taxation year.

• Marginal note:Computing qualifying transitional income — special rules

  (15) For the purposes of determining a corporation’s qualifying transitional income, the income or loss, as the case may be, of a partnership for a fiscal period shall be computed as if

  • (a) the partnership had deducted for the period the maximum amount deductible in respect of any expense, reserve, allowance or other amount;

  • (b) this Act were read without reference to paragraph 28(1)(b); and

  • (c) the partnership had made an election under paragraph 34(a).

• Marginal note:Qualifying transition income adjustment  — conditions for application

  (16) Subsection (17) applies for a particular taxation year of a corporation and for each subsequent taxation year for which the corporation may claim an amount under subsection (11) in respect of a partnership if the particular year is the first taxation year

  • (a) that is after the taxation year in which the corporation has, or would have if the partnership had income, an adjusted stub period accrual that is included in the corporation’s qualifying transitional income in respect of the partnership by reason of paragraph (b) of the definition qualifying transitional income in subsection (1); and

  • (b) in which ends the fiscal period of the partnership that began in the taxation year referred to in paragraph (a).

• Marginal note:Adjustment of qualifying transitional income

  (17) If this subsection applies in respect of a partnership for a taxation year of a corporation, the adjusted stub period accrual included in the corporation’s qualifying transitional income in respect of the partnership for the year is computed as if

  • (a) the descriptions in paragraph (a) and subparagraph (b)(i) of the definition adjusted stub period accrual in subsection (1) read as follows:

    A

    is the total of all amounts each of which is the corporation’s share of an income or taxable capital gain of the partnership for the particular period (other than any amount for which a deduction is available under section 112 or 113),

    B

    is the total of all amounts each of which is the corporation’s share of a loss or allowable capital loss — to the extent that the total of all allowable losses does not exceed the total of all taxable capital gains included in the description of A — of the partnership for the particular period,

    C

    is the number of days that are in both the year and the particular period,

    D

    is the number of days in the particular period,

    E

    is the amount of the qualified resource expense in respect of the particular period of the partnership that is designated by the corporation for the year under subsection (6) in its return of income for the year filed with the Minister on or before its filing-due date for the year, and

    F

    is nil; and

  • (b) the descriptions in subparagraph (b)(ii) of the definition adjusted stub period accrual in subsection (1) read as follows:

    A

    is the total of all amounts each of which is the corporation’s share of an income or taxable capital gain of the partnership for the particular period (other than any amount for which a deduction is available under section 112 or 113),

    B

    the total of all amounts each of which is the corporation’s share of a loss or allowable capital loss — to the extent that the total of all allowable capital losses does not exceed the total of all taxable capital gains included in the description of A — of the partnership for the particular period,

    C

    is nil,

    D

    is the number of days that are in both the year and the particular period,

    E

    is the number of days in the particular period,

    F

    is the amount of the qualified resource expense in respect of the particular period of the partnership that is designated by the corporation for the year under subsection (6) in its return of income for the year filed with the Minister on or before its filing-due date for the year, and

    G

    is nil.

• Marginal note:Anti-avoidance

  (18) If it is reasonable to conclude that one of the main reasons a corporation is a member of a partnership in a taxation year is to avoid the application of subsection (13), the corporation is deemed not to be a member of the partnership for the purposes of that subsection.