Income Tax Act

Marginal note:Definitions

• 74.4 (1) In this section,

  designated person

  designated person, in respect of an individual, has the meaning assigned by subsection 74.5(5); (personne désignée)

  excluded consideration

  excluded consideration, at any time, means consideration received by an individual that is

  • (a) indebtedness,

  • (b) a share of the capital stock of a corporation, or

  • (c) a right to receive indebtedness or a share of the capital stock of a corporation. (contrepartie exclue)

• Marginal note:Transfers and loans to corporations

  (2) Where an individual has transferred or lent property, either directly or indirectly, by means of a trust or by any other means whatever, to a corporation and one of the main purposes of the transfer or loan may reasonably be considered to be to reduce the income of the individual and to benefit, either directly or indirectly, by means of a trust or by any other means whatever, a person who is a designated person in respect of the individual, in computing the income of the individual for any taxation year that includes a period after the loan or transfer throughout which

  • (a) the person is a designated person in respect of the individual and would have been a specified shareholder of the corporation if the definition specified shareholder in subsection 248(1) were read without reference to paragraphs (a) and (d) of that definition and if the reference therein to “any other corporation that is related to the corporation” were read as a reference to “any other corporation (other than a small business corporation) that is related to the corporation”,

  • (b) the individual was resident in Canada, and

  • (c) the corporation was not a small business corporation,

  the individual shall be deemed to have received as interest in the year the amount, if any, by which

  • (d) the amount that would be interest on the outstanding amount of the loan or transfer of the property for such periods in the year if the interest were computed thereon at the prescribed rate of interest for such periods

  exceeds the total of

  • (e) any interest received in the year by the individual in respect of the transfer or loan (other than amounts deemed by this subsection to be interest),

  • (f) all amounts included in the individual’s income for the taxation year pursuant to subsection 82(1) or 90(1) in respect of taxable dividends received (other than dividends deemed by section 84 to have been received) by the individual in the year on shares that were received from the corporation as consideration for the transfer or as repayment for the loan that were excluded consideration at the time the dividends were received or on shares substituted therefor that were excluded consideration at that time, and

  • (g) where the designated person is a specified individual in relation to the year, the amount required to be included in computing the designated person’s income for the year in respect of all taxable dividends received by the designated person that

    • (i) can reasonably be considered to be part of the benefit sought to be conferred, and

    • (ii) are included in computing the designated person’s split income for any taxation year.

• Marginal note:Outstanding amount

  (3) For the purposes of subsection 74.4(2), the outstanding amount of a transferred property or loan at a particular time is

  • (a) in the case of a transfer of property to a corporation, the amount, if any, by which the fair market value of the property at the time of the transfer exceeds the total of

    • (i) the fair market value, at the time of the transfer, of the consideration (other than consideration that is excluded consideration at the particular time) received by the transferor for the property, and

    • (ii) the fair market value, at the time of receipt, of any consideration (other than consideration that is excluded consideration at the particular time) received by the transferor at or before the particular time from the corporation or from a person with whom the transferor deals at arm’s length, in exchange for excluded consideration previously received by the transferor as consideration for the property or for excluded consideration substituted for such consideration;

  • (b) in the case of a loan of money or property to a corporation, the amount, if any, by which

    • (i) the principal amount of the loan of money at the time the loan was made, or

    • (ii) the fair market value of the property lent at the time the loan was made,

    as the case may be, exceeds the fair market value, at the time the repayment is received by the lender, of any repayment of the loan (other than a repayment that is excluded consideration at the particular time).

• Marginal note:Benefit not granted to a designated person

  (4) For the purposes of subsection 74.4(2), one of the main purposes of a transfer or loan by an individual to a corporation shall not be considered to be to benefit, either directly or indirectly, a designated person in respect of the individual, where

  • (a) the only interest that the designated person has in the corporation is a beneficial interest in shares of the corporation held by a trust;

  • (b) by the terms of the trust, the designated person may not receive or otherwise obtain the use of any of the income or capital of the trust while being a designated person in respect of the individual; and

  • (c) the designated person has not received or otherwise obtained the use of any of the income or capital of the trust, and no deduction has been made by the trust in computing its income under subsection 104(6) or (12) in respect of amounts paid or payable to, or included in the income of, that person while being a designated person in respect of the individual.