Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))
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Act current to 2024-11-26 and last amended on 2024-07-01. Previous Versions
Marginal note:Definitions for this Subdivision
95 (1) In this Subdivision,
- active business
active business of a foreign affiliate of a taxpayer means any business carried on by the foreign affiliate other than
(a) an investment business carried on by the foreign affiliate,
(b) a business that is deemed by subsection (2) to be a business other than an active business carried on by the foreign affiliate, or
(c) a non-qualifying business of the foreign affiliate; (entreprise exploitée activement)
- antecedent corporation
antecedent corporation of a particular corporation means
(a) a predecessor corporation (within the meaning assigned by subsection 87(1)) in respect of an amalgamation to which subsection 87(11) applied and by which the particular corporation was formed,
(b) a predecessor corporation (within the meaning of subsection 87(1)) of the corporation (referred to in this definition as the “first amalco”) that was formed on an amalgamation of the predecessor corporation and another corporation, where
(i) shares of the capital stock of the predecessor corporation that were not owned by the other corporation, or by a corporation of which the other corporation is a subsidiary wholly-owned corporation, were exchanged on the amalgamation for shares of the capital stock of the first amalco that were, during the series of transactions or events that includes the amalgamation, redeemed, acquired or cancelled by the first amalco for money,
(ii) the first amalco was a predecessor corporation (within the meaning assigned by subsection 87(1)) in respect of an amalgamation to which subsection 87(11) applied and by which the particular corporation was formed, and
(iii) the amalgamation referred to in subparagraph (i) occurred in a series of transactions or events that included the amalgamation referred to in subparagraph (ii),
(c) a corporation that was wound-up into the particular corporation in a winding-up to which subsection 88(1) applied, or
(d) an antecedent corporation of an antecedent corporation of the particular corporation; (société antécédente)
- calculating currency
calculating currency for a taxation year of a foreign affiliate of a taxpayer means
(a) the currency of the country in which the foreign affiliate is resident at the end of the taxation year, or
(b) any currency that the taxpayer demonstrates to be reasonable in the circumstances; (monnaie de calcul)
- controlled foreign affiliate
controlled foreign affiliate, at any time, of a taxpayer resident in Canada, means
(a) a foreign affiliate of the taxpayer that is, at that time, controlled by the taxpayer, or
(b) a foreign affiliate of the taxpayer that would, at that time, be controlled by the taxpayer if the taxpayer owned
(i) all of the shares of the capital stock of the foreign affiliate that are owned at that time by the taxpayer,
(ii) all of the shares of the capital stock of the foreign affiliate that are owned at that time by persons who do not deal at arm’s length with the taxpayer,
(iii) all of the shares of the capital stock of the foreign affiliate that are owned at that time by the persons (each of whom is referred to in this definition as a “relevant Canadian shareholder”), in any set of persons not exceeding four (which set of persons shall be determined without reference to the existence of or the absence of any relationship, connection or action in concert between those persons), who
(A) are resident in Canada,
(B) are not the taxpayer or a person described in subparagraph (ii), and
(C) own, at that time, shares of the capital stock of the foreign affiliate, and
(iv) all of the shares of the capital stock of the foreign affiliate that are owned at that time by persons who do not deal at arm’s length with any relevant Canadian shareholder; (société étrangère affiliée contrôlée)
- designated acquired corporation
designated acquired corporation of a taxpayer means a particular antecedent corporation of the taxpayer if
(a) the taxpayer or another antecedent corporation of the taxpayer acquired control of
(i) the particular antecedent corporation, or
(ii) a corporation (referred to in this definition as a “successor corporation”) of which the particular antecedent corporation is an antecedent corporation, and
(b) immediately before the acquisition of control or a series of transactions or events that includes the acquisition of control, the taxpayer, the other antecedent corporation or a corporation resident in Canada of which the taxpayer or the other antecedent corporation is a subsidiary wholly-owned corporation, as the case may be, dealt at arm’s length (otherwise than because of a right referred to in paragraph 251(5)(b)) with the particular antecedent corporation or the successor corporation, as the case may be; (société acquise désignée)
- designated liquidation and dissolution
designated liquidation and dissolution, of a foreign affiliate (referred to in this definition as the “disposing affiliate”) of a taxpayer, means a liquidation and dissolution of the disposing affiliate in respect of which
(a) the taxpayer had, immediately before the time of the earliest distribution of property by the disposing affiliate in the course of the liquidation and dissolution, a surplus entitlement percentage in respect of the disposing affiliate of not less than 90%,
(b) both
(i) the percentage determined by the following formula is greater than or equal to 90%:
A/B
where
- A
- is the amount, if any, by which
(A) the total of all amounts each of which is the fair market value, at the time at which it is distributed, of a property that is distributed by the disposing affiliate, in respect of shares of the capital stock of the disposing affiliate, in the course of the liquidation and dissolution to one particular shareholder of the disposing affiliate that was, immediately before the time of the distribution, a foreign affiliate of the taxpayer
exceeds
(B) the total of all amounts each of which is an amount owing (other than an unpaid dividend) by, or an obligation of, the disposing affiliate that was assumed or cancelled by the particular shareholder in consideration for a property referred to in clause (A), and
- B
- is the amount, if any, by which
(A) the total of all amounts each of which is the fair market value, at the time at which it is distributed, of a property that is distributed by the disposing affiliate, in respect of shares of the capital stock of the disposing affiliate, to a shareholder of the disposing affiliate in the course of the liquidation and dissolution
exceeds
(B) the total of all amounts each of which is an amount owing (other than an unpaid dividend) by, or an obligation of, the disposing affiliate that was assumed or cancelled by a shareholder of the disposing affiliate in consideration for a property referred to in clause (A), and
(ii) at the time of each distribution of property by the disposing affiliate in the course of the liquidation and dissolution in respect of shares of the capital stock of the disposing affiliate, the particular shareholder holds shares of that capital stock that would, if an annual general meeting of the shareholders of the disposing affiliate were held at that time, entitle it to 90% or more of the votes that could be cast under all circumstances at the meeting, or
(c) one particular shareholder of the disposing affiliate that was, throughout the liquidation and dissolution, a foreign affiliate of the taxpayer owns not less than 90% of the issued shares of each class of the capital stock of the disposing affiliate throughout the liquidation and dissolution; (liquidation et dissolution désignées)
- eligible trust
eligible trust, at any time, means a trust, other than a trust
(a) created or maintained for charitable purposes,
(b) governed by an employee benefit plan,
(c) described in paragraph (a.1) of the definition trust in subsection 108(1),
(d) governed by a salary deferral arrangement,
(e) operated for the purpose of administering or providing superannuation, pension, retirement or employee benefits, or
(f) where the amount of income or capital that any entity may receive directly from the trust at any time as a beneficiary under the trust depends on the exercise by any entity of, or the failure by any entity to exercise, a discretionary power; (fiducie admissible)
- entity
entity includes an association, a corporation, a fund, a natural person, a joint venture, an organization, a partnership, a syndicate and a trust; (entité)
- excluded property
excluded property, at a particular time, of a foreign affiliate of a taxpayer means any property of the foreign affiliate that is
(a) used or held by the foreign affiliate principally for the purpose of gaining or producing income from an active business carried on by it,
(b) shares of the capital stock of another foreign affiliate of the taxpayer where all or substantially all of the fair market value of the property of the other foreign affiliate is attributable to property, of that other foreign affiliate, that is excluded property,
(c) property all or substantially all of the income from which is, or would be, if there were income from the property, income from an active business (which, for this purpose, includes income that would be deemed to be income from an active business by paragraph (2)(a) if that paragraph were read without reference to subparagraph (v)), or
(c.1) property arising under or as a result of an agreement that
(i) provides for the purchase, sale or exchange of currency, and
(ii) either
(A) can reasonably be considered to have been made by the affiliate to reduce its risk, with respect to an amount that was receivable under an agreement that relates to the sale of excluded property or with respect to an amount that was receivable and was a property described in paragraph (c), of fluctuations in the value of the currency in which the amount receivable was denominated, or
(B) can reasonably be considered to have been made by the affiliate to reduce its risk, with respect to any of the following amounts, of fluctuations in the value of the currency in which that amount was denominated:
(I) an amount that was payable under an agreement that relates to the purchase of property that (at all times between the time of the acquisition of the property and the particular time) is excluded property of the affiliate,
(II) an amount of indebtedness, to the extent that the proceeds derived from the issuance or incurring of the indebtedness can reasonably be considered to have been used to acquire property that (at all times between the time of the acquisition of that property and the particular time) is excluded property of the affiliate, or
(III) an amount of indebtedness, to the extent that the proceeds derived from the issuance or incurring of the indebtedness can reasonably be considered to have been used to repay the outstanding balance of
1 an amount that, immediately before the time of that repayment, is described by subclause (I),
2 an amount of indebtedness of the affiliate that, immediately before the time of that repayment, is described by subclause (II), or
3 an amount of indebtedness of the affiliate that, immediately before the time of that repayment, is described by this subclause,
and, for the purposes of the definitions foreign affiliate in this subsection and direct equity percentage in subsection 95(4) as they apply to this definition, where at any time a foreign affiliate of a taxpayer has an interest in a partnership,
(d) the partnership shall be deemed to be a non-resident corporation having capital stock of a single class divided into 100 issued shares, and
(e) the affiliate shall be deemed to own at that time that proportion of the issued shares of that class that
(i) the fair market value of the affiliate’s interest in the partnership at that time
is of
(ii) the fair market value of all interests in the partnership at that time; (bien exclu)
- exempt trust
exempt trust, at a particular time in respect of a taxpayer resident in Canada, means a trust that, at that time, is a trust under which the interest of each beneficiary under the trust is, at all times that the interest exists during the trust’s taxation year that includes the particular time, a specified fixed interest of the beneficiary in the trust, if at the particular time
(a) the trust is an eligible trust,
(b) there are at least 150 beneficiaries each of whom holds a specified fixed interest, in the trust, that has a fair market value of at least $500, and
(c) the total of all amounts each of which is the fair market value of an interest as a beneficiary under the trust held by a specified purchaser in respect of the taxpayer is not more than 10% of the total fair market value of all interests as a beneficiary under the trust; (fiducie exonérée)
- foreign accrual property income
foreign accrual property income of a foreign affiliate of a taxpayer, for any taxation year of the affiliate, means the amount determined by the formula
(A + A.1 + A.2 + B + C) – (D + E + F + F.1 + G + H)
where
- A
- is the amount that would, if section 80 did not apply to the affiliate for the year or a preceding taxation year, be the total of all amounts, each of which is the affiliate’s income for the year from property, the affiliate’s income for the year from a business other than an active business or the affiliate’s income for the year from a non-qualifying business of the affiliate, in each case that amount being determined as if each amount described in clause (2)(a)(ii)(D) that was paid or payable, directly or indirectly, by the affiliate to another foreign affiliate of the taxpayer or of a person with whom the taxpayer does not deal at arm’s length were nil where an amount in respect of the income derived by the other foreign affiliate from that amount that was paid or payable to it by the affiliate was added in computing its income from an active business, other than
(a) interest that would, by virtue of paragraph 81(1)(m), not be included in computing the income of the affiliate if it were resident in Canada,
(b) a dividend from another foreign affiliate of the taxpayer, except for any portion of the dividend that would be deemed under subsection 113(5) not to be a dividend received by the affiliate on a share of the capital stock of the other affiliate for the purposes of section 113, if the affiliate were a corporation resident in Canada,
(c) a taxable dividend to the extent that the amount thereof would, if the dividend were received by the taxpayer, be deductible by the taxpayer under section 112, or
(d) any amount included because of subsection 80.4(2) in the affiliate’s income in respect of indebtedness to another corporation that is a foreign affiliate of the taxpayer or of a person resident in Canada with whom the taxpayer does not deal at arm’s length,
- A.1
- is twice the total of all amounts included in computing the affiliate’s income from property or businesses (other than active businesses) for the year because of subsection 80(13),
- A.2
- is the amount determined for G in respect of the affiliate for the preceding taxation year,
- B
- is the total of all amounts each of which is the portion of the affiliate’s income (to the extent that the income is not included under the description of A) for the year, or of the affiliate’s taxable capital gain for the year that can reasonably be considered to have accrued after its 1975 taxation year, from a disposition of property
(a) that is not, at the time of disposition, excluded property of the affiliate, or
(b) that is, at the time of disposition, excluded property of the affiliate, if any of paragraphs (2)(c), (d) and (d.1), subparagraph (2)(e)(i) and paragraph 88(3)(a) applies to the disposition,
- C
- is, where the affiliate is a controlled foreign affiliate of the taxpayer, the amount that would be required to be included in computing its income for the year if
(a) subsection 94.1(1) were applicable in computing that income,
(b) the words “earned directly by the taxpayer” in that subsection were replaced by the words “earned by the person resident in Canada in respect of whom the taxpayer is a foreign affiliate”,
(c) the words “other than a controlled foreign affiliate of the taxpayer or a prescribed non-resident entity” in paragraph 94.1(1)(a) were replaced by the words “other than a prescribed non-resident entity or a controlled foreign affiliate of a person resident in Canada of whom the taxpayer is a controlled foreign affiliate”, and
(d) the words “other than a capital gain” in paragraph 94.1(1)(g) were replaced by the words “other than any income that would not be included in the taxpayer’s foreign accrual property income for the year if the value of C in the definition foreign accrual property income in subsection 95(1) were nil and other than a capital gain”,
- D
- is the total of all amounts, each of which is the affiliate’s loss for the year from property, the affiliate’s loss for the year from a business other than an active business of the affiliate or the affiliate’s loss for the year from a non-qualifying business of the affiliate, in each case that amount being determined as if there were not included in the affiliate’s income any amount described in any of paragraphs (a) to (d) of the description of A and as if each amount described in clause (2)(a)(ii)(D) that was paid or payable, directly or indirectly, by the affiliate to another foreign affiliate of the taxpayer or of a person with whom the taxpayer does not deal at arm’s length were nil where an amount in respect of the income derived by the other foreign affiliate from that amount that was paid or payable to it by the affiliate was added in computing its income from an active business,
- E
- is the lesser of
(a) the amount of the affiliate’s allowable capital losses for the year from dispositions of property (other than excluded property and property in respect of which an election is made by the taxpayer under subsection 88(3.3)) that can reasonably be considered to have accrued after its 1975 taxation year, and
(b) the total of all amounts each of which is the portion of a taxable capital gain of the affiliate that is included in the amount determined for B in respect of the affiliate for the year,
- F
- is the prescribed amount for the year,
- F.1
- is the lesser of
(a) the prescribed amount for the year, and
(b) the amount, if any, by which
(i) the total of all amounts each of which is the portion of a taxable capital gain of the affiliate that is included in the amount determined for B in respect of the affiliate for the year
exceeds
(ii) the amount determined for E in respect of the affiliate for the year,
- G
- is the amount, if any, by which
(a) the total of amounts determined for A.1 and A.2 in respect of the affiliate for the year
exceeds
(b) the total of all amounts determined for D to F.1 in respect of the affiliate for the year, and
- H
- is
(a) if the affiliate was a member of a partnership at the end of the fiscal period of the partnership that ended in the year and the partnership received a dividend at a particular time in that fiscal period from a corporation that would be, if the reference in subsection 93.1(1) to “corporation resident in Canada” were a reference to “taxpayer resident in Canada”, a foreign affiliate of the taxpayer for the purposes of sections 93 and 113 at that particular time, then the portion of the amount of that dividend that
(i) is included in the value determined for A in respect of the affiliate for the year and that would be, if the reference in subsection 93.1(2) to “corporation resident in Canada” were a reference to “taxpayer resident in Canada”, deemed by paragraph 93.1(2)(a) to have been received by the affiliate for the purposes of sections 93 and 113, and
(ii) would not be deemed under subsection 113(5) not to be a dividend received by the affiliate on a share of the capital stock of the other affiliate for the purposes of section 113, if the affiliate were a corporation resident in Canada, and
(b) in any other case, nil; (revenu étranger accumulé, tiré de biens)
- foreign accrual tax
foreign accrual tax applicable to any amount included under subsection 91(1) in computing a taxpayer’s income for a taxation year of the taxpayer in respect of a particular foreign affiliate of the taxpayer means, subject to subsection 91(4.1),
(a) the portion of any income or profits tax that may reasonably be regarded as applicable to that amount and that is paid by
(i) the particular affiliate,
(ii) another foreign affiliate (in paragraph (b) referred to as the “shareholder affiliate”) of the taxpayer where
(A) the other affiliate has an equity percentage in the particular affiliate,
(B) the income or profits tax is paid to a country other than Canada, and
(C) the other affiliate, and not the particular affiliate, is liable for that tax under the laws of that country, or
(iii) another foreign affiliate of the taxpayer in respect of a dividend received, directly or indirectly, from the particular affiliate, if that other affiliate has an equity percentage in the particular affiliate, and
(b) any amount prescribed in respect of the particular affiliate or the shareholder affiliate, as the case may be, to be foreign accrual tax applicable to that amount; (impôt étranger accumulé)
- foreign affiliate
foreign affiliate, at any time, of a taxpayer resident in Canada means a non-resident corporation in which, at that time,
(a) the taxpayer’s equity percentage is not less than 1%, and
(b) the total of the equity percentages in the corporation of the taxpayer and of each person related to the taxpayer (where each such equity percentage is determined as if the determinations under paragraph (b) of the definition equity percentage in subsection 95(4) were made without reference to the equity percentage of any person in the taxpayer or in any person related to the taxpayer) is not less than 10%,
except that a corporation is not a foreign affiliate of a non-resident-owned investment corporation; (société étrangère affiliée)
- foreign bank
foreign bank means an entity that would be a foreign bank within the meaning assigned by the definition of that expression in section 2 of the Bank Act if
(a) that definition were read without reference to the portion thereof after paragraph (g) thereof, and
(b) the entity had not been exempt under section 12 of that Act from being a foreign bank; (banque étrangère)
- income from an active business
income from an active business of a foreign affiliate of a taxpayer for a taxation year includes the foreign affiliate’s income for the taxation year that pertains to or is incident to that active business but does not include
(a) the foreign affiliate’s income from property for the taxation year,
(b) the foreign affiliate’s income for the taxation year from a business that is deemed by subsection (2) to be a business other than an active business of the foreign affiliate, or
(c) the foreign affiliate’s income from a non-qualifying business of the foreign affiliate for the taxation year; (revenu provenant d’une entreprise exploitée activement)
- income from a non-qualifying business
income from a non-qualifying business of a foreign affiliate of a taxpayer resident in Canada for a taxation year includes the foreign affiliate’s income for the taxation year that pertains to or is incident to that non-qualifying business, but does not include
(a) the foreign affiliate’s income from property for the taxation year, or
(b) the foreign affiliate’s income for the taxation year from a business that is deemed by subsection (2) to be a business other than an active business of the foreign affiliate; (revenu provenant d’une entreprise non admissible)
- income from property
income from property of a foreign affiliate of a taxpayer for a taxation year includes the foreign affiliate’s income for the taxation year from an investment business and the foreign affiliate’s income for the taxation year from an adventure or concern in the nature of trade, but does not include
(a) the foreign affiliate’s income for the taxation year from a business that is deemed by subsection (2) to be a business other than an active business of the foreign affiliate, or
(b) the foreign affiliate’s income for the taxation year that pertains to or is incident to
(i) an active business of the foreign affiliate, or
(ii) a non-qualifying business of the foreign affiliate; (revenu de biens)
- investment business
investment business of a foreign affiliate of a taxpayer means a business carried on by the foreign affiliate in a taxation year (other than a business deemed by subsection (2) to be a business other than an active business carried on by the foreign affiliate and other than a non-qualifying business of the foreign affiliate) the principal purpose of which is to derive income from property (including interest, dividends, rents, royalties or any similar returns or substitutes for such interest, dividends, rents, royalties or returns), income from the insurance or reinsurance of risks, income from the factoring of trade accounts receivable, or profits from the disposition of investment property, unless it is established by the taxpayer or the foreign affiliate that, throughout the period in the taxation year during which the business was carried on by the foreign affiliate,
(a) the business (other than any business conducted principally with persons with whom the affiliate does not deal at arm’s length) is
(i) a business carried on by it as a foreign bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities, the activities of which are regulated under the laws
(A) of each country in which the business is carried on through a permanent establishment in that country and of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued,
(B) of the country in which the business is principally carried on, or
(C) if the affiliate is related to a non-resident corporation, of the country under whose laws that non-resident corporation is governed and any of exists, was (unless that non-resident corporation was continued in any jurisdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all of those countries are members of the European Union, or
(ii) the development of real property or immovables for sale, the lending of money, the leasing or licensing of property or the insurance or reinsurance of risks,
(b) either
(i) the affiliate (otherwise than as a member of a partnership) carries on the business (the affiliate being, in respect of those times, in that period of the year, that it so carries on the business, referred to in paragraph (c) as the “operator”), or
(ii) the affiliate carries on the business as a qualifying member of a partnership (the partnership being, in respect of those times, in that period of the year, that the affiliate so carries on the business, referred to in paragraph (c) as the “operator”), and
(c) the operator employs
(i) more than five employees full time in the active conduct of the business, or
(ii) the equivalent of more than five employees full time in the active conduct of the business taking into consideration only
(A) the services provided by employees of the operator, and
(B) the services provided outside Canada to the operator by any one or more persons each of whom is, during the time at which the services were performed by the person, an employee of
(I) a corporation related to the affiliate (otherwise than because of a right referred to in paragraph 251(5)(b)),
(II) in the case where the operator is the affiliate,
1 a corporation (referred to in this subparagraph as a “providing shareholder”) that is a qualifying shareholder of the affiliate,
2 a designated corporation in respect of the affiliate, or
3 a designated partnership in respect of the affiliate, and
(III) in the case where the operator is the partnership described in subparagraph (b)(ii),
1 any person (referred to in this subparagraph as a “providing member”) who is a qualifying member of that partnership,
2 a designated corporation in respect of the affiliate, or
3 a designated partnership in respect of the affiliate,
if the corporations referred to in subclause (B)(I) and the designated corporations, designated partnerships, providing shareholders or providing members referred to in subclauses (B)(II) and (III) receive compensation from the operator for the services provided to the operator by those employees the value of which is not less than the cost to those corporations, partnerships, shareholders or members of the compensation paid or accruing to the benefit of those employees that performed the services during the time at which the services were performed by those employees; (entreprise de placement)
- investment property
investment property of a foreign affiliate of a taxpayer includes
(a) a share of the capital stock of a corporation other than a share of another foreign affiliate of the taxpayer that is excluded property of the affiliate,
(b) an interest in a partnership other than an interest in a partnership that is excluded property of the affiliate,
(c) an interest in a trust other than an interest in a trust that is excluded property of the affiliate,
(d) indebtedness or annuities,
(e) commodities or commodities futures purchased or sold, directly or indirectly in any manner whatever, on a commodities or commodities futures exchange (except commodities manufactured, produced, grown, extracted or processed by the affiliate or a person to whom the affiliate is related (otherwise than because of a right referred to in paragraph 251(5)(b)) or commodities futures in respect of such commodities),
(f) currency,
(g) real property or immovables,
(h) Canadian and foreign resource properties,
(i) interests in funds or entities other than corporations, partnerships and trusts, and
(j) interests in, or for civil law rights in, or options in respect of, property that is included in any of paragraphs (a) to (i); (bien de placement)
- lease obligation
lease obligation of a person includes an obligation under an agreement that authorizes the use of or the production or reproduction of property including information or any other thing; (obligation découlant d’un bail)
- lending of money
lending of money by a person (for the purpose of this definition referred to as the “lender”) includes
(a) the acquisition by the lender of trade accounts receivable (other than trade accounts receivable owing by a person with whom the lender does not deal at arm’s length) from another person or the acquisition by the lender of any interest in any such accounts receivable,
(b) the acquisition by the lender of loans made by and lending assets (other than loans or lending assets owing by a person with whom the lender does not deal at arm’s length) of another person or the acquisition by the lender of any interest in such a loan or lending asset,
(c) the acquisition by the lender of a foreign resource property (other than a foreign resource property that is a rental or royalty payable by a person with whom the lender does not deal at arm’s length) of another person, and
(d) the sale by the lender of loans or lending assets (other than loans or lending assets owing by a person with whom the lender does not deal at arm’s length) or the sale by the lender of any interest in such loans or lending assets;
and for the purpose of this definition, the definition lending asset in subsection 248(1) shall be read without the words “but does not include a prescribed property”; (prêt d’argent)
- licensing of property
licensing of property includes authorizing the use of or the production or reproduction of property including information or any other thing; (concession d’une licence sur un bien)
- non-qualifying business
non-qualifying business of a foreign affiliate of a taxpayer at any time means a business carried on by the foreign affiliate through a permanent establishment in a jurisdiction that, at the end of the foreign affiliate’s taxation year that includes that time, is a non-qualifying country, other than
(a) an investment business of the foreign affiliate, or
(b) a business that is deemed by subsection (2) to be a business other than an active business of the foreign affiliate; (entreprise non admissible)
- non-qualifying country
non-qualifying country, at any time, means a country or other jurisdiction
(a) with which Canada neither has a tax treaty at that time nor has, before that time, signed an agreement that will, on coming into effect, be a tax treaty,
(a.1) for which, if the time is after February 2014, the Convention on Mutual Administrative Assistance in Tax Matters — concluded at Strasbourg on January 25, 1988, as amended from time to time by a protocol, or other international instrument, as ratified by Canada — is at that time not in force and does not have effect,
(b) with which Canada does not have a comprehensive tax information exchange agreement that is in force and has effect at that time, and
(c) with which Canada has, more than 60 months before that time, either
(i) begun negotiations for a comprehensive tax information exchange agreement (unless that time is before 2014 and Canada was, on March 19, 2007, in the course of negotiating a comprehensive tax information exchange agreement with that jurisdiction), or
(ii) sought, by written invitation, to enter into negotiations for a comprehensive tax information exchange agreement (unless that time is before 2014 and Canada was, on March 19, 2007, in the course of negotiating a comprehensive tax information exchange agreement with that jurisdiction); (pays non admissible)
- participating percentage
participating percentage of a particular share owned by a taxpayer of the capital stock of a corporation in respect of any foreign affiliate of the taxpayer that was, at the end of its taxation year, a controlled foreign affiliate of the taxpayer is
(a) where the foreign accrual property income of the affiliate for that year is $5,000 or less, nil, and
(b) where the foreign accrual property income of the affiliate for that year exceeds $5,000,
(i) the percentage that would be the taxpayer’s equity percentage in the affiliate at the end of that taxation year on the assumption that the taxpayer owned no shares other than the particular share (but in no case shall that assumption be made for the purpose of determining whether or not a corporation is a foreign affiliate of the taxpayer) if
(A) the affiliate and each corporation that is relevant to the determination of the taxpayer’s equity percentage in the affiliate have, at that time, only one class of issued shares, and
(B) no foreign affiliate (referred to in this clause as the “upper-tier affiliate”) of the taxpayer that is relevant to the determination of the taxpayer’s equity percentage in the affiliate has, at that time, an equity percentage in a foreign affiliate (including, for greater certainty, the affiliate) of the taxpayer that has an equity percentage in the upper-tier affiliate, and
(ii) in any other case, the percentage determined in prescribed manner; (pourcentage de participation)
- permanent establishment
permanent establishment has the meaning assigned by regulation; (établissement stable)
- relevant tax factor
relevant tax factor, of a person or partnership for a taxation year, means
(a) in the case of a corporation, or of a partnership all the members of which, other than non-resident persons, are corporations, the quotient obtained by the formula
1/(A – B)
where
- A
- is the percentage set out in paragraph 123(1)(a), and
- B
- is
(i) in the case of a corporation, the percentage that is the corporation’s general rate reduction percentage (as defined by section 123.4) for the taxation year, and
(ii) in the case of a partnership, the percentage that would be determined under subparagraph (i) in respect of the partnership if the partnership were a corporation whose taxation year is the partnership’s fiscal period, and
(b) in any other case, 1.9; (facteur fiscal approprié)
- specified fixed interest
specified fixed interest, at any time, of an entity in a trust, means an interest of the entity as a beneficiary under the trust if
(a) the interest includes, at that time, rights of the entity as a beneficiary under the trust to receive, at or after that time and directly from the trust, income and capital of the trust,
(b) the interest was issued by the trust, at or before that time, to an entity, in exchange for consideration and the fair market value, at the time at which the interest was issued, of that consideration was equal to the fair market value, at the time at which it was issued, of the interest,
(c) the only manner in which any part of the interest may cease to be the entity’s is by way of a disposition (determined without reference to paragraph (i) of the definition disposition in subsection 248(1) and paragraph 248(8)(c)) by the entity of that part, and
(d) no amount of income or capital of the trust that any entity may receive directly from the trust at any time as a beneficiary under the trust depends on the exercise by any entity of, or the failure by any entity to exercise, a discretionary power; (participation fixe désignée)
- specified person or partnership
specified person or partnership, in respect of a taxpayer, at any time means the taxpayer or a person (other than a designated acquired corporation of the taxpayer), or a partnership, that is at that time
(a) a person (other than a partnership) that is resident in Canada and does not, at that time, deal at arm’s length with the taxpayer,
(b) a specified predecessor corporation of the taxpayer or of a specified person or partnership in respect of the taxpayer,
(c) a foreign affiliate of
(i) the taxpayer,
(ii) a person that is at that time a specified person or partnership in respect of the taxpayer under this definition because of paragraph (a) or (b), or
(iii) a partnership that is at that time a specified person or partnership in respect of the taxpayer under this definition because of paragraph (d), or
(d) a partnership a member of which is at that time a specified person or partnership in respect of the taxpayer under this definition; (personne ou société de personnes déterminée)
- specified predecessor corporation
specified predecessor corporation of a particular corporation means
(a) an antecedent corporation of the particular corporation,
(b) a predecessor corporation (within the meaning assigned by subsection 87(1)) in respect of an amalgamation by which the particular corporation was formed, or
(c) a specified predecessor corporation of a specified predecessor corporation of the particular corporation; (société remplacée déterminée)
- specified purchaser
specified purchaser, at any time, in respect of a particular taxpayer resident in Canada, means an entity that is, at that time,
(a) the particular taxpayer,
(b) an entity resident in Canada with which the particular taxpayer does not deal at arm’s length,
(c) a foreign affiliate of an entity described in any of paragraphs (a) and (b) and (d) to (f),
(d) a trust (other than an exempt trust) in which an entity described in any of paragraphs (a) to (c) and (e) and (f) is beneficially interested,
(e) a partnership of which an entity described in any of paragraphs (a) to (d) and (f) is a member, or
(f) an entity (other than an entity described in any of paragraphs (a) to (e)) with which an entity described in any of paragraphs (a) to (e) does not deal at arm’s length; (acheteur déterminé)
- surplus entitlement percentage
surplus entitlement percentage, at any time, of a taxpayer in respect of a foreign affiliate has the meaning assigned by regulation; (pourcentage de droit au surplus)
- taxable Canadian business
taxable Canadian business, at any time, of a foreign affiliate of a taxpayer resident in Canada or of a partnership of which a foreign affiliate of a taxpayer resident in Canada is a member (which foreign affiliate or partnership is referred to in this definition as the “operator”), means a business the income from which
(a) is, or would be if there were income from the business for the operator’s taxation year or fiscal period that includes that time, included in computing the foreign affiliate’s taxable income earned in Canada for a taxation year under subparagraph 115(1)(a)(ii), and
(b) is not, or would not be if there were income from the business for the operator’s taxation year or fiscal period that includes that time, exempt, because of a tax treaty with a country, from tax under this Part; (entreprise canadienne imposable)
- taxation year
taxation year in relation to a foreign affiliate of a taxpayer means the period for which the accounts of the foreign affiliate have been ordinarily made up, but no such period may exceed 53 weeks; (année d’imposition)
- trust company
trust company includes a corporation that is resident in Canada and that is a loan company as defined in subsection 2(1) of the Canadian Payments Act. (société de fiducie)
Marginal note:British Virgin Islands
(1.1) For the purposes of paragraph (b) of the definition non-qualifying country in subsection (1), the British Overseas Territory of the British Virgin Islands is deemed to have a comprehensive tax information exchange agreement with Canada that is in force and has effect after 2013 and before March 11, 2014.
Marginal note:Determination of certain components of foreign accrual property income
(2) For the purposes of this Subdivision,
(a) in computing the income or loss from an active business for a taxation year of a particular foreign affiliate of a taxpayer in respect of which the taxpayer has a qualifying interest throughout the year or that is a controlled foreign affiliate of the taxpayer throughout the year, there shall be included any income or loss of the particular foreign affiliate for the year from sources in a country other than Canada that would otherwise be income or loss from property of the particular foreign affiliate for the year to the extent that
(i) the income or loss
(A) is derived by the particular foreign affiliate from activities of the particular foreign affiliate, or of a particular partnership of which the particular foreign affiliate is a member, to the extent that the activities occur while the particular affiliate is a qualifying member of the particular partnership that can reasonably be considered to be directly related to active business activities carried on in a country other than Canada by
(I) another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year,
(II) a life insurance corporation that is resident in Canada throughout the year and that is
1 the taxpayer,
2 a person who controls the taxpayer,
3 a person controlled by the taxpayer, or
4 a person controlled by a person who controls the taxpayer,
(III) the particular foreign affiliate or a partnership of which the particular foreign affiliate is a member, to the extent that the activities occur while the particular affiliate is a qualifying member of the partnership, or
(IV) a partnership of which another foreign affiliate of the taxpayer, in respect of which the taxpayer has a qualifying interest throughout the year, is a member, to the extent that the activities occur while the other affiliate is a qualifying member of the partnership, and
(B) if any of subclauses (A)(I), (II) and (IV) applies, would be included in computing the amount prescribed to be the earnings or loss, from an active business carried on in a country other than Canada, of
(I) that other foreign affiliate referred to in subclause (A)(I) or (IV), if the income were earned by it, or
(II) the life insurance corporation referred to in subclause (A)(II), if that life insurance corporation were a foreign affiliate of the taxpayer and the income were earned by it,
(ii) the income or loss is derived from amounts that were paid or payable, directly or indirectly, to the particular foreign affiliate or a partnership of which the particular foreign affiliate was a member
(A) by a life insurance corporation that is resident in Canada and that is the taxpayer, a person who controls the taxpayer, a person controlled by the taxpayer or a person controlled by a person who controls the taxpayer, to the extent that those amounts that were paid or payable were for expenditures that are deductible in a taxation year of the life insurance corporation by the life insurance corporation in computing its income or loss for a taxation year from carrying on its life insurance business outside Canada and are not deductible in computing its income or loss for a taxation year from carrying on its life insurance business in Canada,
(B) by
(I) another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year, to the extent that those amounts that were paid or payable are for expenditures that were deductible by that other foreign affiliate in computing the amounts prescribed to be its earnings or loss for a taxation year from an active business (other than an active business carried on in Canada), or
(II) a partnership of which another foreign affiliate of the taxpayer (in respect of which other foreign affiliate the taxpayer has a qualifying interest throughout the year) is a qualifying member throughout each period, in the fiscal period of the partnership that ends in the year, in which that other foreign affiliate was a member of the partnership, to the extent that those amounts that were paid or payable are for expenditures that are deductible by the partnership in computing that other foreign affiliate’s share of any income or loss of the partnership, for a fiscal period, that is included in computing the amounts prescribed to be that other foreign affiliate’s earnings or loss for a taxation year from an active business (other than an active business carried on in Canada),
(C) by a partnership of which the particular foreign affiliate is a qualifying member throughout each period, in the fiscal period of the partnership that ends in the year, in which the particular foreign affiliate was a member of the partnership, to the extent that those amounts that were paid or payable are for expenditures that are deductible by the partnership in computing the particular foreign affiliate’s share of any income or loss of the partnership, for a fiscal period, that is included in computing the amounts prescribed to be the particular foreign affiliate’s earnings or loss for a taxation year from an active business (other than an active business carried on in Canada), or
(D) by another foreign affiliate (referred to in this clause as the “second affiliate”) of the taxpayer — in respect of which the taxpayer has a qualifying interest throughout the year — to the extent that the amounts are paid or payable by the second affiliate, in respect of any particular period in the year, under a legal obligation to pay interest in respect of
(I) borrowed money used for the purpose of earning income from property, or
(II) an amount payable for property acquired for the purpose of gaining or producing income from property
where
(III) the property is, throughout the particular period, excluded property of the second affiliate that is shares of the capital stock of a corporation (referred to in this clause as the “third affiliate”) which is, throughout the particular period, a foreign affiliate (other than the particular foreign affiliate) of the taxpayer in respect of which the taxpayer has a qualifying interest, and
(IV) in respect of each of the second affiliate and the third affiliate, for each of their taxation years (each of which is referred to in this subclause as a “relevant taxation year”) that end in the year, either
1 that affiliate is subject to income taxation in a country other than Canada in that relevant taxation year, or
2 the members or shareholders of that affiliate (which, for the purposes of this sub-subclause, includes a person that has, directly or indirectly, an interest, or for civil law a right, in a share of the capital stock of, or in an equity interest in, the affiliate) at the end of that relevant taxation year are subject to income taxation in a country other than Canada on, in aggregate, all or substantially all of the income of that affiliate for that relevant taxation year in their taxation years in which that relevant taxation year ends,
(V) [Repealed, 2014, c. 39, s. 25]
(iii) the income or loss is derived by the particular foreign affiliate from the factoring of trade accounts receivable acquired by the particular foreign affiliate, or a partnership of which the particular foreign affiliate was a member, from another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year to the extent that the accounts receivable arose in the course of an active business carried on in a country other than Canada by that other foreign affiliate,
(iv) the income or loss is derived by the particular foreign affiliate from loans or lending assets acquired by the particular foreign affiliate, or a partnership of which the particular foreign affiliate was a member, from another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year, to the extent that the loans or lending assets arose in the course of an active business carried on in a country other than Canada by that other foreign affiliate,
(v) the income or loss is derived by the particular foreign affiliate from the disposition of excluded property that is not capital property, or
(vi) the income or loss is derived by the particular foreign affiliate under or as a result of an agreement that provides for the purchase, sale or exchange of currency and that can reasonably be considered to have been made by the particular foreign affiliate to reduce
(A) its risk — with respect to an amount that increases the amount required by this paragraph to be included in computing the particular foreign affiliate’s income for a taxation year from an active business or that decreases the amount required by this paragraph to be included in computing the particular foreign affiliate’s loss for a taxation year from an active business — of fluctuations in the value of the currency in which the amount was denominated, or
(B) its risk — with respect to an amount that decreases the amount required by this paragraph to be included in computing the particular foreign affiliate’s income for a taxation year from an active business or that increases the amount required by this paragraph to be included in computing the particular foreign affiliate’s loss for a taxation year from an active business — of fluctuations in the value of the currency in which the amount was denominated;
(a.1) in computing the income from a business other than an active business for a taxation year of a foreign affiliate of a taxpayer there shall be included the income of the affiliate for the year from the sale of property (which, for the purposes of this paragraph, includes the income of the affiliate for the year from the performance of services as an agent in relation to a purchase or sale of property) where
(i) it is reasonable to conclude that the cost to any person of the property (other than property that is designated property) is relevant in computing the income from a business carried on by the taxpayer or by a person resident in Canada with whom the taxpayer does not deal at arm’s length or is relevant in computing the income from a business carried on in Canada by a non-resident person with whom the taxpayer does not deal at arm’s length, and
(ii) the property was not
(A) manufactured, produced, grown, extracted or processed in the country
(I) under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued, and
(II) in which the affiliate’s business is principally carried on,
(B) an interest in real property, or a real right in an immovable, located in, or a foreign resource property in respect of, the country
(I) under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued, and
(II) in which the affiliate’s business is principally carried on, or
(C) an indebtedness, or a lease obligation, of a person resident in Canada or in respect of a business carried on in Canada, that was purchased and sold by the affiliate on its own account,
unless more than 90% of the gross revenue of the affiliate for the year from the sale of property (other than a property the income from the sale of which is not included in computing the income from a business other than an active business of the affiliate under this paragraph because of subsection (2.31)) is derived from the sale of such property (other than a property described in subparagraph (ii) the cost of which to any person is a cost referred to in subparagraph (i)) to persons with whom the affiliate deals at arm’s length (which, for this purpose, includes a sale of property to a non-resident corporation with which the affiliate does not deal at arm’s length for sale to persons with whom the affiliate deals at arm’s length) and, where this paragraph applies to include income of the affiliate from the sale of property in the income of the affiliate from a business other than an active business,
(iii) the sale of such property shall be deemed to be a separate business, other than an active business, carried on by the affiliate, and
(iv) any income of the affiliate that pertains to or is incident to that business shall be deemed to be income from a business other than an active business;
(a.2) in computing the income from a business other than an active business for a taxation year of a foreign affiliate of a taxpayer
(i) there shall be included the income of the affiliate for the year from the insurance of specified Canadian risks (which, for the purposes of this paragraph, includes income for the year from the reinsurance of specified Canadian risks), unless more than 90% of the gross premium revenue of the affiliate for the year from the insurance of risks (net of reinsurance ceded) was in respect of the insurance of risks (other than specified Canadian risks) of persons with whom the affiliate deals at arm’s length,
(ii) if subparagraph (i) applies to include income of the affiliate from the insurance of specified Canadian risks,
(A) the insurance of those risks is deemed to be a separate business, other than an active business, carried on by the affiliate, and
(B) any income of the affiliate that pertains to or is incident to that business is deemed to be income from a business other than an active business,
(iii) there shall be included the income of the affiliate for the year in respect of the ceding of specified Canadian risks — except to the extent that the income is included because of subparagraph (i) or (ii) — which, for the purposes of this paragraph, includes
(A) income of the affiliate from services in respect of the ceding of specified Canadian risks, and
(B) except to the extent the amount is included under clause (A), the amount, if any, by which the fair market value of the consideration provided in respect of the ceding of the specified Canadian risks exceeds the affiliate’s cost in respect of those specified Canadian risks, and
(iv) if subparagraph (iii) applies to include income of the affiliate in respect of the ceding of specified Canadian risks,
(A) the ceding of those risks is deemed to be a separate business, other than an active business, carried on by the affiliate, and
(B) any income of the affiliate that pertains to or is incident to that business is deemed to be income from a business other than an active business;
(a.21) for the purposes of paragraph (a.2), one or more risks insured by a foreign affiliate of a taxpayer that, if this Act were read without reference to this paragraph, would not be specified Canadian risks (in this paragraph referred to as the foreign policy pool) are deemed to be specified Canadian risks if
(i) the affiliate, or a person or partnership that does not deal at arm’s length with the affiliate, enters into one or more agreements or arrangements in respect of the foreign policy pool,
(ii) the affiliate’s risk of loss or opportunity for gain or profit in respect of the foreign policy pool, in combination with its risk of loss or opportunity for gain in respect of the agreements or arrangements, can reasonably be considered to be — or could reasonably be considered to be if the affiliate had entered into the agreements or arrangements entered into by the person or partnership — determined, in whole or in part, by reference to one or more criteria in respect of one or more risks insured by another person or partnership (in this paragraph referred to as the tracked policy pool), which criteria are
(A) the fair market value of the tracked policy pool,
(B) the revenue, income, loss or cash flow from the tracked policy pool, or
(C) any other similar criteria, and
(iii) 10% or more of the tracked policy pool consists of specified Canadian risks;
(a.22) if the conditions in paragraph (a.21) are satisfied in respect of a foreign affiliate of a taxpayer, or a foreign affiliate of another taxpayer if that other taxpayer does not deal at arm’s length with the taxpayer, and a particular foreign affiliate of the taxpayer, or a partnership of which the particular affiliate is a member, has entered into one or more agreements or arrangements described in that paragraph,
(i) activities performed in connection with those agreements or arrangements are deemed to be a separate business, other than an active business, carried on by the particular affiliate to the extent that those activities can reasonably be considered to be performed for the purpose of obtaining the result described in subparagraph (a.21)(ii), and
(ii) any income of the particular affiliate from the business (including income that pertains to or is incident to the business) is deemed to be income from a business other than an active business;
(a.23) for the purposes of paragraphs (a.2), (a.21) and (a.24), specified Canadian risk means a risk in respect of
(i) a person resident in Canada,
(ii) a property situated in Canada, or
(iii) a business carried on in Canada;
(a.24) for the purposes of paragraph (a.2),
(i) a risk is deemed to be a specified Canadian risk of a particular foreign affiliate of a taxpayer if
(A) as part of a transaction or series of transactions, the particular affiliate insured or reinsured the risk,
(B) the risk would not be a specified Canadian risk if this Act were read without reference to this paragraph, and
(C) it can reasonably be concluded that one of the purposes of the transaction or series of transactions was to avoid the application of any of paragraphs (a.2) to (a.22), and
(ii) if the particular affiliate — or a foreign affiliate of another taxpayer, if that other taxpayer or affiliate, or a partnership of which that other taxpayer or affiliate is a member, does not deal at arm’s length with the particular affiliate — enters into one or more agreements or arrangements in respect of the risk,
(A) activities performed in connection with those agreements or arrangements are deemed to be a separate business, other than an active business, carried on by the particular affiliate or other affiliate, as the case may be, and
(B) any income of the particular affiliate or other affiliate, as the case may be, from the business (including income that pertains to or is incident to the business) is deemed to be income from a business other than an active business;
(a.3) in computing the income from a business other than an active business for a taxation year of a foreign affiliate of a taxpayer there shall be included the income of the affiliate for the year derived directly or indirectly from indebtedness and lease obligations (which, for the purposes of this paragraph, includes the income of the affiliate for the year from the purchase and sale of indebtedness and lease obligations on its own account, but does not include excluded income)
(i) of persons resident in Canada, or
(ii) in respect of businesses carried on in Canada
unless more than 90% of the gross revenue of the affiliate derived directly or indirectly from indebtedness and lease obligations (other than excluded revenue or revenue that is not included in computing the income from a business other than an active business of the affiliate under this paragraph because of subsection (2.31)) was derived directly or indirectly from indebtedness and lease obligations of non-resident persons with whom the affiliate deals at arm’s length and, where this paragraph applies to include income of the affiliate for the year in the income of the affiliate from a business other than an active business,
(iii) those activities carried out to earn such income shall be deemed to be a separate business, other than an active business, carried on by the affiliate, and
(iv) any income of the affiliate that pertains to or is incident to that business shall be deemed to be income from a business other than an active business;
(a.4) in computing the income from a business other than an active business for a taxation year of a foreign affiliate of a taxpayer there shall be included (to the extent not included under paragraph 95(2)(a.3) in such income of the affiliate for the year) that proportion of the income of the affiliate for the year derived directly or indirectly from indebtedness and lease obligations (which, for the purposes of this paragraph, includes the income of the affiliate for the year from the purchase and sale of indebtedness and lease obligations on its own account) in respect of a business carried on outside Canada by a partnership (any portion of the income or loss of which for fiscal periods of the partnership that end in the year is included or would, if the partnership had an income or loss for such fiscal periods, be included directly or indirectly in computing the income or loss of the taxpayer or a person resident in Canada with whom the taxpayer does not deal at arm’s length) that
(i) the total of all amounts each of which is the income or loss of the partnership for fiscal periods of the partnership that end in the year that are included directly or indirectly in computing the income or loss of the taxpayer or a person resident in Canada with whom the taxpayer does not deal at arm’s length
is of
(ii) the total of all amounts each of which is the income or loss of the partnership for fiscal periods of the partnership that end in the year
unless more than 90% of the gross revenue of the affiliate derived directly or indirectly from indebtedness and lease obligations was derived directly or indirectly from indebtedness and lease obligations of non-resident persons with whom the affiliate deals at arm’s length (other than indebtedness and lease obligations of a partnership described in this paragraph) and where this paragraph applies to include a proportion of the income of the affiliate for the year in the income of the affiliate from a business other than an active business
(iii) those activities carried out to earn such income of the affiliate for the year shall be deemed to be a separate business, other than an active business, carried on by the affiliate, and
(iv) any income of the affiliate that pertains to or is incident to that business shall be deemed to be income from a business other than an active business
and for the purpose of this paragraph, where the income or loss of a partnership for a fiscal period that ends in the year is nil, the proportion of the income of the affiliate that is to be included in the income of the affiliate for the year from a business other than an active business shall be determined as if the partnership had income of $1,000,000 for that fiscal period;
(b) the provision, by a foreign affiliate of a taxpayer, of services or of an undertaking to provide services
(i) is deemed to be a separate business, other than an active business, carried on by the affiliate, and any income from that business or that pertains to or is incident to that business is deemed to be income from a business other than an active business, to the extent that the amounts paid or payable in consideration for those services or for the undertaking to provide services
(A) are deductible, or can reasonably be considered to relate to amounts that are deductible, in computing the income from a business carried on in Canada, by
(I) any taxpayer of whom the affiliate is a foreign affiliate, or
(II) another taxpayer who does not deal at arm’s length with
1 the affiliate, or
2 any taxpayer of whom the affiliate is a foreign affiliate, or
(B) are deductible, or can reasonably be considered to relate to an amount that is deductible, in computing the foreign accrual property income of a foreign affiliate of
(I) any taxpayer of whom the affiliate is a foreign affiliate, or
(II) another taxpayer who does not deal at arm’s length with
1 the affiliate, or
2 any taxpayer of whom the affiliate is a foreign affiliate, and
(ii) is deemed to be a separate business, other than an active business, carried on by the affiliate, and any income from that business or that pertains to or is incident to that business is deemed to be income from a business other than an active business, to the extent that the services are, or are to be, performed by
(A) any taxpayer of whom the affiliate is a foreign affiliate,
(B) a relevant person who does not deal at arm’s length with
(I) the affiliate, or
(II) any taxpayer of whom the affiliate is a foreign affiliate,
(C) a partnership any member of which is a person described in clause (A) or (B), or
(D) a partnership in which any person or partnership described in any of clauses (A) to (C) has, directly or indirectly, a partnership interest;
(c) if a foreign affiliate (referred to in this paragraph as the “disposing affiliate”) of a taxpayer has, at any time, disposed of capital property (other than property the adjusted cost base of which, at that time, is greater than the amount that would, in the absence of this paragraph, be the disposing affiliate’s proceeds of disposition of the property in respect of the disposition) that was shares (referred to in this paragraph as the “shares disposed of”) of the capital stock of another foreign affiliate of the taxpayer to any other corporation that was, immediately after that time, a foreign affiliate (referred to in this paragraph as the “acquiring affiliate”) of the taxpayer for consideration that includes shares of the capital stock of the acquiring affiliate,
(i) the cost to the disposing affiliate of any property (other than shares of the capital stock of the acquiring affiliate) receivable by the disposing affiliate as consideration for the disposition is deemed to be the fair market value of the property at that time,
(ii) the cost to the disposing affiliate of each share of a class of the capital stock of the acquiring affiliate that is receivable by the disposing affiliate as consideration for the disposition is deemed to be the amount determined by the formula
(A – B) × C/D
where
- A
- is the total of all amounts each of which is the relevant cost base to the disposing affiliate at that time, in respect of the taxpayer, of a share disposed of,
- B
- is the fair market value at that time of the consideration receivable for the disposition (other than shares of the capital stock of the acquiring affiliate),
- C
- is the fair market value, immediately after that time, of the share, and
- D
- is the fair market value, immediately after that time, of all shares of the capital stock of the acquiring affiliate receivable by the disposing affiliate as consideration for the disposition,
(iii) the disposing affiliate’s proceeds of disposition of the shares are deemed to be an amount equal to the cost to it of all shares and other property receivable by it from the acquiring affiliate as consideration for the disposition, and
(iv) the cost to the acquiring affiliate of the shares acquired from the disposing affiliate is deemed to be an amount equal to the disposing affiliate’s proceeds of disposition referred to in subparagraph (iii);
(d) where there has been a foreign merger in which the shares owned by a foreign affiliate of a taxpayer of the capital stock of a corporation that was a predecessor foreign corporation immediately before the merger were exchanged for or became shares of the capital stock of the new foreign corporation or the foreign parent corporation, subsection 87(4) applies to the foreign affiliate as if the references in that subsection to
(i) “amalgamation” were read as “foreign merger”,
(ii) “predecessor corporation” were read as “predecessor foreign corporation”,
(iii) “new corporation” were read as “new foreign corporation or the foreign parent corporation”, and
(iv) “adjusted cost bases” were read as “relevant cost bases, in respect of the taxpayer,”;
(d.1) if there has been a foreign merger of two or more predecessor foreign corporations to form a new foreign corporation that is, immediately after the merger, a foreign affiliate of a taxpayer and one or more of the predecessor foreign corporations (each being referred to in this paragraph as a “foreign affiliate predecessor”) was, immediately before the merger, a foreign affiliate of the taxpayer,
(i) each property of the new foreign corporation that was a property of a foreign affiliate predecessor immediately before the merger is deemed to have been
(A) disposed of by the foreign affiliate predecessor immediately before the merger for proceeds of disposition equal to the relevant cost base of the property to the foreign affiliate predecessor, in respect of the taxpayer, at that time, and
(B) acquired by the new foreign corporation, at that time, at a cost equal to the amount determined under clause (A),
(ii) the new foreign corporation is deemed to be the same corporation as, and a continuation of, each foreign affiliate predecessor for the purposes of applying
(A) this subsection and the definition foreign accrual property income in subsection (1) with respect to any disposition by the new foreign corporation of any property to which subparagraph (i) applied,
(B) subsections 13(21.2), 18(15) and 40(3.4) in respect of any property that was disposed of, at any time before the merger, by a foreign affiliate predecessor, and
(C) paragraph 40(3.5)(c) in respect of any share that was deemed under that paragraph to be owned, at any time before the merger, by a foreign affiliate predecessor, and
(iii) for the purposes of the description of A.2 in the definition foreign accrual property income in subsection (1), the total of all amounts each of which is the amount determined for G in respect of a foreign affiliate predecessor for its last taxation year that ends on or before the time of the merger is deemed to be the amount determined for G in respect of the new foreign corporation for its taxation year that immediately precedes its first taxation year;
(e) notwithstanding subsection 69(5), if at any time a foreign affiliate (referred to in this paragraph as the “shareholder affiliate”) of a taxpayer receives a property (referred to in this paragraph as the “distributed property”) from another foreign affiliate (referred to in this paragraph as the “disposing affiliate”) of the taxpayer on a liquidation and dissolution of the disposing affiliate and the distributed property is received in respect of shares of the capital stock of the disposing affiliate that are disposed of on the liquidation and dissolution,
(i) the distributed property is deemed to have been disposed of at that time by the disposing affiliate to the shareholder affiliate for proceeds of disposition equal to the relevant cost base to the disposing affiliate of the distributed property in respect of the taxpayer, immediately before that time, if
(A) the liquidation and dissolution is a designated liquidation and dissolution of the disposing affiliate, or
(B) the distributed property is a share of the capital stock of another foreign affiliate of the taxpayer that was, immediately before that time, excluded property of the disposing affiliate,
(ii) if subparagraph (i) does not apply to the distributed property, the distributed property is deemed to have been disposed of at that time by the disposing affiliate to the shareholder affiliate for proceeds of disposition equal to the distributed property’s fair market value at that time,
(iii) the distributed property is deemed to have been acquired, at that time, by the shareholder affiliate at a cost equal to the amount determined under subparagraph (i) or (ii) to be the disposing affiliate’s proceeds of disposition of the distributed property,
(iv) each share of a class of the capital stock of the disposing affiliate that is disposed of by the shareholder affiliate on the liquidation and dissolution of the disposing affiliate is deemed to be disposed of for proceeds of disposition equal to
(A) if the liquidation and dissolution is a designated liquidation and dissolution of the disposing affiliate
(I) where the amount that would, if clause (B) applied, be determined under that clause in respect of the share is greater than or equal to the adjusted cost base of the share to the shareholder affiliate immediately before the disposition, that adjusted cost base, or
(II) where the adjusted cost base of the share to the shareholder affiliate immediately before the disposition exceeds the amount that would, if clause (B) applied, be determined under that clause in respect of the share
1 if the share is not excluded property of the shareholder affiliate, that adjusted cost base, and
2 in any other case, the amount that would be determined under clause (B), and
(B) in any other case, the amount determined by the formula
(A – B)/C
where
- A
- is the total of all amounts each of which is the cost to the shareholder affiliate of a distributed property, as determined under subparagraph (iii), received, at any time, in respect of the class,
- B
- is the total of all amounts each of which is an amount owing (other than an unpaid dividend) by, or an obligation of, the disposing affiliate that was assumed or cancelled by the shareholder affiliate in consideration for the distribution of a distributed property referred to in the description of A, and
- C
- is the total number of issued and outstanding shares of the class that are owned by the shareholder affiliate during the liquidation and dissolution, and
(v) if the liquidation and dissolution is a designated liquidation and dissolution of the disposing affiliate,
(A) the shareholder affiliate is deemed to be the same corporation as, and a continuation of, the disposing affiliate for the purposes of applying
(I) this subsection and the definition foreign accrual property income in subsection (1) with respect to any disposition by the shareholder affiliate of any property to which clause (i)(A) applied,
(II) subsections 13(21.2), 18(15) and 40(3.4) in respect of any property that was disposed of, at any time before the liquidation and dissolution, by the disposing affiliate, and
(III) paragraph 40(3.5)(c) in respect of any share that was deemed under that paragraph to be owned, at any time before the liquidation and dissolution, by the disposing affiliate, and
(B) for the purposes of the description of A.2 in the definition foreign accrual property income in subsection (1), the amount, if any, determined for G in respect of the disposing affiliate for its first taxation year that ends after the beginning of the liquidation and dissolution is to be added to the amount otherwise determined for G in respect of the shareholder affiliate for its taxation year that immediately precedes its taxation year that includes the time at which the liquidation and dissolution began;
(e.1) [Repealed, 2013, c. 34, s. 70]
(f) except as otherwise provided in this Subdivision and except to the extent that the context otherwise requires, a foreign affiliate of a taxpayer is deemed to be at all times resident in Canada for the purposes of determining, in respect of the taxpayer for a taxation year of the foreign affiliate, each amount that is the foreign affiliate’s
(i) capital gain, capital loss, taxable capital gain or allowable capital loss from a disposition of a property, or
(ii) income or loss from a property, from a business other than an active business or from a non-qualifying business;
(f.1) in computing an amount described in paragraph (f) in respect of a property or a business, there is not to be included any portion of that amount that can reasonably be considered to have accrued, in respect of the property (including for the purposes of this paragraph any property for which the property was substituted) or the business, while no person or partnership that held the property or carried on the business was a specified person or partnership in respect of the taxpayer referred to in paragraph (f);
(f.11) in determining an amount described in paragraph (f) for a taxation year of a foreign affiliate of a taxpayer,
(i) if the amount is described in subparagraph (f)(i), this Act is to be
(A) read without reference to section 26 of the Income Tax Application Rules, and
(B) applied as if, in respect of any debt obligation owing by the foreign affiliate or a partnership of which the foreign affiliate is a member (which foreign affiliate or partnership is referred to in this clause as the “debtor”), each capital gain or loss of the debtor that is deemed to arise under subsection 39(2) or (3) in respect of the debt obligation were from a disposition of property that was held by the debtor throughout the period during which the debt obligation was owed by the debtor and, for greater certainty, at the time of the disposition,
(ii) if the amount is described in subparagraph (f)(ii),
(A) this Act is to be read without reference to subsections 17(1), 18(4), 18.2(2) and 18.4(4) and section 91, except that, where the foreign affiliate is a member of a partnership, section 91 is to be applied to determine the income or loss of the partnership and for that purpose subsection 96(1) is to be applied to determine the foreign affiliate’s share of that income or loss of the partnership,
(B) if the foreign affiliate has, in the taxation year, disposed of a foreign resource property in respect of a country, it is deemed to have designated, in respect of the disposition and in accordance with subparagraph 59(1)(b)(ii) for the taxation year, the amount, if any, by which
(I) the amount determined under paragraph 59(1)(a) in respect of the disposition
exceeds
(II) the amount determined under subparagraph 59(1)(b)(i) in respect of the disposition,
(C) this Act is to be applied as if, in respect of any debt obligation owing by the foreign affiliate or a partnership of which the foreign affiliate is a member (which foreign affiliate or partnership is referred to in this clause as the “debtor”), each amount of income or loss of the debtor — from a property, from a business other than an active business or from a non-qualifying business — in respect of the debt obligation were from such a property that was held, or such a business that was carried on, as the case may be, by the debtor throughout the period during which the debt obligation was owed by the debtor and at the time at which the debt obligation was settled or extinguished,
(D) if the foreign affiliate is a controlled foreign affiliate of the taxpayer at the end of the taxation year, and the taxpayer is not an excluded entity (as defined in subsection 18.2(1)) for its taxation year (referred to in this clause as the “taxpayer year”) in which the taxation year ends,
(I) notwithstanding any other provision of this Act, no deduction shall be made in respect of any amount that is included in the affiliate’s relevant affiliate interest and financing expenses (as defined in subsection 18.2(1)) for the taxation year, to the extent of the proportion of that amount that is determined by the first formula in subsection 18.2(2) in respect of the taxpayer for the taxpayer year, and
(II) an amount is to be included, in determining the amount described in subparagraph (f)(ii) for the taxation year, that is equal to the amount that would be included under paragraph 12(1)(l.2) in determining the amount described in subparagraph (f)(ii) for the taxation year if
1 clause (A) were read without regard to its reference to subsection 18.2(2), and
2 the proportion that applied for the purposes of subparagraph (ii) of the description of B in paragraph 12(1)(l.2) were the proportion that is determined by the first formula in subsection 18.2(2) in respect of the taxpayer for the taxpayer year,
(E) notwithstanding any other provision of this Act, no deduction shall be made in respect of one or more amounts (each referred to in this clause as an “elected amount”) if
(I) the elected amount would, in the absence of this clause, clause (D) and subsection 18.2(19),
1 be included in the foreign affiliate’s relevant affiliate interest and financing expenses (as defined in subsection 18.2(1)) for the taxation year, and
2 be deductible in determining the amount described in subparagraph (f)(ii),
(II) the total of the elected amounts is equal to the lesser of the following amounts (determined without regard to this clause, clause (D) and subsection 18.2(19)):
1 the foreign affiliate’s foreign accrual property loss (as defined in subsection 5903(3) of the Income Tax Regulations) for the taxation year, and
2 the foreign affiliate’s relevant affiliate interest and financing expenses (as defined in subsection 18.2(1)) for the taxation year,
(III) the taxpayer files with the Minister, in respect of the elected amounts, an election in writing in prescribed manner under this clause,
(IV) the election specifies
1 each of the elected amounts,
2 the foreign affiliate’s relevant affiliate interest and financing expenses (as defined in subsection 18.2(1)) (determined without regard to this clause and subsection 18.2(19)) for the taxation year,
3 the foreign affiliate’s relevant affiliate interest and financing expenses (as defined in subsection 18.2(1)) for the taxation year,
4 the foreign affiliate’s foreign accrual property loss (as defined in subsection 5903(3) of the Income Tax Regulations) (determined without regard to this clause, clause (D) and subsection 18.2(19)) for the taxation year, and
5 the foreign affiliate’s foreign accrual property loss (as defined in subsection 5903(3) of the Income Tax Regulations) or foreign accrual property income, as the case may be, for the taxation year, and
(V) the election is filed on or before the filing-due date of the taxpayer for its taxation year in which the taxation year ends, and
(F) the following rules apply for the purposes of applying subsection 12.7(3) and the related provisions of section 18.4 in respect of a payment of which the foreign affiliate, or a partnership of which the foreign affiliate is a member, is a recipient:
(I) the definitions in subsection 18.4(1) apply for the purposes of this clause,
(II) subsection 12.7(3) is deemed not to apply in respect of the payment if
1 the foreign affiliate’s income or loss derived from the payment is included under subparagraph (a)(ii) in computing the foreign affiliate’s income or loss from an active business for a taxation year, or
2 in the case of a payment that subsection 18.4(9) deems to be made to the foreign affiliate or the partnership by a particular entity in respect of a notional interest expense on a particular debt, any income or loss that were derived by the foreign affiliate from the payment would, based on the relevant assumptions in respect of the payment, be included under subparagraph (a)(ii) in computing the foreign affiliate’s income or loss from an active business for a taxation year,
(III) for the purposes of sub-subclause (II)2, the relevant assumptions in respect of the payment are
1 the payment is an amount of interest paid by the particular entity to the foreign affiliate or the partnership, as the case may be, under a legal obligation to pay interest on the particular debt in the taxation year of the foreign affiliate or the partnership in which an amount in respect of the payment would, in the absence of subclause (II), be included under subsection 12.7(3) in the income of the foreign affiliate or partnership, and
2 any amount that is deductible, in respect of the notional interest expense, is an amount deductible in respect of an expenditure for which the payment was made, and
(IV) the definition Canadian ordinary income in subsection 18.4(1) is to be read as if
1 its subparagraph (a)(ii) read as follows:
“(ii) the amount is described in paragraph (b) or (c) of the description of A in the definition foreign accrual property income in subsection 95(1), or”, and
2 the description of D in its paragraph (b) read as follows:
“D is the total of all amounts, each of which is an amount, in respect of the payment, that is included in the description of H in the definition foreign accrual property income in subsection 95(1) in computing the foreign accrual property income of a member of the partnership for a taxation year; or”;
(f.12) a foreign affiliate of a taxpayer shall determine each of the following amounts using its calculating currency for a taxation year:
(i) subject to paragraph (f.13), each capital gain, capital loss, taxable capital gain and allowable capital loss (other than a gain or loss in respect of a debt referred to in subparagraph (i)(i) or (ii)) of the foreign affiliate for the taxation year from the disposition, at any time, of a property that, at that time, was an excluded property of the foreign affiliate,
(ii) its income or loss for the taxation year from each active business carried on by it in the taxation year in a country, and
(iii) its income or loss that is included in computing its income or loss from an active business for the taxation year because of paragraph (a);
(f.13) where the calculating currency of a foreign affiliate of a taxpayer is a currency other than Canadian currency, the foreign affiliate shall determine the amount included in computing its foreign accrual property income, in respect of the taxpayer for a taxation year of the foreign affiliate, attributable to its capital gain or taxable capital gain, from the disposition of an excluded property in the taxation year, in Canadian currency by converting the amount of the capital gain, or taxable capital gain, otherwise determined under subparagraph (f.12)(i) using its calculating currency for the taxation year into Canadian currency using the rate of exchange quoted by the Bank of Canada on the day on which the disposition was made, or another rate of exchange that is acceptable to the Minister;
(f.14) a foreign affiliate of a taxpayer is to determine using Canadian currency each amount of its income, loss, capital gain, capital loss, taxable capital gain or allowable capital loss for a taxation year, other than an amount to which paragraph (f.12), (f.13) or (f.15) applies;
(f.15) for the purposes of applying subparagraph (f)(i), the references in subsection 39(2) to “Canadian currency” are to be read as “the taxpayer’s calculating currency”
(i) in respect of a debt obligation owing by a foreign affiliate of a taxpayer, or a partnership of which the foreign affiliate is a member, that is a debt referred to in subparagraph (i)(i) or (ii), and
(ii) in respect of an agreement described in subparagraph (i)(iii) entered into by a foreign affiliate of a taxpayer, or a partnership of which the foreign affiliate is a member;
(g) income earned, a loss incurred or a capital gain or capital loss realized, as the case may be, in a taxation year by a particular foreign affiliate of a taxpayer in respect of which the taxpayer has a qualifying interest throughout the taxation year or a particular foreign affiliate of a taxpayer that is a controlled foreign affiliate of the taxpayer throughout the taxation year, because of a fluctuation in the value of the currency of a country other than Canada relative to the value of Canadian currency, is deemed to be nil if it is earned, incurred or realized in reference to any of the following sources:
(i) a debt obligation that was owing to
(A) another foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout the year (which other foreign affiliate is referred to in this paragraph as a “qualified foreign affiliate”) by the particular affiliate, or
(B) the particular affiliate by a qualified foreign affiliate,
(ii) the redemption, acquisition or cancellation of, or a qualifying return of capital (within the meaning assigned by subsection 90(3)) in respect of, a share of the capital stock of a qualified foreign affiliate by the qualified foreign affiliate, or
(iii) the disposition to a qualified foreign affiliate of a share of the capital stock of another qualified foreign affiliate;
(g.01) any income, loss, capital gain or capital loss, derived by a foreign affiliate of a taxpayer under or as a result of an agreement that provides for the purchase, sale or exchange of currency and that can reasonably be considered to have been made by the foreign affiliate to reduce its risk (with respect to any source, any particular income, gain or loss determined in reference to which is deemed by paragraph (g) to be nil) of fluctuations in the value of currency, is, to the extent of the absolute value of the particular income, gain or loss, deemed to be nil;
(g.02) [Repealed, 2013, c. 34, s. 70]
(g.03) if at any time a particular foreign affiliate referred to in paragraph (g) is a member of a partnership or a qualified foreign affiliate referred to in that paragraph is a member of a partnership,
(i) in applying this paragraph, where a debt obligation is owing at that time by a debtor to the partnership of which the particular foreign affiliate is a member, the debt obligation is deemed to be owing at that time by the debtor to the particular foreign affiliate in the proportion that the particular foreign affiliate shared in any income earned, loss incurred or capital gain or capital loss realized by the partnership in respect of the debt obligation,
(ii) in applying this paragraph, where a debt obligation is owing at that time to a creditor by the partnership of which the particular foreign affiliate is a member, the debt obligation is deemed to be owing at that time to the creditor by the particular foreign affiliate in the proportion that the particular foreign affiliate shared in any income earned, loss incurred or capital gain or capital loss realized by the partnership in respect of the debt obligation,
(iii) in applying paragraph (g) and this paragraph, where a debt obligation is owing at that time by a debtor to the partnership of which the qualified foreign affiliate is a member, the debt obligation is deemed to be owing at that time by the debtor to the qualified foreign affiliate in the proportion that the qualified foreign affiliate shared in any income earned, loss incurred or capital gain or capital loss realized by the partnership in respect of the debt obligation,
(iv) in applying paragraph (g) and this paragraph, where a debt obligation is owing at that time to a creditor by the partnership of which the qualified foreign affiliate is a member, the debt obligation is deemed to be owing at that time to the creditor by the qualified foreign affiliate in the proportion that the qualified foreign affiliate shared in any income earned, loss incurred or capital gain or capital loss realized by the partnership in respect of the debt obligation, and
(v) in computing the particular foreign affiliate’s income or loss from a partnership, any income earned, loss incurred or capital gain or capital loss realized, as the case may be, by the partnership — in respect of the portion of a debt obligation owing to or owing by the partnership that is deemed by any of subparagraphs (i) to (iv) to be a debt obligation owing to or owing by the particular foreign affiliate (referred to in this subparagraph as the “allocated debt obligation”) — because of a fluctuation in the value of the currency of a country other than Canada relative to the value of Canadian currency, that is attributable to the allocated debt obligation is deemed to be nil to the extent that paragraph (g) would, if the rules in subparagraphs (i) to (iv) were applied, have applied to the particular foreign affiliate, to deem to be nil the income earned, loss incurred or capital gain or capital loss realized, as the case may be, by the particular foreign affiliate in respect of the allocated debt obligation, because of a fluctuation in the value of the currency of a country other than Canada relative to the value of Canadian currency;
(g.04) if at any time a corporation resident in Canada or a partnership of which such a corporation is a member (such corporation or partnership referred to in this paragraph as the “borrowing party”) has received a loan from, or become indebted to, a creditor that is a foreign affiliate (referred to in this paragraph as a “creditor affiliate”) of a qualifying entity (in this paragraph within the meaning assigned by subsection 39(2.2)), or that is a partnership (referred to in this paragraph as a “creditor partnership”) of which such an affiliate is a member, and the loan or indebtedness is at a later time repaid, in whole or in part, then the amount of the creditor affiliate’s or creditor partnership’s capital gain or capital loss, as the case may be, determined in the absence of this paragraph, in respect of the repayment, is to be reduced
(i) in the case of a capital loss
(A) if the creditor is a creditor affiliate, by an amount, not exceeding the amount of that capital loss so determined, that is determined by the formula
A/B
where
- A
- is the amount by which the borrowing party’s capital gain is reduced under paragraph 39(2.1)(a) in respect of that repayment, and
- B
- is the total of all participating percentages, determined at the end of the taxation year of the creditor affiliate that includes the later time, of shares of the capital stock of a foreign affiliate that are owned by qualifying entities and on which an amount would be included under subsection 91(1), on the assumptions that
(I) the capital loss of the creditor affiliate, determined in the absence of this paragraph, in respect of the repayment of the loan or indebtedness were a capital gain of the creditor affiliate, and
(II) neither the creditor affiliate nor any other foreign affiliate of a qualifying entity had any other income, gain or loss for any taxation year, and
(B) if the creditor is a creditor partnership, by an amount, not exceeding the capital loss so determined, that is equal to the amount determined by the formula
A/(B × C)
where
- A
- is the amount by which the borrowing party’s capital gain is reduced under paragraph 39(2.1)(a) in respect of that repayment,
- B
- is the proportion that the amount of the capital loss of the creditor partnership in respect of the repayment of the loan or indebtedness, determined in the absence of this paragraph, that would be included in the determination of the income, gain or loss of the members of the creditor partnership that are foreign affiliates of qualifying entities is of the amount of the capital loss so determined, and
- C
- is the total of all participating percentages, each of which is the participating percentage in respect of a share of the capital stock of a foreign affiliate of a qualifying entity, and that is owned by a qualifying entity, that is relevant in determining the amount that would be included in computing a qualifying entity’s income under subsection 91(1), on the assumptions that
(I) the capital loss of the creditor partnership, determined in the absence of this paragraph, in respect of the repayment of the loan or indebtedness were a capital gain of the creditor partnership, and
(II) neither the creditor partnership nor any foreign affiliate of a qualifying entity had any other income, gain or loss for any taxation year, and
(ii) in the case of a capital gain,
(A) if the creditor is a creditor affiliate, by an amount, not exceeding that capital gain so determined, that is equal to the amount determined by the formula
A/B
where
- A
- is the amount by which the borrowing party is required to reduce its capital loss under paragraph 39(2.1)(b) in respect of that repayment, and
- B
- is the total of all participating percentages, determined at the end of the taxation year of the creditor affiliate that includes the later time, of shares of the capital stock of a foreign affiliate that are owned by qualifying entities and on which an amount would be included under subsection 91(1), on the assumption that neither the creditor affiliate nor any foreign affiliate of a qualifying entity had any other income, gain or loss for any taxation year other than its capital gain, determined in the absence of this paragraph, in respect of the repayment of the loan or indebtedness, and
(B) if the creditor is a creditor partnership, by an amount, not exceeding the capital loss so determined, that is equal to the amount determined by the following formula
A/(B × C)
where
- A
- is the amount by which the borrowing party is required to reduce its capital loss under paragraph 39(2.1)(b) in respect of that repayment,
- B
- is the proportion that the amount of the capital gain of the creditor partnership in respect of the repayment of the loan or indebtedness, determined in the absence of this paragraph, that would be included in the determination of the income, gain or loss of the members of the creditor partnership that are foreign affiliates of qualifying entities is of the amount of the capital gain so determined, and
- C
- is the total of all participating percentages, each of which is the participating percentage in respect of a share of the capital stock of a foreign affiliate of a qualifying entity, and that is owned by a qualifying entity, that is relevant in determining the amount that would be included in computing a qualifying entity’s income under subsection 91(1), on the assumption that neither the creditor partnership nor any foreign affiliate of a qualifying entity had any other income, gain or loss for any taxation year;
(g.1) in computing the foreign accrual property income of a foreign affiliate of a taxpayer the Act shall be read
(i) as if the expression “income, taxable income or taxable income earned in Canada, as the case may be” in the definition commercial debt obligation in subsection 80(1) were read as “foreign accrual property income (within the meaning assigned by subsection 95(1))”, and
(ii) without reference to subsections 80(3) to 80(12) and 80(15) and 80.01(5) to 80.01(11) and sections 80.02 to 80.04;
(g.2) for the purpose of computing the foreign accrual property income of a foreign affiliate of any taxpayer resident in Canada for a taxation year of the affiliate, an election made pursuant to paragraph 86.1(2)(f) in respect of a distribution received by the affiliate in a particular taxation year of the affiliate is deemed to have been filed under that paragraph by the affiliate if
(i) where there is only one taxpayer resident in Canada in respect of whom the affiliate is a controlled foreign affiliate, the election is filed by the taxpayer with the taxpayer’s return of income for the taxpayer’s taxation year in which the particular year of the affiliate ends, and
(ii) where there is more than one taxpayer resident in Canada in respect of whom the affiliate is a controlled foreign affiliate, all of those taxpayers jointly elect in writing and each of them files the joint election with the Minister with their return of income for their taxation year in which the particular year of the affiliate ends;
(h) [Repealed, 2001, c. 17, s. 73]
(i) any income, gain or loss of a foreign affiliate of a taxpayer or of a partnership of which a foreign affiliate of a taxpayer is a member (which foreign affiliate or partnership is referred to in this paragraph as the “debtor”), for a taxation year or fiscal period of the debtor, as the case may be, is deemed to be income, a gain or a loss, as the case may be, from the disposition of an excluded property of the debtor, if the income, gain or loss is
(i) derived from the settlement or extinguishment of a debt of the debtor all or substantially all of the proceeds from which
(A) were used to acquire property, if at all times after the time at which the debt became debt of the debtor and before the time of that settlement or extinguishment, the property (or property substituted for the property) was property of the debtor and was, or would if the debtor were a foreign affiliate of the taxpayer be, excluded property of the debtor,
(B) were used at all times to earn income from an active business carried on by the debtor, or
(C) were used by the debtor for a combination of the uses described in clause (A) or (B),
(ii) derived from the settlement or extinguishment of a debt of the debtor all or substantially all of the proceeds from which were used to settle or extinguish a debt referred to in subparagraph (i) or in this subparagraph, or
(iii) derived under or as a result of an agreement that provides for the purchase, sale or exchange of currency and that can reasonably be considered to have been made by the debtor to reduce its risk, with respect to a debt referred to in subparagraph (i) or (ii), of fluctuations in the value of the currency in which the debt was denominated;
(j) the adjusted cost base to a foreign affiliate of a taxpayer of an interest in a partnership at any time shall be such amount as is prescribed by regulation; and
(j.1) paragraph (j.2) applies if, in a particular taxation year of a foreign affiliate of a taxpayer or in a particular fiscal period of a partnership (which foreign affiliate or partnership is referred to in this paragraph and paragraph (j.2) as the “operator” and which particular taxation year or particular fiscal period is referred to in this paragraph and paragraph (j.2) as the “specified taxation year”) a member of which is, at the end of the period, a foreign affiliate of a taxpayer,
(i) the operator carries on a business,
(ii) the business includes the insuring of risks,
(iii) the business is not, at any time, a taxable Canadian business,
(iv) the business is
(A) an investment business,
(B) a non-qualifying business, or
(C) a business whose activities include activities deemed by paragraph (a.2) or (b) to be a separate business, other than an active business, carried on by the affiliate, and
(v) in respect of the investment business, non-qualifying business or separate business (each of these businesses being referred to in this subparagraph and paragraph (j.2) as a “foreign business”), as the case may be, the operator would, if it were a corporation carrying on the foreign business in Canada, be required by law to report to, and be subject to the supervision of, a regulatory authority that is the Superintendent of Financial Institutions or is a similar authority of a province;
(j.2) if this paragraph applies, in computing the operator’s income or loss from the foreign business for the specified taxation year and each subsequent taxation year or fiscal period in which the foreign business is carried on by the operator
(i) the operator is deemed to carry on the foreign business in Canada throughout that part of the specified taxation year, and of each of those subsequent taxation years or fiscal periods, in which the foreign business is carried on by the operator, and
(ii) for the purposes of Part XIV of the Income Tax Regulations,
(A) the operator is deemed to be required by law to report to, and to be subject to the supervision of, the regulatory authority referred to in subparagraph (j.1)(v), and
(B) if the operator is a life insurer and the foreign business is part of a life insurance business, the life insurance policies issued in the conduct of the foreign business are deemed to be life insurance policies in Canada;
(k) paragraph (k.1) applies if
(i) in a particular taxation year of a foreign affiliate of a taxpayer or in a particular fiscal period of a partnership (which foreign affiliate or partnership is referred to in this paragraph and paragraph (k.1) as the “operator” and which particular taxation year or particular fiscal period is referred to in this paragraph and paragraph (k.1) as the “specified taxation year”) a member of which is, at the end of the period, a foreign affiliate of a taxpayer,
(A) the operator carries on a business,
(B) the business is not, at any time, a taxable Canadian business, and
(C) the business is
(I) an investment business,
(II) a non-qualifying business,
(III) a business whose activities include activities deemed by any of paragraphs (a.1) to (b) to be a separate business, other than an active business, carried on by the affiliate, or
(IV) a business the income from which is included by paragraph (l) in computing the affiliate’s income from property for the specified taxation year, and
(ii) in the taxation year of the affiliate or the fiscal period of the partnership that includes the day that is immediately before the beginning of the specified taxation year,
(A) the affiliate or partnership carried on the business, or the activities so deemed to be a separate business, as the case may be,
(B) the business was not, or the activities were not, as the case may be, at any time, part of a taxable Canadian business, and
(C) the business was not described in any of subclauses (i)(C)(I), (II) and (IV), or the activities were not described in subclause (i)(C)(III), as the case may be;
(k.1) if this paragraph applies, in computing the operator’s income or loss from the investment business, non-qualifying business, separate business or business described in paragraph (l) (each of these businesses being referred to in this paragraph as a “foreign business”), as the case may be, and the operator’s capital gain or capital loss from the disposition of property used or held in the course of carrying on the foreign business, for the specified taxation year and each subsequent taxation year or fiscal period in which the foreign business is carried on by the operator
(i) the operator is deemed
(A) to begin to carry on the foreign business in Canada at the beginning of the specified taxation year, and
(B) to carry on the foreign business in Canada throughout that part of the specified taxation year, and of each of those subsequent taxation years or fiscal periods, in which the foreign business is carried on by the operator,
(ii) where, in respect of the foreign business, the operator would, if it were a corporation carrying on the foreign business in Canada, be required by law to report to, and be subject to the supervision of, a regulatory authority that is the Superintendent of Financial Institutions or a similar authority of a province,
(A) the operator is deemed to be required by law to report to, and to be subject to the supervision of, the regulatory authority, and
(B) if the operator is a life insurer and the foreign business is part of a life insurance business, the life insurance policies issued in the conduct of the foreign business are deemed to be life insurance policies in Canada, and
(iii) paragraphs 138(11.91)(c) to (e) apply to the operator for the specified taxation year in respect of the foreign business as if
(A) the operator were the insurer referred to in subsection 138(11.91),
(B) the specified taxation year of the operator were the particular taxation year of the insurer referred to in that subsection,
(C) the foreign business of the operator were the business of the insurer referred to in that subsection, and
(D) the reference in paragraph 138(11.91)(e) to “property owned by it at that time that is designated insurance property in respect of the business” were read as a reference to “property owned or held by it at that time that is used or held by it in the particular taxation year in the course of carrying on the insurance business”;
(k.2) for the purposes of paragraphs (j.1) to (k.1) and the definition taxable Canadian business in subsection (1), any portion of a business carried on by a person or partnership that is carried on in Canada is deemed to be a business that is separate from any other portion of the business carried on by the person or partnership;
(l) in computing the income from property for a taxation year of a foreign affiliate of a taxpayer there shall be included the income of the affiliate for the year from a business (other than an investment business of the affiliate) the principal purpose of which is to derive income from trading or dealing in indebtedness (which for the purpose of this paragraph includes the earning of interest on indebtedness) other than
(i) indebtedness owing by persons with whom the affiliate deals at arm’s length who are resident in the country in which the affiliate was formed or continued and exists and is governed and in which the business is principally carried on, or
(ii) trade accounts receivable owing by persons with whom the affiliate deals at arm’s length,
unless it is established by the taxpayer or the foreign affiliate that, throughout the period in the taxation year during which the business was carried on by the affiliate,
(iii) the business (other than any business conducted principally with persons with whom the affiliate does not deal at arm’s length) is carried on by the affiliate as a foreign bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities, the activities of which are regulated under the laws
(A) of each country in which the business is carried on through a permanent establishment in that country and of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued,
(B) of the country in which the business is principally carried on, or
(C) if the affiliate is related to a non-resident corporation, of the country under whose laws that non-resident corporation is governed and any of exists, was (unless that non-resident corporation was continued in any jurisdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all of those countries are members of the European Union.
(iv) [Repealed, 2018, c. 27, s. 7]
(m) a taxpayer has a qualifying interest in respect of a foreign affiliate of the taxpayer at any time if, at that time, the taxpayer owned
(i) not less than 10% of the issued and outstanding shares (having full voting rights under all circumstances) of the affiliate, and
(ii) shares of the affiliate having a fair market value of not less than 10% of the fair market value of all the issued and outstanding shares of the affiliate
and for the purpose of this paragraph
(iii) where, at any time, shares of a corporation are owned or are deemed for the purposes of this paragraph to be owned by another corporation (in this paragraph referred to as the “holding corporation”), those shares shall be deemed to be owned at that time by each shareholder of the holding corporation in a proportion equal to the proportion of all such shares that
(A) the fair market value of the shares of the holding corporation owned at that time by the shareholder
is of
(B) the fair market value of all the issued shares of the holding corporation outstanding at that time,
(iv) where, at any time, shares of a corporation are property of a partnership or are deemed for the purposes of this paragraph to be property of a partnership, those shares shall be deemed to be owned at that time by each member of the partnership in a proportion equal to the proportion of all such shares that
(A) the member’s share of the income or loss of the partnership for its fiscal period that includes that time
is of
(B) the income or loss of the partnership for its fiscal period that includes that time
and for the purpose of this subparagraph, where the income and loss of the partnership for its fiscal period that includes that time are nil, that proportion shall be computed as if the partnership had income for the period in the amount of $1,000,000, and
(v) where, at any time, a person is a holder of convertible property issued by the affiliate before June 23, 1994 the terms of which confer on the holder the right to exchange the convertible property for shares of the affiliate and the taxpayer elects in its return of income for its first taxation year that ends after 1994 to have the provisions of this subparagraph apply to the taxpayer in respect of all the convertible property issued by the affiliate and outstanding at that time, each holder shall, in respect of the convertible property held by it at that time, be deemed to have, immediately before that time,
(A) exchanged the convertible property for shares of the affiliate, and
(B) acquired shares of the affiliate in accordance with the terms and conditions of the convertible property;
(n) in applying paragraphs (a) and (g), paragraph (b) of the description of A in the formula in the definition foreign accrual property income in subsection (1), subsections (2.2), (2.21) and 93.1(5) and paragraph (d) of the definition exempt earnings, and paragraph (c) of the definition exempt loss, in subsection 5907(1) of the Income Tax Regulations, a non-resident corporation is deemed to be, at any time, a foreign affiliate of a particular corporation resident in Canada, and a foreign affiliate of the particular corporation in respect of which the particular corporation has a qualifying interest, if at that time
(i) the non-resident corporation is a foreign affiliate of another corporation that is resident in Canada and that is related (otherwise than because of a right referred to in paragraph 251(5)(b)) to the particular corporation, and
(ii) that other corporation has a qualifying interest in respect of the non-resident corporation;
(o) a particular person is a qualifying member of a partnership at a particular time if, at that time, the particular person is a member of the partnership and
(i) throughout the period, in the fiscal period of the partnership that includes the particular time, during which the member was a member of the partnership, the particular person is, on a regular, continuous and substantial basis
(A) actively engaged in those activities, of the principal business of the partnership carried on in that fiscal period by the partnership, that are other than activities connected with the provision of or the acquisition of funds required for the operation of that principal business, or
(B) actively engaged in those activities, of a particular business carried on in that fiscal period by the particular person (otherwise than as a member of a partnership) that is similar to the principal business carried on in that fiscal period by the partnership, that are other than activities connected with the provision of or the acquisition of funds required for the operation of the particular business, or
(ii) throughout the period, in the fiscal period of the partnership that includes the particular time, during which the particular person was a member of the partnership
(A) the total of the fair market value of all partnership interests in the partnership owned by the particular person was equal to or greater than 1% of the total of the fair market value of all partnership interests in the partnership owned by all members of the partnership, and
(B) the total of the fair market value of all partnership interests in the partnership owned by the particular person or persons (other than trusts) related to the particular person was equal to or greater than 10% of the total of the fair market value of all partnership interests in the partnership owned by all members of the partnership;
(p) a particular person is a qualifying shareholder of a corporation at any time if throughout the period, in the taxation year of the corporation that includes that time, during which the particular person was a shareholder of the corporation
(i) the particular person owned 1% or more of the issued and outstanding shares (having full voting rights under all circumstances) of the capital stock of the corporation,
(ii) the particular person, or the particular person and persons (other than trusts) related to the particular person, owned 10% or more of the issued and outstanding shares (having full voting rights under all circumstances) of the capital stock of the corporation,
(iii) the total of the fair market value of all the issued and outstanding shares of the capital stock of the corporation owned by the particular person is 1% or more of the total fair market value of all the issued and outstanding shares of the capital stock of the corporation, and
(iv) the total of the fair market value of all the issued and outstanding shares of the capital stock of the corporation owned by the particular person or by persons (other than trusts) related to the particular person is 10% or more of the total fair market value of all the issued and outstanding shares of the capital stock of the corporation;
(q) in applying paragraphs (o) and (p),
(i) where interests in any partnership or shares of the capital stock of any corporation (which interests or shares are referred to in this subparagraph as “equity interests”) are, at any time, property of a particular partnership or are deemed under this paragraph to be, at any time, property of the particular partnership, the equity interests are deemed to be owned at that time by each member of the particular partnership in a proportion equal to the proportion of the equity interests that
(A) the fair market value, at that time, of the member’s partnership interest in the particular partnership
is of
(B) the fair market value, at that time, of all members’ partnership interests in the particular partnership, and
(ii) where interests in a partnership or shares of the capital stock of a corporation (which interests or shares are referred to in this subparagraph as “equity interests”) are, at any time, property of a non-discretionary trust (within the meaning assigned by subsection 17(15)) or are deemed under this paragraph to be, at any time, property of such a non-discretionary trust, the equity interests are deemed to be owned at that time by each beneficiary under that trust in a proportion equal to that proportion of the equity interests that
(A) the fair market value, at that time, of the beneficiary’s beneficial interest in the trust
is of
(B) the fair market value, at that time, of all beneficial interests in the trust;
(r) in applying paragraph (a) and in applying paragraph (d) of the definition exempt earnings, and paragraph (c) of the definition exempt loss, in subsection 5907(1) of the Regulations, a partnership is deemed to be, at any time, a partnership of which a foreign affiliate — of a particular corporation resident in Canada and in respect of which foreign affiliate the particular corporation has a qualifying interest — is a qualifying member, if at that time
(i) a particular foreign affiliate — of another corporation that is resident in Canada and that is related (otherwise than because of a right referred to in paragraph 251(5)(b)) to the particular corporation — is a member of the partnership,
(ii) that other corporation has a qualifying interest in respect of the particular foreign affiliate, and
(iii) the particular foreign affiliate is a qualifying member of the partnership;
(s) in applying the definition investment business in subsection (1), a particular corporation is, at any time, a designated corporation in respect of a foreign affiliate of a taxpayer, if at that time
(i) a qualifying shareholder of the foreign affiliate or a person related to such a qualifying shareholder is a qualifying shareholder of the particular corporation,
(ii) the particular corporation
(A) is controlled by a qualifying shareholder of the foreign affiliate, or
(B) would be controlled by a particular qualifying shareholder of the foreign affiliate if the particular qualifying shareholder of the foreign affiliate owned each share of the capital stock of the particular corporation that is owned by a qualifying shareholder of the foreign affiliate or by a person related to a qualifying shareholder of the foreign affiliate, and
(iii) the total of all amounts each of which is the fair market value of a share of the capital stock of the particular corporation owned by a qualifying shareholder of the foreign affiliate or by a person related to a qualifying shareholder of the foreign affiliate is greater than 50% of the total fair market value of all the issued and outstanding shares of the capital stock of the particular corporation;
(t) in applying the definition investment business in subsection (1) in respect of a business carried on by a foreign affiliate of a taxpayer in a taxation year, a particular partnership is, at any time, a designated partnership in respect of the foreign affiliate of the taxpayer, if at that time
(i) the foreign affiliate or a person related to the foreign affiliate is a qualifying member of the particular partnership, and
(ii) the total of all amounts — each of which is the fair market value of a partnership interest in the particular partnership held by the foreign affiliate, by a person related to the foreign affiliate or (where the foreign affiliate carries on, at that time, the business as a qualifying member of another partnership) by a qualifying member of the other partnership — is greater than 50% of the total fair market value of all partnership interests in the particular partnership owned by all members of the particular partnership;
(u) [Repealed, 2013, c. 34, s. 70]
(v) in applying paragraph (p),
(i) where shares of the capital stock of any corporation (referred to in this paragraph as the “issuing corporation”) are, at any time, owned by a corporation (referred to in this paragraph as the “holding corporation”) or are deemed under this paragraph to be, at any time, owned by a corporation (referred to in this paragraph as the “holding corporation”), those shares are deemed to be owned at that time by each shareholder of the holding corporation in a proportion equal to the proportion of those shares that
(A) the fair market value, at that time, of the shares of the capital stock of the issuing corporation that are owned by the shareholder
is of
(B) the fair market value, at that time, of all the issued and outstanding shares of the capital stock of the issuing corporation, and
(ii) a person who is deemed by subparagraph (i) to own, at any time, shares of the capital stock of a corporation is deemed to be, at that time, a shareholder of the corporation;
(w) where a foreign affiliate of a corporation resident in Canada carries on an active business in more than one country,
(i) where the business is carried on in a country other than Canada, it is deemed to carry on that business in that country only to the extent that the profit or loss from that business can reasonably be attributed to a permanent establishment situated in that country, and
(ii) where the business is carried on in Canada, it is deemed to carry on that business in Canada only to the extent that the income from the active business is subject to tax under this Part;
(x) the loss from an active business, from a non-qualifying business or from property (as the case may be) of a foreign affiliate of a taxpayer resident in Canada for a taxation year is the amount of that loss, if any, that is computed by applying the provisions in this Subdivision with respect to the computation of income from the active business, from the non-qualifying business or from property (as the case may be) of the foreign affiliate for the taxation year with any modifications that the circumstances require;
(y) in determining — for the purpose of paragraph (a) and for the purpose of applying subsections (2.2) and (2.21) for the purpose of applying that paragraph — whether a non-resident corporation is, at any time, a foreign affiliate of a taxpayer in respect of which the taxpayer has a qualifying interest, where interests in any partnership or shares of the capital stock of any corporation (which interests or shares are referred to in this paragraph as “equity interests”) are, at that time, property of a particular partnership or are deemed under this paragraph to be, at any time, property of the particular partnership, the equity interests are deemed to be owned at that time by each member of the particular partnership in a proportion equal to the proportion of the equity interests that
(i) the fair market value, at that time, of the member’s partnership interest in the particular partnership
is of
(ii) the fair market value, at that time, of all members’ partnership interests in the particular partnership; and
(z) where a particular foreign affiliate of a taxpayer — in respect of which the taxpayer has a qualifying interest or that is a controlled foreign affiliate of the taxpayer — is a member of a partnership, the particular foreign affiliate’s foreign accrual property income or loss in respect of the taxpayer for a taxation year shall not include any income or loss of the partnership to the extent that the income or loss
(i) is attributable to the foreign accrual property income or loss of a foreign affiliate of the partnership that is also a foreign affiliate of the taxpayer (referred to in this paragraph as the “second foreign affiliate”) in respect of which the taxpayer has a qualifying interest or that is a controlled foreign affiliate of the taxpayer, and
(ii) is, because of paragraph (a) as applied in respect of the taxpayer, included in computing the income or loss from an active business of the second foreign affiliate for a taxation year.
Marginal note:Rules for the definition controlled foreign affiliate
(2.01) In applying paragraph (b) of the definition controlled foreign affiliate in subsection (1) and in applying this subsection,
(a) shares of the capital stock of a corporation that are at any time owned by, or that are deemed by this subsection to be at any time owned by, another corporation are deemed to be, at that time, owned by, or property of, as the case may be, each shareholder of the other corporation in the proportion that
(i) the fair market value at that time of the shares of the capital stock of the other corporation that, at that time, are owned by, or are property of, the shareholder
is of
(ii) the fair market value at that time of all the issued and outstanding shares of the capital stock of the other corporation;
(b) shares of the capital stock of a corporation that are, or are deemed by this subsection to be, at any time, property of a partnership, are deemed to be, at that time, owned by, or property of, as the case may be, each member of the partnership in the proportion that
(i) the fair market value at that time of the member’s partnership interest in the partnership
is of
(ii) the fair market value at that time of all partnership interests in the partnership;
(c) shares of the capital stock of a corporation that are at any time owned by, or that are deemed by this subsection to be at any time owned by, a non-discretionary trust (within the meaning assigned by subsection 17(15)) other than an exempt trust (within the meaning assigned by subsection (1)) are deemed to be, at that time, owned by, or property of, as the case may be, each beneficiary of the trust in the proportion that
(i) the fair market value at that time of the beneficiary’s beneficial interest in the trust
is of
(ii) the fair market value at that time of all beneficial interests in the trust; and
(d) all of the shares of the capital stock of a corporation that are at any time owned by, or that are deemed by this subsection to be at any time owned by, a particular trust (other than an exempt trust within the meaning assigned by subsection (1) or a non-discretionary trust within the meaning assigned by subsection 17(15)) are deemed to be, at that time, owned by, or property of, as the case may be,
(i) each beneficiary of the particular trust at that time, and
(ii) each settlor (within the meaning assigned by subsection 17(15)) in respect of the particular trust at that time.
Marginal note:Rule against double-counting
(2.02) In applying the assumption in paragraph (b) of the definition controlled foreign affiliate in subsection (1) in respect of a taxpayer resident in Canada to determine whether a foreign affiliate of the taxpayer is at any time a controlled foreign affiliate of the taxpayer, nothing in that paragraph or in subsection (2.01) is to be read or construed as requiring an interest, or for civil law a right, in a share of the capital stock of the foreign affiliate of the taxpayer owned at that time by the taxpayer to be taken into account more than once.
Marginal note:Rule for definition investment business
(2.1) For the purposes of the definition investment business in subsection 95(1), a foreign affiliate of a taxpayer, the taxpayer and, where the taxpayer is a corporation all the issued shares of which are owned by a corporation described in subparagraph 95(2.1)(a)(i), such corporation described in subparagraph 95(2.1)(a)(i) shall be considered to be dealing with each other at arm’s length in respect of the entering into of agreements that provide for the purchase, sale or exchange of currency and the execution of such agreements where
(a) the taxpayer is
(i) a bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities resident in Canada, the business activities of which are subject by law to the supervision of a regulating authority such as the Superintendent of Financial Institutions or a similar authority of a province, or
(ii) a subsidiary wholly-owned corporation of a corporation described in subparagraph 95(2.1)(a)(i);
(b) the agreements are swap agreements, forward purchase or sale agreements, forward rate agreements, futures agreements, options or rights agreements or similar agreements;
(c) the affiliate entered into the agreements in the course of a business carried on by the affiliate, if
(i) the business is carried on by the affiliate principally in a country (other than Canada) and principally with persons with whom the affiliate deals at arm’s length, and
(ii) the business activities of the affiliate are regulated in that country; and
(d) the terms and conditions of such agreements are substantially the same as the terms and conditions of similar agreements made by persons dealing at arm’s length.
Marginal note:Rule for investment business definition and paragraph (2)(l)
(2.11) A taxpayer or a foreign affiliate of the taxpayer, as the case may be, is deemed not to have established that the conditions in subparagraph (a)(i) of the definition investment business in subsection (1), or in subparagraph (2)(l)(iii), have been satisfied throughout a period in a particular taxation year of the affiliate unless
(a) throughout the period the taxpayer is
(i) a particular corporation resident in Canada
(A) that is a bank listed in Schedule I to the Bank Act, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities that is a registered securities dealer, the business activities of which are subject to the supervision of a regulating authority such as the Superintendent of Financial Institutions, a similar regulating authority of a province or an authority of, or approved by, a province to regulate traders or dealers in securities or commodities, and
(B) that is not a corporation the fair market value of any share of the capital stock of which is determined primarily by reference to one or more of the fair market value of, any revenue, income or cash flow from, any profits or gains from the disposition of, or any other similar criteria in respect of, property the fair market value of which is less than 90% of the fair market value of all of the property of the corporation,
(ii) a corporation resident in Canada
(A) of which
(I) the particular corporation described in subparagraph (i) is a subsidiary controlled corporation, or
(II) a corporation described in this subparagraph is a subsidiary wholly-owned corporation, and
(B) that is not a corporation the fair market value of any share of the capital stock of which is determined primarily by reference to one or more of the fair market value of, any revenue, income or cash flow from, any profits or gains from the disposition of, or any other similar criteria in respect of, property the fair market value of which is less than 90% of the fair market value of all of the property of the corporation,
(iii) a corporation resident in Canada each of the shares of the capital stock of which is owned by a corporation that is described in this subparagraph or in subparagraph (i) or (ii), or
(iv) a partnership
(A) each member of which is a corporation described in any of subparagraphs (i) to (iii), or another partnership described in this subparagraph, or
(B) in respect of which the following conditions are satisfied:
(I) the partnership is a registered securities dealer, the business activities of which are subject to the supervision of a regulating authority described in clause (a)(i)(A), and
(II) the share of the total income or loss of the partnership of a majority-interest partner of the partnership that is either a corporation resident in Canada or a Canadian partnership — together with the share of each corporation resident in Canada that is affiliated with the majority-interest partner — is equal to all or substantially all of the total income or loss of the partnership; and
(b) either
(i) throughout the period the particular corporation described in subparagraph (a)(i) has, or is deemed for certain purposes to have, $2 billion or more of equity
(A) if the particular corporation is a bank, under the Bank Act,
(B) if the particular corporation is a trust company, under the Trust and Loan Companies Act, or
(C) if the particular corporation is an insurance corporation, under the Insurance Companies Act, or
(ii) more than 50% of the total of all amounts each of which is an amount of taxable capital employed in Canada (within the meaning assigned by Part I.3) of the taxpayer — or of a corporation resident in Canada that is affiliated with the taxpayer — for the taxation year of the taxpayer or of the affiliated corporation, as the case may be, that ends in the particular year is attributable to a business carried on in Canada, the activities of which are subject to the supervision of a regulating authority such as the Superintendent of Financial Institutions, a similar regulating authority of a province or an authority of, or approved by, a province to regulate traders or dealers in securities or commodities.
Marginal note:Qualifying interest throughout year
(2.2) For the purposes of paragraphs (2)(a) and (g), a non-resident corporation that is not a foreign affiliate of a taxpayer in respect of which the taxpayer has a qualifying interest throughout a particular taxation year is deemed to be a foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest throughout that particular taxation year if
(a) a person or partnership has, in that particular taxation year, acquired or disposed of shares of the capital stock of that non-resident corporation or of any other corporation and, because of that acquisition or disposition, that non-resident corporation becomes or ceases to be a foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest, and
(b) at the beginning of that particular taxation year or at the end of that particular taxation year, the non-resident corporation is a foreign affiliate of the taxpayer in respect of which the taxpayer has a qualifying interest.
Marginal note:Controlled foreign affiliate throughout year
(2.201) For the purposes of paragraphs (2)(a) and (g), a non-resident corporation is deemed to be a controlled foreign affiliate of a taxpayer throughout a taxation year of the non-resident corporation if
(a) in the taxation year, a person or partnership acquires or disposes of shares of the capital stock of a corporation and, because of the acquisition or disposition, the non-resident corporation becomes or ceases to be a controlled foreign affiliate of the taxpayer; and
(b) at either or both of the beginning and end of the taxation year, the non-resident corporation is a controlled foreign affiliate of the taxpayer.
Marginal note:Rule re subsection (2.2)
(2.21) Subsection (2.2) does not apply for the purpose of paragraph (2)(a) in respect of any income or loss referred to in that paragraph, of a particular foreign affiliate of the taxpayer, to the extent that that income or loss can reasonably be considered to have been realized or to have accrued before the earlier of
(a) the time at which the particular affiliate became, as determined without reference to subsection (2.2), a foreign affiliate of the taxpayer in respect of which the taxpayer had a qualifying interest, and
(b) the time at which the particular affiliate became, as determined without reference to subsection (2.2), a foreign affiliate of another person resident in Canada in respect of which the other person resident in Canada had a qualifying interest, where
(i) the taxpayer is a corporation,
(ii) the taxpayer did not exist at the beginning of the taxation year,
(iii) the particular affiliate became a foreign affiliate of the taxpayer in the taxation year because of a disposition, in the taxation year, of shares of the capital stock of the particular affiliate to the taxpayer by the other person resident in Canada, and
(iv) the other person resident in Canada was, immediately before that disposition, related to the taxpayer.
Marginal note:Application of paragraph (2)(a.1)
(2.3) Paragraph 95(2)(a.1) does not apply to a foreign affiliate of a taxpayer in respect of a sale or exchange of property that is currency or a right to purchase, sell or exchange currency where
(a) the taxpayer is
(i) a bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities resident in Canada, the business activities of which are subject by law to the supervision of a regulating authority such as the Superintendent of Financial Institutions or a similar authority of a province, or
(ii) a subsidiary wholly-owned corporation of a corporation described in subparagraph 95(2.3)(a)(i);
(b) the sale or exchange was made by the affiliate in the course of a business conducted principally with persons with whom the affiliate deals at arm’s length, if
(i) the business is principally carried on in the country (other than Canada) under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued, or
(ii) the affiliate is a foreign bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities and the activities of the business are regulated
(A) under the laws of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued, and under the laws of each country in which the business is carried on through a permanent establishment in that country,
(B) under the laws of the country (other than Canada) in which the business is principally carried on, or
(C) if the affiliate is related to a corporation, under the laws of the country under the laws of which that related corporation is governed and any of exists, was (unless that related corporation was continued in any jurisdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all of those countries are members of the European Union; and
(c) the terms and conditions of the sale or exchange of such property are substantially the same as the terms and conditions of similar sales or exchanges of such property by persons dealing at arm’s length.
Marginal note:Application of paragraphs (2)(a.1) and (a.3)
(2.31) Paragraphs (2)(a.1) and (a.3) do not apply to a controlled foreign affiliate (for the purposes of section 17) of an eligible Canadian bank (as defined in subsection (2.43)) in respect of activities carried out to earn income from a property, other than a specified property of the affiliate, if
(a) the affiliate sells the property, or performs services as an agent in relation to a purchase or sale of the property, and it is reasonable to conclude that the cost to any person of the property is relevant in computing the income from
(i) a business carried on by the bank or a person resident in Canada with whom the bank does not deal at arm’s length, or
(ii) a business carried on in Canada by a non-resident person with whom the bank does not deal at arm’s length;
(b) the property has a readily available fair market value and
(i) is listed on a recognized stock exchange,
(ii) would be a mark-to-market property (as defined in subsection 142.2(1)) of the bank if it were owned by the bank, or
(iii) is a debt obligation owing by the bank that would be a mark-to-market property (as defined in subsection 142.2(1)) of the affiliate if
(A) the affiliate were the taxpayer referred to in that definition, and
(B) the definition specified debt obligation in subsection 142.2(1) were read without reference to its paragraph (d);
(c) the purchase and sale of the property by the affiliate, or services performed by the affiliate as agent in respect of the purchase or sale, are made
(i) on terms and conditions that are substantially the same as the terms and conditions of similar purchases or sales of, or services performed in respect of the purchase or sale of, such property by persons dealing at arm’s length,
(ii) in the course of a business
(A) that regularly includes trading or dealing in securities principally with persons with whom the affiliate deals at arm’s length, and
(B) that is principally carried on through a permanent establishment in a country other than Canada, and
(iii) for the purpose of enabling the purchase or sale of the property by a particular person who deals at arm’s length with the affiliate and the bank; and
(d) the affiliate is a foreign bank or a trader or dealer in securities and the activities of the business are regulated
(i) under the laws of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued, and under the laws of each country in which the business is carried on through a permanent establishment in that country,
(ii) under the laws of the country (other than Canada) in which the business is principally carried on, or
(iii) if the affiliate is related to a corporation, under the laws of the country under whose laws that related corporation is governed and any of exists, was (unless that related corporation was continued in any jurisdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all those countries are members of the European Union.
Marginal note:Definition of specified property
(2.32) For the purposes of subsection (2.31), specified property, of a foreign affiliate, means a property that is owned by the affiliate for more than 10 days and that is
(a) a share of the capital stock of a corporation resident in Canada;
(b) a property traded on a stock exchange located in Canada and not traded on a stock exchange located in the jurisdiction in which the affiliate is resident; or
(c) a debt obligation
(i) of a corporation resident in Canada,
(ii) of a trust or partnership, units of which are traded on a stock exchange located in Canada, or
(iii) of, or guaranteed by, the Government of Canada, the government of a province, an agent of a province, a municipality in Canada or a municipal or public body performing a function of government in Canada.
Marginal note:Application of paragraph (2)(a.3)
(2.4) Paragraph 95(2)(a.3) does not apply to a foreign affiliate of a taxpayer in respect of its income derived directly or indirectly from indebtedness to the extent that
(a) the income is derived by the affiliate in the course of a business conducted principally with persons with whom the affiliate deals at arm’s length carried on by it as a foreign bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities, the activities of which are regulated under the laws
(i) of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued and of each country in which the business is carried on through a permanent establishment in that country,
(ii) of the country in which the business is principally carried on, or
(iii) if the affiliate is related to a corporation, of the country under the laws of which that related corporation is governed and any of exists, was (unless that related corporation was continued in any jurisdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all of those countries are members of the European Union, and
(b) all the following conditions are satisfied:
(i) the income is derived by the affiliate from trading or dealing in the indebtedness (which, for this purpose, consists of income from the actual trading or dealing in the indebtedness and interest earned by the affiliate during a short term holding period on indebtedness acquired by it for the purpose of the trading or dealing) directly or indirectly with persons (in this subsection referred to as “regular customers”) that
(A) deal at arm’s length with the affiliate, and
(B) are resident, or carry on business through a permanent establishment, in a country other than Canada,
(ii) the affiliate has a substantial market presence in the country, and
(iii) one or more persons that deal at arm’s length with the affiliate and are resident, or carry on business through a permanent establishment, in the country
(A) carry on a business
(I) that competes in the country with the business of the affiliate, and
(II) the activities of which are regulated under the laws of the country or, where the country is a member of the European Union, any country that is a member of the European Union, in the same manner as are the activities of the business of the affiliate, and
(B) have a substantial market presence in the country,
and, for the purpose of this subsection, an acquisition of indebtedness from the taxpayer shall be deemed to be part of the trading or dealing in indebtedness described in paragraph 95(2.4)(b) where the indebtedness is acquired by the affiliate and sold to regular customers and the terms and conditions of the acquisition and the sale are substantially the same as the terms and conditions of similar acquisitions and sales made by the affiliate in transactions with persons with whom it deals at arm’s length.
Marginal note:Application of paragraph (2)(a.3)
(2.41) Paragraph (2)(a.3) does not apply to a foreign affiliate of a taxpayer resident in Canada in respect of the foreign affiliate’s income for a taxation year derived, directly or indirectly, from indebtedness of persons resident in Canada or from indebtedness in respect of businesses carried on in Canada (referred to in this subsection as the “Canadian indebtedness”) if
(a) the taxpayer is, at the end of the foreign affiliate’s taxation year
(i) a life insurance corporation resident in Canada, the business activities of which are subject by law to the supervision of the Superintendent of Financial Institutions or a similar authority of a province, or
(ii) a corporation resident in Canada that is a subsidiary controlled corporation of a corporation described in subparagraph (i);
(b) the Canadian indebtedness is used or held by the foreign affiliate, throughout the period in the taxation year that that Canadian indebtedness was used or held by the foreign affiliate, in the course of carrying on a business (referred to in this subsection as the “foreign life insurance business”) that is a life insurance business carried on outside Canada (other than a business deemed by paragraph (2)(a.2) to be a separate business other than an active business), the activities of which are regulated
(i) under the laws of the country under whose laws the foreign affiliate is governed and any of exists, was (unless the foreign affiliate was continued in any jurisdiction) formed or organized, or was last continued, and
(ii) under the laws of the country, if any, in which the business is principally carried on;
(c) more than 90% of the gross premium revenue of the foreign affiliate for the taxation year in respect of the foreign life insurance business was derived from the insurance or reinsurance of risks (net of reinsurance ceded) in respect of persons
(i) that were non-resident at the time at which the policies in respect of those risks were issued or effected, and
(ii) that were at that time dealing at arm’s length with the foreign affiliate, the taxpayer and all persons that were related at that time to the foreign affiliate or the taxpayer; and
(d) it is reasonable to conclude that the foreign affiliate used or held the Canadian indebtedness
(i) to fund a liability or reserve of the foreign life insurance business, or
(ii) as capital that can reasonably be considered to have been required for the foreign life insurance business.
Marginal note:Exception re paragraph (2)(a.3)
(2.42) If, at any time in a taxation year of a foreign affiliate of a taxpayer referred to in paragraph (2)(a.3), a life insurance corporation resident in Canada is the taxpayer referred to in paragraph (2)(a.3) or is a person who controls, or is controlled by, such a taxpayer, a particular indebtedness or a particular lease obligation of the life insurance corporation is, for the purposes of that paragraph, deemed, at that time, not to be an indebtedness or a lease obligation of a person resident in Canada, to the extent of the portion of the particular indebtedness or lease obligation that can reasonably be considered to have been issued by the life insurance corporation to the foreign affiliate
(a) in respect of the life insurance corporation’s life insurance business carried on outside Canada; and
(b) not in respect of
(i) the life insurance corporation’s life insurance business carried on in Canada, or
(ii) any other use.
Marginal note:Definitions — subsections (2.43) to (2.45)
(2.43) The following definitions apply in this subsection and subsections (2.44) and (2.45).
- Canadian indebtedness
Canadian indebtedness means indebtedness (other than upstream deposits) owed by persons resident in Canada or in respect of businesses carried on in Canada. (dettes canadiennes)
- eligible bank affiliate
eligible bank affiliate, of an eligible Canadian bank at any time, means a foreign bank that, at that time, is a controlled foreign affiliate (for the purposes of section 17) of the eligible Canadian bank and is described in subparagraph (a)(i) of the definition investment business in subsection (1). (filiale bancaire admissible)
- eligible Canadian bank
eligible Canadian bank means a bank listed in Schedule I to the Bank Act. (banque canadienne admissible)
- eligible Canadian indebtedness
eligible Canadian indebtedness, owing to an eligible bank affiliate of an eligible Canadian bank, means bonds, debentures, notes or similar obligations of the Government of Canada, the government of a province, an agent of a province, a municipality in Canada or a municipal or public body performing a function of government in Canada, that are owing to the affiliate, other than property in respect of which paragraph (2)(a.3) does not apply because of subsection (2.31). (dettes canadiennes admissibles)
- eligible currency hedge
eligible currency hedge, of an eligible bank affiliate of an eligible Canadian bank, means an agreement that provides for the purchase, sale or exchange of currency and that
(a) can reasonably be considered to have been made by the affiliate to reduce its risk of fluctuations in the value of currency with respect to eligible Canadian indebtedness and upstream deposits owing to the affiliate; and
(b) cannot reasonably be considered to have been made by the affiliate to reduce its risk with respect to property other than eligible Canadian indebtedness and upstream deposits owing to the affiliate. (couverture de change admissible)
- excess liquidity
excess liquidity, of an eligible bank affiliate of an eligible Canadian bank for a taxation year of the affiliate, means the amount, if any, by which
(a) the average of all amounts each of which is, in respect of a month that ends in the 12-month period that begins 60 days prior to the beginning of the year — or, if the affiliate was formed after the beginning of the period, in respect of a month that ends in the year — the amount of the affiliate’s relationship deposits for the month, expressed in the affiliate’s calculating currency for the year unless the context requires otherwise,
exceeds
(b) the average of all amounts each of which is, in respect of a month that ends in the period — or, if the affiliate was formed after the beginning of the period, in respect of a month that ends in the year — the amount of the affiliate’s organic assets for the month, expressed in the affiliate’s calculating currency for the year unless the context requires otherwise. (liquidités excédentaires)
- organic assets
organic assets, of an eligible bank affiliate of an eligible Canadian bank for a month, means the total of all amounts in respect of the affiliate each of which is
(a) included in the amounts reported as loans in the assets section of the consolidated monthly balance sheet accepted by the Superintendent of Financial Institutions that is filed for the month by the bank, or another corporation resident in Canada that is related to the bank at the end of the month, or
(b) an amount owing to the affiliate by a person that is related to the affiliate (other than an amount described in paragraph (a))
but does not include the amount of an eligible Canadian indebtedness or upstream deposit owing to the affiliate. (actif organique)
- qualifying indebtedness
qualifying indebtedness, owing to an eligible bank affiliate of an eligible Canadian bank, means an upstream deposit owing to, or an eligible Canadian indebtedness of, the affiliate, to the extent that it can reasonably be considered that
(a) the upstream deposit or the acquisition of eligible Canadian indebtedness, as the case may be, is funded by
(i) property transferred or lent by a person other than the bank or a person resident in Canada that was not, at the time of the transfer or loan, dealing at arm’s length with the bank,
(ii) a repayment of all or part of an upstream deposit owing to the affiliate, or
(iii) the purchase of eligible Canadian indebtedness by the bank or a person resident in Canada that was not, at the time of the transfer or loan, dealing at arm’s length with the bank; and
(b) the proceeds of the upstream deposit or the proceeds received by the vendor of the eligible Canadian indebtedness, as the case may be, are used for a purpose other than to fund a transfer or loan of property by the bank — or another person resident in Canada that was not, at the time of the transfer or loan, dealing at arm’s length with the bank — to the affiliate or another foreign affiliate of the bank or of the other person. (dettes déterminées)
- relationship deposits
relationship deposits, of an eligible bank affiliate of an eligible Canadian bank for a month, means the total of all amounts included in the amounts reported as demand and notice deposits, and fixed-term deposits in the liabilities section of the consolidated monthly balance sheet accepted by the Superintendent of Financial Institutions that is filed for the month by the bank, or another corporation resident in Canada that is related to the bank at the end of the month, that are deposits (other than of a temporary nature) of the affiliate made by a person who at the end of the month
(a) deals at arm’s length with the affiliate; and
(b) is not resident in Canada. (dépôts apparentés)
- total specified indebtedness
total specified indebtedness, owing to an eligible bank affiliate of an eligible Canadian bank for a taxation year of the affiliate, means the average of all amounts each of which is, in respect of a month that ends in the year, the greatest total amount at any time in the month that is the total of all amounts each of which is
(a) the amount of an upstream deposit owing to the affiliate;
(b) the amount of an eligible Canadian indebtedness owing to the affiliate; or
(c) the positive or negative fair market value of an eligible currency hedge of the affiliate. (dettes désignées totales)
- upstream deposit
upstream deposit, owing to an eligible bank affiliate of an eligible Canadian bank, means indebtedness owing by the bank to the affiliate. (dépôt en amont)
Marginal note:FAPI adjustment — eligible bank affiliate
(2.44) If a non-resident corporation (in this subsection referred to as the “affiliate”) is, throughout a taxation year of the affiliate, an eligible bank affiliate of an eligible Canadian bank, and the bank elects in writing under this subsection, in respect of the affiliate for the year, and files the election with the Minister on or before the filing-due date of the bank for the particular taxation year of the bank in which the year ends,
(a) there is to be deducted in computing the amount determined for A in the definition foreign accrual property income in subsection (1) in respect of the affiliate for the year, the lesser of
(i) the amount determined, without reference to this paragraph, for A in that definition in respect of the affiliate for the year, and
(ii) the amount determined by the following formula, where each amount referred to in the formula is to be determined using Canadian currency:
A – B – C – D
where
- A
- is the total of all amounts each of which is the affiliate’s income for the year that is from a qualifying indebtedness owing to, or an eligible currency hedge of, the affiliate and that would, in the absence of this subsection, be included in computing the income of the affiliate from a business other than an active business of the affiliate,
- B
- is the total of all amounts each of which is the affiliate’s loss for the year that is from a qualifying indebtedness owing to, or an eligible currency hedge of, the affiliate and that would, in the absence of this subsection, be deducted in computing the income of the affiliate from a business other than an active business of the affiliate,
- C
- is the total of all amounts each of which is the amount, if any, by which an amount included in computing the amount determined for A or B in respect of an upstream deposit exceeds the amount that would be the affiliate’s income, or is less than the amount that would be the affiliate’s loss, as the case may be, for the year from the upstream deposit if the interest received or receivable by the affiliate in respect of the upstream deposit were computed at an interest rate equal to the lesser of
(A) the rate of interest in respect of the upstream deposit, and
(B) the benchmark rate of interest, acceptable to the Minister, that is
(I) if the upstream deposit is denominated in a qualifying currency (as defined in subsection 261(1)), the average, for the year, of a daily interbank offered rate for loans denominated in that currency with a term to maturity of three months, or
(II) in any other case, the average, for the year, of a daily rate for Canadian dollar denominated bankers’ acceptances with a term to maturity of three months, and
- D
- is the amount determined by the formula
E × F/G
where
- E
- is the amount, if any, by which the amount determined for A exceeds the total of the amounts determined for B and C,
- F
- is the amount, if any, by which the total specified indebtedness owing to the affiliate for the year exceeds the affiliate’s excess liquidity for the year, and
- G
- is the total specified indebtedness owing to the affiliate for the year; and
(b) there is to be included, in computing the income of the affiliate from an active business for the year, an amount equal to the proportion of the amount computed under the formula in subparagraph (a)(ii), computed as if each amount referred to in that formula were determined using the affiliate’s calculating currency, that the amount that is required to be deducted under paragraph (a) for the year is of the amount described in subparagraph (a)(ii).
Marginal note:Investment business and excluded property
(2.45) If an election is made under subsection (2.44) in respect of an eligible bank affiliate of an eligible Canadian bank for a taxation year of the affiliate,
(a) for the purposes of the definition investment business in subsection (1), the bank, and any other person resident in Canada that does not deal at arm’s length with the bank, are deemed to deal at arm’s length with the affiliate in respect of the making of upstream deposits, and acquisitions of Canadian indebtedness from the bank or the other person, by the affiliate in the course of a business carried on by the affiliate in the year if the affiliate’s excess liquidity for the year is at least 90% of the total specified indebtedness owing to the affiliate for the year; and
(b) for the purposes of paragraph (b) of the definition excluded property in subsection (1),
(i) the fair market value of each upstream deposit and Canadian indebtedness owing to, and eligible currency hedge of, the affiliate is deemed to be nil,
(ii) at any particular time, the lesser of the following amounts is deemed to be the fair market value of a property of the affiliate that is excluded property at that particular time:
(A) the total of all amounts each of which is the fair market value of an upstream deposit or Canadian indebtedness owing to, or an eligible currency hedge of, the affiliate, and
(B) the amount, if any, by which
(I) the affiliate’s relationship deposits for the calendar month that is two months prior to the particular time (or if the affiliate was formed less than two months prior to the particular time, for the calendar month that includes the particular time)
exceeds
(II) the amount of the affiliate’s organic assets for the calendar month that is two months prior to the particular time (or if the affiliate was formed less than two months prior to the particular time, for the calendar month that includes the particular time), and
(iii) the amount, if any, by which the amount in clause (ii)(A) exceeds the amount in subparagraph (ii) is deemed to be the fair market value of a property of the eligible bank affiliate that is not excluded property at that time.
Marginal note:Definitions for paragraph (2)(a.3)
(2.5) For the purpose of paragraph 95(2)(a.3),
- excluded income
excluded income and excluded revenue for a taxation year in respect of a foreign affiliate of a taxpayer mean, respectively, income or revenue, that is
(a) derived directly or indirectly from a specified deposit with a prescribed financial institution,
(b) derived directly or indirectly from a lease obligation of a person (other than the taxpayer or a person that does not deal at arm’s length with the taxpayer) resident in Canada relating to property used by the person in the course of carrying on a business through a permanent establishment outside Canada,
(c) included in computing the affiliate’s income for the year from carrying on a business through a permanent establishment in Canada, or
(d) included in computing the affiliate’s income or loss from an active business for the year because of subparagraph (2)(a)(ii); (revenu exclu)
- indebtedness
indebtedness does not include obligations of a particular person under agreements with non-resident corporations providing for the purchase, sale or exchange of currency where
(a) the agreements are swap agreements, forward purchase or sale agreements, forward rate agreements, futures agreements, options or rights agreements, or similar agreements,
(b) the particular person is a bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities resident in Canada, the business activities of which are subject by law to the supervision of a regulating authority in Canada such as the Superintendent of Financial Institutions or a similar authority of a province,
(c) the agreements are entered into by the non-resident corporation in the course of a business conducted principally with persons with whom the non-resident corporation deals at arm’s length, if
(i) the business is principally carried on in the country (other than Canada) under whose laws the non-resident corporation is governed and any of exists, was (unless the non-resident corporation was continued in any jurisdiction) formed or organized, or was last continued, or
(ii) the non-resident corporation is a foreign affiliate of the particular person, or of a person related to the particular person, and
(A) the non-resident corporation is a foreign bank, a trust company, a credit union, an insurance corporation or a trader or dealer in securities or commodities, and
(B) the activities of the business are regulated
(I) under the laws of the country under whose laws the non-resident corporation is governed and any of exists, was (unless the non-resident corporation was continued in any jurisdiction) formed or organized, or was last continued and under the laws of each country in which the business is carried on through a permanent establishment in that country,
(II) under the laws of the country (other than Canada) in which the business is principally carried, or
(III) if the affiliate is related to a corporation, under the laws of the country under the laws of which a corporation related to the non-resident corporation is governed and any of exists, was (unless that related corporation was continued in any jurisdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all of those countries are members of the European Union, and
(d) the terms and conditions of such agreements are substantially the same as the terms and conditions of similar agreements made by persons dealings at arm’s length; (dette)
- specified deposit
specified deposit, of a foreign affiliate of a taxpayer, means a deposit of the affiliate made with a permanent establishment in a country other than Canada of a prescribed financial institution resident in Canada if the income from the deposit is income of the affiliate for the year that would, in the absence of paragraph (2)(a.3), be income from an active business carried on by the affiliate in a country other than Canada, other than a business the principal purpose of which is to derive income from property (including any interest, dividends, rents, royalties or similar returns, or any substitutes for any of those) or profits from the disposition of investment property. (dépôt déterminé)
Marginal note:Rule for the definition specified person or partnership
(2.6) For the purposes of paragraphs (a) to (d) of the definition specified person or partnership in subsection (1), if a person or partnership (referred to in this subsection as the “taxpayer”) is not dealing at arm’s length with another person or partnership (referred to in this subsection as the “particular person”) at a particular time, the taxpayer is deemed to have existed and not to have dealt at arm’s length with the particular person, nor with each specified predecessor corporation of the particular person, throughout the period that began when the particular person or the specified predecessor corporation, as the case may be, came into existence and that ends at the particular time.
Marginal note:Definition of services
(3) For the purposes of paragraph 95(2)(b), services includes the insurance of Canadian risks but does not include
(a) the transportation of persons or goods;
(b) services performed in connection with the purchase or sale of goods;
(c) the transmission of electronic signals or electricity along a transmission system located outside Canada; or
(d) the manufacturing or processing outside Canada, in accordance with the taxpayer’s specifications and under a contract between the taxpayer and the affiliate, of tangible property, or for civil law corporeal property, that is owned by the taxpayer if the property resulting from the manufacturing or processing is used or held by the taxpayer in the ordinary course of the taxpayer’s business carried on in Canada.
Marginal note:Application of paragraph (2)(b) — eligible Canadian bank
(3.01) Paragraph (2)(b) does not apply to a controlled foreign affiliate (for the purposes of section 17) of an eligible Canadian bank (as defined in subsection (2.43)) in respect of services performed in connection with the purchase or sale of a property described in paragraph (2.31)(b) if
(a) the services have been performed by the affiliate
(i) under terms and conditions that are substantially the same as the terms and conditions that would have been made between persons who deal at arm’s length with each other,
(ii) in the course of a business
(A) that regularly includes trading or dealing in securities principally with persons with whom the affiliate deals at arm’s length, and
(B) that is principally carried on through a permanent establishment in a country other than Canada, and
(iii) for the purpose of enabling the acquisition or disposition of the property by a person who, at the time of the acquisition or disposition, deals at arm’s length with the affiliate and the eligible Canadian bank; and
(b) the affiliate is a foreign bank or a trader or dealer in securities and the activities of the business are regulated
(i) under the laws of the country under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued, and under the laws of each country in which the business is carried on through a permanent establishment in that country,
(ii) under the laws of the country (other than Canada) in which the business is principally carried on, or
(iii) if the affiliate is related to a corporation, under the laws of the country under whose laws that related corporation is governed and any of exists, was (unless that related corporation was continued in any jurisdiction) formed or organized, or was last continued, if those regulating laws are recognized under the laws of the country in which the business is principally carried on and all those countries are members of the European Union.
Marginal note:Rules for clause (2)(b)(ii)(B)
(3.02) For the purposes of clause (2)(b)(ii)(B),
(a) a relevant person is
(i) a person resident in Canada, or
(ii) a non-resident person if the non-resident person performs the services referred to in subparagraph (2)(b)(ii) in the course of a business (other than a treaty-protected business) carried on in Canada; and
(b) any portion of a business carried on by a non-resident person that is carried on in Canada is deemed to be a business that is separate from any other portion of the business carried on by the person.
Marginal note:Designated property — subparagraph (2)(a.1)(i)
(3.1) Designated property referred to in subparagraph (2)(a.1)(i) is property that is described in the portion of paragraph (2)(a.1) that is before subparagraph (i) that is
(a) property that was sold to non-resident persons other than the affiliate, or sold to the affiliate for sale to non-resident persons, and
(i) that
(A) was — in the course of carrying on a business in Canada — manufactured, produced, grown, extracted or processed in Canada by the taxpayer, or by a person with whom the taxpayer does not deal at arm’s length, or
(B) was — in the course of a business carried on by a foreign affiliate of the taxpayer outside Canada — manufactured or processed from tangible property, or for civil law corporeal property, that, at the time of the manufacturing or processing, was owned by the taxpayer or by a person related to the taxpayer and used or held by the owner in the course of carrying on a business in Canada, if the manufacturing or processing was in accordance with the specifications of the owner of that tangible or corporeal property and under a contract between that owner and that foreign affiliate,
(ii) that was acquired, in the course of carrying on a business in Canada, by a purchaser from a vendor, if
(A) the purchaser is the taxpayer or is a person resident in Canada with whom the taxpayer does not deal at arm’s length, and
(B) the vendor is a person
(I) with whom the taxpayer deals at arm’s length,
(II) who is not a foreign affiliate of the taxpayer, and
(III) who is not a foreign affiliate of a person resident in Canada with whom the taxpayer does not deal at arm’s length, or
(iii) that was acquired by a purchaser from a vendor, if
(A) the purchaser is the taxpayer or is a person resident in Canada with whom the taxpayer does not deal at arm’s length,
(B) the vendor is a foreign affiliate of
(I) the taxpayer, or
(II) a person resident in Canada with whom the taxpayer does not deal at arm’s length, and
(C) that property was manufactured, produced, grown, extracted or processed in the country
(I) under whose laws the vendor is governed and any of exists, was (unless the vendor was continued in any jurisdiction) formed or organized, or was last continued, and
(II) in which the vendor’s business is principally carried on; or
(b) property that is an interest in real property, or a real right in an immovable, located in, or a foreign resource property in respect of, the country
(i) under whose laws the affiliate is governed and any of exists, was (unless the affiliate was continued in any jurisdiction) formed or organized, or was last continued, and
(ii) in which the affiliate’s business is principally carried on.
Marginal note:Contract manufacturing
(3.2) For the purposes of clause (2)(a.1)(ii)(A), property of a particular foreign affiliate of a taxpayer is deemed to have been manufactured by the particular affiliate in a particular country if the property is
(a) developed and designed by the particular affiliate in the particular country in the course of an active business carried on by the particular affiliate in the particular country; and
(b) manufactured, produced or processed outside the particular country by another foreign affiliate of the taxpayer, during a period throughout which the taxpayer has a qualifying interest in the other affiliate,
(i) under a contract between the particular affiliate and the other affiliate, and
(ii) in accordance with specifications provided by the particular affiliate.
Marginal note:Definitions
(4) In this section,
- direct equity percentage
direct equity percentage at any time of any person in a corporation is the percentage determined by the following rules:
(a) for each class of the issued shares of the capital stock of the corporation, determine the proportion of 100 that the number of shares of that class owned by that person at that time is of the total number of issued shares of that class at that time, and
(b) select the proportion determined under paragraph (a) for that person in respect of the corporation that is not less than any other proportion so determined for that person in respect of the corporation at that time,
and the proportion selected under paragraph (b), when expressed as a percentage, is that person’s direct equity percentage in the corporation at that time; (pourcentage d’intérêt direct)
- eligible controlled foreign affiliate
eligible controlled foreign affiliate, of a taxpayer, at any time, means a foreign affiliate of the taxpayer at that time, if
(a) the affiliate is a controlled foreign affiliate of the taxpayer at that time and at the end of the affiliate’s taxation year that includes that time, and
(b) the following condition is met:
A ≥ 90%
where
- A
- is the total of all amounts each of which would be the participating percentage (determined at the end of the taxation year) of a share owned by the taxpayer of the capital stock of a corporation, in respect of the affiliate, if
(i) the definition relevant cost base were read without reference to the words “if the affiliate is an eligible controlled foreign affiliate of the taxpayer at that time,” in its subparagraph (b)(i), and
(ii) the definition participating percentage in subsection (1) were read without reference to its paragraph (a) and the portion of its paragraph (b) before subparagraph (i); (société étrangère affiliée contrôlée admissible)
- equity percentage
equity percentage at any time of a person, in any particular corporation, is the total of
(a) the person’s direct equity percentage at that time in the particular corporation, and
(b) all percentages each of which is the product obtained when the person’s equity percentage at that time in any corporation is multiplied by that corporation’s direct equity percentage at that time in the particular corporation
except that for the purposes of the definition participating percentage in subsection 95(1), paragraph (b) shall be read as if the reference to “any corporation” were a reference to “any corporation other than a corporation resident in Canada”; (pourcentage d’intérêt)
- relevant cost base
relevant cost base, of a property at any time to a foreign affiliate of a taxpayer, in respect of the taxpayer, means the greater of
(a) the amount determined — or, if the taxpayer is not a corporation, the amount that would be determined if the taxpayer were a corporation resident in Canada — by the formula
A + B – C
where
- A
- is the amount for which the property could be disposed of at that time that would not, in the absence of paragraph (2)(f.1), result in any amount being added to, or deducted from, any of the affiliate’s
(i) exempt earnings, exempt loss, taxable earnings and taxable loss (all within the meaning of subsection 5907(1) of the Income Tax Regulations), in respect of the taxpayer, for the taxation year of the affiliate that includes that time, and
(ii) hybrid surplus and hybrid deficit, in respect of the taxpayer, at that time,
- B
- is the amount, if any, by which any income or gain from a disposition of the property would, if the property were disposed of at that time for proceeds of disposition equal to its fair market value at that time be reduced under paragraph (2)(f.1), and
- C
- is the amount, if any, by which any loss from a disposition of the property would, if the property were disposed of at that time for proceeds of disposition equal to its fair market value at that time be reduced under paragraph (2)(f.1), and
(b) either
(i) if the affiliate is an eligible controlled foreign affiliate of the taxpayer at that time, the amount that the taxpayer elects, in accordance with prescribed rules, in respect of the property not exceeding the fair market value at that time of the property, or
(ii) in any other case, nil. (prix de base approprié)
Marginal note:Application of s. 87(8.1)
(4.1) In this section, the expressions foreign merger, predecessor foreign corporation, new foreign corporation and foreign parent corporation have the meanings assigned by subsection 87(8.1).
Marginal note:Income bonds or debentures issued by foreign affiliates
(5) For the purposes of this Subdivision, an income bond or income debenture issued by a corporation (other than a corporation resident in Canada) shall be deemed to be a share of the capital stock of the corporation unless any interest or other similar periodic amount paid by the corporation on or in respect of the bond or debenture was, under the laws of the country in which the corporation was resident, deductible in computing the amount for the year on which the corporation was liable to pay income or profits tax imposed by the government of that country.
Marginal note:Where rights or shares issued, acquired or disposed of to avoid tax
(6) For the purposes of this Subdivision (other than section 90),
(a) where any person or partnership has a right under a contract, in equity or otherwise, either immediately or in the future and either absolutely or contingently, to, or to acquire, shares of the capital stock of a corporation or interests in a partnership and
(i) it can reasonably be considered that the principal purpose for the existence of the right is to cause 2 or more corporations to be related for the purpose of paragraph 95(2)(a), those corporations shall be deemed not to be related for that purpose, or
(ii) it can reasonably be considered that the principal purpose for the existence of the right is to permit any person to avoid, reduce or defer the payment of tax or any other amount that would otherwise be payable under this Act, those shares or partnership interests, as the case may be, are deemed to be owned by that person or partnership; and
(b) where a person or partnership acquires or disposes of shares of the capital stock of a corporation or interests in a partnership, either directly or indirectly, and it can reasonably be considered that the principal purpose for the acquisition or disposition is to permit a person to avoid, reduce or defer the payment of tax or any other amount that would otherwise be payable under this Act, that acquisition or disposition is deemed not to have taken place, and where the shares or partnership interests were unissued by the corporation or partnership immediately before the acquisition, those shares or partnership interests, as the case may be, are deemed not to have been issued.
Marginal note:Stock dividends from foreign affiliates
(7) For the purposes of this Subdivision and subsection 52(3), the amount of any stock dividend paid by a foreign affiliate of a corporation resident in Canada shall, in respect of the corporation, be deemed to be nil.
Marginal note:Tracking interests — interpretation
(8) For the purposes of subsections (9) to (12), a particular property is a tracking interest in respect of a person or partnership (referred to in this subsection as the “tracked entity”) if
(a) all or part of the fair market value of the particular property — or of any payment or right to receive an amount in respect of the particular property — can reasonably be considered to be determined, directly or indirectly, by reference to one or more of the following criteria in respect of property or activities of the tracked entity (referred to in this subsection and subsections (9) to (11) as the “tracked property and activities”):
(i) the fair market value of property of the tracked entity,
(ii) any revenue, income or cash flow from property or activities of the tracked entity,
(iii) any profits or gains from the disposition of property of the tracked entity, and
(iv) any similar criteria in respect of property or activities of the tracked entity; and
(b) the tracked property and activities in respect of the particular property represent less than all of the property and activities of the tracked entity.
Marginal note:Tracking interests — investment business definition
(9) For the purposes of the definition investment business in subsection (1), if, at any time in a taxation year of a foreign affiliate of a taxpayer, a person or partnership holds a tracking interest in respect of the affiliate or a partnership of which the affiliate is a member, the tracked property and activities in respect of the tracking interest are, to the extent they would not otherwise be part of an investment business of the affiliate, deemed, in respect of the taxpayer,
(a) to be a separate business carried on by the affiliate throughout the year; and
(b) not to be part of any other business of the affiliate.
Marginal note:Conditions for subsection (11)
(10) Subsection (11) applies in respect of a foreign affiliate of a taxpayer for a taxation year of the affiliate if, at any time in the year,
(a) the taxpayer holds a property that is a tracking interest in respect of the affiliate; and
(b) shares of a class of the capital stock of the affiliate the fair market value of which can reasonably be considered to be determined by reference to the tracked property and activities in respect of the tracking interest (referred to in subsection (11) as a “tracking class”) are held by the taxpayer or a foreign affiliate of the taxpayer.
Marginal note:Tracking class — separate corporation
(11) If this subsection applies in respect of a foreign affiliate (referred to in this subsection as the “actual affiliate”) of a taxpayer for a taxation year of the actual affiliate, the following rules apply for the purpose of determining the amounts, if any, to be included under subsection 91(1), and to be deducted under subsection 91(4), by the taxpayer in respect of the year and for the purpose of applying section 233.4 in respect of the year:
(a) the tracked property and activities of the actual affiliate are deemed to be property and activities of a non-resident corporation (referred to in this subsection as the “separate corporation”) that is separate from the actual affiliate and not to be property or activities of the actual affiliate;
(b) any income, losses or gains for the year in respect of the property and activities described in paragraph (a) are deemed to be income, losses or gains of the separate corporation and not of the actual affiliate;
(c) all rights and obligations of the actual affiliate in respect of the property and activities described in paragraph (a) are deemed to be rights and obligations of the separate corporation and not of the actual affiliate;
(d) the separate corporation is deemed to have, at the end of the year, 100 issued and outstanding shares of a single class (referred to in this subsection as the “single class”) of its capital stock, having full voting rights under all circumstances;
(e) each shareholder of the actual affiliate is deemed to own, at the end of the year, that number of shares of the single class that is equal to the product of 100 and the amount that would be the aggregate participating percentage (as defined in subsection 91(1.3)) of that shareholder in respect of the actual affiliate for the year if
(i) the actual affiliate were a controlled foreign affiliate of that shareholder at the end of the year,
(ii) the only shares of the capital stock of the actual affiliate issued and outstanding at the end of the year were shares of tracking classes in respect of the tracked properties and activities, and
(iii) the only income, losses and gains of the actual affiliate for the year were those referred to in paragraph (b); and
(f) any amounts included under subsection 91(1), or deducted under subsection 91(4), by the taxpayer in respect of shares of the separate corporation are deemed to be amounts included under subsection 91(1), or deducted under subsection 91(4), as the case may be, by the taxpayer in respect of shares of tracking classes held by the taxpayer or a foreign affiliate of the taxpayer, as the case may be.
Marginal note:Tracking interests – controlled foreign affiliate
(12) If subsection (11) does not apply in respect of a foreign affiliate of the taxpayer for a taxation year of the affiliate, the affiliate is deemed to be a controlled foreign affiliate of the taxpayer throughout the taxation year if, at any time in the year, a tracking interest in respect of the affiliate, or a partnership of which the affiliate is a member, is held by
(a) the taxpayer; or
(b) a person or partnership (each referred to in this paragraph as a “holder”), if
(i) the holder does not deal at arm’s length with the taxpayer at that time,
(ii) where either the taxpayer or the holder is a partnership and the other party is not, any member of the partnership does not deal at arm’s length, at that time, with the other party, or
(iii) where both the taxpayer and the holder are partnerships, the taxpayer or any member of the taxpayer does not deal at arm’s length, at that time, with the holder or any member of the holder.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 95
- 1994, c. 7, Sch. II, s. 71, c. 21, s. 43
- 1995, c. 21, ss. 32, 46, 78
- 1998, c. 19, ss. 122, 305
- 1999, c. 22, s. 25
- 2001, c. 17, s. 73
- 2007, c. 35, s. 26
- 2009, c. 2, s. 25
- 2013, c. 34, ss. 33, 70, 121, 227
- 2014, c. 39, s. 25
- 2016, c. 7, ss. 12, 62, c. 12, s. 31
- 2017, c. 33, s. 30
- 2018, c. 27, s. 7
- 2023, c. 26, s. 20
- 2024, c. 15, s. 24
- 2024, c. 17, s. 21
- Date modified: