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Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

Full Document:  

Act current to 2022-01-12 and last amended on 2021-12-17. Previous Versions

PART I.3Tax on Large Corporations (continued)

Marginal note:Taxable capital employed in Canada of non-resident

 The taxable capital employed in Canada for a taxation year of a corporation (other than a financial institution) that was throughout the year not resident in Canada is the amount, if any, by which

  • (a) the total of all amounts each of which is the carrying value at the end of the year of an asset of the corporation used by it in the year in, or held by it in the year in the course of, carrying on any business carried on by it during the year through a permanent establishment in Canada

exceeds the total of

  • (b) the amount of the corporation’s indebtedness at the end of the year (other than indebtedness described in any of paragraphs 181.2(3)(c) to 181.2(3)(f)) that may reasonably be regarded as relating to a business carried on by it during the year through a permanent establishment in Canada,

  • (c) the total of all amounts each of which is the carrying value at the end of the year of an asset described in subsection 181.2(4) of the corporation that was used by it in the year in, or held by it in the year in the course of, carrying on any business carried on by it during the year through a permanent establishment in Canada, and

  • (d) the total of all amounts each of which is the carrying value at the end of the year of an asset of the corporation that

    • (i) is a ship or aircraft operated by the corporation in international traffic or is personal or movable property used in its business of transporting passengers or goods by ship or aircraft in international traffic, and

    • (ii) was used by the corporation in the year in, or held by it in the year in the course of, carrying on any business during the year through a permanent establishment in Canada,

    if the country in which the corporation is resident imposed neither a capital tax for the year on similar assets nor a tax for the year on the income from the operation of a ship or aircraft in international traffic, of any corporation resident in Canada during the year.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 181.4
  • 1994, c. 7, Sch. II, s. 149
  • 1998, c. 19, s. 197
  • 2013, c. 34, s. 149

Marginal note:Capital deduction

  •  (1) Subject to subsection (1.1), the capital deduction of a corporation for a taxation year is $50 million unless the corporation is related to another corporation at any time in the taxation year, in which case, subject to subsection (4), its capital deduction for the year is nil.

  • Marginal note:Exceptions

    (1.1) For the purposes of applying subsection 125(5.1), the definitions unused surtax credit in subsections 181.1(6) and 190.1(5), and subsection 225.1(8), the amount of tax in respect of a corporation under subsection 181.1(1) for a taxation year is to be determined as if the reference to “$50 million” in subsection (1) were a reference to “$10 million”.

  • Marginal note:Related corporations

    (2) Subject to subsection (4.1), a corporation that is related to any other corporation at any time in a taxation year of the corporation that ends in a calendar year may file with the Minister in prescribed form an agreement on behalf of the related group of which the corporation is a member under which an amount that does not exceed $50 million is allocated among all corporations that are members of the related group for each taxation year of each such corporation ending in the calendar year and at a time when it was a member of the related group.

  • Marginal note:Allocation by Minister

    (3) Subject to subsection (4.1), the Minister may request a corporation that is related to any other corporation at the end of a taxation year to file with the Minister an agreement referred to in subsection (2) and, if the corporation does not file such an agreement within 30 days after receiving the request, the Minister may allocate an amount among the members of the related group of which the corporation is a member for the taxation year not exceeding $50 million.

  • Marginal note:Idem

    (4) The least amount allocated for a taxation year to a member of a related group under an agreement described in subsection 181.5(2) or by the Minister pursuant to subsection 181.5(3) is the capital deduction of that member for that taxation year.

  • Marginal note:Exceptions

    (4.1) For the purposes of applying subsection 125(5.1), the definitions unused surtax credit in subsections 181.1(6) and 190.1(5), and subsection 225.1(8), subsections (2) to (4) are to be read as if the amount determined under subsection (2) or (3), as the case may be, in respect of the corporation for the taxation year were that proportion of $10 million that the amount otherwise determined in respect of the corporation for the taxation year under that subsection is of $50 million.

  • Marginal note:Idem

    (5) Where a corporation (in this subsection referred to as the “first corporation”) has more than one taxation year ending in the same calendar year and is related in 2 or more of those taxation years to another corporation that has a taxation year ending in that calendar year, the capital deduction of the first corporation for each such taxation year at the end of which it is related to the other corporation is an amount equal to its capital deduction for the first such taxation year.

  • Marginal note:Idem

    (6) Two corporations that would, but for this subsection, be related to each other by reason only of

    • (a) the control of any corporation by Her Majesty in right of Canada or a province, or

    • (b) a right referred to in paragraph 251(5)(b),

    are, for the purposes of this section and subsection 181.3(4), deemed not to be related to each other except that, where at any time a taxpayer has a right referred to in paragraph 251(5)(b) with respect to shares and it can reasonably be considered that one of the main purposes for the acquisition of the right was to avoid any limitation on the amount of a corporation’s capital deduction for a taxation year, for the purpose of determining whether a corporation is related to any other corporation, the corporations are, for the purposes of this section, deemed to be in the same position in relation to each other as if the right were immediate and absolute and as if the taxpayer had exercised the right at that time.

  • Marginal note:Related corporations that are not associated

    (7) For the purposes of subsection 181.3(4) and this section, a Canadian-controlled private corporation and another corporation to which it would, but for this subsection, be related at any time shall be deemed not to be related to each other at that time where the corporations are not associated with each other at that time.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 181.5
  • 1994, c. 7, Sch. II, s. 150
  • 1998, c. 19, s. 198
  • 2003, c. 15, s. 86

Marginal note:Return

 Every corporation that is or would, but for subsection 181.1(4), be liable to pay tax under this Part for a taxation year shall file with the Minister, not later than the day on or before which the corporation is required by section 150 to file its return of income for the year under Part I, a return of capital for the year in prescribed form containing an estimate of the tax payable under this Part by it for the year.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 181.6
  • 1994, c. 7, Sch. VIII, s. 108

Marginal note:Provisions applicable to Part

 Sections 152, 158 and 159, subsection 161(11), sections 162 to 167 and Division J of Part I apply to this Part with such modifications as the circumstances require and, for the purpose of this section, paragraph 152(6)(a) shall be read as follows:

  • “(a) a deduction under section 181.1(4) in respect of any unused surtax credit (within the meaning assigned by subsection 181.1(6)) for a subsequent taxation year.”

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 181.7
  • 1994, c. 7, Sch. II, s. 151, Sch. VIII, s. 109

Marginal note:Provisions applicable — Crown corporations

 Section 27 applies to this Part with any modifications that the circumstances require.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 1998, c. 19, s. 199

 [Repealed, 1994, c. 7, Sch. VIII, s. 109(1)]

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 181.8
  • 1994, c. 7, Sch. VIII, s. 109

 [Repealed, 1994, c. 7, Sch. VIII, s. 109(1)]

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 181.9
  • 1994, c. 7, Sch. VIII, s. 109

PART II[Repealed, 2017, c. 20, s. 27]

 [Repealed, 2017, c. 20, s. 27]

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 1994, c. 29, s. 16
  • 1997, c. 26, s. 77
  • 2000, c. 30, s. 173
  • 2001, c. 16, s. 43
  • 2007, c. 35, s. 54
  • 2017, c. 20, ss. 26, 27

 [Repealed, 2017, c. 20, s. 27]

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 1994, c. 29, s. 16
  • 2000, c. 30, s. 174
  • 2017, c. 20, s. 27

PART II.1Tax on Corporate Distributions

Marginal note:Application of Part

  •  (1) This Part applies to a corporation (other than a mutual fund corporation) for a taxation year in which the corporation, at any time in the year,

    • (a) was a public corporation; or

    • (b) was resident in Canada and had a class of shares outstanding that were purchased and sold in the manner in which such shares normally are purchased and sold by any member of the public in the open market.

  • Marginal note:Tax payable

    (2) Where, as a part of a transaction or series of transactions or events,

    • (a) a corporation, or any person with whom the corporation was not dealing at arm’s length, has, at any time, paid an amount, directly or indirectly, to any person as proceeds of disposition of any property, and

    • (b) all or any portion of the amount may reasonably be considered, having regard to all the circumstances, to have been paid as a substitute for dividends that would otherwise have been paid in the normal course by the corporation,

    the corporation shall, on or before its balance-due day for its taxation year that includes that time, pay tax of 45% of that amount or portion of it, as the case may be.

  • Marginal note:Stock dividend

    (3) Where, as a part of a transaction or series of transactions or events,

    • (a) a share was issued by a corporation as a stock dividend and the amount of the stock dividend was less than the fair market value of the share at the time that it was issued, and

    • (b) the share or any other share of the capital stock of the corporation was purchased, directly or indirectly, by the corporation, or by a person with whom the corporation was not dealing at arm’s length, for an amount in excess of its paid-up capital,

    that excess shall, for the purposes of subsection 183.1(2), be deemed to have been paid as a substitute for dividends that would otherwise have been paid in the normal course by the corporation.

  • Marginal note:Purchase of shares

    (4) Where, as a part of a transaction or series of transactions or events,

    • (a) a share of the capital stock of a corporation was purchased, directly or indirectly, by the corporation, or by any person with whom the corporation was not dealing at arm’s length, and

    • (b) any portion of the amount paid for the share may reasonably be considered, having regard to all the circumstances, as consideration for a dividend that had been declared, but not yet paid, on the share,

    that portion of the amount shall, for the purposes of subsection 183.1(2), be deemed to have been paid as a substitute for dividends that would otherwise have been paid in the normal course by the corporation notwithstanding that the dividend was actually paid thereafter.

  • Marginal note:Indirect payment

    (5) Where, as a part of a transaction or series of transactions or events, a person received a payment from a corporation, or from any person with whom the corporation was not dealing at arm’s length, in consideration, in whole or in part, for paying an amount to any other person as proceeds of disposition of any property, the corporation shall, for the purposes of subsection 183.1(2), be deemed to have paid the amount indirectly to the other person.

  • Marginal note:Where s. (2) does not apply

    (6) Subsection 183.1(2) does not apply if none of the purposes of the transaction or series of transactions or events referred to therein may reasonably be considered, having regard to all the circumstances, to have been to enable shareholders of a corporation who are individuals or non-resident persons to receive an amount, directly or indirectly, as proceeds of disposition of property rather than as a dividend on a share that was of a class that was listed on a stock exchange or that was purchased and sold in the manner in which shares are normally purchased and sold by any member of the public in the open market.

  • Marginal note:Where s. 110.6(8) does not apply

    (7) Where this section has been applied in respect of an amount, subsection 110.6(8) does not apply to the capital gain in respect of which the amount formed all or a part of the proceeds of disposition.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 183.1
  • 2003, c. 15, s. 119

Marginal note:Return

  •  (1) Every corporation liable to pay tax under this Part for a taxation year shall, on or before the day on or before which it is required to file its return of income under Part I for the year, file with the Minister a return for the year under this Part in prescribed form.

  • Marginal note:Provisions applicable to Part

    (2) Subsections 150(2) and 150(3), sections 152, 158 and 159, subsections 160.1(1) and 161(1) and 161(11), sections 162 to 167 and Division J of Part I are applicable to this Part with such modifications as the circumstances require.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 1987, c. 46, s. 57

PART IIIAdditional Tax on Excessive Elections

Marginal note:Tax on excessive elections

  •  (2) If a corporation has elected in accordance with subsection 83(2), 130.1(4) or 131(1) in respect of the full amount of any dividend payable by it on shares of any class of its capital stock (in this section referred to as the “original dividend”) and the full amount of the original dividend exceeds the portion of the original dividend deemed by that subsection to be a capital dividend or capital gains dividend, as the case may be, the corporation shall, at the time of the election, pay a tax under this Part equal to 3/5 of the excess.

  • (2.1) [Repealed, 2013, c. 34, s. 327]

  • Marginal note:Election to treat excess as separate dividend

    (3) If, in respect of an original dividend payable at a particular time, a corporation would, but for this subsection, be required to pay a tax under this Part in respect of an excess referred to in subsection (2), and the corporation elects in prescribed manner on or before the day that is 90 days after the day of sending of the notice of assessment in respect of the tax that would otherwise be payable under this Part, the following rules apply:

    • (a) the portion of the original dividend deemed by subsection 83(2), 130.1(4) or 131(1) to be a capital dividend or capital gains dividend, as the case may be, is deemed for the purposes of this Act to be the amount of a separate dividend that became payable at the particular time;

    • (b) if the corporation identifies in its election any part of the excess, that part is, for the purposes of any election under subsection 83(2), 130.1(4) or 131(1) in respect of that part, and, where the corporation has so elected, for all purposes of this Act, deemed to be the amount of a separate dividend that became payable immediately after the particular time;

    • (c) the amount by which the excess exceeds any portion deemed by paragraph (b) to be a separate dividend for all purposes of this Act is deemed to be a separate taxable dividend that became payable at the particular time; and

    • (d) each person who held any of the issued shares of the class of shares of the capital stock of the corporation in respect of which the original dividend was paid is deemed

      • (i) not to have received any portion of the original dividend, and

      • (ii) to have received, at the time that any separate dividend determined under any of paragraphs (a) to (c) became payable, the proportion of that dividend that the number of shares of that class held by the person at the particular time is of the number of shares of that class outstanding at the particular time except that, for the purpose of Part ​XIII, the separate dividend is deemed to be paid on the day that the election in respect of this subsection is made.

  • (3.1) and (3.2) [Repealed, 2013, c. 34, s. 327]

  • Marginal note:Concurrence with election

    (4) An election under subsection (3) is valid only if

    • (a) it is made with the concurrence of the corporation and all its shareholders

      • (i) who received or were entitled to receive all or any portion of the original dividend, and

      • (ii) whose addresses were known to the corporation; and

    • (b) either

      • (i) it is made on or before the day that is 30 months after the day on which the original dividend became payable, or

      • (ii) each shareholder described in subparagraph (a)(i) concurs with the election, in which case, notwithstanding subsections 152(4) to (5), any assessment of the tax, interest and penalties payable by each of those shareholders for any taxation year shall be made that is necessary to take the corporation’s election into account.

  • Marginal note:Exception for non-taxable shareholders

    (5) If each person who, in respect of an election made under subsection (3), is deemed by subsection (3) to have received a dividend at a particular time is also, at the particular time, a person all of whose taxable income is exempt from tax under Part I,

    • (a) subsection (4) does not apply to the election; and

    • (b) the election is valid only if it is made on or before the day that is 30 months after the day on which the original dividend became payable.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 184
  • 1994, c. 7, Sch. II, s. 152
  • 2010, c. 25, s. 48
  • 2013, c. 34, s. 327
 
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