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

PART XII.5Recovery of Labour-sponsored Funds Tax Credit

Marginal note:Definitions

• 211.7 (1) The definitions in this section apply for the purposes of this Part.

  approved share

  approved share has the meaning assigned by subsection 127.4(1). (action approuvée)

  labour-sponsored funds tax credit

  labour-sponsored funds tax credit in respect of a share is

  • (a) where the original acquisition of the share occurred before 1996, 20% of the net cost of the share on that acquisition;

  • (b) in any other case, the amount that would be determined under subsection 127.4(6) in respect of the share if this Act were read without reference to its paragraphs (b) and (d). (crédit d’impôt relatif à un fonds de travailleurs)

  • (c) [Repealed, 2016, c. 7, s. 44]

  net cost

  net cost has the meaning assigned by subsection 127.4(1). (coût net)

  original acquisition

  original acquisition has the meaning assigned by subsection 127.4(1). (acquisition initiale)

  qualifying exchange

  qualifying exchange means an exchange by a taxpayer of an approved share, that is part of a series of Class A shares of the capital stock of a corporation, for another approved share, that is part of another series of Class A shares of the capital stock of the corporation, if

  • (a) the only consideration received by the taxpayer on the exchange is the other share; and

  • (b) the rights in respect of the series are identical except for the portion of the reserve (within the meaning assigned by subsection 204.8(1)) of the corporation that is attributable to each series. (échange admissible)

  qualifying trust

  qualifying trust has the meaning assigned by subsection 127.4(1). (fiducie admissible)

  revoked corporation

  revoked corporation means a corporation the registration of which has been revoked under subsection 204.81(6). (société radiée)

• Marginal note:Amalgamations and mergers

  (2) For the purposes of this Part, where two or more corporations (each of which is referred to in this subsection as a “predecessor corporation”) amalgamate or merge to form a corporate entity deemed by paragraph 204.85(3)(d) to have been registered under Part X.3, the shares of each predecessor corporation are deemed not to be redeemed, acquired or cancelled by the predecessor corporation on the amalgamation or merger.

• Marginal note:Exchangeable shares

  (3) For the purposes of this Part and Part X.3, if an approved share of the capital stock of a corporation (referred to in this subsection as the “new share”) has been issued in exchange for another approved share (referred to in this subsection as the “original share”) in a qualifying exchange, the new share is deemed not to have been issued on the exchange and is deemed to have been issued at the time the corporation issued the original share.

Marginal note:Disposition of approved share

• 211.8 (1) If an approved share of the capital stock of a registered labour-sponsored venture capital corporation or a revoked corporation is, before the first discontinuation of its venture capital business, redeemed, acquired or cancelled by the corporation less than eight years after the day on which the share was issued (other than in circumstances described in subclause 204.81(1)(c)(v)(A)(I) or (III) or clause 204.81(1)(c)(v)(B) or (D) or other than if the share is a Class A share of the capital stock of the corporation that is exchanged for another Class A share of the capital stock of the corporation as part of a qualifying exchange) or any other share that was issued by any other labour-sponsored venture capital corporation is disposed of, the person who was the shareholder immediately before the redemption, acquisition, cancellation or disposition shall pay a tax under this Part equal to the lesser of

  • (a) the amount determined by the formula

    A × B

    where

    A

    is

    • (i) where the share was issued by a registered labour-sponsored venture capital corporation or a revoked corporation, the labour-sponsored funds tax credit in respect of the share, and

    • (ii) where the share was issued by any other labour-sponsored venture capital corporation and was at any time an approved share, the amount, if any, required to be remitted to the government of a province as a consequence of the redemption, acquisition, cancellation or disposition (otherwise than as a consequence of an increase in the corporation’s liability for a penalty under a law of the province), and

    B

    is

    • (i) nil, where the share was issued by a registered labour-sponsored venture capital corporation or a revoked corporation, the original acquisition of the share was before March 6, 1996 and the redemption, acquisition, cancellation or disposition is

      • (A) more than 2 years after the day on which it was issued, where the redemption, acquisition, cancellation or disposition is permitted under the articles of the corporation because an individual attains 65 years of age, retires from the workforce or ceases to be resident in Canada,

      • (B) more than five years after its issuance, or

      • (C) if the day that is five years after its issuance is in February or March of a calendar year, in February or on March 1st of that calendar year but not more than 31 days before that day,

    • (i.1) nil, where the share was issued by a registered labour-sponsored venture capital corporation or a revoked corporation, the original acquisition of the share was after March 5, 1996 and the redemption, acquisition or cancellation is in February or on March 1st of a calendar year but is not more than 31 days before the day that is eight years after the day on which the share was issued,

    • (ii) one, in any other case where the share was issued by a registered labour-sponsored venture capital corporation or a revoked corporation, and

    • (iii) in any other case, the quotient obtained when the labour-sponsored fund tax credit in respect of the share is divided by the tax credit provided under a law of a province in respect of any previous acquisition of the share, and

  • (b) the amount that would, but for subsection 211.8(2), be payable to the shareholder because of the redemption, acquisition, cancellation or disposition (determined after taking into account the amount determined under subparagraph (ii) of the description of A in paragraph 211.8(1)(a)).

• Marginal note:Rules of application

  (1.1) Subsections 204.8(2) and (3) and 204.85(3) apply for the purpose of subsection (1).

• Marginal note:Withholding and remittance of tax

  (2) Where a person or partnership (in this section referred to as the “transferee”) redeems, acquires or cancels a share and, as a consequence, tax is payable under this Part by the person who was the shareholder immediately before the redemption, acquisition or cancellation, the transferee shall

  • (a) withhold from the amount otherwise payable on the redemption, acquisition or cancellation to the shareholder the amount of the tax;

  • (b) within 30 days after the redemption, acquisition or cancellation, remit the amount of the tax to the Receiver General on behalf of the shareholder; and

  • (c) submit with the remitted amount a statement in prescribed form.

• Marginal note:Liability for tax

  (3) Where a transferee has failed to withhold any amount as required by subsection 211.8(2) from an amount paid or credited to a shareholder, the transferee is liable to pay as tax under this Part on behalf of the shareholder the amount the transferee failed to withhold, and is entitled to recover that amount from the shareholder.

Marginal note:Tax for failure to reacquire certain shares

211.81 If a particular amount is payable under a prescribed provision of a provincial law for a taxation year of an individual as determined for the purposes of that provincial law (referred to in this section as the “relevant provincial year”), and an amount has been included in the computation of the labour-sponsored funds tax credit of the individual under subsection 127.4(6) in respect of an approved share that has been disposed of by a qualifying trust in respect of the individual, the individual shall pay a tax for the taxation year in which the relevant provincial year ends equal to the amount deducted by the individual under subsection 127.4(2) in respect of the share.