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

Full Document:  

Act current to 2022-11-16 and last amended on 2022-10-18. Previous Versions

PART IIncome Tax (continued)

DIVISION EComputation of Tax (continued)

SUBDIVISION ARules Applicable to Individuals (continued)

Marginal note:Deduction for taxable dividends

 There may be deducted from the tax otherwise payable under this Part by an individual for a taxation year the total of

  • (a) the product of the amount, if any, that is required by subparagraph 82(1)(b)(i) to be included in computing the individual’s income for the year multiplied by

    • (i) for the 2018 taxation year, 8/11, and

    • (ii) for taxation years after 2018, 9/13, and

  • (b) the product of the amount, if any, that is required by subparagraph 82(1)(b)(ii) to be included in computing the individual’s income for the year multiplied by

    • (i) for the 2009 taxation year, 11/18,

    • (ii) for the 2010 taxation year, 10/17,

    • (iii) for the 2011 taxation year, 13/23, and

    • (iv) for taxation years after 2011, 6/11.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 121
  • 2007, c. 2, s. 48
  • 2008, c. 28, s. 17
  • 2013, c. 33, s. 11
  • 2015, c. 36, s. 10
  • 2016, c. 7, s. 26
  • 2018, c. 12, s. 14

Marginal note:Tax payable by trust

  •  (1) Notwithstanding section 117, the tax payable under this Part for a taxation year by a trust (other than a graduated rate estate or qualified disability trust) is the total of

    • (a) the highest individual percentage for the taxation year multiplied by the trust’s amount taxable for the taxation year,

    • (b) if the trust is a SIFT trust for the taxation year, the positive or negative amount determined by the formula

      A × B

      where

      A
      is the positive or negative decimal fraction determined by the formula

      C + D - E

      where

      C
      is the net corporate income tax rate in respect of the SIFT trust for the taxation year,
      D
      is the provincial SIFT tax rate of the SIFT trust for the taxation year, and
      E
      is the decimal fraction equivalent of the percentage rate of tax provided in paragraph (a) for the taxation year, and
      B
      is the SIFT trust’s taxable SIFT trust distributions for the taxation year, and
    • (c) if subsection (2) applies to the trust for the taxation year, the amount determined by the formula

      A − (B − C)

      where

      A
      is the amount that would be determined for B for the year if
      • (i) the rate of tax payable under this Part by the trust for each taxation year referred to in the description of B were the highest individual percentage for the taxation year, and

      • (ii) the trust’s taxable income for a particular taxation year referred to in the description of B were reduced by the total of

        • (A) the amount, if any, that was paid or distributed in satisfaction of all or part of an individual’s interest as a beneficiary under the trust if

          • (I) the individual was an electing beneficiary of the trust for the particular year,

          • (II) the payment or distribution can reasonably be considered to be made out of that taxable income, and

          • (III) the payment or distribution was made in a taxation year referred to in the description of B,

        • (B) the amount that is the portion of the tax payable under this Part by the trust for the particular year that can reasonably be considered to relate to the amount determined under clause (A), and

        • (C) the amount that is the portion of the tax payable, under the law of the province in which the trust is resident for the particular year, that can reasonably be considered to relate to the amount determined under clause (A),

      B
      is the total of all amounts each of which is the amount of tax payable under this Part by the trust for a taxation year that precedes the year if that preceding taxation year is
      • (i) the later of

        • (A) the first taxation year for which the trust was a qualified disability trust, and

        • (B) the last taxation year, if any, for which subsection (2) applied to the trust, or

      • (ii) a taxation year that ends after the taxation year described in subparagraph (i), and

      C
      is the total of all amounts each of which is an amount determined for clause (ii)(B) of the description of A in determining the amount for A for the year.
  • Marginal note:Credits available to trusts

    (1.1) No deduction may be made under this Subdivision (other than section 118.1, 120.2 or 121) in computing the tax payable by a trust for a taxation year.

  • Marginal note:Qualified disability trust — application of (1)(c)

    (2) This subsection applies to a trust for a particular taxation year if the trust was a qualified disability trust for a preceding taxation year and

    • (a) none of the beneficiaries under the trust at the end of the particular year was an electing beneficiary of the trust for a preceding year;

    • (b) the particular year ended immediately before the trust ceased to be resident in Canada; or

    • (c) an amount is paid or distributed in the particular year to a beneficiary under the trust in satisfaction of all or part of the beneficiary’s interest in the trust unless

      • (i) the beneficiary is an electing beneficiary of the trust for the particular year or a preceding year,

      • (ii) the amount is deducted under paragraph 104(6)(b) in computing the trust’s income for the particular year, or

      • (iii) the amount is paid or distributed in satisfaction of a right to enforce payment of an amount that was deducted under paragraph 104(6)(b) in computing the trust’s income for a preceding year.

  • Marginal note:Definitions

    (3) The following definitions apply in this section.

    beneficiary

    beneficiary, under a trust, includes a person beneficially interested in the trust. (bénéficiaire)

    electing beneficiary

    electing beneficiary, for a taxation year of a qualified disability trust, means a beneficiary under the trust that for the year

    • (a) makes an election described in clause (a)(iii)(A) of the definition qualified disability trust in this subsection; and

    • (b) is described in paragraph (b) of that definition. (bénéficiaire optant)

    non-deductible distributions amount

    non-deductible distributions amount for a taxation year has the meaning assigned by subsection 104(16). (montant de distribution non déductible)

    qualified disability trust

    qualified disability trust, for a taxation year (in this definition referred to as the “trust year”), means a trust, if

    • (a) the trust

      • (i) is, at the end of the trust year, a testamentary trust that arose on and as a consequence of a particular individual’s death,

      • (ii) is resident in Canada for the trust year, and

      • (iii) includes in its return of income under this Part for the trust year

        • (A) an election, made jointly with one or more beneficiaries under the trust in prescribed form, to be a qualified disability trust for the trust year, and

        • (B) the Social Insurance Number of each of those beneficiaries;

    • (b) each of those beneficiaries is an individual, named as a beneficiary by the particular individual in the instrument under which the trust was created,

      • (i) in respect of whom paragraphs 118.3(1)(a) to (b) apply for the individual’s taxation year (in this definition referred to as the “beneficiary year”) in which the trust year ends, and

      • (ii) who does not jointly elect with any other trust, for a taxation year of the other trust that ends in the beneficiary year, to be a qualified disability trust; and

    • (c) subsection (2) does not apply to the trust for the trust year. (fiducie admissible pour personne handicapée)

    taxable SIFT trust distributions

    taxable SIFT trust distributions, of a SIFT trust for a taxation year, means the lesser of

    • (a) its amount taxable for the taxation year, and

    • (b) the amount determined by the formula

      A/(1 - (B + C))

      where

      A
      is its non-deductible distributions amount for the taxation year,
      B
      is the net corporate income tax rate in respect of the SIFT trust for the taxation year, and
      C
      is the provincial SIFT tax rate of the SIFT trust for the taxation year. (montant de distribution imposable)
  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • R.S., 1985, c. 1 (5th Supp.), s. 122
  • 2001, c. 17, s. 105
  • 2007, c. 29, s. 12
  • 2008, c. 28, s. 18
  • 2013, c. 34, ss. 13, 257
  • 2014, c. 39, s. 38
  • 2016, c. 7, s. 62, c. 11, s. 5
  • 2017, c. 33, s. 46

Marginal note:Definitions

  •  (1) The following definitions apply in this section and in sections 104 and 122.

    eligible resale property

    eligible resale property, of an entity, means real or immovable property (other than capital property) of the entity

    • (a) that is contiguous to a particular real or immovable property that is capital property or eligible resale property, held by

      • (i) the entity, or

      • (ii) another entity affiliated with the entity; and

    • (b) the holding of which is ancillary to the holding of the particular property. (bien de revente admissible)

    entity

    entity means a corporation, trust or partnership. (entité)

    equity

    equity, of an entity, means

    • (a) if the entity is a corporation, a share of the capital stock of the corporation;

    • (b) if the entity is a trust, an income or capital interest in the trust;

    • (c) if the entity is a partnership, an interest as a member of the partnership;

    • (d) a liability of the entity (and, for purposes of the definition publicly-traded liability in this section, a security of the entity that is a liability of another entity) if

      • (i) the liability is convertible into, or exchangeable for, equity of the entity or of another entity, or

      • (ii) any amount paid or payable in respect of the liability is contingent or dependent on the use of or production from property, or is computed by reference to revenue, profit, cash flow, commodity price or any other similar criterion or by reference to dividends paid or payable to shareholders of any class of shares of the capital stock of a corporation, or to income or capital paid or payable to any member of a partnership or beneficiary under a trust; and

    • (e) a right to, or to acquire, anything described in this paragraph and any of paragraphs (a) to (d). (capitaux propres)

    equity value

    equity value, of an entity at any time, means the total fair market value at that time of

    • (a) if the entity is a corporation, all of the issued and outstanding shares of the capital stock of the corporation;

    • (b) if the entity is a trust, all of the income or capital interests in the trust; or

    • (c) if the entity is a partnership, all of the interests in the partnership. (valeur des capitaux propres)

    excluded subsidiary entity

    excluded subsidiary entity, for a taxation year, means an entity none of the equity of which is at any time in the taxation year

    • (a) listed or traded on a stock exchange or other public market; nor

    • (b) held by any person or partnership other than

      • (i) a real estate investment trust,

      • (ii) a taxable Canadian corporation,

      • (iii) a SIFT trust (determined without reference to subsection (2)),

      • (iv) a SIFT partnership (determined without reference to subsection 197(8)),

      • (v) a person or partnership that does not have, in connection with the holding of a security of the entity, property the value of which is determined, all or in part, by reference to a security that is listed or traded on a stock exchange or other public market, or

      • (vi) an excluded subsidiary entity for the taxation year. (filiale exclue)

    gross REIT revenue

    gross REIT revenue, of an entity for a taxation year, means the amount, if any, by which the total of all amounts received or receivable in the year (depending on the method regularly followed by the entity in computing the entity’s income) by the entity exceeds the total of all amounts each of which is the cost to the entity of a property disposed of in the year. (revenu brut de FPI)

    investment

    investment, in a trust or partnership,

    • (a) means

      • (i) a property that is a security of the trust or partnership, or

      • (ii) a right which may reasonably be considered to replicate a return on, or the value of, a security of the trust or partnership; but

    • (b) does not include

      • (i) an unaffiliated publicly-traded liability of the trust or partnership, nor

      • (ii) regulated innovative capital. (placement)

    non-portfolio earnings

    non-portfolio earnings, of a SIFT trust for a taxation year, means the total of

    • (a) the amount, if any, by which

      • (i) the total of all amounts each of which is the SIFT trust’s income for the taxation year from a business carried on by it in Canada or from a non-portfolio property, other than income that is a taxable dividend received by the SIFT trust,

      exceeds

      • (ii) the total of all amounts each of which is the SIFT trust’s loss for the taxation year from a business carried on by it in Canada or from a non-portfolio property, and

    • (b) the amount, if any, by which

      • (i) the total of

        • (A) all taxable capital gains of the SIFT trust from dispositions of non-portfolio properties during the taxation year, and

        • (B) one-half of the total of all amounts each of which is deemed under subsection 131(1) to be a capital gain of the SIFT trust for the taxation year in respect of a non-portfolio property of the SIFT trust for the taxation year

      exceeds

      • (ii) the total of the allowable capital losses of the SIFT trust for the taxation year from dispositions of non-portfolio properties during the taxation year. (gains hors portefeuille)

    non-portfolio property

    non-portfolio property, of a particular entity for a taxation year, means a property, held by the particular entity at any time in the taxation year, that is

    • (a) a security of a subject entity (other than a portfolio investment entity), if at that time the particular entity holds

      • (i) securities of the subject entity that have a total fair market value that is greater than 10% of the equity value of the subject entity, or

      • (ii) securities of the subject entity that, together with all the securities that the particular entity holds of entities affiliated with the subject entity, have a total fair market value that is greater than 50% of the equity value of the particular entity;

    • (b) a Canadian real, immovable or resource property, if at any time in the taxation year the total fair market value of all properties held by the particular entity that are Canadian real, immovable or resource properties is greater than 50% of the equity value of the particular entity; or

    • (c) a property that the particular entity, or a person or partnership with whom the particular entity does not deal at arm’s length, uses at that time in the course of carrying on a business in Canada. (bien hors portefeuille)

    portfolio investment entity

    portfolio investment entity at any time means an entity that does not at that time hold any non-portfolio property. (entité de placement de portefeuille)

    publicly-traded liability

    publicly-traded liability, of an entity, means a liability that is a security of the entity, that is not equity of the entity and that is listed or traded on a stock exchange or other public market. (dette transigée publiquement)

    public market

    public market includes any trading system or other organized facility on which securities that are qualified for public distribution are listed or traded, but does not include a facility that is operated solely to carry out the issuance of a security or its redemption, acquisition or cancellation by its issuer. (marché public)

    qualified REIT property

    qualified REIT property, of a trust at any time, means a property that, at that time, is held by the trust and is

    • (a) a real or immovable property that is capital property, an eligible resale property, an indebtedness of a Canadian corporation represented by a bankers’ acceptance, a property described by paragraph (a) or (b) of the definition qualified investment in section 204 or a deposit with a credit union;

    • (b) a security of a subject entity all or substantially all of the gross REIT revenue of which, for its taxation year that ends in the trust’s taxation year that includes that time, is from maintaining, improving, leasing or managing real or immovable properties that are capital properties of the trust or of an entity of which the trust holds a share or an interest, including real or immovable properties that the trust, or an entity of which the trust holds a share or an interest, holds together with one or more other persons or partnerships;

    • (c) a security of a subject entity, if the entity holds no property other than

      • (i) legal title to real or immovable property of the trust or of another subject entity all of the securities of which are held by the trust (including real or immovable property that the trust or the other subject entity holds together with one or more other persons or partnerships), and

      • (ii) property described in paragraph (d); or

    • (d) ancillary to the earning by the trust of amounts described in subparagraphs (b)(i) and (iii) of the definition real estate investment trust, other than

      • (i) an equity of an entity, or

      • (ii) a mortgage, hypothecary claim, mezzanine loan or similar obligation. (bien admissible de FPI)

    real estate investment trust

    real estate investment trust, for a taxation year, means a trust that is resident in Canada throughout the taxation year, if

    • (a) at each time in the taxation year the total fair market value at that time of all non-portfolio properties that are qualified REIT properties held by the trust is at least 90% of the total fair market value at that time of all non-portfolio properties held by the trust;

    • (b) not less than 90% of the trust’s gross REIT revenue for the taxation year is from one or more of the following:

      • (i) rent from real or immovable properties,

      • (ii) interest,

      • (iii) dispositions of real or immovable properties that are capital properties,

      • (iv) dividends,

      • (v) royalties, and

      • (vi) dispositions of eligible resale properties;

    • (c) not less than 75% of the trust’s gross REIT revenue for the taxation year is from one or more of the following:

      • (i) rent from real or immovable properties,

      • (ii) interest from mortgages, or hypothecs, on real or immovable properties, and

      • (iii) dispositions of real or immovable properties that are capital properties;

    • (d) at each time in the taxation year an amount, that is equal to 75% or more of the equity value of the trust at that time, is the amount that is the total fair market value of all properties held by the trust each of which is a real or immovable property that is capital property, an eligible resale property, an indebtedness of a Canadian corporation represented by a bankers’ acceptance, a property described by paragraph (a) or (b) of the definition qualified investment in section 204 or a deposit with a credit union; and

    • (e) investments in the trust are, at any time in the taxation year, listed or traded on a stock exchange or other public market. (fiducie de placement immobilier)

    real or immovable property

    real or immovable property, of a taxpayer,

    • (a) includes

      • (i) a security held by the taxpayer, if the security is a security of a trust that satisfies (or of any other entity that would, if it were a trust, satisfy) the conditions set out in paragraphs (a) to (d) of the definition real estate investment trust, or

      • (ii) an interest in real property or a real right in immovables (other than a right to a rental or royalty described in paragraph (d) or (e) of the definition “Canadian resource property” in subsection 66(15)); but

    • (b) does not include any depreciable property, other than

      • (i) a property included, otherwise than by an election permitted by regulation, in Class 1, 3 or 31 of Schedule II to the Income Tax Regulations,

      • (ii) a property ancillary to the ownership or utilization of a property described in subparagraph (i), or

      • (iii) a lease in, or a leasehold interest in respect of, land or property described in subparagraph (i). (bien immeuble ou réel)

    regulated innovative capital

    regulated innovative capital means equity of a trust, where

    • (a) since November 2006, the equity has been authorized, by the Superintendent of Financial Institutions or by a provincial regulatory authority having powers similar to those of the Superintendent, as Tier 1 or Tier 2 capital of a financial institution (as defined by subsection 181(1));

    • (b) the terms and conditions of the equity have not changed after August 1, 2008;

    • (c) the trust has not issued any equity after October 31, 2006; and

    • (d) the trust does not hold any non-portfolio property other than

      • (i) liabilities of the financial institution, and

      • (ii) shares of the capital stock of the financial institution that were acquired by the trust for the sole purpose of satisfying a right to require the trust to accept, as demanded by a holder of the equity, the surrender of the equity. (capital innovateur réglementé)

    rent from real or immovable properties

    rent from real or immovable properties

    • (a) includes

      • (i) rent or similar payments for the use of, or right to use, real or immovable properties, and

      • (ii) payment for services ancillary to the rental of real or immovable properties and customarily supplied or rendered in connection with the rental of real or immovable properties; but

      • (iii) [Repealed, 2013, c. 34, s. 258]

    • (b) does not include

      • (i) payment for services supplied or rendered, other than those described in subparagraph (a)(ii), to the tenants of such properties,

      • (ii) fees for managing or operating such properties,

      • (iii) payment for the occupation of, use of, or right to use a room in a hotel or other similar lodging facility, or

      • (iv) rent based on profits. (loyer de biens immeubles ou réels)

    security

    security of a particular entity means any right, whether absolute or contingent, conferred by the particular entity or by an entity that is affiliated with the particular entity, to receive, either immediately or in the future, an amount that can reasonably be regarded as all or any part of the capital, of the revenue or of the income of the particular entity, or as interest paid or payable by the particular entity, and for greater certainty includes

    • (a) a liability of the particular entity;

    • (b) if the particular entity is a corporation,

      • (i) a share of the capital stock of the corporation, and

      • (ii) a right to control in any manner whatever the voting rights of a share of the capital stock of the corporation;

    • (c) if the particular entity is a trust, an income or a capital interest in the trust;

    • (d) if the particular entity is a partnership, an interest as a member of the partnership; and

    • (e) a right to, or to acquire, anything described in this paragraph and any of paragraphs (a) to (d). (titre)

    SIFT trust

    SIFT trust, being a specified investment flow-through trust, for a taxation year means a trust (other than an excluded subsidiary entity, or a real estate investment trust, for the taxation year) that meets the following conditions at any time during the taxation year:

    • (a) the trust is resident in Canada;

    • (b) investments in the trust are listed or traded on a stock exchange or other public market; and

    • (c) the trust holds one or more non-portfolio properties. (fiducie intermédiaire de placement déterminée)

    subject entity

    subject entity means a person or partnership that is

    • (a) a corporation resident in Canada;

    • (b) a trust resident in Canada;

    • (c) a Canadian resident partnership; or

    • (d) a non-resident person, or a partnership that is not described in paragraph (c), the principal source of income of which is one or any combination of sources in Canada. (entité déterminée)

    unaffiliated publicly-traded liability

    unaffiliated publicly-traded liability, of an entity at any time means a publicly-traded liability of the entity if, at that time the total fair market value of all publicly-traded liabilities of the entity that are held at that time by persons or partnerships that are not affiliated with the entity is at least 90% of the total fair market value of all publicly-traded liabilities of the entity. (dette non affiliée transigée publiquement)

  • Marginal note:Application of subsection (1.2)

    (1.1) Subsection (1.2) applies to an entity for a taxation year in respect of an amount and another entity (referred to in this subsection and subsection (1.2) as the “parent entity”, “specified amount” and “source entity”, respectively), if

    • (a) at any time in the taxation year the parent entity

      • (i) is affiliated with the source entity, or

      • (ii) holds securities of the source entity that

        • (A) are described by any of paragraphs (a) to (c) of the definition equity in subsection (1), and

        • (B) have a total fair market value that is greater than 10% of the equity value of the source entity;

    • (b) the specified amount is included in computing the parent entity’s gross REIT revenue for the taxation year in respect of a security of the source entity held by the parent entity; and

    • (c) in the case of a source entity that is a subject entity described in paragraph (b) of the definition qualified REIT property in subsection (1) in respect of the parent entity at each time during the taxation year at which the parent entity holds securities of the source entity, the specified amount cannot reasonably be considered to be derived from the source entity’s gross REIT revenue from maintaining, improving, leasing or managing real or immovable properties that are capital properties of the parent entity or of an entity of which the parent entity holds a share or an interest, including real or immovable properties that the parent entity, or an entity of which the parent entity holds a share or an interest, holds together with one or more other persons or partnerships.

  • Marginal note:Character preservation rule

    (1.2) If this subsection applies to a parent entity for a taxation year in respect of a specified amount and a source entity, then for the purposes of the definition real estate investment trust in subsection (1), to the extent that the specified amount can reasonably be considered to be derived from gross REIT revenue of the source entity having a particular character, the specified amount is deemed to be gross REIT revenue of the parent entity having the same character and not having any other character.

  • Marginal note:Character of revenue — hedging arrangements

    (1.3) For the purposes of the definition real estate investment trust in subsection (1),

    • (a) if an amount is included in gross REIT revenue of a trust for a taxation year and it results from an agreement that can reasonably be considered to have been made by the trust to reduce its risk from fluctuations in interest rates in respect of debt incurred by the trust to acquire or refinance real or immovable property, the amount is deemed to have the same character as gross REIT revenue in respect of the real or immovable property and not any other character; and

    • (b) if a real or immovable property is situated in a country other than Canada and an amount included in gross REIT revenue of a trust for a taxation year

      • (i) is a gain from fluctuations in the value of the currency of that country relative to Canadian currency recognized on

        • (A) revenue in respect of the real or immovable property, or

        • (B) debt incurred by the trust for the purpose of earning revenue in respect of the real or immovable property, or

      • (ii) results from an agreement that

        • (A) provides for the purchase, sale or exchange of currency, and

        • (B) can reasonably be considered to have been made by the trust to reduce its risk from currency fluctuations described in subparagraph (i),

      the amount is deemed to have the same character as gross REIT revenue in respect of the real or immovable property and not any other character.

  • Marginal note:Application of definition SIFT trust

    (2) The definition SIFT trust applies to a trust for a taxation year of the trust that ends after 2006, except that if the trust would have been a SIFT trust on October 31, 2006 had that definition been in force and applied to the trust as of that date, that definition does not apply to the trust for a taxation year of the trust that ends before the earlier of

    • (a) 2011, and

    • (b) the first day after December 15, 2006 on which the trust exceeds normal growth as determined by reference to the normal growth guidelines issued by the Department of Finance on December 15, 2006, as amended from time to time, unless that excess arose as a result of a prescribed transaction.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • 2007, c. 29, s. 13, c. 35, s. 41
  • 2009, c. 2, s. 36
  • 2013, c. 34, s. 258, c. 40, s. 51
 
Date modified: