Income Tax Regulations (C.R.C., c. 945)

Prescribed Expenditures

2901 For the purposes of paragraph 37.1(5)(c) of the Act, a prescribed expenditure is

• (a) an expenditure of a current nature incurred by a corporation in respect of

  • (i) the general administration or management of a business, including

    • (A) administrative salary or wages and related benefits in respect of a person whose duties are not all or substantially all directed to the prosecution of scientific research and experimental development, except to the extent that such expenditure is described in subsection 2900(2) or (3),

    • (B) a legal or accounting fee,

    • (C) an amount described in any of paragraphs 20(1)(c) to (g) of the Act,

    • (D) an entertainment expense,

    • (E) an advertising or selling expense,

    • (F) a convention expense,

    • (G) a due or fee in respect of membership in a scientific or technical society or organization, and

    • (H) a fine or penalty, or

  • (ii) the maintenance and upkeep of premises, facilities or equipment to the extent that such expenditure is not attributable to the prosecution of scientific research and experimental development,

  except any such expenditure incurred by a corporation that derives all or substantially all of its revenue from the prosecution of scientific research or the sale of rights in or arising out of scientific research carried on by it;

• (b) an expenditure of a capital nature incurred by a corporation in respect of

  • (i) the acquisition of property, except any such expenditure that was incurred for and was all or substantially all attributable to the prosecution, or to the provision of premises, facilities or equipment for the prosecution, of scientific research and experimental development, or

  • (ii) the acquisition of property that is qualified property within the meaning assigned by subsection 127(9) of the Act;

• (c) an expenditure made to acquire rights in, or arising out of, scientific research; or

• (d) an expenditure on scientific research in respect of which an amount is deductible under section 110 of the Act.

2902 For the purposes of the definition qualified expenditure in subsection 127(9) of the Act, a prescribed expenditure is

• (a) an expenditure of a current nature incurred by a taxpayer in respect of

  • (i) the general administration or management of a business, including

    • (A) administrative salary or wages and related benefits in respect of a person whose duties are not all or substantially all directed to the prosecution of scientific research and experimental development, except to the extent that such expenditure is described in subsection 2900(2) or (3),

    • (B) a legal or accounting fee,

    • (C) an amount described in any of paragraphs 20(1)(c) to (g) of the Act,

    • (D) an entertainment expense,

    • (E) an advertising or selling expense,

    • (F) a conference or convention expense,

    • (G) a due or fee in respect of membership in a scientific or technical society or organization, and

    • (H) a fine or penalty, or

  • (ii) the maintenance and upkeep of premises, facilities or equipment to the extent that such expenditure is not attributable to the prosecution of scientific research;

• (b) an expenditure incurred by a taxpayer in respect of

  • (i) the acquisition of property that is qualified property or qualified resource property within the meaning assigned by subsection 127(9) of the Act, or

  • (ii) the acquisition of property that has been used, or acquired for use or lease, for any purpose whatever before it was acquired by the taxpayer;

• (c) an expenditure made to acquire rights in, or arising out of, scientific research and experimental development;

• (d) an expenditure on scientific research and experimental development in respect of which an amount is deductible under section 110.1 or section 118.1 of the Act; or

• (e) an expenditure of a taxpayer, to the extent that the taxpayer has received or is entitled to receive a reimbursement in respect of it from

  • (i) a person resident in Canada, other than

    • (A) Her Majesty in right of Canada or a province,

    • (B) an agent of Her Majesty in right of Canada or a province,

    • (C) a corporation, commission or association that is controlled, directly or indirectly in any manner whatever, by Her Majesty in right of Canada or a province or by an agent of her Majesty in right of Canada or a province, or

    • (D) a municipality in Canada or a municipal or public body performing a function of government in Canada, or

  • (ii) a person not resident in Canada to the extent that the said reimbursement is deductible by the person in computing his taxable income earned in Canada for any taxation year.

Special-Purpose Buildings

2903 [Repealed, 2012, c. 31, s. 64]

PART XXX[Repealed, 2013, c. 40, s. 105]

3000 to 3002 [Repealed, SOR/93-531, s. 1]

3003 [Repealed, 2013, c. 40, s. 105]

3004 [Repealed, 2013, c. 40, s. 105]

PART XXXITax Shelter

Marginal note:Prescribed benefits

• 3100 (1) For the purposes of paragraph (b) of the definition tax shelter in subsection 237.1(1) of the Act, prescribed benefit, in respect of an interest in a property, means any amount that may reasonably be expected, having regard to statements or representations made in respect of the interest, to be received or enjoyed by a person (in this subsection referred to as the purchaser) who acquires the interest, or a person with whom the purchaser does not deal at arm’s length, which receipt or enjoyment would have the effect of reducing the impact of any loss that the purchaser may sustain in respect of the interest, and includes such an amount

  • (a) that is, either immediately or in the future, owed to any other person by the purchaser or a person with whom the purchaser does not deal at arm’s length, to the extent that

    • (i) liability to pay that amount is contingent,

    • (ii) payment of that amount is or will be guaranteed by, security is or will be provided by, or an agreement to indemnify the other person to whom the amount is owed is or will be entered into by

      • (A) a promoter in respect of the interest,

      • (B) a person with whom the promoter does not deal at arm’s length, or

      • (C) a person who is to receive a payment (other than a payment made by the purchaser) in respect of the guarantee, security or agreement to indemnify,

    • (iii) the rights of that other person against the purchaser, or against a person with whom the purchaser does not deal at arm’s length, in respect of the collection of all or part of the purchase price are limited to a maximum amount, are enforceable only against certain property, or are otherwise limited by agreement, or

    • (iv) payment of that amount is to be made in a foreign currency or is to be determined by reference to its value in a foreign currency and it may reasonably be considered, having regard to the history of the exchange rate between the foreign currency and Canadian currency, that the total of all such payments, when converted to Canadian currency at the exchange rate expected to prevail at the date on which each such payment would be required to be made, will be substantially less than that total would be if each such payment was converted to Canadian currency at the time that each such payment became owing;

  • (b) that the purchaser or a person with whom the purchaser does not deal at arm’s length is entitled at any time to, directly or indirectly, receive or have available

    • (i) as a form of assistance from a government, municipality or other public authority, whether as a grant, a subsidy, a forgivable loan, a deduction from tax (other than an amount described in clause (b)(i)(B) of the definition tax shelter in subsection 237.1(1) of the Act) or an investment allowance, or as any other form of assistance, or

    • (ii) by reason of a revenue guarantee or other agreement in respect of which revenue may be earned by the purchaser or a person with whom the purchaser does not deal at arm’s length, to the extent that the revenue guarantee or other agreement may reasonably be considered to ensure that the purchaser or person will receive a return of all or a portion of the purchaser’s outlays in respect of the interest;

  • (c) that is the proceeds of disposition to which the purchaser may be entitled by way of an agreement or other arrangement under which the purchaser has a right, either absolutely or contingently, to dispose of the interest (otherwise than as a consequence of the purchaser’s death), including the fair market value of any property that the agreement or arrangement provides for the acquisition of in exchange for all or any part of the interest; and

  • (d) that is owed to a promoter, or a person with whom the promoter does not deal at arm’s length, by the purchaser or a person with whom the purchaser does not deal at arm’s length in respect of the interest.

• (2) Notwithstanding subsection (1), for the purpose of paragraph b) of the definition tax shelter in subsection 237.1(1) of the Act, prescribed benefit, in respect of an interest in a property, does not, except as otherwise provided in subparagraph (1)(b)(ii), include profits earned in respect of the interest.

• (3) For the purpose of paragraph (b) of the definition tax shelter in subsection 237.1(1) of the Act, prescribed benefit, in respect of an interest in a property, includes an amount that is a limited-recourse amount because of subsection 143.2(1), (7) or (13) of the Act, but does not include an amount of indebtedness that is a limited-recourse amount

  • (a) solely because it is not required to be repaid within 10 years from the time the indebtedness arose where the debtor would, if the interest were acquired by the debtor immediately after that time, be

    • (i) a partnership

      • (A) at least 90% of the fair market value of the property of which is attributable to the partnership’s tangible capital property located in Canada, and

      • (B) at least 90% of the value of all interests in which are held by limited partners (within the meaning assigned by subsection 96(2.4) of the Act) of the partnership,

      except where it is reasonable to conclude that one of the main reasons for the acquisition of one or more properties by the partnership, or for the acquisition of one or more interests in the partnership by limited partners, is to avoid the application of this subsection, or

    • (ii) a member of a partnership having fewer than six members, except where

      • (A) the partnership is a member of another partnership,

      • (B) there is a limited partner (within the meaning assigned by subsection 96(2.4) of the Act) of the partnership,

      • (C) less than 90% of the fair market value of the partnership’s property is attributable to the partnership’s tangible capital property located in Canada, or

      • (D) it is reasonable to conclude that one of the main reasons for the existence of one of two or more partnerships, one of which is the partnership, or the acquisition of one or more properties by the partnership, is to avoid the application of this section to the member’s indebtedness,

  • (b) of a partnership

    • (i) where

      • (A) the indebtedness is secured by and used to acquire the partnership’s tangible capital property located in Canada (other than rental property, within the meaning assigned by subsection 1100(14), leasing property, within the meaning assigned by subsection 1100(17), or specified energy property, within the meaning assigned by subsection 1100(25)), and

      • (B) the person to whom the indebtedness is repayable is a member of the Canadian Payments Association, and

    • (ii) throughout the period during which any amount is outstanding in respect of the indebtedness,

      • (A) at least 90% of the fair market value of the property of which is attributable to tangible capital property located in Canada of the partnership,

      • (B) at least 90% of the value of all interests in which are held by limited partners (within the meaning assigned by subsection 96(2.4) of the Act) that are corporations, and

      • (C) the principal business of each such limited partner is related to the principal business of the partnership,

      except where it is reasonable to conclude that one of the main reasons for the acquisition of one or more properties by the partnership, or for the acquisition of one or more interests in the partnership by limited partners, is to avoid the application of this subsection, or

  • (c) of a corporation where the amount is a bona fide business loan made to the corporation for the purpose of financing a business that the corporation operates and the loan is made under a loan program of the Government of Canada or of a province the purpose of which is to extend financing to small- and medium-sized Canadian businesses.

Marginal note:Prescribed property

3101 For the purpose of paragraph (b) of the definition tax shelter in subsection 237.1(1) of the Act, prescribed property, in relation to a tax shelter, means property that is a registered pension plan, a registered retirement savings plan, a deferred profit sharing plan, a registered retirement income fund, a registered education savings plan or a property in respect of which paragraph 40(2)(i) of the Act applies.

PART XXXII[Repealed, SOR/2011-188, s. 17]

3200 [Repealed, 2007, c. 35, s. 74]