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

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Regulations are current to 2019-07-01 and last amended on 2019-06-25. Previous Versions

PART XCIFinancial Institutions — Income from Specified Debt Obligations (continued)

Foreign Exchange Adjustment

Marginal note:Obligations held at end of taxation year

  •  (1) For the purposes of paragraphs 9101(1)(c) and (2)(b), if, at the end of a taxation year, a taxpayer holds a specified debt obligation the primary currency of which is not Canadian currency, the taxpayer’s foreign exchange adjustment in respect of the obligation for the taxation year is the positive or negative amount determined by the formula

    (A × B) - C

    where

    A
    is the amount that would be the tax basis of the obligation to the taxpayer at the end of the year if
    • (a) the tax basis were determined using the primary currency of the obligation as the currency in which all amounts are expressed,

    • (b) the definition tax basis in subsection 142.4(1) of the Act were read without reference to paragraphs (f), (h), (o) and (q), and

    • (c) the taxpayer’s foreign exchange adjustment in respect of the obligation for each year were nil;

    B
    is the rate of exchange at the end of the year of the primary currency of the obligation into Canadian currency; and
    C
    is the amount that would be the tax basis of the obligation to the taxpayer at the end of the year if
    • (a) the definition tax basis in subsection 142.4(1) of the Act were read without reference to paragraphs (h) and (q), and

    • (b) the taxpayer’s foreign exchange adjustment in respect of the obligation for the year were nil.

  • Marginal note:Disposition of obligation

    (2) If a taxpayer disposes of a specified debt obligation the primary currency of which is not Canadian currency, the taxpayer’s foreign exchange adjustment in respect of the obligation for the taxation year in which the disposition occurs is the amount that would be the foreign exchange adjustment if the taxation year had ended immediately before the disposition.

  • Marginal note:Disposition of obligation before 1996

    (3) At the election of a taxpayer, subsection (2) does not apply to specified debt obligations disposed of by the taxpayer before 1996.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • SOR/2009-222, s. 7

PART XCIIFinancial Institutions — Disposition of Specified Debt Obligations

Interpretation

Marginal note:Definitions

  •  (1) The following definitions apply in this Part.

    gain

    gain, of a taxpayer from the disposition of a specified debt obligation, means the gain from the disposition determined under paragraph 142.4(6)(a) of the Act. (gain)

    loss

    loss, of a taxpayer from the disposition of a specified debt obligation, means the loss from the disposition determined under paragraph 142.4(6)(b) of the Act. (perte)

    residual portion

    residual portion, of a taxpayer’s gain or loss from the disposition of a specified debt obligation, means the amount determined under subsection 142.4(8) of the Act in respect of the disposition. (partie résiduelle)

  • Marginal note:Amortization date

    (2) For the purposes of this Part, the amortization date for a specified debt obligation disposed of by a taxpayer is the day determined as follows:

    • (a) subject to paragraphs (b) to (d), the amortization date is the later of the day of disposition and the day on which the debtor is required to make the final payment under the obligation, determined without regard to any option respecting the timing of payments under the obligation (other than an option that was exercised before the disposition);

    • (b) subject to paragraphs (c) and (d), the amortization date is the day of disposition if the day on which the debtor is required to make the final payment under the obligation is not determinable for the purpose of paragraph (a);

    • (c) subject to paragraph (d), the amortization date is the first day, if any, after the disposition on which the interest rate could change, if the obligation is one in respect of which the following conditions are satisfied:

      • (i) the obligation provides for stipulated interest payments,

      • (ii) the rate of interest for one or more periods after the issuance of the obligation was not fixed on the day of issue, and

      • (iii) when the obligation was issued, it was reasonable to expect that the interest rate for each period would equal or approximate a reasonable market rate of interest for that period; and

    • (d) if, for purposes of its financial statements, the taxpayer had a gain or loss from the disposition that is being amortized to profit, the amortization date is the last day of the amortization period.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • SOR/2009-222, s. 7

Marginal note:Transition amount

 For the purpose of subsection 142.4(1) of the Act, transition amount, of a taxpayer in respect of the disposition of a specified debt obligation, means,

  • (a) if neither paragraph (b) nor (c) applies, nil;

  • (b) if

    • (i) the taxpayer acquired the obligation before its taxation year that includes February 23, 1994,

    • (ii) neither paragraph 7000(2)(a) nor (b) has applied to the obligation, and

    • (iii) the principal amount of the obligation exceeds the cost of the obligation to the taxpayer (which excess is referred to in this paragraph as the “discount”),

    the amount determined by the formula

    A - B

    where

    A
    is the total of all amounts each of which is the amount included in respect of the discount in computing the taxpayer’s profit for a taxation year that ended before February 23, 1994, and
    B
    is the total of all amounts each of which is the amount included in respect of the discount in computing the taxpayer’s income for a taxation year that ended before February 23, 1994; and
  • (c) where

    • (i) the conditions in subparagraphs (b)(i) and (ii) are satisfied, and

    • (ii) the cost of the obligation to the taxpayer exceeds the principal amount of the obligation (which excess is referred to in this paragraph as the “premium”),

    the negative of the amount determined by the formula

    A - B

    where

    A
    is the total of all amounts each of which is the amount deducted in respect of the premium in computing the taxpayer’s profit for a taxation year that ended before February 23, 1994, and
    B
    is the total of all amounts each of which is the amount deducted in respect of the premium in computing the taxpayer’s income for a taxation year that ended before February 23, 1994.
  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • SOR/2009-222, s. 7

Prescribed Debt Obligations

Marginal note:Application of related election

  •  (1) The following rules apply with respect to an election made under subsection (3) or (4) by a taxpayer:

    • (a) the election applies only if

      • (i) it is in writing,

      • (ii) it specifies the first taxation year (in this subsection referred to as the “initial year”) of the taxpayer to which it is to apply, and

      • (iii) either it is received by the Minister within six months after the end of the initial year, or the Minister has expressly accepted the later filing of the election;

    • (b) subject to paragraph (c), the election applies to dispositions of specified debt obligations in the initial year and subsequent taxation years; and

    • (c) if the Minister has approved, on written application by the taxpayer, the revocation of the election, the election does not apply to dispositions of specified debt obligations in the taxation year specified in the application and in subsequent taxation years.

  • Marginal note:Prescribed specified debt obligation

    (2) For the purpose of subparagraph 142.4(5)(a)(ii) of the Act, a specified debt obligation disposed of by a taxpayer in a taxation year is prescribed in respect of the taxpayer if the amortization date for the obligation is not more than two years after the end of the taxation year.

  • Marginal note:Prescribed specified debt obligation — exception

    (3) Subsection (2) does not apply in respect of a taxpayer for a taxation year if

    • (a) generally accepted accounting principles require that the taxpayer’s gains and losses arising on the disposition of a class of debt obligations be amortized to profit for the purpose of the taxpayer’s financial statements;

    • (b) the taxpayer has elected not to have subsection (2) apply; and

    • (c) the election applies to dispositions in the year.

  • Marginal note:Prescribed specified debt obligation

    (4) For the purpose of subparagraph 142.4(5)(a)(ii) of the Act, a specified debt obligation disposed of by a taxpayer in a taxation year is prescribed in respect of the taxpayer if

    • (a) the taxpayer has elected to have this subsection apply;

    • (b) the election applies to dispositions in the year; and

    • (c) the absolute value of the positive or negative amount determined by the formula (A - B) does not exceed the lesser of $5,000 and the amount, if any, specified in the election, where

      A
      is the total of all amounts each of which is the residual portion of the taxpayer’s gain from the disposition of the obligation or any other specified debt obligation disposed of in the same transaction, and
      B
      is the total of all amounts each of which is the residual portion of the taxpayer’s loss from the disposition of the obligation or any other specified debt obligation disposed of in the same transaction.
  • Marginal note:Prescribed specified debt obligation

    (5) For the purpose of subparagraph 142.4(5)(a)(ii) of the Act, a specified debt obligation disposed of by a taxpayer in a taxation year is prescribed in respect of the taxpayer if

    • (a) the disposition resulted in an extinguishment of the obligation, other than an extinguishment that occurred because of a purchase of the obligation by the debtor in the open market;

    • (b) the taxpayer had the right to require the obligation to be settled at any time; or

    • (c) the debtor had the right to settle the obligation at any time.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • SOR/2009-222, s. 7
 
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