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

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Regulations are current to 2019-11-19 and last amended on 2019-06-25. Previous Versions

PART LIDeferred Income Plans, Investments in Small Business (continued)

  •  (1) For the purposes of this Part and subsection 259(5) of the Act, a trust is a small business investment trust at any particular time if at all times after it was created and before the particular time

    • (a) it was resident in Canada;

    • (b) the interests of the beneficiaries under the trust were described by reference to units of the trust that were identical in all respects; and

    • (c) no beneficiary or group of beneficiaries who did not deal with each other at arm’s length held more than 30 per cent of the units of the trust and, for the purposes of this paragraph, a small business investment corporation that has not borrowed money and in which no shareholder or group of shareholders who did not deal with each other at arm’s length held more than 30 per cent of the outstanding shares of any class of voting stock shall be deemed not to be a beneficiary;

    • (d) its only undertaking was the investing of its funds and its investments consisted solely of

      • (i) small business securities where, except as provided in subsection 5104(1), the trust was the first person (other than a broker or dealer in securities) to have acquired the securities and it has owned the securities continuously since they were so acquired,

      • (ii) property (other than a small business security) that is

        • (A) a share of the capital stock of a corporation (other than a share that is issued to the trust and that is either a share described in section 66.3 of the Act or a share in respect of which an amount has been designated under subsection 192(4) of the Act), or

        • (B) a put, call, warrant or other right to acquire or sell a share described by clause (A),

      • (iii) specified properties, or

      • (iv) any combination of properties described in any of subparagraphs (i) to (iii);

    • (e) it has complied with subsection (2);

    • (f) it has not borrowed money except for the purpose of earning income from its investments and the amount of any such borrowings at any time did not exceed 20 per cent of the trust capital at that time; and

    • (g) it has not accepted deposits.

  • (2) The aggregate of the cost amounts to a small business investment trust of small business securities held by it at any time shall not be less than the amount, if any, by which the aggregate of

    • (a) 25 per cent of the amount, if any, by which

      • (i) the aggregate of all amounts received by it more than 12 months before that time and not more than 24 months before that time as consideration for the issue of its units or in respect of its units

      exceeds

      • (ii) the aggregate of all amounts paid by it before that time to its beneficiaries and designated by the trust as a return of the consideration referred to in subparagraph (i),

    • (b) 50 per cent of the amount, if any, by which

      • (i) the aggregate of all amounts received by it more than 24 months before that time and not more than 36 months before that time as consideration for the issue of its units or in respect of its units

      exceeds

      • (ii) the aggregate of all amounts paid by it before that time to its beneficiaries and designated by the trust as a return of the consideration referred to in subparagraph (i), and

    • (c) 75 per cent of the amount, if any, by which

      • (i) the aggregate of all amounts received by it more than 36 months before that time as consideration for the issue of its units or in respect of its units

      exceeds

      • (ii) the aggregate of all amounts paid by it before that time to its beneficiaries and designated by the trust as a return of the consideration referred to in subparagraph (i)

    exceeds 75 per cent of the amount, if any, by which the aggregate of its losses from the disposition of properties disposed of before that time exceeds the aggregate of its gains from the disposition of properties disposed of before that time.

  • (3) For the purposes of subsection (2), where a small business investment trust disposes of a small business security it shall be deemed to continue to hold the investment for a period of 90 days following the date of disposition.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • SOR/86-390, s. 5
  • SOR/94-471, s. 7
  • SOR/94-686, ss. 78(F), 79(F)
  • SOR/2005-264, s. 13
  •  (1) Notwithstanding paragraph (b) of the definition qualifying obligation in subsection 5100(1) and paragraphs 5101(1)(b), 5102(1)(f) and 5103(1)(d), the corporation, partnership or trust, as the case may be, may acquire a small business security that another person (other than a broker or dealer in securities) had previously acquired if

    • (a) the small business security is a share of the capital stock of an eligible corporation having full voting rights under all circumstances; and

    • (b) except where the share was acquired in specified circumstances within the meaning of subsection (2), the share was acquired from an officer or employee of the eligible corporation or a person related to the officer or employee.

  • (2) For the purposes of this Part,

    • (a) where a person acquires a share of a corporation

      • (i) as part of a proposal to, or an arrangement with, the corporation’s creditors that has been approved by a court under the Bankruptcy and Insolvency Act or the Companies’ Creditors Arrangement Act,

      • (ii) at a time when all or substantially all of the corporation’s assets were under the control of a receiver, receiver-manager, sequestrator or trustee in bankruptcy, or

      • (iii) at a time when, by reason of financial difficulty, the corporation was in default, or could reasonably be expected to default, on a debt obligation held by a person with whom the corporation was dealing at arm’s length,

      the person shall be deemed, at any time within 36 months after he acquired the share, to have acquired it in specified circumstances;

    • (b) where a person acquires a share of a corporation for the purposes of facilitating the disposition of the entire investment of the person in the corporation, the person shall be deemed, at any time within 12 months after he acquired the share, to have acquired it in specified circumstances; and

    • (c) a qualified trust (within the meaning assigned by subsection 259(3) of the Act) is deemed not to hold any property for any period in respect of which subsection 259(1) of the Act is applicable.

  • (3) Where the purchaser of a property that, but for this subsection, would at the time of its acquisition be a small business security (or, where the purchaser is a partnership, a member thereof) knew at the time of acquisition that the issuer of the security would, within the immediately following 12 months, cease to qualify as an eligible corporation, the property shall be deemed never to have been a small business security of the purchaser.

  • (4) Where a person who holds a share of or an interest in a corporation, partnership or trust that, but for this subsection, would be a small business investment corporation, small business investment limited partnership or small business investment trust knew at the time of issue of the share or interest, as the case may be, or at the time of making any contribution in respect of the share or interest, that

    • (a) a substantial portion of

      • (i) the consideration for the issue of the share or interest, or

      • (ii) the contribution in respect of the share or interest

      would not be invested by the corporation, partnership or trust, as the case may be, directly or indirectly in small business securities, and

    • (b) all or substantially all of

      • (i) the consideration for the issue of the share or interest, or

      • (ii) the contribution in respect of the share or interest

      would be returned to the purchaser within the immediately following 24 months,

    the corporation, partnership or trust shall be deemed to have ceased at that time to be a small business investment corporation, small business investment limited partnership or small business investment trust.

  • (5) Where, but for this subsection, a property that qualified as a small business security when it was acquired would cease at a subsequent time to so qualify, the property shall be deemed to be a small business security for the 24 months immediately following the subsequent time.

  • (6) For the purposes of this Part, a partnership shall be deemed to be a person.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • SOR/86-390, s. 5
  • SOR/86-1092, s. 14(E)
  • SOR/90-606, s. 7
  • 1992, c. 27, s. 90
  • SOR/94-686, ss. 58(F), 78(F), 79(F)
 
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