Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))
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Act current to 2024-10-30 and last amended on 2024-07-01. Previous Versions
PART IIncome Tax (continued)
DIVISION BComputation of Income (continued)
SUBDIVISION IShareholders of Corporations Not Resident in Canada (continued)
Marginal note:Definitions
94 (1) The following definitions apply in this section and section 94.2.
- arm’s length transfer
arm’s length transfer, at any time by a person or partnership (referred to in this definition as the “transferor”) means a transfer or loan (which transfer or loan is referred to in this definition as the “transfer”) of property (other than restricted property) that is made at that time (referred to in this definition as the “transfer time”) by the transferor to a particular person or partnership (referred to in this definition as the “recipient”) if
(a) it is reasonable to conclude that none of the reasons (determined by reference to all the circumstances including the terms of a trust, an intention, the laws of a country or the existence of an agreement, a memorandum, a letter of wishes or any other arrangement) for the transfer is the acquisition at any time by any person or partnership of an interest as a beneficiary under a non-resident trust; and
(b) the transfer is
(i) a payment of interest, of a dividend, of rent, of a royalty or of any other return on investment, or any substitute for such a return on investment, in respect of a particular property held by the recipient, if the amount of the payment is not more than the amount that the transferor would have paid if the transferor dealt at arm’s length with the recipient,
(ii) a payment made by a corporation on a reduction of the paid-up capital in respect of shares of a class of its capital stock held by the recipient, if the amount of the payment is not more than the lesser of the amount of the reduction in the paid-up capital and the consideration for which the shares were issued,
(iii) a transfer in exchange for which the recipient transfers or loans property to the transferor, or becomes obligated to transfer or loan property to the transferor, and for which it is reasonable to conclude
(A) having regard only to the transfer and the exchange, that the transferor would have been willing to make the transfer if the transferor dealt at arm’s length with the recipient, and
(B) that the terms and conditions, and circumstances, under which the transfer was made would have been acceptable to the transferor if the transferor dealt at arm’s length with the recipient,
(iv) a transfer made in satisfaction of an obligation referred to in subparagraph (iii) and for which it is reasonable to conclude
(A) having regard only to the transfer and the obligation, that the transferor would have been willing to make the transfer if the transferor dealt at arm’s length with the recipient, and
(B) that the terms and conditions, and circumstances, under which the transfer was made would have been acceptable to the transferor if the transferor dealt at arm’s length with the recipient,
(v) a payment of an amount owing by the transferor under a written agreement the terms and conditions of which, when entered into, were terms and conditions that, having regard only to the amount owing and the agreement, would have been acceptable to the transferor if the transferor dealt at arm’s length with the recipient of the payment,
(vi) a payment made before 2002 to a trust, to a corporation controlled by a trust or to a partnership of which a trust is a majority-interest partner in repayment of or otherwise in respect of a loan made by a trust, corporation or partnership to the transferor, or
(vii) a payment made after 2001 to a trust, to a corporation controlled by the trust or to a partnership of which the trust is a majority-interest partner, in repayment of or otherwise in respect of a particular loan made by the trust, corporation or partnership to the transferor and either
(A) the payment is made before 2011 and they would have been willing to enter into the particular loan if they dealt at arm’s length with each other, or
(B) the payment is made before 2005 in accordance with fixed repayment terms agreed to before June 23, 2000. (transfert sans lien de dépendance)
- beneficiary
beneficiary under a trust includes
(a) a person or partnership that is beneficially interested in the trust; and
(b) a person or partnership that would be beneficially interested in the trust if the reference in subparagraph 248(25)(b)(ii) to
(i) “any arrangement in respect of the particular trust” were read as a reference to “any arrangement (including, for greater certainty, the terms or conditions of a share, or any arrangement in respect of a share, of the capital stock of a corporation that is beneficially interested in the particular trust) in respect of the particular trust”, and
(ii) “the particular person or partnership might” were read as a reference to “the particular person or partnership becomes (or could become on the exercise of any discretion by any person or partnership), directly or indirectly, entitled to any amount derived, directly or indirectly, from the income or capital of the particular trust or might”. (bénéficiaire)
- closely held corporation
closely held corporation at any time means a corporation, other than a corporation in respect of which
(a) there is at least one class of shares of its capital stock that includes shares prescribed for the purpose of paragraph 110(1)(d);
(b) it is reasonable to conclude that at that time, in respect of each class of shares described in paragraph (a), shares of the class are held by at least 150 shareholders each of whom holds shares of the class that have a total fair market value of at least $500; and
(c) it is reasonable to conclude that at that time in no case does a particular shareholder (or particular shareholder together with any other shareholder with whom the particular shareholder does not deal at arm’s length) hold shares of the corporation
(i) that would give the particular shareholder (or the particular shareholder together with those other shareholders referred to in this paragraph) 10% or more of the votes that could be cast under any circumstance at an annual meeting of shareholders of the corporation if the meeting were held at that time, or
(ii) that have a fair market value of 10% or more of the fair market value of all of the issued and outstanding shares of the corporation. (société à peu d’actionnaires)
- connected contributor
connected contributor, to a trust at a particular time, means a contributor to the trust at the particular time, other than a person all of whose contributions to the trust made at or before the particular time were made at a non-resident time of the person. (contribuant rattaché)
- contribution
contribution to a trust by a particular person or partnership means
(a) a transfer or loan (other than an arm’s length transfer) of property to the trust by the particular person or partnership;
(b) if a particular transfer or loan (other than an arm’s length transfer) of property is made by the particular person or partnership as part of a series of transactions that includes another transfer or loan (other than an arm’s length transfer) of property to the trust by another person or partnership, that other transfer or loan to the extent that it can reasonably be considered to have been made in respect of the particular transfer or loan; and
(c) if the particular person or partnership becomes obligated to make a particular transfer or loan (other than a transfer or loan that would, if it were made, be an arm’s length transfer) of property as part of a series of transactions that includes another transfer or loan (other than an arm’s length transfer) of property to the trust by another person or partnership, that other transfer or loan to the extent that it can reasonably be considered to have been made in respect of the obligation. (apport)
- contributor
contributor to a trust at any time means a person (other than an exempt person but including a person that has ceased to exist) that, at or before that time, has made a contribution to the trust. (contribuant)
- electing contributor
electing contributor at any time in respect of a trust means a resident contributor, to the trust, who has elected to have subsection (16) apply in respect of the contributor and the trust for a taxation year of the contributor that includes that time or that ends before that time and for all subsequent taxation years, if
(a) the election was in writing filed with the Minister on or before the contributor’s filing-due date for the first taxation year of the contributor for which the election was to take effect (referred to in this definition as the “initial year”); and
(b) the election included both the trust’s account number as assigned by the Minister and evidence that the contributor notified, no later than 30 days after the end of the trust’s taxation year that ends in the initial year, the trust that the election would be made. (contribuant déterminé)
- electing trust
electing trust in respect of a trust’s particular taxation year means the trust, if the trust
(a) holds at any time in the particular taxation year, or in a prior taxation year of the trust throughout which it was deemed by subsection (3) to be resident in Canada for the purpose of computing its income, property that is at that time part of its non-resident portion;
(b) elects to have paragraph (3)(f) apply to it for
(i) its first taxation year
(A) throughout which it is deemed by subsection (3) to be resident in Canada for the purpose of computing its income, and
(B) in which it holds property that is at a time in the year part of its non-resident portion, and
(ii) all of its taxation years that end after its taxation year described in subparagraph (i); and
(c) files the election described in paragraph (b) in writing filed with the Minister with the trust’s return of income for its taxation year described in subparagraph (b)(i). (fiducie déterminée)
- exempt amount
exempt amount in respect of a trust’s particular taxation year means an amount that is
(a) paid or credited (in this definition within the meaning assigned by Part XIII) by the trust before 2004;
(b) paid or credited by the trust and referred to in paragraph 104(7.01)(b) in respect of the trust for the particular taxation year; or
(c) paid in the particular taxation year (or within 60 days after the end of the particular taxation year) by the trust directly to a beneficiary (determined without reference to subsection 248(25)) under the trust if
(i) the beneficiary is a natural person none of whose interests as a beneficiary under the trust was ever acquired for consideration,
(ii) the amount is described in subparagraph 212(1)(c)(i) and is not included in computing an exempt amount in respect of any other taxation year of the trust,
(iii) the trust was created before October 30, 2003, and
(iv) no contribution has been made to the trust on or after July 18, 2005. (somme exclue)
- exempt foreign trust
exempt foreign trust at a particular time means
(a) a non-resident trust if
(i) each beneficiary under the trust at the particular time is
(A) an individual who, at the time that the trust was created, was, because of mental or physical infirmity, dependent on an individual who is a contributor to the trust or on an individual related to such a contributor (which beneficiary is referred to in this paragraph as an “infirm beneficiary”), or
(B) a person who is entitled, only after the particular time, to receive or otherwise obtain the use of any of the trust’s income or capital,
(ii) at the particular time there is at least one infirm beneficiary who suffers from a mental or physical infirmity that causes the beneficiary to be dependent on a person,
(iii) each infirm beneficiary is, at all times that the infirm beneficiary is a beneficiary under the trust during the trust’s taxation year that includes the particular time, non-resident, and
(iv) each contribution to the trust made at or before the particular time can reasonably be considered to have been, at the time that the contribution was made, made to provide for the maintenance of an infirm beneficiary during the expected period of the beneficiary’s infirmity;
(b) a non-resident trust if
(i) the trust was created as a consequence of the breakdown of a marriage or common-law partnership of two particular individuals to provide for the maintenance of a beneficiary under the trust who was, during that marriage or common-law partnership,
(A) a child of both of those particular individuals (which beneficiary is referred to in this paragraph as a “child beneficiary”), or
(B) one of those particular individuals (which beneficiary is referred to in this paragraph as the “adult beneficiary”),
(ii) each beneficiary under the trust at the particular time is
(A) a child beneficiary under 21 years of age,
(B) a child beneficiary under 31 years of age who is enrolled at any time in the trust’s taxation year that includes the particular time at an educational institution that is described in subclause (iv)(B)(I) or (II),
(C) the adult beneficiary, or
(D) a person who is entitled, only after the particular time, to receive or otherwise obtain the use of any of the trust’s income or capital,
(iii) each beneficiary described in any of clauses (ii)(A) to (C) is, at all times that the beneficiary is a beneficiary under the trust during the trust’s taxation year that includes the particular time, non-resident, and
(iv) each contribution to the trust, at the time that the contribution was made, was
(A) an amount paid by the particular individual other than the adult beneficiary that would be a support amount as defined in subsection 56.1(4) if it had been paid by that particular individual directly to the adult beneficiary, or
(B) made by one of those particular individuals or a person related to one of those particular individuals to provide for the maintenance of a child beneficiary while the child was either under 21 years of age or was under 31 years of age and enrolled at an educational institution located outside Canada that is
(I) a university, college or other educational institution that provides courses at a post-secondary school level, or
(II) an educational institution that provides courses designed to furnish a person with skills for, or improve a person’s skills in, an occupation;
(c) a non-resident trust if
(i) at the particular time the trust is an agency of the United Nations,
(ii) at the particular time the trust owns and administers a university described in subparagraph (a)(iv) of the definition qualified donee in subsection 149.1(1),
(iii) at any time in the trust’s taxation year that includes the particular time or at any time in the preceding calendar year Her Majesty in right of Canada has made a gift to the trust, or
(iv) the trust is established under the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage, 1992, or any protocol to it that has been ratified by the Government of Canada;
(d) a non-resident trust
(i) that throughout the particular period that began at the time it was created and ends at the particular time would be non-resident if this Act were read without reference to subsection (1) as that subsection read in its application to taxation years that include December 31, 2000,
(ii) that was created exclusively for charitable purposes and has been operated throughout the particular period exclusively for charitable purposes,
(iii) if the particular time is more than 24 months after the day on which the trust was created, in respect of which, there are at the particular time at least 20 persons (other than trusts) each of whom at the particular time
(A) is a contributor to the trust,
(B) exists, and
(C) deals at arm’s length with at least 19 other contributors to the trust,
(iv) the income of which (determined in accordance with the laws described in subparagraph (v)) for each of its taxation years that ends at or before the particular time would, if the income were not distributed and the laws described in subparagraph (v) did not apply, be subject to an income or profits tax in the country in which it was resident in each of those taxation years, and
(v) that was, for each of its taxation years that ends at or before the particular time, exempt under the laws of the country in which it was resident from the payment of income or profits tax to the government of that country in recognition of the charitable purposes for which the trust is operated;
(e) a non-resident trust that throughout the trust’s taxation year that includes the particular time is a trust governed by an employees profit sharing plan, a retirement compensation arrangement or a foreign retirement arrangement;
(f) a non-resident trust if
(i) throughout the particular period that began when it was created and ends at the particular time it has been operated exclusively for the purpose of administering or providing employee benefits in respect of employees or former employees, and
(ii) throughout the trust’s taxation year that includes the particular time
(A) the trust is a trust governed by an employee benefit plan or is a trust described in paragraph (a.1) of the definition trust in subsection 108(1),
(B) the trust is maintained for the benefit of natural persons the majority of whom are non-resident, and
(C) no benefits are provided under the trust other than benefits in respect of qualifying services;
(g) a non-resident trust (other than a prescribed trust or a trust described in paragraph (a.1) of the definition trust in subsection 108(1)) that throughout the particular period that began when it was created and ends at the particular time
(i) has been resident in a particular country (other than Canada) the laws of which have, throughout the particular period,
(A) imposed an income or profits tax, and
(B) exempted the trust from the payment of all income tax, and all profits tax, to the government of that particular country in recognition of the purposes for which the trust is operated, and
(ii) has been operated exclusively for the purpose of administering or providing superannuation or pension benefits that are primarily in respect of services rendered in the particular country by natural persons who were non-resident at the time those services were rendered;
(h) a non-resident trust (other than a trust that elects, in writing filed with the Minister on or before the trust’s filing-due date for the trust’s taxation year that includes the particular time, not to be an exempt foreign trust under this paragraph for the taxation year in which the election is made and for each subsequent taxation year), if at the particular time
(i) the only beneficiaries who may for any reason receive, at or after the particular time and directly from the trust, any of the income or capital of the trust are beneficiaries that hold fixed interests in the trust, and
(ii) any of the following applies:
(A) there are at least 150 beneficiaries described in subparagraph (i) under the trust each of whose fixed interests in the trust have at the particular time a total fair market value of at least $500,
(B) all fixed interests in the trust are listed on a designated stock exchange and in the 30 days immediately preceding the particular time fixed interests in the trust were traded on a designated stock exchange on at least 10 days,
(C) each outstanding fixed interest in the trust
(I) was issued by the trust in exchange for consideration that was not less than 90% of the interest’s proportionate share of the net asset value of the trust’s property at the time of its issuance, or
(II) was acquired in exchange for consideration equal to the fair market value of the interest at the time of its acquisition, or
(D) the trust is governed by
(I) a Roth IRA, within the meaning of section 408A of the Internal Revenue Code of the United States, or
(II) a plan or arrangement that was created after September 21, 2007, that is subject to that Code and that the Minister agrees is substantially similar to a Roth IRA; or
(i) a trust that is at the particular time a prescribed trust. (fiducie étrangère exempte)
- exempt person
exempt person at any time means
(a) Her Majesty in right of Canada or a province;
(b) a person whose taxable income for the taxation year that includes that time is exempt from tax under this Part because of subsection 149(1);
(c) a trust resident in Canada or a Canadian corporation
(i) that was established by or arises under an Act of Parliament or of the legislature of a province, and
(ii) the principal activities of which at that time are to administer, manage or invest the monies of one or more pension funds or plans established under an Act of Parliament or of the legislature of a province;
(d) a trust or corporation established by or arising by reason of an Act of Parliament or the legislature of a province in connection with a scheme or program for the compensation of workers injured in an accident arising out of or in the course of their employment;
(e) a trust resident in Canada all the beneficiaries under which are at that time exempt persons;
(f) a Canadian corporation all the shares, or rights to shares, of which are held at that time by exempt persons;
(g) a Canadian corporation without share capital all the property of which is held at that time exclusively for the benefit of exempt persons;
(h) a partnership all the members of which are at that time exempt persons; and
(i) a trust or corporation that is at that time a mutual fund. (personne exemptée)
- exempt service
exempt service means a service rendered at any time by a person or partnership (referred to in this definition as the “service provider”) to, for or on behalf of, another person or partnership (referred to in this definition as the “recipient”) if
(a) the recipient is a trust and the service relates to the administration of the trust; or
(b) the following conditions apply in respect of the service, namely,
(i) the service is rendered in the service provider’s capacity at that time as an employee or agent of the recipient,
(ii) in exchange for the service, the recipient transfers or loans property or becomes obligated to transfer or loan property, and
(iii) it is reasonable to conclude
(A) having regard only to the service and the exchange, that the service provider would be willing to carry out the service if the service provider were dealing at arm’s length with the recipient, and
(B) that the terms, conditions and circumstances under which the service is provided would be acceptable to the service provider if the service provider were dealing at arm’s length with the recipient. (service exempté)
- fixed interest
fixed interest at any time of a person or partnership in a trust means an interest of the person or partnership as a beneficiary (in this definition, determined without reference to subsection 248(25)) under the trust provided that no amount of the income or capital of the trust to be distributed at any time in respect of any interest in the trust depends on the exercise by any person or partnership of, or the failure by any person or partnership to exercise, any discretionary power, other than a power in respect of which it is reasonable to conclude that
(a) the power is consistent with normal commercial practice;
(b) the power is consistent with terms that would be acceptable to the beneficiaries under the trust if the beneficiaries were dealing with each other at arm’s length; and
(c) the exercise of, or failure to exercise, the power will not materially affect the value of an interest as a beneficiary under the trust relative to the value of other such interests under the trust. (participation fixe)
- joint contributor
joint contributor at any time in respect of a contribution to a trust means, if more than one contributor has made the contribution, each of those contributors that is at that time a resident contributor to the trust. (contribuant conjoint)
- mutual fund
mutual fund at a particular time means a mutual fund trust or mutual fund corporation (referred to in this definition as the “fund”), but does not include a fund in respect of which statements or representations have been made at or before the particular time — by the fund, or by a promoter or other representative of the fund, in respect of the acquisition or offering of an interest in the fund — that the taxes, if any, under this Part on the income, profit or gains for any particular year — in respect of property that is held by the fund and that is, or derives its value from, an interest in a trust — are less than, or are expected to be less than, the tax that would have been applicable under this Part if the income, profits or gains from the property had been earned directly by a person who acquires an interest in the fund. (fonds commun de placement)
- non-resident portion
non-resident portion of a trust at any time means all property held by the trust to the extent that it is not at that time part of the resident portion of the trust. (partie non-résidente)
- non-resident time
non-resident time of a person in respect of a contribution to a trust and a particular time means a time (referred to in this definition as the “contribution time”) at which the person made a contribution to a trust that is before the particular time and at which the person was non-resident (or, if the person is not in existence at the contribution time, the person was non-resident throughout the 18 months before ceasing to exist), if the person was non-resident or not in existence throughout the period that began 60 months before the contribution time (or, if the person is an individual and the trust arose on and as a consequence of the death of the individual, 18 months before the contribution time) and ends at the earlier of
(a) the time that is 60 months after the contribution time, and
(b) the particular time. (moment de non-résidence)
- promoter
promoter of a trust or corporation at any time means
(a) a person or partnership that at or before that time establishes, organizes or substantially reorganizes the undertakings of the trust or corporation, as the case may be; and
(b) for the purposes of the definition mutual fund in this subsection, a person or partnership described by paragraph (a) and a person or partnership who in the course of a business
(i) sells or issues, or promotes the sale, issuance or acquisition of, an interest in a mutual fund corporation or mutual fund trust,
(ii) acts as an agent or advisor in respect of the sale or issuance, or the promotion of the sale, issuance or acquisition of, an interest in a mutual fund corporation or mutual fund trust, or
(iii) accepts, whether as a principal or agent, consideration in respect of an interest in a mutual fund corporation or mutual fund trust. (promoteur)
- qualifying services
qualifying services means services that are
(a) rendered to an employer by an employee of the employer, which employee was non-resident throughout the period during which the services were rendered;
(b) rendered to an employer by an employee of the employer, other than services that were
(i) rendered primarily in Canada,
(ii) rendered primarily in connection with a business carried on by the employer in Canada, or
(iii) a combination of services described in subparagraphs (i) and (ii);
(c) rendered in a particular calendar month to an employer by an employee of the employer, which employee
(i) was resident in Canada throughout no more than 60 months during the 72-month period that ends at the end of the particular month, and
(ii) became a member of, or a beneficiary under, the plan or trust under which benefits in respect of the services may be provided (or a similar plan or trust for which the plan or the trust was substituted) before the end of the calendar month following the month in which the employee became resident in Canada; or
(d) any combination of services that are qualifying services determined without reference to this paragraph. (services admissibles)
- resident beneficiary
resident beneficiary under a trust at any time means a person (other than a person that is at that time a successor beneficiary under the trust or an exempt person) that is, at that time, a beneficiary under the trust if, at that time,
(a) the person is resident in Canada; and
(b) there is a connected contributor to the trust. (bénéficiaire résident)
- resident contributor
resident contributor, to a trust at any time, means a person that is, at that time, resident in Canada and a contributor to the trust, but — if the trust was created before 1960 by a person who was non-resident when the trust was created — does not include an individual (other than a trust) who has not, after 1959, made a contribution to the trust. (contribuant résident)
- resident portion
resident portion of a trust at a particular time means all of the trust’s property that is
(a) property in respect of which a contribution has been made at or before the particular time to the trust by a contributor that is at the particular time a resident contributor, or if there is at the particular time a resident beneficiary under the trust a connected contributor, to the trust and, for the purposes of this paragraph,
(i) if a property is held by a contributor in common or in partnership immediately before the property is contributed to the trust, it is contributed by the contributor only to the extent that the contributor so held the property, and
(ii) if the contribution is a transfer described by any of paragraphs (2)(a), (c), (d) or (f), the property in respect of which the contribution has been made is deemed to be
(A) in respect of a transfer under paragraph (2)(a), property
(I) if clause (2)(a)(ii)(A) applies, the fair market value of which has increased because of a transfer or loan described by subparagraph (2)(a)(i), or
(II) if clause (2)(a)(ii)(B) applies, that would not otherwise be included in the resident portion of the trust, that is selected by the trust (or, failing which, is selected by the Minister) and that has a fair market value at least equal to the absolute value of a decrease in a liability or potential liability of the trust that arose because of a transfer or loan described by subparagraph (2)(a)(i),
(B) in respect of a transfer under paragraph (2)(c), property described by subparagraph (2)(c)(ii),
(C) in respect of a transfer under paragraph (2)(d), property acquired as a result of any undertaking including a guarantee, covenant or agreement given by a person or partnership other than the trust to ensure the repayment, in whole or in part, of a loan or other indebtedness incurred by the trust as described by paragraph (2)(d), and
(D) in respect of a transfer under paragraph (2)(f), property selected by the trust (or, failing which, is selected by the Minister) that has a fair market value at least equal to the fair market value of property deemed to be transferred to the trust as described by paragraph (2)(f);
(b) property that is acquired, at or before the particular time, by way of indebtedness incurred by the trust (referred to in this paragraph as the “subject property”), if
(i) all or part of the indebtedness is secured on property (other than the subject property) that is held in the trust’s resident portion,
(ii) it was reasonable to conclude, at the time that the indebtedness was incurred, that the indebtedness would be repaid with recourse to any property (other than the subject property) held at any time in the trust’s resident portion, or
(iii) a person resident in Canada or partnership of which a person resident in Canada is a member has become obligated, either absolutely or contingently, to effect any undertaking including a guarantee, covenant or agreement given to ensure the repayment, in whole or in part, of the indebtedness, or provided any other financial assistance in respect of the indebtedness;
(c) property to the extent that it is derived, directly or indirectly, in any manner whatever, from property described by any of paragraphs (a), (b) and (d), and, without limiting the generality of the foregoing, including property derived from the income (computed without reference to paragraph (16)(f) and subsections 104(6) and (12)) of the trust for a taxation year of the trust that ends at or before the particular time and property in respect of which an amount would be described at the particular time in respect of the trust by the definition capital dividend account in subsection 89(1) if the trust were at the particular time a corporation; and
(d) property to the extent that it is at the particular time substituted for a property described by any of paragraphs (a) to (c). (partie résidente)
- restricted property
restricted property of a person or partnership means property that the person or partnership holds and that is
(a) a share (or a right to acquire a share) of the capital stock of a closely held corporation if the share or right, or a property for which the share or right was substituted, was at any time acquired by the person or partnership as part of a transaction or series of transactions under which
(i) a specified share of the capital stock of a closely held corporation was acquired by any person or partnership in exchange for, as consideration for or upon the conversion of any property and the cost of the specified share to the person who acquired it was less than the fair market value of the specified share at the time of the acquisition, or
(ii) a share (other than a specified share) of the capital stock of a closely held corporation becomes a specified share of the capital stock of the corporation;
(b) an indebtedness or other obligation, or a right to acquire an indebtedness or other obligation, of a closely held corporation if
(i) the indebtedness, obligation or right, or property for which the indebtedness, obligation or right was substituted, became property of the person or partnership as part of a transaction or series of transactions under which
(A) a specified share of the capital stock of a closely held corporation was acquired by any person or partnership in exchange for, as consideration for or upon the conversion of any property and the cost of the specified share to the person who acquired it was less than the fair market value of the specified share at the time of the acquisition, or
(B) a share (other than a specified share) of a closely held corporation becomes a specified share of the capital stock of the corporation, and
(ii) the amount of any payment under the indebtedness, obligation or right (whether the right to the amount is immediate or future, absolute or contingent or conditional on or subject to the exercise of any discretion by any person or partnership) is, directly or indirectly, determined primarily by one or more of the following criteria:
(A) the fair market value of, production from or use of any of the property of the closely held corporation,
(B) gains or profits from the disposition of any of the property of the closely held corporation,
(C) income, profits, revenue or cash flow of the closely held corporation, or
(D) any other criterion similar to a criterion referred to in any of clauses (A) to (C); and
(c) property
(i) that the person or partnership acquired as part of a series of transactions described in paragraph (a) or (b) in respect of another property, and
(ii) the fair market value of which is derived in whole or in part, directly or indirectly, from that other property. (bien d’exception)
- specified party
specified party in respect of a particular person at any time means
(a) the particular person’s spouse or common-law partner at that time;
(b) a corporation that at that time
(i) is a controlled foreign affiliate of the particular person or their spouse or common-law partner, or
(ii) would be a controlled foreign affiliate of a partnership, of which the particular person is a majority-interest partner, if the partnership were a person resident in Canada at that time;
(c) a person, or a partnership of which the particular person is a majority-interest partner, for which it is reasonable to conclude that the benefit referred to in subparagraph (8)(a)(iv) was conferred
(i) in contemplation of the person becoming after that time a corporation described by paragraph (b), or
(ii) to avoid or minimize a liability that arose, or that would otherwise have arisen, under this Part with respect to the particular person; or
(d) a corporation in which the particular person, or partnership of which the particular person is a majority-interest partner, is a shareholder if
(i) the corporation is at or before that time a beneficiary under a trust, and
(ii) the particular person or the partnership is a beneficiary under the trust solely because of the application of paragraph (b) of the definition beneficiary in this subsection to the particular person or the partnership in respect of the corporation. (tiers déterminé)
- specified share
specified share means a share of the capital stock of a corporation other than a share that is a prescribed share for the purpose of paragraph 110(1)(d). (action déterminée)
- specified time
specified time in respect of a trust for a taxation year of the trust means
(a) if the trust exists at the end of the taxation year, the time that is the end of that taxation year; and
(b) in any other case, the time in that taxation year that is immediately before the time at which the trust ceases to exist. (moment déterminé)
- successor beneficiary
successor beneficiary at any time under a trust means a person that is a beneficiary under the trust solely because of a right of the person to receive any of the trust’s income or capital, if under that right the person may so receive that income or capital only on or after the death after that time of an individual who, at that time, is alive and
(a) is a contributor to the trust;
(b) is related to (in this definition including an uncle, aunt, niece or nephew of) a contributor to the trust; or
(c) would have been related to a contributor to the trust if every individual who was alive before that time were alive at that time. (bénéficiaire remplaçant)
- transaction
transaction includes an arrangement or event. (opération)
- trust
trust includes, for greater certainty, an estate. (fiducie)
Marginal note:Rules of application
(2) In this section and section 94.2,
(a) a person or partnership is deemed to have transferred, at any time, a property to a trust if
(i) at that time the person or partnership transfers or loans property (other than by way of an arm’s length transfer) to another person or partnership, and
(ii) because of that transfer or loan
(A) the fair market value of one or more properties held by the trust increases at that time, or
(B) a liability or potential liability of the trust decreases at that time;
(b) the fair market value, at any time, of a property deemed by paragraph (a) to be transferred at that time by a person or partnership is deemed to be the amount of the absolute value of the increase or decrease, as the case may be, referred to in subparagraph (a)(ii) in respect of the property, and if that time is after August 27, 2010, and the property that the person or partnership transfers or loans at that time is restricted property of the person or partnership, the property deemed by paragraph (a) to be transferred at that time to a trust is deemed to be restricted property transferred at that time to the trust;
(c) a person or partnership is deemed to have transferred, at any time, property to a trust if
(i) at that time the person or partnership transfers restricted property, or loans property other than by way of an arm’s length transfer, to another person (referred to in this paragraph and paragraph (c.1) as the “intermediary”),
(ii) at or after that time, the trust holds property (other than property described by paragraph (14)(b)) the fair market value of which is derived in whole or in part, directly or indirectly, from property held by the intermediary, and
(iii) it is reasonable to conclude that one of the reasons the transfer or loan is made is to avoid or minimize a liability under this Part;
(c.1) the fair market value, at any time, of a property deemed by paragraph (c) to be transferred at that time by a person or partnership is deemed to be the fair market value of the property referred to in subparagraph (c)(i), and if that time is after October 24, 2012 and the property that the person or partnership transfers or loans to the intermediary is restricted property of the intermediary, the property deemed by paragraph (c) to be transferred at that time by the person or partnership to a trust is deemed to be restricted property transferred at that time to the trust throughout the period in which the intermediary holds the restricted property;
(d) if, at any time, a particular person or partnership becomes obligated, either absolutely or contingently, to effect any undertaking including a guarantee, covenant or agreement given to ensure the repayment, in whole or in part, of a loan or other indebtedness incurred by another person or partnership, or has provided any other financial assistance to another person or partnership,
(i) the particular person or partnership is deemed to have transferred, at that time, property to that other person or partnership, and
(ii) the property, if any, transferred to the particular person or partnership from the other person or partnership in exchange for the guarantee or other financial assistance is deemed to have been transferred to the particular person or partnership in exchange for the property deemed by subparagraph (i) to have been transferred;
(e) the fair market value at any time of a property deemed by subparagraph (d)(i) to have been transferred at that time to another person or partnership is deemed to be the amount at that time of the loan or indebtedness incurred by the other person or partnership to which the property relates;
(f) if, at any time after June 22, 2000, a particular person or partnership renders any service (other than an exempt service) to, for or on behalf of another person or partnership,
(i) the particular person or partnership is deemed to have transferred, at that time, property to that other person or partnership, and
(ii) the property, if any, transferred to the particular person or partnership from the other person or partnership in exchange for the service is deemed to have been transferred to the particular person or partnership in exchange for the property deemed by subparagraph (i) to have been transferred;
(g) each of the following acquisitions of property by a particular person or partnership is deemed to be a transfer of the property, at the time of the acquisition of the property, to the particular person or partnership from the person or partnership from which the property was acquired, namely, the acquisition by the particular person or partnership of
(i) a share of a corporation from the corporation,
(ii) an interest as a beneficiary under a trust (otherwise than from a beneficiary under the trust),
(iii) an interest in a partnership (otherwise than from a member of the partnership),
(iv) a debt owing by a person or partnership from the person or partnership, and
(v) a right (granted after June 22, 2000, by the person or partnership from which the right was acquired) to acquire or to be loaned property;
(h) the fair market value at any time of a property deemed by subparagraph (f)(i) to have been transferred at that time is deemed to be the fair market value at that time of the service to which the property relates;
(i) a person or partnership that at any time becomes obligated to do an act that would, if done, constitute the transfer or loan of a property to another person or partnership is deemed to have become obligated at that time to transfer or loan, as the case may be, property to that other person or partnership;
(j) in applying at any time the definition non-resident time in subsection (1), if a trust acquires property of an individual as a consequence of the death of the individual and the individual was immediately before death resident in Canada, the individual is deemed to have transferred the property to the trust immediately before the individual’s death;
(k) a transfer or loan of property at any time is deemed to be made at that time jointly by a particular person or partnership and a second person or partnership (referred to in this paragraph as the “specified person”) if
(i) the particular person or partnership transfers or loans property at that time to another person or partnership,
(ii) the transfer or loan is made at the direction, or with the acquiescence, of the specified person, and
(iii) it is reasonable to conclude that one of the reasons the transfer or loan is made is to avoid or minimize the liability, of any person or partnership, under this Part that arose, or that would otherwise have arisen, because of the application of this section;
(k.1) a transfer or loan of property made at any time on or after November 9, 2006, is deemed to be made at that time jointly by a particular person or partnership and a second person or partnership (referred to in this paragraph as the “specified person”) if
(i) the particular person or partnership transfers or loans property at that time to another person or partnership, and
(ii) a purpose or effect of the transfer or loan may reasonably be considered to be to provide benefits in respect of services rendered by a person as an employee of the specified person (whether the provision of the benefits is because of a right that is immediate or future, absolute or contingent, or conditional on or subject to the exercise of any discretion by any person or partnership);
(l) a transfer or loan of property at any time is deemed to be made at that time jointly by a corporation and a person or partnership (referred to in this paragraph as the “specified person”) if
(i) the corporation transfers or loans property at that time to another person or partnership,
(ii) the transfer or loan is made at the direction, or with the acquiescence, of the specified person,
(iii) that time is not, or would not be if the transfer or loan were a contribution of the specified person,
(A) a non-resident time of the specified person, or
(B) if the specified person is a partnership, a non-resident time of one or more members of the partnership, and
(iv) either
(A) the corporation is, at that time, a controlled foreign affiliate of the specified person, or would at that time be a controlled foreign affiliate of the specified person if the specified person were at that time resident in Canada, or
(B) it is reasonable to conclude that the transfer or loan was made in contemplation of the corporation becoming after that time a corporation described in clause (A);
(m) a particular person or partnership is deemed to have transferred, at a particular time, a particular property or particular part of it, as the case may be, to a corporation described in subparagraph (i) or a second person or partnership described in subparagraph (ii) if
(i) the particular property is a share of the capital stock of a corporation held at the particular time by the particular person or partnership, and as consideration for the disposition at or before the particular time of the share, the particular person or partnership received at the particular time (or became entitled at the particular time to receive) from the corporation a share of the capital stock of the corporation, or
(ii) the particular property (or property for which the particular property is substituted) was acquired, before the particular time, from the second person or partnership by any person or partnership, in circumstances that are described by any of subparagraphs (g)(i) to (v) (or would be so described if it applied at the time of that acquisition) and at the particular time,
(A) the terms or conditions of the particular property change,
(B) the second person or partnership redeems, acquires or cancels the particular property or the particular part of it,
(C) if the particular property is a debt owing by the second person or partnership, the debt or the particular part of it is settled or cancelled, or
(D) if the particular property is a right to acquire or to be loaned property, the particular person or partnership exercises the right;
(n) a contribution made at any time by a particular trust to another trust is deemed to have been made at that time jointly by the particular trust and by each person or partnership that is at that time a contributor to the particular trust;
(o) a contribution made at any time by a particular partnership to a trust is deemed to have been made at that time jointly by the particular partnership and by each person or partnership that is at that time a member of the particular partnership;
(p) subject to paragraph (q) and subsection (9), the amount of a contribution to a trust at the time it was made is deemed to be the fair market value, at that time, of the property that was the subject of the contribution;
(q) a person or partnership that at any time acquires a fixed interest in a trust (or a right, issued by the trust, to acquire a fixed interest in the trust) from another person or partnership (other than from the trust that issued the interest or the right) is deemed to have made at that time a contribution to the trust and the amount of the contribution is deemed to be equal to the fair market value at that time of the interest or right, as the case may be;
(r) a particular person or partnership that has acquired a fixed interest in a trust as a consequence of making a contribution to the trust — or that has made a contribution to the trust as a consequence of having acquired a fixed interest in the trust or a right described in paragraph (q) — is, for the purpose of applying this section at any time after the time that the particular person or partnership transfers the fixed interest or the right, as the case may be, to another person or partnership (which transfer is referred to in this paragraph as the “sale”), deemed not to have made the contribution in respect of the fixed interest, or right, that is the subject of the sale if
(i) in exchange for the sale, the other person or partnership transfers or loans, or becomes obligated to transfer or loan, property (which property is referred to in subparagraph (ii) as the “consideration”) to the particular person or partnership, and
(ii) it is reasonable to conclude
(A) having regard only to the sale and the consideration that the particular person or partnership would be willing to make the sale if the particular person or partnership were dealing at arm’s length with the other person or partnership, and
(B) that the terms and conditions made or imposed in respect of the exchange would be acceptable to the particular person or partnership if the particular person or partnership were dealing at arm’s length with the other person or partnership;
(s) a transfer to a trust by a particular person or partnership is deemed not to be, at a particular time, a contribution to the trust if
(i) the particular person or partnership has transferred, at or before the particular time and in the ordinary course of business of the particular person or partnership, property to the trust,
(ii) the transfer is not an arm’s length transfer, but would be an arm’s length transfer if the definition arm’s length transfer in subsection (1) were read without reference to paragraph (a) and subparagraphs (b)(i), (ii) and (iv) to (vii) of that definition,
(iii) it is reasonable to conclude that the particular person or partnership was the only person or partnership that acquired, in respect of the transfer, an interest as a beneficiary under the trust,
(iv) the particular person or partnership was required, under the securities law of a country or of a political subdivision of the country in respect of the issuance by the trust of interests as a beneficiary under the trust, to acquire an interest because of the particular person or partnership’s status at the time of the transfer as a manager or promoter of the trust,
(v) at the particular time the trust is not an exempt foreign trust, but would be at that time an exempt foreign trust if it had not made an election under paragraph (h) of the definition exempt foreign trust in subsection (1), and
(vi) the particular time is before the earliest of
(A) the first time at which the trust becomes an exempt foreign trust,
(B) the first time at which the particular person or partnership ceases to be a manager or promoter of the trust, and
(C) the time that is 24 months after the first time at which the total fair market value of consideration received by the trust in exchange for interests as a beneficiary (other than the particular person or partnership’s interest referred to in subparagraph (iii)) under the trust is greater than $500,000;
(t) a transfer, by a Canadian corporation of particular property, that is at a particular time a contribution by the Canadian corporation to a trust, is deemed not to be, after the particular time, a contribution by the Canadian corporation to the trust if
(i) the trust acquired the property before the particular time from the Canadian corporation in circumstances described in subparagraph (g)(i) or (iv),
(ii) as a result of a transfer (which transfer is referred to in this paragraph as the “sale”) at the particular time by any person or partnership (referred to in this paragraph as the “seller”) to another person or partnership (referred to in this paragraph as the “buyer”) the trust
(A) no longer holds any property that is shares of the capital stock of, or debt issued by, the Canadian corporation, and
(B) no longer holds any property that is property the fair market value of which is derived in whole or in part, directly or indirectly, from shares of the capital stock of, or debt issued by, the Canadian corporation,
(iii) the buyer deals at arm’s length immediately before the particular time with the Canadian corporation, the trust and the seller,
(iv) in exchange for the sale, the buyer transfers or becomes obligated to transfer property (which property is referred to in this paragraph as the “consideration”) to the seller, and
(v) it is reasonable to conclude
(A) having regard only to the sale and the consideration that the seller would be willing to make the sale if the seller were dealing at arm’s length with the buyer,
(B) that the terms and conditions made or imposed in respect of the exchange would be acceptable to the seller if the seller were dealing at arm’s length with the buyer, and
(C) that the value of the consideration is not, at or after the particular time, determined in whole or in part, directly or indirectly, by reference to shares of the capital stock of, or debt issued by, the Canadian corporation;
(u) a transfer, before October 11, 2002, to a personal trust by an individual (other than a trust) of particular property is deemed not to be a contribution of the particular property by the individual to the trust if
(i) the individual identifies the trust in prescribed form filed with the Minister on or before the individual’s filing-due date for the individual’s 2003 taxation year (or a later date that is acceptable to the Minister), and
(ii) the Minister is satisfied that
(A) the individual (and any person or partnership not dealing at any time at arm’s length with the individual) has never loaned or transferred, directly or indirectly, restricted property to the trust,
(B) in respect of each contribution (determined without reference to this paragraph) made before October 11, 2002, by the individual to the trust, none of the reasons (determined by reference to all the circumstances including the terms of the trust, an intention, the laws of a country or the existence of an agreement, a memorandum, a letter of wishes or any other arrangement) for the contribution was to permit or facilitate, directly or indirectly, the conferral at any time of a benefit (for greater certainty, including an interest as a beneficiary under the trust) on
(I) the individual,
(II) a descendant of the individual, or
(III) any person or partnership with whom the individual or descendant does not, at any time, deal at arm’s length, and
(C) the total of all amounts each of which is the amount of a contribution (determined without reference to this paragraph) made before October 11, 2002, by the individual to the trust does not exceed the greater of
(I) 1% of the total of all amounts each of which is the amount of a contribution (determined without reference to this paragraph) made to the trust before October 11, 2002, and
(II) $500; and
(v) a loan made by a particular specified financial institution to a trust is deemed not to be a contribution to the trust if
(i) the loan is made on terms and conditions that would have been agreed to by persons dealing at arm’s length, and
(ii) the loan is made by the specified financial institution in the ordinary course of the business carried on by it.
Marginal note:Liabilities of non-resident trusts and others
(3) If at a specified time in a trust’s particular taxation year (other than a trust that is, at that time, an exempt foreign trust) the trust is non-resident (determined without reference to this subsection) and, at that time, there is a resident contributor to the trust or a resident beneficiary under the trust,
(a) the trust is deemed to be resident in Canada throughout the particular taxation year for the purposes of
(i) section 2,
(ii) computing the trust’s income for the particular taxation year,
(iii) applying subsections 104(13.1) to (28) and 107(2.1), in respect of the trust and a beneficiary under the trust,
(iv) applying clause 53(2)(h)(i.1)(B), the definition non-resident entity in subsection 94.1(2), subsection 107(2.002) and section 115, in respect of a beneficiary under the trust,
(v) paragraph (c) and subsection 111(9),
(vi) determining an obligation of the trust to file a return under section 233.3 or 233.4,
(vii) determining the rights and obligations of the trust under Divisions I and J,
(viii) determining the liability of the trust for tax under Part I, and under Part XIII on amounts paid or credited (in this paragraph having the meaning assigned by Part XIII) to the trust,
(ix) applying Part XIII in respect of an amount (other than an exempt amount) paid or credited by the trust to any person, and
(x) determining whether a foreign affiliate of a taxpayer (other than the trust) is a controlled foreign affiliate of the taxpayer;
(b) no deduction shall be made under subsection 20(11) by the trust in computing its income for the particular taxation year, and for the purposes of applying subsection 20(12) and section 126 to the trust for the particular taxation year
(i) in determining the non-business-income tax (in this paragraph as defined by subsection 126(7)) paid by the trust for the particular taxation year, paragraph (b) of the definition non-business-income tax does not apply, and
(ii) if, at that specified time, the trust is resident in a country other than Canada,
(A) the trust’s income for the particular taxation year (other than income — not including dividends or interest — from sources in Canada) is deemed to be from sources in that country and not to be from any other source, and
(B) the business-income tax (in this paragraph as defined by subsection 126(7)), and the non-business-income tax, paid by the trust for the particular taxation year are deemed to have been paid by the trust to the government of that country and not to any other government;
(c) if the trust was non-resident throughout its taxation year (referred to in this paragraph as the “preceding year”) immediately preceding the particular taxation year, the trust is deemed to have
(i) immediately before the end of the preceding year, disposed of each property (other than property described in any of subparagraphs 128.1(1)(b)(i) to (iv)) held by the trust at that time for proceeds of disposition equal to its fair market value at that time, and
(ii) at the beginning of the particular taxation year, acquired each of those properties so disposed of at a cost equal to its proceeds of disposition;
(d) each person that at any time in the particular taxation year is a resident contributor to the trust (other than an electing contributor in respect of the trust at the specified time) or a resident beneficiary under the trust
(i) has jointly and severally, or solidarily, with the trust and with each other such person, the rights and obligations of the trust in respect of the particular taxation year under Divisions I and J, and
(ii) is subject to Part XV in respect of those rights and obligations;
(e) each person that at any time in the particular taxation year is a beneficiary under the trust and was a person from whom an amount would be recoverable at the end of the trust’s 2006 taxation year under subsection (2) (as it read in its application to taxation years that end before 2007) in respect of the trust if the person had received before the trust’s 2007 taxation year amounts described under paragraph (2)(a) or (b) in respect of the trust (as those paragraphs read in their application to taxation years that end before 2007)
(i) has, to the extent of the person’s recovery limit for the year, jointly and severally, or solidarily, with the trust and with each other such person, the rights and obligations of the trust in respect of the taxation years, of the trust, that end before 2007 under Divisions I and J, and
(ii) is, to the extent of the person’s recovery limit for the year, subject to Part XV in respect of those rights and obligations;
(f) if the trust (referred to in this paragraph as the “particular trust”) is an electing trust in respect of the particular taxation year,
(i) an inter vivos trust (in this paragraph referred to as the “non-resident portion trust”) is deemed for the purposes of this Act (other than for the purposes of subsection 104(2))
(A) to be created at the first time at which the particular trust exists in its first taxation year in respect of which the particular trust is an electing trust, and
(B) to continue in existence until the earliest of
(I) the time at which the particular trust ceases to be resident in Canada because of subsection (5) or (5.1),
(II) the time at which the particular trust ceases to exist, and
(III) the time at which the particular trust becomes resident in Canada otherwise than because of this subsection,
(ii) all of the particular trust’s property that is part of the particular trust’s non-resident portion is deemed to be the property of the non-resident portion trust and not to be, except for the purposes of this paragraph and the definition electing trust in subsection (1), the particular trust’s property,
(iii) the terms and conditions of, and rights and obligations of beneficiaries under, the particular trust (determined by reference to all the circumstances including the terms of a trust, an intention, the laws of a country or the existence of an agreement, a memorandum, a letter of wishes or any other arrangement) are deemed to be the terms and conditions of, and rights and obligations of beneficiaries under, the non-resident portion trust,
(iv) for greater certainty
(A) the trustees of the particular trust are deemed to be the trustees of the non-resident portion trust,
(B) the beneficiaries under the particular trust are deemed to be the beneficiaries under the non-resident portion trust, and
(C) the non-resident portion trust is deemed not to have a resident contributor or connected contributor to it,
(v) the non-resident portion trust is deemed to be, without affecting the liability of its trustees for their own income tax, in respect of its property an individual,
(vi) if all or part of a property becomes at a particular time part of the particular trust’s non-resident portion and immediately before that time the property or that part, as the case may be, was part of its resident portion, the particular trust is deemed to have transferred at the particular time the property or that part, as the case may be, to the non-resident portion trust,
(vii) if all or part of a property becomes at a particular time part of the particular trust’s resident portion and immediately before that time the property or that part, as the case may be, was part of its non-resident portion, the non-resident portion trust is deemed to have transferred at the particular time the property or that part, as the case may be, to the particular trust,
(viii) the particular trust and the non-resident portion trust are deemed at all times to be affiliated with each other and to not deal with each other at arm’s length,
(ix) the particular trust
(A) has jointly and severally, or solidarily, with the non-resident portion trust, the rights and obligations of the non-resident portion trust in respect of any taxation year under Divisions I and J, and
(B) is subject to Part XV in respect of those rights and obligations, and
(x) if the non-resident portion trust ceases to exist at a particular time (for greater certainty, as determined by clause (i)(B))
(A) the non-resident portion trust is deemed, at the time (referred to in this subparagraph as the “disposition time”) that is immediately before the time that is immediately before the particular time, to have
(I) in the case of each property of the non-resident portion trust that is property described in any of subparagraphs 128.1(1)(b)(i) to (iv), disposed of the property for proceeds of disposition equal to the cost amount to it of the property at the disposition time, and
(II) in the case of each other property of the non-resident portion trust, disposed of the property for proceeds of disposition equal to its fair market value of the property at the disposition time,
(B) the particular trust is deemed to have acquired, at the time that is immediately before the particular time, each property described in subclause (A)(I) or (II) at a cost equal to the proceeds determined under that subclause in respect of the property, and
(C) each person or partnership that is at the time immediately before the particular time a beneficiary under the non-resident portion trust is deemed
(I) at the disposition time to have disposed of the beneficiary’s interest as a beneficiary under the non-resident portion trust for proceeds equal to the beneficiary’s cost amount in the interest at the disposition time, and
(II) at the disposition time, to have ceased to be, other than for purposes of this clause, a beneficiary under the non-resident portion trust; and
(g) if a person deducts or withholds any amount (referred to in this paragraph as the “withholding amount”) as required by section 215 from a particular amount paid or credited or deemed to have been paid or credited to the trust, and the particular amount has been included in the trust’s income for the particular taxation year, the withholding amount is deemed to have been paid on account of the trust’s tax under this Part for the particular taxation year.
Marginal note:Excluded provisions
(4) For greater certainty, paragraph (3)(a) does not deem a trust to be resident in Canada for the purposes of
(a) the definitions arm’s length transfer and exempt foreign trust in subsection (1);
(b) subsections (8.1) and (8.2), paragraph (14)(a), subsections 70(6) and 73(1), the definition Canadian partnership in subsection 102(1), paragraph 107.4(1)(c), the definition qualified disability trust in subsection 122(3), paragraph (a) of the definition mutual fund trust in subsection 132(6), the definition eligible trust in subsection 135.2(1) and subparagraph (b)(i) of the definition investment fund in subsection 251.2(1);
(c) determining the liability of a person (other than the trust) that would arise under section 215;
(d) determining whether, in applying subsection 128.1(1), the trust becomes resident in Canada at a particular time;
(e) determining whether, in applying subsection 128.1(4), the trust ceases to be resident in Canada at a particular time;
(f) subparagraph (f)(i) of the definition disposition in subsection 248(1);
(g) determining whether subsection 107(5) applies to a distribution on or after July 18, 2005, of property to the trust; and
(h) determining whether subsection 75(2) applies.
Marginal note:Deemed cessation of residence — loss of resident contributor or resident beneficiary
(5) A trust is deemed to cease to be resident in Canada at the earliest time at which there is neither a resident contributor to the trust nor a resident beneficiary under the trust in a taxation year (determined without reference to subsection 128.1(4)) of the trust
(a) that immediately follows a taxation year of the trust throughout which it was deemed by subsection (3) to be resident in Canada for the purpose of computing its income; and
(b) at a specified time in which the trust
(i) is non-resident,
(ii) is not an exempt foreign trust, and
(iii) has no resident contributor to it or resident beneficiary under it.
Marginal note:Deemed cessation of residence — becoming an exempt foreign trust
(5.1) A trust is deemed to cease to be resident in Canada at the earliest time at which the trust becomes an exempt foreign trust in a taxation year (determined without reference to subsection 128.1(4)) of the trust
(a) that immediately follows a taxation year of the trust throughout which it was deemed by subsection (3) to be resident in Canada for the purpose of computing its income; and
(b) at a specified time in which
(i) there is a resident contributor to the trust or a resident beneficiary under the trust, and
(ii) the trust is an exempt foreign trust.
Marginal note:Administrative relief — changes in status
(5.2) If a trust is deemed by subsection (5) or (5.1) to cease to be resident in Canada at a particular time, the following rules apply to the trust in respect of the particular taxation year that is, as a result of that cessation of residence, deemed by subparagraph 128.1(4)(a)(i) to end immediately before the particular time:
(a) the trust’s return of income for the particular taxation year is deemed to be filed with the Minister on a timely basis if it is filed with the Minister within 90 days from the end of the trust’s taxation year that is deemed by subparagraph 128.1(4)(a)(i) to start at the particular time; and
(b) an amount that is included in the trust’s income (determined without reference to subsections 104(6) and (12)) for the particular taxation year but that became payable (determined without regard to this paragraph) by the trust in the period after the particular taxation year and before the end of the trust’s taxation year that is deemed by subparagraph 128.1(4)(a)(i) to start at the particular time, is deemed to have become payable by the trust immediately before the end of the particular taxation year and not at any other time.
Marginal note:Ceasing to be an exempt foreign trust
(6) If at a specified time in a trust’s taxation year it is an exempt foreign trust, at a particular time in the immediately following taxation year (determined without reference to this subsection) the trust ceases to be an exempt foreign trust (otherwise than because of becoming resident in Canada), and at the particular time there is a resident contributor to, or resident beneficiary under, the trust,
(a) the trust’s taxation year (determined without reference to this subsection) that includes the particular time is deemed to have ended immediately before the particular time and a new taxation year of the trust is deemed to begin at the particular time; and
(b) for the purpose of determining the trust’s fiscal period after the particular time, the trust is deemed not to have established a fiscal period before the particular time.
Marginal note:Limit to amount recoverable
(7) The maximum amount recoverable under the provisions referred to in paragraph (3)(d) at any particular time from a person in respect of a trust (other than a person that is deemed, under subsection (12) or (13), to be a contributor or a resident contributor to the trust) and a particular taxation year of the trust is the person’s recovery limit at the particular time in respect of the trust and the particular year if
(a) either
(i) the person is liable under a provision referred to in paragraph (3)(d) in respect of the trust and the particular year solely because the person was a resident beneficiary under the trust at a specified time in respect of the trust in the particular year, or
(ii) at a specified time in respect of the trust in the particular year, the total of all amounts each of which is the amount, at the time it was made, of a contribution to the trust made before the specified time by the person or by another person or partnership not dealing at arm’s length with the person, is not more than the greater of
(A) $10,000, and
(B) 10% of the total of all amounts each of which was the amount, at the time it was made, of a contribution made to the trust before the specified time;
(b) except if the total determined in subparagraph (a)(ii) in respect of the person and all persons or partnerships not dealing at arm’s length with the person is $10,000 or less, the person has filed on a timely basis under section 233.2 all information returns required to be filed by the person before the particular time in respect of the trust (or on any later day that is acceptable to the Minister); and
(c) it is reasonable to conclude that for each transaction that occurred before the end of the particular year at the direction of, or with the acquiescence of, the person
(i) none of the purposes of the transaction was to enable the person to avoid or minimize any liability under a provision referred to in paragraph (3)(d) in respect of the trust, and
(ii) the transaction was not part of a series of transactions any of the purposes of which was to enable the person to avoid or minimize any liability under a provision referred to in paragraph (3)(d) in respect of the trust.
Marginal note:Recovery limit
(8) The recovery limit referred to in paragraph (3)(e) and subsection (7) at a particular time of a particular person in respect of a trust and a particular taxation year of the trust is the amount, if any, by which the greater of
(a) the total of all amounts each of which is
(i) an amount received or receivable after 2000 and before the particular time
(A) by the particular person on the disposition of all or part of the person’s interest as a beneficiary under the trust, or
(B) by a person or partnership (that was, when the amount became receivable, a specified party in respect of the particular person) on the disposition of all or part of the specified party’s interest as a beneficiary under the trust,
(ii) an amount (other than an amount described in subparagraph (i)) made payable by the trust after 2000 and before the particular time to
(A) the particular person because of the interest of the particular person as a beneficiary under the trust, or
(B) a person or partnership (that was, when the amount became payable, a specified party in respect of the particular person) because of the interest of the specified party as a beneficiary under the trust,
(iii) an amount received after August 27, 2010, by the particular person, or a person or partnership (that was, when the amount was received, a specified party in respect of the particular person), as a loan from the trust to the extent that the amount has not been repaid,
(iv) an amount (other than an amount described in any of subparagraphs (i) to (iii)) that is the fair market value of a benefit received or enjoyed, after 2000 and before the particular time, from or under the trust by
(A) the particular person, or
(B) a person or partnership that was, when the benefit was received or enjoyed, a specified party in respect of the particular person, or
(v) the maximum amount that would be recoverable from the particular person at the end of the trust’s 2006 taxation year under subsection (2) (as it read in its application to taxation years that end before 2007) if the trust had tax payable under this Part at the end of the trust’s 2006 taxation year and that tax payable exceeded the total of the amounts described in respect of the particular person under paragraphs (2)(a) and (b) (as they read in their application to taxation years that end before 2007), except to the extent that the amount so recoverable is in respect of an amount that is included in the particular person’s recovery limit because of subparagraph (i) or (ii), and
(b) the total of all amounts each of which is the amount, when made, of a contribution to the trust before the particular time by the particular person,
exceeds the total of all amounts each of which is
(c) an amount recovered before the particular time from the particular person in connection with a liability of the particular person (in respect of the trust and the particular year or a preceding taxation year of the trust) that arose because of the application of subsection (3) (or the application of this section as it read in its application to taxation years that end before 2007),
(d) an amount (other than an amount in respect of which this paragraph has applied in respect of any other person) recovered before the particular time from a specified party in respect of the particular person in connection with a liability of the particular person (in respect of the trust and the particular year or a preceding taxation year of the trust) that arose because of the application of subsection (3) (or the application of this section as it read in its application to taxation years that end before 2007), or
(e) the amount, if any, by which the particular person’s tax payable under this Part for any taxation year in which an amount described in any of subparagraphs (a)(i) to (iv) was paid, became payable, was received, became receivable or was enjoyed by the particular person exceeds the amount that would have been the particular person’s tax payable under this Part for that taxation year if no such amount were paid, became payable, were received, became receivable or were enjoyed by the particular person in that taxation year.
Marginal note:Application of subsection (8.2)
(8.1) Subsection (8.2) applies at any time to a particular person, and to a particular property, in respect of a non-resident trust, if at that time
(a) the particular person is resident in Canada; and
(b) the trust holds the particular property on condition that the particular property or property substituted for the particular property
(i) may
(A) revert to the particular person, or
(B) pass to one or more persons or partnerships to be determined by the particular person, or
(ii) shall not be disposed of by the trust during the existence of the particular person, except with the particular person’s consent or in accordance with the particular person’s direction.
Marginal note:Deemed transfer of restricted property
(8.2) If this subsection applies at any time to a particular person, and to a particular property, in respect of a non-resident trust, then in applying this section in respect of the trust for a taxation year of the trust that includes that time
(a) every transfer or loan made at or before that time by the particular person (or by a trust or partnership of which the particular person was a beneficiary or member, as the case may be) of the particular property, of another property for which the particular property is a substitute, or of property from which the particular property derives, or the other property derived, its value in whole or in part, directly or indirectly, is deemed to be a transfer or loan, as the case may be, by the particular person
(i) that is not an arm’s length transfer, and
(ii) that is, for the purposes of paragraph (2)(c) and subsection (9), a transfer or loan of restricted property; and
(b) paragraph (2)(c) is to be read without reference to subparagraph (2)(c)(iii) in its application to each transfer and loan described in paragraph (a).
Marginal note:Determination of contribution amount — restricted property
(9) If a person or partnership contributes at any time restricted property to a trust, the amount of the contribution at that time is deemed, for the purposes of this section, to be the greater of
(a) the amount, determined without reference to this subsection, of the contribution at that time, and
(b) the amount that is the greatest fair market value of the restricted property, or property substituted for it, in the period that begins immediately after that time and ends at the end of the third calendar year that ends after that time.
Marginal note:Contributor — resident in Canada within 60 months after contribution
(10) In applying this section at each specified time, in respect of a trust’s taxation year, that is before the particular time at which a contributor to the trust becomes resident in Canada within 60 months after making a contribution to the trust, the contribution is deemed to have been made at a time other than a non-resident time of the contributor if
(a) in applying the definition non-resident time in subsection (1) at each of those specified times, the contribution was made at a non-resident time of the contributor; and
(b) in applying the definition non-resident time in subsection (1) immediately after the particular time, the contribution is made at a time other than a non-resident time of the contributor.
Marginal note:Application of subsections (12) and (13)
(11) Subsections (12) and (13) apply to a trust or a person in respect of a trust if
(a) at any time property of a trust (referred to in this subsection and subsections (12) and (13) as the “original trust”) is transferred or loaned, directly or indirectly, in any manner, to another trust (referred to in this subsection and subsections (12) and (13) as the “transferee trust”);
(b) the original trust
(i) is deemed to be resident in Canada immediately before that time because of paragraph (3)(a),
(ii) would be deemed to be resident in Canada immediately before that time because of paragraph (3)(a) if this section, as it read in its application to the 2013 taxation year, were read without reference to paragraph (a) of the definition connected contributor in subsection (1) and paragraph (a) of the definition resident contributor in that subsection,
(iii) was deemed to be resident in Canada immediately before that time because of subsection (1) as it read in its application to taxation years that end before 2007, or
(iv) would have been deemed to be resident in Canada immediately before that time because of subsection (1) as it read in its application to taxation years that end before 2007 if that subsection were read in that application without reference to subclause (b)(i)(A)(III) of that subsection; and
(c) it is reasonable to conclude that one of the reasons the transfer or loan is made is to avoid or minimize a liability under this Part that arose, or that would otherwise have arisen, because of the application of this section (or the application of this section as it read in its application to taxation years that end before 2007).
Marginal note:Deemed resident contributor
(12) The original trust described in subsection (11) (including a trust that has ceased to exist) is deemed to be, at and after the time of the transfer or loan referred to in that subsection, a resident contributor to the transferee trust for the purpose of applying this section in respect of the transferee trust.
Marginal note:Deemed contributor
(13) A person (including any person that has ceased to exist) that is, at the time of the transfer or loan referred to in subsection (11), a contributor to the original trust, is deemed to be at and after that time
(a) a contributor to the transferee trust; and
(b) a connected contributor to the transferee trust, if at that time the person is a connected contributor to the original trust.
Marginal note:Restricted property — exception
(14) A particular property that is, or will be, at any time held, loaned or transferred, as the case may be, by a particular person or partnership is not restricted property held, loaned or transferred, as the case may be, at that time by the particular person or partnership if
(a) the following conditions are met:
(i) the particular property (and property, if any, for which it is, or is to be, substituted) was not, and will not be, at any time acquired, held, loaned or transferred by the particular person or partnership (or any person or partnership with whom the particular person or partnership does not at any time deal at arm’s length) in whole or in part for the purpose of permitting any change in the value of the property of a corporation (that is, at any time, a closely held corporation) to accrue directly or indirectly in any manner whatever to the value of property held by a non-resident trust,
(ii) the Minister is satisfied that the particular property (and property, if any, for which it is, or is to be, substituted) is described by subparagraph (i), and
(iii) the particular property is identified in prescribed form, containing prescribed information, filed, by or on behalf of the particular person or partnership, with the Minister on or before
(A) in the case of a person, the particular person’s filing-due date for the particular person’s taxation year that includes that time,
(B) in the case of a partnership, the day on or before which a return is required by section 229 of the Income Tax Regulations to be filed in respect of the fiscal period of the particular partnership or would be required to be so filed if that section applied to the partnership, or
(C) another date that is acceptable to the Minister; or
(b) at that time
(i) the particular property is
(A) a share of the capital stock of a corporation,
(B) a fixed interest in a trust, or
(C) an interest, as a member of a partnership, under which, by operation of any law governing the arrangement in respect of the partnership, the liability of the member as a member of the partnership is limited,
(ii) there are at least 150 persons each of whom holds at that time property that at that time
(A) is identical to the particular property, and
(B) has a total fair market value of at least $500,
(iii) the total of all amounts each of which is the fair market value, at that time, of the particular property (or of identical property that is held, at that time, by the particular person or partnership or a person or partnership with whom the particular person or partnership does not deal at arm’s length) does not exceed 10% of the total of all amounts each of which is the fair market value, at that time, of the particular property or of identical property held by any person or partnership,
(iv) property that is identical to the particular property can normally be acquired by and sold by members of the public in the open market, and
(v) the particular property, or identical property, is listed on a designated stock exchange.
Marginal note:Anti-avoidance
(15) In applying this section,
(a) if it can reasonably be considered that one of the main reasons that a person or partnership
(i) is at any time a shareholder of a corporation is to cause the condition in paragraph (b) of the definition closely held corporation in subsection (1) to be satisfied in respect of the corporation, the condition is deemed not to have been satisfied at that time in respect of the corporation,
(ii) holds at any time an interest in a trust is to cause the condition in clause (h)(ii)(A) of the definition exempt foreign trust in subsection (1) to be satisfied in respect of the trust, the condition is deemed not to have been satisfied at that time in respect of the trust, and
(iii) holds at any time a property is to cause the condition described in subparagraph (14)(b)(ii) to be satisfied in respect of the property or an identical property held by any person, the condition is deemed not to have been satisfied at that time in respect of the property or the identical property;
(b) if at any time at or before a specified time in a trust’s taxation year, a resident contributor to the trust contributes to the trust property that is restricted property of the trust, or property for which restricted property of the trust is substituted, and the trust is at that specified time an exempt foreign trust by reason of paragraph (f) of the definition exempt foreign trust in subsection (1), the amount of the trust’s income for the taxation year from the restricted property, and the amount of any taxable capital gain from the disposition in the taxation year by the trust of the restricted property, shall be included in computing the income of the resident contributor for its taxation year in which that taxation year of the trust ends and not in computing the income of the trust for that taxation year of the trust; and
(c) if at a specified time in a trust’s taxation year it is an exempt foreign trust by reason of paragraph (h) of the definition exempt foreign trust in subsection (1), at a time immediately before a particular time in the immediately following taxation year (determined without reference to subsection (6)) there is a resident contributor to, or resident beneficiary under, the trust, at the time that is immediately before the particular time a beneficiary holds a fixed interest in the trust, and at the particular time the interest ceases to be a fixed interest in the trust,
(i) the trust is deemed, other than for purposes of subsection (6), not to be an exempt foreign trust at any time in the trust’s taxation year (referred to in this paragraph as its “assessment year”) that ends (for greater certainty as determined under paragraph (6)(a)) at the time that is immediately before the particular time,
(ii) the trust shall include in computing its income for its assessment year an amount equal to the amount determined by the formula
A – B – C
where
- A
- is the amount by which the total of all amounts each of which is the fair market value of a property held by the trust at the end of its assessment year exceeds the total of all amounts each of which is the principal amount outstanding at the end of its assessment year of a liability of the trust,
- B
- is the amount by which the total of all amounts each of which is the fair market value of a property held by the trust at the earliest time at which there is a resident contributor to, or resident beneficiary under, the trust and at which the trust is an exempt foreign trust (referred to in this paragraph as the “initial time”) exceeds the total of all amounts each of which is the principal amount outstanding at the initial time of a liability of the trust, and
- C
- is the total of all amounts each of which is the amount of a contribution made to the trust in the period that begins at the initial time and ends at the end of its assessment year (in this paragraph referred to as the “interest gross-up period”), and
(iii) if the trust is liable for tax for its assessment year, then throughout the period that begins at the trust’s balance-due day for each taxation year that ends in the interest gross-up period and ends at the balance-due day for its assessment year, the trust is (in addition to any excess otherwise determined in respect of the trust under that subsection) deemed to have an excess for the purposes of subsection 161(1) equal to the amount determined by the formula
A/B × 42.92%
where
- A
- is the amount determined under subparagraph (ii) in respect of the trust for the particular taxation year, and
- B
- is the number of the trust’s taxation years that end in the interest gross-up period.
Marginal note:Attribution to electing contributors
(16) If at a specified time in respect of a trust for a taxation year of the trust (referred to in this subsection as the “trust’s year”), there is an electing contributor in respect of the trust, the following rules apply:
(a) the electing contributor is required to include in computing their income for their taxation year (referred to in this subsection as the “contributor’s year”) in which the trust’s year ends, the amount determined by the formula
A/B × (C – D)
where
- A
- is the total of all amounts each of which is
(i) if at or before the specified time the electing contributor has made a contribution to the trust and is not a joint contributor in respect of the trust and the contribution, the amount of the contribution, or
(ii) if at or before the specified time the electing contributor has made a contribution to the trust and is a joint contributor in respect of the trust and the contribution, the amount obtained when the amount of the contribution is divided by the number of joint contributors in respect of the contribution,
- B
- is the total of all amounts each of which is the amount that would be determined under A for each resident contributor, or connected contributor, to the trust at the specified time if all of those contributors were electing contributors in respect of the trust,
- C
- is the trust’s income, computed without reference to paragraph (f), for the trust’s year, and
- D
- is the amount deducted by the trust under section 111 in computing its taxable income for the trust’s year;
(b) subject to paragraph (c), the amount, if any, required by paragraph (a) to be included in the electing contributor’s income for the contributor’s year is deemed to be income from property from a source in Canada;
(c) for the purposes of this paragraph, paragraph (d) and section 126, an amount in respect of the trust’s income for the trust’s year from a source in a country other than Canada is deemed to be income of the electing contributor for the contributor’s year from that source if
(i) the amount is designated by the trust, in respect of the electing contributor, in the trust’s return of income under this Part for the trust’s year,
(ii) the amount may reasonably be considered (having regard to all the circumstances including the terms and conditions of the trust) to be part of the amount that because of paragraph (a) was included in computing the income of the electing contributor for the contributor’s year, and
(iii) the total of all amounts designated by the trust, under this paragraph or subsection 104(22) in respect of that source, in the trust’s return of income under this Part for the trust’s year is not greater than the trust’s income for the trust’s year from that source;
(d) for the purposes of this paragraph and section 126, the electing contributor is deemed to have paid as business-income tax (in this subsection as defined by subsection 126(7)) or non-business-income tax (in this subsection as defined by subsection 126(7)), as the case may be, for the contributor’s year in respect of a source the amount determined by the formula
A × B/C
where
- A
- is the amount that, in the absence of subparagraph (e)(i), would be the business-income tax or non-business-income tax, as the case may be, paid by the trust in respect of that source for the trust’s year,
- B
- is the total of all amounts each of which is an amount designated under paragraph (c) in respect of that source by the trust in respect of the electing contributor in the trust’s return of income under this Part for the trust’s year, and
- C
- is the trust’s income for the trust’s year from that source;
(e) in applying subsection 20(12) and section 126 in respect of the trust’s year there shall be deducted
(i) in computing the trust’s income from a source for the trust’s year the total of all amounts each of which is an amount deemed by paragraph (c) to be income from that source of the electing contributor for the contributor’s year, and
(ii) in computing the business-income tax or non-business-income tax paid by the trust for the trust’s year in respect of a source the total of all amounts in respect of that source each of which is an amount deemed by paragraph (d) to be paid by the electing contributor as business-income tax or non-business-income tax, as the case may be, in respect of that source;
(f) in computing the trust’s income for the trust’s year there may be deducted the amount that does not exceed the amount included by reason of paragraph (a) in the electing contributor’s income for the contributor’s year; and
(g) if before the specified time the electing contributor made a contribution to the trust as part of a series of transactions in which another person made the same contribution, in applying paragraphs (a) to (f) in respect of the electing contributor and the other person, the other person is deemed not to be a joint contributor in respect of the contribution if it can reasonably be considered that one of the main purposes of the series was to obtain the benefit of any deduction in computing income, taxable income or tax payable under this Act or any balance of undeducted outlays, expenses or other amounts available to the other person or any exemption available to the other person from tax payable under this Act.
Marginal note:Liability for joint contribution
(17) If, at or before a specified time in a trust’s taxation year (referred to in this subsection as the “trust’s year”), there is an electing contributor in respect of the trust who is a joint contributor in respect of a contribution to the trust,
(a) each person who is a joint contributor in respect of the contribution
(i) has, in respect of the contribution, jointly and severally, or solidarily, the rights and obligations under Divisions I and J of each other person (referred to in this subsection as the “specified person”) who is, at or before the specified time, a joint contributor in respect of that contribution, for the specified person’s taxation year in which the trust’s year ends, and
(ii) is subject to Part XV in respect of those rights and obligations; and
(b) the maximum amount recoverable under the provisions referred to in paragraph (a) at a particular time from the person in respect of the contribution and a taxation year, of another person who is the specified person, in which the trust’s year ends is the amount determined by the formula
A – B – C
where
- A
- is the total of the amounts payable by the specified person under this Part for the specified person’s taxation year in which the trust’s year ends,
- B
- is the amount that would be determined for A if the total of the amounts payable by the specified person under this Part for the particular specified person’s taxation year in which the trust’s year ends were computed without reference to the contribution, and
- C
- is the amount recovered before the particular time from the specified person, and any other joint contributor in respect of the trust and the contribution, in connection with the liability of the specified person in respect of the contribution.
- [NOTE: Application provisions are not included in the consolidated text
- see relevant amending Acts and regulations.]
- R.S., 1985, c. 1 (5th Supp.), s. 94
- 1994, c. 7, Sch. II, s. 70, Sch. VIII, s. 39
- 1997, c. 25, s. 20
- 2001, c. 17, s. 72
- 2013, c. 34, s. 7, c. 40, s. 42
- 2014, c. 39, s. 23
- 2016, c. 7, s. 11, c. 12, s. 30
- 2017, c. 33, s. 29
- Date modified: