Short Title

Marginal note:Short Title

1 This Act may be cited as the Income Tax Act.

PART IIncome Tax

DIVISION ALiability for Tax

Marginal note:Tax payable by persons resident in Canada

• 2 (1) An income tax shall be paid, as required by this Act, on the taxable income for each taxation year of every person resident in Canada at any time in the year.

• Marginal note:Taxable income

  (2) The taxable income of a taxpayer for a taxation year is the taxpayer’s income for the year plus the additions and minus the deductions permitted by Division C.

• Marginal note:Tax payable by non-resident persons

  (3) Where a person who is not taxable under subsection 2(1) for a taxation year

  • (a) was employed in Canada,

  • (b) carried on a business in Canada, or

  • (c) disposed of a taxable Canadian property,

  at any time in the year or a previous year, an income tax shall be paid, as required by this Act, on the person’s taxable income earned in Canada for the year determined in accordance with Division D.

DIVISION BComputation of Income

Basic Rules

Marginal note:Income for taxation year

3 The income of a taxpayer for a taxation year for the purposes of this Part is the taxpayer’s income for the year determined by the following rules:

• (a) determine the total of all amounts each of which is the taxpayer’s income for the year (other than a taxable capital gain from the disposition of a property) from a source inside or outside Canada, including, without restricting the generality of the foregoing, the taxpayer’s income for the year from each office, employment, business and property,

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

  • (i) the total of

    • (A) all of the taxpayer’s taxable capital gains for the year from dispositions of property other than listed personal property, and

    • (B) the taxpayer’s taxable net gain for the year from dispositions of listed personal property,

  exceeds

  • (ii) the amount, if any, by which the taxpayer’s allowable capital losses for the year from dispositions of property other than listed personal property exceed the taxpayer’s allowable business investment losses for the year,

• (c) determine the amount, if any, by which the total determined under paragraph (a) plus the amount determined under paragraph (b) exceeds the total of the deductions permitted by Subdivision E in computing the taxpayer’s income for the year (except to the extent that those deductions, if any, have been taken into account in determining the total referred to in paragraph (a), and

• (d) determine the amount, if any, by which the amount determined under paragraph (c) exceeds the total of all amounts each of which is the taxpayer’s loss for the year from an office, employment, business or property or the taxpayer’s allowable business investment loss for the year,

and for the purposes of this Part,

• (e) where an amount is determined under paragraph (d) for the year in respect of the taxpayer, the taxpayer’s income for the year is the amount so determined, and

• (f) in any other case, the taxpayer shall be deemed to have income for the year in an amount equal to zero.

Marginal note:Income or loss from a source or from sources in a place

• 4 (1) For the purposes of this Act,

  • (a) a taxpayer’s income or loss for a taxation year from an office, employment, business, property or other source, or from sources in a particular place, is the taxpayer’s income or loss, as the case may be, computed in accordance with this Act on the assumption that the taxpayer had during the taxation year no income or loss except from that source or no income or loss except from those sources, as the case may be, and was allowed no deductions in computing the taxpayer’s income for the taxation year except such deductions as may reasonably be regarded as wholly applicable to that source or to those sources, as the case may be, and except such part of any other deductions as may reasonably be regarded as applicable thereto; and

  • (b) where the business carried on by a taxpayer or the duties of the office or employment performed by a taxpayer was carried on or were performed, as the case may be, partly in one place and partly in another place, the taxpayer’s income or loss for the taxation year from the business carried on, or the duties performed, by the taxpayer in a particular place is the taxpayer’s income or loss, as the case may be, computed in accordance with this Act on the assumption that the taxpayer had during the taxation year no income or loss except from the part of the business that was carried on in that particular place or no income or loss except from the part of those duties that were performed in that particular place, as the case may be, and was allowed no deductions in computing the taxpayer’s income for the taxation year except such deductions as may reasonably be regarded as wholly applicable to that part of the business or to those duties, as the case may be, and except such part of any other deductions as may reasonably be regarded as applicable thereto.

• Marginal note:Idem

  (2) Subject to subsection 4(3), in applying subsection 4(1) for the purposes of this Part, no deductions permitted by sections 60 to 64 apply either wholly or in part to a particular source or to sources in a particular place.

• Marginal note:Deductions applicable

  (3) In applying subsection 4(1) for the purposes of subsections 104(22) and 104(22.1) and sections 115 and 126,

  • (a) subject to paragraph (b), all deductions permitted in computing a taxpayer’s income for a taxation year for the purposes of this Part, except any deduction permitted by any of paragraphs 60(b) to 60(o), 60(p), 60(r) and 60(v) to 60(w), shall apply either wholly or in part to a particular source or to sources in a particular place; and

  • (b) any deduction permitted by subsection 104(6) or 104(12) shall not apply either wholly or in part to a source in a country other than Canada.

• (4) [Repealed, 1996, c. 21, s. 2(1)]

SUBDIVISION aIncome or Loss from an Office or Employment

Basic Rules

Marginal note:Income from office or employment

• 5 (1) Subject to this Part, a taxpayer’s income for a taxation year from an office or employment is the salary, wages and other remuneration, including gratuities, received by the taxpayer in the year.

• Marginal note:Loss from office or employment

  (2) A taxpayer’s loss for a taxation year from an office or employment is the amount of the taxpayer’s loss, if any, for the taxation year from that source computed by applying, with such modifications as the circumstances require, the provisions of this Act respecting the computation of income from that source.

Inclusions

Marginal note:Amounts to be included as income from office or employment

• 6 (1) There shall be included in computing the income of a taxpayer for a taxation year as income from an office or employment such of the following amounts as are applicable

  • Marginal note:Value of benefits

    (a) the value of board, lodging and other benefits of any kind whatever received or enjoyed by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment, except any benefit

    • (i) derived from the contributions of the taxpayer’s employer to or under a registered pension plan, group sickness or accident insurance plan, private health services plan, supplementary unemployment benefit plan, deferred profit sharing plan or group term life insurance policy,

    • (ii) under a retirement compensation arrangement, an employee benefit plan or an employee trust,

    • (iii) that was a benefit in respect of the use of an automobile,

    • (iv) derived from counselling services in respect of

      • (A) the mental or physical health of the taxpayer or an individual related to the taxpayer, other than a benefit attributable to an outlay or expense to which paragraph 18(1)(l) applies, or

      • (B) the re-employment or retirement of the taxpayer, or

    • (v) under a salary deferral arrangement, except to the extent that the benefit is included under this paragraph because of subsection 6(11);

  • Marginal note:Personal or living expenses

    (b) all amounts received by the taxpayer in the year as an allowance for personal or living expenses or as an allowance for any other purpose, except

    • (i) travel, personal or living expense allowances

      • (A) expressly fixed in an Act of Parliament, or

      • (B) paid under the authority of the Treasury Board to a person who was appointed or whose services were engaged pursuant to the Inquiries Act, in respect of the discharge of the person’s duties relating to the appointment or engagement,

    • (ii) travel and separation allowances received under service regulations as a member of the Canadian Forces,

    • (iii) representation or other special allowances received in respect of a period of absence from Canada as a person described in paragraph 250(1)(b), (c), (d) or (d.1),

    • (iv) representation or other special allowances received by a person who is an agent-general of a province in respect of a period while the person was in Ottawa as the agent-general of the province,

    • (v) reasonable allowances for travel expenses received by an employee from the employee’s employer in respect of a period when the employee was employed in connection with the selling of property or negotiating of contracts for the employee’s employer,

    • (vi) reasonable allowances received by a minister or clergyman in charge of or ministering to a diocese, parish or congregation for expenses for transportation incident to the discharge of the duties of that office or employment,

    • (vii) reasonable allowances for travel expenses (other than allowances for the use of a motor vehicle) received by an employee (other than an employee employed in connection with the selling of property or the negotiating of contracts for the employer) from the employer for travelling away from

      • (A) the municipality where the employer’s establishment at which the employee ordinarily worked or to which the employee ordinarily reported was located, and

      • (B) the metropolitan area, if there is one, where that establishment was located,

      in the performance of the duties of the employee’s office or employment,

    • (vii.1) reasonable allowances for the use of a motor vehicle received by an employee (other than an employee employed in connection with the selling of property or the negotiating of contracts for the employer) from the employer for travelling in the performance of the duties of the office or employment,

    • (viii) [Repealed, 1999, c. 22, s. 2(1)]

    • (ix) allowances (not in excess of reasonable amounts) received by an employee from the employee’s employer in respect of any child of the employee living away from the employee’s domestic establishment in the place where the employee is required by reason of the employee’s employment to live and in full-time attendance at a school in which the language primarily used for instruction is the official language of Canada primarily used by the employee if

      • (A) a school suitable for that child primarily using that language of instruction is not available in the place where the employee is so required to live, and

      • (B) the school the child attends primarily uses that language for instruction and is not farther from that place than the community nearest to that place in which there is such a school having suitable boarding facilities,

    and, for the purposes of subparagraphs (v), (vi) and (vii.1), an allowance received in a taxation year by a taxpayer for the use of a motor vehicle in connection with or in the course of the taxpayer’s office or employment shall be deemed not to be a reasonable allowance

    • (x) where the measurement of the use of the vehicle for the purpose of the allowance is not based solely on the number of kilometres for which the vehicle is used in connection with or in the course of the office or employment, or

    • (xi) where the taxpayer both receives an allowance in respect of that use and is reimbursed in whole or in part for expenses in respect of that use (except where the reimbursement is in respect of supplementary business insurance or toll or ferry charges and the amount of the allowance was determined without reference to those reimbursed expenses);

  • Marginal note:Director’s or other fees

    (c) director’s or other fees received by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment;

  • Marginal note:Allocations, etc., under profit sharing plan

    (d) amounts allocated to the taxpayer in the year by a trustee under an employees profit sharing plan as provided by section 144 except subsection 144(4), and amounts required by subsection 144(7) to be included in computing the taxpayer’s income for the year;

  • Marginal note:Standby charge for automobile

    (e) where the taxpayer’s employer or a person related to the employer made an automobile available to the taxpayer, or to a person related to the taxpayer, in the year, the amount, if any, by which

    • (i) an amount that is a reasonable standby charge for the automobile for the total number of days in the year during which it was made so available

    exceeds

    • (ii) the total of all amounts, each of which is an amount (other than an expense related to the operation of the automobile) paid in the year to the employer or the person related to the employer by the taxpayer or the person related to the taxpayer for the use of the automobile;

  • (e.1) [Repealed, 1997, c. 10, s. 267(1)]

  • Marginal note:Employment insurance benefits

    (f) the total of all amounts received by the taxpayer in the year that were payable to the taxpayer on a periodic basis in respect of the loss of all or any part of the taxpayer’s income from an office or employment, pursuant to

    • (i) a sickness or accident insurance plan,

    • (ii) a disability insurance plan, or

    • (iii) an income maintenance insurance plan

    to or under which the taxpayer’s employer has made a contribution, not exceeding the amount, if any, by which

    • (iv) the total of all such amounts received by the taxpayer pursuant to the plan before the end of the year and

      • (A) where there was a preceding taxation year ending after 1971 in which any such amount was, by virtue of this paragraph, included in computing the taxpayer’s income, after the last such year, and

      • (B) in any other case, after 1971,

    exceeds

    • (v) the total of the contributions made by the taxpayer under the plan before the end of the year and

      • (A) where there was a preceding taxation year described in clause (iv)(A), after the last such year, and

      • (B) in any other case, after 1967;

  • Marginal note:Employee benefit plan benefits

    (g) the total of all amounts each of which is an amount received by the taxpayer in the year out of or under an employee benefit plan or from the disposition of any interest in any such plan, other than the portion thereof that is

    • (i) a death benefit or an amount that would, but for the deduction provided in the definition of that term in subsection 248(1), be a death benefit,

    • (ii) a return of amounts contributed to the plan by the taxpayer or a deceased employee of whom the taxpayer is an heir or legal representative, or

    • (iii) a superannuation or pension benefit attributable to services rendered by a person in a period throughout which the person was not resident in Canada;

  • Marginal note:Employee trust

    (h) amounts allocated to the taxpayer for the year by a trustee under an employee trust;

  • Marginal note:Salary deferral arrangement payments

    (i) the amount, if any, by which the total of all amounts received by any person as benefits (other than amounts received by or from a trust governed by a salary deferral arrangement) in the year out of or under a salary deferral arrangement in respect of the taxpayer exceeds the amount, if any, by which

    • (i) the total of all deferred amounts under the arrangement that were included under paragraph 6(1)(a) as benefits in computing the taxpayer’s income for preceding taxation years

    exceeds

    • (ii) the total of

      • (A) all deferred amounts received by any person in preceding taxation years out of or under the arrangement, and

      • (B) all deferred amounts under the arrangement that were deducted under paragraph 8(1)(o) in computing the taxpayer’s income for the year or preceding taxation years;

  • Marginal note:Reimbursements and awards

    (j) amounts received by the taxpayer in the year as an award or reimbursement in respect of an amount that would, if the taxpayer were entitled to no reimbursements or awards, be deductible under subsection 8(1) in computing the income of the taxpayer, except to the extent that the amounts so received

    • (i) are otherwise included in computing the income of the taxpayer for the year, or

    • (ii) are taken into account in computing the amount that is claimed under subsection 8(1) by the taxpayer for the year or a preceding taxation year;

  • Marginal note:Automobile operating expense benefit

    (k) where

    • (i) an amount is determined under subparagraph 6(1)(e)(i) in respect of an automobile in computing the taxpayer’s income for the year,

    • (ii) amounts related to the operation (otherwise than in connection with or in the course of the taxpayer’s office or employment) of the automobile for the period or periods in the year during which the automobile was made available to the taxpayer or a person related to the taxpayer are paid or payable by the taxpayer’s employer or a person related to the taxpayer’s employer (each of whom is in this paragraph referred to as the “payor”), and

    • (iii) the total of the amounts so paid or payable is not paid in the year or within 45 days after the end of the year to the payor by the taxpayer or by the person related to the taxpayer,

    the amount in respect of the operation of the automobile determined by the formula

    A - B

    where

    A

    is

    • (iv) where the automobile is used primarily in the performance of the duties of the taxpayer’s office or employment during the period or periods referred to in subparagraph (ii) and the taxpayer notifies the employer in writing before the end of the year of the taxpayer’s intention to have this subparagraph apply, 1/2 of the amount determined under subparagraph 6(1)(e)(i) in respect of the automobile in computing the taxpayer’s income for the year, and

    • (v) in any other case, the amount equal to the product obtained when the amount prescribed for the year is multiplied by the total number of kilometres that the automobile is driven (otherwise than in connection with or in the course of the taxpayer’s office or employment) during the period or periods referred to in subparagraph 6(1)(k)(ii), and

    B

    is the total of all amounts in respect of the operation of the automobile in the year paid in the year or within 45 days after the end of the year to the payor by the taxpayer or by the person related to the taxpayer; and

  • Marginal note:Idem

    (l) the value of a benefit in respect of the operation of an automobile (other than a benefit to which paragraph 6(1)(k) applies or would apply but for subparagraph 6(1)(k)(iii)) received or enjoyed by the taxpayer in the year in respect of, in the course of or because of, the taxpayer’s office or employment.

• Marginal note:Parking cost

  (1.1) For the purposes of this section, an amount or a benefit in respect of the use of a motor vehicle by a taxpayer does not include any amount or benefit related to the parking of the vehicle.

• Marginal note:Reasonable standby charge

  (2) For the purposes of paragraph 6(1)(e), a reasonable standby charge for an automobile for the total number of days (in this subsection referred to as the “total available days”) in a taxation year during which the automobile is made available to a taxpayer or to a person related to the taxpayer by the employer of the taxpayer or by a person related to the employer (both of whom are in this subsection referred to as the “employer”) shall be deemed to be the amount determined by the formula

  A/B × [2% × (C × D) + 2/3 × (E - F)]

  where

  A

  is

  • (a) the lesser of the total kilometres that the automobile is driven (otherwise than in connection with or in the course of the taxpayer’s office or employment) during the total available days and the value determined for the description of B for the year in respect of the standby charge for the automobile during the total available days, if

    • (i) the taxpayer is required by the employer to use the automobile in connection with or in the course of the office or employment, and

    • (ii) the distance travelled by the automobile in the total available days is primarily in connection with or in the course of the office or employment, and

  • (b) the value determined for the description of B for the year in respect of the standby charge for the automobile during the total available days, in any other case;

  B

  is the product obtained when 1,667 is multiplied by the quotient obtained by dividing the total available days by 30 and, if the quotient so obtained is not a whole number and exceeds one, by rounding it to the nearest whole number or, where that quotient is equidistant from two consecutive whole numbers, by rounding it to the lower of those two numbers;

  C

  is the cost of the automobile to the employer where the employer owns the vehicle at any time in the year;

  D

  is the number obtained by dividing such of the total available days as are days when the employer owns the automobile by 30 and, if the quotient so obtained is not a whole number and exceeds one, by rounding it to the nearest whole number or, where that quotient is equidistant from two consecutive whole numbers, by rounding it to the lower of those two numbers;

  E

  is the total of all amounts that may reasonably be regarded as having been payable by the employer to a lessor for the purpose of leasing the automobile during such of the total available days as are days when the automobile is leased to the employer; and

  F

  is the part of the amount determined for E that may reasonably be regarded as having been payable to the lessor in respect of all or part of the cost to the lessor of insuring against

  • (a) loss of, or damage to, the automobile, or

  • (b) liability resulting from the use or operation of the automobile.

• Marginal note:Automobile salesman

  (2.1) Where in a taxation year

  • (a) a taxpayer was employed principally in selling or leasing automobiles,

  • (b) an automobile owned by the taxpayer’s employer was made available by the employer to the taxpayer or to a person related to the taxpayer, and

  • (c) the employer has acquired one or more automobiles,

  the amount that would otherwise be determined under subsection 6(2) as a reasonable standby charge shall, at the option of the employer, be computed as if

  • (d) the reference in the formula in subsection 6(2) to “2%” were read as a reference to “1 1/2%”, and

  • (e) the cost to the employer of the automobile were the greater of

    • (i) the quotient obtained by dividing

      • (A) the cost to the employer of all new automobiles acquired by the employer in the year for sale or lease in the course of the employer’s business

      by

      • (B) the number of automobiles described in clause 6(2.1)(e)(i)(A), and

    • (ii) the quotient obtained by dividing

      • (A) the cost to the employer of all automobiles acquired by the employer in the year for sale or lease in the course of the employer’s business

      by

      • (B) the number of automobiles described in clause 6(2.1)(e)(ii)(A).

• (2.2) [Repealed, 1994, c. 21, s. 2(5)]

• Marginal note:Payments by employer to employee

  (3) An amount received by one person from another

  • (a) during a period while the payee was an officer of, or in the employment of, the payer, or

  • (b) on account, in lieu of payment or in satisfaction of an obligation arising out of an agreement made by the payer with the payee immediately prior to, during or immediately after a period that the payee was an officer of, or in the employment of, the payer,

  shall be deemed, for the purposes of section 5, to be remuneration for the payee’s services rendered as an officer or during the period of employment, unless it is established that, irrespective of when the agreement, if any, under which the amount was received was made or the form or legal effect thereof, it cannot reasonably be regarded as having been received

  • (c) as consideration or partial consideration for accepting the office or entering into the contract of employment,

  • (d) as remuneration or partial remuneration for services as an officer or under the contract of employment, or

  • (e) in consideration or partial consideration for a covenant with reference to what the officer or employee is, or is not, to do before or after the termination of the employment.

• Marginal note:Group term life insurance

  (4) Where at any time in a taxation year a taxpayer’s life is insured under a group term life insurance policy, there shall be included in computing the taxpayer’s income for the year from an office or employment the amount, if any, prescribed for the year in respect of the insurance.

• (5) [Repealed, 1995, c. 3, s. 1(3)]

• Marginal note:Employment at special work site or remote location

  (6) Notwithstanding subsection 6(1), in computing the income of a taxpayer for a taxation year from an office or employment, there shall not be included any amount received or enjoyed by the taxpayer in respect of, in the course or by virtue of the office or employment that is the value of, or an allowance (not in excess of a reasonable amount) in respect of expenses the taxpayer has incurred for,

  • (a) the taxpayer’s board and lodging for a period at

    • (i) a special work site, being a location at which the duties performed by the taxpayer were of a temporary nature, if the taxpayer maintained at another location a self-contained domestic establishment as the taxpayer’s principal place of residence

      • (A) that was, throughout the period, available for the taxpayer’s occupancy and not rented by the taxpayer to any other person, and

      • (B) to which, by reason of distance, the taxpayer could not reasonably be expected to have returned daily from the special work site, or

    • (ii) a location at which, by virtue of its remoteness from any established community, the taxpayer could not reasonably be expected to establish and maintain a self-contained domestic establishment,

    if the period during which the taxpayer was required by the taxpayer’s duties to be away from the taxpayer’s principal place of residence, or to be at the special work site or location, was not less than 36 hours; or

  • (b) transportation between

    • (i) the principal place of residence and the special work site referred to in subparagraph 6(6)(a)(i), or

    • (ii) the location referred to in subparagraph 6(6)(a)(ii) and a location in Canada or a location in the country in which the taxpayer is employed,

    in respect of a period described in paragraph 6(6)(a) during which the taxpayer received board and lodging, or a reasonable allowance in respect of board and lodging, from the taxpayer’s employer.

• Marginal note:Cost of property or service

  (7) To the extent that the cost to a person of purchasing a property or service or an amount payable by a person for the purpose of leasing property is taken into account in determining an amount required under this section to be included in computing a taxpayer’s income for a taxation year, that cost or amount payable, as the case may be, shall include any tax that was payable by the person in respect of the property or service or that would have been so payable if the person were not exempt from the payment of that tax because of the nature of the person or the use to which the property or service is to be put.

• Marginal note:GST rebates re costs of property or service

  (8) If

  • (a) an amount in respect of an outlay or expense is deducted under section 8 in computing the income of a taxpayer for a taxation year from an office or employment, or

  • (b) an amount is included in the capital cost to a taxpayer of a property described in subparagraph 8(1)(j)(ii) or 8(1)(p)(ii),

  and a particular amount is paid to the taxpayer in a particular taxation year as a rebate under the Excise Tax Act in respect of any goods and services tax included in the amount of the outlay or expense, or the capital cost of the property, as the case may be, the particular amount

  • (c) to the extent that it relates to an outlay or expense referred to in paragraph (a), shall be included in computing the taxpayer’s income from an office or employment for the particular taxation year, and

  • (d) to the extent that it relates to the capital cost of property referred to in paragraph (b), is deemed, for the purposes of subsection 13(7.1), to have been received by the taxpayer in the particular taxation year as assistance from a government for the acquisition of the property.

• Marginal note:Amount in respect of interest on employee debt

  (9) Where an amount in respect of a loan or debt is deemed by subsection 80.4(1) to be a benefit received in a taxation year by an individual, the amount of the benefit shall be included in computing the income of the individual for the year as income from an office or employment.

• Marginal note:Contributions to an employee benefit plan

  (10) For the purposes of subparagraph 6(1)(g)(ii),

  • (a) an amount included in the income of an individual in respect of an employee benefit plan for a taxation year preceding the year in which it was paid out of the plan shall be deemed to be an amount contributed to the plan by the individual; and

  • (b) where an amount is received in a taxation year by an individual from an employee benefit plan that was in a preceding year an employee trust, such portion of the amount so received by the individual as does not exceed the amount, if any, by which the lesser of

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

      • (A) the total of all amounts allocated to the individual or a deceased person of whom the individual is an heir or legal representative by the trustee of the plan at a time when it was an employee trust

      exceeds

      • (B) the total of all amounts previously paid out of the plan to or for the benefit of the individual or the deceased person at a time when the plan was an employee trust, and

    • (ii) the portion of the amount, if any, by which the cost amount to the plan of its property immediately before it ceased to be an employee trust exceeds its liabilities at that time that

      • (A) the amount determined under subparagraph 6(10)(b)(i) in respect of the individual

      is of

      • (B) the total of amounts determined under subparagraph 6(10)(b)(i) in respect of all individuals who were beneficiaries under the plan immediately before it ceased to be an employee trust

    exceeds

    • (iii) the total of all amounts previously received out of the plan by the individual or a deceased person of whom the individual is an heir or legal representative at a time when the plan was an employee benefit plan to the extent that the amounts were deemed by this paragraph to be a return of amounts contributed to the plan

    shall be deemed to be the return of an amount contributed to the plan by the individual.

• Marginal note:Salary deferral arrangement

  (11) Where at the end of a taxation year any person has a right under a salary deferral arrangement in respect of a taxpayer to receive a deferred amount, an amount equal to the deferred amount shall be deemed, for the purposes only of paragraph 6(1)(a), to have been received by the taxpayer as a benefit in the year, to the extent that the amount was not otherwise included in computing the taxpayer’s income for the year or any preceding taxation year.

• Marginal note:Idem

  (12) Where at the end of a taxation year any person has a right under a salary deferral arrangement (other than a trust governed by a salary deferral arrangement) in respect of a taxpayer to receive a deferred amount, an amount equal to any interest or other additional amount that accrued to, or for the benefit of, that person to the end of the year in respect of the deferred amount shall be deemed at the end of the year, for the purposes only of subsection 6(11), to be a deferred amount that the person has a right to receive under the arrangement.

• Marginal note:Application

  (13) Subsection 6(11) does not apply in respect of a deferred amount under a salary deferral arrangement in respect of a taxpayer that was established primarily for the benefit of one or more non-resident employees in respect of services to be rendered in a country other than Canada, to the extent that the deferred amount

  • (a) was in respect of services rendered by an employee who

    • (i) was not resident in Canada at the time the services were rendered, or

    • (ii) was resident in Canada for a period (in this subsection referred to as an “excluded period”) of not more than 36 of the 72 months preceding the time the services were rendered and was an employee to whom the arrangement applied before the employee became resident in Canada; and

  • (b) cannot reasonably be regarded as being in respect of services rendered or to be rendered during a period (other than an excluded period) when the employee was resident in Canada.

• Marginal note:Part of plan or arrangement

  (14) Where deferred amounts under a salary deferral arrangement in respect of a taxpayer (in this subsection referred to as “that arrangement”) are required to be included as benefits under paragraph 6(1)(a) in computing the taxpayer’s income and that arrangement is part of a plan or arrangement (in this subsection referred to as the “plan”) under which amounts or benefits not related to the deferred amounts are payable or provided, for the purposes of this Act, other than this subsection,

  • (a) that arrangement shall be deemed to be a separate arrangement independent of other parts of the plan of which it is a part; and

  • (b) where any person has a right to a deferred amount under that arrangement, an amount received by the person as a benefit at any time out of or under the plan shall be deemed to have been received out of or under that arrangement except to the extent that it exceeds the amount, if any, by which

    • (i) the total of all deferred amounts under that arrangement that were included under paragraph 6(1)(a) as benefits in computing the taxpayer’s income for taxation years ending before that time

    exceeds

    • (ii) the total of

      • (A) all deferred amounts received by any person before that time out of or under the plan that were deemed by this paragraph to have been received out of or under that arrangement, and

      • (B) all deferred amounts under that arrangement that were deducted under paragraph 8(1)(o) in computing the taxpayer’s income for the year or preceding taxation years.

• Marginal note:Forgiveness of employee debt

  (15) For the purpose of paragraph 6(1)(a),

  • (a) a benefit shall be deemed to have been enjoyed by a taxpayer at any time an obligation issued by any debtor (including the taxpayer) is settled or extinguished; and

  • (b) the value of that benefit shall be deemed to be the forgiven amount at that time in respect of the obligation.

• Marginal note:Forgiven amount

  (15.1) For the purpose of subsection 6(15), the forgiven amount at any time in respect of an obligation issued by a debtor has the meaning that would be assigned by subsection 80(1) if

  • (a) the obligation were a commercial obligation (within the meaning assigned by subsection 80(1)) issued by the debtor;

  • (b) no amount included in computing income because of the obligation being settled or extinguished at that time were taken into account;

  • (c) the definition forgiven amount in subsection 80(1) were read without reference to paragraphs (f) and (h) of the description of B in that definition; and

  • (d) section 80 were read without reference to paragraphs (2)(b) and (q) of that section.

• Marginal note:Disability-related employment benefits

  (16) Notwithstanding subsection 6(1), in computing an individual’s income for a taxation year from an office or employment, there shall not be included any amount received or enjoyed by the individual in respect of, in the course of or because of the individual’s office or employment that is the value of a benefit relating to, or an allowance (not in excess of a reasonable amount) in respect of expenses incurred by the individual for,

  • (a) the transportation of the individual between the individual’s ordinary place of residence and the individual’s work location (including parking near that location) if the individual is blind or is a person in respect of whom an amount is deductible, or would but for paragraph 118.3(1)(c) be deductible, because of the individual’s mobility impairment, under section 118.3 in computing a taxpayer’s tax payable under this Part for the year; or

  • (b) an attendant to assist the individual in the performance of the individual’s duties if the individual is a person in respect of whom an amount is deductible, or would but for paragraph 118.3(1)(c) be deductible, under section 118.3 in computing a taxpayer’s tax payable under this Part for the year.

• Marginal note:Definitions

  (17) The definitions in this subsection apply in this subsection and subsection 6(18).

  disability policy

  police d’assurance-invalidité

  disability policy means a group disability insurance policy that provides for periodic payments to individuals in respect of the loss of remuneration from an office or employment. (police d’assurance-invalidité)

  employer

  employeur

  employer of an individual includes a former employer of the individual. (employeur)

  top-up disability payment

  paiement compensatoire pour invalidité

  top-up disability payment in respect of an individual means a payment made by an employer of the individual as a consequence of the insolvency of an insurer that was obligated to make payments to the individual under a disability policy where

  • (a) the payment is made to an insurer so that periodic payments made to the individual under the policy will not be reduced because of the insolvency, or will be reduced by a lesser amount, or

  • (b) the following conditions are satisfied:

    • (i) the payment is made to the individual to replace, in whole or in part, periodic payments that would have been made under the policy to the individual but for the insolvency, and

    • (ii) the payment is made under an arrangement by which the individual is required to reimburse the payment to the extent that the individual subsequently receives an amount from an insurer in respect of the portion of the periodic payments that the payment was intended to replace.

  For the purposes of paragraphs (a) and (b), an insurance policy that replaces a disability policy is deemed to be the same policy as, and a continuation of, the disability policy that was replaced. (paiement compensatoire pour invalidité)

• Marginal note:Group disability benefits — insolvent insurer

  (18) Where an employer of an individual makes a top-up disability payment in respect of the individual,

  • (a) the payment is, for the purpose of paragraph 6(1)(a), deemed not to be a benefit received or enjoyed by the individual;

  • (b) the payment is, for the purpose of paragraph 6(1)(f), deemed not to be a contribution made by the employer to or under the disability insurance plan of which the disability policy in respect of which the payment is made is or was a part; and

  • (c) if the payment is made to the individual, it is, for the purpose of paragraph 6(1)(f), deemed to be an amount payable to the individual pursuant to the plan.

• Marginal note:Benefit re housing loss

  (19) For the purpose of paragraph (1)(a), an amount paid at any time in respect of a housing loss (other than an eligible housing loss) to or on behalf of a taxpayer or a person who does not deal at arm’s length with the taxpayer in respect of, in the course of or because of, an office or employment is deemed to be a benefit received by the taxpayer at that time because of the office or employment.

• Marginal note:Benefit re eligible housing loss

  (20) For the purpose of paragraph (1)(a), an amount paid at any time in a taxation year in respect of an eligible housing loss to or on behalf of a taxpayer or a person who does not deal at arm’s length with the taxpayer in respect of, in the course of or because of, an office or employment is deemed to be a benefit received by the taxpayer at that time because of the office or employment to the extent of the amount, if any, by which

  • (a) one half of the amount, if any, by which the total of all amounts each of which is so paid in the year or in a preceding taxation year exceeds $15,000

  exceeds

  • (b) the total of all amounts each of which is an amount included in computing the taxpayer’s income because of this subsection for a preceding taxation year in respect of the loss.

• Marginal note:Housing loss

  (21) In this section, housing loss at any time in respect of a residence of a taxpayer means the amount, if any, by which the greater of

  • (a) the adjusted cost base of the residence at that time to the taxpayer or to another person who does not deal at arm’s length with the taxpayer, and

  • (b) the highest fair market value of the residence within the six-month period that ends at that time exceeds

  • (c) if the residence is disposed of by the taxpayer or the other person before the end of the first taxation year that begins after that time, the lesser of

    • (i) the proceeds of disposition of the residence, and

    • (ii) the fair market value of the residence at that time, and

  • (d) in any other case, the fair market value of the residence at that time.

• Marginal note:Eligible housing loss

  (22) In this section, eligible housing loss in respect of a residence designated by a taxpayer means a housing loss in respect of an eligible relocation of the taxpayer or a person who does not deal at arm’s length with the taxpayer and, for these purposes, no more than one residence may be so designated in respect of an eligible relocation.

• Marginal note:Employer-provided housing subsidies

  (23) For greater certainty, an amount paid or the value of assistance provided by any person in respect of, in the course of or because of, an individual’s office or employment in respect of the cost of, the financing of, the use of or the right to use, a residence is, for the purposes of this section, a benefit received by the individual because of the office or employment.

Marginal note:Agreement to issue securities to employees

• 7 (1) Subject to subsections (1.1) and (8), where a particular qualifying person has agreed to sell or issue securities of the particular qualifying person (or of a qualifying person with which it does not deal at arm’s length) to an employee of the particular qualifying person (or of a qualifying person with which the particular qualifying person does not deal at arm’s length),

  • (a) if the employee has acquired securities under the agreement, a benefit equal to the amount, if any, by which

    • (i) the value of the securities at the time the employee acquired them

    exceeds the total of

    • (ii) the amount paid or to be paid to the particular qualifying person by the employee for the securities, and

    • (iii) the amount, if any, paid by the employee to acquire the right to acquire the securities

    is deemed to have been received, in the taxation year in which the employee acquired the securities, by the employee because of the employee’s employment;

  • (b) if the employee has transferred or otherwise disposed of rights under the agreement in respect of some or all of the securities to a person with whom the employee was dealing at arm’s length, a benefit equal to the amount, if any, by which

    • (i) the value of the consideration for the disposition

    exceeds

    • (ii) the amount, if any, paid by the employee to acquire those rights

    shall be deemed to have been received, in the taxation year in which the employee made the disposition, by the employee because of the employee’s employment;

  • (c) if rights of the employee under the agreement have, by one or more transactions between persons not dealing at arm’s length, become vested in a person who has acquired securities under the agreement, a benefit equal to the amount, if any, by which

    • (i) the value of the securities at the time the person acquired them

    exceeds the total of

    • (ii) the amount paid or to be paid to the particular qualifying person by the person for the securities, and

    • (iii) the amount, if any, paid by the employee to acquire the right to acquire the securities,

    is deemed to have been received, in the taxation year in which the person acquired the securities, by the employee because of the employee’s employment, unless at the time the person acquired the securities the employee was deceased, in which case such a benefit is deemed to have been received by the person in that year as income from the duties of an employment performed by the person in that year in the country in which the employee primarily performed the duties of the employee’s employment;

  • (d) if rights of the employee under the agreement have, by one or more transactions between persons not dealing at arm’s length, become vested in a particular person who has transferred or otherwise disposed of rights under the agreement to another person with whom the particular person was dealing at arm’s length, a benefit equal to the amount, if any, by which

    • (i) the value of the consideration for the disposition

    exceeds

    • (ii) the amount, if any, paid by the employee to acquire those rights

    shall be deemed to have been received, in the taxation year in which the particular person made the disposition, by the employee because of the employee’s employment, unless at the time the other person acquired the rights the employee was deceased, in which case such a benefit shall be deemed to have been received by the particular person in that year as income from the duties of an employment performed by the particular person in that year in the country in which the employee primarily performed the duties of the employee’s employment; and

  • (e) if the employee has died and immediately before death owned a right to acquire securities under the agreement, a benefit equal to the amount, if any, by which

    • (i) the value of the right immediately after the death

    exceeds

    • (ii) the amount, if any, paid by the employee to acquire the right

    shall be deemed to have been received, in the taxation year in which the employee died, by the employee because of the employee’s employment, and paragraphs 7(1)(b), 7(1)(c) and 7(1)(d) do not apply.

• Marginal note:Employee stock options

  (1.1) Where after March 31, 1977 a Canadian-controlled private corporation (in this subsection referred to as “the corporation”) has agreed to sell or issue a share of the capital stock of the corporation or of a Canadian-controlled private corporation with which it does not deal at arm’s length to an employee of the corporation or of a Canadian-controlled private corporation with which it does not deal at arm’s length and at the time immediately after the agreement was made the employee was dealing at arm’s length with

  • (a) the corporation,

  • (b) the Canadian-controlled private corporation, the share of the capital stock of which has been agreed to be sold by the corporation, and

  • (c) the Canadian-controlled private corporation that is the employer of the employee,

  in applying paragraph (1)(a) in respect of the employee’s acquisition of the share, the reference in that paragraph to the taxation year in which the employee acquired the securities shall be read as a reference to the taxation year in which the employee disposed of or exchanged the securities.

• Marginal note:Non-arm’s length relationship with trusts

  (1.11) For the purposes of this section, a mutual fund trust is deemed not to deal at arm’s length with a corporation only if the trust controls the corporation.

• Marginal note:Order of disposition of securities

  (1.3) For the purposes of this subsection, subsections (1.1) and (8), subdivision c, paragraph 110(1)(d.01), subparagraph 110(1)(d.1)(ii) and subsections 110(2.1) and 147(10.4), and subject to subsection (1.31) and paragraph (14)(c), a taxpayer is deemed to dispose of securities that are identical properties in the order in which the taxpayer acquired them and, for this purpose,

  • (a) where a taxpayer acquires a particular security (other than under circumstances to which subsection (1.1) or (8) or 147(10.1) applies) at a time when the taxpayer also acquires or holds one or more other securities that are identical to the particular security and are, or were, acquired under circumstances to which any of subsections (1.1), (8) or 147(10.1) applied, the taxpayer is deemed to have acquired the particular security at the time immediately preceding the earliest of the times at which the taxpayer acquired those other securities; and

  • (b) where a taxpayer acquires, at the same time, two or more identical securities under circumstances to which either subsection (1.1) or (8) applied, the taxpayer is deemed to have acquired the securities in the order in which the agreements under which the taxpayer acquired the rights to acquire the securities were made.

• Marginal note:Disposition of newly-acquired security

  (1.31) Where a taxpayer acquires, at a particular time, a particular security under an agreement referred to in subsection (1) and, on a day that is no later than 30 days after the day that includes the particular time, the taxpayer disposes of a security that is identical to the particular security, the particular security is deemed to be the security that is so disposed of if

  • (a) no other securities that are identical to the particular security are acquired, or disposed of, by the taxpayer after the particular time and before the disposition;

  • (b) the taxpayer identifies the particular security as the security so disposed of in the taxpayer’s return of income under this Part for the year in which the disposition occurs; and

  • (c) the taxpayer has not so identified the particular security, in accordance with this subsection, in connection with the disposition of any other security.

• Marginal note:Exchange of options

  (1.4) Where

  • (a) a taxpayer disposes of rights under an agreement referred to in subsection (1) to acquire securities of a particular qualifying person that made the agreement or of a qualifying person with which it does not deal at arm’s length (which rights and securities are referred to in this subsection as the “exchanged option” and the “old securities”, respectively),

  • (b) the taxpayer receives no consideration for the disposition of the exchanged option other than rights under an agreement with a person (in this subsection referred to as the “designated person”) that is

    • (i) the particular person,

    • (ii) a qualifying person with which the particular person does not deal at arm’s length immediately after the disposition,

    • (iii) a corporation formed on the amalgamation or merger of the particular person and one or more other corporations,

    • (iv) a mutual fund trust to which the particular person has transferred property in circumstances to which subsection 132.2(1) applied, or

    • (v) a qualifying person with which the corporation referred to in subparagraph (iii) does not deal at arm’s length immediately after the disposition

    to acquire securities of the designated person or a qualifying person with which the designated person does not deal at arm’s length (which rights and securities are referred to in this subsection as the new option and the new securities, respectively), and

  • (c) the amount, if any, by which

    • (i) the total value of the new securities immediately after the disposition

    exceeds

    • (ii) the total amount payable by the taxpayer to acquire the new securities under the new option

    does not exceed the amount, if any, by which

    • (iii) the total value of the old securities immediately before the disposition

    exceeds

    • (iv) the amount payable by the taxpayer to acquire the old securities under the exchanged option,

  for the purposes of this section,

  • (d) the taxpayer is deemed (other than for the purposes of subparagraph (9)(d)(ii)) not to have disposed of the exchanged option and not to have acquired the new option,

  • (e) the new option is deemed to be the same option as, and a continuation of, the exchanged option, and

  • (f) if the designated person is not the particular person, the designated person is deemed to be the same person as, and a continuation of, the particular person.

• Marginal note:Rules where securities exchanged

  (1.5) For the purposes of this section and paragraphs 110(1)(d) to (d.1), where

  • (a) a taxpayer disposes of or exchanges securities of a particular qualifying person that were acquired by the taxpayer under circumstances to which either subsection (1.1) or (8) applied (in this subsection referred to as the “exchanged securities”),

  • (b) the taxpayer receives no consideration for the disposition or exchange of the exchanged securities other than securities (in this subsection referred to as the “new securities”) of

    • (i) the particular qualifying person,

    • (ii) a qualifying person with which the particular qualifying person does not deal at arm’s length immediately after the disposition or exchange,

    • (iii) a corporation formed on the amalgamation or merger of the particular qualifying person and one or more other corporations,

    • (iv) a mutual fund trust to which the particular qualifying person has transferred property in circumstances to which subsection 132.2(1) applied, or

    • (v) a qualifying person with which the corporation referred to in subparagraph (iii) does not deal at arm’s length immediately after the disposition or exchange, and

  • (c) the total value of the new securities immediately after the disposition or exchange does not exceed the total value of the old securities immediately before the disposition or exchange,

  the following rules apply:

  • (d) the taxpayer is deemed not to have disposed of or exchanged the exchanged securities and not to have acquired the new securities,

  • (e) the new securities are deemed to be the same securities as, and a continuation of, the exchanged securities, except for the purpose of determining if the new securities are identical to any other securities,

  • (f) the qualifying person that issued the new securities is deemed to be the same person as, and a continuation of, the qualifying person that issued the exchanged securities, and

  • (g) where the exchanged securities were issued under an agreement, the new securities are deemed to have been issued under that agreement.

• Marginal note:Emigrant

  (1.6) For the purposes of this section and paragraph 110(1)(d.1), a taxpayer is deemed not to have disposed of a share acquired under circumstances to which subsection (1.1) applied solely because of subsection 128.1(4).

• Marginal note:Rights ceasing to be exercisable

  (1.7) For the purposes of paragraphs (1)(b) and 110(1)(d), where a taxpayer receives at a particular time one or more particular amounts in respect of rights of the taxpayer to acquire securities under an agreement referred to in subsection (1) ceasing to be exercisable in accordance with the terms of the agreement, and the cessation would not, if this Act were read without reference to this subsection, constitute a transfer or disposition of those rights by the taxpayer,

  • (a) the taxpayer is deemed to have disposed of those rights at the particular time to a person with whom the taxpayer was dealing at arm’s length and to have received the particular amounts as consideration for the disposition; and

  • (b) for the purpose of determining the amount, if any, of the benefit that the taxpayer is deemed by paragraph (1)(b) to have received as a consequence of the disposition referred to in paragraph (a), the taxpayer is deemed to have paid an amount to acquire those rights equal to the amount, if any, by which

    • (i) the amount paid by the taxpayer to acquire those rights (determined without reference to this subsection)

    exceeds

    • (ii) the total of all amounts each of which is an amount received by the taxpayer before the particular time in respect of the cessation.

• Marginal note:Securities held by trustee

  (2) If a security is held by a trustee in trust or otherwise, whether absolutely, conditionally or contingently, for an employee, the employee is deemed, for the purposes of this section and paragraphs 110(1)(d) to (d.1),

  • (a) to have acquired the security at the time the trust began to so hold it; and

  • (b) to have exchanged or disposed of the security at the time the trust exchanged it or disposed of it to any person other than the employee.

• Marginal note:Special provision

  (3) If a particular qualifying person has agreed to sell or issue securities of the particular person, or of a qualifying person with which it does not deal at arm’s length, to an employee of the particular person or of a qualifying person with which it does not deal at arm’s length,

  • (a) except as provided by this section, the employee is deemed to have neither received nor enjoyed any benefit under or because of the agreement; and

  • (b) the income for a taxation year of any person is deemed to be not less than its income for the year would have been if a benefit had not been conferred on the employee by the sale or issue of the securities.

• Marginal note:Application of s. (1)

  (4) For greater certainty it is hereby declared that, where a person to whom any provision of subsection 7(1) would otherwise apply has ceased to be an employee before all things have happened that would make that provision applicable, subsection 7(1) shall continue to apply as though the person were still an employee and as though the employment were still in existence.

• Marginal note:Non-application of this section

  (5) This section does not apply if the benefit conferred by the agreement was not received in respect of, in the course of, or by virtue of, the employment.

• Marginal note:Sale to trustee for employees

  (6) If a particular qualifying person has entered into an arrangement under which securities of the particular person, or of a qualifying person with which it does not deal at arm’s length, are sold or issued by either person to a trustee to be held by the trustee in trust for sale to an employee of the particular person or of a qualifying person with which it does not deal at arm’s length,

  • (a) for the purposes of this section (other than subsection (2)) and paragraphs 110(1)(d) to (d.1),

    • (i) any particular rights of the employee under the arrangement in respect of those securities are deemed to be rights under a particular agreement with the particular person under which the particular person has agreed to sell or issue securities to the employee,

    • (ii) any securities acquired under the arrangement by the employee or by a person in whom the particular rights have become vested are deemed to be securities acquired under the particular agreement, and

    • (iii) any amounts paid or agreed to be paid to the trustee for any securities acquired under the arrangement by the employee or by a person in whom the particular rights have become vested are deemed to be amounts paid or agreed to be paid to the particular person for securities acquired under the particular agreement; and

  • (b) subsection (2) does not apply in respect of securities held by the trustee under the arrangement.

• Marginal note:Definitions

  (7) The definitions in this subsection apply in this section and in subsection 47(3), paragraphs 53(1)(j), 110(1)(d) and (d.01) and subsections 110(1.5), (1.6) and (2.1).

  qualifying person

  personne admissible

  qualifying person means a corporation or a mutual fund trust. (personne admissible)

  security

  titre

  security of a qualifying person means

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

  • (b) if the person is a mutual fund trust, a unit of the trust. (titre)

• Marginal note:Deferral in respect of non-CCPC employee options

  (8) Where a particular qualifying person (other than a Canadian-controlled private corporation) has agreed to sell or issue securities of the particular qualifying person (or of a qualifying person with which it does not deal at arm’s length) to a taxpayer who is an employee of the particular qualifying person (or of a qualifying person with which the particular qualifying person does not deal at arm’s length), in applying paragraph (1)(a) in respect of the taxpayer’s acquisition of a security under the agreement, the reference in that paragraph to “the taxation year in which the employee acquired the securities” shall be read as a reference to “the taxation year in which the employee disposed of or exchanged the securities” if

  • (a) the acquisition is a qualifying acquisition; and

  • (b) the taxpayer elects, in accordance with subsection (10), to have this subsection apply in respect of the acquisition.

• Meaning of qualifying acquisition

  (9) For the purpose of subsection (8), a taxpayer’s acquisition of a security under an agreement made by a particular qualifying person is a qualifying acquisition if

  • (a) the acquisition occurs after February 27, 2000;

  • (b) the taxpayer would, if this Act were read without reference to subsection (8), be entitled to deduct an amount under paragraph 110(1)(d) in respect of the acquisition in computing income for the taxation year in which the security is acquired;

  • (c) where the particular qualifying person is a corporation, the taxpayer was not, at the time immediately after the agreement was made, a person who would, if the references in the portion of the definition specified shareholder in subsection 248(1) before paragraph (a) to “in a taxation year” and “at any time in the year” were read as references to “at any time” and “at that time”, respectively, be a specified shareholder of any of

    • (i) the particular qualifying person,

    • (ii) any qualifying person that, at that time, was an employer of the taxpayer and was not dealing at arm’s length with the particular qualifying person, and

    • (iii) the qualifying person of which the taxpayer had, under the agreement, a right to acquire a security; and

  • (d) where the security is a share,

    • (i) it is of a class of shares that, at the time the acquisition occurs, is listed on a prescribed stock exchange, and

    • (ii) where rights under the agreement were acquired by the taxpayer as a result of one or more dispositions to which subsection (1.4) applied, none of the rights that were the subject of any of the dispositions included a right to acquire a share of a class of shares that, at the time the rights were disposed of, was not listed on any prescribed stock exchange.

• Marginal note:Election for the purpose of subsection (8)

  (10) For the purpose of subsection (8), a taxpayer’s election to have that subsection apply in respect of the taxpayer’s acquisition of a particular security under an agreement referred to in subsection (1) is in accordance with this subsection if

  • (a) the election is filed, in the prescribed form and manner at a particular time that is before January 16 of the year following the year in which the acquisition occurs, with a person who would be required to file an information return in respect of the acquisition if subsection (8) were read without reference to paragraph (8)(b);

  • (b) the taxpayer is resident in Canada at the time the acquisition occurs; and

  • (c) the specified value of the particular security does not exceed the amount by which

    • (i) $100,000

    exceeds

    • (ii) the total of all amounts each of which is the specified value of another security acquired by the taxpayer at or before the particular time under an agreement referred to in subsection (1), where

      • (A) the taxpayer’s right to acquire that other security first became exercisable in the year that the taxpayer’s right to acquire the particular security first became exercisable, and

      • (B) at or before the particular time, the taxpayer has elected in accordance with this subsection to have subsection (8) apply in respect of the acquisition of that other security.

• Meaning of specified value

  (11) For the purpose of paragraph (10)(c), the specified value of a particular security acquired by a taxpayer under an agreement referred to in subsection (1) is the amount determined by the formula

  A/B

  where

  A

  is the fair market value, determined at the time the agreement was made, of a security that was the subject of the agreement at the time the agreement was made; and

  B

  is

  • (a) except where paragraph (b) applies, 1, and

  • (b) where the number or type of securities that are the subject of the agreement has been modified in any way after the time the agreement was made, the number of securities (including any fraction of a security) that it is reasonable to consider the taxpayer would, at the time the particular security was acquired, have a right to acquire under the agreement in lieu of one of the securities that was the subject of the agreement at the time the agreement was made.

• Marginal note:Identical options — order of exercise

  (12) Unless the context otherwise requires, a taxpayer is deemed to exercise identical rights to acquire securities under agreements referred to in subsection (1)

  • (a) where the taxpayer has designated an order, in the order so designated; and

  • (b) in any other case, in the order in which those rights first became exercisable and, in the case of identical rights that first became exercisable at the same time, in the order in which the agreements under which those rights were acquired were made.

• Marginal note:Revoked election

  (13) For the purposes of this section (other than this subsection), an election filed by a taxpayer to have subsection (8) apply to the taxpayer’s acquisition of a security is deemed never to have been filed if, before January 16 of the year following the year in which the acquisition occurs, the taxpayer files with the person with whom the election was filed a written revocation of the election.

• Marginal note:Deferral deemed valid

  (14) For the purposes of this section and paragraph 110(1)(d), where a taxpayer files an election to have subsection (8) apply in respect of the taxpayer’s acquisition of a particular security and subsection (8) would not apply to the acquisition if this section were read without reference to this subsection, the following rules apply if the Minister so notifies the taxpayer in writing:

  • (a) the acquisition is deemed, for the purpose of subsection (8), to be a qualifying acquisition;

  • (b) the taxpayer is deemed to have elected, in accordance with subsection (10), at the time of the acquisition, to have subsection (8) apply in respect of the acquisition; and

  • (c) if, at the time the Minister sends the notice, the taxpayer has not disposed of the security, the taxpayer is deemed (other than for the purpose of subsection (1.5)) to have disposed of the security at that time and to have acquired the security immediately after that time other than under an agreement referred to in subsection (1).

• Marginal note:Withholding

  (15) Where, because of subsection (8), a taxpayer is deemed by paragraph (1)(a) to have received a benefit from employment in a taxation year, the benefit is deemed to be nil for the purpose of subsection 153(1).

• Marginal note:Prescribed form for deferral

  (16) Where, at any time in a taxation year, a taxpayer holds a security that was acquired under circumstances to which subsection (8) applied, the taxpayer shall file with the Minister, with the taxpayer’s return of income for the year, a prescribed form containing prescribed information relating to the taxpayer’s acquisition and disposition of securities under agreements referred to in subsection (1).

Deductions

Marginal note:Deductions allowed

• 8 (1) In computing a taxpayer’s income for a taxation year from an office or employment, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto

  • (a) [Repealed, 2001, c. 17, s. 3(1)]

  • Marginal note:Legal expenses of employee

    (b) amounts paid by the taxpayer in the year as or on account of legal expenses incurred by the taxpayer to collect or establish a right to salary or wages owed to the taxpayer by the employer or former employer of the taxpayer;

  • Marginal note:Clergy residence

    (c) where, in the year, the taxpayer

    • (i) is a member of the clergy or of a religious order or a regular minister of a religious denomination, and

    • (ii) is

      • (A) in charge of a diocese, parish or congregation,

      • (B) ministering to a diocese, parish or congregation, or

      • (C) engaged exclusively in full-time administrative service by appointment of a religious order or religious denomination,

    the amount, not exceeding the taxpayer’s remuneration for the year from the office or employment, equal to

    • (iii) the total of all amounts including amounts in respect of utilities, included in computing the taxpayer’s income for the year under section 6 in respect of the residence or other living accommodation occupied by the taxpayer in the course of, or because of, the taxpayer’s office or employment as such a member or minister so in charge of or ministering to a diocese, parish or congregation, or so engaged in such administrative service, or

    • (iv) rent and utilities paid by the taxpayer for the taxpayer’s principal place of residence (or other principal living accommodation), ordinarily occupied during the year by the taxpayer, or the fair rental value of such a residence (or other living accommodation), including utilities, owned by the taxpayer or the taxpayer’s spouse or common-law partner, not exceeding the lesser of

      • (A) the greater of

        • (I) $1,000 multiplied by the number of months (to a maximum of ten) in the year, during which the taxpayer is a person described in subparagraphs (i) and (ii), and

        • (II) one-third of the taxpayer’s remuneration for the year from the office or employment, and

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

        • (I) the rent paid or the fair rental value of the residence or living accommodation, including utilities

        exceeds

        • (II) the total of all amounts each of which is an amount deducted, in connection with the same accommodation or residence, in computing an individual’s income for the year from an office or employment or from a business (other than an amount deducted under this paragraph by the taxpayer), to the extent that the amount can reasonably be considered to relate to the period, or a portion of the period, in respect of which an amount is claimed by the taxpayer under this paragraph;

  • Marginal note:Teachers’ exchange fund contribution

    (d) a single amount, in respect of all employments of the taxpayer as a teacher, not exceeding $250 paid by the taxpayer in the year to a fund established by the Canadian Education Association for the benefit of teachers from Commonwealth countries present in Canada under a teachers’ exchange arrangement;

  • Marginal note:Expenses of railway employees

    (e) amounts disbursed by the taxpayer in the year for meals and lodging while employed by a railway company

    • (i) away from the taxpayer’s ordinary place of residence as a relieving telegrapher or station agent or on maintenance and repair work, or

    • (ii) away from the municipality and the metropolitan area, if there is one, where the taxpayer’s home terminal was located, and at a location from which, by reason of distance from the place where the taxpayer maintained a self-contained domestic establishment in which the taxpayer resided and actually supported a spouse or common-law partner or a person dependent on the taxpayer for support and connected with the taxpayer by blood relationship, marriage or common-law partnership or adoption, the taxpayer could not reasonably be expected to return daily to that place,

    to the extent that the taxpayer has not been reimbursed and is not entitled to be reimbursed in respect thereof;

  • Marginal note:Sales expenses

    (f) where the taxpayer was employed in the year in connection with the selling of property or negotiating of contracts for the taxpayer’s employer, and

    • (i) under the contract of employment was required to pay the taxpayer’s own expenses,

    • (ii) was ordinarily required to carry on the duties of the employment away from the employer’s place of business,

    • (iii) was remunerated in whole or part by commissions or other similar amounts fixed by reference to the volume of the sales made or the contracts negotiated, and

    • (iv) was not in receipt of an allowance for travel expenses in respect of the taxation year that was, by virtue of subparagraph 6(1)(b)(v), not included in computing the taxpayer’s income,

    amounts expended by the taxpayer in the year for the purpose of earning the income from the employment (not exceeding the commissions or other similar amounts referred to in subparagraph 8(1)(f)(iii) and received by the taxpayer in the year) to the extent that those amounts were not

    • (v) outlays, losses or replacements of capital or payments on account of capital, except as described in paragraph 8(1)(j),

    • (vi) outlays or expenses that would, by virtue of paragraph 18(1)(l), not be deductible in computing the taxpayer’s income for the year if the employment were a business carried on by the taxpayer, or

    • (vii) amounts the payment of which reduced the amount that would otherwise be included in computing the taxpayer’s income for the year because of paragraph 6(1)(e);

  • Marginal note:Transport employee’s expenses

    (g) where the taxpayer was an employee of a person whose principal business was passenger, goods, or passenger and goods transport and the duties of the employment required the taxpayer, regularly,

    • (i) to travel, away from the municipality where the employer’s establishment to which the taxpayer reported for work was located and away from the metropolitan area, if there is one, where it was located, on vehicles used by the employer to transport the goods or passengers, and

    • (ii) while so away from that municipality and metropolitan area, to make disbursements for meals and lodging,

    amounts so disbursed by the taxpayer in the year to the extent that the taxpayer has not been reimbursed and is not entitled to be reimbursed in respect thereof;

  • Marginal note:Travel expenses

    (h) where the taxpayer, in the year,

    • (i) was ordinarily required to carry on the duties of the office or employment away from the employer’s place of business or in different places, and

    • (ii) was required under the contract of employment to pay the travel expenses incurred by the taxpayer in the performance of the duties of the office or employment,

    amounts expended by the taxpayer in the year (other than motor vehicle expenses) for travelling in the course of the office or employment, except where the taxpayer

    • (iii) received an allowance for travel expenses that was, because of subparagraph 6(1)(b)(v), 6(1)(b)(vi) or 6(1)(b)(vii), not included in computing the taxpayer’s income for the year, or

    • (iv) claims a deduction for the year under paragraph 8(1)(e), 8(1)(f) or 8(1)(g);

  • Marginal note:Motor vehicle travel expenses

    (h.1) where the taxpayer, in the year,

    • (i) was ordinarily required to carry on the duties of the office or employment away from the employer’s place of business or in different places, and

    • (ii) was required under the contract of employment to pay motor vehicle expenses incurred in the performance of the duties of the office or employment,

    amounts expended by the taxpayer in the year in respect of motor vehicle expenses incurred for travelling in the course of the office or employment, except where the taxpayer

    • (iii) received an allowance for motor vehicle expenses that was, because of paragraph 6(1)(b), not included in computing the taxpayer’s income for the year, or

    • (iv) claims a deduction for the year under paragraph 8(1)(f);

  • Marginal note:Dues and other expenses of performing duties

    (i) amounts paid by the taxpayer in the year as

    • (i) annual professional membership dues the payment of which was necessary to maintain a professional status recognized by statute,

    • (ii) office rent, or salary to an assistant or substitute, the payment of which by the officer or employee was required by the contract of employment,

    • (iii) the cost of supplies that were consumed directly in the performance of the duties of the office or employment and that the officer or employee was required by the contract of employment to supply and pay for,

    • (iv) annual dues to maintain membership in a trade union as defined

      • (A) by section 3 of the Canada Labour Code, or

      • (B) in any provincial statute providing for the investigation, conciliation or settlement of industrial disputes,

      or to maintain membership in an association of public servants the primary object of which is to promote the improvement of the members’ conditions of employment or work,

    • (v) annual dues that were, pursuant to the provisions of a collective agreement, retained by the taxpayer’s employer from the taxpayer’s remuneration and paid to a trade union or association designated in subparagraph 8(1)(i)(iv) of which the taxpayer was not a member,

    • (vi) dues to a parity or advisory committee or similar body, the payment of which was required under the laws of a province in respect of the employment for the year, and

    • (vii) dues to a professions board, the payment of which was required under the laws of a province,

    to the extent that the taxpayer has not been reimbursed, and is not entitled to be reimbursed in respect thereof;

  • Marginal note:Motor vehicle and aircraft costs

    (j) where a deduction may be made under paragraph 8(1)(f), 8(1)(h) or 8(1)(h.1) in computing the taxpayer’s income from an office or employment for a taxation year,

    • (i) any interest paid by the taxpayer in the year on borrowed money used for the purpose of acquiring, or on an amount payable for the acquisition of, property that is

      • (A) a motor vehicle that is used, or

      • (B) an aircraft that is required for use

      in the performance of the duties of the taxpayer’s office or employment, and

    • (ii) such part, if any, of the capital cost to the taxpayer of

      • (A) a motor vehicle that is used, or

      • (B) an aircraft that is required for use

      in the performance of the duties of the office or employment as is allowed by regulation;

  • Marginal note:C.P.P. contributions and U.I.A. premiums

    (l.1) any amount payable by the taxpayer in the year

    • (i) as an employer’s premium under the employment Insurance Act, or

    • (ii) as an employer’s contribution under the Canada Pension Plan or under a provincial pension plan as defined in section 3 of the Canada Pension Plan,

    in respect of salary, wages or other remuneration, including gratuities, paid to an individual employed by the taxpayer as an assistant or substitute to perform the duties of the taxpayer’s office or employment if an amount is deductible by the taxpayer for the year under subparagraph 8(1)(i)(ii) in respect of that individual;

  • Marginal note:Employee’s registered pension plan contributions

    (m) the amount in respect of contributions to registered pension plans that, by reason of subsection 147.2(4), is deductible in computing the taxpayer’s income for the year;

  • Marginal note:Employee RCA contributions

    (m.2) an amount contributed by the taxpayer in the year to a pension plan in respect of services rendered by the taxpayer where the plan is a prescribed plan established by an enactment of Canada or a province or where

    • (i) the plan is a retirement compensation arrangement,

    • (ii) the amount was paid to a custodian (within the meaning assigned by the definition retirement compensation arrangement in subsection 248(1)) of the arrangement who is resident in Canada, and

    • (iii) either

      • (A) the taxpayer was required, by the terms of the taxpayer’s office or employment, to contribute the amount, and the total of the amounts contributed to the plan in the year by the taxpayer does not exceed the total of the amount contributed to the plan in the year by any other person in respect of the taxpayer, or

      • (B) the plan is a pension plan the registration of which under this Act was revoked (other than a plan the registration of which was revoked as of the effective date of its registration) and the amount was contributed in accordance with the terms of the plan as last registered;

      • (C) [Repealed, 1994, c. 21, s. 4(2)]

  • Marginal note:Salary reimbursement

    (n) an amount paid by or on behalf of the taxpayer in the year pursuant to an arrangement (other than an arrangement described in subparagraph (b)(ii) of the definition top-up disability payment in subsection 6(17)) under which the taxpayer is required to reimburse any amount paid to the taxpayer for a period throughout which the taxpayer did not perform the duties of the office or employment, to the extent that

    • (i) the amount so paid to the taxpayer for the period was included in computing the taxpayer’s income from an office or employment, and

    • (ii) the total of amounts so reimbursed does not exceed the total of amounts received by the taxpayer for the period throughout which the taxpayer did not perform the duties of the office or employment;

  • Marginal note:Reimbursement of disability payments

    (n.1) where,

    • (i) as a consequence of the receipt of a payment (in this paragraph referred to as the “deferred payment”) from an insurer, a payment (in this paragraph referred to as the “reimbursement payment”) is made by or on behalf of an individual to an employer or former employer of the individual pursuant to an arrangement described in subparagraph (b)(ii) of the definition top-up disability payment in subsection 6(17), and

    • (ii) the reimbursement payment is made

      • (A) in the year, other than within the first 60 days of the year if the deferred payment was received in the immediately preceding taxation year, or

      • (B) within 60 days after the end of the year, if the deferred payment was received in the year,

    an amount equal to the lesser of

    • (iii) the amount included under paragraph 6(1)(f) in respect of the deferred payment in computing the individual’s income for any taxation year, and

    • (iv) the amount of the reimbursement payment;

  • Marginal note:Forfeited amounts

    (o) where at the end of the year the rights of any person to receive benefits under a salary deferral arrangement in respect of the taxpayer have been extinguished or no person has any further right to receive any amount under the arrangement, the amount, if any, by which the total of all deferred amounts under the arrangement included in computing the taxpayer’s income for the year and preceding taxation years as benefits under paragraph 6(1)(a) exceeds the total of

    • (i) all such deferred amounts received by any person in that year or preceding taxation years out of or under the arrangement,

    • (ii) all such deferred amounts receivable by any person in subsequent taxation years out of or under the arrangement, and

    • (iii) all amounts deducted under this paragraph in computing the taxpayer’s income for preceding taxation years in respect of deferred amounts under the arrangement;

  • Marginal note:Idem

    (o.1) an amount that is deductible in computing the taxpayer’s income for the year because of subsection 144(9);

  • Marginal note:Musical instrument costs

    (p) where the taxpayer was employed in the year as a musician and as a term of the employment was required to provide a musical instrument for a period in the year, an amount (not exceeding the taxpayer’s income for the year from the employment, computed without reference to this paragraph) equal to the total of

    • (i) amounts expended by the taxpayer before the end of the year for the maintenance, rental or insurance of the instrument for that period, except to the extent that the amounts are otherwise deducted in computing the taxpayer’s income for any taxation year, and

    • (ii) such part, if any, of the capital cost to the taxpayer of the instrument as is allowed by regulation;

  • Marginal note:Artists’ employment expenses

    (q) where the taxpayer’s income for the year from the office or employment includes income from an artistic activity

    • (i) that was the creation by the taxpayer of, but did not include the reproduction of, paintings, prints, etchings, drawings, sculptures or similar works of art,

    • (ii) that was the composition by the taxpayer of a dramatic, musical or literary work,

    • (iii) that was the performance by the taxpayer of a dramatic or musical work as an actor, dancer, singer or musician, or

    • (iv) in respect of which the taxpayer was a member of a professional artists’ association that is certified by the Minister of Communications,

    amounts paid by the taxpayer before the end of the year in respect of expenses incurred for the purpose of earning the income from those activities to the extent that they were not deductible in computing the taxpayer’s income for a preceding taxation year, but not exceeding a single amount in respect of all such offices and employments of the taxpayer equal to the amount, if any, by which

    • (v) the lesser of $1,000 and 20% of the total of all amounts each of which is the taxpayer’s income from an office or employment for the year, before deducting any amount under this section, that was income from an artistic activity described in any of subparagraphs 8(1)(q)(i) to 8(1)(q)(iv),

    exceeds

    • (vi) the total of all amounts deducted by the taxpayer for the year under paragraph 8(1)(j) or 8(1)(p) in respect of costs or expenses incurred for the purpose of earning the income from such an activity for the year; and

  • Marginal note:Apprentice mechanics’ tool costs

    (r) if the taxpayer was an eligible apprentice mechanic at any time after 2001 and before the end of the taxation year, the amount claimed by the taxpayer for the taxation year under this paragraph not exceeding the lesser of

    • (i) the taxpayer’s income for the taxation year computed without reference to this paragraph, and

    • (ii) the amount determined by the formula

      (A - B) + C

      where

      A

      is the total of all amounts each of which is the cost to the taxpayer of an eligible tool acquired in the taxation year by the taxpayer or, if the taxpayer first becomes employed as an eligible apprentice mechanic in the taxation year, the cost to the taxpayer of an eligible tool acquired by the taxpayer in the last three months of the preceding taxation year,

      B

      is the lesser of

      • (A) the value of A for the taxation year in respect of the taxpayer, and

      • (B) the greater of $1,000 and 5% of the total of all amounts, each of which is the taxpayer’s income from employment for the taxation year as an eligible apprentice mechanic, computed without reference to this paragraph, and

      C

      is the amount by which the amount determined under this subparagraph for the preceding taxation year in respect of the taxpayer exceeds the amount deducted under this paragraph for that preceding taxation year by the taxpayer.

• Marginal note:General limitation

  (2) Except as permitted by this section, no deductions shall be made in computing a taxpayer’s income for a taxation year from an office or employment.

• Marginal note:Meals

  (4) An amount expended in respect of a meal consumed by a taxpayer who is an officer or employee shall not be included in computing the amount of a deduction under paragraph 8(1)(f) or 8(1)(h) unless the meal was consumed during a period while the taxpayer was required by the taxpayer’s duties to be away, for a period of not less than twelve hours, from the municipality where the employer’s establishment to which the taxpayer ordinarily reported for work was located and away from the metropolitan area, if there is one, where it was located.

• Marginal note:Dues not deductible

  (5) Notwithstanding subparagraphs 8(1)(i)(i), 8(1)(i)(iv), 8(1)(i)(vi) and 8(1)(i)(vii), dues are not deductible under those subparagraphs in computing a taxpayer’s income from an office or employment to the extent that they are, in effect, levied

  • (a) for or under a superannuation fund or plan;

  • (b) for or under a fund or plan for annuities, insurance (other than professional or malpractice liability insurance that is necessary to maintain a professional status recognized by statute) or similar benefits; or

  • (c) for any other purpose not directly related to the ordinary operating expenses of the committee or similar body, association, board or trade union, as the case may be.

• Marginal note:Apprentice mechanics

  (6) For the purpose of paragraph (1)(r),

  • (a) a taxpayer is an eligible apprentice mechanic in a taxation year if, at any time in the taxation year, the taxpayer

    • (i) is registered in a program established in accordance with the laws of a province that leads to designation under those laws as a mechanic licensed to repair self-propelled motorized vehicles, and

    • (ii) is employed as an apprentice mechanic;

  • (b) an eligible tool is a tool (including ancillary equipment) that

    • (i) is acquired by a taxpayer for use in connection with the taxpayer’s employment as an eligible apprentice mechanic,

    • (ii) has not been used for any purpose before it is acquired by the taxpayer, and

    • (iii) is certified in prescribed form by the taxpayer’s employer to be required to be provided by the taxpayer as a condition of, and for use in, the taxpayer’s employment as an eligible apprentice mechanic; and

  • (c) a taxpayer who, for a taxation year, is not an eligible apprentice mechanic and has an excess amount determined under the description of C in subparagraph (1)(r)(ii) is, for the taxation year, entitled to claim a deduction under that paragraph as if that excess amount were wholly applicable to an employment of the taxpayer.

• Marginal note:Cost of tools of an apprentice mechanic

  (7) Except for the purpose of the description of A in subparagraph (1)(r)(ii), the cost to a taxpayer of an eligible tool the cost of which was included in determining the value of that description in respect of the taxpayer for a taxation year is the amount determined by the formula

  K - (K × L/M)

  where

  K

  is the cost to the taxpayer of the tool determined without reference to this subsection;

  L

  is the amount that would be determined under subparagraph (1)(r)(ii) in respect of the taxpayer for the taxation year if the value of C in that subparagraph were nil; and

  M

  is the value of A determined under subparagraph (1)(r)(ii) in respect of the taxpayer for the taxation year.

• Marginal note:Presumption

  (9) Notwithstanding any other provision of this Act, the total of all amounts that would otherwise be deductible by a taxpayer pursuant to paragraph 8(1)(f), 8(1)(h) or 8(1)(j) for travelling in the course of the taxpayer’s employment in an aircraft that is owned or rented by the taxpayer, may not exceed an amount that is reasonable in the circumstances having regard to the relative cost and availability of other modes of transportation.

• Marginal note:Certificate of employer

  (10) An amount otherwise deductible for a taxation year under paragraph (1)(c), (f), (h) or (h.1) or subparagraph (1)(i)(ii) or (iii) by a taxpayer shall not be deducted unless a prescribed form, signed by the taxpayer’s employer certifying that the conditions set out in the applicable provision were met in the year in respect of the taxpayer, is filed with the taxpayer’s return of income for the year.

• Marginal note:Goods and services tax

  (11) For the purposes of this section and section 6, the amount of any rebate paid or payable to a taxpayer under the Excise Tax Act in respect of the goods and services tax shall be deemed not to be an amount that is reimbursed to the taxpayer or to which the taxpayer is entitled.

• Marginal note:Forfeiture of securities by employee

  (12) If, in a taxation year,

  • (a) an employee is deemed by subsection 7(2) to have disposed of a security (as defined in subsection 7(7)) held by a trust,

  • (b) the trust disposed of the security to the person that issued the security,

  • (c) the disposition occurred as a result of the employee not meeting the conditions necessary for title to the security to vest in the employee, and

  • (d) the amount paid by the person to acquire the security from the trust or to redeem or cancel the security did not exceed the amount paid to the person for the security,

  the following rules apply:

  • (e) there may be deducted in computing the employee’s income for the year from employment the amount, if any, by which

    • (i) the amount of the benefit deemed by subsection 7(1) to have been received by the employee in the year or a preceding taxation year in respect of the security

    exceeds

    • (ii) any amount deducted under paragraph 110(1)(d) or (d.1) in computing the employee’s taxable income for the year or a preceding taxation year in respect of that benefit, and

  • (f) notwithstanding any other provision of this Act, the employee’s gain or loss from the disposition of the security is deemed to be nil and section 84 does not apply to deem a dividend to have been received in respect of the disposition.

• Marginal note:Work space in home

  (13) Notwithstanding paragraphs 8(1)(f) and 8(1)(i),

  • (a) no amount is deductible in computing an individual’s income for a taxation year from an office or employment in respect of any part (in this subsection referred to as the “work space”) of a self-contained domestic establishment in which the individual resides, except to the extent that the work space is either

    • (i) the place where the individual principally performs the duties of the office or employment, or

    • (ii) used exclusively during the period in respect of which the amount relates for the purpose of earning income from the office or employment and used on a regular and continuous basis for meeting customers or other persons in the ordinary course of performing the duties of the office or employment;

  • (b) where the conditions set out in subparagraph 8(13)(a)(i) or 8(13)(a)(ii) are met, the amount in respect of the work space that is deductible in computing the individual’s income for the year from the office or employment shall not exceed the individual’s income for the year from the office or employment, computed without reference to any deduction in respect of the work space; and

  • (c) any amount in respect of a work space that was, solely because of paragraph 8(13)(b), not deductible in computing the individual’s income for the immediately preceding taxation year from the office or employment shall be deemed to be an amount in respect of a work space that is otherwise deductible in computing the individual’s income for the year from that office or employment and that, subject to paragraph 8(13)(b), may be deducted in computing the individual’s income for the year from the office or employment.

SUBDIVISION bIncome or Loss from a Business or Property

Basic Rules

Marginal note:Income

• 9 (1) Subject to this Part, a taxpayer’s income for a taxation year from a business or property is the taxpayer’s profit from that business or property for the year.

• Marginal note:Loss

  (2) Subject to section 31, a taxpayer’s loss for a taxation year from a business or property is the amount of the taxpayer’s loss, if any, for the taxation year from that source computed by applying the provisions of this Act respecting computation of income from that source with such modifications as the circumstances require.

• Marginal note:Gains and losses not included

  (3) In this Act, “income from a property” does not include any capital gain from the disposition of that property and “loss from a property” does not include any capital loss from the disposition of that property.

Marginal note:Valuation of inventory

• 10 (1) For the purpose of computing a taxpayer’s income for a taxation year from a business that is not an adventure or concern in the nature of trade, property described in an inventory shall be valued at the end of the year at the cost at which the taxpayer acquired the property or its fair market value at the end of the year, whichever is lower, or in a prescribed manner.

• Marginal note:Adventures in the nature of trade

  (1.01) For the purpose of computing a taxpayer’s income from a business that is an adventure or concern in the nature of trade, property described in an inventory shall be valued at the cost at which the taxpayer acquired the property.

• Marginal note:Certain expenses included in cost

  (1.1) For the purposes of subsections 10(1), 10(1.01) and 10(10), where land is described in an inventory of a business of a taxpayer, the cost at which the taxpayer acquired the land shall include each amount that is

  • (a) described in paragraph 18(2)(a) or (b) in respect of the land and for which no deduction is permitted to the taxpayer, or to another person or partnership that is

    • (i) a person or partnership with whom the taxpayer does not deal at arm’s length,

    • (ii) if the taxpayer is a corporation, a person or partnership that is a specified shareholder of the taxpayer, or

    • (iii) if the taxpayer is a partnership, a person or partnership whose share of any income or loss of the taxpayer is 10% or more; and

  • (b) not included in or added to the cost to that other person or partnership of any property otherwise than because of paragraph 53(1)(d.3) or subparagraph 53(1)(e)(xi).

• Marginal note:Continuation of valuation

  (2) Notwithstanding subsection 10(1), for the purpose of computing income for a taxation year from a business, the inventory at the commencement of the year shall be valued at the same amount as the amount at which it was valued at the end of the preceding taxation year for the purpose of computing income for that preceding year.

• Marginal note:Methods of valuation to be the same

  (2.1) Where property described in an inventory of a taxpayer’s business that is not an adventure or concern in the nature of trade is valued at the end of a taxation year in accordance with a method permitted under this section, that method shall, subject to subsection 10(6), be used in the valuation of property described in the inventory at the end of the following taxation year for the purpose of computing the taxpayer’s income from the business unless the taxpayer, with the concurrence of the Minister and on any terms and conditions that are specified by the Minister, adopts another method permitted under this section.

• Marginal note:Incorrect valuation

  (3) Where the inventory of a business at the commencement of a taxation year has, according to the method adopted by the taxpayer for computing income from the business for that year, not been valued as required by subsection 10(1), the inventory at the commencement of that year shall, if the Minister so directs, be deemed to have been valued as required by that subsection.

• Marginal note:Fair market value

  (4) For the purpose of subsection 10(1), the fair market value of property (other than property that is obsolete, damaged or defective or that is held for sale or lease or for the purpose of being processed, fabricated, manufactured, incorporated into, attached to, or otherwise converted into property for sale or lease) that is

  • (a) work in progress at the end of a taxation year of a business that is a profession means the amount that can reasonably be expected to become receivable in respect thereof after the end of the year; and

  • (b) advertising or packaging material, parts, supplies or other property (other than work in progress of a business that is a profession) that is included in inventory means the replacement cost of the property.

• Marginal note:Inventory

  (5) Without restricting the generality of this section,

  • (a) property (other than capital property) of a taxpayer that is advertising or packaging material, parts or supplies or work in progress of a business that is a profession is, for greater certainty, inventory of the taxpayer;

  • (b) anything used primarily for the purpose of advertising or packaging property that is included in the inventory of a taxpayer shall be deemed not to be property held for sale or lease or for any of the purposes referred to in subsection 10(4); and

  • (c) property of a taxpayer, the cost of which to the taxpayer was deductible by virtue of paragraph 20(1)(mm), is, for greater certainty, inventory of the taxpayer having a cost to the taxpayer, except for the purposes of that paragraph, of nil.

• Marginal note:Artistic endeavour

  (6) Notwithstanding subsection 10(1), for the purpose of computing the income of an individual other than a trust for a taxation year from a business that is the individual’s artistic endeavour, the value of the inventory of the business for that year shall, if the individual so elects in the individual’s return of income under this Part for the year, be deemed to be nil.

• Marginal note:Value in later years

  (7) Where an individual has made an election pursuant to subsection 10(6) for a taxation year, the value of the inventory of a business that is the individual’s artistic endeavour shall, for each subsequent taxation year, be deemed to be nil unless the individual, with the concurrence of the Minister and on such terms and conditions as are specified by the Minister, revokes the election.

• Definition of business that is an individual’s artistic endeavour

  (8) For the purpose of this section, business that is an individual’s artistic endeavour means the business of creating paintings, prints, etchings, drawings, sculptures or similar works of art, where such works of art are created by the individual, but does not include a business of reproducing works of art.

• Marginal note:Transition

  (9) Where, at the end of a taxpayer’s last taxation year at the end of which property described in an inventory of a business that is an adventure or concern in the nature of trade was valued under subsection 10(1), the property was valued at an amount that is less than the cost at which the taxpayer acquired the property, after that time the cost to the taxpayer at which the property was acquired is, subject to subsection 10(10), deemed to be that amount.

• Marginal note:Acquisition of control

  (10) Notwithstanding subsection 10(1.01), property described in an inventory of a corporation’s business that is an adventure or concern in the nature of trade at the end of the corporation’s taxation year that ends immediately before the time at which control of the corporation is acquired by a person or group of persons shall be valued at the cost at which the corporation acquired the property, or its fair market value at the end of the year, whichever is lower, and, after that time, the cost at which the corporation acquired the property is, subject to a subsequent application of this subsection, deemed to be that lower amount.

• Marginal note:Acquisition of control

  (11) For the purposes of subsections 88(1.1) and 111(5), a corporation’s business that is at any time an adventure or concern in the nature of trade is deemed to be a business carried on at that time by the corporation.

• Marginal note:Removing property from inventory

  (12) If at any time a non-resident taxpayer ceases to use, in connection with a business or part of a business carried on by the taxpayer in Canada immediately before that time, a property that was immediately before that time described in the inventory of the business or the part of the business, as the case may be, (other than a property that was disposed of by the taxpayer at that time), the taxpayer is deemed

  • (a) to have disposed of the property immediately before that time for proceeds of disposition equal to its fair market value at that time; and

  • (b) to have received those proceeds immediately before that time in the course of carrying on the business or the part of the business, as the case may be.

• Marginal note:Adding property to inventory

  (13) If at any time a property becomes included in the inventory of a business or part of a business that a non-resident taxpayer carries on in Canada after that time (other than a property that was, otherwise than because of this subsection, acquired by the taxpayer at that time), the taxpayer is deemed to have acquired the property at that time at a cost equal to its fair market value at that time.

• Marginal note:Work in progress

  (14) For the purposes of subsections (12) and (13), property that is included in the inventory of a business includes property that would be so included if paragraph 34(a) did not apply.

Marginal note:Proprietor of business

• 11 (1) Subject to sections 34.1 and 34.2, where an individual is a proprietor of a business, the individual’s income from the business for a taxation year is deemed to be the individual’s income from the business for the fiscal periods of the business that end in the year.

• Marginal note:Reference to “taxation year”

  (2) Where an individual’s income for a taxation year includes income from a business the fiscal period of which does not coincide with the calendar year, unless the context otherwise requires, a reference in this subdivision or section 80.3 to a “taxation year” or “year” shall, in respect of the business, be read as a reference to a fiscal period of the business ending in the year.

Inclusions

Marginal note:Income inclusions

• 12 (1) There shall be included in computing the income of a taxpayer for a taxation year as income from a business or property such of the following amounts as are applicable

  • Marginal note:Services, etc., to be rendered

    (a) any amount received by the taxpayer in the year in the course of a business

    • (i) that is on account of services not rendered or goods not delivered before the end of the year or that, for any other reason, may be regarded as not having been earned in the year or a previous year, or

    • (ii) under an arrangement or understanding that it is repayable in whole or in part on the return or resale to the taxpayer of articles in or by means of which goods were delivered to a customer;

  • Marginal note:Amounts receivable

    (b) any amount receivable by the taxpayer in respect of property sold or services rendered in the course of a business in the year, notwithstanding that the amount or any part thereof is not due until a subsequent year, unless the method adopted by the taxpayer for computing income from the business and accepted for the purpose of this Part does not require the taxpayer to include any amount receivable in computing the taxpayer’s income for a taxation year unless it has been received in the year, and for the purposes of this paragraph, an amount shall be deemed to have become receivable in respect of services rendered in the course of a business on the day that is the earlier of

    • (i) the day on which the account in respect of the services was rendered, and

    • (ii) the day on which the account in respect of those services would have been rendered had there been no undue delay in rendering the account in respect of the services;

  • Marginal note:Interest

    (c) subject to subsections (3) and (4.1), any amount received or receivable by the taxpayer in the year (depending on the method regularly followed by the taxpayer in computing the taxpayer’s income) as, on account of, in lieu of payment of or in satisfaction of, interest to the extent that the interest was not included in computing the taxpayer’s income for a preceding taxation year;

  • Marginal note:Reserve for doubtful debts

    (d) any amount deducted under paragraph 20(1)(l) as a reserve in computing the taxpayer’s income for the immediately preceding taxation year;

  • Marginal note:Reserve for guarantees, etc.

    (d.1) any amount deducted under paragraph 20(1)(l.1) as a reserve in computing the taxpayer’s income for the immediately preceding taxation year;

  • Marginal note:Reserves for certain goods and services, etc.

    (e) any amount

    • (i) deducted under paragraph 20(1)(m) (including any amount substituted by virtue of subsection 20(6) for any amount deducted under that paragraph), paragraph 20(1)(m.1) or subsection 20(7), or

    • (ii) deducted under paragraph 20(1)(n),

    in computing the taxpayer’s income from a business for the immediately preceding year;

  • Marginal note:Negative reserves

    (e.1) where the taxpayer is an insurer, the amount prescribed in respect of the insurer for the year;

  • Marginal note:Insurance proceeds expended

    (f) such part of any amount payable to the taxpayer as compensation for damage to, or under a policy of insurance in respect of damage to, property that is depreciable property of the taxpayer as has been expended by the taxpayer

    • (i) within the year, and

    • (ii) within a reasonable time after the damage,

    on repairing the damage;

  • Marginal note:Payments based on production or use

    (g) any amount received by the taxpayer in the year that was dependent on the use of or production from property whether or not that amount was an instalment of the sale price of the property, except that an instalment of the sale price of agricultural land is not included by virtue of this paragraph;

  • Marginal note:Proceeds of disposition of right to receive production

    (g.1) any proceeds of disposition to which subsection 18.1(6) applies;

  • Marginal note:Previous reserve for quadrennial survey

    (h) any amount deducted as a reserve under paragraph 20(1)(o) in computing the taxpayer’s income for the immediately preceding year;

  • Marginal note:Bad debts recovered

    (i) any amount, other than an amount referred to in paragraph 12(1)(i.1), received in the year on account of a debt or a loan or lending asset in respect of which a deduction for bad debts or uncollectable loans or lending assets was made in computing the taxpayer’s income for a preceding taxation year;

  • Marginal note:Bad debts recovered

    (i.1) where an amount is received in the year on account of a debt in respect of which a deduction for bad debts was made under subsection 20(4.2) in computing the taxpayer’s income for a preceding taxation year, the amount determined by the formula

    A × B/C

    where

    A

    is 1/2 of the amount so received,

    B

    is the amount that was deducted under subsection 20(4.2) in respect of the debt, and

    C

    is the total of the amount that was so deducted under subsection 20(4.2) and the amount that was deemed by that subsection or subsection 20(4.3) to be an allowable capital loss in respect of the debt;

  • Marginal note:Dividends from resident corporations

    (j) any amount required by subdivision h to be included in computing the taxpayer’s income for the year in respect of a dividend paid by a corporation resident in Canada on a share of its capital stock;

  • Marginal note:Dividends from other corporations

    (k) any amount required by subdivision i to be included in computing the taxpayer’s income for the year in respect of a dividend paid by a corporation not resident in Canada on a share of its capital stock or in respect of a share owned by the taxpayer of the capital stock of a foreign affiliate of the taxpayer;

  • Marginal note:Partnership income

    (l) any amount that is, by virtue of subdivision j, income of the taxpayer for the year from a business or property;

  • Marginal note:Benefits from trusts

    (m) any amount required by subdivision k or subsection 132.1(1) to be included in computing the taxpayer’s income for the year, except

    • (i) any amount deemed by that subdivision to be a taxable capital gain of the taxpayer, and

    • (ii) any amount paid or payable to the taxpayer out of or under an RCA trust (within the meaning assigned by subsection 207.5(1));

  • Marginal note:Employees profit sharing plan

    (n) any amount received by the taxpayer in the year out of or under

    • (i) an employees profit sharing plan, or

    • (ii) an employee trust

    established for the benefit of employees of the taxpayer or of a person with whom the taxpayer does not deal at arm’s length;

  • Marginal note:Employee benefit plan

    (n.1) the amount, if any, by which the total of amounts received by the taxpayer in the year out of or under an employee benefit plan to which the taxpayer has contributed as an employer (other than amounts included in the income of the taxpayer by virtue of paragraph 12(1)(m)) exceeds the amount, if any, by which the total of all amounts

    • (i) so contributed by the taxpayer to the plan, or

    • (ii) included in computing the taxpayer’s income for any preceding taxation year by virtue of this paragraph

    exceeds the total of all amounts

    • (iii) deducted by the taxpayer in respect of the taxpayer’s contributions to the plan in computing the taxpayer’s income for the year or any preceding taxation year, or

    • (iv) received by the taxpayer out of or under the plan in any preceding taxation year (other than an amount included in the taxpayer’s income by virtue of paragraph 12(1)(m));

  • Marginal note:Forfeited salary deferral amounts

    (n.2) where deferred amounts under a salary deferral arrangement in respect of another person have been deducted under paragraph 20(1)(oo) in computing the taxpayer’s income for preceding taxation years, any amount in respect of the deferred amounts that was deductible under paragraph 8(1)(o) in computing the income of the person for a taxation year ending in the year;

  • Marginal note:Retirement compensation arrangement

    (n.3) the total of all amounts received by the taxpayer in the year in the course of a business out of or under a retirement compensation arrangement to which the taxpayer, another person who carried on a business that was acquired by the taxpayer, or any person with whom the taxpayer or that other person does not deal at arm’s length, has contributed an amount that was deductible under paragraph 20(1)(r) in computing the contributor’s income for a taxation year;

  • (o) [Repealed, 2003, c. 28, s. 1(2)]

  • Marginal note:Foreign oil and gas production taxes

    (o.1) the total of all amounts, each of which is the taxpayer’s production tax amount for a foreign oil and gas business of the taxpayer for the year, within the meaning assigned by subsection 126(7);

  • Marginal note:Certain payments to farmers

    (p) any amount received by the taxpayer in the year as a stabilization payment, or as a refund of a levy, under the Western Grain Stabilization Act or as a payment, or a refund of a premium, in respect of the gross revenue insurance program established under the Farm Income Protection Act;

  • Marginal note:Employment tax deduction

    (q) any amount deducted under subsection 127(13) or (14) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, by the taxpayer for the year;

  • Marginal note:Inventory adjustment

    (r) the total of all amounts each of which, in respect of a property described in the taxpayer’s inventory at the end of the year and valued at its cost amount to the taxpayer for the purposes of computing the taxpayer’s income for the year, is an allowance in respect of depreciation, obsolescence or depletion included in that cost amount;

  • Marginal note:Reinsurance commission

    (s) the total of all amounts each of which is the maximum amount that an insurer may claim in the year in respect of a reserve for a reinsurance commission for a policy as allowed by regulations made under paragraph 20(7)(c) in respect of a risk the reinsurance of which is assumed by the taxpayer;

  • Marginal note:Investment tax credit

    (t) the amount deducted under subsection 127(5) or 127(6) in respect of a property acquired or an expenditure made in a preceding taxation year in computing the taxpayer’s tax payable for a preceding taxation year to the extent that it was not included in computing the taxpayer’s income for a preceding taxation year under this paragraph or is not included in an amount determined under paragraph 13(7.1)(e) or 37(1)(e), subparagraph 53(2)(c)(vi) or 53(2)(h)(ii) or for I in the definition undepreciated capital cost in subsection 13(21) or L in the definition cumulative Canadian exploration expense in subsection 66.1(6);

  • Marginal note:Home insulation or energy conversion grants

    (u) the amount of any grant received by the taxpayer in the year under a prescribed program of the Government of Canada relating to home insulation or energy conversion in respect of a property used by the taxpayer principally for the purpose of gaining or producing income from a business or property;

  • Marginal note:Research and development deductions

    (v) the amount, if any, by which the total of amounts determined at the end of the year in respect of the taxpayer under paragraphs 37(1)(d) to 37(1)(h) exceeds the total of amounts determined at the end of the year in respect of the taxpayer under paragraphs 37(1)(a) to 37(1)(c.1);

  • Marginal note:S. 80.4(1) benefit

    (w) where the taxpayer is a corporation that carried on a personal services business at any time in the year or a preceding taxation year, the amount deemed by subsection 80.4(1) to be a benefit received by it in the year from carrying on a personal services business;

  • Marginal note:Inducement, reimbursement, etc.

    (x) any particular amount (other than a prescribed amount) received by the taxpayer in the year, in the course of earning income from a business or property, from

    • (i) a person or partnership (in this paragraph referred to as the “payer”) who pays the particular amount

      • (A) in the course of earning income from a business or property,

      • (B) in order to achieve a benefit or advantage for the payer or for persons with whom the payer does not deal at arm’s length, or

      • (C) in circumstances where it is reasonable to conclude that the payer would not have paid the amount but for the receipt by the payer of amounts from a payer, government, municipality or public authority described in this subparagraph or in subparagraph (ii), or

    • (ii) a government, municipality or other public authority,

    where the particular amount can reasonably be considered to have been received

    • (iii) as an inducement, whether as a grant, subsidy, forgivable loan, deduction from tax, allowance or any other form of inducement, or

    • (iv) as a refund, reimbursement, contribution or allowance or as assistance, whether as a grant, subsidy, forgivable loan, deduction from tax, allowance or any other form of assistance, in respect of

      • (A) an amount included in, or deducted as, the cost of property, or

      • (B) an outlay or expense,

    to the extent that the particular amount

    • (v) was not otherwise included in computing the taxpayer’s income, or deducted in computing, for the purposes of this Act, any balance of undeducted outlays, expenses or other amounts, for the year or a preceding taxation year,

    • (vi) except as provided by subsection 127(11.1), 127(11.5) or 127(11.6), does not reduce, for the purpose of an assessment made or that may be made under this Act, the cost or capital cost of the property or the amount of the outlay or expense, as the case may be,

    • (vii) does not reduce, under subsection 12(2.2) or 13(7.4) or paragraph 53(2)(s), the cost or capital cost of the property or the amount of the outlay or expense, as the case may be, and

    • (viii) may not reasonably be considered to be a payment made in respect of the acquisition by the payer or the public authority of an interest in the taxpayer or the taxpayer’s business or property;

  • Marginal note:Fuel tax rebates

    (x.1) the total of all amounts each of which is

    • (i) a fuel tax rebate received in the year by the taxpayer under subsection 68.4(3) of the Excise Tax Act, or

    • (ii) the amount determined by the formula

      10(A - B) - C

      where

      A

      is the total of all fuel tax rebates under subsections 68.4(2) and (3.1) of that Act received in the year by the taxpayer,

      B

      is the total of all amounts, in respect of fuel tax rebates under section 68.4 of that Act received in the year by the taxpayer, repaid by the taxpayer under subsection 68.4(7) of that Act, and

      C

      is the total of all amounts, in respect of fuel tax rebates under section 68.4 of that Act received in the year, deducted under subsection 111(10) in computing the taxpayer’s non-capital losses for other taxation years;

  • Marginal note:Crown charge rebates

    (x.2) the total of all amounts each of which is an amount that

    • (i) was received by the taxpayer, including by way of a deduction from tax, in the year as a refund, reimbursement, contribution or allowance, in respect of an amount that was at any time receivable, directly or indirectly in any manner whatever, by Her Majesty in right of Canada or of a province in respect of

      • (A) the acquisition, development or ownership of a Canadian resource property, or

      • (B) the production in Canada from a mineral resource, a natural accumulation of petroleum or natural gas, or an oil or a gas well, and

    • (ii) was not otherwise included in computing the taxpayer’s income for the year or a preceding taxation year;

  • Marginal note:Automobile provided to partner

    (y) where the taxpayer is an individual who is a member of a partnership or an employee of a member of a partnership and the partnership makes an automobile available in the year to the taxpayer or to a person related to the taxpayer, the amounts that would be included by reason of paragraph 6(1)(e) in the income of the taxpayer for the year if the taxpayer were employed by the partnership;

  • Marginal note:Amateur athlete trust payments

    (z) any amount in respect of an amateur athlete trust required by section 143.1 to be included in computing the taxpayer’s income for the year;

  • Marginal note:Qualifying environmental trusts

    (z.1) the total of all amounts received by the taxpayer in the year as a beneficiary under a qualifying environmental trust, whether or not the amounts are included because of subsection 107.3(1) in computing the taxpayer’s income for any taxation year;

  • Marginal note:Dispositions of interests in qualifying environmental trusts

    (z.2) the total of all amounts each of which is the consideration received by the taxpayer in the year for the disposition to another person or partnership of all or part of the taxpayer’s interest as a beneficiary under a qualifying environmental trust, other than consideration that is the assumption of a reclamation obligation in respect of the trust;

  • Marginal note:Debt forgiveness

    (z.3) any amount required because of subsection 80(13) or 80(17) to be included in computing the taxpayer’s income for the year;

  • Marginal note:Eligible funeral arrangements

    (z.4) any amount required because of subsection 148.1(3) to be included in computing the taxpayer’s income for the year;

  • (z.5) [Repealed, 2003, c. 28, s. 1(4)]

  • Marginal note:Refunds

    (z.6) any amount received by the taxpayer in the year in respect of a refund of an amount that was deducted under paragraph 20(1)(vv) in computing income for any taxation year.

• Marginal note:Interpretation

  (2) Paragraphs 12(1)(a) and 12(1)(b) are enacted for greater certainty and shall not be construed as implying that any amount not referred to in those paragraphs is not to be included in computing income from a business for a taxation year whether it is received or receivable in the year or not.

• Marginal note:Receipt of inducement, reimbursement, etc.

  (2.1) For the purposes of paragraph 12(1)(x), where at a particular time a taxpayer who is a beneficiary of a trust or a member of a partnership has received an amount as an inducement, whether as a grant, subsidy, forgivable loan, deduction from tax, allowance or any other form of inducement, in respect of the activities of the trust or partnership, or as a reimbursement, contribution, allowance or as assistance, whether as a grant, subsidy, forgivable loan, deduction from tax, allowance or any other form of assistance, in respect of the cost of property or in respect of an expense of the trust or partnership, the amount shall be deemed to have been received at that time by the trust or partnership, as the case may be, as such an inducement, reimbursement, contribution, allowance or assistance.

• Marginal note:Deemed outlay or expense

  (2.2) Where

  • (a) in a taxation year a taxpayer receives an amount that would, but for this subsection, be included under paragraph 12(1)(x) in computing the taxpayer’s income for the year in respect of an outlay or expense (other than an outlay or expense in respect of the cost of property of the taxpayer) made or incurred by the taxpayer before the end of the following taxation year, and

  • (b) the taxpayer elects under this subsection on or before the day on or before which the taxpayer’s return of income under this Part for the year is required to be filed, or would be required to be filed if tax under this Part were payable by the taxpayer for the year or, where the outlay or expense is made or incurred in the following taxation year, for that following year,

  the amount of the outlay or expense shall be deemed for the purpose of computing the taxpayer’s income, other than for the purposes of this subsection and paragraphs 12(1)(x) and 20(1)(hh), to have always been the amount, if any, by which

  • (c) the amount of the outlay or expense

  exceeds

  • (d) the lesser of the amount elected by the taxpayer under this subsection and the amount so received by the taxpayer,

  and, notwithstanding subsections 152(4) to 152(5), such assessment or reassessment of the taxpayer’s tax, interest and penalties under this Act for any taxation year shall be made as is necessary to give effect to the election.

• Marginal note:Interest income

  (3) Subject to subsection 12(4.1), in computing the income for a taxation year of a corporation, partnership, unit trust or any trust of which a corporation or a partnership is a beneficiary, there shall be included any interest on a debt obligation (other than interest in respect of an income bond, an income debenture, a small business bond, a small business development bond, a net income stabilization account or an indexed debt obligation) that accrues to it to the end of the year, or becomes receivable or is received by it before the end of the year, to the extent that the interest was not included in computing its income for a preceding taxation year.

• Marginal note:Interest from investment contract

  (4) Subject to subsection 12(4.1), where in a taxation year a taxpayer (other than a taxpayer to whom subsection 12(3) applies) holds an interest in an investment contract on any anniversary day of the contract, there shall be included in computing the taxpayer’s income for the year the interest that accrued to the taxpayer to the end of that day with respect to the investment contract, to the extent that the interest was not otherwise included in computing the taxpayer’s income for the year or any preceding taxation year.

• Marginal note:Impaired debt obligations

  (4.1) Paragraph 12(1)(c) and subsections 12(3) and 12(4) do not apply to a taxpayer in respect of a debt obligation for the part of a taxation year throughout which the obligation is impaired where an amount in respect of the obligation is deductible because of subparagraph 20(1)(l)(ii) in computing the taxpayer’s income for the year.

• Marginal note:Deemed accrual

  (9) For the purposes of subsections 12(3), 12(4) and 12(11) and 20(14) and 20(21), where a taxpayer acquires an interest in a prescribed debt obligation, an amount determined in prescribed manner shall be deemed to accrue to the taxpayer as interest on the obligation in each taxation year during which the taxpayer holds the interest in the obligation.

• Marginal note:Exclusion of proceeds of disposition

  (9.1) Where a taxpayer disposes of an interest in a debt obligation that is a debt obligation in respect of which the proportion of the payments of principal to which the taxpayer is entitled is not equal to the proportion of the payments of interest to which the taxpayer is entitled, such portion of the proceeds of disposition received by the taxpayer as can reasonably be considered to represent a recovery of the cost to the taxpayer of the interest in the debt obligation shall, notwithstanding any other provision of this Act, not be included in computing the income of the taxpayer, and for the purpose of this subsection, a debt obligation includes, for greater certainty, all of the issuer’s obligations to pay principal and interest under that obligation.

• Marginal note:Income from R.H.O.S.P

  (10.1) Notwithstanding any other provision of this Act, where an individual was at the end of 1985 a beneficiary under a registered home ownership savings plan (within the meanings assigned by paragraphs 146.2(1)(a) and (h) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as they read in their application to the 1985 taxation year), that portion of the income that can reasonably be considered to have accrued under the plan before 1986 (other than the portion thereof that can reasonably be considered to be attributable to amounts contributed after May 22, 1985 to or under the plan) shall not be included in computing the income of the individual or of any other person.

• Marginal note:NISA receipts

  (10.2) There shall be included in computing a taxpayer’s income for a taxation year from a property the total of all amounts each of which is the amount determined by the formula

  A - B

  where

  A

  is an amount paid at a particular time in the year out of the taxpayer’s NISA Fund No. 2; and

  B

  is the amount, if any, by which

  • (a) the total of all amounts each of which is deemed by subsection 104(5.1) or 104(14.1) to have been paid out of the taxpayer’s NISA Fund No. 2 before the particular time, or is deemed by subsection 70(5.4) or 73(5) to have been paid out of another person’s NISA Fund No. 2 on being transferred to the taxpayer’s NISA Fund No. 2 before the particular time,

  exceeds

  • (b) the total of all amounts each of which is the amount by which an amount otherwise determined under this subsection in respect of a payment out of the taxpayer’s NISA Fund No. 2 before the particular time was reduced because of this description.

• Marginal note:Amount credited or added not included in income

  (10.3) Notwithstanding any other provision of this Act, an amount credited or added to a taxpayer’s NISA Fund No. 2 shall not be included in computing the taxpayer’s income solely because of that crediting or adding.

• Marginal note:Definitions

  (11) In this section,

  anniversary day

  jour anniversaire

  anniversary day of an investment contract means

  • (a) the day that is one year after the day immediately preceding the date of issue of the contract,

  • (b) the day that occurs at every successive one year interval from the day determined under paragraph (a), and

  • (c) the day on which the contract was disposed of; (jour anniversaire)

  investment contract

  contrat de placement

  investment contract, in relation to a taxpayer, means any debt obligation other than

  • (a) a salary deferral arrangement or a plan or arrangement that, but for any of paragraphs (a), (b) and (d) to (l) of the definition salary deferral arrangement in subsection 248(1), would be a salary deferral arrangement,

  • (b) a retirement compensation arrangement or a plan or arrangement that, but for any of paragraphs (a), (b), (d) and (f) to (n) of the definition retirement compensation arrangement in subsection 248(1), would be a retirement compensation arrangement,

  • (c) an employee benefit plan or a plan or arrangement that, but for any of paragraphs (a) to (e) of the definition employee benefit plan in subsection 248(1), would be an employee benefit plan,

  • (d) a foreign retirement arrangement,

  • (e) an income bond,

  • (f) an income debenture,

  • (g) a small business development bond,

  • (h) a small business bond,

  • (i) an obligation in respect of which the taxpayer has (otherwise than because of subsection 12(4)) at periodic intervals of not more than one year, included, in computing the taxpayer’s income throughout the period in which the taxpayer held an interest in the obligation, the income accrued thereon for such intervals,

  • (j) an obligation in respect of a net income stabilization account,

  • (k) an indexed debt obligation, and

  • (l) a prescribed contract. (contrat de placement)

Marginal note:Cash bonus on Canada Savings Bonds

12.1 Notwithstanding any other provision of this Act, where in a taxation year a taxpayer receives an amount from the Government of Canada in respect of a Canada Savings Bond as a cash bonus that the Government of Canada has undertaken to pay (other than any amount of interest, bonus or principal agreed to be paid at the time of the issue of the bond under the terms of the bond), the taxpayer shall, in computing the taxpayer’s income for the year, include as interest in respect of the Canada Savings Bond 1/2 of the cash bonus so received.

Marginal note:Amount to be included

• 12.2 (1) Where in a taxation year a taxpayer holds an interest, last acquired after 1989, in a life insurance policy that is not

  • (a) an exempt policy,

  • (b) a prescribed annuity contract, and

  • (c) a contract under which the policyholder has, under the terms and conditions of a life insurance policy that was not an annuity contract and that was last acquired before December 2, 1982, received the proceeds therefrom in the form of an annuity contract,

  on any anniversary day of the policy, there shall be included in computing the taxpayer’s income for the taxation year the amount, if any, by which the accumulating fund on that day in respect of the interest in the policy, as determined in prescribed manner, exceeds the adjusted cost basis to the taxpayer of the interest in the policy on that day.

• (3) [Repealed, 1994, c. 7, Sch. II, s. 8(2)]

• Marginal note:Idem

  (5) Where in a taxation year subsection 12.2(1) applies with respect to a taxpayer’s interest in an annuity contract (or would apply if the contract had an anniversary day in the year at a time when the taxpayer held the interest), there shall be included in computing the taxpayer’s income for the year the amount, if any, by which

  • (a) the total of all amounts each of which is an amount determined at the end of the year, in respect of the interest, for any of H to L in the definition adjusted cost basis in subsection 148(9)

  exceeds

  • (b) the total of all amounts each of which is an amount determined at the end of the year, in respect of the interest, for any of A to G in the definition referred to in paragraph 12.2(5)(a).

• Marginal note:Deemed acquisition of interest in annuity

  (8) For the purposes of this section, the first premium that was not fixed before 1990 and that was paid after 1989 by or on behalf of a taxpayer under an annuity contract, other than a contract described in paragraph (1)(d) of this section, or paragraph 12.2(3)(e) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, or to which subsection (1) of this section or subsection 12.2(4) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, applies (as those paragraphs and subsections, the numbers of which are those in force immediately before December 17, 1991, read in their application to life insurance policies last acquired before 1990) or to which subsection 12(3) applies, last acquired by the taxpayer before 1990 (in this subsection referred to as the “original contract”) shall be deemed to have been paid to acquire, at the time the premium was paid, an interest in a separate annuity contract issued at that time, to the extent that the amount of the premium was not fixed before 1990, and each subsequent premium paid under the original contract shall be deemed to have been paid under that separate contract to the extent that the amount of that subsequent premium was not fixed before 1990.

• Marginal note:Riders

  (10) For the purposes of this Act, a rider added at any time after 1989 to a life insurance policy last acquired before 1990 that provides additional life insurance is deemed to be a separate life insurance policy issued at that time unless

  • (a) the policy is an exempt policy last acquired after December 1, 1982 or an annuity contract; or

  • (b) the only additional life insurance provided by the rider is an accidental death benefit.

• Marginal note:Definitions

  (11) In this section and paragraph 56(1)(d.1) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952,

  anniversary day

  anniversary day of a life insurance policy means

  • (a) the day that is one year after the day immediately preceding the day on which the policy was issued, and

  • (b) each day that occurs at each successive one-year interval after the day determined under paragraph (a). (jour anniversaire)

  exempt policy

  exempt policy has the meaning prescribed by regulation. (police exonérée)

• Marginal note:Application of ss. 138(12) and 148(9)

  (12) The definitions in subsections 138(12) and 148(9) apply to this section.

• Marginal note:Application of s. 148(10)

  (13) Subsection 148(10) applies to this section.

Marginal note:Transition inclusion re unpaid claims reserve

12.3 Where an amount has been deducted under subsection 20(26) in computing the income of an insurer for its taxation year that includes February 23, 1994, there shall be included in computing the insurer’s income for that taxation year and each subsequent taxation year that begins before 2004, the prescribed portion for the year of the amount so deducted.

Marginal note:Bad debt inclusion

12.4 Where, in a taxation year, a taxpayer disposes of a property that was a property described in an inventory of the taxpayer and in the year or a preceding taxation year an amount has been deducted under paragraph 20(1)(p) in computing the taxpayer’s income in respect of the property, there shall be included in computing the taxpayer’s income for the year from the business in which the property was used or held, the amount, if any, by which

• (a) the total of all amounts deducted under paragraph 20(1)(p) by the taxpayer in respect of the property in computing the taxpayer’s income for the year or a preceding taxation year

exceeds

• (b the total of all amounts included under paragraph 12(1)(i) by the taxpayer in respect of the property in computing the taxpayer’s income for the year or a preceding taxation year.

Marginal note:Recaptured depreciation

• 13 (1) Where, at the end of a taxation year, the total of the amounts determined for E to J in the definition undepreciated capital cost in subsection 13(21) in respect of a taxpayer’s depreciable property of a particular prescribed class exceeds the total of the amounts determined for A to in that definition in respect thereof, the excess shall be included in computing the taxpayer’s income for the year.

• Marginal note:Idem

  (2) Notwithstanding subsection 13(1), where an excess amount is determined under that subsection at the end of a taxation year in respect of a passenger vehicle having a cost to a taxpayer in excess of $20,000 or such other amount as may be prescribed, that excess amount shall not be included in computing the taxpayer’s income for the year but shall be deemed, for the purposes of B in the definition undepreciated capital cost in subsection 13(21), to be an amount included in the taxpayer’s income for the year by reason of this section.

• Marginal note:“Taxation year”, “year” and “income” of individual

  (3) Where a taxpayer is an individual whose income for a taxation year includes income from a business the fiscal period of which does not coincide with the calendar year and depreciable property acquired for the purpose of gaining or producing income from the business has been disposed of,

  • (a) for greater certainty, each reference in subsections 13(1) and 13(2) to a “taxation year” and “year” shall be read as a reference to a “fiscal period”; and

  • (b) a reference in subsection 13(1) to “the income” shall be read as a reference to “the income from the business”.

• Marginal note:Exchanges of property

  (4) Where an amount in respect of the disposition in a taxation year (in this subsection referred to as the “initial year”) of depreciable property (in this section referred to as the “former property”) of a prescribed class of a taxpayer would, but for this subsection, be the amount determined for F or G in the definition undepreciated capital cost in subsection 13(21) in respect of the disposition of the former property that is either

  • (a) property the proceeds of disposition of which were proceeds referred to in paragraph (b), (c) or (d) of the definition proceeds of disposition in subsection 13(21), or

  • (b) a property that was, immediately before the disposition, a former business property of the taxpayer,

  and the taxpayer so elects under this subsection in the taxpayer’s return of income for the taxation year in which the taxpayer acquires a depreciable property of a prescribed class of the taxpayer that is a replacement property for the taxpayer’s former property,

  • (c) the amount otherwise determined for F or G in the definition undepreciated capital cost in subsection 13(21) in respect of the disposition of the former property shall be reduced by the lesser of

    • (i) the amount, if any, by which the amount otherwise determined for F or G in that definition exceeds the undepreciated capital cost to the taxpayer of property of the prescribed class to which the former property belonged at the time immediately before the time that the former property was disposed of, and

    • (ii) the amount that has been used by the taxpayer to acquire

      • (A) where the former property is referred to in paragraph 13(4)(a), before the end of the second taxation year following the initial year, or

      • (B) in any other case, before the end of the first taxation year following the initial year,

      a replacement property of a prescribed class that has not been disposed of by the taxpayer before the time at which the taxpayer disposed of the former property, and

  • (d) the amount of the reduction determined under paragraph 13(4)(c) shall be deemed to be proceeds of disposition of a depreciable property of the taxpayer that had a capital cost equal to that amount and that was property of the same class as the replacement property, from a disposition made on the later of

    • (i) the time the replacement property was acquired by the taxpayer, and

    • (ii) the time the former property was disposed of by the taxpayer.

• Marginal note:Replacement for a former property

  (4.1) For the purposes of subsection 13(4), a particular depreciable property of a prescribed class of a taxpayer is a replacement for a former property of the taxpayer if

  • (a) it is reasonable to conclude that the property was acquired by the taxpayer to replace the former property;

  • (a.1) it was acquired by the taxpayer and used by the taxpayer or a person related to the taxpayer for a use that is the same as or similar to the use to which the taxpayer or a person related to the taxpayer put the former property;

  • (b) where the former property was used by the taxpayer or a person related to the taxpayer for the purpose of gaining or producing income from a business, the particular depreciable property was acquired for the purpose of gaining or producing income from that or a similar business or for use by a person related to the taxpayer for such a purpose;

  • (c) where the former property was a taxable Canadian property of the taxpayer, the particular depreciable property is a taxable Canadian property of the taxpayer; and

  • (d) where the former property was a taxable Canadian property (other than treaty-protected property) of the taxpayer, the particular depreciable property is a taxable Canadian property (other than treaty-protected property) of the taxpayer.

• Marginal note:Reclassification of property

  (5) Where one or more depreciable properties of a taxpayer that were included in a prescribed class (in this subsection referred to as the “old class”) become included at any time (in this subsection referred to as the “transfer time”) in another prescribed class (in this subsection referred to as the “new class”), for the purpose of determining at any subsequent time the undepreciated capital cost to the taxpayer of depreciable property of the old class and the new class

  • (a) the value of A in the definition undepreciated capital cost in subsection 13(21) shall be determined as if each of those depreciable properties were

    • (i) properties of the new class acquired before the subsequent time, and

    • (ii) never included in the old class; and

  • (b) there shall be deducted in computing the total depreciation allowed to the taxpayer for property of the old class before the subsequent time, and added in computing the total depreciation allowed to the taxpayer for property of the new class before the subsequent time, the greater of

    • (i) the amount determined by the formula

      A - B

      where

      A

      is the total of all amounts each of which is the capital cost to the taxpayer of each of those depreciable properties, and

      B

      is the undepreciated capital cost to the taxpayer of depreciable property of the old class at the transfer time, and

    • (ii) the total of all amounts each of which is an amount that would have been deducted under paragraph 20(1)(a) in respect of a depreciable property that is one of those properties in computing the taxpayer’s income for a taxation year that ended before the transfer time and at the end of which the property was included in the old class if

      • (A) the property had been the only property included in a separate prescribed class, and

      • (B) the rate allowed by the regulations made for the purpose of paragraph 20(1)(a) in respect of that separate class had been the effective rate that was used by the taxpayer to calculate a deduction under that paragraph in respect of the old class for the year.

• Marginal note:Rules applicable

  (5.1) Where at any time in a taxation year a taxpayer acquires a particular property in respect of which, immediately before that time, the taxpayer had a leasehold interest that was included in a prescribed class, for the purposes of this section, section 20 and any regulations made under paragraph 20(1)(a), the following rules apply:

  • (a) the leasehold interest shall be deemed to have been disposed of by the taxpayer at that time for proceeds of disposition equal to the amount, if any, by which

    • (i) the capital cost immediately before that time of the leasehold interest

    exceeds

    • (ii) the total of all amounts claimed by the taxpayer in respect of the leasehold interest and deductible under paragraph 20(1)(a) in computing the taxpayer’s income in previous taxation years;

  • (b) the particular property shall be deemed to be depreciable property of a prescribed class of the taxpayer acquired by the taxpayer at that time and there shall be added to the capital cost to the taxpayer of the property an amount equal to the capital cost referred to in subparagraph 13(5.1)(a)(i); and

  • (c) the total referred to in subparagraph 13(5.1)(a)(ii) shall be added to the total depreciation allowed to the taxpayer before that time in respect of the class to which the particular property belongs.

• Marginal note:Idem

  (5.2) Where, at any time, a taxpayer has acquired a capital property that is depreciable property or real property in respect of which, before that time, the taxpayer or any person with whom the taxpayer was not dealing at arm’s length was entitled to a deduction in computing income in respect of any amount paid or payable for the use of, or the right to use, the depreciable property or real property and the cost or the capital cost (determined without reference to this subsection) at that time of the property to the taxpayer is less than the fair market value thereof at that time determined without reference to any option with respect to that property, for the purposes of this section, section 20 and any regulations made under paragraph 20(1)(a), the following rules apply:

  • (a) the property shall be deemed to have been acquired by the taxpayer at that time at a cost equal to the lesser of

    • (i) the fair market value of the property at that time determined without reference to any option with respect to that property, and

    • (ii) the total of the cost or the capital cost (determined without reference to this subsection) of the property to the taxpayer and all amounts (other than amounts paid or payable to a person with whom the taxpayer was not dealing at arm’s length) each of which is an outlay or expense made or incurred by the taxpayer or by a person with whom the taxpayer was not dealing at arm’s length at any time for the use of, or the right to use, the property,

    and for the purposes of this paragraph and subsection 13(5.3), where a particular corporation has been incorporated or otherwise formed after the time any other corporation with which the particular corporation would not have been dealing at arm’s length had the particular corporation been in existence before that time, the particular corporation shall be deemed to have been in existence from the time of the formation of the other corporation and to have been not dealing at arm’s length with the other corporation;

  • (b) the amount by which the cost to the taxpayer of the property determined under paragraph 13(5.2)(a) exceeds the cost or the capital cost thereof (determined without reference to this subsection) shall be added to the total depreciation allowed to the taxpayer before that time in respect of the prescribed class to which the property belongs; and

  • (c) where the property would, but for this paragraph, not be depreciable property of the taxpayer, it shall be deemed to be depreciable property of a separate prescribed class of the taxpayer.

• Marginal note:Idem

  (5.3) Where, at any time in a taxation year, a taxpayer has disposed of a capital property that is an option with respect to depreciable property or real property in respect of which the taxpayer or any person with whom the taxpayer was not dealing at arm’s length was entitled to a deduction in computing income in respect of any amount paid for the use of, or the right to use, the depreciable property or real property, for the purposes of this section, the amount, if any, by which the proceeds of disposition to the taxpayer of the option exceed the taxpayer’s cost in respect thereof shall be deemed to be an excess referred to in subsection 13(1) in respect of the taxpayer for the year.

• Marginal note:Idem

  (5.4) Where, before the time of disposition of a capital property that was depreciable property of a taxpayer, the taxpayer, or any person with whom the taxpayer was not dealing at arm’s length, was entitled to a deduction in computing income in respect of any outlay or expense made or incurred for the use of, or the right to use, during a period of time, that capital property (other than an outlay or expense made or incurred by the taxpayer or a person with whom the taxpayer was not dealing at arm’s length before the acquisition of the property), except where the taxpayer disposed of the property to a person with whom the taxpayer was not dealing at arm’s length and that person was subject to the provisions of subsection 13(5.2) with respect to the acquisition by that person of the property, the following rules apply:

  • (a) an amount equal to the lesser of

    • (i) the total of all amounts (other than amounts paid or payable to the taxpayer or a person with whom the taxpayer was not dealing at arm’s length) each of which was a deductible outlay or expense made or incurred before the time of disposition by the taxpayer, or by a person with whom the taxpayer was not dealing at arm’s length, for the use of, or the right to use, during the period of time, the property, and

    • (ii) the amount, if any, by which the fair market value of the property at the earlier of

      • (A) the expiration of the last period of time in respect of which the deductible outlay or expense referred to in subparagraph 13(5.4)(a)(i) was made or incurred, and

      • (B) the time of the disposition

      exceeds the capital cost to the taxpayer of the property immediately before that time

    shall immediately before the time of the disposition, be added to the capital cost of the property to the person who owned the property at that time; and

  • (b) the amount added to the capital cost to the taxpayer of the property pursuant to paragraph 13(5.4)(a) shall be added immediately before the time of the disposition to the total depreciation allowed to the taxpayer before that time in respect of the prescribed class to which the property belongs.

• Marginal note:Lease cancellation payment

  (5.5) For the purposes of subsection 13(5.4), an amount deductible by a taxpayer under paragraph 20(1)(z) or 20(1)(z.1) in respect of a cancellation of a lease of property shall, for greater certainty, be deemed not to be an outlay or expense that was made or incurred by the taxpayer for the use of, or the right to use, the property.

• Marginal note:Misclassified property

  (6) Where, in calculating the amount of a deduction allowed to a taxpayer under subsection 20(16) or regulations made for the purposes of paragraph 20(1)(a) in respect of depreciable property of the taxpayer of a prescribed class (in this subsection referred to as the “particular class”), there has been added to the capital cost to the taxpayer of depreciable property of the particular class the capital cost of depreciable property (in this subsection referred to as “added property”) of another prescribed class, for the purposes of this section, section 20 and any regulations made for the purposes of paragraph 20(1)(a), the added property shall, if the Minister so directs with respect to any taxation year for which, under subsection 152(4), the Minister may make any reassessment or additional assessment or assess tax, interest or penalties under this Part, be deemed to have been property of the particular class and not of the other class at all times before the beginning of the year and, except to the extent that the added property or any part thereof has been disposed of by the taxpayer before the beginning of the year, to have been transferred from the particular class to the other class at the beginning of the year.

• Marginal note:Rules applicable

  (7) Subject to subsection 70(13), for the purposes of paragraphs 8(1)(j) and 8(1)(p), this section, section 20 and any regulations made for the purpose of paragraph 20(1)(a),

  • (a) where a taxpayer, having acquired property for the purpose of gaining or producing income, has begun at a later time to use it for some other purpose, the taxpayer shall be deemed to have disposed of it at that later time for proceeds of disposition equal to its fair market value at that time and to have reacquired it immediately thereafter at a cost equal to that fair market value;

  • (b) where a taxpayer, having acquired property for some other purpose, has begun at a later time to use it for the purpose of gaining or producing income, the taxpayer shall be deemed to have acquired it at that later time at a capital cost to the taxpayer equal to the lesser of

    • (i) the fair market value of the property at that later time, and

    • (ii) the total of

      • (A) the cost to the taxpayer of the property at that later time determined without reference to this paragraph, paragraph 13(7)(a) and subparagraph 13(7)(d)(ii), and

      • (B) 1/2 of the amount, if any, by which

        • (I) the fair market value of the property at that later time

        exceeds the total of

        • (II) the cost to the taxpayer of the property as determined under clause 13(7)(b)(ii)(A), and

        • (III) twice the amount deducted by the taxpayer under section 110.6 in respect of the amount, if any, by which the fair market value of the property at that later time exceeds the cost to the taxpayer of the property as determined under clause 13(7)(b)(ii)(A);

  • (c) where property has, since it was acquired by a taxpayer, been regularly used in part for the purpose of gaining or producing income and in part for some other purpose, the taxpayer shall be deemed to have acquired, for the purpose of gaining or producing income, the proportion of the property that the use regularly made of the property for gaining or producing income is of the whole use regularly made of the property at a capital cost to the taxpayer equal to the same proportion of the capital cost to the taxpayer of the whole property and, if the property has, in such a case, been disposed of, the proceeds of disposition of the proportion of the property deemed to have been acquired for gaining or producing income shall be deemed to be the same proportion of the proceeds of disposition of the whole property;

  • (d) where, at any time after a taxpayer has acquired property, there has been a change in the relation between the use regularly made by the taxpayer of the property for gaining or producing income and the use regularly made of the property for other purposes,

    • (i) if the use regularly made by the taxpayer of the property for the purpose of gaining or producing income has increased, the taxpayer shall be deemed to have acquired at that time depreciable property of that class at a capital cost equal to the total of

      • (A) the proportion of the lesser of

        • (I) its fair market value at that time, and

        • (II) its cost to the taxpayer at that time determined without reference to this subparagraph, subparagraph 13(7)(d)(ii) and paragraph 13(7)(a)

        that the amount of the increase in the use regularly made by the taxpayer of the property for that purpose is of the whole of the use regularly made of the property, and

      • (B) 1/2 of the amount, if any, by which

        • (I) the amount deemed under subparagraph 45(1)(c)(ii) to be the taxpayer’s proceeds of disposition of the property in respect of the change

        exceeds the total of

        • (II) that proportion of the cost to the taxpayer of the property as determined under subclause 13(7)(d)(i)(A)(II) that the amount of the increase in the use regularly made by the taxpayer of the property for that purpose is of the whole of the use regularly made of the property, and

        • (III) twice the amount deducted by the taxpayer under section 110.6 in respect of the amount, if any, by which the amount determined under subclause 13(7)(d)(i)(B)(I) exceeds the amount determined under subclause 13(7)(d)(i)(B)(II), and

    • (ii) if the use regularly made of the property for the purpose of gaining or producing income has decreased, the taxpayer shall be deemed to have disposed at that time of depreciable property of that class and the proceeds of disposition shall be deemed to be an amount equal to the proportion of the fair market value of the property as of that time that the amount of the decrease in the use regularly made by the taxpayer of the property for that purpose is of the whole use regularly made of the property;

  • (e) notwithstanding any other provision of this Act except subsection 70(13), where at a particular time a person or partnership (in this paragraph referred to as the “taxpayer”) has, directly or indirectly, in any manner whatever, acquired (otherwise than as a consequence of the death of the transferor) a depreciable property (other than a timber resource property) of a prescribed class from a person or partnership with whom the taxpayer did not deal at arm’s length (in this paragraph referred to as the “transferor”) and, immediately before the transfer, the property was a capital property of the transferor,

    • (i) where the transferor was an individual resident in Canada or a partnership any member of which was either an individual resident in Canada or another partnership and the cost of the property to the taxpayer at the particular time determined without reference to this paragraph exceeds the cost, or where the property was depreciable property, the capital cost of the property to the transferor immediately before the transferor disposed of it, the capital cost of the property to the taxpayer at the particular time shall be deemed to be the amount that is equal to the total of

      • (A) the cost or capital cost, as the case may be, of the property to the transferor immediately before the particular time, and

      • (B) 1/2 of the amount, if any, by which

        • (I) the transferor’s proceeds of disposition of the property

        exceed the total of

        • (II) the cost or capital cost, as the case may be, to the transferor immediately before the particular time,

        • (III) twice the amount deducted by any person under section 110.6 in respect of the amount, if any, by which the amount determined under subclause 13(7)(e)(i)(B)(I) exceeds the amount determined under subclause 13(7)(e)(i)(B)(II), and

        • (IV) the amount, if any, required by subsection 110.6(21) to be deducted in computing the capital cost to the taxpayer of the property at that time

      and for the purposes of paragraph 13(7)(b) and subparagraph 13(7)(d)(i), the cost of the property to the taxpayer shall be deemed to be the same amount,

    • (ii) where the transferor was neither an individual resident in Canada nor a partnership any member of which was either an individual resident in Canada or another partnership and the cost of the property to the taxpayer at the particular time determined without reference to this paragraph exceeds the cost, or where the property was depreciable property, the capital cost of the property to the transferor immediately before the transferor disposed of it, the capital cost of the property to the taxpayer at that time shall be deemed to be the amount that is equal to the total of

      • (A) the cost or capital cost, as the case may be, of the property to the transferor immediately before the particular time, and

      • (B) 1/2 of the amount, if any, by which the transferor’s proceeds of disposition of the property exceed the cost or capital cost, as the case may be, to the transferor immediately before the particular time

      and for the purposes of paragraph 13(7)(b) and subparagraph 13(7)(d)(i), the cost of the property to the taxpayer shall be deemed to be the same amount, and

    • (iii) where the cost or capital cost, as the case may be, of the property to the transferor immediately before the transferor disposed of it exceeds the capital cost of the property to the taxpayer at that time determined without reference to this paragraph, the capital cost of the property to the taxpayer at that time shall be deemed to be the amount that was the cost or capital cost, as the case may be, of the property to the transferor immediately before the transferor disposed of it and the excess shall be deemed to have been allowed to the taxpayer in respect of the property under regulations made under paragraph 20(1)(a) in computing the taxpayer’s income for taxation years ending before the acquisition of the property by the taxpayer;

  • (e.1) where a taxpayer is deemed by paragraph 110.6(19)(a) to have disposed of and reacquired a property that immediately before the disposition was a depreciable property, the taxpayer shall be deemed to have acquired the property from himself, herself or itself and, in so having acquired the property, not to have been dealing with himself, herself or itself at arm’s length;

  • (f) where a corporation is deemed under paragraph 111(4)(e) to have disposed of and reacquired depreciable property (other than a timber resource property), the capital cost to the corporation of the property at the time of the reacquisition is deemed to be the amount that is equal to the total of

    • (i) the capital cost to the corporation of the property at the time of the disposition, and

    • (ii) 1/2 of the amount, if any, by which the corporation’s proceeds of disposition of the property exceed the capital cost to the corporation of the property at the time of the disposition;

  • (g) where the cost to a taxpayer of a passenger vehicle exceeds $20,000 or such other amount as is prescribed, the capital cost to the taxpayer of the vehicle shall be deemed to be $20,000 or that other prescribed amount, as the case may be; and

  • (h) notwithstanding paragraph 13(7)(g), where a passenger vehicle is acquired by a taxpayer at any time from a person with whom the taxpayer does not deal at arm’s length, the capital cost at that time to the taxpayer of the vehicle shall be deemed to be the least of

    • (i) the fair market value of the vehicle at that time,

    • (ii) the amount that immediately before that time was the cost amount to that person of the vehicle, and

    • (iii) $20,000 or such other amount as is prescribed.

• Marginal note:Deemed capital cost of certain property

  (7.1) For the purposes of this Act, where section 80 applied to reduce the capital cost to a taxpayer of a depreciable property or a taxpayer deducted an amount under subsection 127(5) or 127(6) in respect of a depreciable property or received or is entitled to receive assistance from a government, municipality or other public authority in respect of, or for the acquisition of, depreciable property, whether as a grant, subsidy, forgivable loan, deduction from tax, investment allowance or as any other form of assistance other than

  • (a) an amount described in paragraph 37(1)(d),

  • (b) an amount deducted as an allowance under section 65, or

  • (b.1) an amount included in income by virtue of paragraph 12(1)(u) or 56(1)(s),

  the capital cost of the property to the taxpayer at any particular time shall be deemed to be the amount, if any, by which the total of

  • (c) the capital cost of the property to the taxpayer, determined without reference to this subsection, subsection 13(7.4) and section 80, and

  • (d) such part, if any, of the assistance as has been repaid by the taxpayer, pursuant to an obligation to repay all or any part of that assistance, in respect of that property before the disposition thereof by the taxpayer and before the particular time

  exceeds the total of

  • (e) where the property was acquired in a taxation year ending before the particular time, all amounts deducted under subsection 127(5) or 127(6) by the taxpayer for a taxation year ending before the particular time,

  • (f) the amount of assistance the taxpayer has received or is entitled, before the particular time, to receive, and

  • (g) all amounts by which the capital cost of the property to the taxpayer is required because of section 80 to be reduced at or before that time,

  in respect of that property before the disposition thereof by the taxpayer.

• Marginal note:Receipt of public assistance

  (7.2) For the purposes of subsection 13(7.1), where at any time a taxpayer who is a beneficiary of a trust or a member of a partnership has received or is entitled to receive assistance from a government, municipality or other public authority whether as a grant, subsidy, forgivable loan, deduction from tax, investment allowance or as any other form of assistance, the amount of the assistance that may reasonably be considered to be in respect of, or for the acquisition of, depreciable property of the trust or partnership shall be deemed to have been received at that time by the trust or partnership, as the case may be, as assistance from the government, municipality or other public authority for the acquisition of depreciable property.

• Marginal note:Control of corporations by one trustee

  (7.3) For the purposes of paragraph (7)(e), where at a particular time one corporation would, but for this subsection, be related to another corporation by reason of both corporations being controlled by the same executor, liquidator of a succession or trustee and it is established that

  • (a) the executor, liquidator or trustee did not acquire control of the corporations as a result of one or more estates or trusts created by the same individual or by two or more individuals not dealing with each other at arm’s length, and

  • (b) the estate or trust under which the executor, liquidator or trustee acquired control of each of the corporations arose only on the death of the individual creating the estate or trust,

  the two corporations are deemed not to be related to each other at the particular time.

• Marginal note:Deemed capital cost

  (7.4) Notwithstanding subsection 13(7.1), where a taxpayer has in a taxation year received an amount that would, but for this subsection, be included in the taxpayer’s income under paragraph 12(1)(x) in respect of the cost of a depreciable property acquired by the taxpayer in the year, in the three taxation years immediately preceding the year or in the taxation year immediately following the year and the taxpayer elects under this subsection on or before the day on or before which the taxpayer is required to file the taxpayer’s return of income under this Part for the year, or, where the property is acquired in the taxation year immediately following the year, for that following year, the capital cost of the property to the taxpayer shall be deemed to be the amount by which the total of

  • (a) the capital cost of the property to the taxpayer otherwise determined, applying the provisions of subsection 13(7.1), where necessary, and

  • (b) such part, if any, of the amount received by the taxpayer as has been repaid by the taxpayer pursuant to a legal obligation to repay all or any part of that amount, in respect of that property and before the disposition thereof by the taxpayer, and as may reasonably be considered to be in respect of the amount elected under this subsection in respect of the property

  exceeds the amount elected by the taxpayer under this subsection, but in no case shall the amount elected under this subsection exceed the least of

  • (c) the amount so received by the taxpayer,

  • (d) the capital cost of the property to the taxpayer otherwise determined, and

  • (e) where the taxpayer has disposed of the property before the year, nil.

• Marginal note:Deemed capital cost

  (7.5) For the purposes of this Act,

  • (a) where a taxpayer, to acquire a property prescribed in respect of the taxpayer, is required under the terms of a contract made after March 6, 1996 to make a payment to Her Majesty in right of Canada or a province or to a Canadian municipality in respect of costs incurred or to be incurred by the recipient of the payment

    • (i) the taxpayer is deemed to have acquired the property at a capital cost equal to the portion of that payment made by the taxpayer that can reasonably be regarded as being in respect of those costs, and

    • (ii) the time of acquisition of the property by the taxpayer is deemed to be the later of the time the payment is made and the time at which those costs are incurred;

  • (b) where

    • (i) at any time after March 6, 1996 a taxpayer incurs a cost on account of capital for the building of, for the right to use or in respect of, a prescribed property, and

    • (ii) the amount of the cost would, if this paragraph did not apply, not be included in the capital cost to the taxpayer of depreciable property of a prescribed class,

    the taxpayer is deemed to have acquired the property at that time at a capital cost equal to the amount of the cost;

  • (c) where a taxpayer acquires an intangible property as a consequence of making a payment to which paragraph 13(7.5)(a) applies or incurring a cost to which paragraph 13(7.5)(b) applies,

    • (i) the property referred to in paragraph 13(7.5)(a) or 13(7.5)(b) is deemed to include the intangible property, and

    • (ii) the portion of the capital cost referred to in paragraph 13(7.5)(a) or 13(7.5)(b) that applies to the intangible property is deemed to be the amount determined by the formula

      A × B/C

      where

      A

      is the lesser of the amount of the payment made or cost incurred and the amount determined for C,

      B

      is the fair market value of the intangible property at the time the payment was made or the cost was incurred, and

      C

      is the fair market value at the time the payment was made or the cost was incurred of all intangible properties acquired as a consequence of making the payment or incurring the cost; and

  • (d) any property deemed by paragraph 13(7.5)(a) or (b) to have been acquired at any time by a taxpayer as a consequence of making a payment or incurring a cost

    • (i) is deemed to have been acquired for the purpose for which the payment was made or the cost was incurred, and

    • (ii) is deemed to be owned by the taxpayer at any subsequent time that the taxpayer benefits from the property.

• Marginal note:Disposition after ceasing business

  (8) Notwithstanding subsections 13(3) and 11(2), where a taxpayer, after ceasing to carry on a business, has disposed of depreciable property of the taxpayer of a prescribed class that was acquired by the taxpayer for the purpose of gaining or producing income from the business and that was not subsequently used by the taxpayer for some other purpose, in applying subsection 13(1) or 13(2), each reference therein to a “taxation year” and “year” shall not be read as a reference to a “fiscal period”.

• Meaning of gaining or producing income

  (9) In applying paragraphs 13(7)(a) to 13(7)(d) in respect of a non-resident taxpayer, a reference to gaining or producing income in relation to a business shall be read as a reference to “gaining or producing income from a business wholly carried on in Canada or such part of a business as is wholly carried on in Canada”.

• Marginal note:Deemed capital cost

  (10) For the purposes of this Act, where a taxpayer has, after December 3, 1970 and before April 1, 1972, acquired prescribed property

  • (a) for use in a prescribed manufacturing or processing business carried on by the taxpayer, and

  • (b) that was not used for any purpose whatever before it was acquired by the taxpayer,

  the taxpayer shall be deemed to have acquired that property at a capital cost to the taxpayer equal to 115% of the amount that, but for this subsection and section 21, would have been the capital cost to the taxpayer of that property.

• Marginal note:Deduction in respect of property used in performance of duties

  (11) Any amount deducted under subparagraph 8(1)(j)(ii) or 8(1)(p)(ii) of this Act or subsection 11(11) of The Income Tax Act, chapter 52 of the Statutes of Canada, 1948, shall be deemed, for the purposes of this section to have been deducted under regulations made under paragraph 20(1)(a).

• Marginal note:Application of para. 20(1)(cc)

  (12) Where, in computing the income of a taxpayer for a taxation year, an amount has been deducted under paragraph 20(1)(cc) or the taxpayer has elected under subsection 20(9) to make a deduction in respect of an amount that would otherwise have been deductible under that paragraph, the amount shall, if it was a payment on account of the capital cost of depreciable property, be deemed to have been allowed to the taxpayer in respect of the property under regulations made under paragraph 20(1)(a) in computing the income of the taxpayer

  • (a) for the year, or

  • (b) for the year in which the property was acquired,

  whichever is the later.

• Marginal note:Deduction under Canadian Vessel Construction Assistance Act

  (13) Where a deduction has been made under the Canadian Vessel Construction Assistance Act for any taxation year, subsection 13(1) is applicable in respect of the prescribed class created by that Act or any other prescribed class to which the vessel may have been transferred.

• Marginal note:Conversion cost

  (14) For the purposes of this section, section 20 and any regulations made under paragraph 20(1)(a), a vessel in respect of which any conversion cost is incurred after March 23, 1967 shall, to the extent of the conversion cost, be deemed to be included in a separate prescribed class.

• Marginal note:Where s. (1) and subdivision c do not apply

  (15) Where a vessel owned by a taxpayer on January 1, 1966 or constructed pursuant to a construction contract entered into by the taxpayer prior to 1966 and not completed by that date was disposed of by the taxpayer before 1974,

  • (a) subsection 13(1) and subdivision c do not apply to the proceeds of disposition

    • (i) if an amount at least equal to the proceeds of disposition was used by the taxpayer, before May, 1974 and during the taxation year of the taxpayer in which the vessel was disposed of or within 4 months after the end of that taxation year, under conditions satisfactory to the appropriate minister, either for replacement or to incur any conversion cost with respect to a vessel owned by the taxpayer, or

    • (ii) if the appropriate minister certified that the taxpayer had, on satisfactory terms, deposited

      • (A) on or before the day on which the taxpayer was required to file a return of the taxpayer’s income for the taxation year in which the vessel was disposed of, or

      • (B) on or before such day subsequent to the day referred to in clause 13(15)(a)(ii)(A) as the appropriate minister specified in respect of the taxpayer,

      an amount at least equal to the tax that would, but for this subsection, have been payable by the taxpayer under this Part in respect of the proceeds of disposition, or satisfactory security therefor, as a guarantee that the proceeds of disposition would be used before 1975 for replacement; and

  • (b) if within the time specified for the filing of a return of the taxpayer’s income for the taxation year in which the vessel was disposed of

    • (i) the taxpayer elected to have the vessel constituted a prescribed class, or

    • (ii) where any conversion cost in respect of the vessel was included in a separate prescribed class, the taxpayer elected to have the vessel transferred to that class,

    the vessel shall be deemed to have been so transferred immediately before the disposition thereof, but this paragraph does not apply unless the proceeds of disposition of the vessel exceed the amount that would be the undepreciated capital cost of property of the class to which it would be so transferred.

• Marginal note:Election concerning vessel

  (16) Where a vessel owned by a taxpayer is disposed of by the taxpayer, the taxpayer may, if subsection 13(15) does not apply to the proceeds of disposition or if the taxpayer did not make an election under paragraph 13(15)(b) in respect of the vessel, within the time specified for the filing of a return of the taxpayer’s income for the taxation year in which the vessel was disposed of, elect to have the proceeds that would be included in computing the taxpayer’s income for the year under this Part treated as proceeds of disposition of property of another prescribed class that includes a vessel owned by the taxpayer.

• Marginal note:Separate prescribed class concerning vessel

  (17) Where a separate prescribed class has been constituted either under this Act or the Canadian Vessel Construction Assistance Act by reason of the conversion of a vessel owned by a taxpayer and the vessel is disposed of by the taxpayer, if no election in respect of the vessel was made under paragraph 13(15)(b), the separate prescribed class constituted by reason of the conversion shall be deemed to have been transferred to the class in which the vessel was included immediately before the disposition thereof.

• Marginal note:Reassessments

  (18) Notwithstanding any other provision of this Act, where a taxpayer has

  • (a) used an amount as described in paragraph 13(4)(c), or

  • (b) made an election under paragraph 13(15)(b) in respect of a vessel and the proceeds of disposition of the vessel were used before 1975 for replacement under conditions satisfactory to the appropriate minister,

  such reassessments of tax, interest or penalties shall be made as are necessary to give effect to subsections 13(4) and 13(15).

• Marginal note:Ascertainment of certain property

  (18.1) For the purpose of determining whether property meets the criteria set out in the Regulations in respect of prescribed energy conservation property, the Technical Guide to Class 43.1, as amended from time to time and published by the Department of Natural Resources, shall apply conclusively with respect to engineering and scientific matters.

• Marginal note:Disposition of deposit

  (19) All or any part of a deposit made under subparagraph 13(15)(a)(ii) or under the Canadian Vessel Construction Assistance Act may be paid out to or on behalf of any person who, under conditions satisfactory to the appropriate minister and as a replacement for the vessel disposed of, acquires a vessel before 1975

  • (a) that was constructed in Canada and is registered in Canada or is registered under conditions satisfactory to the appropriate minister in any country or territory to which the British Commonwealth Merchant Shipping Agreement, signed at London on December 10, 1931, applies, and

  • (b) in respect of the capital cost of which no allowance has been made to any other taxpayer under this Act or the Canadian Vessel Construction Assistance Act,

  or incurs any conversion cost with respect to a vessel owned by that person that is registered in Canada or is registered under conditions satisfactory to the appropriate minister in any country or territory to which the agreement referred to in paragraph 13(19)(a) applies, but the ratio of the amount paid out to the amount of the deposit shall not exceed the ratio of the capital cost to that person of the vessel or the conversion cost to that person of the vessel, as the case may be, to the proceeds of disposition of the vessel disposed of, and any deposit or part of a deposit not so paid out before July 1, 1975 or not paid out pursuant to subsection 13(20) shall be paid to the Receiver General and form part of the Consolidated Revenue Fund.

• Marginal note:Idem

  (20) Notwithstanding any other provision of this section, where a taxpayer made a deposit under subparagraph 13(15)(a)(ii) and the proceeds of disposition in respect of which the deposit was made were not used by any person before 1975 under conditions satisfactory to the appropriate minister as a replacement for the vessel disposed of,

  • (a) to acquire a vessel described in paragraphs 13(19)(a) and 13(19)(b), or

  • (b) to incur any conversion cost with respect to a vessel owned by that person that is registered in Canada or is registered under conditions satisfactory to the appropriate minister in any country or territory to which the agreement referred to in paragraph 13(19)(a) applies,

  the appropriate minister may refund to the taxpayer the deposit, or the part thereof not paid out to the taxpayer under subsection 13(19), as the case may be, in which case there shall be added, in computing the income of the taxpayer for the taxation year of the taxpayer in which the vessel was disposed of, that proportion of the amount that would have been included in computing the income for the year under this Part had the deposit not been made under subparagraph 13(15)(a)(ii) that the portion of the proceeds of disposition not so used before 1975 as such a replacement is of the proceeds of disposition, and, notwithstanding any other provision of this Act, such reassessments of tax, interest or penalties shall be made as are necessary to give effect to this subsection.

• Marginal note:Definitions

  (21) In this section,

  appropriate minister

  ministre compétent

  appropriate minister means the Canadian Maritime Commission, the Minister of Industry, Trade and Commerce, the Minister of Regional Industrial Expansion, the Minister of Industry, Science and Technology or the Minister of Industry or any other minister or body that was or is legally authorized to perform the act referred to in the provision in which this expression occurs at the time the act was or is performed; (ministre compétent)

  conversion

  conversion

  conversion, in respect of a vessel, means a conversion or major alteration in Canada by a taxpayer; (conversion)

  conversion cost

  frais de conversion

  conversion cost, in respect of a vessel, means the cost of a conversion; (frais de conversion)

  depreciable property

  bien amortissable

  depreciable property of a taxpayer as of any time in a taxation year means property acquired by the taxpayer in respect of which the taxpayer has been allowed, or would, if the taxpayer owned the property at the end of the year and this Act were read without reference to subsection 13(26), be entitled to, a deduction under paragraph 20(1)(a) in computing income for that year or a preceding taxation year; (bien amortissable)

  disposition of property

  disposition of property[Repealed, 2001, c. 17, s. 6(5)]

  proceeds of disposition

  produit de disposition

  proceeds of disposition of property includes

  • (a) the sale price of property that has been sold,

  • (b) compensation for property unlawfully taken,

  • (c) compensation for property destroyed and any amount payable under a policy of insurance in respect of loss or destruction of property,

  • (d) compensation for property taken under statutory authority or the sale price of property sold to a person by whom notice of an intention to take it under statutory authority was given,

  • (e) compensation for property injuriously affected, whether lawfully or unlawfully or under statutory authority or otherwise,

  • (f) compensation for property damaged and any amount payable under a policy of insurance in respect of damage to property, except to the extent that the compensation or amount, as the case may be, has within a reasonable time after the damage been expended on repairing the damage,

  • (g) an amount by which the liability of a taxpayer to a mortgagee or hypothecary creditor is reduced as a result of the sale of mortgaged or hypothecated property under a provision of the mortgage or hypothec, plus any amount received by the taxpayer out of the proceeds of the sale, and

  • (h) any amount included because of section 79 in computing a taxpayer’s proceeds of disposition of the property; (produit de disposition)

  timber resource property

  avoir forestier

  timber resource property of a taxpayer means

  • (a) a right or licence to cut or remove timber from a limit or area in Canada (in this definition referred to as an “original right”) if

    • (i) that original right was acquired by the taxpayer (other than in the manner referred to in paragraph 13(21) “timber resource property” (b)) after May 6, 1974, and

    • (ii) at the time of the acquisition of the original right

      • (A) the taxpayer may reasonably be regarded as having acquired, directly or indirectly, the right to extend or renew that original right or to acquire another such right or licence in substitution therefor, or

      • (B) in the ordinary course of events, the taxpayer may reasonably expect to be able to extend or renew that original right or to acquire another such right or licence in substitution therefor, or

  • (b) any right or licence owned by the taxpayer to cut or remove timber from a limit or area in Canada if that right or licence may reasonably be regarded

    • (i) as an extension or renewal of or as one of a series of extensions or renewals of an original right of the taxpayer, or

    • (ii) as having been acquired in substitution for or as one of a series of substitutions for an original right of the taxpayer or any renewal or extension thereof; (avoir forestier)

  total depreciation

  amortissement total

  total depreciation allowed to a taxpayer before any time for property of a prescribed class means the total of all amounts each of which is an amount deducted by the taxpayer under paragraph 20(1)(a) in respect of property of that class or an amount deducted under subsection 20(16), or that would have been so deducted but for subsection 20(16.1), in computing the taxpayer’s income for taxation years ending before that time; (amortissement total)

  undepreciated capital cost

  fraction non amortie du coût en capital

  undepreciated capital cost to a taxpayer of depreciable property of a prescribed class as of any time means the amount determined by the formula

  (A + B + C + D + D.1) - (E + E.1 + F + G + H + I + J + K)

  where

  A

  is the total of all amounts each of which is the capital cost to the taxpayer of a depreciable property of the class acquired before that time,

  B

  is the total of all amounts included in the taxpayer’s income under this section for a taxation year ending before that time, to the extent that those amounts relate to depreciable property of the class,

  C

  is the total of all amounts each of which is such part of any assistance as has been repaid by the taxpayer, pursuant to an obligation to repay all or any part of that assistance, in respect of a depreciable property of the class subsequent to the disposition thereof by the taxpayer that would have been included in an amount determined under paragraph 13(7.1)(d) had the repayment been made before the disposition,

  D

  is the total of all amounts each of which is an amount repaid in respect of a property of the class subsequent to the disposition thereof by the taxpayer that would have been an amount described in paragraph 13(7.4)(b) had the repayment been made before the disposition,

  D.1

  is the total of all amounts each of which is an amount paid by the taxpayer before that time as or on account of an existing or proposed countervailing or anti-dumping duty in respect of depreciable property of the class,

  E

  is the total depreciation allowed to the taxpayer for property of the class before that time,

  E.1

  is the total of all amounts each of which is an amount by which the undepreciated capital cost to the taxpayer of depreciable property of that class is required (otherwise than because of a reduction in the capital cost to the taxpayer of depreciable property) to be reduced at or before that time because of subsection 80(5),

  F

  is the total of all amounts each of which is an amount in respect of a disposition before that time of property (other than a timber resource property) of the taxpayer of the class, and is the lesser of

  • (a) the proceeds of disposition of the property minus any outlays and expenses to the extent that they were made or incurred by the taxpayer for the purpose of making the disposition, and

  • (b) the capital cost to the taxpayer of the property,

  G

  is the total of all amounts each of which is the proceeds of disposition before that time of a timber resource property of the taxpayer of the class minus any outlays and expenses to the extent that they were made or incurred by the taxpayer for the purpose of making the disposition,

  H

  is, where the property of the class was acquired by the taxpayer for the purpose of gaining or producing income from a mine and the taxpayer so elects in prescribed manner and within a prescribed time in respect of that property, the amount equal to that portion of the income derived from the operation of the mine that is, by virtue of the provisions of the Income Tax Application Rules relating to income from the operation of new mines, not included in computing income of the taxpayer or any other person,

  I

  is the total of all amounts deducted under subsection 127(5) or 127(6), in respect of a depreciable property of the class of the taxpayer, in computing the taxpayers tax payable for a taxation year ending before that time and subsequent to the disposition of that property by the taxpayer,

  J

  is the total of all amounts of assistance that the taxpayer received or was entitled to receive before that time, in respect of or for the acquisition of a depreciable property of the class of the taxpayer subsequent to the disposition of that property by the taxpayer, that would have been included in an amount determined under paragraph 13(7.1)(f) had the assistance been received before the disposition, and

  K

  is the total of all amounts each of which is an amount received by the taxpayer before that time in respect of a refund of an amount added to the undepreciated capital cost of depreciable property of the class because of the description of D.1;

  vessel

  navire

  vessel means a vessel as defined in the Canada Shipping Act. (navire)

• Marginal note:Disposition of building

  (21.1) Notwithstanding subsection 13(7) and the definition proceeds of disposition in section 54, where at any particular time in a taxation year a taxpayer disposes of a building of a prescribed class and the proceeds of disposition of the building determined without reference to this subsection and subsection 13(21.2) are less than the lesser of the cost amount and the capital cost to the taxpayer of the building immediately before the disposition, for the purposes of paragraph (a) of the description of F in the definition undepreciated capital cost in subsection 13(21) and subdivision c,

  • (a) where in the year the taxpayer or a person with whom the taxpayer does not deal at arm’s length disposes of land subjacent to, or immediately contiguous to and necessary for the use of, the building, the proceeds of disposition of the building are deemed to be the lesser of

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

      • (A) the total of the fair market value of the building at the particular time and the fair market value of the land immediately before its disposition

      exceeds

      • (B) the lesser of the fair market value of the land immediately before its disposition and the amount, if any, by which the cost amount to the vendor of the land (determined without reference to this subsection) exceeds the total of the capital gains (determined without reference to subparagraphs 40(1)(a)(ii) and (iii)) in respect of dispositions of the land within 3 years before the particular time by the taxpayer or by a person with whom the taxpayer was not dealing at arm’s length to the taxpayer or to another person with whom the taxpayer was not dealing at arm’s length, and

    • (ii) the greater of

      • (A) the fair market value of the building at the particular time, and

      • (B) the lesser of the cost amount and the capital cost to the taxpayer of the building immediately before its disposition,

    and notwithstanding any other provision of this Act, the proceeds of disposition of the land are deemed to be the amount, if any, by which

    • (iii) the total of the proceeds of disposition of the building and of the land determined without reference to this subsection and subsection 13(21.2)

    exceeds

    • (iv) the proceeds of disposition of the building as determined under this paragraph,

    and the cost to the purchaser of the land shall be determined without reference to this subsection; and

  • (b) where paragraph 13(21.1)(a) does not apply with respect to the disposition and, at any time before the disposition, the taxpayer or a person with whom the taxpayer did not deal at arm’s length owned the land subjacent to, or immediately contiguous to and necessary for the use of, the building, the proceeds of disposition of the building are deemed to be an amount equal to the total of

    • (i) the proceeds of disposition of the building determined without reference to this subsection and subsection 13(21.2), and

    • (ii) 1/2 of the amount by which the greater of

      • (A) the cost amount to the taxpayer of the building, and

      • (B) the fair market value of the building

      immediately before its disposition exceeds the proceeds of disposition referred to in subparagraph 13(21.1)(b)(i).

• Marginal note:Loss on certain transfers

  (21.2) Where

  • (a) a person or partnership (in this subsection referred to as the “transferor”) disposes at a particular time (otherwise than in a disposition described in any of paragraphs (c) to (g) of the definition superficial loss in section 54) of a depreciable property of a particular prescribed class of the transferor,

  • (b) the lesser of

    • (i) the capital cost to the transferor of the transferred property, and

    • (ii) the proportion of the undepreciated capital cost to the transferor of all property of the particular class immediately before that time that

      • (A) the fair market value of the transferred property at that time

      is of

      • (B) the fair market value of all property of the particular class immediately before that time

    exceeds the amount that would otherwise be the transferor’s proceeds of disposition of the transferred property at the particular time, and

  • (c) on the 30th day after the particular time, a person or partnership (in this subsection referred to as the “subsequent owner”) who is the transferor or a person affiliated with the transferor owns or has a right to acquire the transferred property (other than a right, as security only, derived from a mortgage, hypothec, agreement for sale or similar obligation),

  the following rules apply:

  • (d) sections 85 and 97 do not apply to the disposition,

  • (e) for the purposes of applying this section and section 20 and any regulations made for the purpose of paragraph 20(1)(a) to the transferor for taxation years that end after the particular time,

    • (i) the transferor is deemed to have disposed of the transferred property for proceeds equal to the lesser of the amounts determined under subparagraphs 13(21.2)(b)(i) and 13(21.2)(b)(ii) with respect to the transferred property,

    • (ii) where two or more properties of a prescribed class of the transferor are disposed of at the same time, subparagraph (i) applies as if each property so disposed of had been separately disposed of in the order designated by the transferor or, if the transferor does not designate an order, in the order designated by the Minister,

    • (iii) the transferor is deemed to own a property that was acquired before the beginning of the taxation year that includes the particular time at a capital cost equal to the amount of the excess described in paragraph 13(21.2)(b), and that is property of the particular class, until the time that is immediately before the first time, after the particular time,

      • (A) at which a 30-day period begins throughout which neither the transferor nor a person affiliated with the transferor owns or has a right to acquire the transferred property (other than a right, as security only, derived from a mortgage, hypothec, agreement for sale or similar obligation),

      • (B) at which the transferred property is not used by the transferor or a person affiliated with the transferor for the purpose of earning income and is used for another purpose,

      • (C) at which the transferred property would, if it were owned by the transferor, be deemed by section 128.1 or subsection 149(10) to have been disposed of by the transferor,

      • (D) that is immediately before control of the transferor is acquired by a person or group of persons, where the transferor is a corporation, or

      • (E) at which the winding-up of the transferor begins (other than a winding-up to which subsection 88(1) applies), where the transferor is a corporation, and

    • (iv) the property described in subparagraph 13(21.2)(e)(iii) is considered to have become available for use by the transferor at the time at which the transferred property is considered to have become available for use by the subsequent owner,

  • (f) for the purposes of subparagraphs 13(21.2)(e)(iii) and 13(21.2)(e)(iv), where a partnership otherwise ceases to exist at any time after the particular time, the partnership is deemed not to have ceased to exist, and each person who was a member of the partnership immediately before the partnership would, but for this paragraph, have ceased to exist is deemed to remain a member of the partnership, until the time that is immediately after the first time described in clauses 13(21.2)(e)(iii)(A) to 13(21.2)(e)(iii)(E), and

  • (g) for the purposes of applying this section and section 20 and any regulations made for the purpose of paragraph 20(1)(a) to the subsequent owner,

    • (i) the subsequent owner’s capital cost of the transferred property is deemed to be the amount that was the transferor’s capital cost of the transferred property, and

    • (ii) the amount by which the transferor’s capital cost of the transferred property exceeds its fair market value at the particular time is deemed to have been deducted under paragraph 20(1)(a) by the subsequent owner in respect of property of that class in computing income for taxation years that ended before the particular time.

• Marginal note:Deduction for insurer

  (22) For the purposes of E in the definition undepreciated capital cost in subsection 13(21), an insurer shall be deemed to have been allowed a deduction for depreciation for property of a prescribed class under paragraph 20(1)(a) in computing income for taxation years before its 1977 taxation year equal to the total of

  • (a) the amount determined, immediately after the end of its 1976 taxation year, for E in that definition, with respect to property of the particular prescribed class of the insurer (determined without reference to this subsection),

  • (b) the lesser of

    • (i) the amount of its 1975-76 excess capital cost allowance with respect to property of the particular prescribed class of the insurer, and

    • (ii) that proportion of the amount, if any, by which its 1975 branch accounting election deficiency exceeds the amount determined under subparagraph 138(4.1)(d)(ii) that

      • (A) the amount of its 1975-76 excess capital cost allowance with respect to property of the particular prescribed class of the insurer

      is of

      • (B) the total of all its 1975-76 excess capital cost allowances with respect to properties of a prescribed class of the insurer, and

  • (c) the lesser of

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

      • (A) the undepreciated capital cost of property of the particular prescribed class of the insurer immediately after the end of its 1976 taxation year (determined without reference to this subsection),

      exceeds

      • (B) the amount determined under paragraph 13(22)(b) in respect of property of the particular prescribed class of the insurer, and

    • (ii) that proportion of the amount, if any, by which its 1975 branch accounting election deficiency exceeds the total of

      • (A) the amount determined under subparagraph 138(4.1)(d)(ii),

      • (B) the total of all amounts determined under paragraph 13(22)(b) with respect to property of a prescribed class of the insurer,

      • (C) the total described in subclause 138(4.1)(a)(ii)(B)(IV),

      • (D) the amount determined under subparagraph 138(4.1)(b)(ii), and

      • (E) the amount determined under subparagraph 138(4.1)(a)(ii)

      that

      • (F) the undepreciated capital cost of property of the particular prescribed class of the insurer immediately after the end of its 1976 taxation year (determined without reference to this subsection),

      is of

      • (G) the total of all amounts each of which is the undepreciated capital cost of property of a prescribed class of the insurer immediately after the end of its 1976 taxation year (determined without reference to this subsection).

• Marginal note:Deduction for life insurer

  (23) For the purposes of E in the definition undepreciated capital cost in subsection 13(21), a life insurer shall be deemed to have been allowed a deduction for depreciation for property of a prescribed class under paragraph 20(1)(a) in computing income for taxation years before its 1978 taxation year equal to the total of

  • (a) the amount determined immediately after the end of its 1977 taxation year for E in that definition, with respect to property of the particular prescribed class of the insurer (determined without reference to this subsection), and

  • (b) the amount, if any, by which

    • (i) the total of all maximum amounts the insurer was entitled to claim with respect to property of the particular prescribed class of the insurer in taxation years ending before 1978 and after 1968

    exceeds

    • (ii) the amount determined under paragraph 13(23)(a).

• Marginal note:Application of s. 138(12)

  (23.1) The definitions in subsection 138(12) apply to this section.

• Marginal note:Acquisition of control

  (24) Where control of a corporation has been acquired at any time by a person or group of persons and, within the 12-month period that ended immediately before that time, the corporation or a partnership of which it was a majority interest partner acquired depreciable property (other than property that was owned by the corporation or partnership or by a person that would, if section 251.1 were read without reference to the definition controlled in subsection 251.1(2), be affiliated with the corporation throughout the period that began immediately before the 12-month period began and ended at the time the property was acquired by the corporation or partnership) that was not used, or acquired for use, by the corporation or partnership in a business that was carried on by it immediately before the 12-month period began,

  • (a) for the purposes of the description of A in the definition undepreciated capital cost in subsection 13(21) and of sections 127 and 127.1, the property is, subject to paragraph 13(24)(b), deemed not to have been acquired by the corporation or partnership before that time and to have been acquired by it immediately after that time; and

  • (b) where the property was disposed of by it before that time and was not reacquired by it before that time, for the purpose of the description of A in that definition, the property is deemed to have been acquired by the corporation or partnership immediately before the property was disposed of.

• Marginal note:Early change of control

  (25) For the purpose of subsection 13(24), where a corporation referred to in that subsection was incorporated or otherwise formed in the 12-month period referred to in that subsection, the corporation is deemed to have been, throughout the period that began immediately before the 12-month period and ended immediately after it was incorporated or otherwise formed,

  • (a) in existence; and

  • (b) affiliated with every person with whom it was affiliated (otherwise than because of a right referred to in paragraph 251(5)(b)) throughout the period that began when it was incorporated or otherwise formed and ended immediately before its control is acquired.

• Marginal note:Restriction on deduction before available for use

  (26) In applying the definition undepreciated capital cost in subsection 13(21) for the purpose of paragraph 20(1)(a) and any regulations made for the purpose of that paragraph, in computing a taxpayer’s income for a taxation year from a business or property, no amount shall be included in calculating the undepreciated capital cost to the taxpayer of depreciable property of a prescribed class in respect of the capital cost to the taxpayer of a property of that class (other than property that is a certified production, as defined by regulations made for the purpose of paragraph 20(1)(a)) before the time the property is considered to have become available for use by the taxpayer.

• Marginal note:Interpretation — available for use

  (27) For the purposes of subsection 13(26) and subject to subsection 13(29), property (other than a building or part thereof) acquired by a taxpayer shall be considered to have become available for use by the taxpayer at the earliest of

  • (a) the time the property is first used by the taxpayer for the purpose of earning income,

  • (b) the time that is immediately after the beginning of the first taxation year of the taxpayer that begins more than 357 days after the end of the taxation year of the taxpayer in which the property was acquired by the taxpayer,

  • (c) the time that is immediately before the disposition of the property by the taxpayer,

  • (d) the time the property

    • (i) is delivered to the taxpayer, or to a person or partnership (in this paragraph referred to as the “other person”) that will use the property for the benefit of the taxpayer, or, where the property is not of a type that is deliverable, is made available to the taxpayer or the other person, and

    • (ii) is capable, either alone or in combination with other property in the possession at that time of the taxpayer or the other person, of being used by or for the benefit of the taxpayer or the other person to produce a commercially saleable product or to perform a commercially saleable service, including an intermediate product or service that is used or consumed, or to be used or consumed, by or for the benefit of the taxpayer or the other person in producing or performing any such product or service,

  • (e) in the case of property acquired by the taxpayer for the prevention, reduction or elimination of air or water pollution created by operations carried on by the taxpayer or that would be created by such operations if the property had not been acquired, the time at which the property is installed and capable of performing the function for which it was acquired,

  • (f) in the case of property acquired by

    • (i) a corporation a class of shares of the capital stock of which is listed on a prescribed stock exchange,

    • (ii) a corporation that is a public corporation because of an election made under subparagraph (b)(i) of the definition public corporation in subsection 89(1) or a designation made by the Minister in a notice to the corporation under subparagraph (b)(ii) of that definition, or

    • (iii) a subsidiary wholly-owned corporation of a corporation described in subparagraph 13(27)(f)(i) or 13(27)(f)(ii),

    the end of the taxation year for which depreciation in respect of the property is first deducted in computing the earnings of the corporation in accordance with generally accepted accounting principles and for the purpose of the financial statements of the corporation for the year presented to its shareholders,

  • (g) in the case of property acquired by the taxpayer in the course of carrying on a business of farming or fishing, the time at which the property has been delivered to the taxpayer and is capable of performing the function for which it was acquired,

  • (h) in the case of property of a taxpayer that is a motor vehicle, trailer, trolley bus, aircraft or vessel for which one or more permits, certificates or licences evidencing that the property may be operated by the taxpayer in accordance with any laws regulating the use of such property are required to be obtained, the time all those permits, certificates or licences have been obtained,

  • (i) in the case of property that is a spare part intended to replace a part of another property of the taxpayer if required due to a breakdown of that other property, the time the other property became available for use by the taxpayer,

  • (j) in the case of a concrete gravity base structure and topside modules intended to be used at an oil production facility in a commercial discovery area (within the meaning assigned by section 2 of the Canada Petroleum Resources Act) on which the drilling of the first well that indicated the discovery began before March 5, 1982, in an offshore region prescribed for the purposes of subsection 127(9), the time the gravity base structure deballasts and lifts the assembled topside modules, and

  • (k) where the property is (within the meaning assigned by subsection 13(4.1)) a replacement for a former property described in paragraph 13(4)(a) that was acquired before 1990 or that became available for use at or before the time the replacement property is acquired, the time the replacement property is acquired,

  and, for the purposes of paragraph 13(27)(f), where depreciation is calculated by reference to a portion of the cost of the property, only that portion of the property shall be considered to have become available for use at the end of the taxation year referred to in that paragraph.

• Marginal note:Idem

  (28) For the purposes of subsection 13(26) and subject to subsection 13(29), property that is a building or part thereof of a taxpayer shall be considered to have become available for use by the taxpayer at the earliest of

  • (a) the time all or substantially all of the building is first used by the taxpayer for the purpose for which it was acquired,

  • (b) the time the construction of the building is complete,

  • (c) the time that is immediately after the beginning of the taxpayer’s first taxation year that begins more than 357 days after the end of the taxpayer’s taxation year in which the property was acquired by the taxpayer,

  • (d) the time that is immediately before the disposition of the property by the taxpayer, and

  • (e) where the property is (within the meaning assigned by subsection 13(4.1)) a replacement for a former property described in paragraph 13(4)(a) that was acquired before 1990 or that became available for use at or before the time the replacement property is acquired, the time the replacement property is acquired,

  and, for the purpose of this subsection, a renovation, alteration or addition to a particular building shall be considered to be a building separate from the particular building.

• Marginal note:Idem

  (29) For the purposes of subsection 13(26), where a taxpayer acquires property (other than a building that is used or is to be used by the taxpayer principally for the purpose of gaining or producing gross revenue that is rent) in the taxpayer’s first taxation year (in this subsection referred to as the “particular year”) that begins more than 357 days after the end of the taxpayer’s taxation year in which the taxpayer first acquired property after 1989, that is part of a project of the taxpayer, or in a taxation year subsequent to the particular year, and at the end of any taxation year (in this subsection referred to as the “inclusion year”) of the taxpayer

  • (a) the property can reasonably be considered to be part of the project, and

  • (b) the property has not otherwise become available for use,

  if the taxpayer so elects in prescribed form filed with the taxpayer’s return of income under this Part for the particular year, that particular portion of the property the capital cost of which does not exceed the amount, if any, by which

  • (c) the total of all amounts each of which is the capital cost to the taxpayer of a depreciable property (other than a building that is used or is to be used by the taxpayer principally for the purpose of gaining or producing gross revenue that is rent) that is part of the project, that was acquired by the taxpayer after 1989 and before the end of the taxpayer’s last taxation year that ends more than 357 days before the beginning of the inclusion year and that has not become available for use at or before the end of the inclusion year (except where the property has first become available for use before the end of the inclusion year because of this subsection or paragraph 13(27)(b) or 13(28)(c))

  exceeds

  • (d) the total of all amounts each of which is the capital cost to the taxpayer of a depreciable property, other than the particular portion of the property, that is part of the project to the extent that the property is considered, because of this subsection, to have become available for use before the end of the inclusion year

  shall be considered to have become available for use immediately before the end of the inclusion year.

• Marginal note:Transfers of property

  (30) Notwithstanding subsections 13(27) to 13(29), for the purpose of subsection 13(26), property of a taxpayer shall be deemed to have become available for use by the taxpayer at the earlier of the time the property was acquired by the taxpayer and, if applicable, a prescribed time, where

  • (a) the property was acquired

    • (i) from a person with whom the taxpayer was not dealing at arm’s length (otherwise than because of a right referred to in paragraph 251(5)(b)) at the time the property was acquired by the taxpayer, or

    • (ii) in the course of a reorganization in respect of which, if a dividend were received by a corporation in the course of the reorganization, subsection 55(2) would not apply to the dividend because of paragraph 55(3)(b); and

  • (b) before the property was acquired by the taxpayer, it became available for use (determined without reference to paragraphs 13(27)(c) and 13(28)(d)) by the person from whom it was acquired.

• Marginal note:Idem

  (31) For the purposes of paragraphs 13(27)(b) and 13(28)(c) and subsection 13(29), where a property of a taxpayer was acquired from a person (in this subsection referred to as “the transferor”)

  • (a) with whom the taxpayer was, at the time the taxpayer acquired the property, not dealing at arm’s length (otherwise than because of a right referred to in paragraph 251(5)(b)), or

  • (b) in the course of a reorganization in respect of which, if a dividend were received by a corporation in the course of the reorganization, subsection 55(2) would not apply to the dividend because of the application of paragraph 55(3)(b), the taxpayer shall be deemed to have acquired the property at the time it was acquired by the transferor.

• Marginal note:Leased property

  (32) Where a taxpayer has leased property that is depreciable property of a person with whom the taxpayer does not deal at arm’s length, the amount, if any, by which

  • (a) the total of all amounts paid or payable by the taxpayer for the use of, or the right to use, the property in a particular taxation year and before the time the property would have been considered to have become available for use by the taxpayer if the taxpayer had acquired the property, and that, but for this subsection, would be deductible in computing the taxpayer’s income for any taxation year

  exceeds

  • (b) the total of all amounts received or receivable by the taxpayer for the use of, or the right to use, the property in the particular taxation year and before that time and that are included in the income of the taxpayer for any taxation year shall be deemed to be a cost to the taxpayer of a property included in Class 13 in Schedule II to the Income Tax Regulations and not to be an amount paid or payable for the use of, or the right to use, the property.

• Marginal note:Consideration given for depreciable property

  (33) For greater certainty, where a person acquires a depreciable property for consideration that can reasonably be considered to include a transfer of property, the portion of the cost to the person of the depreciable property attributable to the transfer shall not exceed the fair market value of the transferred property.

• Marginal note:Deductible expenses

  (34) Notwithstanding paragraph 1102(1)(a) of the Regulations, for taxation years that end after 1987 and before December 6, 1996, the classes of property prescribed for the purpose of paragraph 20(1)(a) are deemed to include property of a taxpayer that, if the Act were read without reference to sections 66 to 66.4, would be included in one of the classes.

Marginal note:Eligible capital property — inclusion in income from business

• 14 (1) Where, at the end of a taxation year, the total of all amounts each of which is an amount determined, in respect of a business of a taxpayer, for E in the definition cumulative eligible capital in subsection (5) (in this section referred to as an “eligible capital amount”) or for F in that definition exceeds the total of all amounts determined for A to D in that definition in respect of the business (which excess is in this subsection referred to as “the excess”), there shall be included in computing the taxpayer’s income from the business for the year the total of

  • (a) the amount, if any, that is the lesser of

    • (i) the excess, and

    • (ii) the amount determined for F in the definition cumulative eligible capital in subsection (5) at the end of the year in respect of the business, and

  • (b) the amount, if any, determined by the formula

    2/3 × (A - B - C - D)

    where

    A

    is the excess,

    B

    is the amount determined for F in the definition cumulative eligible capital in subsection (5) at the end of the year in respect of the business,

    C

    is 1/2 of the amount determined for Q in the definition cumulative eligible capital in subsection (5) at the end of the year in respect of the business, and

    D

    is the amount claimed by the taxpayer, not exceeding the taxpayer’s exempt gains balance for the year in respect of the business.

• Marginal note:Election re capital gain

  (1.01) Where, at any time in a taxation year, a taxpayer disposes of an eligible capital property (other than goodwill) in respect of a business, the cost of the property to the taxpayer can be determined, the proceeds of the disposition (in this subsection referred to as the “actual proceeds”) exceed that cost, the taxpayer’s exempt gains balance in respect of the business for the year is nil and the taxpayer so elects under this subsection in the taxpayer’s return of income for the year,

  • (a) for the purposes of subsection (5), the proceeds of disposition of the property are deemed to be equal to that cost;

  • (b) the taxpayer is deemed to have disposed at that time of a capital property that had at that time an adjusted cost base to the taxpayer equal to that cost, for proceeds of disposition equal to the actual proceeds; and

  • (c) where the eligible capital property is at that time a qualified farm property (within the meaning assigned by subsection 110.6(1)) of the taxpayer, the capital property deemed by paragraph (b) to have been disposed of by the taxpayer is deemed to have been at that time a qualified farm property of the taxpayer.

• Marginal note:Deemed taxable capital gain

  (1.1) For the purposes of section 110.6 and paragraph 3(b) as it applies for the purposes of that section, an amount included under paragraph (1)(b) in computing a taxpayer’s income for a particular taxation year from a business is deemed to be a taxable capital gain of the taxpayer for the year from the disposition in the year of qualified farm property to the extent of the lesser of

  • (a) the amount included under paragraph (1)(b) in computing the taxpayer’s income for the particular year from the business, and

  • (b) the amount determined by the formula

    A - B

    where

    A

    is the amount by which the total of

    • (i) 3/4 of the total of all amounts each of which is the taxpayer’s proceeds from a disposition in a preceding taxation year that began after 1987 and ended before February 28, 2000 of eligible capital property in respect of the business that, at the time of the disposition, was a qualified farm property (within the meaning assigned by subsection 110.6(1)) of the taxpayer,

    • (ii) 2/3 of the total of all amounts each of which is the taxpayer’s proceeds from a disposition in the particular year or a preceding taxation year that ended after February 27, 2000 and before October 18, 2000 of eligible capital property in respect of the business that, at the time of the disposition, was a qualified farm property (within the meaning assigned by subsection 110.6(1)) of the taxpayer, and

    • (iii) 1/2 of the total of all amounts each of which is the taxpayer’s proceeds from a disposition in the particular year or a preceding taxation year that ended after October 17, 2000 of eligible capital property in respect of the business that, at the time of the disposition, was a qualified farm property (within the meaning assigned by subsection 110.6(1)) of the taxpayer

    exceeds the total of

    • (iv) 3/4 of the total of all amounts each of which is

      • (A) an eligible capital expenditure of the taxpayer in respect of the business that was made or incurred in respect of a qualified farm property disposed of by the taxpayer in a preceding taxation year that began after 1987 and ended before February 28, 2000, or

      • (B) an outlay or expense of the taxpayer that was not deductible in computing the taxpayer’s income and that was made or incurred for the purpose of making a disposition referred to in clause (A),

    • (v) 2/3 of the total of all amounts each of which is

      • (A) an eligible capital expenditure of the taxpayer in respect of the business that was made or incurred in respect of a qualified farm property disposed of by the taxpayer in the particular year or a preceding taxation year that ended after February 27, 2000 and before October 18, 2000, or

      • (B) an outlay or expense of the taxpayer that was not deductible in computing the taxpayer’s income and that was made or incurred for the purpose of making a disposition referred to in clause (A), and

    • (vi) 1/2 of the total of all amounts each of which is

      • (A) an eligible capital expenditure of the taxpayer in respect of the business that was made or incurred in respect of a qualified farm property disposed of by the taxpayer in the particular year or a preceding taxation year that ended after October 17, 2000, or

      • (B) an outlay or expense of the taxpayer that was not deductible in computing the taxpayer’s income and that was made or incurred for the purpose of making a disposition referred to in clause (A), and

    B

    is the total of all amounts each of which is

    • (i) that portion of an amount deemed by subparagraph 14(1)(a)(v) (as it applied in respect of the business to fiscal periods that began after 1987 and ended before February 23, 1994) to be a taxable capital gain of the taxpayer that can reasonably be attributed to a disposition of a qualified farm property of the taxpayer, or

    • (ii) an amount deemed by this section to be a taxable capital gain of the taxpayer for a taxation year preceding the particular year from the disposition of qualified farm property of the taxpayer.

• Marginal note:Amount deemed payable

  (2) Where any amount is, by any provision of this Act, deemed to be a taxpayer’s proceeds of disposition of any property disposed of by the taxpayer at any time, for the purposes of this section, that amount shall be deemed to have become payable to the taxpayer at that time.

• Marginal note:Acquisition of eligible capital property

  (3) Notwithstanding any other provision of this Act, where at any particular time a person or partnership (in this subsection referred to as the “taxpayer”) has, directly or indirectly, in any manner whatever, acquired an eligible capital property in respect of a business from a person or partnership with which the taxpayer did not deal at arm’s length (in this subsection referred to as the “transferor”) and the property was an eligible capital property of the transferor (other than property acquired by the taxpayer as a consequence of the death of the transferor), the eligible capital expenditure of the taxpayer in respect of the business is, in respect of that acquisition, deemed to be equal to 4/3 of the amount, if any, by which

  • (a) the amount determined for E in the definition cumulative eligible capital in subsection (5) in respect of the disposition of the property by the transferor

  exceeds the total of

  • (b) the total of all amounts that can reasonably be considered to have been claimed as deductions under section 110.6 for taxation years that ended before February 28, 2000 by any person with whom the taxpayer was not dealing at arm’s length in respect of the disposition of the property by the transferor, or any other disposition of the property before the particular time,

  • (b.1) 9/8 of the total of all amounts that can reasonably be considered to have been claimed as deductions under section 110.6 for taxation years that ended after February 27, 2000 and before October 18, 2000 by any person with whom the taxpayer was not dealing at arm’s length in respect of the disposition of the property by the transferor, or any other disposition of the property before the particular time, and

  • (b.2) 3/2 of the total of all amounts that can reasonably be considered to have been claimed as deductions under section 110.6 for taxation years that end after October 17, 2000 by any person with whom the taxpayer was not dealing at arm’s length in respect of the disposition of the property by the transferor, or any other disposition of the property before the particular time,

  except that, where the taxpayer disposes of the property after the particular time, the amount of the eligible capital expenditure deemed by this subsection to be made by the taxpayer in respect of the property shall be determined at any time after the disposition as if the total of the amounts determined under paragraphs (b), (b.1) and (b.2) in respect of the disposition were the lesser of

  • (c) the amount otherwise so determined, and

  • (d) the amount, if any, by which

    • (i) the amount determined under paragraph 14(3)(a) in respect of the disposition of the property by the transferor

    exceeds

    • (ii) the amount determined for E in the definition cumulative eligible capital in subsection 14(5) in respect of the disposition of the property by the taxpayer.

• Marginal note:References to “taxation year” or “year”

  (4) Where a taxpayer is an individual and the taxpayer’s income for a taxation year includes income from a business the fiscal period of which does not coincide with the calendar year, for greater certainty a reference in this section to a “taxation year” or “year” shall be read as a reference to a “fiscal period” or “period”.

• Marginal note:Definitions

  (5) In this section,

  adjustment time

  moment du rajustement

  adjustment time of a taxpayer in respect of a business is

  • (a) in the case of a corporation formed as a result of an amalgamation occurring after June 30, 1988, the time immediately before the amalgamation,

  • (b) in the case of any other corporation, the time immediately after the commencement of its first taxation year commencing after June 30, 1988, and

  • (c) for any other taxpayer, the time immediately after the commencement of the taxpayer’s first fiscal period commencing after 1987 in respect of the business; (moment du rajustement)

  cumulative eligible capital

  montant cumulatif des immobilisations admissibles

  cumulative eligible capital of a taxpayer at any time in respect of a business of the taxpayer means the amount determined by the formula

  (A + B + C + D + D.1) - (E + F)

  where

  A

  is 3/4 of the total of all eligible capital expenditures in respect of the business made or incurred by the taxpayer before that time and after the taxpayer’s adjustment time,

  B

  is the total of

  • (a) 3/2 of all amounts included under paragraph (1)(b) in computing the taxpayer’s income from the business for taxation years that ended before that time and after October 17, 2000,

  • (b) 9/8 of all amounts included under paragraph (1)(b) in computing the taxpayer’s income from the business for taxation years that ended

    • (i) before that time, and

    • (ii) after February 27, 2000 and before October 18, 2000,

  • (c) all amounts included under paragraph (1)(b) in computing the taxpayer’s income from the business for taxation years that ended

    • (i) before the earlier of that time and February 28, 2000, and

    • (ii) after the taxpayer’s adjustment time,

  • (d) all amounts each of which is the amount that would have been included under subparagraph (1)(a)(v) (as that subparagraph applied for taxation years that ended before February 28, 2000) in computing the taxpayer’s income from the business, if the amount determined for D in that subparagraph for the year were nil, for taxation years that ended

    • (i) before the earlier of that time and February 28, 2000, and

    • (ii) after February 22, 1994, and

  • (e) all taxable capital gains included, because of the application of subparagraph (1)(a)(v) (as that subparagraph applied for taxation years that ended before February 28, 2000) to the taxpayer in respect of the business, in computing the taxpayer’s income for taxation years that began before February 23, 1994,

  C

  is 3/2 of the amount, if any, of the taxpayer’s cumulative eligible capital in respect of the business at the taxpayer’s adjustment time,

  D

  is the amount, if any, by which

  • (a) the total of all amounts deducted under paragraph 20(1)(b) in computing the taxpayer’s income from the business for taxation years ending before the taxpayer’s adjustment time

  exceeds

  • (b) the total of all amounts included under subsection 14(1) in computing the taxpayer’s income from the business for taxation years ending before the taxpayer’s adjustment time,

  D.1

  is where the amount determined by B exceeds zero, 1/2 of the amount determined for Q in respect of the business

  E

  is the total of all amounts each of which is 3/4 of the amount, if any, by which

  • (a) an amount which, as a result of a disposition occurring after the taxpayer’s adjustment time and before that time, the taxpayer has or may become entitled to receive, in respect of the business carried on or formerly carried on by the taxpayer where the consideration given by the taxpayer therefor was such that, if any payment had been made by the taxpayer after 1971 for that consideration, the payment would have been an eligible capital expenditure of the taxpayer in respect of the business

  exceeds

  • (b) all outlays and expenses to the extent that they were not otherwise deductible in computing the taxpayer’s income and were made or incurred by the taxpayer for the purpose of giving that consideration, and

  F

  is the amount determined by the formula

  (P + P.1 + Q) - R

  where

  P

  is the total of all amounts deducted under paragraph 20(1)(b) in computing the taxpayer’s income from the business for taxation years ending before that time and after the taxpayer’s adjustment time,

  P.1

  is the total of all amounts each of which is an amount by which the cumulative eligible capital of the taxpayer in respect of the business is required to be reduced at or before that time because of subsection 80(7);

  Q

  is the amount, if any, by which

  • (a) the total of all amounts deducted under paragraph 20(1)(b) in computing the taxpayer’s income from the business for taxation years ending before the taxpayer’s adjustment time

  exceeds

  • (b) the total of all amounts included under subsection 14(1) in computing the taxpayer’s income for taxation years ending before the taxpayer’s adjustment time, and

  R

  is the total of all amounts included, in computing the taxpayer’s income from the business for taxation years that ended before that time and after the taxpayer’s adjustment time, under subparagraph (1)(a)(iv) in respect of taxation years that ended before February 28, 2000 and under paragraph (1)(a) in respect of taxation years that end after February 27, 2000;

  eligible capital expenditure

  dépense en capital admissible

  eligible capital expenditure of a taxpayer in respect of a business means the portion of any outlay or expense made or incurred by the taxpayer, as a result of a transaction occurring after 1971, on account of capital for the purpose of gaining or producing income from the business, other than any such outlay or expense

  • (a) in respect of which any amount is or would be, but for any provision of this Act limiting the quantum of any deduction, deductible (otherwise than under paragraph 20(1)(b)) in computing the taxpayer’s income from the business, or in respect of which any amount is, by virtue of any provision of this Act other than paragraph 18(1)(b), not deductible in computing that income,

  • (b) made or incurred for the purpose of gaining or producing income that is exempt income, or

  • (c) that is the cost of, or any part of the cost of,

    • (i) tangible property of the taxpayer,

    • (ii) intangible property that is depreciable property of the taxpayer,

    • (iii) property in respect of which any deduction (otherwise than under paragraph 20(1)(b)) is permitted in computing the taxpayer’s income from the business or would be so permitted if the taxpayer’s income from the business were sufficient for the purpose, or

    • (iv) an interest in, or right to acquire, any property described in any of subparagraphs (i) to (iii)

    but for greater certainty and without restricting the generality of the foregoing, does not include any portion of

  • (d) any amount paid or payable to any creditor of the taxpayer as, on account or in lieu of payment of any debt or as or on account of the redemption, cancellation or purchase of any bond or debenture,

  • (e) where the taxpayer is a corporation, any amount paid or payable to a person as a shareholder of the corporation, or

  • (f) any amount that is the cost of, or any part of the cost of,

    • (i) an interest in a trust,

    • (ii) an interest in a partnership,

    • (iii) a share, bond, debenture, mortgage, hypothecary claim, note, bill or other similar property, or

    • (iv) an interest in, or right to acquire, any property described in any of subparagraphs (f)(i) to (iii). (dépense en capital admissible)

  exempt gains balance

  solde des gains exonérés

  exempt gains balance of an individual in respect of a business of the individual for a taxation year means the amount determined by the formula

  A - B

  where

  A

  is the lesser of

  • (a) the amount by which

    • (i) the amount that would have been the individual’s taxable capital gain determined under paragraph 110.6(19)(b) in respect of the business if

      • (A) the amount designated in an election under subsection 110.6(19) in respect of the business were equal to the fair market value at the end of February 22, 1994 of all the eligible capital property owned by the elector at that time in respect of the business, and

      • (B) this Act were read without reference to subsection 110.6(20)

    exceeds

    • (ii) the amount determined by the formula

      0.75(C - 1.1D)

      where

      C

      is the amount designated in the election that was made under subsection 110.6(19) in respect of the business, and

      D

      is the fair market value at the end of February 22, 1994 of the property referred to in clause 14(5)(a)(i)(A), and

  • (b) the individual’s taxable capital gain determined under paragraph 110.6(19)(b) in respect of the business, and

  B

  is the total of all amounts each of which is the amount determined for D in subparagraph (1)(a)(v) in respect of the business for a preceding taxation year that ended before February 28, 2000 or the amount determined for D in paragraph (1)(b) for a preceding taxation year that ended after February 27, 2000.

• Marginal note:Exchange of property

  (6) Where in a taxation year (in this subsection referred to as the “initial year”) a taxpayer disposes of an eligible capital property (in this section referred to as the taxpayer’s “former property”) and the taxpayer so elects under this subsection in the taxpayer’s return of income for the year in which the taxpayer acquires an eligible capital property that is a replacement property for the taxpayer’s former property, such amount, not exceeding the amount that would otherwise be included in the amount determined for E in the definition cumulative eligible capital in subsection 14(5) (if the description of E in that definition were read without reference to “3/4 of”) in respect of a business, as has been used by the taxpayer before the end of the first taxation year after the initial year to acquire the replacement property

  • (a) shall, subject to paragraph 14(6)(b), not be included in the amount determined for E in that definition for the purpose of determining the cumulative eligible capital of the taxpayer in respect of the business; and

  • (b) shall, to the extent of 3/4 thereof, be included in the amount determined for E in that definition for the purpose of determining the cumulative eligible capital of the taxpayer in respect of the business at a time that is the later of

    • (i) the time the replacement property was acquired by the taxpayer, and

    • (ii) the time the former property was disposed of by the taxpayer.

• Marginal note:Replacement property

  (7) For the purposes of subsection 14(6), a particular eligible capital property of a taxpayer is a replacement property for a former property of the taxpayer if

  • (a) it is reasonable to conclude that the property was acquired by the taxpayer to replace the former property;

  • (a.1) it was acquired by the taxpayer for a use that is the same as or similar to the use to which the taxpayer put the former property;

  • (b) it was acquired for the purpose of gaining or producing income from the same or a similar business as that in which the former property was used; and

  • (c) where the former property was used by the taxpayer in a business carried on in Canada, the particular property was acquired for use by the taxpayer in a business carried on by the taxpayer in Canada.

• Marginal note:Deemed residence in Canada

  (8) Where an individual was resident in Canada at any time in a particular taxation year and throughout

  • (a) the preceding taxation year, or

  • (b) the following taxation year,

  for the purpose of paragraph 14(1)(a), the individual shall be deemed to have been resident in Canada throughout the particular year.

• Marginal note:Effect of election under subsection 110.6(19)

  (9) Where an individual elects under subsection 110.6(19) in respect of a business, the individual shall be deemed to have received proceeds of a disposition on February 23, 1994 of eligible capital property in respect of the business equal to the amount determined by the formula

  (A - B)4/3

  where

  A

  is the amount determined in respect of the business under subparagraph (a)(ii) of the description of A in the definition exempt gains balance in subsection 14(5), and

  B

  is the amount determined in respect of the business under subparagraph (a)(i) of the description of A in the definition exempt gains balance in subsection 14(5).

• Marginal note:Deemed eligible capital expenditure

  (10) For the purposes of this Act, where a taxpayer received or is entitled to receive assistance from a government, municipality or other public authority in respect of, or for the acquisition of, property the cost of which is an eligible capital expenditure of the taxpayer in respect of a business, whether as a grant, subsidy, forgivable loan, deduction from tax, investment allowance or as any other form of assistance, that eligible capital expenditure shall at any time be deemed to be the amount, if any, by which the total of

  • (a) that eligible capital expenditure, determined without reference to this subsection, and

  • (b) such part, if any, of the assistance as the taxpayer repaid before

    • (i) the taxpayer ceased to carry on the business, and

    • (ii) that time

    under a legal obligation to pay all or any part of the assistance

  exceeds

  • (c) the amount of the assistance the taxpayer received or is entitled to receive before the earlier of that time and the time the taxpayer ceases to carry on the business.

• Marginal note:Receipt of public assistance

  (11) For the purpose of subsection 14(10), where at any time a taxpayer who is a beneficiary under a trust or a member of a partnership received or is entitled to receive assistance from a government, municipality or other public authority, whether as a grant, subsidy, forgivable loan, deduction from tax, investment allowance or as any other form of assistance, the amount of the assistance that can reasonably be considered to be in respect of, or for the acquisition of, property the cost of which was an eligible capital expenditure of the trust or partnership shall be deemed to have been received at that time by the trust or partnership, as the case may be, as assistance from the government, municipality or other public authority for the acquisition of such property.

• Marginal note:Loss on certain transfers

  (12) Where

  • (a) a corporation, trust or partnership (in this subsection referred to as the “transferor”) disposes at any time in a taxation year of a particular eligible capital property in respect of a business of the transferor in respect of which it would, but for this subsection, be permitted a deduction under paragraph 24(1)(a) as a consequence of the disposition, and

  • (b) during the period that begins 30 days before and ends 30 days after the disposition, the transferor or a person affiliated with the transferor acquires a property (in this subsection referred to as the “substituted property”) that is, or is identical to, the particular property and, at the end of that period, a person or partnership that is either the transferor or a person or partnership affiliated with the transferor owns the substituted property,

  the transferor is deemed, for the purposes of this section and sections 20 and 24, to continue to own eligible capital property in respect of the business, and not to have ceased to carry on the business, until the time that is immediately before the first time, after the disposition,

  • (c) at which a 30-day period begins throughout which neither the transferor nor a person affiliated with the transferor owns

    • (i) the substituted property, or

    • (ii) a property that is identical to the substituted property and that was acquired after the day that is 31 days before the period begins,

  • (d) at which the substituted property is not eligible capital property in respect of a business carried on by the transferor or a person affiliated with the transferor,

  • (e) at which the substituted property would, if it were owned by the transferor, be deemed by section 128.1 or subsection 149(10) to have been disposed of by the transferor,

  • (f) that is immediately before control of the transferor is acquired by a person or group of persons, where the transferor is a corporation, or

  • (g) at which the winding-up of the transferor begins (other than a winding-up to which subsection 88(1) applies), where the transferor is a corporation.

• Marginal note:Deemed identical property

  (13) For the purpose of subsection 14(12),

  • (a) a right to acquire a property (other than a right, as security only, derived from a mortgage, hypothec, agreement for sale or similar obligation) is deemed to be a property that is identical to the property; and

  • (b) where a partnership otherwise ceases to exist at any time after the disposition, the partnership is deemed not to have ceased to exist and each person who, immediately before the partnership would, but for this paragraph, have ceased to exist, was a member of the partnership is deemed to remain a member of the partnership, until the time that is immediately after the first time described in paragraphs 14(12)(c) to 14(12)(g).

• Marginal note:Ceasing to use property in Canadian business

  (14) If at a particular time a non-resident taxpayer ceases to use, in connection with a business or part of a business carried on by the taxpayer in Canada immediately before the particular time, a property that was immediately before the particular time eligible capital property of the taxpayer (other than a property that was disposed of by the taxpayer at the particular time), the taxpayer is deemed to have disposed of the property immediately before the particular time for proceeds of disposition equal to the amount determined by the formula

  A - B

  where

  A

  is the fair market value of the property immediately before the particular time, and

  B

  is

  • (a) where at a previous time before the particular time the taxpayer ceased to use the property in connection with a business or part of a business carried on by the taxpayer outside Canada and began to use it in connection with a business or part of a business carried on by the taxpayer in Canada, the amount, if any, by which the fair market value of the property at the previous time exceeded its cost to the taxpayer at the previous time, and

  • (b) in any other case, nil.

• Marginal note:Beginning to use property in Canadian business

  (15) If at a particular time a non-resident taxpayer ceases to use, in connection with a business or part of a business carried on by the taxpayer outside Canada immediately before the particular time, and begins to use, in connection with a business or part of a business carried on by the taxpayer in Canada, a property that is an eligible capital property of the taxpayer, the taxpayer is deemed to have disposed of the property immediately before the particular time and to have reacquired the property at the particular time for consideration equal to the lesser of the cost to the taxpayer of the property immediately before the particular time and its fair market value immediately before the particular time.

Marginal note:Benefit conferred on shareholder

• 15 (1) Where at any time in a taxation year a benefit is conferred on a shareholder, or on a person in contemplation of the person becoming a shareholder, by a corporation otherwise than by

  • (a) the reduction of the paid-up capital, the redemption, cancellation or acquisition by the corporation of shares of its capital stock or on the winding-up, discontinuance or reorganization of its business, or otherwise by way of a transaction to which section 88 applies,

  • (b) the payment of a dividend or a stock dividend,

  • (c) conferring, on all owners of common shares of the capital stock of the corporation at that time, a right in respect of each common share, that is identical to every other right conferred at that time in respect of each other such share, to acquire additional shares of the capital stock of the corporation, and, for the purpose of this paragraph,

    • (i) where

      • (A) the voting rights attached to a particular class of common shares of the capital stock of a corporation differ from the voting rights attached to another class of common shares of the capital stock of the corporation, and

      • (B) there are no other differences between the terms and conditions of the classes of shares that could cause the fair market value of a share of the particular class to differ materially from the fair market value of a share of the other class,

      the shares of the particular class shall be deemed to be property that is identical to the shares of the other class, and

    • (ii) rights are not considered identical if the cost of acquiring the rights differs, or

  • (d) an action described in paragraph 84(1)(c.1), 84(1)(c.2) or 84(1)(c.3),

  the amount or value thereof shall, except to the extent that it is deemed by section 84 to be a dividend, be included in computing the income of the shareholder for the year.

• Marginal note:Conferring of benefit

  (1.1) Notwithstanding subsection 15(1), where in a taxation year a corporation has paid a stock dividend to a person and it may reasonably be considered that one of the purposes of that payment was to significantly alter the value of the interest of any specified shareholder of the corporation, the fair market value of the stock dividend shall, except to the extent that it is otherwise included in computing that person’s income under paragraph 82(1)(a), be included in computing the income of that person for the year.

• Marginal note:Forgiveness of shareholder debt

  (1.2) For the purpose of subsection 15(1), the value of the benefit where an obligation issued by a debtor is settled or extinguished at any time shall be deemed to be the forgiven amount at that time in respect of the obligation.

• Marginal note:Forgiven amount

  (1.21) For the purpose of subsection 15(1.2), the forgiven amount at any time in respect of an obligation issued by a debtor has the meaning that would be assigned by subsection 80(1) if

  • (a) the obligation were a commercial obligation (within the meaning assigned by subsection 80(1)) issued by the debtor;

  • (b) no amount included in computing income (otherwise than because of paragraph 6(1)(a)) because of the obligation being settled or extinguished were taken into account;

  • (c) the definition forgiven amount in subsection 80(1) were read without reference to paragraphs (f) and (h) of the description B in that definition; and

  • (d) section 80 were read without reference to paragraphs (2)(b) and (q) of that section.

• Marginal note:Cost of property or service

  (1.3) To the extent that the cost to a person of purchasing a property or service or an amount payable by a person for the purpose of leasing property is taken into account in determining an amount required under this section to be included in computing a taxpayer’s income for a taxation year, that cost or amount payable, as the case may be, shall include any tax that was payable by the person in respect of the property or service or that would have been so payable if the person were not exempt from the payment of that tax because of the nature of the person or the use to which the property or service is to be put.

• (1.4) [Repealed, 1997, c. 10, s. 269(1)]

• Marginal note:Shareholder debt

  (2) Where a person (other than a corporation resident in Canada) or a partnership (other than a partnership each member of which is a corporation resident in Canada) is

  • (a) a shareholder of a particular corporation,

  • (b) connected with a shareholder of a particular corporation, or

  • (c) a member of a partnership, or a beneficiary of a trust, that is a shareholder of a particular corporation

  and the person or partnership has in a taxation year received a loan from or has become indebted to the particular corporation, any other corporation related to the particular corporation or a partnership of which the particular corporation or a corporation related to the particular corporation is a member, the amount of the loan or indebtedness is included in computing the income for the year of the person or partnership.

• Marginal note:Persons connected with a shareholder

  (2.1) For the purposes of subsection 15(2), a person is connected with a shareholder of a particular corporation if that person does not deal at arm’s length with the shareholder and if that person is a person other than

  • (a) a foreign affiliate of the particular corporation; or

  • (b) a foreign affiliate of a person resident in Canada with which the particular corporation does not deal at arm’s length.

• Marginal note:When s. 15(2) not to apply — non-resident persons

  (2.2) Subsection 15(2) does not apply to indebtedness between non-resident persons.

• Marginal note:When s. 15(2) not to apply — ordinary lending business

  (2.3) Subsection 15(2) does not apply to a debt that arose in the ordinary course of the creditor’s business or a loan made in the ordinary course of the lender’s ordinary business of lending money where, at the time the indebtedness arose or the loan was made, bona fide arrangements were made for repayment of the debt or loan within a reasonable time.

• Marginal note:When s. 15(2) not to apply — certain employees

  (2.4) Subsection 15(2) does not apply to a loan made or a debt that arose

  • (a) in respect of an individual who is an employee of the lender or creditor but not a specified employee of the lender or creditor,

  • (b) in respect of an individual who is an employee of the lender or creditor or who is the spouse or common-law partner of an employee of the lender or creditor to enable or assist the individual to acquire a dwelling or a share of the capital stock of a cooperative housing corporation acquired for the sole purpose of acquiring the right to inhabit a dwelling owned by the corporation, where the dwelling is for the individual’s habitation,

  • (c) where the lender or creditor is a particular corporation, in respect of an employee of the particular corporation or of another corporation that is related to the particular corporation, to enable or assist the employee to acquire from the particular corporation, or from another corporation related to the particular corporation, previously unissued fully paid shares of the capital stock of the particular corporation or the related corporation, as the case may be, to be held by the employee for the employee’s own benefit, or

  • (d) in respect of an employee of the lender or creditor to enable or assist the employee to acquire a motor vehicle to be used by the employee in the performance of the duties of the employee’s office or employment,

  where

  • (e) it is reasonable to conclude that the employee or the employee’s spouse or common-law partner received the loan, or became indebted, because of the employee’s employment and not because of any person’s share-holdings, and

  • (f) at the time the loan was made or the debt was incurred, bona fide arrangements were made for repayment of the loan or debt within a reasonable time.

• Marginal note:When s. 15(2) not to apply — certain trusts

  (2.5) Subsection 15(2) does not apply to a loan made or a debt that arose in respect of a trust where

  • (a) the lender or creditor is a private corporation;

  • (b) the corporation is the settlor and sole beneficiary of the trust;

  • (c) the sole purpose of the trust is to facilitate the purchase and sale of the shares of the corporation, or of another corporation related to the corporation, for an amount equal to their fair market value at the time of the purchase or sale, as the case may be, from or to the employees of the corporation or of the related corporation (other than employees who are specified employees of the corporation or of another corporation related to the corporation), as the case may be; and

  • (d) at the time the loan was made or the debt incurred, bona fide arrangements were made for repayment of the loan or debt within a reasonable time.

• Marginal note:When s. 15(2) not to apply — repayment within one year

  (2.6) Subsection 15(2) does not apply to a loan or an indebtedness repaid within one year after the end of the taxation year of the lender or creditor in which the loan was made or the indebtedness arose, where it is established, by subsequent events or otherwise, that the repayment was not part of a series of loans or other transactions and repayments.

• Marginal note:Employee of partnership

  (2.7) For the purpose of this section, an individual who is an employee of a partnership is deemed to be a specified employee of the partnership where the individual is a specified shareholder of one or more corporations that, in total, are entitled, directly or indirectly, to a share of any income or loss of the partnership, which share is not less than 10% of the income or loss.

• Marginal note:Interest or dividend on income bond or debenture

  (3) An amount paid as interest or a dividend by a corporation resident in Canada to a taxpayer in respect of an income bond or income debenture shall be deemed to have been paid by the corporation and received by the taxpayer as a dividend on a share of the capital stock of the corporation, unless the corporation is entitled to deduct the amount so paid in computing its income.

• Marginal note:Idem, where corporation not resident

  (4) An amount paid as interest or a dividend by a corporation not resident in Canada to a taxpayer in respect of an income bond or income debenture shall be deemed to have been received by the taxpayer as a dividend on a share of the capital stock of the corporation unless the amount so paid was, under the laws of the country in which the corporation was resident, deductible in computing the amount for the year on which the corporation was liable to pay income or profits tax imposed by the government of that country.

• Marginal note:Automobile benefit

  (5) For the purposes of subsection 15(1), the value of the benefit to be included in computing a shareholder’s income for a taxation year with respect to an automobile made available to the shareholder, or a person related to the shareholder, by a corporation shall (except where an amount is determined under subparagraph 6(1)(e)(i) in respect of the automobile in computing the shareholder’s income for the year) be computed on the assumption that subsections 6(1), 6(1.1), 6(2) and 6(7) apply, with such modifications as the circumstances require, and as though the references therein to “the employer of the taxpayer”, “the taxpayer’s employer” and “the employer” were read as “the corporation”.

• Marginal note:Application of ss. (1), (2) and (5)

  (7) For greater certainty, subsections 15(1), (2) and (5) are applicable in computing, for the purposes of this Part, the income of a shareholder or of a person or partnership whether or not the corporation, or the lender or creditor, as the case may be, was resident or carried on business in Canada.

• (8) [Repealed, 1998, c. 19, s. 75(3)]

• Marginal note:Deemed benefit to shareholder by corporation

  (9) Where an amount in respect of a loan or debt is deemed by section 80.4 to be a benefit received by a person or partnership in a taxation year, the amount is deemed for the purpose of subsection 15(1) to be a benefit conferred in the year on a shareholder, unless subsection 6(9) or paragraph 12(1)(w) applies to the amount.

Marginal note:Interest on small business development bonds

• 15.1 (1) Any amount received by a taxpayer as or on account of interest on a small business development bond shall, except for the purposes of Part IV, be deemed to have been received as a taxable dividend.

• Marginal note:Rules for small business development bonds

  (2) Where a corporation (in this section referred to as the “issuer”) has issued an obligation that is at any time a small business development bond, notwithstanding any other provision of this Act,

  • (a) in computing the issuer’s income for a taxation year, no deduction shall be made in respect of any amount paid or payable (depending on the method regularly followed in computing the issuer’s income) as or on account of interest on the obligation in respect of a period that includes that time;

  • (b) except for the purpose of subsection 129(1), to the extent that any amount paid by the issuer as or on account of interest on the obligation is not allowed as a deduction because of paragraph 15.1(2)(a), it shall, when paid, be deemed to have been paid as a taxable dividend; and

  • (c) except for the purposes of paragraph 125(1)(b), the issuer’s taxable income for any taxation year that includes a period throughout which the obligation was a small business development bond but

    • (i) the issuer was not an eligible small business corporation, or

    • (ii) all or substantially all of the proceeds from the issue of the obligation cannot reasonably be regarded as having been used by the issuer or a corporation with which it was not dealing at arm’s length in the financing of an active business carried on in Canada immediately before the obligation was issued

    shall be deemed to be an amount equal to the total of

    • (iii) the amount paid or payable (depending on the method regularly followed in computing the issuer’s income) as or on account of interest on the obligation in respect of that period, and

    • (iv) the issuer’s taxable income otherwise determined for the year.

• Marginal note:Definitions

  (3) In this section,

  eligible small business corporation

  eligible small business corporation at any time means a taxable Canadian corporation that at that time is

  • (a) a small business corporation, or

  • (b) a cooperative corporation (within the meaning assigned by subsection 136(2)) all or substantially all of the assets of which are used in an active business carried on by it in Canada; (société admissible exploitant une petite entreprise)

  joint election

  joint election means an election that is made in prescribed form, containing prescribed information, jointly by the issuer of an obligation and the person who is the holder of the obligation at the time of the election, that is filed with the Minister by the holder, and in which the holder and the issuer elect that this section apply to the obligation; (choix conjoint)

  majority interest partner

  majority interest partner[Repealed, 1998, c. 19, s. 76(1)]

  property used for specified purposes

  property used for specified purposes[Repealed, 1994, c. 7, Sch. VIII, s. 6(1)]

  qualifying debt obligation

  qualifying debt obligation of a corporation at a particular time means an obligation that is a bond, debenture, bill, note, mortgage, hypothecary claim or similar obligation issued after February 25, 1992 and before 1995,

  • (a) the principal amount of which is not less than $10,000 or more than $500,000,

  • (b) that is issued for a term of not more than 5 years and, except in the event of a failure or default under the terms or conditions of the obligation, not less than one year, and

  • (c) that was issued not more than 5 years before the particular time,

  if the obligation is issued by the corporation

  • (d) as part of a proposal to, or an arrangement with, its creditors that has been approved by a court under the Bankruptcy and Insolvency Act,

  • (e) at a time when all or substantially all of its assets are under the control of a receiver, receiver-manager, sequestrator or trustee in bankruptcy, or

  • (f) at a time when, because of financial difficulty, the corporation is in default, or could reasonably be expected to default, on a debt held by a person with whom the corporation was dealing at arm’s length and the obligation is issued, in whole or in part, directly or indirectly in exchange or substitution for that debt; (créance admissible)

  small business development bond

  small business development bond at any time means

  • (a) an obligation that is at that time a qualifying debt obligation issued after 1981 and before 1988 by a Canadian-controlled private corporation in respect of which a joint election was made within 90 days after the later of its issue date and March 30, 1983,

  • (b) an obligation that is at that time a qualifying debt obligation issued after February 25, 1992 by a Canadian-controlled private corporation in respect of which a joint election was made within 90 days after its issue date, or

  • (c) an obligation that is at that time a qualifying debt obligation issued by a Canadian-controlled private corporation if

    • (i) it is reasonable to consider that the corporation and the holder of the obligation intended that this section apply to the obligation, having regard to such factors as may be relevant, including the rate of interest stipulated under the terms of the obligation and the manner in which the corporation and the holder have treated the obligation for the purposes of this Act, and

    • (ii) the holder files with the Minister a joint election in respect of the obligation within 90 days after the date of notification by the Minister that a joint election in respect of the obligation has not been filed. (obligation pour le développement de la petite entreprise)

  specified property

  specified property[Repealed, 1994, c. 7, Sch. VIII, s. 6(1)]

• Marginal note:Money borrowed

  (4) Notwithstanding any other provision of this Act, an amount paid or payable by a taxpayer pursuant to a legal obligation to pay interest on borrowed money used for the purpose of acquiring a small business development bond shall be deemed to be an amount paid or payable, as the case may be, on borrowed money used for the purpose of earning income from a business or property.

• Marginal note:False declaration

  (5) Where the Minister establishes that an issuer has knowingly or under circumstances amounting to gross negligence made a false declaration in a joint election in respect of an obligation, the reference in subparagraph 15.1(2)(c)(iii) to “the amount paid or payable” shall in respect of the obligation be read as a reference to “3 times the amount paid or payable”.

• Marginal note:Disqualification

  (6) Where at a particular time an issuer makes a joint election in respect of an obligation and

  • (a) the issuer or any other corporation associated at the time the obligation was issued with the issuer,

  • (b) an individual who controls or is a member of a related group that controls the issuer, or

  • (c) a partnership any member of which, who is a majority interest partner of the partnership, controls, or is a member of a related group that controls, the issuer

  had at or before the particular time made a joint election in respect of any small business development bond or small business bond, as the case may be, for the purposes of this section, the issuer shall be deemed not to be an eligible small business corporation in respect of the obligation.

• Marginal note:Exception

  (7) Subsection 15.1(6) does not apply in respect of an obligation issued at any time where the issue price of the obligation does not exceed the amount, if any, by which

  • (a) $500,000

  exceeds

  • (b) the total of all amounts each of which is the principal amount outstanding immediately after that time in respect of

    • (i) another obligation that is a small business development bond issued by

      • (A) the issuer, or

      • (B) a corporation associated with the issuer, or

    • (ii) a small business bond issued by

      • (A) an individual who controls, or is a member of a related group that controls, the issuer, or

      • (B) a partnership any member of which, who is a majority interest partner of the partnership, controls, or is a member of a related group that controls, the issuer.

• (8) to (12) [Repealed, 1994, c. 7, Sch. VIII, s. 6(1)]

Marginal note:Interest on small business bond

• 15.2 (1) Any amount received by a taxpayer as or on account of interest on a small business bond shall, except for the purposes of Part IV, be deemed to have been received as a taxable dividend from a taxable Canadian corporation.

• Marginal note:Rules for small business bonds

  (2) Where an individual or a partnership (in this section referred to as the “issuer”) has issued an obligation that is at any time a small business bond, notwithstanding any other provision of this Act,

  • (a) in computing the issuer’s income for a taxation year, no deduction shall be made in respect of any amount paid or payable (depending on the method regularly followed in computing the issuer’s income) as or on account of interest on the bond in respect of a period that includes that time; and

  • (b) for any taxation year that includes a period throughout which the obligation was a small business bond but

    • (i) the issuer was not an eligible issuer, or

    • (ii) all or substantially all of the proceeds from the issue of the obligation were not used by the issuer in the financing of an active business carried on by the issuer in Canada immediately before the time of the issue of the obligation,

    there shall be added to the tax otherwise payable under this Part by the issuer for that taxation year an amount equal to 29% of the amount of interest paid or payable (depending on the method regularly followed in computing the issuer’s income) in respect of the bond for that period.

• Marginal note:Definitions

  (3) In this section,

  eligible issuer

  eligible issuer at any time means

  • (a) an individual (other than a trust) who is resident in Canada and who

    • (i) has not made a joint election before that time in respect of a small business bond,

    • (ii) is not a majority interest partner of a partnership that has made a joint election before that time in respect of a small business bond, and

    • (iii) neither controls nor is a member of a related group that controls

      • (A) a corporation that has made a joint election before that time in respect of a small business development bond, or

      • (B) a corporation that is associated with a corporation referred to in clause (A), or

  • (b) a partnership

    • (i) each member of which is an individual (other than a trust) who is resident in Canada,

    • (ii) each majority interest partner, if any, of which is an eligible issuer, and

    • (iii) that has not made a joint election before that time in respect of a small business bond; (émetteur admissible)

  joint election

  joint election means an election that is made in prescribed form, containing prescribed information, jointly by the issuer of an obligation and the person who is the holder of the obligation at the time of the election, that is filed with the Minister by the holder and in which the holder and the issuer elect that the provisions of this section apply to that obligation; (choix conjoint)

  majority interest partner

  majority interest partner[Repealed, 1998, c. 19, s. 77(1)]

  qualifying debt obligation

  qualifying debt obligation of an issuer at a particular time means an obligation that is a bill, note, mortgage, hypothecary claim or similar obligation issued after February 25, 1992 and before 1995,

  • (a) the principal amount of which is not less than $10,000 or more than $500,000,

  • (b) that is issued for a term of not more than 5 years and, except in the event of a failure or default under the terms or conditions of the obligation, not less than one year, and

  • (c) that was issued not more than 5 years before the particular time,if the obligation is issued

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

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

  • (f) at a time when, because of financial difficulty, the issuer is in default, or could reasonably be expected to default, on a debt incurred in the course of the issuer’s business and held by a person with whom the issuer was dealing at arm’s length or, where the issuer is a partnership, by a person with whom each member of the partnership was dealing at arm’s length, and it is issued, in whole or in part, directly or indirectly in exchange or substitution for that debt,

  and the funds from the issue of the obligation are used in Canada in a business of the issuer carried on immediately before the time of issue; (créance admissible)

  small business bond

  small business bond at any time means

  • (a) an obligation that is at that time a qualifying debt obligation, issued by an individual or a partnership, in respect of which a joint election was made within 90 days after its issue date, or

  • (b) an obligation that is at that time a qualifying debt obligation issued by an individual or a partnership if

    • (i) it is reasonable to consider that the issuer and the holder of the obligation intended that this section apply to the obligation, having regard to such factors as may be relevant, including the rate of interest stipulated under the terms of the obligation and the manner in which the issuer and the holder have treated the obligation for the purposes of this Act, and

    • (ii) the holder files with the Minister a joint election in respect of the obligation within 90 days after the date of notification by the Minister that a joint election in respect of the obligation has not been filed under paragraph (a). (obligation pour la petite entreprise)

• Marginal note:Status of interest

  (4) Notwithstanding any other provision of this Act, an amount paid or payable by a taxpayer pursuant to a legal obligation to pay interest on borrowed money used for the purpose of acquiring a small business bond shall be deemed to be an amount paid or payable, as the case may be, on borrowed money used for the purpose of earning income from a business or property.

• Marginal note:False declaration

  (5) Where the Minister establishes that an issuer has knowingly or under circumstances amounting to gross negligence made a false declaration in a joint election in respect of an obligation, the reference in paragraph 15.2(2)(b) to “29%” shall, in respect of the obligation, be read as a reference to “87%”.

• Marginal note:Partnerships

  (6) For the purpose of paragraph 15.2(2)(b), in the case of an issuer that is a partnership, the expression “tax otherwise payable under this Part by the issuer” shall be read as a reference to the “tax otherwise payable under this Part by each member of the partnership” and each member shall add to that member’s tax otherwise payable under this Part for the taxation year that includes the period described in paragraph 15.2(2)(b) the amount that can reasonably be regarded as that member’s share of the amount determined under that paragraph with respect to the partnership.

• Marginal note:Deemed eligible issuer

  (7) Where, but for subparagraphs (a)(i), (ii) and (iii) and (b)(ii) of the definition eligible issuer in subsection 15.2(3), an individual or a partnership would be an “eligible issuer”, the individual or partnership shall be deemed to be an eligible issuer in respect of a small business bond at any time where the issue price of the bond does not exceed the amount, if any, by which

  • (a) $500,000

  exceeds

  • (b) where the issuer is an individual, the total of all amounts each of which is the principal amount outstanding immediately after that time in respect of

    • (i) another obligation that is a small business bond issued by

      • (A) the individual, or

      • (B) a partnership of which the individual is a majority interest partner, or

    • (ii) a small business development bond issued by

      • (A) a corporation that is controlled by the individual or by a related group of which the individual is a member, or

      • (B) a corporation that is associated with a corporation referred to in clause (A), or

  • (c) where the issuer is a partnership, the total of all amounts each of which is the principal amount outstanding immediately after that time in respect of

    • (i) another obligation that is a small business bond issued by

      • (A) the partnership,

      • (B) an individual who is a majority interest partner of the partnership, or

      • (C) a partnership of which the individual referred to in clause (B) is a majority interest partner, or

    • (ii) a small business development bond issued by

      • (A) a corporation that is controlled by the individual referred to in clause (B) or by a related group of which the individual is a member, or

      • (B) a corporation that is associated with a corporation referred to in clause (A).

• (8) and (9) [Repealed, 1994, c. 7, Sch. VIII, s. 6(1)]

Marginal note:Income and capital combined

• 16 (1) Where, under a contract or other arrangement, an amount can reasonably be regarded as being in part interest or other amount of an income nature and in part an amount of a capital nature, the following rules apply:

  • (a) the part of the amount that can reasonably be regarded as interest shall, irrespective of when the contract or arrangement was made or the form or legal effect thereof, be deemed to be interest on a debt obligation held by the person to whom the amount is paid or payable; and

  • (b) the part of the amount that can reasonably be regarded as an amount of an income nature, other than interest, shall, irrespective of when the contract or arrangement was made or the form or legal effect thereof, be included in the income of the taxpayer to whom the amount is paid or payable for the taxation year in which the amount was received or became due to the extent it has not otherwise been included in the taxpayer’s income.

• Marginal note:Obligation issued at discount

  (2) Where, in the case of a bond, debenture, bill, note, mortgage or similar obligation issued after December 20, 1960 and before June 19, 1971 by a person exempt from tax under section 149, a non-resident person not carrying on business in Canada, or a government, municipality or municipal or other public body performing a function of government,

  • (a) the obligation was issued for an amount that is less than the principal amount of the obligation,

  • (b) the interest stipulated to be payable on the obligation, expressed in terms of an annual rate on

    • (i) the principal amount thereof, if no amount is payable on account of the principal amount before the maturity of the obligation, or

    • (ii) the amount outstanding from time to time as or on account of the principal amount thereof, in any other case,

    is less than 5%, and

  • (c) the yield from the obligation, expressed in terms of an annual rate on the amount for which the obligation was issued (which annual rate shall, if the terms of the obligation or any agreement relating thereto conferred on the holder thereof a right to demand payment of the principal amount of the obligation or the amount outstanding as or on account of the principal amount, as the case may be, before the maturity of the obligation, be calculated on the basis of the yield that produces the highest annual rate obtainable either on the maturity of the obligation or conditional on the exercise of any such right) exceeds the annual rate determined under paragraph 16(2)(b) by more than 1/3 thereof,

  the amount by which the principal amount of the obligation exceeds the amount for which the obligation was issued shall be included in computing the income of the first owner of the obligation who is a resident of Canada and is not a person exempt from tax under section 149 or a government, for the taxation year of that owner of the obligation in which he, she or it became the owner thereof.

• Marginal note:Obligation issued at discount

  (3) Where, in the case of a bond, debenture, bill, note, mortgage, hypothecary claim or similar obligation (other than an obligation that is a prescribed debt obligation for the purpose of subsection 12(9)) issued after June 18, 1971 by a person exempt, because of section 149, from Part I tax on part or on all of the person’s income, a non-resident person not carrying on business in Canada or a government, municipality or municipal or other public body performing a function of government,

  • (a) the obligation was issued for an amount that is less than the principal amount of the obligation, and

  • (b) the yield from the obligation, expressed in terms of an annual rate on the amount for which the obligation was issued (which annual rate shall, if the terms of the obligation or any agreement relating thereto conferred on the holder thereof a right to demand payment of the principal amount of the obligation or the amount outstanding as or on account of the principal amount, as the case may be, before the maturity of the obligation, be calculated on the basis of the yield that produces the highest annual rate obtainable either on the maturity of the obligation or conditional on the exercise of any such right) exceeds 4/3 of the interest stipulated to be payable on the obligation, expressed in terms of an annual rate on

    • (i) the principal amount of the obligation, if no amount is payable on account of the principal amount before the maturity of the obligation, or

    • (ii) the amount outstanding from time to time as or on account of the principal amount thereof, in any other case,

    the amount by which the principal amount of the obligation exceeds the amount for which the obligation was issued shall be included in computing the income of the first owner of the obligation

  • (c) who is resident in Canada,

  • (d) who is not a government nor a person exempt, because of section 149, from tax under this Part on all or part of the person’s taxable income, and

  • (e) of whom the obligation is a capital property,

  for the taxation year in which the owner acquired the obligation.

• Marginal note:Where s. (1) does not apply

  (4) Subsection 16(1) does not apply to any amount received by a taxpayer in a taxation year

  • (a) as an annuity payment; or

  • (b) in satisfaction of the taxpayer’s rights under an annuity contract.

• Marginal note:Idem

  (5) Subsection 16(1) does not apply in any case where subsection 16(2) or 16(3) applies.

• Marginal note:Indexed debt obligations

  (6) Subject to subsection 16(7) and for the purposes of this Act, where at any time in a taxpayer’s taxation year

  • (a) an interest in an indexed debt obligation is held by the taxpayer,

    • (i) an amount determined in prescribed manner shall be deemed to be received and receivable by the taxpayer in the year as interest in respect of the obligation, and

    • (ii) an amount determined in prescribed manner shall be deemed to be paid and payable in respect of the year by the taxpayer as interest under a legal obligation of the taxpayer to pay interest on borrowed money used for the purpose of earning income from a business or property;

  • (b) an indexed debt obligation is an obligation of the taxpayer,

    • (i) an amount determined in prescribed manner shall be deemed to be payable in respect of the year by the taxpayer as interest in respect of the obligation, and

    • (ii) an amount determined in prescribed manner shall be deemed to be received and receivable by the taxpayer in the year as interest in respect of the obligation; and

  • (c) the taxpayer pays or credits an amount in respect of an amount determined under subparagraph 16(6)(b)(i) in respect of an indexed debt obligation, the payment or crediting shall be deemed to be a payment or crediting of interest on the obligation.

• Marginal note:Impaired indexed debt obligations

  (7) Paragraph 16(6)(a) does not apply to a taxpayer in respect of an indexed debt obligation for the part of a taxation year throughout which the obligation is impaired where an amount in respect of the obligation is deductible because of subparagraph 20(1)(l)(ii) in computing the taxpayer’s income for the year.

Marginal note:Leasing properties

• 16.1 (1) Where a taxpayer (in this section referred to as the “lessee”) leases tangible property (other than prescribed property) that would, if the lessee acquired the property, be depreciable property of the lessee, from a person resident in Canada other than a person whose taxable income is exempt from tax under this Part, or from a non-resident person who holds the lease in the course of carrying on a business through a permanent establishment in Canada, as defined by regulation, any income from which is subject to tax under this Part, who owns the property and with whom the lessee was dealing at arm’s length (in this section referred to as the “lessor”) for a term of more than one year, if the lessee and the lessor jointly elect in prescribed form filed with their returns of income for their respective taxation years that include the particular time when the lease began, the following rules apply for the purpose of computing the income of the lessee for the taxation year that includes the particular time and for all subsequent taxation years:

  • (a) in respect of amounts paid or payable for the use of, or for the right to use, the property, the lease shall be deemed not to be a lease;

  • (b) the lessee shall be deemed to have acquired the property from the lessor at the particular time at a cost equal to its fair market value at that time;

  • (c) the lessee shall be deemed to have borrowed money from the lessor at the particular time, for the purpose of acquiring the property, in a principal amount equal to the fair market value of the property at that time;

  • (d) interest shall be deemed to accrue on the principal amount of the borrowed money outstanding from time to time, compounded semi-annually, not in advance, at the prescribed rate in effect

    • (i) at the earlier of

      • (A) the time, if any, before the particular time, at which the lessee last entered into an agreement to lease the property, and

      • (B) the particular time, or

    • (ii) where the lease provides that the amount payable by the lessee for the use of, or the right to use, the property varies according to prevailing interest rates in effect from time to time, and the lessee so elects, in respect of all of the property that is subject to the lease, in the lessee’s return of income under this Part for the taxation year of the lessee in which the lease began, at the beginning of the period for which the interest is being calculated;

  • (e) all amounts paid or payable by or on behalf of the lessee for the use of, or the right to use, the property in the year shall be deemed to be blended payments, paid or payable by the lessee, of principal and interest on the borrowed money outstanding from time to time, calculated in accordance with paragraph 16.1(1)(d), applied firstly on account of interest on principal, secondly on account of interest on unpaid interest and thirdly on account of unpaid principal, if any, and the amount, if any, by which any such payment exceeds the total of those amounts shall be deemed to be paid or payable on account of interest, and any amount deemed by reason of this paragraph to be a payment of interest shall be deemed to have been an amount paid or payable, as the case may be, pursuant to a legal obligation to pay interest in respect of the year on the borrowed money;

  • (f) at the time of the expiration or cancellation of the lease, the assignment of the lease or the sublease of the property by the lessee, the lessee shall (except where subsection 16.1(4) applies) be deemed to have disposed of the property at that time for proceeds of disposition equal to the amount, if any, by which

    • (i) the total of

      • (A) the amount referred to in paragraph 16.1(1)(c), and

      • (B) all amounts received or receivable by the lessee in respect of the cancellation or assignment of the lease or the sublease of the property

      exceeds

    • (ii) the total of

      • (A) all amounts deemed under paragraph 16.1(1)(e) to have been paid or payable, as the case may be, by the lessee on account of the principal amount of the borrowed money, and

      • (B) all amounts paid or payable by or on behalf of the lessee in respect of the cancellation or assignment of the lease or the sublease of the property;

  • (g) for the purposes of subsections 13(5.2) and 13(5.3), each amount paid or payable by or on behalf of the lessee that would, but for this subsection, have been an amount paid or payable for the use of, or the right to use, the property shall be deemed to have been deducted in computing the lessee’s income as an amount paid or payable by the lessee for the use of, or the right to use, the property after the particular time;

  • (h) any amount paid or payable by or on behalf of the lessee in respect of the granting or assignment of the lease or the sublease of the property that would, but for this paragraph, be the capital cost to the lessee of a leasehold interest in the property shall be deemed to be an amount paid or payable, as the case may be, by the lessee for the use of, or the right to use, the property for the remaining term of the lease; and

  • (i) where the lessee elects under this subsection in respect of a property and, at any time after the lease was entered into, the owner of the property is a non-resident person who does not hold the lease in the course of carrying on a business through a permanent establishment in Canada, as defined by regulation, any income from which is subject to tax under this Part, for the purposes of this subsection the lease shall be deemed to have been cancelled at that time.

• Marginal note:Assignments and subleases

  (2) Subject to subsections 16.1(3) and 16.1(4), where at any particular time a lessee who has made an election under subsection 16.1(1) in respect of a leased property assigns the lease or subleases the property to another person (in this section referred to as the “assignee”),

  • (a) subsection 16.1(1) shall not apply in computing the income of the lessee in respect of the lease for any period after the particular time; and

  • (b) if the lessee and the assignee jointly elect in prescribed form filed with their returns of income under this Part for their respective taxation years that include the particular time, subsection 16.1(1) shall apply to the assignee as if

    • (i) the assignee leased the property at the particular time from the owner of the property for a term of more than one year, and

    • (ii) the assignee and the owner of the property jointly elected under subsection 16.1(1) in respect of the property with their returns of income under this Part for their respective taxation years that include the particular time.

• Marginal note:Idem

  (3) Subject to subsection 16.1(4), where at any particular time a lessee who has made an election under subsection 16.1(1) in respect of a leased property assigns the lease or subleases the property to another person with whom the lessee is not dealing at arm’s length, the other person shall, for the purposes of subsection 16.1(1) and for the purposes of computing that person’s income in respect of the lease for any period after the particular time, be deemed to be the same person as, and a continuation of, the lessee, except that, notwithstanding paragraph 16.1(1)(b), that other person shall be deemed to have acquired the property from the lessee at the time that it was acquired by the lessee at a cost equal to the amount that would be the lessee’s proceeds of disposition of the property determined under paragraph 16.1(1)(f) if that amount were determined without reference to clauses 16.1(1)(f)(i)(B) and (ii)(B).

• Marginal note:Amalgamations and windings-up

  (4) Notwithstanding subsection 16.1(2), where at any time a particular corporation that has made an election under subsection 16.1(1) in respect of a lease assigns the lease

  • (a) by reason of an amalgamation (within the meaning assigned by subsection 87(1)), or

  • (b) in the course of the winding-up of a Canadian corporation in respect of which subsection 88(1) applies,

  to another corporation with which it does not deal at arm’s length, the other corporation shall, for the purposes of subsection 16.1(1) and for the purposes of computing its income in respect of the lease after that time, be deemed to be the same person as, and a continuation of, the particular corporation.

• Marginal note:Replacement property

  (5) For the purposes of subsection 16.1(1), where at any time a property (in this subsection referred to as a “replacement property”) is provided by a lessor to a lessee as a replacement for a similar property of the lessor (in this subsection referred to as the “original property”) that was leased by the lessor to the lessee, and the amount payable by the lessee for the use of, or the right to use, the replacement property is the same as the amount that was so payable in respect of the original property, the replacement property shall be deemed to be the same property as the original property.

• Marginal note:Additional property

  (6) For the purposes of subsection 16.1(1), where at any particular time

  • (a) an addition or alteration (in this subsection referred to as “additional property”) is made by a lessor to a property (in this subsection referred to as the “original property”) of the lessor that is the subject of a lease,

  • (b) the lessor and the lessee of the original property have jointly elected under subsection 16.1(1) in respect of the original property, and

  • (c) as a consequence of the addition or alteration, the total amount payable by the lessee for the use of, or the right to use, the original property and the additional property exceeds the amount so payable in respect of the original property,

  the following rules apply:

  • (d) the lessee shall be deemed to have leased the additional property from the lessor at the particular time,

  • (e) the term of the lease of the additional property shall be deemed to be greater than one year,

  • (f) the lessor and the lessee shall be deemed to have jointly elected under subsection 16.1(1) in respect of the additional property,

  • (g) the prescribed rate in effect at the particular time in respect of the additional property shall be deemed to be equal to the prescribed rate in effect in respect of the original property at the particular time,

  • (h) the additional property shall be deemed not to be prescribed property, and

  • (i) the excess referred to in paragraph 16.1(6)(c) shall be deemed to be an amount payable by the lessee for the use of, or the right to use, the additional property.

• Marginal note:Renegotiation of lease

  (7) For the purposes of subsection 16.1(1), where at any time

  • (a) a lease (in this subsection referred to as the “original lease”) of property is renegotiated in the course of a bona fide renegotiation, and

  • (b) as a result of the renegotiation, the amount payable by the lessee of the property for the use of, or the right to use, the property is altered in respect of a period after that time (otherwise than because of an addition or alteration to which subsection 16.1(6) applies),

  the original lease shall be deemed to have expired and the renegotiated lease shall be deemed to be a new lease of the property entered into at that time.

Marginal note:Amount owing by non-resident

• 17 (1) Where, at any time in a taxation year of a corporation resident in Canada, a non-resident person owes an amount to the corporation, that amount has been or remains outstanding for more than a year and the total determined under paragraph (b) for the year is less than the amount of interest that would be included in computing the corporation’s income for the year in respect of the amount owing if that interest were computed at a reasonable rate for the period in the year during which the amount was owing, the corporation shall include an amount in computing its income for the year equal to the amount, if any, by which

  • (a) the amount of interest that would be included in computing the corporation’s income for the year in respect of the amount owing if that interest were computed at the prescribed rate for the period in the year during which the amount was owing

  exceeds

  • (b) the total of all amounts each of which is

    • (i) an amount included in computing the corporation’s income for the year as, on account of, in lieu of or in satisfaction of, interest in respect of the amount owing,

    • (ii) an amount received or receivable by the corporation from a trust that is included in computing the corporation’s income for the year or a subsequent year and that can reasonably be attributed to interest on the amount owing for the period in the year during which the amount was owing, or

    • (iii) an amount that is included in computing the corporation’s income for the year or a subsequent year under subsection 91(1) and that can reasonably be attributed to interest on the amount owing for the period in the year during which the amount was owing.

• Marginal note:Anti-avoidance rule — indirect loan

  (2) For the purpose of this section and subject to subsection (3), where

  • (a) a non-resident person owes an amount at any time to a particular person or partnership (other than a corporation resident in Canada), and

  • (b) it is reasonable to conclude that the particular person or partnership entered into the transaction under which the amount became owing or the particular person or partnership permitted the amount owing to remain outstanding because

    • (i) a corporation resident in Canada made a loan or transfer of property, or

    • (ii) the particular person or partnership anticipated that a corporation resident in Canada would make a loan or transfer of property,

    either directly or indirectly, in any manner whatever, to or for the benefit of any person or partnership (other than an exempt loan or transfer),

  the non-resident person is deemed at that time to owe to the corporation an amount equal to the amount owing to the particular person or partnership.

• Marginal note:Exception to anti-avoidance rule — indirect loan

  (3) Subsection (2) does not apply to an amount owing at any time by a non-resident person to a particular person or partnership where

  • (a) at that time, the non-resident person and the particular person or each member of the particular partnership, as the case may be, are controlled foreign affiliates of the corporation resident in Canada; or

  • (b) at that time,

    • (i) the non-resident person and the particular person are not related or the non-resident person and each member of the particular partnership are not related, as the case may be,

    • (ii) the terms or conditions made or imposed in respect of the amount owing, determined without reference to any loan or transfer of property by a corporation resident in Canada described in paragraph (2)(b) in respect of the amount owing, are such that persons dealing at arm’s length would have been willing to enter into them at the time that they were entered into, and

    • (iii) if there were an amount of interest payable on the amount owing at that time that would be required to be included in computing the income of a foreign affiliate of the corporation resident in Canada for a taxation year, that amount of interest would not be required to be included in computing the foreign accrual property income of the affiliate for that year.

• Marginal note:Anti-avoidance rule — loan through partnership

  (4) For the purpose of this section, where a non-resident person owes an amount at any time to a partnership and subsection (2) does not deem the non-resident person to owe an amount equal to that amount to a corporation resident in Canada, the non-resident person is deemed at that time to owe to each member of the partnership, on the same terms as those that apply in respect of the amount owing to the partnership, that proportion of the amount owing to the partnership at that time that

  • (a) the fair market value of the member’s interest in the partnership at that time

  is of

  • (b) the fair market value of all interests in the partnership at that time.

• Marginal note:Anti-avoidance rule — loan through trust

  (5) For the purpose of this section, where a non-resident person owes an amount at any time to a trust and subsection (2) does not deem the non-resident person to owe an amount equal to that amount to a corporation resident in Canada,

  • (a) where the trust is a non-discretionary trust at that time, the non-resident person is deemed at that time to owe to each beneficiary of the trust, on the same terms as those that apply in respect of the amount owing to the trust, that proportion of the amount owing to the trust that

    • (i) the fair market value of the beneficiary’s interest in the trust at that time

    is of

    • (ii) the fair market value of all the beneficial interests in the trust at that time; and

  • (b) in any other case, the non-resident person is deemed at that time to owe to each settlor in respect of the trust, on the same terms as those that apply in respect of the amount owing to the trust, an amount equal to the amount owing to the trust.

• Marginal note:Anti-avoidance rule — loan to partnership

  (6) For the purpose of this section, where a particular partnership owes an amount at any time to any person or any other partnership (in this subsection referred to as the “lender”), each member of the particular partnership is deemed to owe at that time to the lender, on the same terms as those that apply in respect of the amount owing by the particular partnership to the lender, that proportion of the amount owing to the lender that

  • (a) the fair market value of the member’s interest in the particular partnership at that time

  is of

  • (b) the fair market value of all interests in the particular partnership at that time.

• Marginal note:Exception

  (7) Subsection (1) does not apply in respect of an amount owing to a corporation resident in Canada by a non-resident person if a tax has been paid under Part XIII on the amount owing, except that, for the purpose of this subsection, tax under Part XIII is deemed not to have been paid on that portion of the amount owing in respect of which an amount was repaid or applied under subsection 227(6.1).

• Marginal note:Exception

  (8) Subsection (1) does not apply to a corporation resident in Canada for a taxation year of the corporation in respect of an amount owing to the corporation by a non-resident person if the non-resident person is a controlled foreign affiliate of the corporation throughout the period in the year during which the amount is owing and it is established that the amount owing

  • (a) arose as a loan or advance of money to the affiliate that the affiliate has used, throughout the period that began when the loan or advance was made and that ended at the earlier of the end of the year and the time at which the amount was repaid,

    • (i) for the purpose of earning

      • (A) income from an active business, as defined in subsection 95(1), of the affiliate, or

      • (B) income that was included in computing the income from an active business of the affiliate under subsection 95(2), or

    • (ii) for the purpose of making a loan or advance to another controlled foreign affiliate of the corporation where, if interest became payable on the loan or advance at any time in the period and the affiliate was required to include the interest in computing its income for a taxation year, that interest would not be required to be included in computing the affiliate’s foreign accrual property income for that year; or

  • (b) arose in the course of an active business, as defined in subsection 95(1), carried on by the affiliate throughout the period that began when the amount owing arose and that ended at the earlier of the end of the year and the time at which the amount was repaid.

• Marginal note:Exception

  (9) Subsection (1) does not apply to a corporation resident in Canada for a taxation year of the corporation in respect of an amount owing to the corporation by a non-resident person if

  • (a) the corporation is not related to the non-resident person throughout the period in the year during which the amount owing is outstanding;

  • (b) the amount owing arose in respect of goods sold or services provided to the non-resident person by the corporation in the ordinary course of the business carried on by the corporation; and

  • (c) the terms and conditions in respect of the amount owing are such that persons dealing at arm’s length would have been willing to enter into them at the time that they were entered into.

• Marginal note:Determination of whether related and controlled foreign affiliate status

  (10) For the purpose of this section, in determining whether persons are related to each other and whether a non-resident corporation is a controlled foreign affiliate of a corporation resident in Canada at any time,

  • (a) each member of a partnership is deemed to own that proportion of the number of shares of a class of the capital stock of a corporation owned by the partnership at that time that

    • (i) the fair market value of the member’s interest in the partnership at that time

    is of

    • (ii) the fair market value of all interests in the partnership at that time; and

  • (b) each beneficiary of a non-discretionary trust is deemed to own that proportion of the number of shares of a class of the capital stock of a corporation owned by the trust at that time that

    • (i) the fair market value of the beneficiary’s interest in the trust at that time

    is of

    • (ii) the fair market value of all the beneficial interests in the trust at that time.

• Marginal note:Determination of whether related

  (11) For the purpose of this section, in determining whether persons are related to each other at any time, each settlor in respect of a trust, other than a non-discretionary trust, is deemed to own the shares of a class of the capital stock of a corporation owned by the trust at that time.

• Marginal note:Determination of whether persons related

  (11.1) For the purposes of this section, in determining whether persons are related to each other at any time, any rights referred to in subparagraph 251(5)(b)(i) that exist at that time are deemed not to exist at that time to the extent that the exercise of those rights is prohibited at that time under a law of the country under the law of which the corporation was formed or last continued and is governed, that restricts the foreign ownership or control of the corporation.

• Marginal note:Back-to-back loans

  (11.2) For the purposes of subsection (2) and paragraph (3)(b), where a non-resident person, or a partnership each member of which is non-resident, (in this subsection referred to as the “intermediate lender”) makes a loan to a non-resident person, or a partnership each member of which is non-resident, (in this subsection referred to as the “intended borrower”) because the intermediate lender received a loan from another non-resident person, or a partnership each member of which is non-resident, (in this subsection referred to as the “initial lender”)

  • (a) the loan made by the intermediate lender to the intended borrower is deemed to have been made by the initial lender to the intended borrower (to the extent of the lesser of the amount of the loan made by the initial lender to the intermediate lender and the amount of the loan made by the intermediate lender to the intended borrower) under the same terms and conditions and at the same time as it was made by the intermediate lender; and

  • (b) the loan made by the initial lender to the intermediate lender and the loan made by the intermediate lender to the intended borrower are deemed not to have been made to the extent of the amount of the loan deemed to have been made under paragraph (a).

• Marginal note:Determination of whether persons related

  (11.3) For the purpose of applying paragraph (3)(b) in respect of a corporation resident in Canada described in paragraph (2)(b), in determining whether persons described in subparagraph (3)(b)(i) are related to each other at any time, any rights referred to in paragraph 251(5)(b) that otherwise exist at that time are deemed not to exist at that time where, if the rights were exercised immediately before that time,

  • (a) all of those persons would at that time be controlled foreign affiliates of the corporation resident in Canada; and

  • (b) because of subsection (8), subsection (1) would not apply to the corporation resident in Canada in respect of the amount that would, but for this subsection, have been deemed to have been owing at that time to the corporation resident in Canada by the non-resident person described in subparagraph (3)(b)(i).

• Marginal note:Determination of controlled foreign affiliate status

  (12) For the purpose of this section, in determining whether a non-resident person is a controlled foreign affiliate of a corporation resident in Canada at any time, each settlor in respect of a trust, other than a non-discretionary trust, is deemed to own that proportion of the number of shares of a class of the capital stock of a corporation owned by the trust at that time that one is of the number of settlors in respect of the trust at that time.

• Marginal note:Extended definition of controlled foreign affiliate

  (13) For the purpose of this section, where, at any time, two corporations resident in Canada are related (otherwise than because of a right referred to in paragraph 251(5)(b)), any corporation that is a controlled foreign affiliate of one of the corporations at that time is deemed to be a controlled foreign affiliate of the other corporation at that time.

• Marginal note:Anti-avoidance rule — where rights or shares issued, acquired or disposed of to avoid tax

  (14) For the purpose of this section,

  • (a) where any person or partnership has a right under a contract, in equity or otherwise, either immediately or in the future and either absolutely or contingently, to, or to acquire, shares of the capital stock of a corporation and it can reasonably be considered that the principal purpose for the existence of the right is to avoid or reduce the amount of income that subsection (1) would otherwise require any corporation to include in computing its income for any taxation year, those shares are deemed to be owned by that person or partnership; and

  • (b) where any person or partnership acquires or disposes of shares of the capital stock of a corporation, either directly or indirectly, and it can reasonably be considered that the principal purpose for the acquisition or disposition of the shares is to avoid or reduce the amount of income that subsection (1) would otherwise require any corporation to include in computing its income for any taxation year, those shares are deemed not to have been acquired or disposed of, as the case may be, and where the shares were unissued by the corporation immediately before the acquisition, those shares are deemed not to have been issued.

• Marginal note:Definitions

  (15) The definitions in this subsection apply in this section.

  controlled foreign affiliate

  société étrangère affiliée contrôlée

  controlled foreign affiliate has the meaning that would be assigned by the definition controlled foreign affiliate in subsection 95(1) if paragraphs (d) and (e) of that definition read as follows:

  • “(d) one or more persons resident in Canada with whom the taxpayer does not deal at arm’s length, or

  • (e) the taxpayer and one or more persons resident in Canada with whom the taxpayer does not deal at arm’s length.” (société étrangère affiliée contrôlée)

  exempt loan or transfer

  prêt ou transfert de biens exclu

  exempt loan or transfer means

  • (a) a loan made by a corporation resident in Canada where the interest rate charged on the loan is not less than the interest rate that a lender and a borrower would have been willing to agree to if they were dealing at arm’s length with each other at the time the loan was made;

  • (b) a transfer of property (other than a transfer of property made for the purpose of acquiring shares of the capital stock of a foreign affiliate of a corporation or a foreign affiliate of a person resident in Canada with whom the corporation was not dealing at arm’s length) or payment of an amount owing by a corporation resident in Canada pursuant to an agreement made on terms and conditions that persons who were dealing at arm’s length at the time the agreement was entered into would have been willing to agree to;

  • (c) a dividend paid by a corporation resident in Canada on shares of a class of its capital stock; and

  • (d) a payment made by a corporation resident in Canada on a reduction of the paid-up capital in respect of shares of a class of its capital stock (not exceeding the total amount of the reduction). (prêt ou transfert de biens exclu)

  non-discretionary trust

  fiducie non discrétionnaire

  non-discretionary trust, at any time, means a trust in which all interests were vested indefeasibly at the beginning of the trust’s taxation year that includes that time. (fiducie non discrétionnaire)

  settlor

  auteur

  settlor in respect of a trust at any time means any person or partnership that has made a loan or transfer of property, either directly or indirectly, in any manner whatever, to or for the benefit of the trust at or before that time, other than, where the person or partnership deals at arm’s length with the trust at that time,

  • (a) a loan made by the person or partnership to the trust at a reasonable rate of interest; or

  • (b) a transfer made by the person or partnership to the trust for fair market value consideration. (auteur)

Deductions

Marginal note:General limitations

• 18 (1) In computing the income of a taxpayer from a business or property no deduction shall be made in respect of

  • Marginal note:General limitation

    (a) an outlay or expense except to the extent that it was made or incurred by the taxpayer for the purpose of gaining or producing income from the business or property;

  • Marginal note:Capital outlay or loss

    (b) an outlay, loss or replacement of capital, a payment on account of capital or an allowance in respect of depreciation, obsolescence or depletion except as expressly permitted by this Part;

  • Marginal note:Limitation re exempt income

    (c) an outlay or expense to the extent that it may reasonably be regarded as having been made or incurred for the purpose of gaining or producing exempt income or in connection with property the income from which would be exempt;

  • Marginal note:Annual value of property

    (d) the annual value of property except rent for property leased by the taxpayer for use in the taxpayer’s business;

  • Marginal note:Reserves, etc.

    (e) an amount as, or on account of, a reserve, a contingent liability or amount or a sinking fund except as expressly permitted by this Part;

  • Marginal note:Unpaid claims under insurance policies

    (e.1) an amount in respect of claims that were received by an insurer before the end of the year under insurance policies and that are unpaid at the end of the year, except as expressly permitted by this Part;

  • Marginal note:Payments on discounted bonds

    (f) an amount paid or payable as or on account of the principal amount of any obligation described in paragraph 20(1)(f) except as expressly permitted by that paragraph;

  • Marginal note:Payments on income bonds

    (g) an amount paid by a corporation as interest or otherwise to holders of its income bonds or income debentures unless the bonds or debentures have been issued or the income provisions thereof have been adopted since 1930

    • (i) to afford relief to the debtor from financial difficulties, and

    • (ii) in place of or as an amendment to bonds or debentures that at the end of 1930 provided unconditionally for a fixed rate of interest;

  • Marginal note:Personal and living expenses

    (h) personal or living expenses of the taxpayer, other than travel expenses incurred by the taxpayer while away from home in the course of carrying on the taxpayer’s business;

  • Marginal note:Limitation re employer’s contribution under supplementary unemployment benefit plan

    (i) an amount paid by an employer to a trustee under a supplementary unemployment benefit plan except as permitted by section 145;

  • Marginal note:Limitation re employer’s contribution under deferred profit sharing plan

    (j) an amount paid by an employer to a trustee under a deferred profit sharing plan except as expressly permitted by section 147;

  • Marginal note:Limitation re employer’s contribution under profit sharing plan

    (k) an amount paid by an employer to a trustee under a profit sharing plan that is not

    • (i) an employees profit sharing plan,

    • (ii) a deferred profit sharing plan, or

    • (iii) a registered pension plan;

  • Marginal note:Use of recreational facilities and club dues

    (l) an outlay or expense made or incurred by the taxpayer after 1971,

    • (i) for the use or maintenance of property that is a yacht, a camp, a lodge or a golf course or facility, unless the taxpayer made or incurred the outlay or expense in the ordinary course of the taxpayer’s business of providing the property for hire or reward, or

    • (ii) as membership fees or dues (whether initiation fees or otherwise) in any club the main purpose of which is to provide dining, recreational or sporting facilities for its members;

  • (l.1) [Repealed, 2003, c. 28, s. 2(1)]

  • (m) [Repealed, 2003, c. 28, s. 2(3)]

  • Marginal note:Political contributions

    (n) a political contribution;

  • Marginal note:Employee benefit plan contributions

    (o) an amount paid or payable as a contribution to an employee benefit plan;

  • Marginal note:Salary deferral arrangement

    (o.1) except as expressly permitted by paragraphs 20(1)(oo) and 20(1)(pp), an outlay or expense made or incurred under a salary deferral arrangement in respect of another person, other than such an arrangement established primarily for the benefit of one or more non-resident employees in respect of services to be rendered outside Canada;

  • Marginal note:Retirement compensation arrangement

    (o.2) except as expressly permitted by paragraph 20(1)(r), contributions made under a retirement compensation arrangement;

  • Marginal note:Limitation re personal services business expenses

    (p) an outlay or expense to the extent that it was made or incurred by a corporation in a taxation year for the purpose of gaining or producing income from a personal services business, other than

    • (i) the salary, wages or other remuneration paid in the year to an incorporated employee of the corporation,

    • (ii) the cost to the corporation of any benefit or allowance provided to an incorporated employee in the year,

    • (iii) any amount expended by the corporation in connection with the selling of property or the negotiating of contracts by the corporation if the amount would have been deductible in computing the income of an incorporated employee for a taxation year from an office or employment if the amount had been expended by the incorporated employee under a contract of employment that required the employee to pay the amount, and

    • (iv) any amount paid by the corporation in the year as or on account of legal expenses incurred by it in collecting amounts owing to it on account of services rendered

    that would, if the income of the corporation were from a business other than a personal services business, be deductible in computing its income;

  • Marginal note:Limitation re cancellation of lease

    (q) an amount paid or payable by the taxpayer for the cancellation of a lease of property of the taxpayer leased by the taxpayer to another person, except to the extent permitted by paragraph 20(1)(z) or 20(1)(z.1);

  • Marginal note:Certain automobile expenses

    (r) an amount paid or payable by the taxpayer as an allowance for the use by an individual of an automobile to the extent that the amount exceeds an amount determined in accordance with prescribed rules, except where the amount so paid or payable is required to be included in computing the individual’s income;

  • Marginal note:Loans or lending assets

    (s) any loss, depreciation or reduction in a taxation year in the value or amortized cost of a loan or lending asset of a taxpayer made or acquired by the taxpayer in the ordinary course of the taxpayer’s business of insurance or the lending of money and not disposed of by the taxpayer in the year, except as expressly permitted by this Part;

  • Marginal note:Payments under Act

    (t) any amount paid or payable under this Act (other than tax paid or payable under Part XII.2 or Part XII.6);

  • Marginal note:RSP/RIF fees

    (u) any amount paid or payable by the taxpayer for services in respect of a retirement savings plan or retirement income fund under which the taxpayer is the annuitant; and

  • Marginal note:Interest — authorized foreign bank

    (v) where the taxpayer is an authorized foreign bank, an amount in respect of interest that would otherwise be deductible in computing the taxpayer’s income from a business carried on in Canada, except as provided in section 20.2.

• Marginal note:Limit on certain interest and property tax

  (2) Notwithstanding paragraph 20(1)(c), in computing the taxpayer’s income for a particular taxation year from a business or property, no amount shall be deductible in respect of any expense incurred by the taxpayer in the year as, on account or in lieu of payment of, or in satisfaction of,

  • (a) interest on debt relating to the acquisition of land, or

  • (b) property taxes (not including income or profits taxes or taxes computed by reference to the transfer of property) paid or payable by the taxpayer in respect of land to a province or to a Canadian municipality,

  unless, having regard to all the circumstances (including the cost to the taxpayer of the land in relation to the taxpayer’s gross revenue, if any, from the land for the particular year or any preceding taxation year), the land can reasonably be considered to have been, in the year,

  • (c) used in the course of a business carried on in the particular year by the taxpayer, other than a business in the ordinary course of which land is held primarily for the purpose of resale or development, or

  • (d) held primarily for the purpose of gaining or producing income of the taxpayer from the land for the particular year,

  except to the extent of the total of

  • (e) the amount, if any, by which the taxpayer’s gross revenue, if any, from the land for the particular year exceeds the total of all amounts deducted in computing the taxpayer’s income from the land for the year, and

  • (f) in the case of a corporation whose principal business is the leasing, rental or sale, or the development for lease, rental or sale, or any combination thereof, of real property owned by it, to or for a person with whom the corporation is dealing at arm’s length, the corporation’s base level deduction for the particular year.

• Marginal note:Where taxpayer member of partnership

  (2.1) Where a taxpayer who is a member of a partnership was obligated to pay any amount as, on account or in lieu of payment of, or in satisfaction of, interest (in this subsection referred to as an “interest amount”) on money that was borrowed by the taxpayer before April 1, 1977 and that was used to acquire land owned by the partnership before that day or on an obligation entered into by the taxpayer before April 1, 1977 to pay for land owned by the partnership before that day, and, in a taxation year of the taxpayer, either,

  • (a) the partnership has disposed of all or any portion of the land, or

  • (b) the taxpayer has disposed of all or any portion of the taxpayer’s interest in the partnership

  to a person other than a person with whom the taxpayer does not deal at arm’s length, in computing the taxpayer’s income for the year or any subsequent year, there may be deducted such portion of the taxpayer’s interest amount

  • (c) that was, by virtue of subsection 18(2), not deductible in computing the income of the taxpayer for any previous taxation year,

  • (d) that was not deductible in computing the income of any other taxpayer for any taxation year,

  • (e) that was not included in computing the adjusted cost base to the taxpayer of any property, and

  • (f) that was not deductible under this subsection in computing the income of the taxpayer for any previous taxation year

  as is reasonable having regard to the portion of the land or interest in the partnership, as the case may be, so disposed of.

• Marginal note:Base level deduction

  (2.2) For the purposes of this section, a corporation’s base level deduction for a taxation year is the amount that would be the amount of interest, computed at the prescribed rate, for the year in respect of a loan of $1,000,000 outstanding throughout the year, unless the corporation is associated in the year with one or more other corporations in which case, except as otherwise provided in this section, its base level deduction for the year is nil.

• Marginal note:Associated corporations

  (2.3) Notwithstanding subsection 18(2.2), if all of the corporations that are associated with each other in a taxation year have filed with the Minister in prescribed form an agreement whereby, for the purposes of this section, they allocate an amount to one or more of them for the taxation year and the amount so allocated or the total of the amounts so allocated, as the case may be, does not exceed $1,000,000, the base level deduction for the year for each of the corporations is the base level deduction that would be computed under subsection 18(2.2) in respect of the corporation if the reference in that subsection to $1,000,000 were read as a reference to the amount so allocated to it.

• Marginal note:Failure to file agreement

  (2.4) If any of the corporations that are associated with each other in a taxation year has failed to file with the Minister an agreement as contemplated by subsection 18(2.3) within 30 days after notice in writing by the Minister has been forwarded to any of them that such an agreement is required for the purpose of any assessment of tax under this Part, the Minister shall, for the purpose of this section, allocate an amount to one or more of them for the taxation year, which amount or the total of which amounts, as the case may be, shall equal $1,000,000 and in any such case, the amount so allocated to any corporation shall be deemed to be an amount allocated to the corporation pursuant to subsection 18(2.3).

• Marginal note:Special rules for base level deduction

  (2.5) Notwithstanding any other provision of this section,

  • (a) where a corporation, in this paragraph referred to as the “first corporation”, has more than one taxation year ending in the same calendar year and is associated in two or more of those taxation years with another corporation that has a taxation year ending in that calendar year, the base level deduction of the first corporation for each taxation year in which it is associated with the other corporation ending in that calendar year is, subject to the application of paragraph 18(2.5)(b), an amount equal to its base level deduction for the first such taxation year determined without reference to paragraph 18(2.5)(b); and

  • (b) where a corporation has a taxation year that is less than 51 weeks, its base level deduction for the year is that proportion of its base level deduction for the year determined without reference to this paragraph that the number of days in the year is of 365.

• Marginal note:Definitions

  (3) In subsection 18(2),

  interest on debt relating to the acquisition of land

  intérêts sur une dette concernant l’acquisition d’un fonds de terre

  interest on debt relating to the acquisition of land includes

  • (a) interest paid or payable in a year in respect of borrowed money that cannot be identified with particular land but that may nonetheless reasonably be considered (having regard to all the circumstances) as interest on borrowed money used in respect of or for the acquisition of land, and

  • (b) interest paid or payable in the year by a taxpayer in respect of borrowed money that may reasonably be considered (having regard to all the circumstances) to have been used to assist, directly or indirectly,

    • (i) another person with whom the taxpayer does not deal at arm’s length,

    • (ii) a corporation of which the taxpayer is a specified shareholder, or

    • (iii) a partnership of which the taxpayer’s share of any income or loss is 10% or more,

    to acquire land to be used or held by that person, corporation or partnership otherwise than as described in paragraph 18(2)(c) or 18(2)(d), except where the assistance is in the form of a loan to that person, corporation or partnership and a reasonable rate of interest on the loan is charged by the taxpayer; (intérêts sur une dette concernant l’acquisition d’un fonds de terre)

  land

  fonds de terre

  land does not, except to the extent that it is used for the provision of parking facilities for a fee or charge, include

  • (a) any property that is a building or other structure affixed to land,

  • (b) the land subjacent to any property described in paragraph (a), or

  • (c) such land immediately contiguous to the land described in paragraph (b) that is a parking area, driveway, yard, garden or similar land as is necessary for the use of any property described in paragraph (a). (fonds de terre)

• Marginal note:Costs relating to construction of building or ownership of land

  (3.1) Notwithstanding any other provision of this Act, in computing a taxpayer’s income for a taxation year,

  • (a) no deduction shall be made in respect of any outlay or expense made or incurred by the taxpayer (other than an amount deductible under paragraph 20(1)(a), 20(1)(aa) or 20(1)(qq) or subsection 20(29)) that can reasonably be regarded as a cost attributable to the period of the construction, renovation or alteration of a building by or on behalf of the taxpayer, a person with whom the taxpayer does not deal at arm’s length, a corporation of which the taxpayer is a specified shareholder or a partnership of which the taxpayer’s share of any income or loss is 10% or more and relating to the construction, renovation or alteration, or a cost attributable to that period and relating to the ownership during that period of land

    • (i) that is subjacent to the building, or

    • (ii) that

      • (A) is immediately contiguous to the land subjacent to the building,

      • (B) is used, or is intended to be used, for a parking area, driveway, yard, garden or any other similar use, and

      • (C) is necessary for the use or intended use of the building; and

  • (b) the amount of such an outlay or expense shall, to the extent that it would otherwise be deductible in computing the taxpayer’s income for the year, be included in computing the cost or capital cost, as the case may be, of the building to the taxpayer, to the person with whom the taxpayer does not deal at arm’s length, to the corporation of which the taxpayer is a specified shareholder or to the partnership of which the taxpayer’s share of any income or loss is 10% or more, as the case may be.

• Marginal note:Included costs

  (3.2) For the purposes of subsection 18(3.1), costs relating to the construction, renovation or alteration of a building or to the ownership of land include

  • (a) interest paid or payable by a taxpayer in respect of borrowed money that cannot be identified with a particular building or particular land, but that can reasonably be considered (having regard to all the circumstances) as interest on borrowed money used by the taxpayer in respect of the construction, renovation or alteration of a building or the ownership of land; and

  • (b) interest paid or payable by a taxpayer in respect of borrowed money that may reasonably be considered (having regard to all the circumstances) to have been used to assist, directly or indirectly,

    • (i) another person with whom the taxpayer does not deal at arm’s length,

    • (ii) a corporation of which the taxpayer is a specified shareholder, or

    • (iii) a partnership of which the taxpayer’s share of any income or loss is 10% or more,

    to construct, renovate or alter a building or to purchase land, except where the assistance is in the form of a loan to that other person, corporation or partnership and a reasonable rate of interest on the loan is charged by the taxpayer.

• Marginal note:Completion

  (3.3) For the purposes of subsection 18(3.1), the construction, renovation or alteration of a building is completed at the earlier of the day on which the construction, renovation or alteration is actually completed and the day on which all or substantially all of the building is used for the purpose for which it was constructed, renovated or altered.

• Marginal note:Where s. (3.1) does not apply

  (3.4) Subsection 18(3.1) does not apply to prohibit a deduction in a taxation year of the specified percentage of any outlay or expense described in that subsection made or incurred before 1992 by

  • (a) corporation whose principal business is throughout the year the leasing, rental or sale, or the development for lease, rental or sale, or any combination thereof, of real property owned by it to or for a person with whom the corporation is dealing at arm’s length, or

  • (b) a partnership

    • (i) each member of which is a corporation described in paragraph 18(3.4)(a), and

    • (ii) the principal business of which is throughout the year the leasing, rental or sale, or the development for lease, rental or sale, or any combination thereof, of real property held by it, to or for a person with whom each member of the partnership is dealing at arm’s length,

  and for the purposes of this subsection, specified percentage means, in respect of an outlay or expense made or incurred in 1988, 80%, in 1989, 60%, in 1990, 40%, and in 1991, 20%.

• Marginal note:Idem

  (3.5) Subsection 18(3.1) does not apply in respect of an outlay or expense in respect of a building or the land described in subparagraph 18(3.1)(a)(i) or 18(3.1)(a)(ii) in respect of the building,

  • (a) where the construction, renovation or alteration of the building was in progress on November 12, 1981,

  • (b) where the installation of the footings or other base support of the building commenced after November 12, 1981 and before 1982,

  • (c) if, in the case of a new building being constructed in Canada or an existing building being renovated or altered in Canada, arrangements, evidenced in writing, for the construction, renovation or alteration were substantially advanced before November 13, 1981 and the installation of footings or other base support for the new building or the renovation or alteration of the existing building, as the case may be, commenced before June 1, 1982, or

  • (d) if, in the case of a new building being constructed in Canada, the taxpayer was obligated to construct the building under the terms of an agreement in writing entered into before November 13, 1981 and arrangements, evidenced in writing, respecting the construction of the building were substantially advanced before June 1, 1982 and the installation of footings or other base support for the building commenced before 1983,

  and the construction, renovation or alteration, as the case may be, of the building proceeds after 1982 without undue delay (having regard to acts of God, labour disputes, fire, accidents or unusual delay by common carriers or suppliers of materials or equipment).

• Marginal note:Undue delay

  (3.6) For the purposes of subsection 18(3.5), where more than one building is being constructed under any of the circumstances described in that subsection on one site or on immediately contiguous sites, no undue delay shall be regarded as occurring in the construction of any such building if construction of at least one such building proceeds after 1982 without undue delay and continuous construction of all other such buildings proceeds after 1983 without undue delay.

• Marginal note:Commencement of footings

  (3.7) For the purposes of this section, the installation of footings or other base support for a building shall be deemed to commence on the first placement of concrete, pilings or other material that is to provide permanent support for the building.

• Marginal note:Limitation re deduction of interest by certain corporations

  (4) Notwithstanding any other provision of this Act, in computing the income for a taxation year of a corporation resident in Canada from a business or property, no deduction shall be made in respect of that proportion of any amount otherwise deductible in computing its income for the year in respect of interest paid or payable by it on outstanding debts to specified non-residents that

  • (a) the amount, if any, by which

    • (i) the average of all amounts each of which is, in respect of a calendar month that ends in the year, the greatest total amount at any time in the month of the corporation’s outstanding debts to specified non-residents,

    exceeds

    • (ii) two times the total of

      • (A) the retained earnings of the corporation at the beginning of the year, except to the extent that those earnings include retained earnings of any other corporation,

      • (B) the average of all amounts each of which is the corporation’s contributed surplus at the beginning of a calendar month that ends in the year, to the extent that it was contributed by a specified non-resident shareholder of the corporation, and

      • (C) the average of all amounts each of which is the corporation’s paid-up capital at the beginning of a calendar month that ends in the year, excluding the paid-up capital in respect of shares of any class of the capital stock of the corporation owned by a person other than a specified non-resident shareholder of the corporation,

  is of

  • (b) the amount determined under subparagraph 18(4)(a)(i) in respect of the corporation for the year.

• Marginal note:Definitions

  (5) Notwithstanding any other provision of this Act (other than subsection 18(5.1)), in this subsection and subsections 18(4) to 18(6),

  outstanding debts to specified non-residents

  dettes impayées envers des non-résidents déterminés

  outstanding debts to specified non-residents of a corporation at any particular time in a taxation year means

  • (a) the total of all amounts each of which is an amount outstanding at that time as or on account of a debt or other obligation to pay an amount

    • (i) that was payable by the corporation to a person who was, at any time in the year,

      • (A) a specified non-resident shareholder of the corporation, or

      • (B) a non-resident person, or a non-resident-owned investment corporation, who was not dealing at arm’s length with a specified shareholder of the corporation, and

    • (ii) on which any amount in respect of interest paid or payable by the corporation is or would be, but for subsection 18(4), deductible in computing the corporation’s income for the year,

  but does not include

  • (b) an amount outstanding at the particular time as or on account of a debt or other obligation to pay an amount to

    • (i) a non-resident insurance corporation to the extent that the obligation was, for the non-resident insurance corporation’s taxation year that included the particular time, designated insurance property in respect of an insurance business carried on in Canada through a permanent establishment as defined by regulation, or

    • (ii) an authorized foreign bank, if the bank uses or holds the obligation at the particular time in its Canadian banking business; (dettes impayées envers des non-résidents déterminés)

  specified non-resident shareholder

  actionnaire non-résident déterminé

  specified non-resident shareholder of a corporation at any time means a specified shareholder of the corporation who was at that time a non-resident person or a non-resident-owned investment corporation; (actionnaire non-résident déterminé)

  specified shareholder

  actionnaire déterminé

  specified shareholder of a corporation at any time means a person who at that time, either alone or together with persons with whom that person is not dealing at arm’s length, owns

  • (a) shares of the capital stock of the corporation that give the holders thereof 25% or more of the votes that could be cast at an annual meeting of the shareholders of the corporation, or

  • (b) shares of the capital stock of the corporation having a fair market value of 25% or more of the fair market value of all of the issued and outstanding shares of the capital stock of the corporation,

  and for the purpose of determining whether a particular person is a specified shareholder of a corporation at any time, where the particular person or a person with whom the particular person is not dealing at arm’s length has at that time a right under a contract, in equity or otherwise, either immediately or in the future and either absolutely or contingently

  • (c) to, or to acquire, shares in a corporation or to control the voting rights of shares in a corporation, or

  • (d) to cause a corporation to redeem, acquire or cancel any of its shares (other than shares held by the particular person or a person with whom the particular person is not dealing at arm’s length),

  the particular person or the person with whom the particular person is not dealing at arm’s length, as the case may be, shall be deemed at that time to own the shares referred to in paragraph (c) and the corporation referred to in paragraph (d) shall be deemed at that time to have redeemed, acquired or cancelled the shares referred to in paragraph (d), unless the right is not exercisable at that time because the exercise thereof is contingent on the death, bankruptcy or permanent disability of an individual. (actionnaire déterminé)

• Marginal note:Person deemed not to be specified shareholder

  (5.1) For the purposes of subsections 18(4) to 18(6), where

  • (a) a particular person would, but for this subsection, be a specified shareholder of a corporation at any time,

  • (b) there was in effect at that time an agreement or arrangement under which, on the satisfaction of a condition or the occurrence of an event that it is reasonable to expect will be satisfied or will occur, the particular person will cease to be a specified shareholder, and

  • (c) the purpose for which the particular person became a specified shareholder was the safeguarding of rights or interests of the particular person or a person with whom the particular person is not dealing at arm’s length in respect of any indebtedness owing at any time to the particular person or a person with whom the particular person is not dealing at arm’s length,

  the particular person shall be deemed not to be a specified shareholder of the corporation at that time.

• Marginal note:Loans made on condition

  (6) Where any loan (in this subsection referred to as the “first loan”) has been made

  • (a) by a specified non-resident shareholder of a corporation, or

  • (b) by a non-resident person, or a non-resident-owned investment corporation, who was not dealing at arm’s length with a specified shareholder of a corporation,

  to another person on condition that a loan (in this subsection referred to as the “second loan”) be made by any person to a particular corporation resident in Canada, for the purposes of subsections 18(4) and 18(5), the lesser of

  • (c) the amount of the first loan, and

  • (d) the amount of the second loan

  shall be deemed to be a debt incurred by the particular corporation to the person who made the first loan.

• (8) [Repealed, 2001, c. 17, s. 9(5)]

• Marginal note:Limitation respecting prepaid expenses

  (9) Notwithstanding any other provision of this Act,

  • (a) in computing a taxpayer’s income for a taxation year from a business or property (other than income from a business computed in accordance with the method authorized by subsection 28(1)), no deduction shall be made in respect of an outlay or expense to the extent that it can reasonably be regarded as having been made or incurred

    • (i) as consideration for services to be rendered after the end of the year,

    • (ii) as, on account of, in lieu of payment of or in satisfaction of, interest, taxes (other than taxes imposed on an insurer in respect of insurance premiums of a non-cancellable or guaranteed renewable accident and sickness insurance policy, or a life insurance policy other than a group term life insurance policy that provides coverage for a period of 12 months or less), rent or royalties in respect of a period that is after the end of the year, or

    • (iii) as consideration for insurance in respect of a period after the end of the year, other than

      • (A) where the taxpayer is an insurer, consideration for reinsurance, and

      • (B) consideration for insurance on the life of an individual under a group term life insurance policy where all or part of the consideration is for insurance that is (or would be if the individual survived) in respect of a period that ends more than 13 months after the consideration is paid;

  • (b) such portion of each outlay or expense (other than an outlay or expense of a corporation, partnership or trust as, on account of, in lieu of payment of or in satisfaction of, interest) made or incurred as would, but for paragraph 18(9)(a), be deductible in computing a taxpayer’s income for a taxation year shall be deductible in computing the taxpayer’s income for the subsequent year to which it can reasonably be considered to relate;

  • (c) for the purposes of section 37.1, such portion of each qualified expenditure (within the meaning assigned by subsection 37.1(5)) as was made by a taxpayer in a taxation year and as would, but for paragraph 18(9)(a), have been deductible in computing the taxpayer’s income for the year shall be deemed

    • (i) not to be a qualified expenditure made by the taxpayer in the year, and

    • (ii) to be a qualified expenditure made by the taxpayer in the subsequent year to which the expenditure can reasonably be considered to relate;

  • (d) for the purpose of paragraph 18(9)(a), an outlay or expense of a taxpayer is deemed not to include any payment referred to in subparagraph 37(1)(a)(ii) or 37(1)(a)(iii) that

    • (i) is made by the taxpayer to a person or partnership with which the taxpayer deals at arm’s length, and

    • (ii) is not an expenditure described in subparagraph 37(1)(a)(i); and

  • (e) for the purposes of section 37 and the definition qualified expenditure in subsection 127(9), the portion of an expenditure that is made or incurred by a taxpayer in a taxation year and that would, but for paragraph 18(9)(a), have been deductible under section 37 in computing the taxpayer’s income for the year, is deemed

    • (i) not to be made or incurred by the taxpayer in the year, and

    • (ii) to be made or incurred by the taxpayer in the subsequent taxation year to which the expenditure can reasonably be considered to relate.

• Marginal note:Group term life insurance

  (9.01) Where

  • (a) a taxpayer pays a premium after February 1994 and before 1997 under a group term life insurance policy for insurance on the life of an individual,

  • (b) the insurance is for the remainder of the individual’s lifetime, and

  • (c) no further premiums will be payable for the insurance,

  no amount may be deducted in computing the taxpayer’s income for a taxation year from a business or property in respect of the premium except that there may be so deducted,

  • (d) where the year is the taxation year in which the premium was paid or a subsequent taxation year and the individual is alive at the end of the year, the lesser of

    • (i) the amount determined by the formula

      A - B

      and

    • (ii) 1/3 of the amount determined by the formula

      (A × C)/365

      where

      A

      is the amount that would, if this Act were read without reference to this subsection, be deductible in respect of the premium in computing the taxpayer’s income,

      B

      is the total amount deductible in respect of the premium in computing the taxpayer’s income for preceding taxation years, and

      C

      is the number of days in the year, and

  • (e) where the individual died in the year, the amount determined under subparagraph 18(9.01)(d)(i).

• Marginal note:Application of subsection (9) to insurers

  (9.02) For the purpose of subsection (9), an outlay or expense made or incurred by an insurer on account of the acquisition of an insurance policy (other than a non-cancellable or guaranteed renewable accident and sickness insurance policy or a life insurance policy other than a group term life insurance policy that provides coverage for a period of 12 months or less) is deemed to be an expense incurred as consideration for services rendered consistently throughout the period of coverage of the policy.

• Marginal note:Penalties, bonuses and rate-reduction payments

  (9.1) Subject to subsection 142.4(10), where at any time a payment, other than a payment that

  • (a) can reasonably be considered to have been made in respect of the extension of the term of a debt obligation or in respect of the substitution or conversion of a debt obligation to another debt obligation or share, or

  • (b) is contingent or dependent on the use of or production from property or is computed by reference to revenue, profit, cash flow, commodity price or any other similar criterion or by reference to dividends paid or payable to shareholders of any class of shares of the capital stock of a corporation,

  is made to a person or partnership by a taxpayer in the course of carrying on a business or earning income from property in respect of borrowed money or on an amount payable for property acquired by the taxpayer (in this subsection referred to as a “debt obligation”)

  • (c) as consideration for a reduction in the rate of interest payable by the taxpayer on the debt obligation, or

  • (d) as a penalty or bonus payable by the taxpayer because of the repayment by the taxpayer of all or part of the principal amount of the debt obligation before its maturity,

  the payment shall, to the extent that it can reasonably be considered to relate to, and does not exceed the value at that time of, an amount that, but for the reduction described in paragraph 18(9.1)(c) or the repayment described in paragraph 18(9.1)(d), would have been paid or payable by the taxpayer as interest on the debt obligation for a taxation year of the taxpayer ending after that time, be deemed,

  • (e) for the purposes of this Act, to have been paid by the taxpayer and received by the person or partnership at that time as interest on the debt obligation, and

  • (f) for the purpose of computing the taxpayer’s income in respect of the business or property for the year, to have been paid or payable by the taxpayer in that year as interest pursuant to a legal obligation to pay interest,

    • (i) in the case of a reduction described in paragraph 18(9.1)(c), on the debt obligation, and

    • (ii) in the case of a repayment described in paragraph 18(9.1)(d),

      • (A) where the repayment was in respect of all or part of the principal amount of the debt obligation that was borrowed money, except to the extent that the borrowed money was used by the taxpayer to acquire property, on borrowed money used in the year for the purpose for which the borrowed money that was repaid was used, and

      • (B) where the repayment was in respect of all or part of the principal amount of the debt obligation that was either borrowed money used to acquire property or an amount payable for property acquired by the taxpayer, on the debt obligation to the extent that the property or property substituted therefor is used by the taxpayer in the year for the purpose of gaining or producing income therefrom or for the purpose of gaining or producing income from a business.

• Marginal note:Interest on debt obligations

  (9.2) For the purposes of this Part, the amount of interest payable on borrowed money or on an amount payable for property (in this subsection and subsections 18(9.3) to 18(9.8) referred to as the “debt obligation”) by a corporation, partnership or trust (in this subsection and subsections 18(9.3) to 18(9.7) referred to as the “borrower”) in respect of a taxation year shall, notwithstanding subparagraph 18(9.1)(f)(i), be deemed to be an amount equal to the lesser of

  • (a) the amount of interest, not in excess of a reasonable amount, that would be payable on the debt obligation by the borrower in respect of the year if no amount had been paid before the end of the year in satisfaction of the obligation to pay interest on the debt obligation in respect of the year and if the amount outstanding at each particular time in the year that is after 1991 on account of the principal amount of the debt obligation were the amount, if any, by which

    • (i) the amount outstanding at the particular time on account of the principal amount of the debt obligation

    exceeds the total of

    • (ii) all amounts each of which is an amount paid before the particular time in satisfaction, in whole or in part, of the obligation to pay interest on the debt obligation in respect of a period or part thereof that is after 1991, after the beginning of the year, and after the time the amount was so paid (other than a period or part thereof that is in the year where no such amount was paid before the particular time in respect of a period, or part of a period, that is after the end of the year), and

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

      • (A) the total of all amounts of interest payable on the debt obligation (determined without reference to this subsection) by the borrower in respect of taxation years ending after 1991 and before the year (to the extent that the interest does not exceed a reasonable amount)

      exceeds

      • (B) the total of all amounts of interest deemed by this subsection to have been payable on the debt obligation by the borrower in respect of taxation years ending before the year, and

  • (b) the amount, if any, by which

    • (i) the total of all amounts of interest payable on the debt obligation (determined without reference to this subsection) by the borrower in respect of the year or taxation years ending after 1991 and before the year (to the extent that the interest does not exceed a reasonable amount)

    exceeds

    • (ii) the total of all amounts of interest deemed by this subsection to have been payable on the debt obligation by the borrower in respect of taxation years ending before the year.

• Marginal note:Interest on debt obligations

  (9.3) Where at any time in a taxation year of a borrower a debt obligation of the borrower is settled or extinguished or the holder of the obligation acquires or reacquires property of the borrower in circumstances in which section 79 applies in respect of the debt obligation and the total of

  • (a) all amounts each of which is an amount paid at or before that time in satisfaction, in whole or in part, of the obligation to pay interest on the debt obligation in respect of a period or part of a period that is after that time, and

  • (b) all amounts of interest payable on the debt obligation (determined without reference to subsection 18(9.2)) by the borrower in respect of taxation years ending after 1991 and before that time, or in respect of periods, or parts of periods, that are in such years and before that time (to the extent that the interest does not exceed a reasonable amount),

  exceeds the total of

  • (c) all amounts of interest deemed by subsection 18(9.2) to have been payable on the debt obligation by the borrower in respect of taxation years ending before that time, and

  • (d) the amount of interest that would be deemed by subsection 18(9.2) to have been payable on the debt obligation by the borrower in respect of the year if the year had ended immediately before that time,

  (which excess is in this subsection referred to as the “excess amount”), the following rules apply:

  • (e) for the purpose of applying section 79 in respect of the borrower, the principal amount at that time of the debt obligation shall be deemed to be equal to the amount, if any, by which

    • (i) the principal amount at that time of the debt obligation

    exceeds

    • (ii) the excess amount, and

  • (f) the excess amount shall be deducted at that time in computing the forgiven amount in respect of the obligation (within the meaning assigned by subsection 80(1)).

• Marginal note:Idem

  (9.4) Where an amount is paid at any time by a person or partnership in respect of a debt obligation of a borrower

  • (a) as, on account of, in lieu of payment of or in satisfaction of, interest on the debt obligation in respect of a period or part thereof that is after 1991 and after that time, or

  • (b) as consideration for a reduction in the rate of interest payable on the debt obligation (excluding, for greater certainty, a payment described in paragraph 18(9.1)(a) or 18(9.1)(b)) in respect of a period or part thereof that is after 1991 and after that time,

  that amount shall be deemed, for the purposes of subsection 18(9.5) and, subject to that subsection, for the purposes of clause 18(9.2)(a)(iii)(A), subparagraph 18(9.2)(b)(i), paragraph 18(9.3)(b) and subsection 18(9.6), to be an amount of interest payable on the debt obligation by the borrower in respect of that period or part thereof and shall be deemed, for the purposes of subparagraph 18(9.2)(a)(ii) and paragraph 18(9.3)(a), to be an amount paid at that time in satisfaction of the obligation to pay interest on the debt obligation in respect of that period or part thereof.

• Marginal note:Idem

  (9.5) Where the amount of interest payable on a debt obligation (determined without reference to subsection 18(9.2)) by a borrower in respect of a particular period or part thereof that is after 1991 can reasonably be regarded as an amount payable as consideration for

  • (a) a reduction in the amount of interest that would otherwise be payable on the debt obligation in respect of a subsequent period, or

  • (b) a reduction in the amount that was or may be paid before the beginning of a subsequent period in satisfaction of the obligation to pay interest on the debt obligation in respect of that subsequent period

  (determined without reference to the existence of, or the amount of any interest paid or payable on, any other debt obligation), that amount shall, for the purposes of clause 18(9.2)(a)(iii)(A), subparagraph 18(9.2)(b)(i), paragraph 18(9.3)(b) and subsection 18(9.6), be deemed to be an amount of interest payable on the debt obligation by the borrower in respect of the subsequent period and not to be an amount of interest payable on the debt obligation by the borrower in respect of the particular period and shall, when paid, be deemed for the purposes of subparagraph 18(9.2)(a)(ii) and paragraph 18(9.3)(a) to be an amount paid in satisfaction of the obligation to pay interest on the debt obligation in respect of the subsequent period.

• Marginal note:Idem

  (9.6) Where the liability in respect of a debt obligation of a person or partnership is assumed by a borrower at any time,

  • (a) the amount of interest payable on the debt obligation (determined without reference to subsection 18(9.2)) by any person or partnership in respect of a period shall, to the extent that that period is included in a taxation year of the borrower ending after 1991, be deemed, for the purposes of clause 18(9.2)(a)(iii)(A), subparagraph 18(9.2)(b)(i) and paragraph 18(9.3)(b), to be an amount of interest payable on the debt obligation by the borrower in respect of that year, and

  • (b) the application of subsections 18(9.2) and 18(9.3) to the borrower in respect of the debt obligation after that time shall be determined on the assumption that subsection 18(9.2) applied to the borrower in respect of the debt obligation before that time,

  and, for the purposes of this subsection, where the borrower came into existence at a particular time that is after the beginning of the particular period beginning at the beginning of the first period in respect of which interest was payable on the debt obligation by any person or partnership and ending at the particular time, the borrower shall be deemed

  • (c) to have been in existence throughout the particular period, and

  • (d) to have had, throughout the particular period, taxation years ending on the day of the year on which its first taxation year ended.

• Marginal note:Idem

  (9.7) Where the amount paid by a borrower at any particular time, in satisfaction of the obligation to pay a particular amount of interest on a debt obligation in respect of a subsequent period or part thereof, exceeds the particular amount of that interest, discounted

  • (a) for the particular period beginning at the particular time and ending at the end of the subsequent period or part thereof, and

  • (b) at the rate or rates of interest applying under the debt obligation during the particular period (or, where the rate of interest of any part of the particular period is not fixed at the particular time, at the prescribed rate of interest in effect at the particular time),

  that excess shall

  • (c) for the purposes of applying subsections 18(9.2) to 18(9.6) and 18(9.8), be deemed to be neither an amount of interest payable on the debt obligation nor an amount paid in satisfaction of the obligation to pay interest on the debt obligation, and

  • (d) be deemed to be a payment described in paragraph 18(9.1)(d) in respect of the debt obligation.

• Marginal note:Idem

  (9.8) Nothing in any of subsections 18(9.2) to 18(9.7) shall be construed as providing that

  • (a) the total of all amounts each of which is the amount of interest payable on a debt obligation by an individual (other than a trust), or deemed by subsection 18(9.2) to be payable on the debt obligation by a corporation, partnership or trust, in respect of a taxation year ending after 1991 and before any particular time,

  may exceed

  • (b) the total of all amounts each of which is the amount of interest payable on the debt obligation (determined without reference to subsection 18(9.2)) by a person or partnership in respect of a taxation year ending after 1991 and before that particular time.

• Marginal note:Employee benefit plan

  (10) Paragraph 18(1)(o) does not apply in respect of a contribution to an employee benefit plan

  • (a) to the extent that the contribution

    • (i) is made in respect of services performed by an employee who is not resident in Canada and is regularly employed in a country other than Canada, and

    • (ii) cannot reasonably be regarded as having been made in respect of services performed or to be performed during a period when the employee is resident in Canada;

  • (b) the custodian of which is non-resident, to the extent that the contribution

    • (i) is in respect of an employee who is non-resident at the time the contribution is made, and

    • (ii) cannot reasonably be regarded as having been made in respect of services performed or to be performed during a period when the employee is resident in Canada; or

  • (c) the custodian of which is non-resident, to the extent that the contribution can reasonably be regarded as having been made in respect of services performed by an employee in a particular calendar month where

    • (i) the employee was resident in Canada throughout no more than 60 of the 72 calendar months ending with the particular month, and

    • (ii) the employee became a member of the plan before the end of the month following the month in which the employee became resident in Canada,

    and for the purpose of this paragraph, where benefits provided to an employee under a particular employee benefit plan are replaced by benefits provided under another employee benefit plan, the other plan shall be deemed, in respect of the employee, to be the same plan as the particular plan.

• Marginal note:Limitation

  (11) Notwithstanding any other provision of this Act, in computing the income of a taxpayer for a taxation year, no amount is deductible under paragraph 20(1)(c), 20(1)(d), 20(1)(e), 20(1)(e.1) or 20(1)(f) in respect of borrowed money (or other property acquired by the taxpayer) in respect of any period after which the money (or other property) is used by the taxpayer for the purpose of

  • (a) making a payment after November 12, 1981 as consideration for an income-averaging annuity contract, unless the contract was acquired pursuant to an agreement in writing entered into before November 13, 1981;

  • (b) paying a premium (within the meaning assigned by subsection 146(1) read without reference to the portion of the definition premium in that subsection following paragraph (b) of that definition) under a registered retirement savings plan after November 12, 1981;

  • (c) making a contribution to a registered pension plan or a deferred profit sharing plan after November 12, 1981, other than

    • (i) a contribution described in subparagraph 8(1)(m)(ii) or 8(1)(m)(iii) (as they read in their application to the 1990 taxation year) that was required to be made pursuant to an obligation entered into before November 13, 1981, or

    • (ii) a contribution deductible under paragraph 20(1)(q) or 20(1)(y) in computing the taxpayer’s income;

  • (d) making a payment as consideration for an annuity the payment for which was deductible in computing the taxpayer’s income by virtue of paragraph 60(l;

  • (e) making a contribution to a retirement compensation arrangement where the contribution was deductible under paragraph 8(1)(m.2) in computing the taxpayer’s income;

  • (f) making a contribution to a net income stabilization account;

  • (g) making a contribution to any account under a provincial pension plan prescribed for the purpose of paragraph 60(v), or

  • (h) making a contribution into a registered education savings plan,

  and, for the purposes of this subsection, to the extent that an indebtedness is incurred by a taxpayer in respect of a property and at any time that property or a property substituted therefor is used for any of the purposes referred to in this subsection, the indebtedness shall be deemed to be incurred at that time for that purpose.

• Marginal note:Work space in home

  (12) Notwithstanding any other provision of this Act, in computing an individual’s income from a business for a taxation year,

  • (a) no amount shall be deducted in respect of an otherwise deductible amount for any part (in this subsection referred to as the “work space”) of a self-contained domestic establishment in which the individual resides, except to the extent that the work space is either

    • (i) the individual’s principal place of business, or

    • (ii) used exclusively for the purpose of earning income from business and used on a regular and continuous basis for meeting clients, customers or patients of the individual in respect of the business;

  • (b) where the conditions set out in subparagraph 18(12)(a)(i) or 18(12)(a)(ii) are met, the amount for the work space that is deductible in computing the individual’s income for the year from the business shall not exceed the individual’s income for the year from the business, computed without reference to the amount and sections 34.1 and 34.2; and

  • (c) any amount not deductible by reason only of paragraph 18(12)(b) in computing the individual’s income from the business for the immediately preceding taxation year shall be deemed to be an amount otherwise deductible that, subject to paragraphs 18(12)(a) and 18(12)(b), may be deducted for the year for the work space in respect of the business.

• Marginal note:When s. (15) applies to money lenders

  (13) Subsection 18(15) applies, subject to subsection 142.6(7), when

  • (a) a taxpayer (in this subsection and subsection 18(15) referred to as the “transferor”) disposes of a particular property;

  • (b) the disposition is not described in any of paragraphs (c) to (g) of the definition superficial loss in section 54;

  • (c) the transferor is not an insurer;

  • (d) the ordinary business of the transferor includes the lending of money and the particular property was used or held in the ordinary course of that business;

  • (e) the particular property is a share, or a loan, bond, debenture, mortgage, hypothecary claim, note, agreement for sale or any other indebtedness;

  • (f) the particular property was, immediately before the disposition, not a capital property of the transferor;

  • (g) during the period that begins 30 days before and ends 30 days after the disposition, the transferor or a person affiliated with the transferor acquires a property (in this subsection and subsection 18(15) referred to as the “substituted property”) that is, or is identical to, the particular property; and

  • (h) at the end of the period, the transferor or a person affiliated with the transferor owns the substituted property.

• Marginal note:When s. (15) applies to adventurers in trade

  (14) Subsection 18(15) applies where

  • (a) a person (in this subsection and subsection 18(15) referred to as the “transferor”) disposes of a particular property;

  • (b) the particular property is described in an inventory of a business that is an adventure or concern in the nature of trade;

  • (c) the disposition is not a disposition that is deemed to have occurred by section 70, subsection 104(4), section 128.1, paragraph 132.2(1)(f) or subsection 1 38(11.3) or 149(10);

  • (d) during the period that begins 30 days before and ends 30 days after the disposition, the transferor or a person affiliated with the transferor acquires property (in this subsection and subsection 18(15) referred to as the “substituted property”) that is, or is identical to, the particular property; and

  • (e) at the end of the period, the transferor or a person affiliated with the transferor owns the substituted property.

• Marginal note:Loss on certain properties

  (15) If this subsection applies because of subsection 18(13) or 18(14) to a disposition of a particular property,

  • (a) the transferor’s loss, if any, from the disposition is deemed to be nil, and

  • (b) the amount of the transferor’s loss, if any, from the disposition (determined without reference to this subsection) is deemed to be a loss of the transferor from a disposition of the particular property at the first time, after the disposition,

    • (i) at which a 30-day period begins throughout which neither the transferor nor a person affiliated with the transferor owns

      • (A) the substituted property, or

      • (B) a property that is identical to the substituted property and that was acquired after the day that is 31 days before the period begins,

    • (ii) at which the substituted property would, if it were owned by the transferor, be deemed by section 128.1 or subsection 149(10) to have been disposed of by the transferor,

    • (iii) that is immediately before control of the transferor is acquired by a person or group of persons, where the transferor is a corporation, or

    • (iv) at which the winding-up of the transferor begins (other than a winding-up to which subsection 88(1) applies), where the transferor is a corporation,

    and for the purpose of paragraph 18(15)(b), where a partnership otherwise ceases to exist at any time after the disposition, the partnership is deemed not to have ceased to exist, and each person who was a member of the partnership immediately before the partnership would, but for this subsection, have ceased to exist is deemed to remain a member of the partnership, until the time that is immediately after the first time described in subparagraphs 18(15)(b)(i) to (iv).

• Marginal note:Deemed identical property

  (16) For the purposes of subsections (13), (14) and (15), a right to acquire a property (other than a right, as security only, derived from a mortgage, hypothec, agreement for sale or similar obligation) is deemed to be a property that is identical to the property.

Marginal note:Definitions

• 18.1 (1) The definitions in this subsection apply in this section.

  matchable expenditure

  dépense à rattacher

  matchable expenditure of a taxpayer means the amount of an expenditure that is made by the taxpayer to

  • (a) acquire a right to receive production,

  • (b) fulfil a covenant or obligation arising in circumstances in which it is reasonable to conclude that a relationship exists between the covenant or obligation and a right to receive production, or

  • (c) preserve or protect a right to receive production,

  but does not include an amount for which a deduction is provided under section 20 in computing the taxpayer’s income. (dépense à rattacher)

  right to receive production

  droit aux produits

  right to receive production means a right under which a taxpayer is entitled, either immediately or in the future and either absolutely or contingently, to receive an amount all or a portion of which is computed by reference to use of property, production, revenue, profit, cash flow, commodity price, cost or value of property or any other similar criterion or by reference to dividends paid or payable to shareholders of any class of shares where the amount is in respect of another taxpayer’s activity, property or business but such a right does not include an income interest in a trust, a Canadian resource property or a foreign resource property. (droit aux produits)

  tax benefit

  avantage fiscal

  tax benefit means a reduction, avoidance or deferral of tax or other amount payable under this Act or an increase in a refund of tax or other amount under this Act. (avantage fiscal)

  tax shelter

  abri fiscal

  tax shelter means a property that would be a tax shelter (as defined in subsection 237.1(1)) if

  • (a) the cost of a right to receive production were the total of all amounts each of which is a matchable expenditure to which the right relates; and

  • (b) subsections 18.1(2) to 18.1(13) did not apply for the purpose of computing an amount, or in the case of a partnership a loss, represented to be deductible. (abri fiscal)

  taxpayer

  contribuable

  taxpayer includes a partnership. (contribuable)

• Marginal note:Limitation on the deductibility of matchable expenditure

  (2) In computing a taxpayer’s income from a business or property for a taxation year, no amount of a matchable expenditure may be deducted except as provided by subsection 18.1(3).

• Marginal note:Deduction of matchable expenditure

  (3) If a taxpayer’s matchable expenditure would, but for subsection 18.1(2) and this subsection, be deductible in computing the taxpayer’s income, there may be deducted in respect of the matchable expenditure in computing the taxpayer’s income for a taxation year the amount that is determined under subsection 18.1(4) for the year in respect of the expenditure.

• Marginal note:Amount of deduction

  (4) For the purpose of subsection 18.1(3), the amount determined under this subsection for a taxation year in respect of a taxpayer’s matchable expenditure is the amount, if any, that is the least of

  • (a) the total of

    • (i) the lesser of

      • (A) 1/5 of the matchable expenditure, and

      • (B) the amount determined by the formula

        (A/B) × C

        where

        A

        is the number of months that are in the year and after the day on which the right to receive production to which the matchable expenditure relates is acquired,

        B

        is the lesser of 240 and the number of months that are in the period that begins on the day on which the right to receive production to which the matchable expenditure relates is acquired and that ends on the day the right is to terminate, and

        C

        is the amount of the matchable expenditure, and

    • (ii) the amount, if any, by which the amount determined under this paragraph for the preceding taxation year in respect of the matchable expenditure exceeds the amount of the matchable expenditure deductible in computing the taxpayer’s income for that preceding year,

  • (b) the total of

    • (i) all amounts each of which is included in computing the taxpayer’s income for the year (other than any portion of such amount that is the subject of a reserve claimed by the taxpayer for the year under this Act) in respect of the right to receive production to which the matchable expenditure relates, and

    • (ii) the amount by which the amount determined under this paragraph for the preceding taxation year in respect of the matchable expenditure exceeds the amount of the matchable expenditure deductible in computing the taxpayer’s income for that preceding year, and

  • (c) the amount, if any, by which

    • (i) the total of all amounts each of which is an amount of the matchable expenditure that would, but for this section, have been deductible in computing the taxpayer’s income for the year or a preceding taxation year

    exceeds

    • (ii) the total of all amounts each of which is an amount of the matchable expenditure deductible under subsection 18.1(3) in computing the taxpayer’s income for a preceding taxation year.

• Marginal note:Special rules

  (5) For the purpose of this section,

  • (a) where a taxpayer’s matchable expenditure is made before the day on which the related right to receive production is acquired by the taxpayer, the expenditure is deemed to have been made on that day;

  • (b) where a taxpayer has one or more rights to renew a particular right to receive production to which a matchable expenditure relates for one or more additional terms, after the term that includes the time at which the particular right was acquired, the particular right is deemed to terminate on the latest day on which the latest possible such term could terminate if all rights to renew the particular right were exercised;

  • (c) where a taxpayer has 2 or more rights to receive production that can reasonably be considered to be related to each other, the rights are deemed to be one right; and

  • (d) where the term of a taxpayer’s right to receive production is for an indeterminate period, the right is deemed to terminate 240 months after it is acquired.

• Marginal note:Proceeds of disposition considered income

  (6) Where in a taxation year a taxpayer disposes of all or part of a right to receive production to which a matchable expenditure relates, the proceeds of the disposition shall be included in computing the taxpayer’s income for the year.

• Marginal note:Arm’s length disposition

  (7) Subject to subsections 18.1(8) to 18.1(10), where in a taxation year a taxpayer disposes (otherwise than in a disposition to which subsection 87(1) or 88(1) applies) of all of the taxpayer’s right to receive production to which a matchable expenditure (other than an expenditure no portion of which would, if this section were read without reference to this subsection, be deductible under subsection 18.1(3) in computing the taxpayer’s income) relates, or the taxpayer’s right expires, the amount deductible in respect of the expenditure under subsection 18.1(3) in computing the taxpayer’s income for the year is deemed to be the amount, if any, determined under paragraph 18.1(4)(c) for the year in respect of the expenditure.

• Marginal note:Non-arm’s length disposition

  (8) Subsection 18.1(10) applies where

  • (a) a taxpayer’s particular right to receive production to which a matchable expenditure (other than an expenditure no portion of which would, if this section were read without reference to subsections 18.1(7) and 18.1(10), be deductible under subsection 18.1(3) in computing the taxpayer’s income) relates has expired or the taxpayer has disposed of all of the right (otherwise than in a disposition to which subsection 87(1) or 88(1) applies);

  • (b) during the period that begins 30 days before and ends 30 days after the disposition or expiry, the taxpayer or a person affiliated, or who does not deal at arm’s length, with the taxpayer acquires a right to receive production (in this subsection and subsection 18.1(10) referred to as the “substituted property”) that is, or is identical to, the particular right; and

  • (c) at the end of the period, the taxpayer or a person affiliated, or who does not deal at arm’s length, with the taxpayer owns the substituted property.

• Marginal note:Special case

  (9) Subsection 18.1(10) applies where

  • (a) a taxpayer’s particular right to receive production to which a matchable expenditure (other than an expenditure no portion of which would, if this section were read without reference to subsections 18.1(7) and 18.1(10), be deductible under subsection 18.1(3) in computing the taxpayer’s income) relates has expired or the taxpayer has disposed of all of the right (otherwise than in a disposition to which subsection 87(1) or 88(1) applies); and

  • (b) during the period that begins at the time of the disposition or expiry and ends 30 days after that time, a taxpayer that had an interest, directly or indirectly, in the right has another interest, directly or indirectly, in another right to receive production, which other interest is a tax shelter or a tax shelter investment (as defined by section 143.2).

• Marginal note:Amount of deduction if non-arm’s length disposition

  (10) Where this subsection applies because of subsection 18.1(8) or 18.1(9) to a disposition or expiry in a taxation year or a preceding taxation year of a taxpayer’s right to receive production to which a matchable expenditure relates,

  • (a) the amount deductible under subsection 18.1(3) in respect of the expenditure in computing the taxpayer’s income for a taxation year that ends at or after the disposition or expiry of the right is the least of the amounts determined under subsection 18.1(4) for the year in respect of the expenditure; and

  • (b) the least of the amounts determined under subsection 18.1(4) in respect of the expenditure for a taxation year is deemed to be the amount, if any, determined under paragraph 18.1(4)(c) in respect of the expenditure for the year where the year includes the time that is immediately before the first time, after the disposition or expiry,

    • (i) at which the right would, if it were owned by the taxpayer, be deemed by section 128.1 or subsection 149(10) to have been disposed of by the taxpayer,

    • (ii) that is immediately before control of the taxpayer is acquired by a person or group of persons, if the taxpayer is a corporation,

    • (iii) at which winding-up of the taxpayer begins (other than a winding-up to which subsection 88(1) applies), if the taxpayer is a corporation,

    • (iv) if subsection 18.1(8) applies, at which a 30-day period begins throughout which neither the taxpayer nor a person affiliated, or who does not deal at arm’s length, with the taxpayer owns

      • (A) the substituted property, or

      • (B) a property that is identical to the substituted property and that was acquired after the day that is 31 days before the period began, or

    • (v) if subsection 18.1(9) applies, at which a 30-day period begins throughout which no taxpayer who had an interest, directly or indirectly, in the right has an interest, directly or indirectly, in another right to receive production if one or more of those direct or indirect interests in the other right is a tax shelter or tax shelter investment (as defined by section 143.2).

• Marginal note:Partnerships

  (11) For the purpose of paragraph 18.1(10)(b), where a partnership otherwise ceases to exist at any time after a disposition or expiry referred to in subsection 18.1(10), the partnership is deemed not to have ceased to exist, and each taxpayer who was a member of the partnership immediately before the partnership would, but for this subsection, have ceased to exist is deemed to remain a member of the partnership until the time that is immediately after the first of the times described in subparagraphs 18.1(10)(b)(i) to 18.1(10)(b)(v).

• Marginal note:Identical property

  (12) For the purposes of subsections (8) and (10), a right to acquire a particular right to receive production (other than a right, as security only, derived from a mortgage, hypothec, agreement of sale or similar obligation) is deemed to be a right to receive production that is identical to the particular right.

• Marginal note:Application of section 143.2

  (13) For the purpose of applying section 143.2 to an amount that would, if this section were read without reference to this subsection, be a matchable expenditure any portion of the cost of which is deductible under subsection 18.1(3), the expenditure is deemed to be a tax shelter investment and that section shall be read without reference to subparagraph 143.2(6)(b)(ii).

• Marginal note:Debt obligations

  (14) Where the rate of return on a taxpayer’s right to receive production to which a matchable expenditure (other than an expenditure no portion of which would, if this section were read without reference to this subsection, be deductible under subsection 18.1(3) in computing the taxpayer’s income) relates is reasonably certain at the time the taxpayer acquires the right,

  • (a) the right is, for the purposes of subsection 12(9) and Part LXX of the Income Tax Regulations, deemed to be a debt obligation in respect of which no interest is stipulated to be payable in respect of its principal amount and the obligation is deemed to be satisfied at the time the right terminates for an amount equal to the total of the return on the obligation and the amount that would otherwise be the matchable expenditure that is related to the right; and

  • (b) notwithstanding subsection 18.1(3), no amount may be deducted in computing the taxpayer’s income in respect of any matchable expenditure that relates to the right.

• Marginal note:Non-applicability of section 18.1

  (15) Subject to subsections (1) and (14), this section does not apply to a taxpayer’s matchable expenditure in respect of a right to receive production if

  • (a) no portion of the expenditure can reasonably be considered to have been paid to another taxpayer, or to a person with whom the other taxpayer does not deal at arm’s length, to acquire the right from the other taxpayer and

    • (i) the taxpayer’s expenditure cannot reasonably be considered to relate to a tax shelter or tax shelter investment (within the meaning assigned by subsection 143.2(1)) and none of the main purposes for making the expenditure is that the taxpayer, or a person with whom the taxpayer does not deal at arm’s length, obtain a tax benefit, or

    • (ii) before the end of the taxation year in which the expenditure is made, the total of all amounts each of which is included in computing the taxpayer’s income for the year (other than any portion of such an amount that is the subject of a reserve claimed by the taxpayer for the year under this Act) in respect of the right to receive production to which the matchable expenditure relates exceeds 80% of the expenditure; or

  • (b) the expenditure is in respect of commissions or other expenses related to the issuance of an insurance policy for which all or a portion of a risk has been ceded to the taxpayer (in this paragraph referred to as the “reinsurer”) and both the reinsurer and the person to whom the expenditure is made or is to be made are insurers subject to the supervision of

    • (i) the Superintendent of Financial Institutions, in the case of an insurer that is required by law to report to the Superintendent of Financial Institutions, or

    • (ii) in any other case, the Superintendent of Insurance or other similar officer or authority of the province under whose laws the insurer is incorporated.

Marginal note:Limitation re advertising expense — newspapers

• 19 (1) In computing income, no deduction shall be made in respect of an otherwise deductible outlay or expense of a taxpayer for advertising space in an issue of a newspaper for an advertisement directed primarily to a market in Canada unless

  • (a) the issue is a Canadian issue of a Canadian newspaper; or

  • (b) the issue is an issue of a newspaper that would be a Canadian issue of a Canadian newspaper except that

    • (i) its type has been wholly set in the United States or has been partly set in the United States with the remainder having been set in Canada, or

    • (ii) it has been wholly printed in the United States or has been partly printed in the United States with the remainder having been printed in Canada.

• Marginal note:Where s. (1) does not apply

  (3) Subsection 19(1) does not apply with respect to an advertisement in a special issue or edition of a newspaper that is edited in whole or in part and printed and published outside Canada if that special issue or edition is devoted to features or news related primarily to Canada and the publishers thereof publish such an issue or edition not more frequently than twice a year.

• Marginal note:Definitions

  (5) In this section,

  Canadian issue

  édition canadienne

  Canadian issue of a newspaper means an issue, including a special issue,

  • (a) the type of which, other than the type for advertisements or features, is set in Canada,

  • (b) all of which, exclusive of any comics supplement, is printed in Canada,

  • (c) that is edited in Canada by individuals resident in Canada, and

  • (d) that is published in Canada; (édition canadienne)

  Canadian newspaper

  journal canadien

  Canadian newspaper means a newspaper the exclusive right to produce and publish issues of which is held by one or more of the following:

  • (a) a Canadian citizen,

  • (b) a partnership

    • (i) in which interests representing in value at least 3/4 of the total value of the partnership property are beneficially owned by, and

    • (ii) at least 3/4 of each income or loss of which from any source is included in the determination of the income of,

    corporations described in paragraph (e) or Canadian citizens or any combination thereof,

  • (c) an association or society of which at least 3/4 of the members are Canadian citizens,

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

  • (e) a corporation

    • (i) that is incorporated under the laws of Canada or a province,

    • (ii) of which the chairperson or other presiding officer and at least 3/4 of the directors or other similar officers are Canadian citizens, and

    • (iii) that, if it is a corporation having share capital, is

      • (A) a public corporation a class or classes of shares of the capital stock of which are listed on a prescribed stock exchange in Canada, other than a corporation controlled by citizens or subjects of a country other than Canada, or

      • (B) a corporation of which at least 3/4 of the shares having full voting rights under all circumstances, and shares having a fair market value in total of at least 3/4 of the fair market value of all of the issued shares of the corporation, are beneficially owned by Canadian citizens or by public corporations a class or classes of shares of the capital stock of which are listed on a prescribed stock exchange in Canada, other than a public corporation controlled by citizens or subjects of a country other than Canada,

      and for the purposes of clause (B), where shares of a class of the capital stock of a corporation are owned, or deemed by this definition to be owned, at any time by another corporation (in this definition referred to as the “holding corporation”), other than a public corporation a class or classes of shares of the capital stock of which are listed on a prescribed stock exchange in Canada, each shareholder of the holding corporation shall be deemed to own at that time that proportion of the number of such shares of that class that

      • (C) the fair market value of the shares of the capital stock of the holding corporation owned at that time by the shareholder

      is of

      • (D) the fair market value of all the issued shares of the capital stock of the holding corporation outstanding at that time,

      and where at any time shares of a class of the capital stock of a corporation are owned, or are deemed by this definition to be owned, by a partnership, each member of the partnership shall be deemed to own at that time the least proportion of the number of such shares of that class that

      • (E) the member’s share of the income or loss of the partnership from any source for its fiscal period that includes that time

      is of

      • (F) the income or loss of the partnership from that source for its fiscal period that includes that time,

      and for this purpose, where the income and loss of a partnership from any source for a fiscal period are nil, the partnership shall be deemed to have had income from that source for that period in the amount of $1,000,000; (journal canadien)

  substantially the same

  substantially the same[Repealed, 2001, c. 17, s. 11(2)]

  United States

  États-Unis

  United States means

  • (a) the United States of America, but does not include Puerto Rico, the Virgin Islands, Guam or any other United States possession or territory, and

  • (b) any areas beyond the territorial sea of the United States within which, in accordance with international law and its domestic laws, the United States may exercise rights with respect to the seabed and subsoil and the natural resources of those areas. (États-Unis)

• Marginal note:Interpretation

  (5.1) In this section, each of the following is deemed to be a Canadian citizen:

  • (a) a trust or corporation described in paragraph 149(1)(o) or (o.1) formed in connection with a pension plan that exists for the benefit of individuals a majority of whom are Canadian citizens;

  • (b) a trust described in paragraph 149(1)(r) or (x), the annuitant in respect of which is a Canadian citizen;

  • (c) a mutual fund trust, within the meaning assigned by subsection 132(6), other than a mutual fund trust the majority of the units of which are held by citizens or subjects of a country other than Canada;

  • (d) a trust, each beneficiary of which is a person, partnership, association or society described in any of paragraphs (a) to (e) of the definition Canadian newspaper in subsection (5); and

  • (e) a person, association or society described in paragraph (c) or (d) of the definition Canadian newspaper in subsection (5).

• Marginal note:Trust property

  (6) Where the right that is held by any person, partnership, association or society described in the definition Canadian newspaper in subsection (5) to produce and publish issues of a newspaper is held as property of a trust or estate, the newspaper is not a Canadian newspaper unless each beneficiary under the trust or estate is a person, partnership, association or society described in that definition.

• Marginal note:Grace period

  (7) A Canadian newspaper that would, but for this subsection, cease to be a Canadian newspaper, is deemed to continue to be a Canadian newspaper until the end of the 12th month that follows the month in which it would, but for this subsection, have ceased to be a Canadian newspaper.

• Marginal note:Non-Canadian newspaper

  (8) Where at any time one or more persons or partnerships that are not described in any of paragraphs (a) to (e) of the definition Canadian newspaper in subsection (5) have any direct or indirect influence that, if exercised, would result in control in fact of a person or partnership that holds a right to produce or publish issues of a newspaper, the newspaper is deemed not to be a Canadian newspaper at that time.

Marginal note:Definitions

• 19.01 (1) The definitions in this subsection apply in this section.

  advertisement directed at the Canadian market

  advertisement directed at the Canadian market has the same meaning as the expression directed at the Canadian market in section 2 of the Foreign Publishers Advertising Services Act and includes a reference to that expression made by or under that Act. (annonce destinée au marché canadien)

  original editorial content

  original editorial content in respect of an issue of a periodical means non-advertising content

  • (a) the author of which is a Canadian citizen or a permanent resident of Canada within the meaning assigned by the Immigration Act and, for this purpose, “author” includes a writer, a journalist, an illustrator and a photographer; or

  • (b) that is created for the Canadian market and has not been published in any other edition of that issue of the periodical published outside Canada. (contenu rédactionnel original)

  periodical

  periodical has the meaning assigned by section 2 of the Foreign Publishers Advertising Services Act. (périodique)

• Marginal note:Limitation re advertising expenses — periodicals

  (2) Subject to subsections (3) and (4), in computing income, no deduction shall be made by a taxpayer in respect of an otherwise deductible outlay or expense for advertising space in an issue of a periodical for an advertisement directed at the Canadian market.

• Marginal note:100% deduction

  (3) A taxpayer may deduct in computing income an outlay or expense of the taxpayer for advertising space in an issue of a periodical for an advertisement directed at the Canadian market if

  • (a) the original editorial content in the issue is 80% or more of the total non-advertising content in the issue; and

  • (b) the outlay or expense would, but for subsection (2), be deductible in computing the taxpayer’s income.

• Marginal note:50% deduction

  (4) A taxpayer may deduct in computing income 50% of an outlay or expense of the taxpayer for advertising space in an issue of a periodical for an advertisement directed at the Canadian market if

  • (a) the original editorial content in the issue is less than 80% of the total non-advertising content in the issue; and

  • (b) the outlay or expense would, but for subsection (2), be deductible in computing the taxpayer’s income.

• Marginal note:Application

  (5) For the purposes of subsections (3) and (4),

  • (a) the percentage that original editorial content is of total non-advertising content is the percentage that the total space occupied by original editorial content in the issue is of the total space occupied by non-advertising content in the issue; and

  • (b) the Minister may obtain the advice of the Department of Canadian Heritage for the purpose of

    • (i) determining the result obtained under paragraph (a), and

    • (ii) interpreting any expression defined in this section that is defined in the Foreign Publishers Advertising Services Act.

• Marginal note:Editions of issues

  (6) For the purposes of this section,

  • (a) where an issue of a periodical is published in several versions, each version is an edition of that issue; and

  • (b) where an issue of a periodical is published in only one version, that version is an edition of that issue.

Marginal note:Limitation re advertising expense on broadcasting undertaking

• 19.1 (1) Subject to subsection 19.1(2), in computing income, no deduction shall be made in respect of an otherwise deductible outlay or expense of a taxpayer made or incurred after September 21, 1976 for an advertisement directed primarily to a market in Canada and broadcast by a foreign broadcasting undertaking.

• Marginal note:Exception

  (2) In computing income, a deduction may be made in respect of an outlay or expense made or incurred before September 22, 1977 for an advertisement directed primarily to a market in Canada and broadcast by a foreign broadcasting undertaking pursuant to

  • (a) a written agreement entered into on or before January 23, 1975; or

  • (b) a written agreement entered into after January 23, 1975 and before September 22, 1976 if the agreement is for a term of one year or less and by its express terms is not capable of being extended or renewed.

• Marginal note:Definitions

  (4) In this section,

  foreign broadcasting undertaking

  foreign broadcasting undertaking means a network operation or a broadcasting transmitting undertaking located outside Canada or on a ship or aircraft not registered in Canada; (entreprise étrangère de radiodiffusion)

  network

  network includes any operation involving two or more broadcasting undertakings whereby control over all or any part of the programs or program schedules of any of the broadcasting undertakings involved in the operation is delegated to a network operator. (réseau)