Legislative Proposals and Draft Regulations Relating to Income Tax (February 2004): 2
- Table of Contents - Next -

Part 1

General

Income Tax Act

1. (1) Paragraph 4(3)(a) of the Income Tax Act is replaced by the following:

(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 (o), (p), (r) and (v) to (x), apply either wholly or in part to a particular source or to sources in a particular place; and

(2) Subsection (1) applies to the 2002 and subsequent taxation years.

2. (1) Section 6 of the Act is amended by adding the following after subsection 6(3):

Amount receivable for covenant

(3.1) If an amount (other than an amount to which paragraph (1)(a) applies because of subsection (11)) is receivable at the end of a taxation year by a taxpayer in respect of a covenant, agreed to by the taxpayer more than 36 months before the end of that taxation year, with reference to what the taxpayer is, or is not, to do, and the amount would be included in the taxpayer's income for the year under this subdivision if it were received by the taxpayer in the year, the amount

(a) is deemed to be received by the taxpayer at the end of the taxation year for services rendered as an officer or during the period of employment; and

(b) is deemed not to be received at any other time.

(2) Subsection 6(15.1) of the French version of the Act is replaced by the following:

Montant remis

(15.1) Pour l'application du paragraphe (15), le « montant remis » à un moment donné sur une dette émise par un débiteur s'entend au sens qui serait donné à cette expression par le paragraphe 80(1) si, à la fois :

a

) la dette était une dette commerciale, au sens du paragraphe 80(1), émise par le débiteur;

b

) il n'était pas tenu compte d'un montant inclus dans le calcul du revenu en raison du règlement ou de l'extinction de la dette à ce moment;

c

) il n'était pas tenu compte des alinéas f) et h) de l'élément B de la formule figurant à la définition de « montant remis » au paragraphe 80(1);

d

) il n'était pas tenu compte des alinéas 80(2)b) et q).

(3) Subsection (1) applies to amounts receivable in respect of a covenant agreed to after October 7, 2003.

(4) Subsection (2) applies to taxations years that end after February 21, 1994.

3. (1) The portion of subsection 7(7) of the Act before the definition "qualifying person" is replaced by the following:

Definitions

(7) The following definitions apply in this section and in subsection 47(3), paragraphs 53(1)(j), 110(1)(d) and (d.01) and subsections 110(1.5) to (1.8) and (2.1).

(2) Subsection (1) applies after 1998. However,

(a) it does not apply to a right under an agreement to which subsection 7(7) of the Act, as enacted by subsection 3(7) of chapter 22 of the Statutes of Canada, 1999, does not (except for the purpose of applying paragraph 7(3)(b) of the Act) apply; and

(b) before 2000, the portion of subsection 7(7) of the Act, as enacted by subsection (1), before the definition "qualifying person" is to be read as follows:

(7) The definitions in this subsection apply in this section and in paragraph 110(1)(d) and subsections 110(1.5) to (1.8).

4.(1) Paragraph 8(1)(b) of the Act is replaced by the following:

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 to establish a right to, an amount owed to the taxpayer that, if received by the taxpayer, would be required by this subdivision to be included in computing the taxpayer's income;  

2) The portion of paragraph 8(1)(i) of the Act before subparagraph (i) is replaced by the following:

Dues and other expenses of performing duties

(i) an amount paid by the taxpayer in the year, or on behalf of the taxpayer in the year if the amount paid on behalf of the taxpayer is required to be included in the taxpayer's income for the year, as

(3) Subsection (1) applies to amounts paid in the 2001 and subsequent taxation years.

5. (1) Paragraph 12(1)(x) of the Act is amended by adding the following after subparagraph (v):

(v.1) is not an amount received by the taxpayer in respect of a restrictive covenant, as defined by subsection 56.4(1), that was included, under subsection 56.4(2), in computing the income of a person related to the taxpayer,

(2) Section 12 of the Act is amended by adding the following after subsection (2):

No deferral of section 9 income under paragraph (1)(g

(2.01) Paragraph (1)(g) does not defer the inclusion in income of any amount that would, if this section were read without reference to that paragraph, be included in computing the taxpayer's income in accordance with section 9.

(3) Subsection (1) applies after October 7, 2003.

6. (1) Subsection 13(1) of the Act is replaced by the following:

Recaptured depreciation

13.

(1) If, at the end of a taxation year, the total of the amounts determined for E to K in the definition "undepreciated capital cost" in subsection (21) in respect of a taxpayer's depreciable property of a particular prescribed class exceeds the total of the amounts determined for A to D.1 in that definition in respect of that property, the excess shall be included in computing the taxpayer's income of the year.

(2) Subparagraph 13(4)(c)(ii) of the Act is replaced by the following:

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

(A) if the former property is described in paragraph (a), before the later of the end of the second taxation year following the initial year and 24 months after the end of the initial year, or

(B) in any other case, before the later of the end of the first taxation year following the initial year and 12 months after the end of 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

(3) Section 13 of the Act is amended by adding the following after subsection (4.1):

Election – limited period franchise, concession or license

(4.2) Subsection (4.3) applies in circumstances where

(a) a taxpayer (in this subsection and subsection (4.3) referred to as the "transferor") has, pursuant to a written agreement with a person or partnership (in this subsection and subsection (4.3) referred to as the "transferee"), at any time disposed of or terminated a former property that is a franchise, concession or licence for a limited period that is wholly attributable to the carrying on of a business at a fixed place;

(b) the transferee acquired the former property from the transferor or, on the termination, acquired a similar property in respect of the same fixed place from another person or partnership; and

(c) the transferor and the transferee jointly elect in their returns of income for their taxation years that include that time to have subsection (4.3) apply in respect of the acquisition and the disposition or termination.

Effect of election

(4.3) Where this subsection applies in respect of an acquisition and a disposition or termination,

(a) if the transferee acquired a similar property referred to in paragraph (4.2)(b), the transferee is deemed to have also acquired the former property at the time that the former property was terminated and to own the former property until the transferee no longer owns the similar property;

(b) if the transferee acquired the former property referred to in paragraph (4.2)(b), the transferee is deemed to own the former property until such time as the transferee owns neither the former property nor a similar property in respect of the same fixed place to which the former property related;

(c) for the purpose of calculating the amount deductible under paragraph 20(1)(a) in respect of the former property in computing the transferee's income, the life of the former property remaining on its acquisition by the transferee is deemed to be equal to the period that was the life of the former property remaining on its acquisition by the transferor; and

(d) any amount that would, if this Act were read without reference to this subsection, be an eligible capital amount to the transferor or an eligible capital expenditure to the transferee in respect of the disposition or termination of the former property by the transferor is deemed to be

(i) neither an eligible capital amount nor an eligible capital expenditure,

(ii) an amount required to be included in computing the capital cost to the transferee of the former property, and

(iii) an amount required to be included in computing the proceeds of disposition to the transferor in respect of a disposition of the former property.

(4) Subsection (1) applies to taxation years that end after February 23, 1998.

(5) Clause 13(4)(c)(ii)(A) of the Act, as enacted by subsection (2) applies in respect of dispositions that occur in taxation years that end on or after December 20, 2000.

(6) Clause 13(4)(c)(ii)(B) of the Act, as enacted by subsection (2) applies in respect of dispositions that occur in taxation years that end on or after December 20, 2001.

(7) Subsection (3) applies in respect of dispositions and terminations that occur after December 20, 2002.

7. (1) The portion of subsection 14(1.01) of the Act before paragraph (c) is replaced by the following:

Election re capital gain

(1.01) A taxpayer may, in the taxpayer's return of income for a taxation year, or with an election under subsection 83(2) filed on or before the taxpayer's filing-due date for the taxation year, elect that the following rules apply to a disposition made at any time in the year of an eligible capital property in respect of a business, if the taxpayer's actual proceeds of the disposition exceed the taxpayer's eligible capital expenditure in respect of the acquisition of the property, that eligible capital expenditure can be determined and, for taxpayers who are individuals, the taxpayer's exempt gains balance in respect of the business for the taxation year is nil:

(a) for the purpose of subsection (5) other than the description of A in the definition "cumulative eligible capital", the proceeds of disposition of the property are deemed to be equal to the amount of that eligible capital expenditure;

(b) the taxpayer is deemed to have disposed at that time of a capital property that had, immediately before that time, an adjusted cost base to the taxpayer equal to the amount of that eligible capital expenditure, for proceeds of disposition equal to the actual proceeds; and

(2) Section 14 of the Act is amended by adding the following after subsection (1.01):

Election re property acquired with pre-1972 outlays or expenditures

(1.02) If at any time in a taxation year a taxpayer has disposed of an eligible capital property in respect of which an outlay or expenditure to acquire the property was made before 1972 (which outlay or expenditure would have been an eligible capital expenditure if it had been made or incurred as a result of a transaction that occurred after 1971), the taxpayer's actual proceeds of the disposition exceed the total of those outlays or expenditures, that total can be determined, subsection 21(1) of the Income Tax Application Rules applies in respect of the disposition and, for taxpayers who are individuals, the taxpayer's exempt gains balance in respect of the business for the taxation year is nil, the taxpayer may, in the taxpayer's return of income for the taxation year, or with an election under subsection 83(2) filed on or before the taxpayer's filing-due date for the taxation year, elect that the following rules apply:

(a) for the purpose of subsection (5) other than the description of A in the definition "cumulative eligible capital", the proceeds of disposition of the property are deemed to be nil;

(b) the taxpayer is deemed to have disposed at that time of a capital property that had, immediately before that time, an adjusted cost base to the taxpayer equal to nil, for proceeds of disposition equal to the amount determined, in respect of the disposition, under subsection 21(1) of the Income Tax Application Rules; and

(c) if 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.

Non-application of subsections (1.01) and (1.02)

(1.03) Subsections (1.01) and (1.02) do not apply to a disposition by a taxpayer of a property

(a) that is goodwill; or

(b) that was acquired by the taxpayer

(i) in circumstances where an election was made under subsection 85(1) or (2) and the amount agreed on in that election in respect of the property was less than the fair market value of the property at the time it was so acquired, and

(ii) from a person or partnership with whom the taxpayer did not deal at arm's length, and for whom the eligible capital expenditure in respect of the acquisition of the property cannot be determined.

(3) Paragraph 14(3)(a) of the Act is replaced by the following:

(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 or, if the property is the subject of an election under subsection (1.01) or (1.02) by the transferor, 3/4 of the actual proceeds referred to in that subsection,

(4) The description of A in the definition "cumulative eligible capital" in subsection 14(5) of the Act is replaced by the following:

A is the amount, if any, by which 3/4 of the total of all eligible capital expenditures in respect of the business made or incurred by the taxpayer after the taxpayer's adjustment time and before that time exceeds the total of all amounts each of which is determined by the formula

1/2 x (A.1 - A.2) x (A.3/A.4)

where

A.1 is the amount required, because of paragraph (1)(b) or 38(a), to be included in the income of a person or partnership (in this definition referred to as the "transferor") not dealing at arm's length with the taxpayer in respect of the disposition after December 20, 2002 of a property that was an eligible capital property acquired by the taxpayer directly or indirectly, in any manner whatever, from the transferor and not disposed of by the taxpayer before that time,

A.2 is the total of all amounts that can reasonably be considered to have been claimed as deductions under section 110.6 by the transferor in respect of that disposition,

A.3 is the transferor's proceeds from that disposition, and

A.4 is the transferor's total proceeds of disposition of eligible capital property in the taxation year of the transferor in which the property described in A.1 was disposed of,

(5) The description of R in the definition "cumulative eligible capital" in subsection 14(5) of the Act is replaced by the following:

R is the total of all amounts each of which is an amount included, in computing the taxpayer's income from the business for a taxation year that ended before that time and after the taxpayer's adjustment time

(a) in the case of a taxation year that ends after February 27, 2000, under paragraph (1)(a), or

(b) in the case of a taxation year that ended before February 28, 2000,

(i) under subparagraph (1)(a)(iv), as that subparagraph applied in respect of that taxation year, or

(ii) under paragraph (1)(b), as that paragraph applied in respect of that taxation year, to the extent that the amount so included is in respect of an amount included in the amount determined for P;

(6) The portion of subsection 14(6) of the Act before paragraph (a) is replaced by the following:

Exchange of property

(6) If 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, the amount, not exceeding the amount that would otherwise be included in the amount determined for E in the definition "cumulative eligible capital" in subsection (5) (if the description of E in that definition were read without reference to "3/4 of") in respect of a business, that has been used by the taxpayer to acquire the replacement property before the later of the end of the first taxation year after the initial year and 12 months after the end of the initial year

(7) Subsection (1) applies to dispositions of eligible capital property that occur in taxation years that end after February 27, 2000 except that, in its application to those dispositions of eligible capital property that occur before December 21, 2002, the portion of subsection 14(1.01) of the Act before paragraph (c), as enacted by subsection (1), is to be read as follows:

(1.01) A taxpayer may, in the taxpayer's return of income for a taxation year, elect that the following rules apply to a disposition made at any time in the taxation year of an eligible capital property (other than goodwill) in respect of a business, if the taxpayer's actual proceeds of the disposition exceed the taxpayer's cost of the property, that cost can be determined and, for taxpayers who are individuals, the taxpayer's exempt gains balance in respect of the business for the taxation year is nil:

(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, immediately before that time, an adjusted cost base to the taxpayer equal to that cost, for proceeds of disposition equal to the actual proceeds; and

(8) Subsection 14(1.02) of the Act, as enacted by subsection (2), applies to dispositions of eligible capital property that occur after December 20, 2002.

(9) Subsection 14(1.03) of the Act, as enacted by subsection (2), applies to dispositions of eligible capital property that occur after December 20, 2002, except that, in its application to those dispositions that occur on or before ANNOUNCEMENT DATE, it is to be read without reference to its paragraph (b).

(10) Subsections (3) to (5) apply to taxation years that end after February 27, 2000.

(11) Subsection (6) applies in respect of dispositions that occur in taxation years that end on or after December 20, 2001.

8. (1) Subsection 15(1.21) of the French version of the Act is replaced by the following:

Montant remis

(1.21) Pour l'application du paragraphe (1.2), le « montant remis » à un moment donné sur une dette émise par un débiteur s'entend au sens qui serait donné à cette expression par le paragraphe 80(1) si, à la fois :

(2) Subsection 15(2) of the French version of the Act is replaced by the following:

Dette d'un actionnaire

(2) La personne ou la société de personnes – actionnaire d'une société donnée, personne ou société de personnes rattachée à un tel actionnaire ou associé d'une société de personnes, ou bénéficiaire d'une fiducie, qui est un tel actionnaire – qui, au cours d'une année d'imposition, obtient un prêt ou devient la débitrice de la société donnée, d'une autre société liée à celle-ci ou d'une société de personnes dont la société donnée ou une société liée à celle-ci est un associé, est tenue d'inclure le montant du prêt ou de la dette dans le calcul de son revenu pour l'année. Le présent paragraphe ne s'applique pas aux sociétés résidant au Canada ni aux sociétés de personnes dont chacun des associés est une société résidant au Canada.

(3) Subsection (1) applies to taxation years that end after February 21, 1994.

(4) Subsection (2) applies to loans made and indebtedness arising in the 1990 and subsequent taxation years.

10. (1) Subsection 18(1) of the Act is amended by striking out the word "and" at the end of paragraph (u), by adding the word "and" at the end of paragraph (v) and by adding the following after paragraph (v):

Underlying payments on qualified securities

(2) Paragraph 18(14)(c) of the Act is replaced by the following:

(3) Subsection (1) applies after 2001.

(4) Subsection (2) applies to dispositions that occur after 1998.

11. (1) Subsection 18.1(15) of the Act is replaced by the following:

Non-application – risks ceded between insurers

(15) Subsections (2) to (13) do not apply to a taxpayer's matchable expenditure in respect of a right to receive production if

Non-application — no rights, tax benefits or shelters

(16) Subsections (2) to (13) do not apply to a taxpayer's matchable expenditure in respect of a right to receive production if

Revenue exception

(17) Paragraph (4)(a) does not apply in determining the amount for a taxation year that may be deducted in respect of a taxpayer's matchable expenditure in respect of a right to receive production if

(2) Subject to subsection (3), subsection (1) applies in respect of expenditures made by a taxpayer on or after September 18, 2001 in respect of a right to receive production, except if

(a) the expenditure was

(i) required to be made under a written agreement made by the taxpayer before September 18, 2001,

(ii) made under, or described in, the terms of a prospectus, preliminary prospectus or registration statement that was, before September 18, 2001, filed with a public authority in Canada in accordance with the securities legislation of Canada or of a province and, if required by law, accepted for filing by the public authority before September 18, 2001, or

(iii) made under, or described in, the terms of an offering memorandum distributed as part of an offering of securities if

(b) the expenditure was made before 2002;

(c) the expenditure was made in consideration for services that were rendered in Canada before 2002 in respect of an activity, or a business, all or substantially all of which was carried on in Canada;

(d) there is no agreement, or other arrangement, under which the obligation of any taxpayer in respect of the expenditure can, on or after September 18, 2001 be changed, reduced or waived if there is a change to, or an adverse assessment under, the Act;

(e) if the right to receive production is, or is related to, a tax shelter investment, a tax shelter identification number in respect of the tax shelter was obtained before September 18, 2001; and

(f) if the expenditure was made under, or described in, the terms of a document that is a prospectus, a preliminary prospectus, a registration statement or an offering memorandum (and regardless of whether the expenditure was also made under a written agreement)

(i) all of the funds raised pursuant to the document that may reasonably be used to make a matchable expenditure were received by the taxpayer before 2002,

(ii) all or substantially all of the securities distributed pursuant to the document for the purpose of raising the funds described in subparagraph (i) were acquired before 2002 by a person who is not

(A) a promoter, or an agent of a promoter, of the securities, other than an agent of the promoter who acquired the security as principal and not for resale,

(B) a vendor of the right to receive production,

(C) a broker or dealer in securities, other than a person who acquired the security as principal and not for resale, or

(D) a person who does not deal at arm's length with a person to whom clause (A) or (B) applies, and

(iii) all or substantially all of the funds raised pursuant to the document before 2002 were used to make expenditures that were required to be made pursuant to agreements in writing made before September 18, 2001.

(3) Subsection (1) does not apply to an expenditure made by a taxpayer in respect of a right to receive production in respect of a particular film or video production if

(a) expenditures in respect of the particular film or video production

(i) were made before September 18, 2001 (as determined, for the purpose of this paragraph, without reference to subsection 143.2(10) of the Act, except if a repaid amount for the purposes of that subsection is paid after 2002), or

(ii) were required to be made by the taxpayer under a written agreement made before September 18, 2001 by the taxpayer;

(b) principal photography of the particular film or video production

(i) began before 2002,

(ii) was primarily completed before April 2002, and

(iii) was conducted primarily in Canada;

(c) the expenditure

(d) except where the particular film or video production is a designated production of the taxpayer, at least 75% of the total of all expenditures, each of which is an expenditure made by the taxpayer in the course of the business referred to in subparagraph (c)(i), is an expenditure described for the purpose of that subparagraph made in consideration for the supply of goods or services that are supplied or rendered in Canada before April 2002 by persons that are subject to tax on the expenditure under Part I or XIII of the Act;

(e) there is no agreement, or other arrangement, under which the obligation of any taxpayer to acquire a security distributed pursuant to the prospectus, preliminary prospectus, registration statement or offering memorandum can, after September 18, 2001, be changed, reduced or waived if there is a change to, or an adverse assessment under, the Act;

(f) if the right to receive production is, or is related to, a tax shelter investment, a tax shelter identification number in respect of the tax shelter was obtained before September 18, 2001;

(g) all of the funds raised pursuant to the prospectus, preliminary prospectus, registration statement or offering memorandum that may reasonably be used to make a matchable expenditure before April 2002 in respect of the particular film or video production are received by the taxpayer before 2003;

(h) all of the securities distributed pursuant to the prospectus, preliminary prospectus, registration statement or offering memorandum for the purpose of raising the funds described in paragraph (g) were acquired before 2002;

(i) all or substantially all of the securities distributed pursuant to the prospectus, preliminary prospectus, registration statement or offering memorandum for the purpose of raising the funds described in paragraph (g) were acquired by a person who is not

(i) a promoter, or an agent of a promoter, of the securities, other than an agent of the promoter who acquired the security as principal and not for resale,

(j) except where the particular film or video production is a designated production of the taxpayer, all or substantially all of the matchable expenditures made by the taxpayer that are wholly attributable to the principal photography of the particular film or video production are wholly attributable to principal photography conducted in Canada.

(4) For the purpose of paragraphs (3)(d) and (j), a designated production of a taxpayer is

(a) a film or video production in respect of which

(iii) if a member of a particular master partnership is a partnership (in this subsection referred to as an "original master partnership"),

(iv) no member of an original master partnership is a partnership, an interest in which is a tax shelter; or

(b) a film or video production in respect of which

12. (1) Subsection 20(8) of the Act is amended by striking out the word "or" at the end of paragraph (a) and by adding the following after paragraph (b):

(c) the purchaser of the property sold was a corporation that, immediately after the sale,

(i) was controlled, directly or indirectly, in any manner whatever, by the taxpayer,

(ii) was controlled, directly or indirectly, in any manner whatever, by a person or group of persons that controlled the taxpayer, directly or indirectly, in any manner whatever, or

(iii) controlled the taxpayer, directly or indirectly, in any manner whatever; or

(d) the purchaser of the property sold was a partnership in which the taxpayer was, immediately after the sale, a majority interest partner.

(2) Subsection 20(12) of the Act is replaced by the following:

Foreign non-business income tax

(12) In computing the income of a taxpayer who is resident in Canada at any time in a taxation year from a business or property for the year, there may be deducted any amount that the taxpayer claims that does not exceed the non-business income tax paid by the taxpayer for the year to the government of a country other than Canada (within the meaning assigned by subsection 126(7) read without reference to paragraphs (c) and (e) of the definition "non-business income tax" in that subsection) in respect of that income, other than any of those taxes paid that can, in whole or in part, reasonably be regarded as having been paid by a corporation in respect of income from a share of the capital stock of a foreign affiliate of the corporation.

(3) Paragraph 20(16)(a) of the Act is replaced by the following:

(a) the total of all amounts used to determine A to D.1 in the definition "undepreciated capital cost" in subsection 13(21) in respect of a taxpayer's depreciable property of a particular class exceeds the total of all amounts used to determine E to K in that definition in respect of that property, and

(4) Subsection 20(16.1) of the Act is replaced by the following:

Non-application of subsection (16)

(16.1) Subsection (16) does not apply

(a) in respect of a passenger vehicle of a taxpayer that has a cost to the taxpayer in excess of $20,000 or any other amount that is prescribed; and

(b) in respect of a taxation year in respect of a property that was a former property deemed by paragraph 13(4.3)(a) or (b) to be owned by the taxpayer, if

(i) within 24 months after the taxpayer last owned the former property, the taxpayer or a person not dealing at arm's length with the taxpayer acquires a similar property in respect of the same fixed place to which the former property applied, and

(ii) at the end of the taxation year, the taxpayer or the person owns the similar property or another similar property in respect of the same fixed place to which the former property applied.

(5) Subsection (1) applies in respect of property sold by a taxpayer after December 20, 2002. However, if a property so sold pursuant to an agreement in writing made before December 21, 2002 is transferred to the purchaser before 2004

(6) Subsection (2) applies after December 20, 2002 in respect of taxes paid at any time.

(7) Subsection (3) applies to taxation years that end after February 23, 1998.

(8) Subsection (4) applies in respect of taxation years that end after December 20, 2002.

13. (1) Subclause 37(8)(a)(ii)(B)(V) of the Act is replaced by the following:

(V) the cost of materials consumed or transformed in the prosecution of scientific research and experimental development in Canada, or

(2) Subsection (1) applies to costs incurred after February 23, 1998.

14. (1) The Act is amended by adding the following after section 38:

Allocation of gain re certain gifts

38.1

If a taxpayer is entitled to an amount of an advantage in respect of a gift of property described in paragraph 38(a.1) or (a.2),

(2) Subsection (1) applies to gifts made after December 20, 2002.

15. (1) Paragraph 40(1.01)(c) of the Act is replaced by the following:

(2) Paragraph 40(2)(a) of the Act is amended by striking out the word "or" at the end of subparagraph (i), by adding the word "or" at the end of subparagraph (ii), and by adding the following after subparagraph (ii):

(3) Paragraph 40(3.14)(a) of the English version of the Act is replaced by the following:

(4) Paragraph 40(3.5)(b) of the Act is replaced by the following:

(5) Subsection (1) applies to gifts made after December 20, 2002.

(6) Subsection (2) applies to sales that occur after December 20, 2002.

(7) Subsection (3) applies after June 20, 2001.

(8) Subsection (4) applies to dispositions of property that occur after April 26, 1995, except that it does not apply to any of those dispositions by a person or partnership that occurred before 1996 and that is described in subsection 247(1) of the Income Tax Amendments Act, 1997 unless the person or partnership, as the case may be, made a valid election under subsection 247(2) of that Act.

16. (1) The portion of subsection 43(2) of the Act before the formula in paragraph (a) is replaced by the following:

Ecological gifts

(2) For the purposes of subsection (1) and section 53, where at any time a taxpayer disposes of a covenant or an easement to which land is subject or, in the case of land in the Province of Quebec, a real servitude, in circumstances where subsection 110.1(5) or 118.1(12) applies,

(2) Subsection (1) applies to gifts made after December 20, 2002.

17. (1) The portion of subsection 43.1(1) of the Act before paragraph (a) is replaced by the following:

Life estates in real property

43.1

(1) Notwithstanding any other provision of this Act, if at any time a taxpayer disposes of a remainder interest in real property (except as a result of a transaction to which subsection 73(3) would otherwise apply or by way of a gift to a donee described in the definition "total charitable gifts", "total Crown gifts" or "total ecological gifts" in subsection 118.1(1)) to a person or partnership and retains a life estate or an estate pur autre vie (in this section called the "life estate") in the property, the taxpayer is deemed

(2) Subsection (1) applies to dispositions that occur after February 27, 1995.

18. (1) Paragraphs 44(1)(c) and (d) of the Act are replaced by the following:

(2) Subsection 44(7) of the Act is amended by striking out the word "or" at the end of paragraph (a), by adding the word "or" at the end of paragraph (b), and by adding the following after paragraph (b):

(3) Paragraph 44(1)(c) of the Act, as enacted by subsection (1), applies in respect of dispositions that occur in taxation years that end on or after December 20, 2000.

(4) Paragraph 44(1)(d) of the Act, as enacted by subsection (1), applies in respect of dispositions that occur in taxation years that end on or after December 20, 2001

.

(5) Subsection (2) applies to dispositions of property by a taxpayer that occur after December 20, 2002. However, if a property so disposed of pursuant to an agreement in writing made before December 21, 2002 is transferred to the purchaser before 2004

19. (1) The portion of subsection 44.1(6) of the Act before paragraph (b) is replaced by the following:

Special rule — re eligible small business corporation share exchanges

(6) For the purpose of this section, where an individual receives shares of the capital stock of a particular corporation that are eligible small business corporation shares of the individual (in this subsection referred to as the "new shares") as the sole consideration for the disposition by the individual of shares issued by the particular corporation or by another corporation that were eligible small business corporation shares of the individual (in this subsection referred to as the "exchanged shares"), the new shares are deemed to have been owned by the individual throughout the period that the exchanged shares were owned by the individual if

(2) The portion of subsection 44.1(7) of the Act before paragraph (b) is replaced by the following:

Special rule — re active business corporation share exchanges

(7) For the purpose of this section, where an individual receives common shares of the capital stock of a particular corporation (in this subsection referred to as the "new shares") as the sole consideration for the disposition by the individual of common shares of the particular corporation or of another corporation (in this subsection referred to as the "exchanged shares"), the new shares are deemed to be eligible small business corporation shares of the individual and shares of the capital stock of an active business corporation that were owned by the individual throughout the period that the exchanged shares were owned by the individual, if

(3) Paragraph 44.1(12)(b) of the Act is replaced by the following:

(i) issued by the corporation that issued the old shares,

(ii) issued by a corporation that, at or immediately after the time of issue of the new shares, was a corporation that was not dealing at arm's length with

(4) Section 44.1 of the Act is amended by adding the following after subsection (12):

Order of disposition of shares

(13) For the purpose of this section, an individual is deemed to dispose of shares that are identical properties in the order in which the individual acquired them.

(5) Subsections (1) and (2) apply to dispositions that occur after February 27, 2000.

(6) Subsection (3) applies in respect of dispositions that occur after ANNOUNCEMENT DATE.

(7) Subsection (4) applies in respect of dispositions that occur after December 20, 2002. However, if an individual so elects in writing and files the election with the Minister of National Revenue on or before the individual's filing due date for the individual's taxation year in which this Act is assented to, subsection (4) applies, in respect of the individual, to dispositions that occur after February 27, 2000.

20. (1) Subparagraph 53(2)(c)(iii) of the Act is replaced by the following:

(2) The portion of subsection 53(4) of the Act before paragraph (a) is replaced by the following:

Recomputation of adjusted cost base on transfers and deemed dispositions

(4) If at any time in a taxation year a person or partnership (in this subsection referred to as the "vendor") disposes of a specified property and the proceeds of disposition of the property are determined under paragraph 48.1(1)(c), section 70 or 73, subsection 85(1), paragraph 87(4)(a) or (c) or 88(1)(a), subsection 97(2) or 98(2), paragraph 98(3)(f) or (5)(f), subsection 104(4), paragraph 107(2)(a) or (2.1)(a), 107.4(3)(a) or 111(4)(e) or section 128.1,

(3) Subsection (1) applies in respect of gifts and contributions made after December 20, 2002.

(4) Subsection (2) applies after ANNOUNCEMENT DATE.

21. (1) Paragraph (c) of the definition "superficial loss" in section 54 of the Act is replaced by the following:

(2) Subsection (1) applies to dispositions that occur after 1998.

22. (1) The portion of subsection 54.1(1) of the English version of the Act before paragraph (a) is replaced by the following:

Exception to principal residence rules

54.1

(1) A taxation year in which a taxpayer does not ordinarily inhabit the taxpayer's property as a consequence of the relocation of the place of employment of the taxpayer or the taxpayer's spouse or common-law partner while the taxpayer or the taxpayer's spouse or common-law partner, as the case may be, is employed by an employer who is not a person to whom the taxpayer or the taxpayer's spouse or common-law partner is related is deemed not to be a previous taxation year referred to in paragraph (d) of the definition "principal residence" in section 54 if

(2) Subsection (1) applies to the 2001 and subsequent taxation years except that, if a taxpayer and a person have jointly elected under section 144 of the Modernization of Benefits and Obligations Act, in respect of the 1998, 1999 or 2000 taxation years, subsection (1) applies to the taxpayer and the person in respect of the applicable taxation year and subsequent taxation years.

23. (1) The definition "specified class" in subsection 55(1) of the Act is amended by striking out the word "and" at the end of paragraph (b) and by replacing paragraph (c) with the following:

(2) Subsection 55(1) of the Act is amended by adding the following in alphabetical order:

"qualified person"
« personne admissible »

"qualified person", in relation to a distribution, means a person or partnership with whom the distributing corporation deals at arm's length at all times during the course of the series of transactions or events that includes the distribution if

(3) Clause 55(3)(a)(iii)(B) of the Act is replaced by the following:

(B) property (other than shares of the capital stock of the dividend recipient) more than 10% of the fair market value of which was, at any time during the course of the series, derived from shares of the capital stock of the dividend payer,

(4) Paragraph 55(3.01)(d) of the Act is replaced by the following:

(d) proceeds of disposition are to be determined without reference to

(i) the expression "paragraph 55(2)(a) or" in paragraph (j) of the definition "proceeds of disposition" in section 54, and

(ii) section 93; and

(5) Clause 55(3.1)(b)(i)(B) of the Act is replaced by the following:

(6) Paragraph 55(3.2)(h) of the Act is replaced by the following:

(h) in relation to a distribution, each corporation (other than a qualified person in relation to the distribution) that is a shareholder and a specified shareholder of the distributing corporation at any time during the course of a series of transactions or events, a part of which includes the distribution made by the distributing corporation, is deemed to be a transferee corporation in relation to the distributing corporation.

(7) Section 55 of the Act is amended by adding the following after subsection (3.3):

Specified shareholder exclusion

(3.4) In determining whether a person is a specified shareholder of a corporation for the purposes of the definition of "qualified person" in subsection (1), subparagraph (3.1)(b)(i) and paragraph (3.2)(h) as it applies for the purpose of subparagraph (3.1)(b)(iii), the expression "not less than 10% of the issued shares of any class of the capital stock of the corporation" in the definition "specified shareholder" in subsection 248(1) is to be read as the expression "not less than 10% of the issued shares of any class of the capital stock of the corporation, other than shares of a specified class (within the meaning of subsection 55(1))".

Amalgamation of related corporations

(3.5) For the purposes of paragraphs (3.1)(c) and (d), a corporation formed by an amalgamation of two or more corporations (each of which is referred to in this subsection as a "predecessor corporation") that were related to each other immediately before the amalgamation, is deemed to be the same corporation as, and a continuation of, each of the predecessor corporations.

(8) Section 55 of the Act is amended by adding the following after subsection (5):

Unlisted shares deemed listed

(6) A share (in this subsection referred to as the "reorganization share") is deemed, for the purposes of subsection 116(6) and the definition "taxable Canadian property" in subsection 248(1), to be listed on a prescribed stock exchange if

(c) immediately before the exchange, the old share

(d) the new share is listed on a prescribed stock exchange.

(9) Subsection (1) applies in respect of shares issued after December 20, 2002.

(10) Subsections (2), (5) and (6) and subsection 55(3.4) of the Act, as enacted by subsection (7), apply in respect of dividends received after 1999.

(11) Subsections (3) and (4) apply to dividends received after February 21, 1994.

(12) Subsection 55(3.5) of the Act, as enacted by subsection (7), applies in respect of dividends received after April 26, 1995.

(13) Subsection (8) applies to shares that are issued after April 26, 1995.

24. (1) Subsection 56(1) of the Act is amended by adding the following after paragraph (l.1):

Bad debt recovered

(2) Paragraph 56(1)(r) of the Act is amended by striking out the word "or" at the end of subparagraph (ii), by adding the word "or" at the end of subparagraph (iii), and by adding the following after subparagraph (iii):

(3) Section 56 of the Act is amended by adding the following after subsection (11):

Foreign retirement arrangement

(12) If an amount in respect of a foreign retirement arrangement is, as a result of a transaction, an event or a circumstance, considered to be distributed to an individual under the income tax laws of the country in which the arrangement is established, the amount is, for the purpose of paragraph (1)(a), deemed to be received by the individual as a payment out of the arrangement in the taxation year that includes the time of the transaction, event or circumstance.

(4) Subsection (1) applies after October 7, 2003.

(5) Subsection (2) applies to the 2003 and subsequent taxation years.

(6) Subsection (3) applies to the 1998 and subsequent taxation years except that, for taxation years that end before 2002, subsection 56(12) of the Act, as enacted by subsection (3), is to be read as follows:

(12) For the purpose of paragraph (1)(a),

24.1 (1) The Act is amended by adding the following after section 56.3:

Restrictive Covenants

Definitions

56.4

(1) The following definitions apply in this section.

"eligible interest"
« participation admissible »

"eligible interest", of a taxpayer, means capital property of the taxpayer that is

"restrictive covenant"
« engagement de non-concurrence »

"taxpayer"
« contribuable »

Income - restrictive covenants

(2) There is to be included in computing a taxpayer's income for a taxation year the total of all amounts each of which is an amount in respect of a restrictive covenant of the taxpayer that is received or receivable in the taxation year by the taxpayer or by a person not dealing at arm's length with the taxpayer (other than an amount that has been included in computing the taxpayer's income because of this subsection for a preceding taxation year).

Non-application of subsection (2)

(3) Subsection (2) does not apply to an amount received or receivable by a taxpayer in a taxation year in respect of a restrictive covenant granted by the taxpayer to a person with whom the taxpayer deals at arm's length (referred to in this subsection and subsection (4) as the "purchaser") if

A - B

A is the amount that would be the fair market value of the taxpayer's eligible interest that is disposed of if all restrictive covenants that may reasonably be considered to relate to a disposition of an interest in the business by any taxpayer were provided for no consideration, and

B is the amount that would be the fair market value of the taxpayer's eligible interest that is disposed of if no covenant were granted by any taxpayer that held an interest in the business,

Treatment of purchaser

(4) For the purposes of computing the income of a purchaser, an amount paid or payable by the purchaser for a restrictive covenant is

Non-application of section 42

(5) Section 42 does not apply to an amount received or receivable as consideration for a restrictive covenant.

(2) Subsection (1) applies to amounts received or receivable by a taxpayer after October 7, 2003, other than to amounts received by the taxpayer before 2005 under a grant of a restrictive covenant made in writing on or before October 7, 2003 between the taxpayer and a person with whom the taxpayer deals at arm's length.

25. (1) Section 60 of the Act is amended by adding the following after paragraph (e):

Restrictive covenant - bad debt

(2) The portion of clause 60(l)(ii)(A) of the Act before subclause (I) is replaced by the following:

(A) under which the taxpayer (or, if the taxpayer is mentally infirm, the taxpayer or a trust under which the taxpayer is, before the taxpayer's death, the sole person beneficially interested in amounts payable under the annuity) is the annuitant

(3) Clause 60(l)(ii)(B) of the Act is replaced by the following:

(4) Subsection (1) applies after October 7, 2003.

(5) Subsection (2) applies to taxation years that end after 2000 except that, for those taxation years that end before 2004, the portion of clause 60(l)(ii)(A) of the Act before subclause (I), as enacted by subsection (2), is to be read as follows:

(6) Subsection (3) applies to taxation years that end after 1988.

26. (1) The portion of clause (B) of the description of C in paragraph 63(2)(b) of the Act before subclause (I) is replaced by the following:

(2) Subsection (1) applies to certifications made after December 20, 2002.

27. (1) The portion of subsection 66(12.6) of the Act before paragraph (a) is replaced by the following:

Canadian exploration expenses to flow-through shareholder

(12.6) If a person gave consideration under an agreement to a corporation for the issue of a flow-through share of the corporation and, in the period that begins on the day the agreement was made and ends 24 months after the end of the month that includes that day, the corporation incurred Canadian exploration expenses (other than an expense deemed by subsection 66.1(9) to be a Canadian exploration expense of the corporation), the corporation may, after it complies with subsection (12.68) in respect of the share and before March of the first calendar year that begins after the period, renounce, effective on the day on which the renunciation is made or on an earlier day set out in the form prescribed for the purpose of subsection (12.7), to the person in respect of the share the amount, if any, by which the portion of those expenses that was incurred on or before the effective date of the renunciation (which portion is in this subsection referred to as the "specified expenses") exceeds the total of

(2) The portion of subsection 66(12.63) of the Act before paragraph (a) is replaced by the following:

Effect of renunciation

(12.63) Subject to subsections (12.69) to (12.702), if under subsection (12.62) a corporation renounces an amount to a person,

(3) The portion of subsection 66(12.66) of the French version of the Act before paragraph (b) is replaced by the following:

Frais engagés dans l'année suivante

(12.66) Pour l'application des paragraphes (12.6) et (12.601) et de l'alinéa (12.602)b), la société qui émet une action accréditive à une personne conformément à une convention est réputée avoir engagé des frais d'exploration au Canada ou des frais d'aménagement au Canada le dernier jour de l'année civile précédant une année civile donnée si les conditions suivantes sont réunies :

(4) Subparagraph 66(12.66)(b)(iii) of the French version of the Act is replaced by the following:

(5) The portion of subsection 66(12.66) of the English version of the Act after paragraph (e) is replaced by the following:

the corporation is for the purpose of subsection (12.6), or of subsection (12.601) and paragraph (12.602)(b), as the case may be, deemed to have incurred the expenses on the last day of that preceding year.

(6) Paragraphs (d) and (e) of the definition "Canadian resource property" in subsection 66(15) of the Act are replaced by the following:

(7) The definition "flow-through share" in subsection 66(15) of the Act is replaced by the following:

"flow-through share"
« action accréditive »

"flow-through share" means a share (other than a prescribed share) of the capital stock of a principal-business corporation, or a right (other than a prescribed right) to acquire a share of the capital stock of a principal-business corporation, issued to a person under an agreement in writing made between the person and the corporation under which the corporation, for consideration that does not include property to be exchanged or transferred by the person under the agreement in circumstances to which any of sections 51, 85, 85.1, 86 and 87 applies, agrees

(8) Subsection (1) and (2) apply to renunciations made after December 20, 2002.

(9) Subsection (3) applies to expenses incurred after 1996, except that

(10) Subsection (6) applies to rights acquired after December 20, 2002.

(11) Subsection (7) applies to agreements made after December 20, 2002.

30. (1) Section 66.7 of the Act is amended by adding the following after subsection (10):

Amalgamation – partnership property

(10.1) For the purposes of subsections (1) to (5) and the definition "original owner" in subsection 66(15), if at any particular time there has been an amalgamation within the meaning assigned by subsection 87(1), other than an amalgamation to which subsection 87(1.2) applies, of two or more corporations (each of which is referred to in this subsection as a "predecessor corporation") to form one corporate entity (referred to in this subsection as the "new corporation") and immediately before the particular time a predecessor corporation was a member of a partnership that owned a Canadian resource property or a foreign resource property,

(2) Subsection (1) applies to amalgamations that occur after 1996.

30.1 (1) The portion of section 68 of the Act that is before paragraph (a) is replaced by the following:

Allocation of amounts in consideration for property, services or restrictive covenants

68.

If an amount received or receivable from a person can reasonably be regarded as being in part the consideration for the disposition of a particular property of a taxpayer, for the provision of particular services by a taxpayer, or for a restrictive covenant as defined by subsection 56.4(1) agreed to by a taxpayer,

(2) Section 68 of the Act is amended by deleting the word "and" at the end of paragraph (a), by adding the word "and" at the end of paragraph (b) and by adding the following after paragraph (b):

(3) Subsections (1) and (2) apply on and after ANNOUNCEMENT DATE, other than to a taxpayer's grant of a restrictive covenant made in writing by the taxpayer before ANNOUNCEMENT DATE between the taxpayer and a person with whom the taxpayer deals at arm's length.

31. (1) Paragraph 69(1)(b) of the English version of the Act is amended by striking out the word "and" at the end of subparagraph (iii).

(2) Subsection (1) applies to dispositions that occur after December 23, 1998.

31.1 (1) The portion of subsection 70(3) of the French version of the Act before paragraph (a) is replaced by the following:

Droits ou biens transférés aux bénéficiaires

(3) Si, avant l'expiration du délai accordé pour le choix prévu au paragraphe (2), un droit ou un bien auquel ce paragraphe s'appliquerait par ailleurs a été transféré ou distribué aux bénéficiaires ou à d'autres personnes ayant un droit de bénéficiaire sur la succession ou la fiducie, les règles suivantes s'appliquent :

(2) The portion of subsection 70(6) of the French version of the Act before paragraph (a) is replaced by the following:

Transfert ou distribution de biens à l'époux ou au conjoint de fait ou à une fiducie à leur profit

(6) Lorsqu'un bien d'un contribuable qui résidait au Canada immédiatement avant son décès est un bien auquel le paragraphe (5) s'appliquerait par ailleurs et qu'il est, par suite du décès du contribuable, transféré ou distribué :

(3) The portion of subsection 70(6.1) of the French version of the Act before paragraph (a) is replaced by the following:

Transfert ou distribution du compte de stabilisation du revenu net à l'époux ou au conjoint de fait ou à une fiducie

(6.1) Lorsqu'un bien qui est un compte de stabilisation du revenu net d'un contribuable est transféré ou distribué à l'une des personnes suivantes au moment du décès du contribuable ou postérieurement et par suite de ce décès, les paragraphes (5.4) et 73(5) ne s'appliquent pas au second fonds du compte de stabilisation du revenu net du contribuable :

(4) The portion of paragraph 70(7)(b) of the French version of the Act before subparagraph (i) is replaced by the following:

(5) The portion of subsection 70(9) of the French version of the Act before paragraph (a) is replaced by the following:

Transfert de biens agricoles à un enfant

(9) Lorsqu'un fonds de terre ou un bien amortissable d'une catégorie prescrite, qui est situé au Canada et appartient à un contribuable et auquel le paragraphe (5) s'appliquerait par ailleurs, était utilisé, avant le décès du contribuable, principalement dans le cadre d'une entreprise agricole dans laquelle le contribuable, son époux ou conjoint de fait ou l'un de ses enfants soit prenait une part active de façon régulière et continue, soit, s'il s'agit d'un bien utilisé dans le cadre de l'exploitation d'une terre à bois, prenait part dans la mesure requise par un plan d'aménagement forestier visé par règlement relativement à cette terre, que le bien est, par suite du décès du contribuable, transféré ou distribué à un enfant du contribuable qui résidait au Canada immédiatement avant ce décès, et qu'il est démontré, dans les 36 mois suivant ce décès ou, si dans ce délai le représentant légal du contribuable demande par écrit que le présent paragraphe soit applicable, dans un délai plus long que le ministre considère acceptable dans les circonstances, que le bien est dévolu irrévocablement à l'enfant, les règles suivantes s'appliquent :

(6) The portion of subsection 70(9.1) of the French version of the Act before paragraph (a) is replaced by the following:

Transfert aux enfants de biens agricoles de la fiducie

(9.1) Lorsqu'un fonds de terre ou un bien amortissable d'une catégorie prescrite, qui est situé au Canada et appartient à un contribuable, a été transféré ou distribué à une fiducie visée au paragraphe (6) ou 73(1) (dans sa version applicable aux transferts effectués avant 2000) ou à une fiducie à laquelle s'applique le sous-alinéa 73(1.01)c)(i), que ce bien ou un bien de remplacement, à l'égard duquel la fiducie a fait le choix prévu aux paragraphes 13(4) ou 44(1), était utilisé dans le cadre d'une entreprise agricole immédiatement avant le décès de l'époux ou du conjoint de fait du contribuable, lequel époux ou conjoint de fait était bénéficiaire de la fiducie, et que ce bien ou bien de remplacement a été, au décès de l'époux ou du conjoint de fait et par suite de ce décès, transféré ou distribué et est dévolu irrévocablement à un enfant du contribuable qui résidait au Canada immédiatement avant le décès de l'époux ou du conjoint de fait, les règles suivantes s'appliquent :

(7) The portion of subsection 70(9.2) of the French version of the Act before paragraph (a) is replaced by the following:

Transfert de sociétés et sociétés de personnes agricoles familiales

(9.2) Lorsque, à un moment donné, un bien d'un contribuable qui était, immédiatement avant le décès de celui- ci, une action du capital-actions d'une société agricole familiale du contribuable ou une participation dans une société de personnes agricole familiale du contribuable et auquel le paragraphe (5) s'appliquerait par ailleurs est, par suite du décès du contribuable, transféré ou distribué à un enfant du contribuable qui résidait au Canada immédiatement avant ce décès, et qu'il est démontré, dans les 36 mois suivant ce décès ou, si le représentant légal du contribuable en fait la demande écrite au ministre dans ce délai, dans un délai plus long que le ministre considère acceptable dans les circonstances, que le bien est dévolu irrévocablement à l'enfant, les règles suivantes s'appliquent :

(8) The portion of subsection 70(9.3) of the French version of the Act before paragraph (b) is replaced by the following:

Transfert d'une société ou société de personnes agricole familiale aux enfants de l'auteur d'une fiducie

(9.3) Lorsqu'un bien d'un contribuable a été transféré ou distribué à une fiducie visée au paragraphe (6) ou 73(1) (dans sa version applicable aux transferts effectués avant 2000) ou à une fiducie à laquelle s'applique le sous-alinéa 73(1.01)c)(i) et que le bien était :

(9) The portion of subsection 70(9.3) of the French version of the Act after paragraph (b) and before paragraph (c) is replaced by the following:

et que le bien, après le 10 avril 1978, a été transféré ou distribué, au décès de l'époux ou du conjoint de fait et par suite de ce décès, à un enfant du contribuable qui résidait au Canada immédiatement avant le décès de l'époux ou du conjoint de fait et est dévolu irrévocablement à l'enfant, les règles suivantes s'appliquent :

31.2 The portion of subsection 72(2) of the French version of the Act before paragraph (a) is replaced by the following:

Choix par les représentants légaux et le bénéficiaire du transfert concernant les provisions

(2) Lorsqu'un bien d'un contribuable qui représente le droit de recevoir une somme a été, au moment du décès du contribuable ou postérieurement et par suite de ce décès, transféré ou distribué à son époux ou conjoint de fait visé à l'alinéa 70(6)a) ou à une fiducie visée à l'alinéa 70(6)b) (appelés « bénéficiaire du transfert » au présent paragraphe), que le contribuable résidait au Canada immédiatement avant son décès et que le représentant légal du contribuable et le bénéficiaire du transfert ont fait, à l'égard du bien, un choix conjoint sur le formulaire prescrit, les règles suivantes s'appliquent :

32. (1) Subsection 73(2) of the Act is replaced by the following:

Capital cost and amount deemed allowed to spouse, etc., or trust

(2) If a transferee is deemed by subsection (1) to have acquired any particular depreciable property of a prescribed class of a taxpayer for an amount determined under paragraph (1)(b) and the capital cost to the taxpayer of the particular property exceeds the amount determined under that paragraph, in applying sections 13 and 20 and any regulations made under paragraph 20(1)(a)

(2) Paragraph 73(3)(c) of the Act is replaced by the following:

(3) Paragraph 73(4)(b) of the Act is replaced by the following:

(4) Subsection (1) applies to transfers that occur after 1999.

(5) Subsections (2) and (3) apply to dispositions that occur after December 20, 2002.

32.1 (1) Clause 82(1)(a)(ii)(B) of the Act is replaced by the following:

(B) where the taxpayer is an individual, the total of all amounts each of which is, or is deemed by paragraph 260(12)(b) to have been, an amount paid by the taxpayer in the year and deemed by subsection 260(5.1) to have been received by another person as a taxable dividend,

(2) Subsection (1) applies

32.2 (1) Subsection 84(4.1) of the Act is replaced by the following:

Deemed dividend on reduction of paid-up capital

(4.1) Any amount paid by a public corporation on the reduction of the paid-up capital in respect of any class of shares of its capital stock, otherwise than by way of a redemption, an acquisition, or a cancellation, of any shares of that class or by way of a transaction described in subsection (2) or section 86, is deemed to have been paid by the corporation and received by the person to whom it was paid, as a dividend, unless

(2) Subsection (1) applies to amounts paid after 1996, except that in respect of those amounts paid before ANNOUNCEMENT DATE, subsection 84(4.1) of the Act, as enacted by subsection (1), is to be read as follows:

(4.1) Any amount paid by a public corporation on the reduction of the paid-up capital in respect of any class of shares of its capital stock, otherwise than by way of a redemption, an acquisition, or a cancellation, of any shares of that class or by way of a transaction described in subsection (2) or in section 86, is deemed to have been paid by the corporation and received by the person to whom it was paid, as a dividend, unless the amount may reasonably be considered to be derived from proceeds realized by the public corporation, or by a person or partnership in which the public corporation had a direct or indirect interest at the time that the proceeds were realized, from a transaction that occurred outside the ordinary course of the business of the public corporation, or of the person or partnership that realized the proceeds.

33. (1) The portion of paragraph 85(1)(d.1) of the Act before the description of B is replaced by the following:

1/2 x [(A x B/C) - 2(D - E)]

(2) Subsection 85(1) of the Act is amended by adding the following after paragraph (d.1):

A x B/C

(i) by subparagraph 14(1)(a)(ii), and

(ii) for variable B in the formula in paragraph 14(1)(b);

(3) Subsections (1) and (2) apply in respect of dispositions that occur after December 20, 2002.

34. (1) Subparagraphs 86.1(2)(c)(ii) and (iii) of the Act are replaced by the following:

(ii) at the time of the distribution, the shares of the class that includes the original shares are widely held and

(A) are actively traded on a prescribed stock exchange in the United States, or

(B) are required, under the Securities Exchange Act of 1934 of the United States, as amended from time to time, to be registered with the Securities and Exchange Commission of the United States and are so registered, and

(iii) under the provisions of the Internal Revenue Code of 1986 of the United States, as amended from time to time, that apply to the distribution, the shareholders of the particular corporation who are resident in the United States are not taxable in respect of the distribution;

(2) Subparagraph 86.1(2)(e)(i) of the Act is replaced by the following:

(i) that, at the time of the distribution, the shares of the class that includes the original shares are shares described in subparagraph (c)(ii) or (d)(ii),

(3) Subparagraph 86.1(2)(e)(vi) of the Act is replaced by the following:

(vi) in the case of a distribution that is not prescribed, that the distribution is not taxable under the provisions of the Internal Revenue Code of 1986 of the United States, as amended from time to time, that apply to the distribution,

(4) Subsections (1) to (3) apply to distributions made after 1999 except that, with respect to a distribution in respect of original shares described in clause 86.1(2)(c)(ii)(B) of the Act, as enacted by subsection (1),

(a) information referred to in paragraph 86.1(2)(e) of the Act is deemed to be provided to the Minister of National Revenue on a timely basis if it is provided to that Minister before the 90th day after the day on which this Act is assented to; and

(b) an election referred to in paragraph 86.1(2)(f) of the Act is deemed to be filed on a timely basis if it is filed with the Minister of National Revenue before the 90th day after the day on which this Act is assented to.

35. (1) Subsection 87(2) of the Act is amended by adding the following after paragraph (g.4):

Patronage dividends

(g.5) for the purpose of section 135, the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation;

(2) Paragraph 87(2)(j.91) of the Act is replaced by the following:

Part I.3 and Part VI tax

(j.91) for the purpose of determining the amount deductible under subsection 181.1(4) or 190.1(3) by the new corporation for any taxation year, the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation, except that this paragraph does not affect the determination of the fiscal period of any corporation or the tax payable by any corporation for any taxation year that ends before the amalgamation;

(3) Subsection 87(2) of the Act is amended by adding the following after paragraph (l.3):

Subsection 13(4.2) election

(l.4) for the purposes of subsection 13(4.3) and paragraph 20(16.1)(b), the new corporation is deemed to be the same corporation as, and a continuation of, each predecessor corporation;

(4) Subsection 87(2) of the Act is amended by adding the following after paragraph (q):

Employees profit sharing plan

(r) an election made under subsection 144(10) by a predecessor corporation is deemed to be an election made by the new corporation;

(5) Paragraph 87(2)(mm) of the Act is repealed.

(6) Section 87 of the Act is amended by adding the following after subsection (2.2):

Quebec credit unions

(2.3) For the purpose of applying this section to an amalgamation governed by section 689 of An Act respecting financial services cooperatives, R.S.Q., c. C-67.3, an investment deposit of a credit union is deemed to be a share of a separate class of the capital stock of a predecessor corporation in respect of the amalgamation the adjusted cost base and paid up capital of which to the credit union is equal to the adjusted cost base to the credit union of the investment deposit immediately before the amalgamation if

(a) immediately before the amalgamation, the investment deposit is an investment deposit to which section 425 of the Savings and Credit Unions Act, R.S.Q., c. C-4.1, applies to the investment fund of that predecessor corporation; and

(b) on the amalgamation the credit union disposes of the investment deposit for consideration that consists solely of shares of a class of the capital stock of the new corporation.

(7) Paragraphs 87(4.4)(c) and (d) of the Act are replaced by the following:

(c) for the consideration under the agreement

(i) a share (in this subsection referred to as the "old share") of the predecessor corporation that was a flow-through share (other than a right to acquire a share) was issued to the person before the amalgamation, or

(ii) a right was issued to the person before the amalgamation to acquire a share that would, if it were issued, be a flow-through share, and

(d) the new corporation

(i) issues, on the amalgamation and in consideration for the disposition of the old share, a share (in this subsection referred to as a "new share") of any class of its capital stock to the person (or to any person or partnership that subsequently acquired the old share) and the terms and conditions of the new share are the same as, or substantially the same as, the terms and conditions of the old share, or

(ii) is, because of the right referred to in subparagraph (c)(ii), obliged after the amalgamation to issue to the person a share of any class of the new corporation's capital stock that would, if it were issued, be a flow-through share,

(8) Subsection 87(9) of the Act is amended by adding the following after paragraph (a.2):

(a.21) for the purpose of paragraph (4.4)(d)

(i) each parent share received by a shareholder of a predecessor corporation is deemed to be a share of the capital stock of the new corporation issued to the shareholder by the new corporation on the merger, and

(ii) any obligation of the parent to issue a share of any class of its capital stock to a person in circumstances described in subparagraph (4.4)(d)(ii) is deemed to be an obligation of the new corporation to issue a share to the person;

(9) Subsection (1) applies to amalgamations that occur, and to windings-up that begin, after 1997.

(10) Subsections (2) and (3) apply to amalgamations that occur, and to windings-up that begin, after December 20, 2002.

(11) Subsection (4) applies to amalgamations that occur, and to windings-up that begin, after 1994.

(12) Subsection (5) applies to amalgamations that occur, and to windings-up that begin, after March 20, 2003.

(13) Subsection (6) applies to amalgamations that occur after June, 2001.

(14) Subsections (7) and (8) apply to amalgamations that occur after 1997.

36. (1) Paragraph 88(1)(c.1) of the Act is replaced by the following:

(c.1) for the purpose of determining after the winding-up the amount to be included under subsection 14(1) in computing the parent's income in respect of the business carried on by the subsidiary immediately before the winding-up

(i) there shall be added to the amount otherwise determined for each of A and F in the definition "cumulative eligible capital" in subsection 14(5), the amount, if any, determined for the description of F in that definition in respect of that business immediately before the disposition, and

(ii) there shall be added to the amount determined for the description of C in the formula in paragraph 14(1)(b), one-half of the amount, if any, determined for the description of Q in that definition in respect of that business immediately before the disposition;

(2) Paragraph 88(1)(c.3) of the Act is amended by striking out the word "or" at the end of subparagraph (iv) and by adding the following after subparagraph (v):

(vi) a share of the capital stock of the subsidiary or a debt owing by it, if the share or debt, as the case may be, was owned by the parent immediately before the winding-up, or

(vii) a share of the capital stock of a corporation or a debt owing by a corporation, if the fair market value of the share or debt, as the case may be, was not, at any time after the beginning of the winding-up, wholly or partly attributable to property distributed to the parent on the winding-up;

(3) Subparagraph 88(1)(c.4)(i) of the Act is replaced by the following:

(i) a share of the capital stock of the parent that was

(A) received as consideration for the acquisition of a share of the capital stock of the subsidiary by the parent or by a corporation that was a specified subsidiary corporation of the parent immediately before the acquisition, or

(B) issued for consideration that consists solely of money,

(4) Paragraph 88(1)(e.6) of the Act is replaced by the following:

(e.6) if a subsidiary has made a gift in a taxation year (in this section referred to as the "gift year"), for the purposes of computing the amount deductible under section 110.1 by the parent for its taxation years that end after the subsidiary was wound up, the parent is deemed to have made a gift, in each of its taxation years in which a gift year of the subsidiary ended, equal to the amount, if any, by which the total of all amounts, each of which is the amount of a gift or, in the case of a gift made after December 20, 2002, the eligible amount of the gift, made by the subsidiary in the gift year exceeds the total of all amounts deducted under section 110.1 by the subsidiary in respect of those gifts;

(5) The portion of paragraph 88(1.1)(e) of the Act before subparagraph (i) is replaced by the following:

(e) where control of the parent has been acquired by a person or group of persons at any time after the commencement of the winding-up, or control of the subsidiary has been acquired by a person or group of persons at any time whatever, no amount in respect of the subsidiary's non-capital loss or farm loss for a taxation year ending before that time is deductible in computing the taxable income of the parent for a particular taxation year ending after that time, except that such portion of the subsidiary's non-capital loss or farm loss as may reasonably be regarded as its loss from carrying on a business and, where a business was carried on by the subsidiary in that year, such portion of the non-capital loss as may reasonably be regarded as being in respect of an amount deductible under paragraph 110(1)(k) in computing its taxable income for the year is deductible only

(6) Subsection (1) applies in respect of dispositions that occur after December 20, 2002.

(7) Subsections (2) and (3) apply to windings-up that begin after 1997.

(8) Subsection (4) applies to windings-up that begin after December 20, 2002.

(9) Subsection (5) applies to windings-up that begin after May 1996.

37. (1) The portion of paragraph (f) of the definition « compte de dividendes en capital » in subsection 89(1) of the French version of the Act before clause (i)(B) is replaced by the following:

f

) le total des montants représentant chacun un montant relatif à une distribution qu'une fiducie a effectuée sur ses gains en capital en faveur de la société au cours de la période et dont le montant est égal au moins élevé des montants suivants:

(i) l'excédent éventuel du montant visé à la division (A) sur le montant visé à la division (B):

(A) le montant de la distribution,

(2) The portion of paragraph (g) of the definition « compte de dividendes en capital » in subsection 89(1) of the French version of the Act before subparagraph (ii) is replaced by the following:

g

) le total des montants représentant chacun un montant relatif à une distribution qu'une fiducie a effectuée en faveur de la société au cours de la période au titre d'un dividende (sauf un dividende imposable) qui a été versé à la fiducie au cours d'une année d'imposition de celle-ci tout au long de laquelle elle a résidé au Canada, sur une action du capital-actions d'une autre société résidant au Canada, et dont le montant est égal au moins élevé des montants suivants:

(i) le montant de la distribution,

(3) Paragraph (b) of the definition "taxable Canadian corporation" in subsection 89(1) of the Act is replaced by the following:

(b) was not, by reason of a statutory provision other than paragraph 149(1)(t), exempt from tax under this Part;

(4) Subsections (1) and (2) apply to elections in respect of capital dividends that become payable after 1997.

(5) Subsection (3) applies in respect of taxation years that end after 1999.

38.1 The portion of paragraph 94(1)(c) of the French version of the Act before subparagraph (i) is replaced by the following:

c

) lorsque le montant du revenu ou du capital de la fiducie à distribuer à un moment donné à un bénéficiaire de la fiducie est fonction de l'exercice ou de l'absence d'exercice, par une personne, d'un pouvoir discrétionnaire :

40. (1) Section 96 of the Act is amended by adding the following after subsection (1):

Income allocation to former member

(1.01) If, at any time in a fiscal period of a partnership, a taxpayer ceases to be a member of the partnership

(a) for the purposes of subsection (1) and sections 34.1, 34.2, 101, 103 and 249.1, and notwithstanding paragraph 98.1(1)(d), the taxpayer is deemed to be a member of the partnership at the end of the fiscal period; and

(b) for the purposes of the application of paragraph (2.1)(b) and subparagraphs 53(1)(e)(i) and (2)(c)(i) to the taxpayer, the fiscal period of the partnership is deemed to end

(i) immediately before the time at which the taxpayer is deemed by subsection 70(5) to have disposed of the interest in the partnership, where the taxpayer ceased to be a member of the partnership because of the taxpayer's death, and

(ii) immediately before the time that is immediately before the time that the taxpayer ceased to be a member of the partnership, in any other case.

(2) Paragraph 96(2.4)(a) of the English version of the Act is replaced by the following:

(a) by operation of any law governing the partnership arrangement, the liability of the member as a member of the partnership is limited (except by operation of a provision of a statute of Canada or a province that limits the member's liability only for debts, obligations and liabilities of the partnership, or any member of the partnership, arising from negligent acts or omissions, from misconduct or from fault of another member of the partnership or an employee, an agent or a representative of the partnership in the course of the partnership business while the partnership is a limited liability partnership);

(3) Subsection (1) applies in respect of a taxpayer

(a) in the case where the taxpayer ceases to be a member of a partnership because of the taxpayer's death, to the 2003 and subsequent taxation years; and

(b) in any other case, to the 1995 and subsequent taxation years.

(4) Subsection (2) applies after June 20, 2001.

(5) If a taxpayer, who is a member of a partnership at the end of a particular fiscal period, of the partnership, that ends in the taxpayer's 2000 taxation year, so elects in writing and files the election with the Minister of National Revenue on or before the taxpayer's filing-due date for the taxpayer's taxation year in which this Act is assented to,

(a) subsection 96(1.7) of the Income Tax Act does not apply to the taxpayer's 2000 taxation year;

(b) the taxpayer is deemed to have a capital gain, a capital loss or a business investment loss in respect of the partnership for the particular fiscal period equal to the amount of the taxable capital gain, the allowable capital loss or the allowable business investment loss in respect of the partnership for the particular fiscal period, as the case may be, multiplied by the reciprocal of the fraction in paragraph 38(a) of the Income Tax Act that applies to the partnership for the particular fiscal period;

(c) the amount of a capital gain, a capital loss or a business investment loss determined under paragraph (b) is deemed to be a capital gain, a capital loss or a business investment loss, as the case may be, of the taxpayer from a disposition of a capital property on the day that the particular fiscal period ends; and

(d) except as provided by this subsection, no amount shall be included in computing the taxpayer's taxable capital gains, allowable capital losses and allowable business investment losses in respect of the taxable capital gains, allowable capital losses and allowable business investment losses of the partnership for the particular fiscal period.

41. (1) Section 100 of the Act is amended by adding the following after subsection (4):

Replacement of partnership capital

(5) A taxpayer who pays an amount at any time in a taxation year is deemed to have a capital loss from a disposition of property for the year if

(a) the taxpayer disposed of an interest in a partnership before that time or, because of subsection (3), acquired before that time a right to receive property of a partnership;

(b) that time is after the disposition or acquisition, as the case may be;

(c) the amount would have been described in subparagraph 53(1)(e)(iv) had the taxpayer been a member of the partnership at that time; and

(d) the amount is paid pursuant to a legal obligation of the taxpayer to pay the amount.

(2) Subsection (1) applies to the 1995 and subsequent taxation years.

42. (1) The portion of subsection 104(1.1) of the Act before paragraph (a) is replaced by the following:

Restricted meaning of "beneficiary"

(1.1) Notwithstanding subsection 248(25), for the purposes of subsection (1), paragraph (4)(a.4), subparagraph 73(1.02)(b)(ii) and paragraph 107.4(1)(e), a person or partnership is deemed not to be a beneficiary under a trust at a particular time if the person or partnership is beneficially interested in the trust at the particular time solely because of

(2) Paragraph 104(4)(a.2) of the French version of the Act is replaced by the following:

a

.2) lorsque la fiducie effectue une distribution à un bénéficiaire au titre de la participation de celui-ci à son capital, qu'il est raisonnable de conclure que la distribution a été financée par une dette de la fiducie et que l'une des raisons pour lesquelles la dette a été contractée était d'éviter des impôts payables par ailleurs en vertu de la présente partie par suite du décès d'un particulier, le jour où la distribution est effectuée (déterminé comme si, pour la fiducie, la fin d'un jour correspondait au moment immédiatement après celui où elle distribue un bien à un bénéficiaire au titre de la participation de celui-ci à son capital);

(3) Paragraph 104(5.3)(b.1) of the French version of the Act is replaced by the following:

b

.1) dans le cas où la fiducie a présenté le formulaire avant mars 1995, l'alinéa b) ne s'applique pas aux distributions qu'elle effectue après février 1995;

(4) Subsection 104(19) of the Act is replaced by the following:

Designation in respect of taxable dividends

(19) A portion of a taxable dividend received by a trust, in a particular taxation year of the trust, on a share of the capital stock of a taxable Canadian corporation is, for the purposes of this Act other than Part XIII, deemed to be a taxable dividend on the share received by a taxpayer, in the taxpayer's taxation year in which the particular taxation year ends, and is, for the purposes of paragraphs 82(1)(b) and 107(1)(c) and (d) and section 112, deemed not to have been received by the trust, if

(a) an amount equal to that portion

(i) is designated by the trust, in respect of the taxpayer, in the trust's return of income under this Part for the particular taxation year, and

(ii) may reasonably be considered (having regard to all the circumstances including the terms and conditions of the trust) to be part of the amount that, because of subsection (13) or (14) or section 105, was included in computing the income for that taxation year of the taxpayer;

(b) the taxpayer is in the particular taxation year a beneficiary under the trust;

(c) the trust is, throughout the particular taxation year, resident in Canada; and

(d) the total of all amounts each of which is an amount designated, under this subsection, by the trust in respect of any taxpayer in the trust's return of income under this Part for the particular taxation year is not greater than the total of all amounts each of which is the amount of a taxable dividend, received by the trust in the particular taxation year, on a share of the capital stock of a taxable Canadian corporation.

(5) Subsection 104(21) of the Act is replaced by the following:

Designation in respect of taxable capital gains

(21) For the purposes of sections 3 and 111, except as they apply for the purposes of section 110.6, an amount in respect of a trust's net taxable capital gains for a particular taxation year of the trust is deemed to be a taxable capital gain, for the taxation year of a taxpayer in which the particular taxation year ends, from the disposition by the taxpayer of capital property if

(a) the amount

(i) is designated by the trust, in respect of the taxpayer, in the trust's return of income under this Part for the particular taxation year, and

(ii) may reasonably be considered (having regard to all the circumstances including the terms and conditions of the trust) to be part of the amount that, because of subsection (13) or (14) or section 105, was included in computing the income for that taxation year of the taxpayer;

(b) the taxpayer is

(i) in the particular taxation year, a beneficiary under the trust, and

(ii) resident in Canada, unless the trust is, throughout the particular taxation year, a mutual fund trust;

(c) the trust is, throughout the particular taxation year, resident in Canada; and

(d) the total of all amounts each of which is an amount designated, under this subsection, by the trust in respect of any taxpayer in the trust's return of income under this Part for the particular taxation year is not greater than the trust's net taxable capital gains for the particular taxation year.

(6) Paragraph 104(21.6)(g) of the Act is replaced by the following:

(f.1) if the deemed gains are in respect of capital gains of the trust from dispositions of property after February 27, 2000 and before October 17, 2000 and the taxation year of the taxpayer began after February 27, 2000 and ended after October 17, 2000, the deemed gains are deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of capital property in the taxpayer's taxation year and in the period that began after February 27, 2000 and ended before October 18, 2000;

(g) if the deemed gains are in respect of capital gains of the trust from dispositions of property after February 27, 2000 and before October 17, 2000 and the taxation year of the taxpayer began after February 27, 2000 and ended before October 18, 2000, the deemed gains are deemed to be a capital gain of the taxpayer from the disposition by the taxpayer of capital property in the taxpayer's taxation year; and

(7) Subsection 104(22) of the Act is replaced by the following:

Designation in respect of foreign source income

(22) For the purposes of this subsection, subsection (22.1) and section 126, an amount in respect of a trust's income for a particular taxation year of the trust from a source in a country other than Canada is deemed to be income of a taxpayer, for the taxation year of the taxpayer in which the particular taxation year ends, from that source if

(a) the amount

(i) is designated by the trust, in respect of the taxpayer, in the trust's return of income under this Part for the particular taxation year, and

(ii) may reasonably be considered (having regard to all the circumstances including the terms and conditions of the trust) to be part of the amount that, because of subsection (13) or (14), was included in computing the income for that taxation year of the taxpayer;

(b) the taxpayer is in the particular taxation year a beneficiary under the trust;

(c) the trust is, throughout the particular taxation year, resident in Canada; and

(d) the total of all amounts each of which is an amount designated, under this subsection in respect of that source, by the trust in respect of any taxpayer in the trust's return of income under this Part for the particular taxation year is not greater than the trust's income for the particular taxation year from that source.

(8) Subsection (1) applies to the 1998 and subsequent taxation years.

(9) Subsections (4), (5) and (7) apply to taxation years that end after ANNOUNCEMENT DATE.

(10) Paragraph 104(21.6)(f.1) of the Act, as enacted by subsection (6), applies to taxation years that end after February 27, 2000.

(11) Paragraph 104(21.6)(g) of the Act, as enacted by subsection (6), applies to trust taxation years that end after December 20, 2002.

42.1 Subsection 106(3) of the French version of the Act is replaced by the following:

Produit de disposition d'une participation au revenu

(3) Il est entendu que la fiducie qui, à un moment donné, distribue un de ses biens à un contribuable qui était un de ses bénéficiaires, en règlement total ou partiel de la participation du contribuable au revenu de la fiducie, est réputée avoir disposé du bien pour un produit égal à la juste valeur marchande du bien à ce moment.

43. (1) Subsection 107(1) of the Act is amended by striking out the word "and" at the end of paragraph (c), by adding the word "and" at the end of paragraph (d) and by adding the following after paragraph (d):

(e) if the capital interest is not a capital property of the taxpayer, notwithstanding the definition "cost amount" in subsection 108(1), its cost amount is deemed to be the amount, if any, by which

(i) the amount that would, if this Act were read without reference to this paragraph and the definition "cost amount" in subsection 108(1), be its cost amount,

exceeds

(ii) the total of all amounts, each of which is an amount in respect of the capital interest that has become payable to the taxpayer before the disposition and that would be described in subparagraph 53(2)(h)(i.1) if that subparagraph were read without reference to its subclause (B)(I).

(2) Section 107 of the Act is amended by adding the following after subsection 107(1.1):

Deemed fair market value - non-capital property

(1.2) For the purpose of section 10, the fair market value at any time of a capital interest in a trust is deemed to be equal to the amount that is the total of

(a) the amount that would, but for this subsection, be its fair market value at that time, and

(b) the total of all amounts, each of which is an amount that would be described, in respect of the capital interest, in subparagraph 53(2)(h)(i.1) if that paragraph were read without reference to its subclause (B)(I), that has become payable to the taxpayer before that time.

(3) The portion of subsection 107(2) of the French version of the Act before paragraph (a) is replaced by the following:

Distribution par une fiducie personnelle

(2) Sous réserve des paragraphes (2.001), (2.002) et (4) à (5), les règles suivantes s'appliquent dans le cas où, à un moment donné, une fiducie personnelle ou une fiducie visée par règlement effectue, au profit d'un contribuable bénéficiaire, une distribution de ses biens qui donne lieu à la disposition de la totalité ou d'une partie de la participation du contribuable au capital de la fiducie :

(4) Subparagraph 107(2)(b.1)(iii) of the Act is replaced by following:

(iii) in any other case, 50%;

(5) The portion of paragraph 107(2)(c) of the Act before subparagraph (i) is replaced by the following:

(c) the taxpayer's proceeds of disposition of the capital interest in the trust (or of the part of it) disposed of by the taxpayer on the distribution are deemed to be equal to the amount, if any, by which

(6) The portion of paragraph 107(2)(d) of the French version of the Act before subparagraph (i) is replaced by the following:

d

) lorsque les biens ainsi distribués étaient des biens amortissables de la fiducie, appartenant à une catégorie prescrite, et que le montant du coût en capital de ces biens, supporté par la fiducie, dépasse le coût que le contribuable est réputé, en vertu du présent article, avoir supporté pour les acquérir, pour l'application des articles 13 et 20 et des dispositions réglementaires prises en vertu de l'alinéa 20(1)a) :

(7) Subparagraph 107(2)(d.1)(iii) of the Act is replaced by the following:

(iii) the property was deemed by paragraph 51(1)(f), 85(1)(i) or 85.1(1)(a), subsection 85.1(5) or 87(4) or (5) or paragraph 97(2)(c) to be taxable Canadian property of the trust; and

(8) The portion of paragraph 107(2)(f) of the French version of the Act before subparagraph (i) is replaced by the following:

f

) lorsque les biens ainsi distribués étaient des immobilisations admissibles de la fiducie au titre de son entreprise :

(9) The portion of subparagraph 107(2)(f)(ii) of the French version of the Act after the formula is replaced by the following:

où :

A représente le montant calculé selon cet élément Q au titre de l'entreprise de la fiducie immédiatement avant la distribution;

B la juste valeur marchande, immédiatement avant la distribution, des biens ainsi distribués;

C la juste valeur marchande, immédiatement avant la distribution, de l'ensemble des immobilisations admissibles de la fiducie au titre de l'entreprise.

(10) Subsection 107(2.001) of the French version of the Act is replaced by the following:

Roulement — choix d'une fiducie

(2.001) Lorsqu'une fiducie distribue un bien à l'un de ses bénéficiaires en règlement total ou partiel de la participation de celui-ci à son capital, le paragraphe (2) ne s'applique pas à la distribution si la fiducie en fait le choix dans un formulaire prescrit présenté au ministre avec sa déclaration de revenu pour son année d'imposition où le bien est distribué et si l'un des faits suivants se vérifie :

a

) la fiducie réside au Canada au moment de la distribution;

b

) le bien est un bien canadien imposable;

c

) le bien est soit une immobilisation utilisée dans le cadre d'une entreprise que la fiducie exploite par l'entremise d'un établissement stable (au sens du Règlement de l'impôt sur le revenu) au Canada immédiatement avant la distribution, soit une immobilisation admissible au titre d'une telle entreprise, soit un bien à porter à l'inventaire d'une telle entreprise.

(11) The portion of subsection 107(2.002) of the French version of the Act before paragraph (b) is replaced by the following:

Roulement — choix d'un bénéficiaire

(2.002) Lorsqu'une fiducie non-résidente distribue un bien (sauf celui visé aux alinéas (2.001)b) ou c)) à l'un de ses bénéficiaires en règlement total ou partiel de la participation de celui-ci à son capital, les règles suivantes s'appliquent si le bénéficiaire en fait le choix en vertu du présent paragraphe dans un formulaire prescrit présenté au ministre avec sa déclaration de revenu pour son année d'imposition où le bien est distribué :

a

) le paragraphe (2) ne s'applique pas à la distribution;

(12) The portion of subsection 107(2.01) of the French version of the Act before paragraph (a) is replaced by the following:

Distribution de résidence principale

(2.01) Lorsqu'une fiducie personnelle distribue à un moment donné, à un contribuable dans les circonstances visées au paragraphe (2), un bien qui serait sa résidence principale, au sens de l'article 54, pour une année d'imposition si elle l'avait désigné comme telle en application de l'alinéa c.1) de la définition de « résidence principale » à cet article, les présomptions suivantes s'appliquent si la fiducie en fait le choix dans sa déclaration de revenu pour l'année d'imposition qui comprend ce moment :

(13) The portion of subsection 107(2.1) of the French version of the Act before paragraph (a) is replaced by the following:

Autres distributions

(2.1) Lorsque, à un moment donné, une fiducie effectue, au profit d'un de ses bénéficiaires, une distribution de bien qui donnerait lieu à la disposition de la totalité ou d'une partie de la participation du bénéficiaire au capital de la fiducie (laquelle participation ou partie de participation est appelée « ancienne participation » au présent paragraphe) s'il était fait abstraction des alinéas h) et i) de la définition de « disposition » au paragraphe 248(1), et que les règles énoncées au paragraphe (2) et à l'article 132.2 ne s'appliquent pas à la distribution, les règles suivantes s'appliquent :

(14) The portion of paragraph 107(2.1)(c) of the French version of the Act before subparagraph (i) is replaced by the following:

c

) sous réserve de l'alinéa e), le produit de disposition, pour le bénéficiaire, de la partie de l'ancienne participation dont il a disposé au moment de la distribution est réputé égal à l'excédent éventuel :

(15) The portion of subparagraph 107(2.1)(d)(iii) of the French version of the Act before clause (B) is replaced by the following:

(iii) le produit de disposition, pour le bénéficiaire, de la partie de l'ancienne participation dont il a disposé au moment de la distribution est réputé égal à l'excédent éventuel de la juste valeur marchande du bien sur le total des montants suivants :

(A) la partie du montant de la distribution qui est un paiement auquel s'applique l'alinéa h) ou i) de la définition de « disposition » au paragraphe 248(1),

(16) Paragraph 107(2.1)(e) of the French version of the Act is replaced by the following:

e

) lorsque la fiducie est une fiducie de fonds commun de placement, que la distribution est effectuée au cours d'une de ses années d'imposition qui est antérieure à son année d'imposition 2003, qu'elle a fait, pour l'année, le choix prévu au paragraphe (2.11) et qu'elle en fait le choix relativement à la distribution dans le formulaire prescrit produit avec sa déclaration de revenu pour l'année :

(i) il n'est pas tenu compte de l'alinéa c),

(ii) le produit de disposition, pour le bénéficiaire, de la partie de l'ancienne participation dont il a disposé lors de la distribution est réputé égal au montant déterminé selon l'alinéa a).

(17) Subsection 107(2.11) of the French version of the Act is replaced by the following:

Gains non distribués aux bénéficiaires

(2.11) Lorsqu'une fiducie effectue une ou plusieurs distributions de biens au cours d'une année d'imposition dans les circonstances visées au paragraphe (2.1) (ou, dans le cas d'un bien distribué après le 1^er octobre 1996 et avant 2000, dans les circonstances visées au paragraphe (5)), les règles suivantes s'appliquent :

a

) si la fiducie réside au Canada au moment de chacune des distributions, son revenu pour l'année (déterminé compte non tenu du paragraphe 104(6)) est calculé, pour l'application des paragraphes 104(6) et (13), sans égard à celles de ces distributions qui ont été effectuées au profit de personnes non-résidentes (y compris les sociétés de personnes autres que les sociétés de personnes canadiennes), si la fiducie en fait le choix dans un formulaire prescrit produit avec sa déclaration de revenu pour l'année ou pour une année d'imposition antérieure;

b

) si la fiducie réside au Canada au moment de chacune de ces distributions, son revenu pour l'année (déterminé compte non tenu du paragraphe 104(6)) est calculé, pour l'application des paragraphes 104(6) et (13), sans égard à l'ensemble de ces distributions, si la fiducie en fait le choix dans un formulaire prescrit produit avec sa déclaration de revenu pour l'année ou pour une année d'imposition antérieure.

(18) The portion of subsection 107(2.2) of the French version of the Act before paragraph (a) is replaced by the following:

Entité intermédiaire

(2.2) Lorsque, à un moment antérieur à 2005, une fiducie visée aux alinéas h), i) ou j) de la définition de « entité intermédiaire » au paragraphe 39.1(1) distribue des biens à l'un de ses bénéficiaires en règlement de tout ou partie des participations de celui-ci dans la fiducie et que le bénéficiaire présente au ministre, au plus tard à la date d'échéance de production qui lui est applicable pour son année d'imposition qui comprend ce moment, un choix concernant les biens sur le formulaire prescrit, le moins élevé des montants suivants est à inclure dans le coût, pour le bénéficiaire, d'un bien (sauf de l'argent) qu'il a reçu dans le cadre de la distribution :

(19) The portion of subsection 107(4) of the French version of the Act before paragraph (a) is replaced by the following:

Fiducie en faveur de l'époux, du conjoint de fait ou de soi-même

(4) Si les conditions ci-après sont réunies, le paragraphe (2.1), mais non le paragraphe (2), s'applique au bien qu'une fiducie visée à l'alinéa 104(4)a) distribue à un bénéficiaire :

(20) Paragraph 107(4)(b) of the French version of the Act is replaced by the following:

b

) le contribuable, l'époux ou le conjoint de fait mentionné au sous-alinéa a)(i), (ii) ou (iii), selon le cas, est vivant le jour de la distribution.

(21) The portion of subsection 107(4.1) of the French version of the Act before paragraph (b) is replaced by the following:

Cas d'application du par. 75(2) à une fiducie

(4.1) Si les conditions ci-après sont réunies, le paragraphe (2.1), mais non le paragraphe (2), s'applique à la distribution d'un bien d'une fiducie personnelle donnée ou une fiducie donnée visée par règlement, effectuée par la fiducie donnée à un contribuable bénéficiaire de cette fiducie :

a

) la distribution a été effectuée en règlement de la totalité ou d'une partie de la participation du contribuable au capital de la fiducie donnée;

(22) Subparagraph 107(4.1)(b)(ii) of the French version of the Act is replaced by the following:

(ii) soit d'une fiducie comptant parmi ses biens un bien qui, par suite d'une ou de plusieurs dispositions auxquelles le paragraphe 107.4(3) s'est appliqué, est devenu un bien de la fiducie donnée, lequel bien, après le moment donné et avant la distribution, n'a pas fait l'objet d'une disposition pour un produit de disposition égal à sa juste valeur marchande au moment de la disposition;

(23) Paragraph 107(4.1)(d) of the French version of the Act is replaced by the following:

d

) la personne visée au sous-alinéa c)(i) existait au moment de la distribution du bien.

(24) Subsection 107(5) of the Act is replaced by the following:

Distribution of property received on qualifying disposition

(4.2) Subsection (2.1) applies (and subsection (2) does not apply) at any time to property distributed after December 20, 2002 to a beneficiary by a personal trust or a trust prescribed for the purpose of subsection (2), if

(a) at a particular time before December 21, 2002 there was a qualifying disposition (within the meaning assigned by subsection 107.4(1)) of the property, or of other property for which the property is substituted, by a particular partnership or a particular corporation, as the case may be, to a trust; and

(b) the beneficiary is neither the particular partnership nor the particular corporation.

Distribution to non-resident

(5) Subsection (2.1) applies (and subsection (2) does not apply) in respect of a distribution of a property (other than a share of the capital stock of a non-resident-owned investment corporation or property described in any of subparagraphs 128.1(4)(b)(i) to (iii)) by a trust to a non-resident taxpayer (including a partnership other than a Canadian partnership) in satisfaction of all or part of the taxpayer's capital interest in the trust.

(25) The portion of subsection 107(5.1) of the French version of the Act before paragraph (a) is replaced by the following:

Intérêts sur acomptes provisionnels

(5.1) Dans le cas où, par le seul effet du paragraphe (5), les alinéas (2)a) à c) ne s'appliquent pas à une distribution de biens canadiens imposables effectuée par une fiducie au cours d'une année d'imposition, le total des impôts payables par la fiducie en vertu de la présente partie et de la partie I.1 pour l'année est réputé, pour l'application des articles 155, 156 et 156.1, des paragraphes 161(2), (4) et (4.01) et des dispositions réglementaires prises en application de ces articles et paragraphes, correspondre au moins élevé des montants suivants :

(26) Paragraph 107(5.1)(b) of the French version of the Act is replaced by the following:

b

) le montant qui serait déterminé selon l'alinéa a) si le paragraphe (5) ne s'appliquait pas à chaque distribution, effectuée au cours de l'année, de biens canadiens imposables auxquels les règles énoncées au paragraphe (2) ne s'appliquent pas par le seul effet du paragraphe (5).

(27) Subsections (1) and (2) apply

(a) to dispositions that occur, and valuations made, after 2001 in respect of a qualified trust unit, as defined in subsection 260(1) of the Act; and

(b) after ANNOUNCEMENT DATE, in any other case except that, subject to paragraph (a), subsection (1) does not apply to a disposition of property by a taxpayer after ANNOUNCEMENT DATE and before 2005 pursuant to an agreement in writing made by the taxpayer on or before ANNOUNCEMENT DATE.

(28) Subsection (4) and subsection 107(4.2) of the Act, as enacted by subsection (24), apply to distributions made after December 20, 2002.

(29) Subsection (5) applies to distributions made after 1999.

(30) Subsection (7) applies in determining after October 1, 1996 whether property is taxable Canadian property.

(31) Subsection 107(5) of the Act, as enacted by subsection (24), applies to distributions made after ANNOUNCEMENT DATE.

43.1 The portion of section 107.1 of the French version of the Act before paragraph (a) is replaced by the following:

Distribution par une fiducie d'employés ou un régime de prestations aux employés

107.1

Lorsque, à un moment donné, des biens d'une fiducie d'employés, d'une fiducie régie par un régime de prestations aux employés ou d'une fiducie visée à l'alinéa a.1) de la définition de « fiducie » au paragraphe 108(1) ont été distribués par la fiducie à un contribuable qui en était un bénéficiaire, en règlement de la totalité ou d'une partie de sa participation dans la fiducie, les régles suivantes s'appliquent :

43.2 (1) The portion of section 107.2 of the French version of the Act before paragraph (a) is replaced by the following:

Montant provenant d'une fiducie de convention de retraite

107.2

Pour l'application de la présente partie et de la partie XI.3, dans le cas où, à un moment donné, une fiducie régie par une convention de retraite distribue un de ses biens à un contribuable bénéficiaire de la fiducie, en règlement de la totalité ou d'une partie de la participation de celui-ci dans la fiducie, les règles suivantes s'appliquent :

(2) Paragraph 107.2(b) of the French version of the Act is replaced by the following:

b

) la fiducie est réputée verser au contribuable, au titre d'une distribution, un montant égal à cette juste valeur marchande;

44. (1) The portion of subsection 107.4(1) of the Act before paragraph (a) is replaced by the following:

Qualifying disposition

107.4

(1) In this section, a "qualifying disposition" of a property means a disposition of the property before December 21, 2002 by a person or partnership, and a disposition of property after December 20, 2002 by an individual, (which person, partnership or individual is referred to in this subsection as the "contributor") as a result of a transfer of the property to a particular trust where

(2) Paragraph 107.4(1)(c) of the Act is replaced by the following:

(c) the trust is resident in Canada at the time of the transfer;

(3) Paragraph 107.4(1)(d) of the Act is repealed.

(4) Paragraph 107.4(3)(f) of the Act is replaced by the following:

(f) if the property was deemed to be taxable Canadian property of the transferor by this paragraph or paragraph 44.1(2)(c), 51(1)(f), 85(1)(i) or 85.1(1)(a), subsection 85.1(5) or 87(4) or (5) or paragraph 97(2)(c) or 107(2)(d.1), the property is deemed to be taxable Canadian property of the transferee trust;

(5) Subparagraphs 107.4(1)(g)(ii) and (iii) of the French version of the Act are replaced by the following:

(ii) celle commençant après le 17 décembre 1999 et comprenant la disposition de la totalité ou d'une partie d'une participation au capital ou d'une participation au revenu d'une fiducie personnelle, sauf une disposition effectuée uniquement par suite de la distribution d'un bien, d'une fiducie à une personne ou à une société de personnes, en règlement de la totalité ou d'une partie de cette participation,

(iii) celle commençant après le 5 juin 2000 et comprenant le transfert d'un bien à la fiducie donnée, effectué en contrepartie de l'acquisition d'une participation au capital de cette fiducie, s'il est raisonnable de considérer que celle-ci a reçu le bien en vue de financer une distribution (sauf celle qui correspond au produit de disposition d'une participation au capital de la fiducie);

(6) Subsection (1) and (3) are deemed to have come into force on December 20, 2002.

(7) Subsection (2) applies to dispositions that occur after ANNOUNCEMENT DATE.

(8) Subsection (4) applies

(a) to dispositions that occur after December 23, 1998; and

(b) in respect of the 1996 and subsequent taxation years, to transfers of capital property that occurred before December 24, 1998.

45. (1) The portion of the definition "testamentary trust" in subsection 108(1) of the Act before paragraph (a) is replaced by the following:

"testamentary trust"
« fiducie testamentaire »

"testamentary trust", in a taxation year, means a trust that arose on and as a consequence of the death of an individual (including a trust referred to in subsection 248(9.1)), other than

(2) The definition "testamentary trust" in subsection 108(1) of the Act is amended by striking out the word "and" at the end of paragraph (b), by adding the word "and" at the end of paragraph (c) and by adding the following after paragraph (c):

(d) a trust that, at any time after December 20, 2002 and before the end of the taxation year, incurs a debt or any other obligation owed to, or guaranteed by, a beneficiary or any other person or partnership (which beneficiary, person or partnership is referred to in this paragraph as the "specified party") with whom any beneficiary of the trust does not deal at arm's length, other than a debt or other obligation

(i) incurred by the trust in satisfaction of the specified party's right as a beneficiary under the trust

(A) to enforce payment of an amount of the trust's income or capital gains payable before that time by the trust to the specified party, or

(B) to otherwise receive any part of the capital of the trust,

(ii) owed to the specified party, if the debt or other obligation arose because of a service (for greater certainty, not including any transfer or loan of property) rendered by the specified party to, for or on behalf of the trust, or

(iii) owed to the specified party, if

(A) the debt or other obligation arose because of a payment made by the specified party for or on behalf of the trust,

(B) in exchange for the payment the trust transfers a property to the specified party within 12 months after the payment was made (or, where written application has been made to the Minister by the trust within that 12 months, within any longer period that the Minister considers reasonable in the circumstances), and

(C) it is reasonable to conclude that the specified party would have been willing to make the payment if the specified party dealt at arm's length with the trust;

(3) The portion of the definition "trust" in subsection 108(1) of the Act after paragraph (e.1) and before paragraph (f) is replaced by the following:

and, in applying subsections 104(4), (5), (5.2), (12), (14) and (15) at any time, does not include

(4) Paragraph (a) of the definition "coût indiqué" in subsection 108(1) of the French version of the Act is replaced by the following:

a

) dans le cas où de l'argent ou un autre bien de la fiducie a été distribué par celle-ci au contribuable en règlement de tout ou partie de sa participation au capital (lors de la liquidation de la fiducie ou autrement), du total des montants suivants :

(i) l'argent ainsi distribué,

(ii) les sommes représentant chacune le coût indiqué pour la fiducie, immédiatement avant la distribution, de chacun de ces autres biens,

(5) Subparagraphs (g)(v) and (vi) of the definition "fiducie" in subsection 108(1) of the French version of the Act are replaced by the following:

(v) la fiducie dont les modalités prévoient, à ce moment, que la totalité ou une partie de la participation d'une personne dans la fiducie doit prendre fin par rapport à une période (y compris celle déterminée par rapport au décès de la personne), autrement que par l'effet des modalités de la fiducie selon lesquelles une participation dans la fiducie doit prendre fin par suite de la distribution à la personne (ou à sa succession) d'un bien de la fiducie, si la juste valeur marchande du bien à distribuer doit être proportionnelle à celle de cette participation immédiatement avant la distribution,

(vi) la fiducie qui, avant ce moment et après le 17 décembre 1999, a effectué une distribution en faveur d'un bénéficiaire au titre de la participation de celui-ci à son capital, s'il est raisonnable de considérer que la distribution a été financée par une dette de la fiducie et si l'une des raisons pour lesquelles la dette a été contractée était d'éviter des impôts payables par ailleurs en vertu de la présente partie par suite du décès d'un particulier.

(6) The definition "montant de réduction admissible" in subsection 108(1) of the French version of the Act is replaced by the following:

« montant de réduction admissible »
"eligible offset"

« montant de réduction admissible » En ce qui concerne un contribuable à un moment donné relativement à la totalité ou à une partie de sa participation au capital d'une fiducie, toute partie de dette ou d'obligation qui est prise en charge par le contribuable et qu'il est raisonnable de considérer comme étant imputable à un bien distribué à ce moment en règlement de la participation ou de la partie de participation, si la distribution est conditionnelle à la prise en charge par le contribuable de la partie de dette ou d'obligation.

(7) Subsections (1) and (2) apply to trust taxation years that end after December 20, 2002.

(8) Subsection (3) applies to the 1998 and subsequent taxation years.

46. (1) Paragraph 110(1)(k) of the Act is replaced by the following:

Part VI.1 tax

(k) 3 times the tax payable under subsection 191.1(1) by the taxpayer for the year.

(2) Subsection 110(1.7) of the Act is replaced by the following:

Reduction in exercise price

(1.7) If the amount payable by a taxpayer to acquire securities under an agreement referred to in subsection 7(1) is reduced at any particular time and the conditions in subsection (1.8) are satisfied in respect of the reduction,

(a) the rights (referred to in this subsection and subsection (1.8) as the "old rights") that the taxpayer had under the agreement immediately before the particular time are deemed to have been disposed of by the taxpayer immediately before the particular time;

(b) the rights (referred to in this subsection and subsection (1.8) as the "new rights") that the taxpayer has under the agreement at the particular time are deemed to be acquired by the taxpayer at the particular time; and

(c) the taxpayer is deemed to receive the new rights as consideration for the disposition of the old rights.

Conditions for subsection (1.7) to apply

(1.8) The following are the conditions in respect of the reduction:

(a) that the taxpayer would not be entitled to a deduction under paragraph (1)(d) if the taxpayer acquired securities under the agreement immediately after the particular time and this section were read without reference to subsection (1.7); and

(b) that the taxpayer would be entitled to a deduction under paragraph (1)(d) if the taxpayer

(i) disposed of the old rights immediately before the particular time,

(ii) acquired the new rights at the particular time as consideration for the disposition, and

(iii) acquired securities under the agreement immediately after the particular time.

(3) Subsection (1) applies to the 2003 and subsequent taxation years.

(4) Subsection (2) applies to reductions that occur after 1998.

(5) An election by a taxpayer under subsection 7(10) of the Act to have subsection 7(8) of the Act apply is deemed to have been filed in a timely manner if

(a) it is filed on or before the 60th day after this Act is assented to;

(b) it is in respect of a security acquired by the taxpayer before this Act is assented to;

(c) the taxpayer is entitled to a deduction under paragraph 110(1)(d) of the Act in respect of the acquisition; and

(d) the taxpayer would not have been so entitled if subsection 110(1.7) of the Act, as enacted by subsection (2), did not apply.

47. (1) The portion of paragraph 110.1(1)(a) of the Act before subparagraph (i) is replaced by the following:

Charitable gifts

(a) the total of all amounts each of which is the eligible amount of a gift (other than a gift described in paragraph (b), (c) or (d)) made by the corporation in the year or in any of the five preceding taxation years to

(2) Paragraph 110.1(1)(a) of the Act is amended by adding the following after subparagraph (iv):

(iv.1) a municipal or public body performing a function of government in Canada,

(3) The portion of paragraph 110.1(1)(b) of the Act before subparagraph (i) is replaced by the following:

Gifts to Her Majesty

(b) the total of all amounts each of which is the eligible amount of a gift (other than a gift described in paragraph (c) or (d)) made by the corporation to Her Majesty in right of Canada or of a province

(4) Paragraphs 110.1(1)(c) and (d) of the Act are replaced by the following:

Gifts to institutions

(c) the total of all amounts each of which is the eligible amount of a gift (other than a gift described in paragraph (d)) of an object that the Canadian Cultural Property Export Review Board has determined meets the criteria set out in paragraphs 29(3)(b) and (c) of the Cultural Property Export and Import Act, which gift was made by the corporation in the year or in any of the five preceding taxation years to an institution or a public authority in Canada that was, at the time the gift was made, designated under subsection 32(2) of that Act either generally or for a specified purpose related to that object; and

Ecological gifts

(d) the total of all amounts each of which is the eligible amount of a gift of land (including a covenant or an easement to which land is subject or, in the case of land in the Province of Quebec, a real servitude) if

(i) the fair market value of the gift is certified by the Minister of the Environment,

(ii) the land is certified by that Minister, or by a person designated by that Minister, to be ecologically sensitive land, the conservation and protection of which is, in the opinion of that Minister or that person, important to the preservation of Canada's environmental heritage, and

(iii) the gift was made by the corporation in the year or in any of the five preceding taxation years to

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

(B) a municipality in Canada,

(C) a municipal or public body performing a function of government in Canada, or

(D) a registered charity one of the main purposes of which is, in the opinion of that Minister, the conservation and protection of Canada's environmental heritage, and that is approved by that Minister or that person in respect of the gift.

(5) The portion of subsection 110.1(2) of the Act before paragraph (a) is replaced by the following:

Proof of gift

(2) An eligible amount of a gift shall not be included for the purpose of determining a deduction under subsection (1) unless the making of the gift is evidenced by filing with the Minister

(6) Subsection 110.1(3) of the Act is replaced by the following:

Where subsection (3) applies

(2.1) Subsection (3) applies in circumstances where

(a) a corporation makes a gift at any time of

(i) capital property to a donee described in paragraph 110.1(1)(a), (b) or (d), or

(ii) in the case of a corporation not resident in Canada, real property situated in Canada to a prescribed donee who provides an undertaking, in a form satisfactory to the Minister, to the effect that the property will be held for use in the public interest; and

(b) the fair market value of the property otherwise determined at that time exceeds

(i) in the case of depreciable property of a prescribed class, the lesser of the undepreciated capital cost of that class at the end of the taxation year of the corporation that includes that time (determined without reference to proceeds of disposition designated in respect of the property under subsection (3)), and the adjusted cost base to the corporation of the property immediately before that time, and

(ii) in any other case, the adjusted cost base to the corporation of the property immediately before that time.

Gifts of capital property

(3) If this subsection applies in respect of a gift by a corporation of property, and the corporation designates an amount in respect of the gift in its return of income under section 150 for the year in which the gift is made, the amount so designated is deemed to be its proceeds of disposition of the property and, for the purpose of subsection 248(30), the fair market value of the gift, but the amount so designated may not exceed the fair market value of the property otherwise determined and may not be less than the greater of

(a) in the case of a gift made after December 20, 2002, the amount of the advantage, if any, in respect of the gift, and

(b) the amount determined under subparagraph (2.1)(b)(i) or (ii), as the case may be, in respect of the property.

(7) Subsection 110.1(4) of the Act is replaced by the following:

Gifts made by partnership

(4) If at the end of a fiscal period of a partnership a corporation is a member of the partnership, its share of any amount that would, if the partnership were a person, be the eligible amount of a gift made by the partnership to any donee is, for the purpose of this section, deemed to be the eligible amount of a gift made to that donee by the corporation in its taxation year in which the fiscal period of the partnership ends.

(8) The portion of paragraph 110.1(5)(b) of the Act before subparagraph (i) is replaced by the following:

(b) where the gift is a covenant or an easement to which land is subject or, in the case of land in the Province of Quebec, a real servitude, the greater of

(9) Subsections (1) and (3) to (5), (7) and (8) apply to gifts made after December 20, 2002.

(10) Subsection (2) applies to gifts made after May 8, 2000.

(11) For gifts made after May 8, 2000 and before December 21, 2002, subparagraph 110.1(1)(d)(i) of the Act is to be read as follows:

(i) Her Majesty in right of Canada or of a province, a municipality in Canada or a municipal or public body performing a function of government in Canada, or

(12) Subsection (6) applies to gifts made after 1999 except that, for gifts made after 1999 and on or before December 20, 2002, the expression "subsection 248(30)" in subsection 110.1(3) of the Act, as enacted by subsection (6), is to be read as "subsection (1)".

48. (1) Paragraph 110.6(7)(b) of the French version of the Act is replaced by the following:

b

) soit dans laquelle une société ou une société de personnes acquiert un bien pour une contrepartie bien inférieure à sa juste valeur marchande au moment de l'acquisition, sauf si l'acquisition résulte d'une fusion ou d'une unification de sociétés, de la liquidation d'une société ou d'une société de personnes ou d'une distribution de biens d'une fiducie en règlement de tout ou partie d'une participation d'une société au capital de la fiducie.

(2) Subsection 110.6(14) of the Act is amended by adding the following after paragraph (d):

(d.1) a person who is a member of a partnership that is a member of another partnership is deemed to be a member of the other partnership;

(3) Subsection (2) applies

(a) to dispositions that occur after December 20, 2002; and

(b) to dispositions made by a taxpayer after 1999, if the taxpayer so elects in writing and files the election with the Minister of National Revenue on or before the taxpayer's filing-due date for the taxpayer's taxation year in which this Act is assented to.

49. (1) Subsection 111(1.1) of the Act is amended by striking out the word "and" at the end of paragraph (a), by adding the word "and" at the end of paragraph (b) and by adding the following after paragraph (b):

(c) the amount, if any, that the Minister determines to be reasonable in the circumstances, after considering the application of subsections 104(21.6), 130.1(4), 131(1) and 138.1(3.2) to the taxpayer for the particular year.

(2) The description of C in the definition "pre-1986 capital loss balance" in subsection 111(8) of the Act is replaced by the following:

C the total of all amounts deducted under section 110.6 in computing the individual's taxable income for taxation years that ended before 1988 or begin after October 17, 2000,

(3) Subsections (1) and (2) apply to the 2000 and subsequent taxation years.

50. (1) The portion of subsection 116(5.2) of the Act before paragraph (a) is replaced by the following:

Certificates for dispositions

(5.2) If a non-resident person has, in respect of a disposition, or a proposed disposition, in a taxation year to a taxpayer of property (other than excluded property) that is a life insurance policy in Canada, a Canadian resource property, a property (other than capital property) that is real property situated in Canada, a timber resource property, depreciable property that is a taxable Canadian property, eligible capital property that is a taxable Canadian property or any interest in, or option in respect of, a property to which this subsection applies (whether or not that property exists),

(2) Paragraph 116(6)(f) of the Act is replaced by the following:

(f) property of an authorized foreign bank that carries on a Canadian banking business;

(3) Subsection (1) applies after December 23, 1998.

(4) Subsection (2) applies after June 27, 1999.

50.1 (1) The description of C in subparagraph (a)(ii) of the description of B in subsection 118(1) of the English version of the Act is replaced by the following:

C the greater of $606 and the income of the individual's spouse or common-law partner for the year or, where the individual and the individual's spouse or common-law partner are living separate and apart at the end of the year because of a breakdown of their marriage or common-law partnership, the spouse's or common-law partner's income for the year while married or in a common-law partnership and not so separated,

(2) Paragraph (a) of the definition "pension income" in subsection 118(7) of the Act is amended by adding the following after subparagraph (iii):

(iii.1) a payment (other than a payment described in subparagraph (i)) payable on a periodic basis under a money purchase provision (within the meaning assigned by subsection 147.1(1)) of a registered pension plan,

(3) Subsection (1) applies to the 2001 and subsequent taxation years except that, if a taxpayer and a person have jointly elected under section 144 of the Modernization of Benefits and Obligations Act, in respect of the 1998, 1999 or 2000 taxation years, subsection (1) applies to the taxpayer and the person in respect of the applicable taxation year and subsequent taxation years.

(4) Subsection (2) applies to the 2004 and subsequent taxation years.

51. (1) The definition "total ecological gifts" in subsection 118.1(1) of the Act is replaced by the following:

"total ecological gifts"
« total des dons de biens écosensibles »

"total ecological gifts", in respect of an individual for a taxation year, means the total of all amounts each of which is the eligible amount of a gift (other than a gift described in the definition "total cultural gifts") of land (including a covenant or an easement to which land is subject or, in the case of land in the Province of Quebec, a real servitude) if

(a) the fair market value of the gift is certified by the Minister of the Environment,

(b) the land is certified by that Minister, or by a person designated by that Minister, to be ecologically sensitive land, the conservation and protection of which is, in the opinion of that Minister or that person, important to the preservation of Canada's environmental heritage, and

(c) the gift was made by the individual in the year or in any of the five preceding taxation years to

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

(ii) a municipality in Canada,

(iii) a municipal or public body performing a function of government in Canada, or

(iv) a registered charity one of the main purposes of which is, in the opinion of that Minister, the conservation and protection of Canada's environmental heritage, and that is approved by that Minister or that person in respect of the gift,

to the extent that those amounts were not included in determining an amount that was deducted under this section in computing the individual's tax payable under this Part for a preceding taxation year;

(2) The portion of the definition "total charitable gifts" in subsection 118.1(1) of the Act before paragraph (a) is replaced by the following:

"total charitable gifts"
« total des dons de bienfaisance »

"total charitable gifts", in respect of an individual for a taxation year, means the total of all amounts each of which is the eligible amount of a gift (other than a gift described in the definition "total Crown gifts", "total cultural gifts" or "total ecological gifts") made by the individual in the year or in any of the five preceding taxation years (other than in a year for which a deduction under subsection 110(2) was claimed in computing the individual's taxable income) to

(3) Paragraph (d) of the definition "total charitable gifts" in subsection 118.1(1) of the Act is replaced by the following:

(d) a municipality in Canada,

(d.1) a municipal or public body performing a function of government in Canada,

(4) The portion of the definition "total Crown gifts" in subsection 118.1(1) of the Act before paragraph (a) is replaced by the following:

"total Crown gifts"
« total des dons à l'État »

"total Crown gifts", in respect of an individual for a taxation year, means the total of all amounts each of which is the eligible amount of a gift (other than a gift described in the definition "total cultural gifts" or "total ecological gifts") made by the individual in the year or in any of the five preceding taxation years to Her Majesty in right of Canada or of a province, to the extent that those amounts were

(5) The portion of the definition "total cultural gifts" in subsection 118.1(1) of the Act before paragraph (a) is replaced by the following:

"total cultural gifts"

« total des dons de biens culturels »

"total cultural gifts", in respect of an individual for a taxation year, means the total of all amounts each of which is the eligible amount of a gift

(6) The description of "B" in the formula in subparagraph (a)(iii) of the definition "total gifts" in subsection 118.1(1) is replaced by the following:

B is the total of all amounts, each of which is that proportion of the individual's taxable capital gain for the taxation year in respect of a gift made by the individual in the taxation year (in respect of which gift an eligible amount is included in the individual's total charitable gifts for the taxation year) that the eligible amount of the gift is of the individual's proceeds of disposition in respect of the gift,

(7) The portion of subsection 118.1(2) of the Act before paragraph (a) is replaced by the following:

Proof of gift

(2) An eligible amount of a gift shall not be included in the total charitable gifts, total Crown gifts, total cultural gifts or total ecological gifts of an individual unless the making of the gift is evidenced by filing with the Minister

(8) Subsection 118.1(6) of the Act is replaced by the following:

Where subsection (6) applies

(5.4) Subsection (6) applies in circumstances where

(a) an individual

(i) makes a gift (by the individual's will or otherwise) at any time of capital property to a donee described in the definition "total charitable gifts", "total Crown gifts" or "total ecological gifts" in subsection (1), or

(ii) who is non-resident, makes a gift (by the individual's will or otherwise) at any time of real property situated in Canada to a prescribed donee who provides an undertaking, in a form satisfactory to the Minister, to the effect that the property will be held for use in the public interest; and

(b) the fair market value of the property otherwise determined at that time exceeds

(i) in the case of depreciable property of a prescribed class, the lesser of the undepreciated capital cost of that class at the end of the taxation year of the individual that includes that time (determined without reference to proceeds of disposition designated in respect of the property under subsection (6)), and the adjusted cost base to the individual of the property immediately before that time, and

(ii) in any other case, the adjusted cost base to the individual of the property immediately before that time.

Gifts of capital property

(6) If this subsection applies in respect of a gift by an individual of property, and the individual or the individual's legal representative designates an amount in respect of the gift in the individual's return of income under section 150 for the year in which the gift is made, the amount so designated is deemed to be the individual's proceeds of disposition of the property and, for the purpose of subsection 248(30), the fair market value of the gift, but the amount so designated may not exceed the fair market value of the property otherwise determined and may not be less than the greater of

(a) in the case of a gift made after December 20, 2002, the amount of the advantage, if any, in respect of the gift, and

(b) the amount determined under subparagraph (5.4)(b)(i) or (ii), as the case may be, in respect of the property.

(9) Paragraph 118.1(7)(b) of the French version of the Act is replaced by the following:

b

) le montant indiqué par le particulier ou par son représentant légal dans la déclaration de revenu du particulier produite conformément à l'article 150 pour l'année du don est réputé correspondre à la fois au produit de disposition de l'oeuvre d'art pour le particulier et, pour l'application du paragraphe 248(30), à la juste valeur marchande de l'oeuvre d'art; toutefois, il ne peut ni excéder la juste valeur marchande de l'oeuvre d'art, déterminée par ailleurs, ni être inférieur au plus élevé des montants suivants :

(i) le montant de l'avantage au titre du don,

(ii) le coût indiqué de l'oeuvre d'art pour le particulier.

(10) Paragraph 118.1(7)(d) of the English version of the Act is replaced by the following:

(d) the amount that the individual or the individual's legal representative designates in the individual's return of income under section 150 for the year in which the gift is made is deemed to be the individual's proceeds of disposition of the work of art and, for the purpose of subsection 248(30), the fair market value of the work of art, but the amount so designated may not exceed the fair market value otherwise determined of the work of art and may not be less than the greater of

(i) the amount of the advantage, if any, in respect of the gift, and,

(ii) the cost amount to the individual of the work of art.

(11) Paragraph 118.1(7.1)(b) of the French version of the Act is replaced by the following:

b

) le particulier est réputé avoir reçu, au moment donné pour l'oeuvre d'art, un produit de disposition égal au coût indiqué de l'oeuvre d'art pour lui à ce moment ou, s'il est plus élevé, au montant de l'avantage au titre du don.

(12) Paragraph 118.1(7.1)(d) of the English version of the Act is replaced by the following:

(d) the individual is deemed to have received at the particular time proceeds of disposition in respect of the work of art equal to the greater of its cost amount to the individual at that time and the amount of the advantage, if any, in respect of the gift.

(13) Subsection 118.1(8) of the Act is replaced by the following:

Gifts made by partnership

(8) If at the end of a fiscal period of a partnership an individual is a member of the partnership, the individual's share of any amount that would, if the partnership were a person, be the eligible amount of a gift made by the partnership to any donee is, for the purpose of this section, deemed to be the eligible amount of a gift made to that donee by the individual in the individual's taxation year in which the fiscal period of the partnership ends.

(14) Paragraphs 118.1(13)(b) and (c) of the Act are replaced by the following:

(b) if the security ceases to be a non-qualifying security of the individual at a subsequent time that is within 60 months after the particular time and the donee has not disposed of the security at or before the subsequent time, the individual is deemed to have made a gift to the donee of property at the subsequent time and the fair market value of that property is deemed to be the lesser of the fair market value of the security at the subsequent time and the fair market value of the security at the particular time that would, if this Act were read without reference to this subsection, have been included in calculating the individual's total charitable gifts or total Crown gifts for a taxation year;

(c) if the security is disposed of by the donee within 60 months after the particular time and paragraph (b) does not apply to the security, the individual is deemed to have made a gift to the donee of property at the time of the disposition and the fair market value of that property is deemed to be the lesser of the fair market value of any consideration (other than a non-qualifying security of the individual or a property that would be a non-qualifying security of the individual if the individual were alive at that time) received by the donee for the disposition and the fair market value of the security at the particular time that would, if this Act were read without reference to this subsection, have been included in calculating the individual's total charitable gifts or total Crown gifts for a taxation year; and

(15) Subsections (1) and (2) and (4) to (7) and (9) to (14) apply to gifts made after December 20, 2002. In addition, for gifts made after May 8, 2000 but on or before December 20, 2002, paragraph (a) of the definition "total ecological gifts" in subsection 118.1(1) of the Act is to be read as follows:

(a) Her Majesty in right of Canada or a province, a municipality in Canada or a municipal or public body performing a function of government in Canada, or

(16) Subsection (3) applies to gifts made after May 8, 2000.

(17) Subsection (8) applies to gifts made after 1999 except that, for gifts made after 1999 and on or before December 20, 2002, the expression "subsection 248(30)" in subsection 118.1(6) of the Act, as enacted by subsection (8), shall be read as "subsection (1)".

52. (1) The description of B in subsection 118.2(1) of the Act is replaced by the following:

B is the total of the individual's medical expenses

(a) that are evidenced by receipts filed with the Minister,

(b) that were not included in determining an amount under this subsection or subsection 122.51(2) for a preceding taxation year, and

(c) that were paid by the individual or the individual's legal representative within any period of 12 months that ends in the year or, if those expenses were in respect of a person (including the individual) who died in the year, within any period of 24 months that includes the day of the person's death;

(2) Subparagraph 118.2(2)(c)(i) of the Act is replaced by the following:

(i) the patient is, and has been certified in writing by a medical practitioner to be, a person who, by reason of mental or physical infirmity, is and is likely to be for a long-continued period of indefinite duration dependent on others for the patient's personal needs and care and who, as a result, requires a full-time attendant,

(3) Paragraphs 118.2(2)(d) and (e) of the Act are replaced by the following:

(d) for the full-time care in a nursing home of the patient, who has been certified in writing by a medical practitioner to be a person who, by reason of lack of normal mental capacity, is and in the foreseeable future will continue to be dependent on others for the patient's personal needs and care;

(e) for the care, or the care and training, at a school, an institution or another place of the patient, who has been certified in writing by an appropriately qualified person to be a person who, by reason of a physical or mental handicap, requires the equipment, facilities or personnel specially provided by that school, institution or other place for the care, or the care and training, of individuals suffering from the handicap suffered by the patient;

(4) Subparagraph 118.2(2)(g)(ii) of the Act is replaced by the following:

(ii) one individual who accompanied the patient, where the patient was, and has been certified in writing by a medical practitioner to be, incapable of travelling without the assistance of an attendant

(5) Paragraph 118.2(2)(h) of the Act is replaced by the following:

(h) for reasonable travel expenses (other than expenses described in paragraph (g)) incurred in respect of the patient and, where the patient was, and has been certified in writing by a medical practitioner to be, incapable of travelling without the assistance of an attendant, in respect of one individual who accompanied the patient, to obtain medical services in a place that is not less than 80 kilometres from the locality where the patient dwells if the circumstances described in subparagraphs (g)(iii) to (v) apply;

(6) The portion of paragraph 118.2(2)(l.1) of the French version of the Act before subparagraph (i) is replaced by the following:

l

.1) au nom du particulier, de son époux ou conjoint de fait ou d'une personne à charge visée à l'alinéa a), qui doit subir une transplantation de la moelle osseuse ou d'un organe :

(7) Subsection (1) applies to the 2001 and subsequent taxation years.

(8) Subsections (2) to (5) apply to certifications made after December 20, 2002.

53. (1) Paragraph 118.3(2)(a) of the French version of the Act is replaced by the following:

a

) d'une part, le particulier demande pour l'année, pour cette personne, une déduction prévue au paragraphe 118(1), soit par application de l'alinéa 118(1)b), soit, si la personne est le père, la mère, le grand-père, la grand-mère, un enfant, un petit-enfant, le frère, la soeur, la tante, l'oncle, le neveu ou la nièce du particulier ou de son époux ou conjoint de fait, par application des alinéas 118(1)c.1) ou d), ou aurait pu demander une telle déduction pour l'année si cette personne n'avait eu aucun revenu pour l'année et avait atteint l'âge de 18 ans avant la fin de l'année et, dans le cas de la déduction prévue à l'alinéa 118(1)b), si le particulier n'avait pas été marié ou n'avait pas vécu en union de fait;

(2) Subsection (1) applies to the 2001 and subsequent taxation years except that, if a taxpayer and a person have jointly elected under section 144 of the Modernization of Benefits and Obligations Act, in respect of the 1998, 1999 or 2000 taxation years, subsection (1) applies to the taxpayer and the person in respect of the applicable taxation year and subsequent taxation years

.

54. Subparagraph 118.5(1)(a)(iii) of the Act is replaced by the following:

(iii) are paid on behalf of, or reimbursed to, the individual by the individual's employer and the amount paid or reimbursed is not included in the individual's income,

55. (1) Subparagraph (a)(i) of the definition "designated educational institution" in subsection 118.6(1) of the Act is replaced by the following:

(i) a university, college or other educational institution designated by the Lieutenant Governor in Council of a province as a specified educational institution under the Canada Student Loans Act, designated by an appropriate authority under the Canada Student Financial Assistance Act, or designated by the Minister of Education of the Province of Quebec for the purposes of An Act respecting financial assistance for education expenses, R.S.Q, c. A-13.3, or

(2) Subparagraph (a)(ii) of the definition "qualifying educational program" in subsection 118.6(1) of the Act is replaced by the following:

(ii) a benefit, if any, received by the student by reason of a loan made to the student in accordance with the requirements of the Canada Student Loans Act or An Act respecting financial assistance for education expenses, R.S.Q., c. A-13.3, or by reason of financial assistance given to the student in accordance with the requirements of the Canada Student Financial Assistance Act, or

(3) Paragraph 118.6(3)(b) of the Act is amended by adding the following after subparagraph (i):

(i.1) a speech impairment, by a medical doctor or a speech-language pathologist,

(4) Subsections (1) and (2) apply to the 1998 and subsequent taxation years.

(5) Subsection (3) applies to certifications made after October 17, 2000.

56. (1) The description of C in subsection 118.61(1) of the Act is replaced by the following:

C is the lesser of the value of B and the amount that would be the individual's tax payable under this Part for the year if no amount were deductible under this Division (other than an amount deductible under this section and any of sections 118, 118.3 and 118.7);

(2) Paragraph 118.61(2)(b) of the Act is replaced by the following:

(b) the amount that would be the individual's tax payable under this Part for the year if no amount were deductible under this Division (other than an amount deductible under this section and any of sections 118, 118.3 and 118.7).

(3) Subsections (1) and (2) apply to the 2002 and subsequent taxation years.

57. (1) Paragraph 120.2(3)(b) of the Act is replaced by the following:

(b) the amount that, if this Act were read without reference to section 120, would be the individual's tax payable under this Part for the year if the individual were not entitled to any deduction under any of sections 126, 127 and 127.4, and

(2) Subsection (1) applies to the 2000 and subsequent taxation years.

58. (1) The portion of paragraph 120.31(3)(b) of the Act before subparagraph (i) is replaced by the following:

(b) if the eligible taxation year ended before the taxation year preceding the year of receipt, an amount equal to the amount that would be calculated as interest payable on the amount, if any, by which the amount determined under paragraph (a) in respect of the eligible taxation year exceeds the taxpayer's tax payable under this Part for that year, if the amount that would be calculated as interest payable on that excess were calculated

(2) Subsection (1) applies to the 1995 and subsequent taxation years.

59. (1) The portion of subparagraph (b)(ii) of the definition "split income" in subsection 120.4(1) of the English version of the Act before clause (A) is replaced by the following:

(ii) can reasonably be considered to be income derived from the provision of property or services by a partnership or trust to, or in support of, a business carried on by

(2) The portion of clause (c)(ii)(C) of the definition "split income" in subsection 120.4(1) of the English version of the Act before subclause (I) is replaced by the following:

(C) to be income derived from the provision of property or services by a partnership or trust to, or in support of, a business carried on by

(3) Subsections (1) and (2) apply in computing split income of a specified individual for taxation years that begin after December 20, 2002, other than in computing an amount included in that income that is from a trust or partnership for a taxation year or fiscal period of the trust or partnership that began before December 21, 2002.

60. (1) The portion of subsection 122.3(1) of the Act before paragraph (a) is replaced by the following:

Overseas employment tax credit

122.3

(1) If an individual is resident in Canada in a taxation year and, throughout any period of more than six consecutive months that began before the end of the year and included any part of the year (in this section referred to as the "qualifying period")

(2) Subsection 122.3(1.1) of the Act is replaced by the following:

Excluded income

(1.1) No amount may be included under paragraph (1)(d) in respect of an individual's income for a taxation year from the individual's employment by an employer

(a) if

(i) the employer carries on a business of providing services and does not employ in the business throughout the year more than five full-time employees,

(ii) the individual

(A) does not deal at arm's length with the employer, or is a specified shareholder of the employer, or

(B) where the employer is a partnership, does not deal at arm's length with a member of the partnership, or is a specified shareholder of a member of the partnership, and

(iii) but for the existence of the employer, the individual would reasonably be regarded as being an employee of a person or partnership that is not a specified employer; or

(b) if at any time in that portion of the qualifying period that is in the taxation year

(i) the employer provides the services of the individual to a corporation, partnership or trust with which the employer does not deal at arm's length, and

(ii) the fair market value of all the issued shares of the capital stock of the corporation or of all interests in the partnership or trust, as the case may be, that are held by persons who are resident in Canada is less than 10% of the fair market value of all those shares or interests.

(3) Subsections (1) and (2) apply to taxation years that begin after this Act is assented to.

61. (1) Subparagraph 125(1)(b)(ii) of the Act is replaced by the following:

(ii) 3 times the total of the amounts that would be deductible under subsection 126(2) from the tax for the year otherwise payable under this Part by it if those amounts were determined without reference to section 123.4, and

(2) The description of B in the formula in subsection 125(5.1) of the Act is replaced by the following:

B is

(a) if, in both the particular taxation year and the preceding taxation year, the corporation is not associated with any corporation, the amount that would, but for subsections 181.1(2) and (4), be the corporation's tax payable under Part I.3 for the preceding taxation year,

(b) if the corporation is not associated with any corporation in the particular taxation year but was associated with one or more corporations in the preceding taxation year, the amount that would, but for subsections 181.1(2) and (4), be the corporation's tax payable under Part I.3 for the particular taxation year,

(c) if, in the particular taxation year the corporation is associated with one or more particular corporations and in the preceding taxation year the corporation was associated with all of the particular corporations and no other corporation, the total of all amounts each of which would, but for subsections 181.1(2) and (4), be the tax payable under Part I.3 by the corporation, or by any of the particular corporations, for its last taxation year that ended in the preceding calendar year, and

(d) if, in the particular taxation year the corporation is associated with one or more particular corporations and in the preceding taxation year the corporation was not associated with all of the particular corporations or was associated with another corporation, the amount determined by the formula

0.225% of (D-E)

where

D is the total of all amounts each of which is the taxable capital employed in Canada (within the meaning assigned by subsection 181.2(1) or 181.3(1) or section 181.4, as the case may be) of the corporation or of any of the particular corporations for its last taxation year that ended in the preceding calendar year, and

E is $10 million.

(3) Subsection (1) applies to the 2003 and subsequent taxation years.

(4) Subsection (2) applies to taxation years that begin after December 20, 2002.

62. (1) Subparagraph 125.1(1)(b)(ii) of the Act is replaced by the following:

(ii) 3 times the total of the amounts that would be deductible under subsection 126(2) from the tax for the year otherwise payable under this Part by the corporation if those amounts were determined without reference to section 123.4, and

(2) The definition « bénéfices de fabrication et de transformation au Canada » in subsection 125.1(3) of the French version of the Act is replaced by the following:

"bénéfices de fabrication et de transformation au Canada"
« Canadian manufacturing and processing profits »

« bénéfices de fabrication et de transformation au Canada » En ce qui concerne une société pour une année d'imposition, la partie du total des montants représentant chacun le revenu que la société a tiré pour l'année d'une entreprise exploitée activement au Canada, déterminé en vertu des règles établies à cette fin par règlement pris sur recommandation du ministre des Finances, qui doit s'appliquer à la fabrication ou à la transformation au Canada de marchandises destinées à la vente ou à la location.

(3) Subparagraphs (l)(i) and (ii) of the definition « fabrication ou transformation » in subsection 125.1(3) of the French version of the Act are replaced by the following:

(i) de la vente ou de la location de marchandises qu'elle a fabriquées ou transformées au Canada,

(ii) de la fabrication ou de la transformation au Canada de marchandises destinées à la vente ou à la location, sauf des marchandises qu'elle devait vendre ou louer elle-même.

(4) Subsection (1) applies to the 2003 and subsequent taxation years.

- Table of Contents - Next -